Amended Annual Report for the year ended 31 December 2011 (17-A)
Amended Annual Report for the year ended 31 December 2011 (17-A) Amended Annual Report for the year ended 31 December 2011 (17-A)
- Page 2: 11111111111111111111I111111111I1111
- Page 5 and 6: INFORMATION ON INDEPENDENT ACCOUNTA
- Page 7 and 8: COVER SHEET A 2 0 0 1 0 1 6 3 1 SEC
- Page 9 and 10: SECURITIES AND EXCHANGE COMMISSION
- Page 11 and 12: TABLE OF CONTENTS PART I BUSINESS A
- Page 13 and 14: I-Remit currently operates in 24 co
- Page 15 and 16: On June 29, 2007, the Board and the
- Page 17 and 18: The Company’s general expansion p
- Page 19 and 20: Principal Products and Services Thr
- Page 21 and 22: I-Remit derives its income from rem
- Page 23 and 24: I-Remit has the widest coverage in
- Page 25 and 26: Domestic Money Transfer Agencies. T
- Page 27 and 28: Dependence Upon a Single Customer o
- Page 29 and 30: Principal Terms and Expiration Date
- Page 31 and 32: I-Remit has licenses to the followi
- Page 33 and 34: Employees The Company has 369 emplo
- Page 35 and 36: Market risks, consisting of foreign
- Page 37 and 38: The other risks identified are: reg
- Page 39 and 40: The delivery of financial services
- Page 41 and 42: Current Rent per Month Contract Per
- Page 43 and 44: PART II. OPERATIONAL AND FINANCIAL
- Page 45 and 46: There were eighteen (18) common sha
- Page 47 and 48: (4) Recent Sales of Unregistered or
- Page 49 and 50: (2) Management’s Discussion and A
- Page 51 and 52: PHP 83.4 million in 2010 to PHP 114
11111111111111111111I111111111I1111111111111111111111111I1111111111111I11111111111111<br />
106062012001542<br />
Barcode Page<br />
SECURITIES AND EXCHANGE COMMISSION<br />
SEC Building, EDSA, Greenhlls,Mandaluyong City, Metro Manila,Philippines<br />
TeI:(632) 726-09<strong>31</strong> to 39 Fax:(632) 725-5293 Email: mis@sec.gov.ph<br />
The following document has been received:<br />
Receiving Officer/Encoder : Dharril Curaiies<br />
Receiving Branch : SEC Head Office<br />
Receipt Date and lime: June 06,201204:39:18 PM<br />
Received From : Head Office<br />
Company Representative<br />
Doc Source<br />
Company In<strong>for</strong>mation<br />
SEC Registration No.<br />
Company Name<br />
Industry Classification<br />
Company Type<br />
Document In<strong>for</strong>mation<br />
Document ID<br />
Document Type<br />
Document Code<br />
Period Covered<br />
No. of Days Late<br />
Department<br />
Remarks<br />
A2001016<strong>31</strong><br />
I-REMIT INC.<br />
Stock Corporation<br />
106062012001542<br />
<strong>17</strong> -A (FORM 11-A:AANU)<br />
<strong>17</strong>-A<br />
<strong>December</strong> <strong>31</strong>, <strong>2011</strong><br />
o CFD<br />
Amendment
Registrant I-REMIT, INC.<br />
SEC Form <strong>17</strong>-A filed on April 13, 2012<br />
General Instruction: A comment of “Not Disclosed” or “Not complied with” or “Incomplete” is indicated herein to emphasize or<br />
highlight <strong>the</strong> in<strong>for</strong>mation not found in <strong>the</strong> report. If <strong>the</strong> required in<strong>for</strong>mation is not applicable, please state/explain in a separate<br />
sheet.<br />
SUMMARY OF COMMENTS<br />
Part I – BUSINESS AND GENERAL INFORMATION<br />
(2) BUSINESS OF ISSUER<br />
(a) Business of Issuer: This section shall describe in detail what<br />
business <strong>the</strong> registrant does and proposes to do, including what<br />
products or goods are or will be produced or services that are or will be<br />
rendered. Briefly describe <strong>the</strong> business of registrant and its significant<br />
subsidiaries and include, to <strong>the</strong> extent material to an understanding of<br />
<strong>the</strong> registrant.<br />
Status of any publicly-announced new product or service (e.g. whe<strong>the</strong>r<br />
in <strong>the</strong> planning stage, whe<strong>the</strong>r prototypes exist), <strong>the</strong> degree to which<br />
product design has progressed or whe<strong>the</strong>r fur<strong>the</strong>r engineering is<br />
necessary. Indicate if completion of development of <strong>the</strong> product would<br />
require a material amount of <strong>the</strong> resources of <strong>the</strong> registrant and <strong>the</strong><br />
estimated amount;<br />
ITEM 2. PROPERTIES<br />
(Part I, Paragraph (B) of Annex “C”)<br />
Give <strong>the</strong> location and describe <strong>the</strong> condition of <strong>the</strong> principal properties<br />
(such as real estate, plant and equipment, mines, patents, etc.) that <strong>the</strong><br />
registrant and its subsidiaries own. Disclose any mortgage, lien or<br />
encumbrance over <strong>the</strong> property and describe <strong>the</strong> limitations on<br />
ownership or usage over <strong>the</strong> same. Indicate also what properties it<br />
leases, <strong>the</strong> amount of lease payments, expiration dates and <strong>the</strong> terms<br />
of renewal options. Indicate what properties <strong>the</strong> registrant intends to<br />
acquire in <strong>the</strong> next twelve (12) months, <strong>the</strong> cost of such acquisitions,<br />
<strong>the</strong> mode of acquisition (i.e. by purchase, lease or o<strong>the</strong>rwise) and <strong>the</strong><br />
sources of financing it expects to use:<br />
Page<br />
No.<br />
Part II – OPERATIONAL AND FINANCIAL INFORMATION<br />
ITEM 6. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS<br />
(Part III, Paragraph (A) of ”Annex C, as am<strong>ended</strong>”)<br />
(vi) Any significant elements of income or loss that did not arise from<br />
<strong>the</strong> registrant’s continuing operations;<br />
(vii) The causes <strong>for</strong> any material change from period to period which<br />
shall include vertical and horizontal analyses of any material item;<br />
The term “material” in this section shall refer to changes or items<br />
amounting to five percent (5%) of <strong>the</strong> relevant accounts or such lower<br />
amount, which <strong>the</strong> registrant deems material on <strong>the</strong> basis of o<strong>the</strong>r<br />
factors.<br />
Page 1 of 3<br />
13<br />
30<br />
Remarks<br />
Incomplete. Comply<br />
with <strong>the</strong> highlighted<br />
portion.<br />
Incomplete. Comply<br />
with <strong>the</strong> highlighted<br />
portion.<br />
Disclose, if any<br />
Disclose, if any<br />
I-Remit’s Response<br />
There are no publiclyannounced<br />
new<br />
products or services<br />
which completion of<br />
development would<br />
require a material<br />
amount of <strong>the</strong><br />
resources of I-Remit.<br />
Please see page 13<br />
of <strong>the</strong> <strong>Am<strong>ended</strong></strong> SEC<br />
Form <strong>17</strong>-A.<br />
I-Remit included <strong>the</strong><br />
disclosure regarding<br />
<strong>the</strong> purchase of<br />
significant equipment<br />
on page 53 of <strong>the</strong><br />
SEC Form <strong>17</strong>-A as<br />
originally submitted.<br />
A similar disclosure<br />
with respect to all<br />
types of properties is<br />
already included on<br />
page 30 of <strong>the</strong><br />
<strong>Am<strong>ended</strong></strong> SEC Form<br />
<strong>17</strong>-A.<br />
A disclosure on<br />
discontinued<br />
operations similar to<br />
Note 28 (pages 54<br />
and 55) of <strong>the</strong> <strong>2011</strong><br />
Consolidated<br />
Financial Statements<br />
is already included on<br />
page 39 of <strong>the</strong><br />
<strong>Am<strong>ended</strong></strong> SEC Form<br />
<strong>17</strong>-A.<br />
Done. Please see<br />
pages 38, 39 and 40.
INFORMATION ON INDEPENDENT ACCOUNTANT<br />
EXTERNAL AUDIT FEES (MC No. 14 Series of 2004)<br />
2. O<strong>the</strong>r assurance and related services by <strong>the</strong> external auditor that<br />
are reasonably related to <strong>the</strong> per<strong>for</strong>mance of <strong>the</strong> audit or review of <strong>the</strong><br />
registrant’s financial statements. The registrant shall describe <strong>the</strong><br />
nature of <strong>the</strong> services comprising <strong>the</strong> fees disclosed under this<br />
category.<br />
(b) Under <strong>the</strong> caption “Tax Fees”, <strong>the</strong> aggregate fees billed in each of<br />
<strong>the</strong> last two (2) fiscal <strong>year</strong>s <strong>for</strong> professional services rendered by <strong>the</strong><br />
external auditor <strong>for</strong> tax accounting, compliance, advice, planning and<br />
any o<strong>the</strong>r <strong>for</strong>m of tax services. Registrant shall describe <strong>the</strong> nature of<br />
<strong>the</strong> services comprising <strong>the</strong> fees disclosed under this category.<br />
(c) Under <strong>the</strong> caption “All O<strong>the</strong>r Fees”, <strong>the</strong> aggregate fees billed in<br />
each of <strong>the</strong> last two (2) fiscal <strong>year</strong>s <strong>for</strong> products and services provided<br />
by <strong>the</strong> external auditor, o<strong>the</strong>r than <strong>the</strong> services reported under items (a)<br />
& (b) above. Registrant shall describe <strong>the</strong> nature of <strong>the</strong> services<br />
comprising <strong>the</strong> fees disclosed under this category.<br />
Part III – CONTROL AND COMPENSATION INFORMATION<br />
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED<br />
TRANSACTIONS<br />
(Part IV, Paragraph (D) of “Annex C, as am<strong>ended</strong>”)<br />
(1) In addition to <strong>the</strong> disclosures in <strong>the</strong> financial statements which are<br />
required under SFAS/IAS No. 24 on <strong>the</strong> Related Party Disclosures,<br />
registrant shall describe under this item <strong>the</strong> elements of <strong>the</strong><br />
transactions that are necessary <strong>for</strong> an understanding of <strong>the</strong><br />
transactions’ business purpose and economic substance, <strong>the</strong>ir effect on<br />
<strong>the</strong> financial statements, and <strong>the</strong> special risks or contingencies arising<br />
from <strong>the</strong>se transactions. The Commission considers <strong>the</strong> discussion of<br />
<strong>the</strong> following to be necessary.<br />
(a) <strong>the</strong> business purpose of <strong>the</strong> arrangement;<br />
(b) identification of <strong>the</strong> related parties transaction business with <strong>the</strong><br />
registrant and nature of <strong>the</strong> relationship;<br />
(c) how transaction prices were determined by parties;<br />
(d) if disclosures represent that transactions have been evaluated <strong>for</strong><br />
fairness, a description of how <strong>the</strong> evaluation was made ; and<br />
(e) any ongoing contractual or o<strong>the</strong>r commitments as a result of <strong>the</strong><br />
arrangement.<br />
Page 2 of 3<br />
72<br />
Disclose, if any<br />
Discussion under this<br />
item should be<br />
correlated with <strong>the</strong><br />
Notes to <strong>the</strong> <strong>2011</strong><br />
Consolidated<br />
Financial Statements<br />
The external auditor<br />
did not render<br />
professional services<br />
<strong>for</strong> tax accounting,<br />
compliance, advice,<br />
planning and any<br />
o<strong>the</strong>r <strong>for</strong>m of tax<br />
services. This<br />
disclosure is already<br />
included on page 54<br />
of <strong>the</strong> <strong>Am<strong>ended</strong></strong> SEC<br />
Form <strong>17</strong>-A.<br />
The external auditor<br />
did not provide<br />
products and services<br />
o<strong>the</strong>r than <strong>the</strong><br />
services reported<br />
under items (a) & (b).<br />
This disclosure is<br />
already included on<br />
page 54 of <strong>the</strong><br />
<strong>Am<strong>ended</strong></strong> SEC Form<br />
<strong>17</strong>-A. The<br />
Corporation did not<br />
pay any o<strong>the</strong>r fees<br />
except those in<br />
relation to <strong>the</strong><br />
services provided by<br />
<strong>the</strong> external auditor.<br />
Disclosures similar to<br />
Note 24 (pages 48 to<br />
50) of <strong>the</strong> <strong>2011</strong><br />
Consolidated<br />
Financial Statements<br />
are already included<br />
on pages 72 and 73<br />
of <strong>the</strong> <strong>Am<strong>ended</strong></strong> SEC<br />
Form <strong>17</strong>-A.
(2) The disclosure shall also include in<strong>for</strong>mation about parties that fall<br />
outside <strong>the</strong> definition “related parties” under SFAS/IAS No. 24, but with<br />
whom <strong>the</strong> registrant or its related parties have a relationship that<br />
enables <strong>the</strong> parties to negotiate terms of material transactions that may<br />
not be available from o<strong>the</strong>r, more clearly independent parties on an<br />
arm’s length basis. For example, an entity may be established and<br />
operated by individuals that were <strong>for</strong>mer senior management of, or<br />
have some o<strong>the</strong>r current or <strong>for</strong>mer relationship with, a registrant. The<br />
purpose of <strong>the</strong> entity may be to own assets used by <strong>the</strong> registrant or<br />
provide financing or services to <strong>the</strong> registrant. Although <strong>for</strong>mer<br />
management or persons with o<strong>the</strong>r relationships may not meet <strong>the</strong><br />
definition of a related party pursuant to SFAS/IAS No. 24, <strong>the</strong> <strong>for</strong>mer<br />
management positions may result in negotiation of terms that are more<br />
or less favorable that those available on an arm’s-length basis from<br />
clearly independent third parties that are material to <strong>the</strong> registrant’s<br />
financial position or financial per<strong>for</strong>mance.<br />
In some cases, investors may be unable to understand <strong>the</strong> registrant’s<br />
reported results of operations without clear explanation of <strong>the</strong>se<br />
arrangements and relationships. Items of similar nature may be<br />
disclosed in aggregate except when separate disclosure is necessary<br />
<strong>for</strong> an understanding of <strong>the</strong> effect of related party transaction on <strong>the</strong><br />
financial statements.<br />
Page 3 of 3<br />
Disclosures similar to<br />
Note 24 (pages 48 to<br />
50) of <strong>the</strong> <strong>2011</strong><br />
Consolidated<br />
Financial Statements<br />
are already included<br />
on pages 72 and 73<br />
of <strong>the</strong> <strong>Am<strong>ended</strong></strong> SEC<br />
Form <strong>17</strong>-A.
COVER SHEET<br />
A 2 0 0 1 0 1 6 3 1<br />
SEC Registration Number<br />
I - R E M I T , I N C . A N D S U B S I D I A R I E S<br />
(Company’s Full Name)<br />
2 6 / F D i s c o v e r y C e n t r e , 2 5 A D B A v e<br />
n u e , O r t i g a s C e n t e r , P a s i g C i t y<br />
(Business Address: No. Street City/Town/Province)<br />
Mr. HARRIS EDSEL D. JACILDO (02) 706 – 9999 Local 100/105/109<br />
(Contact Person) (Company Telephone Number)<br />
AMENDED<br />
1 2 3 1 1 7 - A 0 7<br />
Month Day (Form Type) Month Day<br />
(Fiscal Year) (<strong>Annual</strong> Meeting)<br />
(Secondary License Type, If Applicable)<br />
Dept. Requiring this Doc. <strong>Am<strong>ended</strong></strong> Articles Number/Section<br />
Total Amount of Borrowings<br />
Total No. of Stockholders Domestic Foreign<br />
To be accomplished by SEC Personnel concerned<br />
File Number LCU<br />
Document ID Cashier<br />
S T A M P S<br />
Remarks: Please use BLACK ink <strong>for</strong> scanning purposes.
I-REMIT, INC.<br />
AND SUBSIDIARIES<br />
(Company’s Full Name)<br />
26/F Discovery Centre, 25 ADB Avenue,<br />
Ortigas Center, Pasig City, 1605 Metro Manila<br />
(Company’s Address)<br />
(02) 706 – 9999 Local 100 / 105 / 109<br />
(Telephone Number)<br />
<strong>December</strong> <strong>31</strong><br />
(Fiscal Year Ending)<br />
(Month and Day)<br />
AMENDED<br />
SEC FORM <strong>17</strong>-A<br />
Form Type<br />
Amendment Designation (if applicable)<br />
<strong>December</strong> <strong>31</strong>, <strong>2011</strong><br />
Period Ended Date<br />
(Secondary License Type and File Number)<br />
SEC Number A2001016<strong>31</strong><br />
PSE Code<br />
File Number
SECURITIES AND EXCHANGE COMMISSION<br />
SEC FORM <strong>17</strong>-A, AS AMENDED<br />
ANNUAL REPORT PURSUANT TO SECTION <strong>17</strong><br />
OF THE SECURITIES REGULATION CODE AND SECTION 141<br />
OF THE CORPORATION CODE OF THE PHILIPPINES<br />
1. For <strong>the</strong> fiscal <strong>year</strong> <strong>ended</strong> <strong>December</strong> <strong>31</strong>, <strong>2011</strong> (AMENDED)<br />
2. Commission Identification No. A2001016<strong>31</strong> 3. BIR Tax Identification No. 210-407-466-000<br />
4. Exact name of registrant as specified in its charter I-REMIT, INC.<br />
5. Metro Manila, PHILIPPINES 6. (SEC Use Only)<br />
Province, Country or o<strong>the</strong>r jurisdiction of Industry Classification Code<br />
incorporation or organization<br />
7. 26/F Discovery Centre, 25 ADB Avenue, Ortigas Center, Pasig City, Metro Manila 1605<br />
Address of principal office Postal code<br />
8. (02) 706 – 9999 Local 100 / 105 / 109<br />
Issuer’s telephone number, including area code<br />
9. Not applicable<br />
Former name, <strong>for</strong>mer address, and <strong>for</strong>mer fiscal <strong>year</strong>, if changed since last report<br />
10. Securities registered pursuant to Sections 8 and 12 of <strong>the</strong> SRC, or Sec. 4 and 8 of <strong>the</strong> RSA<br />
Title Number of Shares of Common Stock<br />
Outstanding and Amount of Debt Outstanding<br />
Common Stock 602,852,800 shares (as of <strong>December</strong> <strong>31</strong>, <strong>2011</strong>)<br />
11. Are any or all of <strong>the</strong>se securities listed on a Stock Exchange?<br />
Yes [] No [ ]<br />
If yes, state <strong>the</strong> name of such stock exchange and <strong>the</strong> classes of securities listed <strong>the</strong>rein:<br />
The Philippine Stock Exchange, Inc.<br />
12. Check whe<strong>the</strong>r <strong>the</strong> issuer:<br />
(a) has filed all reports required to be filed by Section <strong>17</strong> of <strong>the</strong> SRC and SRC Rule <strong>17</strong>.1 <strong>the</strong>reunder or<br />
Section 11 of <strong>the</strong> RSA and RSA Rule 11(a)-1 <strong>the</strong>reunder, and Sections 26 and 141 of The Corporation<br />
Code of <strong>the</strong> Philippines during <strong>the</strong> preceding twelve (12) months (or <strong>for</strong> such shorter period that <strong>the</strong><br />
registrant was required to file such reports)<br />
Yes [] No [ ]<br />
(b) has been subject to such filing requirements <strong>for</strong> <strong>the</strong> past 90 days<br />
Yes [] No [ ]<br />
13. Aggregate market value of <strong>the</strong> voting stock held by non-affiliates of <strong>the</strong> registrant:<br />
PHP 1,476,989,360 (as of <strong>December</strong> <strong>31</strong>, <strong>2011</strong>, PHP 2.45 per share)
DOCUMENTS INCORPORATED BY REFERENCE<br />
Documents incorporated by reference in any part of this report:<br />
<strong>2011</strong> Audited Parent Company and Consolidated Financial Statements of<br />
I-Remit, Inc. and Subsidiaries<br />
(incorporated as reference <strong>for</strong> Items 1, 6, 7 and 8 of SEC Form <strong>17</strong>-A)
TABLE OF CONTENTS<br />
PART I BUSINESS AND GENERAL INFORMATION<br />
Item 1 Business 1<br />
Item 2 Properties 29<br />
Item 3 Legal Proceedings <strong>31</strong><br />
Item 4 Submission of Matters to a Vote of Security Holders <strong>31</strong><br />
PART II OPERATIONAL AND FINANCIAL INFORMATION<br />
Item 5 Market <strong>for</strong> Issuer’s Common Equity and Related Stockholder Matters 32<br />
Item 6 Management’s Discussion and Analysis or Plan of Operation 37<br />
Item 7 Financial Statements 54<br />
Item 8 Changes in and Disagreements with Accountants on Accounting and Financial<br />
Disclosure<br />
54<br />
PART III CONTROL AND COMPENSATION INFORMATION<br />
Item 9 Directors and Executive Officers of <strong>the</strong> Issuer 57<br />
Item 10 Executive Compensation 69<br />
Item 11 Security Ownership of Certain Beneficial Owners and Management 70<br />
Item 12 Certain Relationships and Related Party Transactions 72<br />
PART IV CORPORATE GOVERNANCE<br />
Item 13 Corporate Governance 74<br />
PART V EXHIBITS AND SCHEDULES<br />
Item 14 a. Exhibit 79<br />
b. <strong>Report</strong>s on SEC Form <strong>17</strong>-C 79<br />
SIGNATURES<br />
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES<br />
INDEX TO EXHIBIT
Item 1. Business<br />
(A) Description of Business<br />
(1) Business Development<br />
PART I. BUSINESS AND GENERAL INFORMATION<br />
I-Remit, Inc. (“I-Remit”, “Parent Company”, or “Company”) is a company in <strong>the</strong> Philippines<br />
engaged in <strong>the</strong> business of servicing <strong>the</strong> remittance needs of overseas Filipino workers<br />
(OFWs) and o<strong>the</strong>r migrant workers. The Parent Company was duly registered with <strong>the</strong><br />
Securities and Exchange Commission (SEC) on March 5, 2001 with SEC Registration No.<br />
A2001016<strong>31</strong>. It started commercial operations on November 11, 2001.<br />
The Parent Company and its subsidiaries (“Group”) are primarily engaged in <strong>the</strong> business of<br />
fund transfer and remittance services, from abroad into <strong>the</strong> Philippines or o<strong>the</strong>rwise, of any<br />
<strong>for</strong>m or kind of currencies or monies, ei<strong>the</strong>r by electronic, telegraphic, wire or any o<strong>the</strong>r mode<br />
of transfer; as well as in undertaking <strong>the</strong> delivery of such funds or monies, both in <strong>the</strong> domestic<br />
and international market, by providing courier or freight <strong>for</strong>warding services; and conducting<br />
<strong>for</strong>eign exchange transactions as may be provided by law and o<strong>the</strong>r allied activities relative<br />
<strong>the</strong>reto; provided that <strong>the</strong> <strong>for</strong>eign exchange transactions of <strong>the</strong> Parent Company shall be<br />
limited to ordinary money changing activity or “spot” <strong>for</strong>eign currency transaction; provided<br />
fur<strong>the</strong>r that <strong>the</strong> Parent Company shall not engage in <strong>the</strong> business of being a commodity future<br />
broker or o<strong>the</strong>rwise shall engage in financial derivatives activities such as <strong>for</strong>eign currency<br />
swaps, <strong>for</strong>wards, options or o<strong>the</strong>r similar instruments as defined under Bangko Sentral ng<br />
Pilipinas (BSP) Circular No. 102, Series of 1995.<br />
The Parent Company is duly registered as a Remittance Agent (RA) subject to applicable<br />
provisions of law and BSP rules and regulations, as well as <strong>the</strong> provisions of <strong>the</strong> Anti-Money<br />
Laundering Act of 2001 (Republic Act. No. 9160, as am<strong>ended</strong> by Republic Act. No. 9194) and<br />
<strong>the</strong> implementing rules and regulations, with Certificate No. FX-2005-000364 issued by <strong>the</strong><br />
BSP on May 10, 2005.<br />
The Parent Company’s list of services also includes auxiliary services such as liaising and<br />
coordinating with, and accepting and distributing membership contributions, loan amortization<br />
payments, and premium payments to various government and non-government entities such<br />
as <strong>the</strong> Social Security System (SSS), <strong>the</strong> Home Development Mutual Fund (HDMF or Pag-<br />
IBIG), <strong>the</strong> Philippine Retirement Authority (PRA) and <strong>the</strong> Philippine Health Insurance<br />
Corporation (PhilHealth), as well as various insurance, pre-need, and real estate companies.<br />
The Parent Company is to exist <strong>for</strong> fifty (50) <strong>year</strong>s from and after <strong>the</strong> date of incorporation.<br />
The registered office and principal place of business of <strong>the</strong> Parent Company is 26/F Discovery<br />
Centre, ADB Avenue, Ortigas Center, Pasig City, 1605 Metro Manila, Philippines.<br />
The Company also operates in various countries through subsidiaries, associates, or affiliates,<br />
and via tie-ups and strategic partnerships. Tie-up and partnership arrangements are utilized<br />
when <strong>the</strong> potential volume of remittances do not justify <strong>the</strong> investment of equity.<br />
1
I-Remit currently operates in 24 countries and territories worldwide.<br />
Lucky Star Management Limited, <strong>the</strong> first international office of I-Remit, opened in Hong Kong<br />
in May 2001. In <strong>the</strong> same <strong>year</strong>, I-Remit started its aggressive global expansion by <strong>for</strong>ging<br />
alliances in o<strong>the</strong>r countries with high concentrations of overseas Filipino workers (OFWs) and<br />
Filipino migrants. In July 2001, I-Remit <strong>for</strong>ged a tie-up with its Canadian partner International<br />
Remittance (Canada) Limited (IRCL), and established operations in three (3) major provinces<br />
of Canada: British Columbia, Alberta, and Ontario. In 2005, I-Remit acquired 65% ownership<br />
in <strong>the</strong> said company, and which was subsequently increased to 95% in 2006, and fur<strong>the</strong>r<br />
consolidated to 100% by <strong>the</strong> end of June 2007. Also, in July 2001, I-Remit entered into its first<br />
European partnership in <strong>the</strong> United Kingdom (UK), and eventually started <strong>the</strong> operation of its<br />
subsidiary, IRemit Global Remittance Limited, in January 2003. It was sold by <strong>the</strong> Company in<br />
2004 and was repurchased in June 2007. iRemit’s expansion in Europe is in pursuit of <strong>the</strong><br />
authorization obtained from <strong>the</strong> Financial Services Authority of <strong>the</strong> United Kingdom by its<br />
wholly-owned subsidiary, IRemit Global Remittance Limited to operate as a payment institution<br />
in <strong>the</strong> European Economic Area (EEA). Under <strong>the</strong> European Payment Services Directive,<br />
IRemit Global Remittance Limited may avail of its “passporting” rights and carry on its business<br />
activities in o<strong>the</strong>r EEA states by establishing branches, engaging agents, or providing crossborder<br />
services. I-Remit started its second Asian operation in Singapore through IRemit<br />
Singapore Pte Ltd, which commenced its commercial operations in October 2001. I-Remit<br />
acquired 49% ownership in <strong>the</strong> said company in June 2007. I-Remit fur<strong>the</strong>r expanded in Asia<br />
through a tie-up in Taiwan, Hwa Kung Hong & Co., Ltd., which became operational in 2001. I-<br />
Remit acquired 49% ownership in <strong>the</strong> said tie-up in July 2009. I-Remit <strong>for</strong>ged a tie-up in<br />
Australia that began its operations in September 2002. I-Remit Australia Pty Ltd (“IAPL”) was<br />
incorporated in <strong>December</strong> 2002 and in June 2007 ownership has been consolidated to 100%.<br />
Worldwide Exchange Pty Ltd (“WEPL”) in Australia started commercial operations in<br />
September 2003. The Company acquired 20% ownership of WEPL in June 2007 and<br />
additional 15% ownership in September 2007. On March <strong>31</strong>, <strong>2011</strong>, I-Remit acquired <strong>the</strong> 35%<br />
interest of minority shareholders in WEPL. With its 30% indirect voting interest through IAPL, I-<br />
Remit effectively owns 100.00% of WEPL. On July 25, 2007, <strong>the</strong> Financial Monetary Authority<br />
of Austria granted <strong>the</strong> remittance license of IREMIT EUROPE Remittance Consulting AG in<br />
which <strong>the</strong> Company has 74.9% equity interest. It started commercial operations on September<br />
16, 2007. In November 2009, IREMIT EUROPE Remittance Consulting AG was registered by<br />
Banca D’Italia Eurosistema in <strong>the</strong> general list of financial intermediaries as a provider of money<br />
transfer services under Article 106 of <strong>the</strong> legislative decree 385/1993 of Italy’s Banking Law.<br />
On May 5, <strong>2011</strong>, <strong>the</strong> Parent Company acquired <strong>the</strong> 25.10% ownership interest in IREMIT<br />
EUROPE Remittance Consulting AG from <strong>the</strong> noncontrolling stockholder. The acquisition<br />
increased <strong>the</strong> Parent Company’s ownership interest in IREMIT EUROPE Remittance<br />
Consulting AG to 100.0% from 74.9%. Consequently, on October 11, <strong>2011</strong>, IREMIT EUROPE<br />
Remittance Consulting AG changed its legal name to IREMIT Remittance<br />
Consulting GmbH and changed its legal status from a stock company to a limited<br />
liability company. It also am<strong>ended</strong> its Articles of Incorporation to include management<br />
consultancy in its business activities. I-Remit New Zealand Limited, a wholly-owned subsidiary<br />
was incorporated and its registration was approved by <strong>the</strong> New Zealand Ministry of Economic<br />
Development on September 11, 2007. It started commercial operations on February 13, 2008.<br />
On November 28, 2008, I-Remit’s Board of Directors (“Board”) ratified <strong>the</strong> acquisition of <strong>the</strong><br />
100.00% ownership interest in Power Star Asia Group Limited, a company based in Hong<br />
Kong which is engaged in <strong>for</strong>eign currency trading. On January 9, 2009, <strong>the</strong> Board of I-Remit<br />
authorized <strong>the</strong> acquisition of up to 49% of <strong>the</strong> outstanding capital stock of Hwa Kung Hong &<br />
Co., Ltd., a company engaged in <strong>the</strong> remittance business in Taiwan with offices in Taipei and<br />
Kaohsiung. The acquisition of <strong>the</strong> shares was completed on July 1, 2009.<br />
The Company’s presence in various countries hosting overseas Filipino workers (OFWs) and<br />
Filipino migrants and several strategic partnerships and tie-ups with various local and<br />
international banks, pawnshops, couriers, and telecommunications companies makes it <strong>the</strong><br />
largest independent local remittance company.<br />
The Company was also <strong>the</strong> first remittance company registered with <strong>the</strong> Board of Investments<br />
(BOI) as a New In<strong>for</strong>mation Technology (IT) Service Firm in <strong>the</strong> Field of In<strong>for</strong>mation<br />
Technology Services (Remittance Infrastructure System) on a Non-Pioneer Status under <strong>the</strong><br />
Omnibus Investments Code of 1987 which entitled <strong>the</strong> Company to Income Tax Holiday (ITH)<br />
Incentive <strong>for</strong> four (4) <strong>year</strong>s and which was later ext<strong>ended</strong> to two (2) <strong>year</strong>s and which expired<br />
on November 11, 2007.<br />
2
I-Remit’s vision is to become <strong>the</strong> ultimate choice remittance service provider globally and to<br />
capture a significant share of <strong>the</strong> huge annual inward remittances of OFWs around <strong>the</strong> world.<br />
It will achieve <strong>the</strong>se by using <strong>the</strong> latest in in<strong>for</strong>mation technology and communication<br />
technology through <strong>the</strong> Internet plat<strong>for</strong>m in delivering its products and services to its target<br />
customers.<br />
The Company was initially incorporated with a capital stock of two hundred million pesos (PHP<br />
200,000,000) divided into two million shares with a par value of one hundred pesos (PHP 100)<br />
per share.<br />
The subscribers at incorporation are <strong>the</strong> following:<br />
Name Nationality No. of Shares<br />
Subscribed<br />
3<br />
Amount of Capital<br />
Stock Subscribed<br />
(PHP)<br />
Amount Paid on<br />
Subscription (PHP)<br />
iVantage Corporation Filipino 999,993 99,999,300.00 49,999,300.00<br />
Ben C. Tiu Filipino 1 100.00 100.00<br />
Wilson L. Sy Filipino 1 100.00 100.00<br />
Willy N. Ocier Filipino 1 100.00 100.00<br />
William L. Chua Filipino 1 100.00 100.00<br />
Juan G. Chua Filipino 1 100.00 100.00<br />
David R. de Leon Filipino 1 100.00 100.00<br />
Randolph C. de Leon Filipino 1 100.00 100.00<br />
TOTAL 1,000,000 100,000,000.00 50,000,000.00<br />
On August 15, 2001, iVantage Corporation sold all its titles, rights, interests and obligations in<br />
and to all its subscribed shares in <strong>the</strong> Company to <strong>the</strong> following:<br />
Name Nationality No. of Shares<br />
Subscribed<br />
Amount of Capital<br />
Stock Subscribed<br />
(PHP)<br />
Amount Paid on<br />
Subscription (PHP)<br />
JTKC Equities, Inc. Filipino 650,000 65,000,000.00 32,500,000.00<br />
Surewell Equities, Inc. Filipino 300,000 30,000,000.00 15,000,000.00<br />
JPSA Global Services Co. Filipino 50,000 5,000,000.00 2,500,000.00<br />
TOTAL 1,000,000 100,000,000.00 50,000,000.00<br />
The new shareholders assumed pro rata <strong>the</strong> subscription payable to I-Remit, Inc. of iVantage<br />
Corporation amounting to fifty million pesos (PHP 50,000,000).<br />
On February 8, 2005, JTKC Equities, Inc. assigned all of its rights, interests and obligations in<br />
and to its entire subscription consisting of 650,000 shares in <strong>the</strong> Company unto Deighton<br />
Limited, a corporation organized and existing under <strong>the</strong> laws of Hong Kong.<br />
On June 27, 2007, JTKC Equities, Inc. bought back <strong>the</strong> 650,000 shares in <strong>the</strong> Company from<br />
Deighton Limited.
On June 29, 2007, <strong>the</strong> Board and <strong>the</strong> stockholders of <strong>the</strong> Company approved <strong>the</strong> following<br />
amendments to <strong>the</strong> Articles of Incorporation and By-Laws:<br />
On <strong>the</strong> Articles of Incorporation<br />
1. Reduction of par value per share from PHP 100.00 to PHP 1.00 per share;<br />
2. Increase in authorized capital stock from PHP 200 million to PHP 1.0 billion;<br />
3. Denial of pre-emptive rights;<br />
4. Authority of <strong>the</strong> Board of Directors to grant stock options, issue warrants or enter into<br />
stock purchase or similar agreements;<br />
On <strong>the</strong> By-Laws<br />
1. Period <strong>for</strong> closing of stock and transfer book or fixing of record date;<br />
2. Period <strong>for</strong> notice of stockholders’ meeting;<br />
3. Deadline <strong>for</strong> <strong>the</strong> submission / revocation of proxies;<br />
4. Number, term of office, qualifications, and disqualifications;<br />
5. Additional requirements <strong>for</strong> independent directors;<br />
6. Election of directors;<br />
7. Place of meeting of <strong>the</strong> Board of Directors;<br />
8. Vacancies;<br />
9. Constitution of a Nomination Committee; and<br />
10. The addition of one or more Vice Chairmen to <strong>the</strong> list of officers of <strong>the</strong> Company.<br />
On July 20, 2007, <strong>the</strong> Board approved a Special Stock Purchase Program (“SSPP”) <strong>for</strong> its<br />
directors, <strong>the</strong> officers and employees of <strong>the</strong> Company who have been in service <strong>for</strong> at least<br />
one (1) calendar <strong>year</strong> as of June 30, 2007, and <strong>the</strong> Company’s resource persons and<br />
consultants. A total of fifteen million (15,000,000) shares of <strong>the</strong> Company, at a par value of<br />
one peso (PHP 1.00) per share, was allocated under <strong>the</strong> SSPP. The shares were allocated to<br />
those eligible to avail of <strong>the</strong> shares based on a <strong>for</strong>mula developed by <strong>the</strong> Company’s SSPP<br />
Committee and approved by <strong>the</strong> Board of Directors.<br />
The Board of Directors of <strong>the</strong> Company also declared stock dividends worth PHP<br />
43,000,000.00 to its shareholders on July 20, 2007, which declaration was subsequently<br />
ratified and confirmed by <strong>the</strong> Company’s shareholders during <strong>the</strong>ir annual meeting held on <strong>the</strong><br />
same day, immediately after <strong>the</strong> Board meeting. The Record Date was set on August 19,<br />
2007, thirty (30) days from <strong>the</strong> date of approval of <strong>the</strong> Company’s shareholders.<br />
On August 22, 2007, <strong>the</strong> Securities and Exchange Commission (“SEC”) approved <strong>the</strong><br />
<strong>Am<strong>ended</strong></strong> Articles of Incorporation and By-Laws of <strong>the</strong> Company.<br />
The shares subscribed and paid-up subsequent to <strong>the</strong> increase in capital stock were as<br />
follows:<br />
Name Nationality No. of Shares<br />
Subscribed<br />
4<br />
Amount of Capital<br />
Stock Subscribed<br />
(PHP)<br />
Amount Paid on<br />
Subscription (PHP)<br />
Star Equities Inc. Filipino 158,418,225 158,418,225.00 158,418,225.00<br />
Surewell Equities, Inc. Filipino 119,100,000 119,100,000.00 119,100,000.00<br />
JTKC Equities, Inc. Filipino 99,6<strong>31</strong>,775 99,6<strong>31</strong>,775.00 99,6<strong>31</strong>,775.00<br />
JPSA Global Services Co. Filipino 19,850,000 19,850,000.00 19,850,000.00<br />
TOTAL 397,000,000 397,000,000.00 397,000,000.00<br />
On September 13, 2007, <strong>the</strong> SEC granted to <strong>the</strong> Company an exemption from registration of<br />
<strong>the</strong> SSPP shares under Section 10.2 of <strong>the</strong> SRC. On September 20, 2007, <strong>the</strong> Company<br />
issued to <strong>the</strong> directors, officers and employees eligible to avail of <strong>the</strong> SSPP <strong>the</strong>ir respective<br />
shares under <strong>the</strong> program. Notwithstanding <strong>the</strong> a<strong>for</strong>esaid confirmation of <strong>the</strong> exempt status of<br />
<strong>the</strong> SSPP shares, <strong>the</strong> SEC none<strong>the</strong>less required <strong>the</strong> Corporation to include <strong>the</strong> SSPP shares<br />
among <strong>the</strong> shares of iRemit which were registered with <strong>the</strong> Commission prior to <strong>the</strong> conduct of<br />
its Initial Public Offering (IPO) in October 2007. The registration of <strong>the</strong> I-Remit shares, toge<strong>the</strong>r<br />
with <strong>the</strong> SSPP shares, was rendered effective on October 5, 2007.
All 15,000,000 shares were subscribed. The shares subject of <strong>the</strong> SSPP were sold at par<br />
value or PHP 1.00 per share payable in full and in cash and subject to a lock-up period of two<br />
(2) <strong>year</strong>s from date of issue which <strong>ended</strong> on September 19, 2009. The sale is fur<strong>the</strong>r subject<br />
to <strong>the</strong> condition that should an officer or an employee resign from <strong>the</strong> Company prior to <strong>the</strong><br />
expiration of <strong>the</strong> lock-up period, <strong>the</strong> shares purchased by such resigning employee or officer<br />
shall be purchased at cost by <strong>the</strong> Company’s Retirement Fund (“Retirement Fund”) <strong>for</strong> <strong>the</strong><br />
benefit of retiring employees or officers. Total share purchases amounting to PHP11.74 million<br />
were paid in full while <strong>the</strong> difference amounting to PHP3.26 million were paid by way of salary<br />
loan. The shares acquired through <strong>the</strong> SSPP were subject to a lock-up period of two (2) <strong>year</strong>s<br />
from <strong>the</strong> date of issue which <strong>ended</strong> on September 19, 2009.<br />
On May 18, 2007, <strong>the</strong> Board of Directors of <strong>the</strong> Company approved <strong>the</strong> listing of its shares with<br />
<strong>the</strong> Philippine Stock Exchange (“PSE”) in an initial public offering (IPO).<br />
The Board of Directors of <strong>the</strong> PSE, in its regular meeting on September 27, 2007, approved<br />
<strong>the</strong> Company’s application to list its common shares with <strong>the</strong> PSE. On October 5, 2007, <strong>the</strong><br />
Securities and Exchange Commission declared <strong>the</strong> Company’s Registration Statement in<br />
respect of <strong>the</strong> IPO effective and issued <strong>the</strong> Certificate of Permit to Offer Securities <strong>for</strong> Sale in<br />
respect of <strong>the</strong> offer shares.<br />
The Company offered <strong>for</strong> subscription a total of 140,604,000 common shares each with par<br />
value of PHP 1.00 per share consisting of (i) 107,4<strong>17</strong>,000 new common shares issued and<br />
offered by <strong>the</strong> Company by way of a primary offer and (ii) a total of 33,187,000 existing shares<br />
offered by selling shareholders, JTKC Equities, Inc. (21,571,550 common shares issued),<br />
Surewell Equities (9,956,100 common shares offered), and JPSA Global Services Co.<br />
(1,659,350 common shares offered) pursuant to a secondary offer.<br />
On October <strong>17</strong>, 2007, <strong>the</strong> Company completed its IPO of 140,604,000 common shares,<br />
representing slightly above 25% of <strong>the</strong> total outstanding capital stock of 562,367,000 (net of<br />
50,000 treasury shares) at an offer price of PHP 4.68 per share <strong>for</strong> total gross proceeds of<br />
PHP 658,026,720.00.<br />
The net proceeds from <strong>the</strong> primary offer of PHP 466,198,457.05, determined by deducting<br />
from <strong>the</strong> gross proceeds of <strong>the</strong> primary offer <strong>the</strong> Company’s pro-rated share in <strong>the</strong> professional<br />
fees, underwriting and selling fees, listing and filing fees, taxes and o<strong>the</strong>r related fees and<br />
expenses, is int<strong>ended</strong> to be used by <strong>the</strong> Company to finance, in part, its expansion in o<strong>the</strong>r<br />
countries and to partially retire some of <strong>the</strong> Company’s short term interest-bearing loans.<br />
On August 16, 2008, <strong>the</strong> Board of <strong>the</strong> Company authorized <strong>the</strong> buy-back from <strong>the</strong> market of up<br />
to 10 million shares, representing approximately 1.78% of I-Remit’s outstanding common<br />
shares. The program was adopted with <strong>the</strong> objective of preserving <strong>the</strong> value of <strong>the</strong> Company’s<br />
shares, which was grossly undervalued at that time. The program also sought to boost<br />
investor confidence in <strong>the</strong> Company. A total of 10,000,000 shares have been purchased and<br />
lodged as treasury shares.<br />
On September 16, 201, <strong>the</strong> Board of <strong>the</strong> Company authorized <strong>the</strong> buy-back from <strong>the</strong> market of<br />
up to 10 million shares, representing approximately 1.64% of I-Remit’s outstanding common<br />
shares. The program was adopted with <strong>the</strong> objective of preserving <strong>the</strong> value of <strong>the</strong> Company’s<br />
shares, which was grossly undervalued at that time. The program also sought to boost<br />
investor confidence in <strong>the</strong> Company. A total of 4,873,000 shares have been purchased and<br />
lodged as treasury shares.<br />
As of March <strong>31</strong>, 2012, <strong>the</strong> Company’s capital structure is as follows:<br />
5<br />
Amount of Capital<br />
Stock Subscribed<br />
% to Total<br />
Number of<br />
Shares<br />
Name Nationality<br />
No. of Shares<br />
Subscribed<br />
(PHP)<br />
Star Equities Inc. Filipino <strong>17</strong>4,260,047 <strong>17</strong>4,260,047.00 28.91%<br />
Surewell Equities, Inc. Filipino 134,248,290 134,248,290.00 22.27%<br />
JTKC Equities, Inc. Filipino 116,611,247 116,611,247.00 19.34%<br />
JPSA Global Services Co. Filipino 18,700,000 18,700,000.00 3.10%<br />
Public Various 158,983,216 158,983,216.00 26.37%<br />
Total, March <strong>31</strong>, 2012 602,802,800 602,802,800.00 100.00%
The Company’s general expansion plans in 2012 include <strong>the</strong> opening of new and/or additional<br />
offices or <strong>the</strong> engagement of new tie-ups and partners in Ireland, Macau, Germany, <strong>the</strong><br />
Ne<strong>the</strong>rlands, Saudi Arabia and Kuwait.<br />
(2) Business of Issuer<br />
(a) Description of Registrant<br />
The Parent Company and its subsidiaries are primarily engaged in <strong>the</strong> business of fund<br />
transfer and remittance services of any <strong>for</strong>m or kind of currencies or monies, ei<strong>the</strong>r by<br />
electronic, telegraphic, wire or any o<strong>the</strong>r mode of transfer and undertakes <strong>the</strong> delivery<br />
of such funds or monies, both in <strong>the</strong> domestic and international market, by providing<br />
ei<strong>the</strong>r courier or freight <strong>for</strong>warding services; and conducts <strong>for</strong>eign exchange<br />
transactions as may be allowed by law and o<strong>the</strong>r allied activities relative <strong>the</strong>reto.<br />
The Company’s subsidiaries are as follows:<br />
International Remittance (Canada) Ltd., a wholly-owned subsidiary, was incorporated<br />
on July 16, 2001. It started initially as a tie-up and partner of I-Remit, establishing its<br />
operations in three (3) major provinces in Canada, namely: British Columbia, Alberta<br />
and Ontario. In 2005, I-Remit acquired 65% ownership in <strong>the</strong> company that<br />
subsequently increased to 95% in 2006, and eventually consolidated to 100% on June<br />
29, 2007. International Remittance (Canada) Ltd. has seven (7) offices in Canada: two<br />
(2) in British Columbia; three (3) in Ontario; and two (2) in Alberta. The Filipino<br />
community is <strong>the</strong> third largest minority group in Canada. There are 350,000 Filipino<br />
migrant families and about 500,000 Filipinos in Canada mostly in Toronto, Montreal,<br />
and Vancouver. However, <strong>the</strong> Commission on Filipinos Overseas in its Stock Estimate<br />
of Overseas Filipinos (<strong>December</strong> 2009) estimates that <strong>the</strong>re are 639,686 Filipinos in <strong>the</strong><br />
country.<br />
I-Remit Australia Pty Ltd, a wholly-owned subsidiary, is a company organized under <strong>the</strong><br />
Australian Corporations Act 2001 and registered with <strong>the</strong> Australian Securities and<br />
Investments Commission with Australian Company Number 103 107 982. It was<br />
incorporated on <strong>December</strong> 10, 2002 in Victoria, Australia and as of June 29, 2007, <strong>the</strong><br />
Company’s ownership in I-Remit Australia has been consolidated to 100%. It has no<br />
regular employees and has not engaged, since incorporation, in any material activities<br />
o<strong>the</strong>r than those related to <strong>the</strong> maintenance of a bank account with ANZ Bank<br />
(Australia and New Zealand Banking Group Limited) where I-Remit’s subsidiary and tieups<br />
in Australia deposit <strong>the</strong> remittances that <strong>the</strong>y receive <strong>for</strong> purpose of eventually<br />
transferring <strong>the</strong> accumulated balance to I-Remit’s bank account in <strong>the</strong> Philippines.<br />
IREMIT EUROPE Remittance Consulting AG (74.9% owned) was incorporated on 20<br />
July 2005 in Vienna, Austria. It started commercial operations on September 16, 2007.<br />
There are about 30,000 Filipinos in Austria. In November 2009, IREMIT EUROPE<br />
Remittance Consulting AG was registered by Banca D’Italia Eurosistema in <strong>the</strong> general<br />
list of financial intermediaries as a provider of money transfer services under Article 106<br />
of <strong>the</strong> legislative decree 385/1993 of Italy’s Banking Law. On April 18, 2010, it opened<br />
a branch in Rome. On August 1, 2010, it opened its second branch in Milan. Italy is <strong>the</strong><br />
second most popular destination of overseas Filipino workers in Europe. Numbering<br />
about 200,000, <strong>the</strong> vast majority of Filipinos work in <strong>the</strong> domestic service sector while<br />
<strong>the</strong>re are also a number employed in <strong>the</strong> nursing field and o<strong>the</strong>r skilled and semi-skilled<br />
occupational groups.<br />
IRemit Global Remittance Limited, a wholly-owned subsidiary, is a private limited<br />
company in <strong>the</strong> United Kingdom and Wales that was incorporated on June 22, 2001. It<br />
is registered with The Registrar of Companies <strong>for</strong> England and Wales, Companies<br />
House with Company Number 04239974. It started commercial operations in July 2001.<br />
Initially, <strong>the</strong> Company had a 96% equity interest in <strong>the</strong> IRemit Global Remittance<br />
Limited until it was sold on January 18, 2004. I-Remit repurchased it on June 29, 2007<br />
and acquired 100% ownership interest. Filipinos are <strong>the</strong> fourth largest source of<br />
immigrants to <strong>the</strong> United Kingdom. There were approximately 200,000 Filipinos living<br />
and working in <strong>the</strong> United Kingdom as nurses, caregivers in public and private nursing<br />
homes, medical professionals and chambermaids.<br />
6
I-Remit New Zealand Limited, a wholly-owned subsidiary was incorporated on<br />
September 11, 2007. Its registration was approved by <strong>the</strong> New Zealand Ministry of<br />
Economic Development last September 11, 2007. It is registered with <strong>the</strong> Registrar of<br />
Companies of New Zealand, Companies Office with Company Number 19843<strong>31</strong>. The<br />
company started operating commercially on February 13, 2008. There are over 20,000<br />
Filipinos in New Zealand.<br />
Lucky Star Management Limited, a wholly-owned subsidiary, was incorporated on<br />
March 16, 2001 as a limited liability company under <strong>the</strong> Companies Ordinance of Hong<br />
Kong whose principal activity is <strong>the</strong> provision of remittance services. It is registered<br />
with <strong>the</strong> Companies Registry with Company Number 750525. It was <strong>the</strong> first<br />
international branch of I-Remit and, to date, it has four (4) branches in Hong Kong: two<br />
(2) at <strong>the</strong> Central District, one (1) at <strong>the</strong> Admiralty, and one (1) in Tsuen Wan. Hong<br />
Kong is one of <strong>the</strong> top destinations of land-based OFWs in Asia. There are on average<br />
around 140,000 Filipinos in Hong Kong, most of whom find work as domestic<br />
household helpers.<br />
Power Star Asia Group Limited, a wholly-owned subsidiary, was incorporated on April<br />
28, 2008 under <strong>the</strong> Companies Ordinance of Hong Kong. It is engaged in <strong>for</strong>eign<br />
exchange trading activities. It was acquired by I-Remit on November 12, 2008 with <strong>the</strong><br />
purchase of its 1,000,000 outstanding shares <strong>for</strong> a total consideration of HKD1,000,000<br />
with <strong>the</strong> intention of outsourcing some of <strong>the</strong> Parent Company’s <strong>for</strong>eign exchange<br />
activities to a company located in one of <strong>the</strong> regional financial centers in Asia. It is<br />
registered with <strong>the</strong> Companies Registry with Company Number 1232132.<br />
Worldwide Exchange Pty Ltd (consisting of direct voting interest of 70% and indirect<br />
voting interest through I-Remit Australia Pty Ltd of 30%) was incorporated on<br />
September 29, 2003 in Queensland, Australia. It is duly registered with <strong>the</strong> Australian<br />
Securities and Investments Commission in Queensland, Australia with Australian<br />
Company Registration Number 106493047. It started commercial operations in<br />
September 2002. It currently has two (2) branches located in Blacktown and in Perth,<br />
Western Australia. The Filipino-Australian community is composed of approximately<br />
200,000 immigrants, many of whom moved to Australia from <strong>the</strong> Philippines in <strong>the</strong> early<br />
1980’s.<br />
The Company’s associates are as follows:<br />
IRemit Singapore Pte Ltd (49% owned) is a private limited company incorporated in<br />
Singapore whose principal business activity is to carry on <strong>the</strong> business of money<br />
remittance services. It was incorporated on May 11, 2001 and started commercial<br />
operations in October 2001. It is duly registered with <strong>the</strong> Registrar of Companies and<br />
Businesses Singapore, Accounting and Corporate Regulatory Authority with Company<br />
Number 200103087H. There are about 136,000 Filipinos in Singapore who work as<br />
household workers, medical workers, IT professionals, and construction workers.<br />
Hwa Kung Hong & Co. Ltd. (49% owned) is a company engaged in <strong>the</strong> remittance<br />
business in Taiwan. It has offices in Taipei and Kaohsiung. It has a Taipei City<br />
Business Number 00078598-2 and a Business Enterprise (For Profit) Unified Number<br />
140334<strong>31</strong>. On January 9, 2009, <strong>the</strong> Board of I-Remit authorized <strong>the</strong> acquisition of up<br />
to 49% of <strong>the</strong> outstanding capital stock of Hwa Kung Hong & Co. Ltd. The acquisition of<br />
<strong>the</strong> shares was completed on July 1, 2009.<br />
7
Principal Products and Services<br />
Through <strong>the</strong> <strong>year</strong>s, I-Remit has developed products and services that cater specifically<br />
to <strong>the</strong> various remittance needs of OFWs and o<strong>the</strong>r migrant workers as follows:<br />
Bank-to-Bank A facility <strong>for</strong> “same-day” online crediting to a bank<br />
account in <strong>the</strong> Philippines. A remittance received<br />
be<strong>for</strong>e 12:00 noon Manila time may be withdrawn by<br />
<strong>the</strong> designated beneficiary from any BancNet,<br />
MegaLink, or ExpressNet automated teller machine<br />
(ATM) on <strong>the</strong> same day of <strong>the</strong> remittance transaction.<br />
BancNet has 44 member banks and 15 subscribers<br />
and almost 4,000 ATMs nationwide. Megalink has 22<br />
members, 2,921 ATMs, and <strong>17</strong>,000 POS terminals<br />
nationwide. ExpressNet has five (5) member banks<br />
and 3,113 ATMs nationwide.<br />
Door-to-Door Delivery of cash remittances to designated<br />
beneficiaries through third party couriers. I-Remit has<br />
<strong>the</strong> widest delivery reach nationwide, capable of<br />
delivering cash remittances within <strong>the</strong> day <strong>for</strong><br />
beneficiaries in Metro Manila and <strong>the</strong> province of Rizal.<br />
Next-day deliveries may be made in <strong>the</strong> following cities<br />
and provinces: Batangas, Bulacan, Cavite, Cebu,<br />
Davao, Laguna, La Union, Pampanga, Pangasinan,<br />
Tacloban, and Tarlac. Deliveries in o<strong>the</strong>r remote areas<br />
may be made in two (2) to three (3) days or more<br />
depending on <strong>the</strong> actual location of <strong>the</strong> beneficiary. I-<br />
Remit can deliver in <strong>17</strong> regions, 79 provinces, and 136<br />
cities and municipalities in <strong>the</strong> country.<br />
Notify-to-Pay Allows a beneficiary in <strong>the</strong> Philippines to pick-up a<br />
remittance in any of I-Remit’s 6,247 pay-out stations<br />
nationwide within 24 hours. These designated pay-out<br />
stations number 2,006 in Metro Manila, 1,918 in <strong>the</strong><br />
rest of Luzon, 1,366 in <strong>the</strong> Visayas, and 957 in<br />
Mindanao. I-Remit has tied-up with <strong>the</strong> following<br />
institutions whose branches serve as pay-out stations:<br />
Allied Banking Corporation, Asiatrust Development<br />
Bank, Bank of <strong>the</strong> Philippine Islands, Bayad Center,<br />
Cebuana Lhuillier, China Banking Corporation, Land<br />
Bank of <strong>the</strong> Philippines, Philippine National Bank,<br />
Mindanao Capital Corporation, ML Kwarta Padala, One<br />
Network Rural Bank, Inc., Philippine Savings Bank,<br />
Philippine Veterans Bank, Premiere Development<br />
Bank, Prime Asia Pawnshop, Rural Bank of Malinao,<br />
Saint Sealtiel Services, Inc., Security Bank<br />
Corporation, Sterling Bank of Asia, Inc. (A Savings<br />
Bank), Tambunting Pawnshops, Union Bank of <strong>the</strong><br />
Philippines, Maybank Philippines, Inc., United Coconut<br />
Planters Bank, UCPB Savings Bank, Rural Bank of<br />
Malinao, and Wilmon Group.<br />
8
Visa Card I-Remit Visa Card is a “debit and ATM card in one”<br />
through which remitters can send money to <strong>the</strong>ir<br />
beneficiaries almost instantaneously. Cardholders may<br />
withdraw cash from more than 10,000 BancNet,<br />
MegaLink, or ExpressNet ATMs in <strong>the</strong> Philippines and<br />
any Visa ATM worldwide. As a debit card, cardholders<br />
may use <strong>the</strong> I-Remit Visa Card to pay <strong>for</strong> <strong>the</strong>ir<br />
purchases from any of <strong>the</strong> 12 million Visa-affiliated<br />
merchant establishments in over <strong>17</strong>0 countries<br />
worldwide. The I-Remit Visa Card is issued in<br />
partnership with Chinatrust (Philippines) Commercial<br />
Bank Corporation while <strong>the</strong> Visa Electron Card is<br />
issued in partnership with <strong>the</strong> Standard Chartered<br />
Bank Philippines. In 2008, I-Remit also introduced <strong>the</strong><br />
I-Remit Shop ‘N’ Pay Card in partnership with Sterling<br />
Bank of Asia (A Savings Bank). The I-Remit Shop ‘N’<br />
Pay Card utilizes <strong>the</strong> EMV (Europay, MasterCard,<br />
Visa) technology, <strong>the</strong> standard <strong>for</strong> <strong>the</strong> interoperation of<br />
IC cards (“chip cards”) and IC capable POS terminals<br />
and ATMs, <strong>for</strong> au<strong>the</strong>nticating credit and debit card<br />
payments.<br />
Auxiliary Services I-Remit is authorized to accept payments,<br />
contributions, premiums or donations from Filipinos<br />
abroad <strong>for</strong> <strong>the</strong> following government agencies and<br />
private companies: Social Security System (SSS);<br />
Overseas Workers Welfare Administration (OWWA);<br />
Home Development Mutual Fund (HDMF or Pag-IBIG<br />
Fund); Philippine Health Insurance Corporation<br />
(PhilHealth); Philippine Retirement Authority; Loyola<br />
Plans Consolidated, Inc. ; Platinum Plans Phil., Inc.;<br />
Confed Properties, Inc. ; Surewell Equities, Inc. ;<br />
Robinsons Homes, Inc.; Dynamic Realty and<br />
Resources Corporation; CHMI Land, Inc.; Firm Builders<br />
Realty Development Corporation; Regent Pearl;<br />
Earth+Style Corporation; Extraordinary Development<br />
Corporation; Earth Prosper Corporation; Earth Aspire<br />
Corporation; P.A. Alvarez Properties and Development<br />
Corporation; San Marco Realty and Development<br />
Corporation; PHINMA Property Holdings Corporation;<br />
NJR Realty and Development; R. J. Lhinet<br />
Development Corporation; Pueblo de Oro<br />
Development Corporation; Homeowners Development<br />
Corporation; Ledesco Development Corporation;<br />
Nippon Credit Co., Inc.; Automatic Centre; Kabalikat ng<br />
OFW, and CBN Asia.<br />
SMS (Short Message<br />
Service) via Globe G-<br />
Cash and Smart Padala<br />
iRemit Direct Online<br />
Remittance System<br />
(iDOL)<br />
9<br />
Beneficiaries may encash remittances in more than<br />
5,000 Globe G-Cash and Smart Padala encashment<br />
centers and ATMs nationwide once received on <strong>the</strong>ir<br />
mobile phones. Beneficiaries may also use <strong>the</strong> facility<br />
<strong>for</strong> “cashless shopping” in G-Cash and Smart affiliated<br />
business establishments.<br />
iDOL is I-Remit’s Internet-based remittance service in<br />
<strong>the</strong> Philippines. The product aims to offer convenient<br />
and secure remittance services to Filipinos everywhere<br />
that have Internet access.
I-Remit derives its income from remittance transactions in <strong>the</strong> <strong>for</strong>m of: (i) service fees,<br />
and (ii) on <strong>the</strong> spread on <strong>the</strong> applicable <strong>for</strong>eign exchange rate <strong>for</strong> each conversion of<br />
any remittance to <strong>the</strong> Philippines. Service fees cover all logistical and operational<br />
expenses of <strong>the</strong> Company and its partner or tie-up company <strong>for</strong> each remittance<br />
transaction. These fees vary per country of operation depending on competition and<br />
<strong>the</strong> current <strong>for</strong>eign exchange situation. The timing of a remittance is also a<br />
consideration in applying a <strong>for</strong>eign exchange factor.<br />
Percentage of Sales or Revenues Contributed by Foreign Sales<br />
I-Remit operates in various countries through its subsidiaries and associates or through<br />
tie-ups. The <strong>for</strong>mer allows <strong>the</strong> Company to own up to 100% equity while <strong>the</strong> latter is<br />
through agent-partner agreements. Partnership arrangements are utilized when <strong>the</strong><br />
volume of remittances do not justify incorporating new companies.<br />
Due to <strong>the</strong> nature of its business, all of <strong>the</strong> Company’s sales or revenues are from<br />
<strong>for</strong>eign sales.<br />
The percentage shares of <strong>the</strong> Company’s major markets in terms of total value of<br />
inward remittances (in US dollar amounts) is as follows:<br />
Share in Value (in USD) of Remittances<br />
Region <strong>2011</strong> 2010 2009<br />
Asia-Pacific <strong>31</strong>% 34% 33%<br />
Europe 10% 11% 12%<br />
Middle East <strong>17</strong>% 19% 20%<br />
North America 13% 15% <strong>17</strong>%<br />
O<strong>the</strong>rs 29% 21% 18%<br />
Total 100% 100% 100%<br />
The percentage shares of <strong>the</strong> Company’s major markets in terms of <strong>the</strong> volume<br />
(number of transactions) of inward remittance transactions is as follows:<br />
Share in Volume (in No. of Transactions) of Remittances<br />
Region <strong>2011</strong> 2010 2009<br />
Asia-Pacific 43% 43% 43%<br />
Europe 11% 10% 9%<br />
Middle East 29% 29% 28%<br />
North America 14% 15% 16%<br />
O<strong>the</strong>rs 3% 3% 4%<br />
Total 100% 100% 100%<br />
10
Distribution Methods of <strong>the</strong> Products or Services<br />
I-Remit operates globally through a combined network of branches and tie-ups<br />
worldwide offering its products and services to overseas Filipino workers (OFWs).<br />
Currently, I-Remit is present in <strong>the</strong> following 24 countries and territories:<br />
Asia Pacific Europe Middle East North America<br />
Australia Austria Bahrain Canada<br />
Brunei Greece Israel<br />
Hong Kong Ireland Jordan<br />
Japan Italy Kuwait<br />
Malaysia Spain Lebanon<br />
Marshall Islands The Ne<strong>the</strong>rlands Qatar<br />
New Zealand United Kingdom United Arab Emirates<br />
Singapore<br />
Taiwan<br />
The Company’s general expansion plans in 2012 include <strong>the</strong> opening of new and/or<br />
additional offices or <strong>the</strong> engagement of new tie-ups and partners in Ireland, Macau,<br />
Germany, <strong>the</strong> Ne<strong>the</strong>rlands, Saudi Arabia and Kuwait.<br />
The distribution methods in <strong>the</strong> Philippines of <strong>the</strong> Company’s products or services are<br />
as described under “Principal Products and Services.”<br />
Remittances may be credited to any account maintained in over 4,500 branches of I-<br />
Remit’s partner banks in <strong>the</strong> Philippines. Remittances may also be withdrawn from any<br />
of over 10,000 ATMs of <strong>the</strong> member banks and subscribers of BancNet, Megalink, and<br />
ExpressNet.<br />
11
I-Remit has <strong>the</strong> widest coverage in door-to-door delivery nationwide and is capable of<br />
delivering cash remittances within <strong>the</strong> day <strong>for</strong> beneficiaries in Metro Manila and <strong>the</strong><br />
province of Rizal. Next-day deliveries may be made in <strong>the</strong> following cities and<br />
provinces: Batangas, Bulacan, Cavite, Cebu, Davao, Laguna, La Union, Pampanga,<br />
Pangasinan, Tacloban, and Tarlac. Deliveries in o<strong>the</strong>r remote areas may be made in<br />
two (2) to three (3) days or 10 – 12 days depending on <strong>the</strong> specific location of <strong>the</strong><br />
beneficiary. I-Remit can deliver in <strong>17</strong> regions, 81 provinces, and 136 cities and<br />
municipalities in <strong>the</strong> country.<br />
Under <strong>the</strong> Company’s “Notify-to-Pay” services, remittances may be picked up by<br />
beneficiaries in any of I-Remit’s 6,247 designated pay-out stations nationwide.<br />
Beneficiaries may also encash remittances in more than 5,000 Smart Padala and Globe<br />
G-Cash encashment centers nationwide once notified by “text” on <strong>the</strong>ir mobile phones.<br />
New Products or Services<br />
In May 2009, I-Remit implemented <strong>the</strong> Pag-IBIG Fund’s electronic collection system in<br />
all its offices and tie-ups worldwide. I-Remit is an accredited non-bank remittance agent<br />
of <strong>the</strong> Home Development Mutual Fund (also known as Pag-IBIG Fund). The new<br />
service was introduced in line with <strong>the</strong> Pag-IBIG Fund’s Overseas Program (POP) <strong>for</strong><br />
its members.<br />
In July 2009, I-Remit <strong>for</strong>ged a partnership with Jollibee Foods Corporation <strong>for</strong> <strong>the</strong> “Salu-<br />
Salo Padala Treat” <strong>for</strong> <strong>the</strong> purchase by OFWs of Jollibee meals and teats <strong>for</strong> delivery to<br />
<strong>the</strong>ir families in <strong>the</strong> Philippines.<br />
In <strong>December</strong> 2008, I-Remit tied-up with <strong>the</strong> Home Shopping Network, Inc. (HSNi) that<br />
owns and operates Shop TV, a dedicated 24-hour TV shopping channel <strong>for</strong> <strong>the</strong><br />
purchase of various shopping items by OFWs <strong>for</strong> delivery to <strong>the</strong>ir families in <strong>the</strong><br />
Philippines.<br />
In <strong>December</strong> 2008, I-Remit became an accredited marketer of <strong>the</strong> Philippine<br />
Retirement Authority (PRA) that will conduct in<strong>for</strong>mation dissemination, promotion and<br />
collection activities in relation to PRA’s Retirement Program abroad.<br />
On September 22, 2008, I-Remit signed a remittance partnership agreement with <strong>the</strong><br />
Bank of China Ltd. Manila branch. The agreement is initially int<strong>ended</strong> to benefit<br />
Chinese customers in <strong>the</strong> United Kingdom. The remittance proceeds may be<br />
withdrawn by beneficiaries from any of Bank of China’s over 12,000 domestic branches<br />
in <strong>the</strong> Chinese mainland.<br />
On September 1, 2008, I-Remit introduced <strong>the</strong> I-Remit Shop ‘N’ Pay Card in<br />
partnership with Sterling Bank of Asia. The I-Remit Shop I-Remit Shop ‘N’ Pay Card<br />
utilizes <strong>the</strong> EMV (EuroPay, MasterCard, Visa) technology, <strong>the</strong> standard <strong>for</strong> <strong>the</strong><br />
interoperation of IC cards (“chip cards”) and IC capable POS terminals and ATMs, <strong>for</strong><br />
au<strong>the</strong>nticating credit and debit card payments.<br />
In May 2008, I-Remit signed a partnership agreement with <strong>the</strong> Land Bank of <strong>the</strong><br />
Philippines <strong>for</strong> <strong>the</strong> promotion and distribution of <strong>the</strong> Landbank OFW Cash Card, an<br />
electronic debit card that can be linked to a Smart mobile phone.<br />
On January 26, 2008, I-Remit introduced <strong>the</strong> I-Remit Electronic Overseas Collection<br />
Service that allows OFWs to remit <strong>the</strong>ir contributions to <strong>the</strong> Social Security System<br />
(SSS). I-Remit is <strong>the</strong> first non-bank remittance company authorized by <strong>the</strong> SSS to<br />
provide this electronic service.<br />
12
iDOL, which stands <strong>for</strong> iRemit Direct Online, will be initially launched in Canada, where<br />
using <strong>the</strong> Internet <strong>for</strong> sending money has proven to be a huge convenience to its large<br />
migrant population owing to <strong>the</strong> nation’s vast territorial expanse and seasonal<br />
extremes. iRemit also aims to introduce <strong>the</strong> new remittance plat<strong>for</strong>m to Filipinos in<br />
Australia, New Zealand, <strong>the</strong> United Kingdom, and Japan. Like Canada, <strong>the</strong>se countries<br />
have large Filipino communities.<br />
There are o<strong>the</strong>r services planned <strong>for</strong> launching in 2012. These products and services<br />
are int<strong>ended</strong> to improve product delivery and enhance I-Remit’s competitiveness in <strong>the</strong><br />
OFW remittance market. Among <strong>the</strong>se are various payment and collection services.<br />
There are no publicly-announced new products or services which completion of<br />
development would require a material amount of <strong>the</strong> resources of iRemit. New<br />
products or services will be developed using internal resources.<br />
Competition<br />
Players<br />
The overseas remittance industry has numerous players that are classified into two (2)<br />
general categories: <strong>the</strong> <strong>for</strong>mal and in<strong>for</strong>mal channels.<br />
Formal Channels<br />
Formal channels <strong>for</strong> remittances consist of organizations or institutions that transfer<br />
funds from one geographic location to ano<strong>the</strong>r and are operating within <strong>the</strong> regulated<br />
financial sector. These institutions are covered by laws and are supervised by<br />
government agencies that determine <strong>the</strong>ir establishment, and regulate <strong>the</strong>ir scope of<br />
operations. Formal channels are characterized by licensing and registration<br />
requirements and must also have in place mechanisms <strong>for</strong> customer identification,<br />
record keeping, on-going monitoring of accounts and transactions, and customer due<br />
diligence. Formal remittance channels consist of banks, money transfer agencies<br />
(domestic and international), and telecommunications companies.<br />
Banks. Presently, <strong>the</strong>re are over twenty (20) commercial and thrift banks that are<br />
active players in <strong>the</strong> overseas remittance business. Five (5) of <strong>the</strong>se banks have a hold<br />
on 80% to 90% of <strong>the</strong> banking sector’s remittance activities as <strong>the</strong>y are able to utilize<br />
<strong>the</strong>ir wide distribution overseas network and domestic branches to reach out to more<br />
remitters and <strong>the</strong>ir beneficiaries. The major commercial banks in <strong>the</strong> Philippines such<br />
as <strong>the</strong> Metropolitan Bank and Trust Company (Metrobank), Banco de Oro Unibank,<br />
Inc., Bank of <strong>the</strong> Philippine Islands, and <strong>the</strong> Rizal Commercial Banking Corporation<br />
(RCBC) have non-exclusive correspondent banking relationships with <strong>for</strong>eign banks<br />
and tie-ups with international money transfer companies. These banks also subscribe<br />
to <strong>the</strong> SWIFT system <strong>for</strong> bank-to-bank payments and have a combined international<br />
network of correspondent banks, overseas branches or offshore remittance centers<br />
located in key markets such as Canada, Italy, Austria, Spain, Singapore, Hong Kong,<br />
Taiwan, Japan, <strong>the</strong> United Kingdom, and <strong>the</strong> United States. Banks usually offer any of<br />
<strong>the</strong> following remittance services: over <strong>the</strong> counter or branch pick-up; door-to-door<br />
delivery; credit to a deposit account; use of credit cards, cash cards, debit cards; or<br />
pick-up from off-site payment centers.<br />
International Money Transfer Agencies. The major players include I-Remit, Inc.,<br />
Western Union, MoneyGram, Coinstar (that acquired Travelex), and <strong>the</strong> Omnex Group.<br />
US-based Western Union maintains <strong>the</strong> most extensive network among global money<br />
transfer agents in <strong>the</strong> country with over 6,000 agent locations in <strong>the</strong> Philippines and a<br />
presence in over 200 countries and territories. The strength of <strong>the</strong>se companies lies in<br />
<strong>the</strong>ir network coverage and, with <strong>the</strong>ir global presence, <strong>the</strong>y can easily address <strong>the</strong><br />
OFW recipients’ desire <strong>for</strong> accessibility and convenience.<br />
13
Domestic Money Transfer Agencies. The major domestic players include I-Remit, Inc.,<br />
Lucky Money, LBC Express, 2GO, and JRS Express. Most of <strong>the</strong> companies classified<br />
under this category are local logistics service providers and courier companies that<br />
branched out into <strong>the</strong> remittance business. There are 6,556 remittance agents (head<br />
offices and branches) registered with <strong>the</strong> Bangko Sentral ng Pilipinas as at <strong>December</strong><br />
<strong>31</strong>, 2009.<br />
Telecommunications Companies. The recent advances in in<strong>for</strong>mation and<br />
telecommunications technologies allowed companies such as Smart and Globe to offer<br />
innovative modes of sending and receiving remittances. Smart Communications, Inc.<br />
introduced Smart Padala in August 2004 while Globe introduced GCash in October<br />
2004. Both are cash remittance services via short messaging system (SMS) or “text.”<br />
Technology-Based Companies. The emerging new players in <strong>the</strong> industry are<br />
composed mostly of technology-based companies that utilize <strong>the</strong> Internet in offering<br />
remittance services. The online money transfer companies tapping <strong>the</strong> Philippine<br />
market are composed of Remit2Home (part of The Times of India group), San<br />
Francisco-based Xoom, Yahoo! Paydirect, PayPal, Billpoint, and Cashpin (based in<br />
South America). Microsoft Philippines also tied-up with a local commercial bank in<br />
offering <strong>the</strong> “Tele-OFW One Follow Me” system that allows users to manage <strong>the</strong>ir<br />
funds in a bank account by connecting to <strong>the</strong> Microsoft live communication server using<br />
Windows-based personal digital assistant (PDA) phones in a Wi-Fi area.<br />
In<strong>for</strong>mal Channels<br />
In<strong>for</strong>mal channels refer to methods of remittance or remittance activities conducted<br />
outside of <strong>the</strong> regulated financial sectors. Cash may be sent through <strong>the</strong> recruitment<br />
agency or through <strong>the</strong> local office of <strong>the</strong> employer; or through friends, relatives or coworkers<br />
traveling back to <strong>the</strong> Philippines. Alternatively, overseas Filipinos can bring <strong>the</strong><br />
cash <strong>the</strong>mselves upon <strong>the</strong>ir return or visit to <strong>the</strong> Philippines.<br />
“Padala” System. The literal meaning of <strong>the</strong> local word “padala” is to send through <strong>the</strong><br />
courtesy of ano<strong>the</strong>r person. In this practice, it is assumed that <strong>the</strong> person asked to<br />
bring <strong>the</strong> money to <strong>the</strong> Philippines is reliable and trustworthy, and <strong>the</strong> practice repeats<br />
as trust and confidence builds between <strong>the</strong> parties with each completed delivery.<br />
“Kaliwaan” System. This system, despite its lack of popularity, operates through a welltested<br />
network of currency exchanges. It involves <strong>the</strong> use of agents in <strong>the</strong> source and<br />
destination countries who do not impose regulatory restrictions as <strong>the</strong>y arrange<br />
currency transfers. It has been <strong>the</strong> subject of recent congressional inquiries because of<br />
its possible use in laundering monetary proceeds from various illegal activities.<br />
Hand-carry System. This method refers to <strong>the</strong> practice of overseas Filipinos in bringing<br />
home <strong>the</strong> cash <strong>the</strong>mselves when <strong>the</strong>y return to <strong>the</strong> Philippines on vacation or after <strong>the</strong><br />
expiration of <strong>the</strong>ir work contracts.<br />
14
OFW remittances continue to fuel <strong>the</strong> Philippine economy. The continuing upward<br />
trends in inward remittance flows are expected to be sustained by <strong>the</strong> increased<br />
deployment of OFWs. Likewise, <strong>the</strong>re is an observed overall shift from <strong>the</strong> utilization of<br />
unregulated, in<strong>for</strong>mal channels to <strong>the</strong> more <strong>for</strong>mal structured channels <strong>for</strong> remittances<br />
that emphasizes <strong>the</strong> growing need <strong>for</strong> reliability, efficiency and convenience.<br />
As competition among industry players intensifies, banks, money transfer agents, and<br />
o<strong>the</strong>r similar service providers are expected to become more aggressive in <strong>the</strong>ir<br />
marketing and promotional activities to lure potential clients and capture larger shares<br />
of <strong>the</strong> market.<br />
Advances in in<strong>for</strong>mation and communications technology have allowed new players to<br />
roll-out a growing variety of products and services catering to <strong>the</strong> evolving needs and<br />
requirements of OFWs. Such innovative approaches are expected to fuel fur<strong>the</strong>r<br />
industry growth, help reduce transaction costs, and improve service delivery. Due to<br />
rising competition from non-traditional players, banks and money transfer agents need<br />
to upgrade <strong>the</strong>ir technology, expand network coverage, and enhance <strong>the</strong>ir distribution<br />
structures.<br />
Industry players, particularly banks and remittance agents, will always be on <strong>the</strong> lookout<br />
and competing <strong>for</strong> new tie-up arrangements with overseas partners, particularly in<br />
untapped geographic markets. Banks and o<strong>the</strong>r financial institutions will continue to<br />
seek partnership opportunities with correspondent banks, money transfer agents, and<br />
o<strong>the</strong>r types of partners overseas to expand <strong>the</strong>ir coverage while also planning to<br />
establish <strong>the</strong>ir own offshore units in key overseas markets like <strong>the</strong> Middle East,<br />
Canada, and <strong>the</strong> United States, that have a growing concentration of OFWs and<br />
Filipino immigrants. While <strong>the</strong> industry remains highly-competitive, industry players<br />
often link-up and have overlapping or complementary offerings with o<strong>the</strong>r service<br />
providers under revenue-sharing schemes.<br />
I-Remit expects to encounter direct and indirect competition from domestic and <strong>for</strong>eign<br />
companies offering money remittance services locally and internationally.<br />
The Company competes mainly in terms of pricing and service efficiency against <strong>the</strong><br />
domestic commercial banks, Philippine-based money transfer agencies, international<br />
money transfer agencies, and telecommunications firms.<br />
I-Remit is able to compete effectively against <strong>the</strong> major players in <strong>the</strong> industry because<br />
of its network of branches and tie-ups abroad, its local tie-ups with local and <strong>for</strong>eign<br />
banks, its flexibility to expand in o<strong>the</strong>r markets, its relatively faster decision-making<br />
process, and its marketing strategies that are customized <strong>for</strong> <strong>the</strong> Filipino populations in<br />
each country that it operates in.<br />
The Company believes that its customer-centric model, complemented by its flexible<br />
and dynamic structure, will allow it to compete actively in <strong>the</strong> local and international<br />
markets by capitalizing on its strengths in its core business while offering value-added<br />
services to OFWs around <strong>the</strong> world. The Company similarly believes that with its<br />
relentless drive <strong>for</strong> innovation, its streamlined organization, and efficient cost structure<br />
in its local and <strong>for</strong>eign operations, it will be able to compete effectively in <strong>the</strong> global<br />
marketplace through <strong>the</strong> continuous establishment of <strong>for</strong>eign offices in strategic<br />
locations characterized by high-densities of OFW populations that will allow it to tap a<br />
broader market, and consequently, deliver potentially high-yield profits.<br />
Sources and Availability of Raw Materials and Names of Principal Suppliers<br />
The Company has a broad base of suppliers, both local and <strong>for</strong>eign. The Company is<br />
not dependent on one or a few suppliers in conducting its business.<br />
15
Dependence Upon a Single Customer or a Few Customers<br />
The Company serves a wide spectrum of overseas Filipino workers (OFWs) and<br />
Filipino immigrants of different occupational groups in 26 countries and territories<br />
around <strong>the</strong> world. It is not dependent on a single customer or a few customers. Nei<strong>the</strong>r<br />
is <strong>the</strong>re a single customer that accounts <strong>for</strong>, or will account <strong>for</strong>, 20% or more of <strong>the</strong><br />
Company’s sales.<br />
Over nine (9) million Filipinos, or around 10% of <strong>the</strong> Philippine population, work abroad<br />
as nurses, doctors, domestic helpers, engineers, educators, musicians, entertainers,<br />
seafarers, doctors, laborers, caregivers, manufacturing workers, electricians,<br />
in<strong>for</strong>mation technology professionals, and in o<strong>the</strong>r roles. The Philippine Overseas<br />
Employment Administration estimates that such Filipinos are in present in 194 countries<br />
and territories around <strong>the</strong> world, <strong>the</strong> largest groups being in <strong>the</strong> United States, Saudi<br />
Arabia, Canada, Japan, Malaysia, Australia, United Arab Emirates, Hong Kong,<br />
Taiwan, Italy, Singapore, and <strong>the</strong> United Kingdom.<br />
In its Migration and Development Brief dated <strong>December</strong> 1, <strong>2011</strong>, <strong>the</strong> World Bank<br />
reported that officially recorded remittance flows to developing countries are estimated<br />
to have reached USD351 billion in <strong>2011</strong>, up 8% over 2010.<br />
For <strong>the</strong> first time since <strong>the</strong> global financial crisis, remittance flows to all six developing<br />
regions rose in <strong>2011</strong>. Growth of remittances in <strong>2011</strong> exceeded <strong>the</strong> World Bank’s earlier<br />
expectations in four (4) regions, especially in Europe and Central Asia (due to higher<br />
outward flows from Russia that benefitted from high oil prices) and Sub-Saharan Africa<br />
(due to strong south-south flows and weaker currencies in some countries that attracted<br />
larger remittances). By contrast, growth in remittance flows to Latin America and<br />
Caribbean was lower than previously expected, due to continuing weakness in <strong>the</strong> U.S.<br />
economy and Spain. Flows to Middle East and Africa were also impacted by <strong>the</strong> “Arab<br />
Spring.”<br />
Following this rebound in <strong>2011</strong>, <strong>the</strong> growth of remittance flows to developing countries<br />
is expected to continue at a rate of 7-8 percent annually to reach USD441 billion by<br />
2014. Worldwide remittance flows, including those to high-income countries, are<br />
expected to exceed USD590 billion by 2014.<br />
However, <strong>the</strong> World Bank believes <strong>the</strong>re are serious downside risks to this outlook.<br />
Persistent unemployment in Europe and <strong>the</strong> U.S. is affecting employment prospects of<br />
existing migrants and hardening political attitudes toward new immigration. Volatile<br />
exchange rates and uncertainty about <strong>the</strong> direction of oil prices also present fur<strong>the</strong>r<br />
risks to <strong>the</strong> outlook <strong>for</strong> remittances.<br />
Recently, <strong>the</strong> Bangko Sentral ng Pilipinas (Central Bank of <strong>the</strong> Philippines) reported<br />
that <strong>the</strong> remittances of Filipino workers reached USD20.1<strong>17</strong> billion representing a 7.2%<br />
growth over <strong>the</strong> USD18.763 billion in 2010.<br />
The stable flow of remittances continued to provide strong support to domestic demand,<br />
with <strong>the</strong> remittance level <strong>for</strong> <strong>the</strong> <strong>year</strong> amounting to close to 10 percent of <strong>the</strong> country’s<br />
gross domestic product (GDP). The major driving factors that helped accelerate <strong>the</strong><br />
growth of remittances were <strong>the</strong> diversity of <strong>the</strong> destinations and skills of overseas<br />
Filipinos combined with <strong>the</strong> expanding network of bank and non-bank service providers<br />
both in <strong>the</strong> Philippines and around <strong>the</strong> world. The continuing innovation in financial<br />
products and services (e.g., web-based remittance services, automated remittance<br />
machines, reloadable/reusable money/cash cards, among o<strong>the</strong>rs) being offered in <strong>the</strong><br />
market to facilitate money transfers have likewise contributed to <strong>the</strong> resilience of<br />
remittances throughout <strong>the</strong> <strong>year</strong>.<br />
In 2012, <strong>the</strong> Bangko Sentral ng Pilipinas sees remittance growth slowing down to 5<br />
percent as a consequence of a more subdued global outlook.<br />
16
Transactions and/or Dependence on Related Parties<br />
The Company has transactions with its subsidiaries and associates abroad, i.e., <strong>the</strong><br />
remittance centers that accept transactions from its customers, mostly OFWs, in<br />
Australia, Austria, Canada, Hong Kong, New Zealand, Singapore, and <strong>the</strong> United<br />
Kingdom. These transactions primarily consist of delivery services <strong>for</strong> a fee.<br />
Pursuant to <strong>the</strong> Company’s usual course of business, it also advances funds to its<br />
subsidiaries, associates and affiliates. These are accounts receivable from subsidiaries,<br />
associates and affiliates pertaining to remittance transactions. It also consists of<br />
advances made to subsidiaries, associates, and affiliates <strong>for</strong> working capital to maintain<br />
cash balances in bank accounts and o<strong>the</strong>r financial and operating requirements. The<br />
account receivables are usually settled on <strong>the</strong> next banking day. On <strong>the</strong> o<strong>the</strong>r hand,<br />
advances <strong>for</strong> financial and operating requirements are due on demand.<br />
The Company leases office space from Oakridge Properties, a related party.<br />
The Company has office sharing arrangements with Surewell Enterprises, Ltd. in Hong<br />
Kong and Surewell Equities Pte. Ltd. in Singapore, both being related companies.<br />
The Company maintains peso deposit accounts and has a revolving credit facility with<br />
Sterling Bank of Asia, Inc., a related party.<br />
Significant Agreements and/or Commitments<br />
The Company conducts its remittance and collection business internationally by<br />
organizing wholly-owned corporations, entering into joint ventures, and signing<br />
Memoranda of Agreements (MOA) with individuals and corporations in various<br />
countries and territories; <strong>the</strong>se include: Australia, Austria, Bahrain, Bermuda, Brunei,<br />
Canada, Greece, Hong Kong, Ireland, Israel, Italy, Jordan, Lebanon, Malaysia, Marshall<br />
Islands, <strong>the</strong> Ne<strong>the</strong>rlands, Qatar, Saipan, Singapore, Spain, Taiwan, <strong>the</strong> United Arab<br />
Emirates, and <strong>the</strong> United States of America.<br />
The Memoranda of Agreement entered into with individuals and corporations in various<br />
countries and territories follow a general <strong>for</strong>mat with minor variations. Generally, <strong>the</strong><br />
MOAs entered into on or after 2004 provide that I-Remit retain exclusive proprietary<br />
rights over its I-Remit Foreign Remittance System which <strong>the</strong> <strong>for</strong>eign parties will use to<br />
implement <strong>the</strong> remittance arrangement. MOAs entered into on or be<strong>for</strong>e 2003 do not<br />
contain this provision. All MOAs, however, are aimed at limiting I-Remit’s exposure by<br />
specifying that: (i) <strong>the</strong> <strong>for</strong>eign parties are not agents but independent contractors; (ii) <strong>the</strong><br />
<strong>for</strong>eign parties shall be shall be responsible <strong>for</strong> compliance with all applicable laws in<br />
<strong>the</strong>ir respective countries and territories; and (iii) funds must first be deposited to an I-<br />
Remit bank account be<strong>for</strong>e <strong>the</strong> Company shall release <strong>the</strong> same to <strong>the</strong> int<strong>ended</strong><br />
beneficiaries in <strong>the</strong> Philippines. Contracts executed on or after 2004 also stipulate<br />
amicable settlement or arbitration as <strong>the</strong> mode of settlement of disputes and provides<br />
<strong>for</strong> <strong>the</strong> exclusive jurisdiction of <strong>the</strong> Philippine courts. New contracts with tie-ups require<br />
bond or advanced payment cover in order to fulfill <strong>the</strong> delivery of any transaction. The<br />
bond or “advanced payment cover” is deposited to an I-Remit-designated bank account<br />
that serves as collateral.<br />
The bulk of <strong>the</strong> MOAs executed in <strong>the</strong> Philippines cover <strong>the</strong> arrangement between <strong>the</strong><br />
Company and various companies and institutions, such as commercial banks, thrift<br />
banks, and pawnshops <strong>for</strong> <strong>the</strong> appointment of <strong>the</strong> latter to provide pay-out stations<br />
through <strong>the</strong>ir branches <strong>for</strong> <strong>the</strong> Company’s notify-to-pay services.<br />
Certain MOAs also involve <strong>the</strong> appointment of <strong>the</strong> Company as a collection agent <strong>for</strong><br />
<strong>the</strong> remittance of amortization payments, loan payments, premiums, and contributions<br />
<strong>for</strong> government financial institutions and agencies consisting of <strong>the</strong> Social Security<br />
System (SSS), Overseas Workers Welfare Administration (OWWA), Home<br />
Development Mutual Fund (HDMF or Pag-IBIG Fund), Philippine Retirement Authority<br />
(PRA) and <strong>the</strong> Philippine Health Insurance Corporation (PhilHealth), and various preneed<br />
and real estate development companies.<br />
<strong>17</strong>
Principal Terms and Expiration Dates of All Patents, Trademarks, Copyrights, Licenses,<br />
Concessions, and Royalty Agreements Held<br />
The Company is duly registered as a Remittance Agent (RA) with <strong>the</strong> Bangko Sentral<br />
ng Pilipinas (BSP) subject to applicable provisions of law and BSP rules and<br />
regulations, as well as <strong>the</strong> provisions of <strong>the</strong> Anti-Money Laundering Act of 2001<br />
(Republic Act. No. 9160, as am<strong>ended</strong> by Republic Act. No. 9194) and its implementing<br />
rules and regulations, with Certificate No. FX-2005-000364 issued by <strong>the</strong> BSP on May<br />
10, 2005.<br />
Licenses are held by I-Remit’s subsidiaries and affiliates that are registered in <strong>the</strong>ir host<br />
countries in Australia, Austria, Canada, Hong Kong, New Zealand, Singapore, Taiwan,<br />
and <strong>the</strong> United Kingdom. The said licenses are subject to compliance with mandatory<br />
reportorial requirements. To secure <strong>the</strong>se licensing rights, I-Remit ensures compliance<br />
with all <strong>the</strong> reportorial requirements of <strong>the</strong> host countries.<br />
I-Remit, Inc. is registered with and is supervised by <strong>the</strong> Bangko Sentral ng Pilipinas with<br />
Registration No. FX-2005-000364.<br />
I-Remit, Inc. has been entered in <strong>the</strong> Australian Transaction <strong>Report</strong>s and Analysis<br />
Centre (AUSTRAC) Remittance Sector Register with registered remittance network<br />
provider number is RNP100035640-001 effective April 13, 2012.<br />
International Remittance (Canada) Ltd. is registered with <strong>the</strong> Financial Transactions<br />
and <strong>Report</strong>s Analysis Centre of Canada (FINTRAC) as a money service business with<br />
registration number M08160706.<br />
IRemit Global Remittance Ltd. has been granted authorization by <strong>the</strong> Financial Services<br />
Authority to carry on payment services activities from April 15, <strong>2011</strong> under <strong>the</strong> Payment<br />
Services Regulations 2009 of <strong>the</strong> United Kingdom with FSA reference number 537568.<br />
IRemit Global Remittance Ltd. is registered with HM Customs and Excise with Money<br />
Laundering Registration Number 1213085.<br />
IRemit Global Remittance Ltd.’s branch in Rome, Italy was included by <strong>the</strong> Banca D’<br />
Italia in <strong>the</strong> Register of Payment Institutions effective July 7, <strong>2011</strong> with identification<br />
code 36023.0.<br />
IRemit Singapore Pte. Ltd. has been issued a license by <strong>the</strong> Monetary Authority of<br />
Singapore to carry on <strong>the</strong> remittance business with RA No. 01038.<br />
K.K. I-Remit Japan is registered with <strong>the</strong> Kanto Local Finance Bureau with Registration<br />
No. KLFB00019.<br />
I-Remit offers its products and services through <strong>the</strong> “I-Remit” trademark and/or trade<br />
name. In addition, most of <strong>the</strong> Company’s subsidiaries and associate companies use<br />
<strong>the</strong> “I-Remit” name.<br />
18
I-Remit has registered <strong>the</strong> following patents, trademarks and/or trade names:<br />
Name/Trademark Date Filed Date Registered<br />
I-Remit Name and Logo January 20, 2004<br />
Application No. 4-2004-<br />
0000529<br />
I-Load June 16, 2004<br />
Application No. 4-2004-<br />
0005251<br />
I-Travel June 16, 2004<br />
Application No. 4-2004-<br />
0005252<br />
I-Pay June 16, 2004<br />
Application No. 4-2004-<br />
0005253<br />
iDol July 8, 2004<br />
Application No. 4-2004-<br />
0006066<br />
I-Serve February 14, 2008<br />
Application No. 4-2008-001818<br />
I-Value February 14, 2008<br />
Application No. 4-2008-001819<br />
I-Reward February 14, 2008<br />
Application No. 4-2008-001816<br />
I-Care February 14, 2008<br />
Application No. 4-2008-0018<strong>17</strong><br />
I-Remit Trademark<br />
I-Remit Trademark<br />
I-Remit Trademark<br />
June 23, 2006<br />
e-Filing No. 125586<br />
September 18, 2009<br />
Application No. 145s2333<br />
19<br />
<strong>December</strong> 11, 2006<br />
Registration No. 4-2004-000529<br />
Registered <strong>for</strong> a term of 10 <strong>year</strong>s<br />
from date of registration<br />
January 21, 2006<br />
Registration No. 4-2004-0005251<br />
Registered <strong>for</strong> a term of 10 <strong>year</strong>s<br />
from date of registration<br />
October 1, 2005<br />
Registration No. 4-2004-0005252<br />
Registered <strong>for</strong> a term of 10 <strong>year</strong>s<br />
from date of registration<br />
October 1, 2005<br />
Registration No. 4-2004-0005253<br />
Registered <strong>for</strong> a term of 10 <strong>year</strong>s<br />
from date of registration<br />
July 30, 2006<br />
Registration No. 4-2004-006066<br />
Registered <strong>for</strong> a term of 10 <strong>year</strong>s<br />
from date of registration<br />
<strong>December</strong> 15, 2008<br />
Registration No. 4-2008-001818<br />
Registered <strong>for</strong> a term of 10 <strong>year</strong>s<br />
from date of registration<br />
September 8, 2008<br />
Registration No. 4-2008-001819<br />
Registered <strong>for</strong> a term of 10 <strong>year</strong>s<br />
from date of registration<br />
<strong>December</strong> 1, 2008<br />
Registration No. 4-2008-001819<br />
Registered <strong>for</strong> a term of 10 <strong>year</strong>s<br />
from date of registration<br />
September 8, 2008<br />
Registration No. 4-2008-001819<br />
Registered <strong>for</strong> a term of 10 <strong>year</strong>s<br />
from date of registration<br />
June 23, 2006<br />
Trademark No. T06/12356G<br />
Registry of Trademarks, Property<br />
Office of Singapore<br />
November 1, 2007<br />
New Zealand Trademark Registration<br />
No. 778760<br />
Registered <strong>for</strong> a term of 10 <strong>year</strong>s<br />
from date of registration<br />
Registration pending; <strong>for</strong> publication<br />
in Trademarks Journal (Canada)
I-Remit has licenses to <strong>the</strong> following in<strong>for</strong>mation technology software and systems used<br />
in its operations:<br />
Software / System,<br />
Acquisition and License / Renewal of<br />
Version Purpose<br />
Effectivity Maintenance Service<br />
Enterprise Resource The General Ledger Version 3.2 acquired Support agreement is<br />
In<strong>for</strong>mation and Control module serves as <strong>the</strong> in 2002; upgraded to renewed every <strong>year</strong><br />
(ERIC) Financial Suite central financial data version 5.2 in 2006;<br />
(General Ledger & repository that allows <strong>for</strong> perpetual license<br />
Accounts Payable) convenient and accurate<br />
Version 5.2, Jupiter preparation of <strong>the</strong><br />
Systems, Inc.<br />
Company’s financial<br />
statements. The Accounts<br />
Payable module manages<br />
supplier payables and<br />
disbursements.<br />
Enterprise Resource The Payroll module is used Acquired in 2007; Support agreement is<br />
In<strong>for</strong>mation and Control <strong>for</strong> employees’ pay perpetual license renewed every <strong>year</strong><br />
(ERIC) Payroll, Human computation, payroll<br />
Resource Management, processing, and statutory<br />
Timecard, Version 5.2, reporting. The Human<br />
Jupiter Systems, Inc. Resource Management<br />
module is used <strong>for</strong><br />
capturing 201-file<br />
in<strong>for</strong>mation and recordkeeping.<br />
The Timecard<br />
module is used in<br />
recording and processing<br />
employee working hours.<br />
Microsoft SQL Server A relational data base Version 2000, Software assurance<br />
2000 (Standard Edition), management system used acquired on October will end on February<br />
Microsoft Corporation <strong>for</strong> <strong>the</strong> “back-end” data <strong>31</strong>, 2005;<br />
28, <strong>2011</strong><br />
base of I-Remit’s<br />
Version 2008,<br />
remittance system acquired on February<br />
27, 2009;<br />
perpetual license<br />
Microsoft SQL Server – A relational data base Version 2008, Software assurance<br />
Enterprise Edition management system used acquired on February will end on February<br />
<strong>for</strong> <strong>the</strong> “back-end” data 27, 2009; perpetual 28, <strong>2011</strong><br />
base of I-Remit’s<br />
remittance system<br />
license<br />
Microsoft Exchange A messaging and<br />
Version 2003,<br />
Server, 2003 and 2007 – collaborative software acquired on August<br />
Enterprise Edition used <strong>for</strong> <strong>the</strong> electronic mail 11, 2006; additional<br />
system of I-Remit, Inc. licenses acquired on<br />
September 27, 2007;<br />
perpetual license<br />
Internet Service<br />
Used as an internal firewall Acquired on August<br />
Accelerator 2004<br />
11, 2006<br />
Microsoft Office – Small Software used in creating Version 2003,<br />
Business<br />
documents, files and acquired on October<br />
reports<br />
<strong>31</strong>, 2005; version<br />
2007, acquired on<br />
November 20, 2008;<br />
perpetual license<br />
20
Software / System,<br />
Acquisition and License / Renewal of<br />
Version Purpose<br />
Effectivity Maintenance Service<br />
Microsoft Windows Operating system used in Version 2003,<br />
Server – Enterprise and servers<br />
acquired on October<br />
Standard Edition<br />
<strong>31</strong>, 2005; additional<br />
licenses acquired on<br />
August <strong>31</strong>, 2006,<br />
September 30 &<br />
October <strong>31</strong>, 2007,<br />
March <strong>31</strong> & October<br />
<strong>31</strong>, 2008;<br />
Version2008,<br />
acquired February<br />
27, 2009<br />
Power Builder Software development tool Version 11.1,<br />
acquired on<br />
November 18, 2008<br />
Kaspersky Anti-Virus Anti-virus system Open space security, Support agreement is<br />
acquired in May 2009 renewed every <strong>year</strong><br />
Adobe Acrobat Reader File management Version 8 and 9<br />
Hitachi Data Protection Backup and replication Version 7 and 8, Support agreement is<br />
Suite (Commvault) software<br />
acquired in 2009 renewed every <strong>year</strong><br />
VeriSign SSL Certificate SSL certificates <strong>for</strong> data Acquired in 2009 Support agreement is<br />
encryption<br />
renewed every <strong>year</strong><br />
Need <strong>for</strong> Any Government Approval of Principal Products or Services<br />
There are no new products or services that require government approval.<br />
Effect of Existing Probable Governmental Regulations on <strong>the</strong> Business<br />
The normal operations of <strong>the</strong> Company is not adversely affected by any existing<br />
governmental regulation nor is it expected that any probable governmental regulation<br />
would have an adverse effect on <strong>the</strong> operations of <strong>the</strong> Company.<br />
O<strong>the</strong>r than <strong>the</strong> reportorial requirements of <strong>the</strong> Securities and Exchange Commission<br />
(SEC), <strong>the</strong> Bangko Sentral ng Pilipinas (BSP), <strong>the</strong> Anti-Money Laundering Council<br />
(AMLC), <strong>the</strong> Bureau of Internal Revenue (BIR), and <strong>the</strong> local permits that are required<br />
by <strong>the</strong> City Government of Pasig, <strong>the</strong>re is no o<strong>the</strong>r governmental permit required of <strong>the</strong><br />
Company <strong>for</strong> its operation in <strong>the</strong> Philippines. The Company is in full compliance with<br />
<strong>the</strong> requirements of <strong>the</strong> SEC, BSP, AMLC, BIR and of <strong>the</strong> local government.<br />
Licenses are held by <strong>the</strong> Company’s subsidiaries and affiliates that are registered in<br />
<strong>the</strong>ir respective host countries in Australia, Austria, Canada, Hong Kong, Singapore,<br />
Taiwan and <strong>the</strong> United Kingdom. The said licenses have no expiration dates but are<br />
subject to compliance with mandatory reportorial requirements. The Company has<br />
complied with all such reportorial requirements.<br />
Amount Spent on Research and Development Activities<br />
There is no material amount spent <strong>for</strong> research and development.<br />
Costs and Effects of Compliance with Environmental Laws<br />
The Company has not been subject to any penalties or legal or regulatory action and<br />
has not incurred any costs <strong>for</strong> non-compliance with environmental laws or regulations of<br />
<strong>the</strong> Philippines.<br />
21
Employees<br />
The Company has 369 employees including those directly employed by subsidiaries as<br />
of <strong>December</strong> <strong>31</strong>, <strong>2011</strong>. These consist of 68 officers and 301 non-officers as follows:<br />
No. of Employees (<strong>December</strong> <strong>31</strong>, <strong>2011</strong>)<br />
Officers Non-Officers Total<br />
Parent Company 44 181 225<br />
Subsidiaries 24 120 144<br />
Total 68 301 369<br />
The Company projects no new additional personnel in 2012.<br />
Type No. of Employees<br />
Administrative 32<br />
Finance 63<br />
In<strong>for</strong>mation Technology 19<br />
Sales and Marketing 36<br />
Service and Operations 219<br />
Total 369<br />
None of <strong>the</strong> Company, its subsidiaries, affiliates and associate companies is subject to<br />
any collective bargaining agreement (CBA). There has been no strike, nor any attempt<br />
to protest against <strong>the</strong> Company, its subsidiaries and associates during <strong>the</strong>ir entire<br />
histories.<br />
The supplemental benefits that <strong>the</strong> Company grants to its employees include medical,<br />
dental and hospitalization benefits, per diem and travel allowances, group insurance,<br />
birthday bonuses, meal and overtime allowances, and bereavement assistance.<br />
Employees are also entitled to vacation, sick, maternity, paternity, and emergency<br />
leaves. The Company provides <strong>the</strong> health and medical insurance benefits to its<br />
employees through an independent health maintenance organization (HMO).<br />
The Parent Company has a noncontributory defined benefit retirement plan covering<br />
substantially all of its regular employees. Under this retirement plan, all qualified<br />
employees are entitled to cash benefits after satisfying age and service requirements.<br />
Under Republic Act No. 7641, also known as Retirement Pay Law, its applicability is<br />
effective on <strong>the</strong> fifth <strong>year</strong> of an employee’s tenure, provided that <strong>the</strong> employee is 60<br />
<strong>year</strong>s old but not more than 65 <strong>year</strong>s old.<br />
The Company continues to invest in its employees through various training programs<br />
strategically focused on <strong>the</strong> Company’s core values, team development, selling skills,<br />
customer service and product knowledge.<br />
22
Risk Management<br />
The Company’s goal in risk management is to ensure that it understands, measures,<br />
and monitors <strong>the</strong> various risks that arise from its business activities, and that it adheres<br />
strictly to its established risk management policies.<br />
Periodic strategic planning sessions and meetings by top management, and <strong>the</strong> various<br />
management and Board committees are being held to identify, assess and <strong>for</strong>mulate<br />
contingency plans to manage or minimize <strong>the</strong> adverse impact of risks to <strong>the</strong> Company.<br />
The Board per<strong>for</strong>ms an oversight role <strong>for</strong> <strong>the</strong> Company’s risk management activities<br />
and approves I-Remit’s risk management policies and any revisions <strong>the</strong>reto. The Chief<br />
Executive Officer, as <strong>the</strong> overall risk executive, oversees <strong>the</strong> risk management activities<br />
of <strong>the</strong> Company and ensures that <strong>the</strong> responsibilities <strong>for</strong> managing risk are clear, <strong>the</strong><br />
levels of risk taken on by <strong>the</strong> Company is acceptable, and that an effective control<br />
environment is in place.<br />
Risk management is an integral part of <strong>the</strong> day-to-day business management of <strong>the</strong><br />
Company and each operating unit has a responsibility to measure, manage, and<br />
controls <strong>the</strong> risks associated with <strong>the</strong> functions <strong>the</strong>y per<strong>for</strong>m.<br />
There are three (3) major risks involved in <strong>the</strong> business of <strong>the</strong> Company: credit risk,<br />
market risk, and operational risk.<br />
Credit risks are risks that arise when a counter-party in a transaction may default and<br />
cause a possible loss to <strong>the</strong> Company. The nature of its business exposes <strong>the</strong><br />
Company to potential risk from difficulties in recovering transaction money from its<br />
<strong>for</strong>eign partners. Accounts receivable from <strong>for</strong>eign offices and agents arise as a result<br />
of its remittance operations in various regions of <strong>the</strong> globe. In order to address this, <strong>the</strong><br />
Company has maintained <strong>the</strong> following credit policies: (i) en<strong>for</strong>ce a contract that<br />
incorporates a bond and advance payment cover such that <strong>the</strong> full amount of <strong>the</strong><br />
transactions will be credited to <strong>the</strong> Company prior to <strong>the</strong>ir delivery to <strong>the</strong> beneficiaries<br />
which applies generally to all new agents of <strong>the</strong> Company and in certain cases, to old<br />
agents, <strong>the</strong> advance funding equivalent to <strong>the</strong>ir average daily remittance transactions,<br />
to fulfill or deliver <strong>the</strong>ir remittance transactions; (ii) all <strong>for</strong>eign offices and agents must<br />
settle <strong>the</strong>ir accounts following <strong>the</strong> next banking day settlement policy, o<strong>the</strong>rwise, <strong>the</strong><br />
fulfillment or delivery of <strong>the</strong>ir remittance transactions will be put on hold; (iii) evaluation<br />
of individual potential partners and preferred associates’ credit worthiness, as well as a<br />
close look into <strong>the</strong> o<strong>the</strong>r pertinent aspects of <strong>the</strong>ir businesses which assures <strong>the</strong><br />
Company of <strong>the</strong> financial soundness of its partner firms; (iv) receivable balances are<br />
monitored daily by <strong>the</strong> Company’s regional managers with <strong>the</strong> result that <strong>the</strong><br />
Company’s exposure to bad debts is not significant.<br />
The Company’s accounts receivables from agents are highly collectible which have<br />
turnovers ranging from one (1) to five (5) days. The o<strong>the</strong>r receivables which include<br />
advances to related parties is also highly collectible which are due in less than one (1)<br />
<strong>year</strong>.<br />
23
Market risks, consisting of <strong>for</strong>eign exchange risk and interest rate risk, are <strong>the</strong> risks that<br />
<strong>the</strong> value of a currency position or financial instrument will fluctuate due to changes in<br />
<strong>for</strong>eign exchange rates and interest rates. The Company’s financial instruments<br />
consist of short-term loans from banks and advances from stockholders. The main<br />
purpose of <strong>the</strong>se financial instruments is to raise funds <strong>for</strong> <strong>the</strong> Company’s fulfillment or<br />
delivery of remittance transactions to beneficiaries. The Company also has various<br />
financial assets and liabilities such as accounts receivable from agents and accounts<br />
payable to beneficiaries, which arise directly from its remittance operations.<br />
I-Remit provides money transfer and remittance services in 25 countries and territories.<br />
Foreign exchange risk is managed through <strong>the</strong> structure of <strong>the</strong> business and an active<br />
risk management process. In <strong>the</strong> substantial majority of its transactions, I-Remit settles<br />
with its <strong>for</strong>eign offices, associates, and agents in <strong>the</strong>ir respective local currencies, and<br />
requires <strong>the</strong> <strong>for</strong>eign offices, associates, and agents to obtain settlement currency to<br />
provide to recipients. The <strong>for</strong>eign currency exposure that does exist is limited by <strong>the</strong><br />
fact that <strong>the</strong> majority of transactions are settled within a day or two (2) days after <strong>the</strong>se<br />
are initiated. In addition, in money transfer transactions involving different currencies<br />
received and paid in Philippine pesos, I-Remit generates revenue by receiving a <strong>for</strong>eign<br />
currency spread based on <strong>the</strong> difference between buying currencies at wholesale<br />
exchange rates and providing <strong>the</strong> currencies to its customers at retail exchange rates.<br />
This spread provides some protection against currency fluctuations. The Company’s<br />
policy is not to speculate in <strong>for</strong>eign currencies and it promptly trades <strong>for</strong>eign currencies<br />
as necessary to cover its payables and receivables.<br />
It is <strong>the</strong> Company’s policy that all daily <strong>for</strong>eign currencies, which arise as a result of its<br />
remittance transactions, must be traded daily with bank partners only at prevailing<br />
<strong>for</strong>eign exchange rates in <strong>the</strong> market. The daily closing <strong>for</strong>eign exchange rates are<br />
used as <strong>the</strong> guiding rates in providing wholesale rates to <strong>for</strong>eign offices and agents,<br />
respectively. The trading proceeds are used to pay out bank loans and o<strong>the</strong>r<br />
obligations of <strong>the</strong> Company.<br />
The Company is exposed to short-term interest rate risks on its peso-denominated<br />
bank credit facilities. The Company’s exposure to cash flow interest rate risk is<br />
minimal. It is <strong>the</strong> policy of <strong>the</strong> Company to manage its interest cost by entering into<br />
fixed short-term debt.<br />
24
Operational risks are risks of losses resulting from inadequate or failed internal<br />
processes, people and systems or from external events, such as those resulting from<br />
fraud or defalcations from internal or external sources, or actual financial losses arising<br />
from failed processes, systems and procedures.<br />
The Company’s main goal in managing operational risk is to create and maintain an<br />
operating environment that ensures and protects <strong>the</strong> integrity of its financial resources,<br />
assets, transactions, records, and in<strong>for</strong>mation resources. The Company attempts to<br />
mitigate operational risks by maintaining a comprehensive system of internal controls,<br />
establishing standard systems and procedures, implementing a system to monitor<br />
transactions, maintaining key back-up procedures, and undertaking regular contingency<br />
planning.<br />
The Company has operating manuals detailing <strong>the</strong> procedures <strong>for</strong> <strong>the</strong> processing of its<br />
remittance transactions, <strong>the</strong> implementation of its various business processes, and <strong>the</strong><br />
use of its in<strong>for</strong>mation technology resources. These operating manuals undergo<br />
periodic reviews and revisions, if needed. Amendments to <strong>the</strong>se manuals are<br />
implemented through circulars sent to all divisions and offices of <strong>the</strong> Company.<br />
Transactions and items of value are subject to a system of dual control whereby <strong>the</strong><br />
work of one person is verified by a second person to ensure that <strong>the</strong> transaction is<br />
properly authorized, recorded, and settled.<br />
Independent reviews are regularly conducted by <strong>the</strong> Internal Audit Department to<br />
ensure that risk controls are in place and functioning effectively. The Internal Audit<br />
Department undertakes a comprehensive audit of all divisions and departments in<br />
accordance with a risk-based audit plan. It conceptualizes and recommends <strong>the</strong><br />
implementation of an improved system of internal controls, to minimize operational<br />
risks. The Audit Plan <strong>for</strong> each fiscal <strong>year</strong> is approved by <strong>the</strong> Audit Committee of <strong>the</strong><br />
Board of Directors. These audits also include <strong>the</strong> area of in<strong>for</strong>mation security that<br />
covers application systems, databases, networks, and operating systems.<br />
Recognizing <strong>the</strong> importance of customer service in its operations, <strong>the</strong> Company has a<br />
Customer Support Team composed of a dedicated and highly-trained team of Country<br />
Customer Care Officers (3COs) who support <strong>the</strong> <strong>for</strong>eign offices, associates, and <strong>the</strong><br />
Company’s customers and <strong>the</strong>ir beneficiaries. The Company provides 24 x 7 customer<br />
service support and minimizes operational risks by ensuring accuracy and effectiveness<br />
in operations and in <strong>the</strong> delivery of services.<br />
The Company also has a Business Continuity Plan (BCP) that outlines <strong>the</strong> activities<br />
and <strong>the</strong> procedures to be undertaken in <strong>the</strong> event of abnormal or emergency<br />
conditions, or a disaster, to ensure that disruption to operations will be kept at a<br />
manageable level, financial losses will be minimized, <strong>the</strong> safety and security of<br />
employees, customers, and Company records will be maintained, and normal<br />
operations will be restored in <strong>the</strong> shortest time possible. I-Remit maintains a disaster<br />
recovery (DRP) site with Globe Telecom/Innove Communications in Makati City.<br />
25
The o<strong>the</strong>r risks identified are: regulatory risk, legal risk, and technology risk.<br />
Regulatory risk refers to <strong>the</strong> potential <strong>for</strong> <strong>the</strong> Company to suffer financial losses due to<br />
changes in <strong>the</strong> laws or monetary, tax or o<strong>the</strong>r governmental regulations of <strong>the</strong><br />
Philippines or of a country. Losses may be in <strong>the</strong> <strong>for</strong>m of regulatory sanctions <strong>for</strong> noncompliance,<br />
and in extreme cases, may involve not just mere loss in terms of reputation<br />
or financial penalties, but a revocation of <strong>the</strong> license, charter or franchise.<br />
The Company’s Compliance Program, <strong>the</strong> implementation of which is overseen and<br />
coordinated by <strong>the</strong> Compliance Officer, is <strong>the</strong> primary control process <strong>for</strong> regulatory risk<br />
issues. The Compliance Officer is responsible <strong>for</strong> communicating and disseminating<br />
new rules and regulations to all concerned units, analyzing and addressing compliance<br />
issues, and reporting compliance findings to <strong>the</strong> Management Committee, Executive<br />
Committee or <strong>the</strong> Board of Directors.<br />
I-Remit’s subsidiaries, associates, affiliates, tie-ups and agents have and maintain all<br />
licenses and permits necessary to provide remittance and money transfer services in<br />
<strong>the</strong>ir host countries. Compliance officers are appointed in each of <strong>the</strong> Company’s<br />
<strong>for</strong>eign offices whose primary responsibility is to ensure compliance with all local rules,<br />
regulations, laws, and licensing requirements.<br />
The Anti-Money Laundering Act (AMLA) of 2001 (Republic Act 9160) was passed into<br />
law on November 29, 2001 and was subsequently am<strong>ended</strong> on March 23, 2003<br />
(Republic Act 9194). The AMLA created <strong>the</strong> Anti-Money Laundering Council (AMLC)<br />
which is composed of <strong>the</strong> Governor of <strong>the</strong> Bangko Sentral ng Pilipinas (BSP) as<br />
Chairman, and <strong>the</strong> Commissioner of <strong>the</strong> Insurance Commission and <strong>the</strong> Chairman of<br />
<strong>the</strong> Securities and Exchange Commission as Members. The AMLC discharges <strong>the</strong><br />
functions enumerated in <strong>the</strong> AMLA, which basically regulates <strong>the</strong> transfer of funds via<br />
<strong>the</strong> route of covered institutions.<br />
As remittance agents are covered by <strong>the</strong> AMLA, <strong>the</strong> Bangko Sentral ng Pilipinas issued<br />
BSP Circular No. 471, Series of 2005 on January 24, 2005 that prescribed rules and<br />
regulations that govern <strong>the</strong> registration and operations of <strong>for</strong>eign exchange dealers,<br />
money changers, and remittance agents. On January 5, <strong>2011</strong>, <strong>the</strong> BSP issued BSP<br />
Circular 706 Series of <strong>2011</strong> that prescribes updated anti-money laundering rules and<br />
regulations.<br />
The Company requires its subsidiaries, associates, and agents to validate <strong>the</strong> true<br />
identity of a customer based on official or o<strong>the</strong>r reliable identifying documents or<br />
records be<strong>for</strong>e accepting a transaction. The Company is required to submit a report on<br />
“covered” transactions and “suspicious” transactions involving a single transaction in<br />
cash or o<strong>the</strong>r monetary instruments in excess of PHP 500,000 within one (1) banking<br />
day from <strong>the</strong> date of said transaction or from <strong>the</strong> date <strong>the</strong> Company gained in<strong>for</strong>mation<br />
that <strong>the</strong> transaction was done <strong>for</strong> <strong>the</strong> purpose of laundering proceeds of criminal or<br />
o<strong>the</strong>r illegal activities or from <strong>the</strong> time <strong>the</strong> Company had reasonably suspected that said<br />
transactions were entered into <strong>for</strong> <strong>the</strong> purpose of laundering proceeds of criminal and<br />
o<strong>the</strong>r illegal activities.<br />
The Company is required to establish and record <strong>the</strong> identities of its clients based on<br />
official documents. The BSP requires all registered remittance agents to maintain<br />
accurate and meaningful originator in<strong>for</strong>mation on funds transferred or remitted by<br />
requiring <strong>the</strong> sender or remitter to fill-out and sign an application <strong>for</strong>m, which shall<br />
contain minimum data and in<strong>for</strong>mation, such as <strong>the</strong> printed name and signature of <strong>the</strong><br />
remitter, permanent address, nationality, amount and currency to be remitted and<br />
source of <strong>for</strong>eign currency <strong>for</strong> individuals. For corporate or juridical entities, in addition<br />
to a signed application <strong>for</strong>m containing <strong>the</strong> applicable in<strong>for</strong>mation <strong>for</strong> individual<br />
customers, <strong>the</strong> requirement includes a photocopy of <strong>the</strong> authority and identification of<br />
<strong>the</strong> person purporting to act in behalf of <strong>the</strong> client shall be required. In addition, all<br />
records of transactions are required to be maintained and stored <strong>for</strong> five (5) <strong>year</strong>s from<br />
<strong>the</strong> date of a transaction.<br />
26
The Company has adopted <strong>the</strong> anti-money laundering/counter-terrorism financing<br />
(AML/CFT) policies and guidelines that are part of its Compliance Program. These<br />
policies and guidelines cover areas such as <strong>the</strong> customer due diligence process (“Know<br />
Your Customer” rule), large cash transactions, record-keeping, large cash and<br />
suspicious transaction reporting, and AML/CFT training of employees. These policies<br />
and guidelines are based on <strong>the</strong> Financial Action Task Force (FATF) 40<br />
Recommendations and 9 Special Recommendations, and were <strong>for</strong>mulated to ensure<br />
compliance with <strong>the</strong> requirements of <strong>the</strong> AMLA and BSP Circular 706 Series of <strong>2011</strong>.<br />
I-Remit’s <strong>for</strong>eign subsidiaries, associates, and agents are required to comply with <strong>the</strong><br />
anti-money laundering regulations of <strong>the</strong>ir host countries to ensure that funds being<br />
sent through <strong>the</strong> I-Remit <strong>for</strong>eign system are of lawful and verifiable origin. Among<br />
o<strong>the</strong>rs, remitters are required to present documents such as proofs of identification,<br />
residency, and financial origin as required by local regulations of <strong>the</strong> host countries.<br />
Remitted amounts are also subject to <strong>the</strong> prescribed transmission limits of <strong>the</strong> monetary<br />
authorities or <strong>the</strong> financial intelligence units. I-Remit’s subsidiaries, associates, and<br />
agents are registered with <strong>the</strong> various financial and central monetary authorities<br />
globally such as <strong>the</strong> Office of <strong>the</strong> Superintendent of Financial Institutions (Canada), <strong>the</strong><br />
Hong Kong Monetary Authority, <strong>the</strong> Monetary Authority, etc. I-Remit’s subsidiaries,<br />
associates, and agents are registered with and submit periodic reports, when required,<br />
to <strong>the</strong> financial intelligence units (FIUs) of <strong>the</strong>ir host countries such as <strong>the</strong> Australian<br />
Transaction <strong>Report</strong>s and Analysis Centre (AUSTRAC), Financial Transactions and<br />
<strong>Report</strong>s Analysis Centre (FINTRAC) of Canada, <strong>the</strong> Joint Financial Intelligence Unit<br />
(JFIU) in Hong Kong, Her Majesty’s Customs and Excise (United Kingdom), etc. In<br />
ensuring compliance across <strong>the</strong> different locations, I-Remit’s Foreign System is linked<br />
to <strong>the</strong> databases of <strong>the</strong> Office of Foreign Assets Control (OFAC) of <strong>the</strong> US Department<br />
of <strong>the</strong> Treasury (Specially Designated Nationals and Blocked Persons List), Office of<br />
<strong>the</strong> Superintendent of Financial Institutions (OSFI) of Canada (Consolidated List of<br />
Names Subject to <strong>the</strong> Regulations Establishing a List of Entities Made Under<br />
Subsection 83.05[1] of <strong>the</strong> Criminal Code or <strong>the</strong> Regulations Implementing <strong>the</strong> United<br />
Nations Resolutions on <strong>the</strong> Suppression of Terrorism or <strong>the</strong> United Nations Al-Qaida<br />
and Taliban Regulations), European Union (EU) (Consolidated List of Persons, Groups<br />
and Entities Subject to EU Financial Sanctions), and United Nations Security Council<br />
Consolidated List Established and Maintained by <strong>the</strong> 1267 Committee with respect to Al<br />
Qaida, and <strong>the</strong> Taliban, and o<strong>the</strong>r individuals, groups, undertakings and entities<br />
associated with <strong>the</strong>m to filter specially-designated nationals and blocked individuals.<br />
Regulatory risk also includes <strong>the</strong> strict monitoring or <strong>the</strong> limitation on <strong>the</strong> entry of <strong>for</strong>eign<br />
workers entering specific countries by <strong>the</strong>ir respective governments. Governments of<br />
some concerned nations have implemented strict monitoring measures on <strong>the</strong> number<br />
and types of <strong>for</strong>eign workers entering <strong>the</strong>ir respective countries because some of <strong>the</strong>ir<br />
citizens have incessantly blamed <strong>the</strong>ir inability to obtain jobs on <strong>the</strong> increasing<br />
competition from <strong>for</strong>eign migrant workers. By nature, <strong>the</strong> Philippine remittance industry<br />
relies heavily on <strong>the</strong> number of OFWs residing or working abroad, and sending money<br />
to <strong>the</strong> Philippines. Any decline in <strong>the</strong> growth of OFW deployment as a result of<br />
regulations or restrictions imposed by host countries may hamper <strong>the</strong> overall growth of<br />
<strong>the</strong> remittance industry.<br />
Legal risk refers to <strong>the</strong> uncertainty of <strong>the</strong> en<strong>for</strong>ceability of <strong>the</strong> obligations of <strong>the</strong><br />
Company’s business partners, agents, tie-ups, and suppliers. Changes in law and<br />
regulations could adversely affect <strong>the</strong> Company. Legal risk is higher in new areas of<br />
business where <strong>the</strong> law is often untested by <strong>the</strong> courts. The Company seeks to<br />
minimize its legal risks by using stringent legal documentation, employing procedures<br />
designed to ensure that transactions are properly authorized, and by constantly<br />
consulting its external legal counsels locally and in <strong>the</strong> countries it operates in.<br />
27
The delivery of financial services is characterized by rapid technological change,<br />
changing customer preferences, <strong>the</strong> introduction of new products and services, and <strong>the</strong><br />
emergence of new standards. The Company realizes <strong>the</strong> potential losses arising from<br />
<strong>the</strong> breakdown or malfunction of computer systems as well as from <strong>the</strong> misuse of its<br />
infrastructure and networks. The Company gives importance to computer security and<br />
has a comprehensive in<strong>for</strong>mation technology security policy. The Company defines<br />
and maintains in<strong>for</strong>mation security policies that follow industry standards, such as <strong>the</strong><br />
use of firewalls, secure socket layer (SSL) encryption, anti-virus measures, and userdefined<br />
access controls. The Company’s major application systems have multiple<br />
security features to protect <strong>the</strong> integrity of applications and data.<br />
Access to I-Remit’s Foreign System via <strong>the</strong> Internet has several security restrictions<br />
including firewalls, secure socket layers using 128-bit encryption, digital certificates and<br />
password identification. All remittance transactions are encrypted with hash totals / test<br />
keys to ensure au<strong>the</strong>nticity of transaction details. “Check and balance control” is<br />
implemented across <strong>the</strong> procedure cycle from <strong>for</strong>eign offices, associates, and agents to<br />
<strong>the</strong> I-Remit office in Manila.<br />
Most of <strong>the</strong> in<strong>for</strong>mation technology assets including critical servers are located in a<br />
centralized data center at <strong>the</strong> Company’s headquarters, which are subject to<br />
appropriate physical and logical access controls. Likewise, <strong>the</strong> systems are designed<br />
to be redundant to ensure continuity of business operations in <strong>the</strong> event of un<strong>for</strong>eseen<br />
events or disasters. The system also has parallel servers concurrently operating and<br />
connected to different ISP providers to ensure non-disruption of its operations.<br />
O<strong>the</strong>r In<strong>for</strong>mation<br />
No bankruptcy, receivership or similar proceedings have been instituted against <strong>the</strong><br />
Company and its subsidiaries, affiliates or associates. Fur<strong>the</strong>rmore, no material<br />
reclassification, merger, consolidation, or purchase or sale of a significant amount of<br />
assets not in <strong>the</strong> ordinary course of business has taken place.<br />
28
Item 2. Properties<br />
(B) Description of Property<br />
I-Remit and its subsidiaries do not own any real estate properties. I-Remit is leasing its headquarters<br />
located at <strong>the</strong> 25 th , 26 th , and 27 th floors of <strong>the</strong> Discovery Centre, a condominium office and residential<br />
building, located at 25 ADB Avenue, Ortigas Center, Pasig City from Oakridge Properties, Inc. In<br />
addition, certain departments of <strong>the</strong> Company are holding office at <strong>the</strong> 8 th floor of <strong>the</strong> Wynsum<br />
Corporate Plaza, a condominium office building located at 22 F. Ortigas Jr. Road (<strong>for</strong>merly Emerald<br />
Avenue), Ortigas Center, Pasig City.<br />
I-Remit and Oakridge Properties, Inc. are related to each o<strong>the</strong>r by virtue of JTKC Equities’ ownership<br />
of <strong>the</strong> Discovery Leisure Company, Inc. which in turn owns Oakridge Properties, Inc. JTKC Equities,<br />
Inc. is one of <strong>the</strong> Company’s major shareholders.<br />
The lease on <strong>the</strong> unit at <strong>the</strong> 25 th floor of <strong>the</strong> Discovery Centre (Unit 2503), consisting of an area of<br />
199.70 square meters, is covered by an operating lease agreement which was ext<strong>ended</strong> <strong>for</strong> a term of<br />
six (6) months, commencing on February 1, 2012 and ending on August <strong>31</strong>, 2012, with a 10 percent<br />
escalation on <strong>the</strong> aggregate current monthly rental on <strong>the</strong> 13 th month of <strong>the</strong> lease term. The lease may<br />
be renewed under terms and conditions mutually agreed upon by <strong>the</strong> parties 90 days prior to <strong>the</strong><br />
expiration of <strong>the</strong> contract of lease. At <strong>the</strong> start of <strong>the</strong> lease, <strong>for</strong> <strong>the</strong> use and occupancy of <strong>the</strong><br />
premises, <strong>the</strong> Company paid Oakridge Properties, Inc. <strong>the</strong> amount of PHP 658.85 per square meter<br />
every month or its equivalent monthly rental of PHP1<strong>31</strong>,572.35.<br />
The lease on <strong>the</strong> unit at <strong>the</strong> 26 th floor of <strong>the</strong> Discovery Centre (Unit 2603), consisting of an area of<br />
199.70 square meters, is covered by an operating lease agreement with a term of two (2) <strong>year</strong>s,<br />
commencing on <strong>December</strong> 1, <strong>2011</strong> and ending on November 30, 2013, with a 10 percent escalation<br />
on <strong>the</strong> aggregate current monthly rental on <strong>the</strong> 13 th month of <strong>the</strong> lease term. The lease may be<br />
renewed under terms and conditions mutually agreed upon by <strong>the</strong> parties 90 days prior to <strong>the</strong><br />
expiration of <strong>the</strong> contract of lease. I-Remit, as lessee, pays Oakridge Properties, Inc. every month <strong>the</strong><br />
amount of PHP798.60 per square meter or its equivalent monthly rental of PHP159,480.42.<br />
The lease on <strong>the</strong> units at <strong>the</strong> 26 th floor of <strong>the</strong> Discovery Centre (Units 2604 and 2605) with an<br />
aggregate useable floor area of 278.00 square meters and 273.80 square meters, is covered by an<br />
operating lease agreement with a term of two (2) <strong>year</strong>s, commencing on <strong>December</strong> 1, <strong>2011</strong> and<br />
expiring on November 30, 2013, with a 10 percent escalation on <strong>the</strong> aggregate current monthly rental<br />
on <strong>the</strong> 13 th month of <strong>the</strong> lease term. The lease may be renewed under terms and conditions mutually<br />
agreed upon by <strong>the</strong> parties 90 days prior to <strong>the</strong> expiration of <strong>the</strong> contract of lease. At <strong>the</strong> start of <strong>the</strong><br />
lease, I-Remit, as lessee, paid Oakridge Properties, Inc. every month <strong>the</strong> amount of PHP827.21 per<br />
square meter or its equivalent monthly rental of PHP456,454.48.<br />
The lease on <strong>the</strong> unit at <strong>the</strong> 27 th floor of <strong>the</strong> Discovery Centre (Unit 2703) with an aggregate useable<br />
floor area of 199.70 square meters, is covered by an operating lease agreement with a term of two (2)<br />
<strong>year</strong>s, which commenced on February 1, <strong>2011</strong> and expires on January <strong>31</strong>, 2013, with an escalation<br />
rate of 10 percent on <strong>the</strong> 13 th month of <strong>the</strong> lease term. The lease may be renewed under terms and<br />
conditions mutually agreed upon by <strong>the</strong> parties 90 days prior to <strong>the</strong> expiration of <strong>the</strong> contract of lease.<br />
At <strong>the</strong> start of <strong>the</strong> lease, I-Remit, as lessee, paid Oakridge Properties, Inc. every month <strong>the</strong> amount of<br />
PHP671.00 per square meter or its equivalent monthly rental of PHP133,998.70.<br />
The above monthly rentals with respect to <strong>the</strong> lease contracts with Oakridge Properties, Inc. exclude<br />
charges <strong>for</strong> air-conditioning and electricity or generator set during brown-out, water, and o<strong>the</strong>r charges<br />
such as association dues, parking fees, overtime pay of janitors and technicians which are borne by<br />
I-Remit.<br />
The lease on <strong>the</strong> unit at <strong>the</strong> 8 th floor of <strong>the</strong> Wynsum Corporate Plaza with an aggregate useable floor<br />
area of 287 square meters and five (5) parking spaces, are covered by an operating lease agreement<br />
with a term of two (2) <strong>year</strong>s, commencing on September 1, 2010 and expiring on August <strong>31</strong>, 2012.<br />
The lease may be renewed under terms and conditions mutually agreed upon by <strong>the</strong> parties 90 days<br />
prior to <strong>the</strong> expiration of <strong>the</strong> contract of lease. I-Remit, as lessee, paid Wynsum Realty Developer,<br />
Inc. <strong>the</strong> rent on <strong>the</strong> condominium unit in <strong>the</strong> amount of PHP550.00 per square meter or its equivalent<br />
of PHP 157,850.00 every month and on <strong>the</strong> five (5) parking spaces in <strong>the</strong> amount of PHP<strong>17</strong>,500.00<br />
every month, both not subject to escalation.<br />
The above monthly rentals with respect to <strong>the</strong> lease contract with Wynsum Realty Developer, Inc.<br />
exclude charges <strong>for</strong> air-conditioning, electricity, gas, telephone and o<strong>the</strong>r charges such as association<br />
dues, which are borne by I-Remit.<br />
29
Current Rent<br />
per Month<br />
Contract Period<br />
exclusive of Term<br />
Unit & Location Address Area (sqm) VAT (PHP) (<strong>year</strong>s) Start End<br />
Unit 2503, 25/F 25 ADB Avenue, Ortigas 199.70 1<strong>31</strong>,572.35 6 months Feb. 1, Aug. <strong>31</strong>,<br />
Discovery Centre Center, Pasig City<br />
extension 2012 2012<br />
Unit 2603, 26/F 25 ADB Avenue, Ortigas 199.70 159,480.42 2 Dec. 1, Nov. 30,<br />
Discovery Centre Center, Pasig City<br />
<strong>2011</strong> 2013<br />
Unit 2604 & 2605, 25 ADB Avenue, Ortigas 551.80 456,454.48 2 Dec. 1, Nov. 30,<br />
26/F Discovery<br />
Centre<br />
Center, Pasig City<br />
<strong>2011</strong> 2013<br />
Unit 2703, 27/F 25 ADB Avenue, Ortigas 199.70 133,998.70 2 Feb. 1, Jan. <strong>31</strong>,<br />
Discovery Centre Center, Pasig City<br />
<strong>2011</strong> 2013<br />
8/F Wynsum 22 F. Ortigas Jr. Road, 287.00 157,850.00 2 Sep. 1, Aug. <strong>31</strong>,<br />
Corporate Plaza Ortigas Center, Pasig<br />
City<br />
2010 2012<br />
Five (5) parking 22 F. Ortigas Jr. Road, --- <strong>17</strong>,500.00 2 Sep. 1, Aug. <strong>31</strong>,<br />
spaces, Wynsum Ortigas Center, Pasig<br />
2010 2012<br />
Corporate Plaza City<br />
Rent expense pertaining to <strong>the</strong> above leased office spaces by <strong>the</strong> Parent Company, from Oakridge<br />
Properties and Wynsum Realty amounted to PHP12.06 million in <strong>2011</strong>, PHP11.01 million in 2010, and<br />
PHP10.55 million in 2009.<br />
I-Remit has office sharing arrangements with Surewell Equities (Singapore) Pte. Ltd. in Singapore.<br />
Mr. Bansan C. Choa, Chairman and Chief Executive Officer of I-Remit, is also a shareholder in both<br />
companies.<br />
I-Remit’s subsidiaries have <strong>the</strong>ir respective operating lease agreements <strong>for</strong> <strong>the</strong>ir office spaces. The<br />
lease contracts are <strong>for</strong> periods ranging from 1 to 10 <strong>year</strong>s and may be renewed under <strong>the</strong> terms and<br />
conditions mutually agreed upon by <strong>the</strong> subsidiaries and <strong>the</strong> lessors.<br />
The Group’s rent expense includes operating lease agreements entered into by <strong>the</strong> subsidiaries <strong>for</strong><br />
<strong>the</strong> use of its office spaces. Rent expense of <strong>the</strong> Group amounted to PHP 56.52, PHP 50.38, and<br />
PHP39.33 million in <strong>2011</strong>, 2010, and 2009, respectively.<br />
The Group does not expect any purchase of significant properties in <strong>the</strong> next twelve (12) months.<br />
30
Item 3. Legal Proceedings<br />
(C) Legal Proceedings<br />
The Parent Company is not involved in nor are any of its properties subject to, any material legal<br />
proceeding that could potentially affect its operations and financial capabilities.<br />
Item 4. Submission of Matters to a Vote of Security Holders<br />
Except <strong>for</strong> matters taken up during <strong>the</strong> annual meeting of stockholders, <strong>the</strong>re were no matters<br />
submitted to a vote of security holders during <strong>the</strong> period covered by this report.<br />
<strong>31</strong>
PART II. OPERATIONAL AND FINANCIAL INFORMATION<br />
Item 5. Market <strong>for</strong> Issuer’s Common Equity and Related Stockholder Matters<br />
(A) Market Price of and Dividends on Registrant’s Common Equity and Related Stockholder Matters<br />
(1) Market In<strong>for</strong>mation<br />
The common shares of <strong>the</strong> Parent Company are traded in <strong>the</strong> Philippine Stock Exchange<br />
(PSE).<br />
Quarter end stock price ranges <strong>for</strong> 2009 were as follows:<br />
Quarter Ending Date High Low Close<br />
Mar. <strong>31</strong>, 2009 PHP 4.80 PHP 3.70 PHP 4.45<br />
Jun. 30, 2009 PHP 4.65 PHP 4.00 PHP 4.10<br />
Sep. 30, 2009 PHP 4.60 PHP 3.85 PHP 4.00<br />
Dec. <strong>31</strong>, 2009 PHP 7.00 PHP 3.70 PHP 6.10<br />
Quarter end stock price ranges <strong>for</strong> 2010 were as follows:<br />
Quarter Ending Date High Low Close<br />
Mar. <strong>31</strong>, 2010 PHP 6.20 PHP 4.70 PHP 4.85<br />
Jun. 30, 2010 PHP 5.00 PHP 4.25 PHP 4.40<br />
Sep. 30, 2010 PHP 4.85 PHP 3.44 PHP 4.00<br />
Dec. <strong>31</strong>, 2010 PHP 4.08 PHP 3.20 PHP 3.34<br />
Quarter end stock price ranges <strong>for</strong> <strong>2011</strong> were as follows:<br />
Quarter Ending Date High Low Close<br />
Mar. <strong>31</strong>, <strong>2011</strong> PHP 3.67 PHP 3.00 PHP 3.10<br />
Jun. 30, <strong>2011</strong> PHP 3.26 PHP 2.80 PHP 3.00<br />
Sep. 30, <strong>2011</strong> PHP 3.26 PHP 1.91 PHP 2.25<br />
Dec. <strong>31</strong>, <strong>2011</strong> PHP 2.50 PHP 2.00 PHP 2.45<br />
The closing price of <strong>the</strong> Company’s common shares as of <strong>the</strong> latest practicable trading date,<br />
i.e., April 12, 2012, is PHP 2.47 per share.<br />
32
(2) Holders<br />
There were eighteen (18) common shareholders of record as of <strong>December</strong> <strong>31</strong>, <strong>2011</strong>.<br />
Common shares amounted to 6<strong>17</strong>,725,800* as of <strong>December</strong> <strong>31</strong>, <strong>2011</strong>.<br />
* Inclusive of 14,873,000 common shares purchased by <strong>the</strong> Company under its stock buy-back<br />
program.<br />
The top twenty (20) common shareholders as of <strong>December</strong> <strong>31</strong>, <strong>2011</strong>, <strong>the</strong> number of shares<br />
held and <strong>the</strong> percentage of total shares held by each are as follows:<br />
Name Citizenship Total Shares<br />
Percentage<br />
(%)<br />
1 PCD Nominee Corporation - Filipino Filipino * 240,775,288 38.9777<br />
2 Star Equities Inc. Filipino <strong>17</strong>4,260,047 28.2099<br />
3 Surewell Equities, Inc. Filipino 134,248,290 21.7327<br />
4 JTKC Equities, Inc. Filipino 47,771,295 7.7334<br />
5 JPSA Global Services Co. Filipino 18,700,000 3.0272<br />
6 PCD Nominee Corporation – Non-Filipino Foreign 1,855,370 0.3004<br />
7 Alba, Willy S. Filipino 88,000 0.0142<br />
8 Lim, Nieves Q. &/or Charis Honeylet Q. Lim Filipino 10,000 0.0016<br />
9 GTS Insurance Brokers Inc. Filipino 5,000 0.0008<br />
10 Cruz, Napoleon D. Sr. and/or Luisa I. Cruz Filipino 3,000 0.0005<br />
11 Soriano, Victor Martin J. Filipino 2,000 0.0003<br />
12 Ona, Edgardo V. Filipino 2,000 0.0003<br />
13 Simon, Dwight David M. and/or Corrine Jewel R. Simon Filipino 2,000 0.0003<br />
14 Olayres, Norberto F. and/or Olayres, Felisa J. Filipino 1,000 0.0002<br />
15 Hapi Iloilo Corporation Filipino 1,000 0.0002<br />
16 M. J. Soriano Trading, inc. Filipino 1,000 0.0002<br />
<strong>17</strong> Au, Owen Nathaniel S. ITF: Li Marcus Au Filipino 400 0.0001<br />
18 Gaw, Gilbert C. Filipino 110 0.0000<br />
Total ** 6<strong>17</strong>,725,800 100.0000<br />
* Inclusive of 68,839,952 lodged common shares held by JTKC Equities, Inc., thus, its total<br />
shareholdings is 116,611,247 representing 18.8775% ownership.<br />
** Inclusive of 14,873,000 common shares purchased by <strong>the</strong> Company under its stock buy-back<br />
program.<br />
33
There were eighteen (18) common shareholders of record as of March <strong>31</strong>, 2012. Common<br />
shares amounted to 6<strong>17</strong>,725,800* as of March <strong>31</strong>, 2012.<br />
* Inclusive of 14,873,000 common shares purchased by <strong>the</strong> Company under its stock buy-back<br />
program.<br />
The top twenty (20) common shareholders as of March <strong>31</strong>, 2012, <strong>the</strong> number of shares held<br />
and <strong>the</strong> percentage of total shares held by each are as follows:<br />
Name Citizenship Total Shares<br />
Percentage<br />
(%)<br />
1 PCD Nominee Corporation - Filipino Filipino * 240,773,588 38.9774<br />
2 Star Equities Inc. Filipino <strong>17</strong>4,260,047 28.2099<br />
3 Surewell Equities, Inc. Filipino 134,248,290 21.7327<br />
4 JTKC Equities, Inc. Filipino 47,771,295 7.7334<br />
5 JPSA Global Services Co. Filipino 18,700,000 3.0272<br />
6 PCD Nominee Corporation – Non-Filipino Foreign 1,855,370 0.3004<br />
7 Alba, Willy S. Filipino 88,000 0.0142<br />
8 Lim, Nieves Q. &/or Charis Honeylet Q. Lim Filipino 10,000 0.0016<br />
9 GTS Insurance Brokers Inc. Filipino 5,500 0.0009<br />
10 Cruz, Napoleon D. Sr. and/or Luisa I. Cruz Filipino 3,300 0.0005<br />
11 Soriano, Victor Martin J. Filipino 2,200 0.0004<br />
12 Ona, Edgardo V. Filipino 2,200 0.0004<br />
13 Simon, Dwight David M. and/or Corrine Jewel R. Simon Filipino 2,200 0.0002<br />
14 Olayres, Norberto F. and/or Olayres, Felisa J. Filipino 1,100 0.0002<br />
15 Hapi Iloilo Corporation Filipino 1,100 0.0002<br />
16 M. J. Soriano Trading, inc. Filipino 1,100 0.0002<br />
<strong>17</strong> Au, Owen Nathaniel S. ITF: Li Marcus Au Filipino 400 0.0001<br />
18 Gaw, Gilbert C. Filipino 110 0.0000<br />
Total ** 6<strong>17</strong>,725,800 100.0000<br />
(3) Dividends<br />
* Inclusive of 68,839,952 lodged common shares held by JTKC Equities, Inc., thus, its total<br />
shareholdings is 116,611,247 representing 18.8775% ownership.<br />
** Inclusive of 14,873,000 common shares purchased by <strong>the</strong> Company under its stock buy-back<br />
program.<br />
The Company’s Board of Directors is authorized to declare dividends. Pursuant to Sections 43<br />
and 143 of <strong>the</strong> Corporation Code of <strong>the</strong> Philippines, Section 5 of <strong>the</strong> Securities Regulation<br />
Code, and SEC Memorandum Circular No. 11, Series of 2008 (Guidelines on <strong>the</strong><br />
Determination of Retained Earnings Available <strong>for</strong> Dividend Declaration), dividends may be<br />
declared and paid out of <strong>the</strong> unrestricted retained earnings which shall be payable in cash,<br />
property, or stock to all stockholders on <strong>the</strong> basis of outstanding stock held by <strong>the</strong>m, as often<br />
and at such time as <strong>the</strong> Board of Directors may determine and in accordance with law and<br />
applicable rules and regulations. Cash and property dividend declarations do not require any<br />
fur<strong>the</strong>r approval from <strong>the</strong> Company’s shareholders. Any stock dividend declaration requires<br />
<strong>the</strong> approval of shareholders holding at least two-thirds of <strong>the</strong> Company’s total outstanding<br />
capital stock.<br />
Pursuant to existing Philippine regulations, cash dividends declared by <strong>the</strong> Company must<br />
have a record date of not less than ten (10) days or more than thirty (30) days from <strong>the</strong> date<br />
<strong>the</strong> cash dividends are declared.<br />
34
With respect to stock dividends, <strong>the</strong> record date is to be not less than ten (10) days or more<br />
than thirty (30) days from <strong>the</strong> shareholders’ approval, provided however, that <strong>the</strong> set record<br />
date is not to be less than ten (10) training days from receipt of <strong>the</strong> Philippine Stock Exchange<br />
of <strong>the</strong> notice of declaration of stock dividend. If no record date is set, under <strong>the</strong> Securities and<br />
Exchange Commission rules, <strong>the</strong> record date will be deemed fixed at fifteen (15) days from <strong>the</strong><br />
date of stock dividend declaration. In <strong>the</strong> event that a stock dividend is declared in connection<br />
with an increase in authorized capital stock, <strong>the</strong> corresponding record date is to be fixed by <strong>the</strong><br />
Securities and Exchange Commission.<br />
The Board of Directors of <strong>the</strong> Company declared stock dividends worth PHP 43,000,000.00 to<br />
its shareholders on July 20, 2007, which declaration was subsequently ratified and confirmed<br />
by <strong>the</strong> Company’s shareholders during <strong>the</strong>ir annual meeting held on <strong>the</strong> same day,<br />
immediately after <strong>the</strong> Board meeting. The Record Date was set on August 19, 2007, thirty (30)<br />
days from <strong>the</strong> date of approval of <strong>the</strong> Company’s shareholders.<br />
With <strong>the</strong> listing of <strong>the</strong> Company’s shares in <strong>the</strong> Philippine Stock Exchange, <strong>the</strong> Company<br />
intends to maintain an annual dividend payment ratio <strong>for</strong> its shares of up to 20 percent of its<br />
consolidated net income from <strong>the</strong> preceding fiscal <strong>year</strong>, subject to <strong>the</strong> requirements of<br />
applicable laws and regulations and <strong>the</strong> absence of circumstances which may restrict <strong>the</strong><br />
payment of dividends. Circumstances which may restrict <strong>the</strong> payment of dividends include, but<br />
are not limited to, situations when <strong>the</strong> Company undertakes major projects and developments<br />
requiring substantial cash expenditures or when it is restricted from paying dividends by its<br />
loan covenants. The Company’s Board, may, at any time, modify such dividend payout ratio<br />
depending upon <strong>the</strong> results of operations and future projects and plans of <strong>the</strong> Company.<br />
On April 25, 2008, <strong>the</strong> Board of Directors of <strong>the</strong> Parent Company declared cash dividends<br />
amounting to PHP 21.99 million or PHP 0.0391 per share, payable to shareholders-of-record<br />
as of May 15, 2008, which declaration was subsequently ratified and confirmed by <strong>the</strong> Parent<br />
Company’ shareholders during <strong>the</strong>ir annual meeting held on July <strong>31</strong>, 2008. The payment of<br />
dividends was made on June 10, 2008.<br />
On March 20, 2009, <strong>the</strong> Board of Directors of <strong>the</strong> Parent Company declared cash dividends<br />
amounting to PHP 26 million, representing 20 percent of <strong>the</strong> Company’s consolidated net<br />
income <strong>for</strong> <strong>the</strong> period <strong>ended</strong> <strong>December</strong> <strong>31</strong>, 2008 or PHP 0.0471 per share, payable to<br />
shareholders-of-record as of April 7, 2009. The payment of dividends will be on a date on or<br />
be<strong>for</strong>e May 6, 2009.<br />
On March 19, 2010, <strong>the</strong> Board of Directors of <strong>the</strong> Parent Company declared cash dividends<br />
amounting to PHP 26,603,532, representing 20 percent of <strong>the</strong> Company’s consolidated net<br />
income <strong>for</strong> <strong>the</strong> period <strong>ended</strong> <strong>December</strong> <strong>31</strong>, 2009 or PHP 0.0481 per share, payable to<br />
shareholders-of-record as of April 8, 2010. The payment of dividends will be on a date on or<br />
be<strong>for</strong>e May 5, 2010.<br />
On June <strong>17</strong>, <strong>2011</strong>, <strong>the</strong> Company’s Board of Directors authorized <strong>the</strong> declaration of Fifty-Five<br />
Million, Three Hundred Eight Thousand, Eight Hundred (55,308,800) common shares stock<br />
dividend, with a par value of one peso (PHP 1.00) per share, out of <strong>the</strong> unrestricted retained<br />
earnings of <strong>the</strong> Company as of <strong>December</strong> <strong>31</strong>, 2010. The stock dividend, which is equivalent to<br />
10% of <strong>the</strong> issued and outstanding shares of <strong>the</strong> Company, was taken from its unissued<br />
capital stock. Pursuant to <strong>the</strong> provisions of <strong>the</strong> Corporation Code, <strong>the</strong> a<strong>for</strong>ementioned stock<br />
dividend declaration was submitted <strong>for</strong> stockholders’ approval during <strong>the</strong>ir annual meeting on<br />
July 29, <strong>2011</strong>. On September 6, <strong>2011</strong>, <strong>the</strong> PSE approved <strong>the</strong> listing of additional 55,308,800<br />
common shares to cover said stock dividend declaration. On September 08, <strong>2011</strong>, <strong>the</strong> stock<br />
dividend was paid to all of <strong>the</strong> Company’s stockholders of record as of August 15, <strong>2011</strong>.<br />
O<strong>the</strong>r than statutory limitations, <strong>the</strong>re are no restrictions that prevent <strong>the</strong> Parent Company from<br />
paying dividends on common equity.<br />
35
(4) Recent Sales of Unregistered or Exempt Securities, Including Recent Issuances of Securities<br />
Constituting an Exempt Transaction<br />
On August 21, 2007, <strong>the</strong> Company distributed stock dividends worth PHP 43,000,000.00 to <strong>the</strong><br />
stockholders of record as of August 19, 2007.<br />
The stock dividend declaration was approved by <strong>the</strong> Company’s Board of Directors on July 20,<br />
2007 and was subsequently approved and ratified by <strong>the</strong> stockholders owning at least twothirds<br />
(2/3) of <strong>the</strong> total outstanding capital stock of <strong>the</strong> Company on <strong>the</strong> same date of July 20,<br />
2007 during <strong>the</strong> annual stockholders’ meeting. The issuance of <strong>the</strong> shares as stock dividend<br />
was exempt from <strong>the</strong> Securities Regulation Code (SRC) registration requirements pursuant to<br />
Section 10.1 (d). The shares were issued at <strong>the</strong> original par value of one hundred pesos (PHP<br />
100.00) per share.<br />
Thereafter, with <strong>the</strong> approval of <strong>the</strong> Securities and Exchange Commission (“SEC”) on August<br />
22, 2007 of <strong>the</strong> Company’s application to increase its authorized capital stock to one billion<br />
pesos (PHP 1,000,000,000.00) and to reduce its par value per share to one peso (P1.00), <strong>the</strong><br />
Company, on August 23, 2007, issued a total of two hundred ninety seven million<br />
(297,000,000) common shares at <strong>the</strong> reduced par value of one peso (PHP 1.00) out of <strong>the</strong><br />
increase in <strong>the</strong> Company’s authorized capital stock to <strong>the</strong> following: (1) JPSA Global Services<br />
Company; (2) JTKC Equities, Inc.; (3) Star Equities Inc.; (4) Surewell Equities, Inc.<br />
Since no expense was incurred, or no commission, compensation or remuneration was paid or<br />
given in connection with <strong>the</strong> issuance of <strong>the</strong> shares, <strong>the</strong> same was exempt from <strong>the</strong> SRC<br />
registration requirements pursuant to Section 10.1 (i).<br />
Subsequent to <strong>the</strong> increase in authorized capital stock, <strong>the</strong> Company issued a total of<br />
15,000,000 shares out of its unissued and authorized capital stock on September 20, 2007 to<br />
its Directors, key Officers, Employees, Consultants and Resource Persons under <strong>the</strong> Special<br />
Stock Purchase Plan (“SSPP”).<br />
The <strong>for</strong>egoing issuance of <strong>the</strong> 15,000,000 new shares under <strong>the</strong> SSPP was <strong>the</strong> subject of an<br />
application <strong>for</strong> exemption from registration of <strong>the</strong> shares under Section 10.2 of <strong>the</strong> SRC, which<br />
application was granted by <strong>the</strong> SEC on September 13, 2007. Notwithstanding <strong>the</strong> a<strong>for</strong>esaid<br />
confirmation by <strong>the</strong> Commission of <strong>the</strong> exempt status of <strong>the</strong> SSPP shares, <strong>the</strong> Commission<br />
none<strong>the</strong>less required <strong>the</strong> Corporation to include <strong>the</strong> SSPP shares among <strong>the</strong> shares of I-Remit<br />
which were registered with <strong>the</strong> Commission prior to <strong>the</strong> conduct of its Initial Public Offering in<br />
October 2007. The registration of <strong>the</strong> I-Remit shares, toge<strong>the</strong>r with <strong>the</strong> SSPP shares, was<br />
rendered effective on 5 October 2007. All 15,000,000 shares were subscribed and purchased.<br />
The shares subject of <strong>the</strong> SSPP were sold at par value or PHP1.00 per share. Total share<br />
purchases amounting to PHP11.74 million were paid in full, while <strong>the</strong> difference totaling<br />
PHP3.26 million were paid by way of salary loan. Shares acquired through <strong>the</strong> SSPP are<br />
subject to a lock-up period of two (2) <strong>year</strong>s from <strong>the</strong> date of issue which <strong>ended</strong> on September<br />
19, 2009. No underwriter was engaged in connection with <strong>the</strong> <strong>for</strong>egoing share issuance.<br />
The sale is fur<strong>the</strong>r subject to <strong>the</strong> condition that should <strong>the</strong> officer or employee resign from <strong>the</strong><br />
Parent Company prior to <strong>the</strong> expiration of <strong>the</strong> lock-up period, <strong>the</strong> share purchased by such<br />
resigning employee or officer shall be purchased at cost by <strong>the</strong> Parent Company’s Retirement<br />
Fund <strong>for</strong> <strong>the</strong> benefit of <strong>the</strong> Parent Company’s retiring employees or officers. As of <strong>December</strong><br />
<strong>31</strong>, 2009, twenty-two (22) employees had resigned (seven in 2009, thirteen in 2008 and two in<br />
2007) and <strong>the</strong>ir shares totaling to 808,100 (130,900 in 2009; 548,500 in 2008; and, 128,700 in<br />
2007) were bought back by <strong>the</strong> Parent Company on behalf of <strong>the</strong> Retirement Fund. The total<br />
cost of <strong>the</strong> shares acquired amounting to PHP808,100 was recognized as treasury stock.<br />
With <strong>the</strong> establishment of <strong>the</strong> I-Remit, Inc. Retirement Fund and after <strong>the</strong> expiration of <strong>the</strong> lock<br />
up period on September 19, 2009, <strong>the</strong> Company transferred to <strong>the</strong> Retirement Fund on<br />
September 24, 2009 <strong>the</strong> 808,100 shares it has bought back from its resigned employees and<br />
officers upon reimbursement of <strong>the</strong> advances made by <strong>the</strong> Company in acquiring such shares<br />
on behalf of <strong>the</strong> Retirement Fund. With this transfer, <strong>the</strong> Company’s outstanding capital stock<br />
stood at 553,088,000 shares from 552,279,900 shares.<br />
Except <strong>for</strong> <strong>the</strong> above issuances, <strong>the</strong> Company has not issued or sold new shares within <strong>the</strong><br />
past three (3) <strong>year</strong>s which were not registered pursuant to <strong>the</strong> requirements of <strong>the</strong> Securities<br />
Regulation Code (“SRC”).<br />
36
Item 6. Management’s Discussion and Analysis or Plan of Operation<br />
(A) Management’s Discussion and Analysis (MD&A) or Plan of Operation<br />
(1) Plan of Operation<br />
The Company’s strategy is focused on creating a global brand <strong>for</strong> I-Remit by: (i) identifying<br />
and tapping a wider customer base and (ii) maintaining its status as <strong>the</strong> leading and preferred<br />
choice of OFWs <strong>for</strong> <strong>the</strong>ir remittance requirements. The Company will still continue to introduce<br />
alternative delivery channels and find ways to fur<strong>the</strong>r improve <strong>the</strong> speed and reliability of<br />
deliveries, develop a wider delivery network, and <strong>for</strong>ge strategic alliances with various banks.<br />
The key elements of <strong>the</strong> Company’s strategy is as follows:<br />
Utilize technological advances in increasing value <strong>for</strong> money of products and<br />
services;<br />
Implement product prioritization and differentiation;<br />
Increase strategic alliances with banks with limited or no remittance business; and<br />
Increase partnerships with various establishments to act as pay stations.<br />
The Company’s general expansion plans in 2012 include <strong>the</strong> opening of new and/or additional<br />
offices or <strong>the</strong> engagement of new tie-ups and partners in Ireland, Macau, Germany, <strong>the</strong><br />
Ne<strong>the</strong>rlands, Saudi Arabia and Kuwait.<br />
37
(2) Management’s Discussion and Analysis<br />
<strong>2011</strong> compared to 2010<br />
I-Remit realized a consolidated net income of PHP 136.1 million in <strong>2011</strong>, an increase of PHP<br />
70.1 million or 106.4% over <strong>the</strong> consolidated net income of PHP 65.9 million in 2010. The<br />
consolidated net income in <strong>2011</strong> and 2010 are <strong>17</strong>.3% and 8.7% of <strong>the</strong> <strong>2011</strong> and 2010<br />
revenue, respectively.<br />
Revenues increased by 3.4% or PHP 26.1 million from PHP 761.8 million in 2010 to PHP<br />
787.9 million in <strong>2011</strong> mainly due to <strong>the</strong> increase in realized <strong>for</strong>eign exchange gains. Foreign<br />
exchange gains increased by 4.6% or PHP 12.1 million from PHP 262.1 million in 2010 to<br />
PHP 274.2 million in <strong>2011</strong>. The Company’s revenue from delivery fees grew by 2.9% or PHP<br />
14.5 million from PHP 498.7 million in 2010 to PHP 513.3 million in <strong>2011</strong> largely because of<br />
<strong>the</strong> appreciation of <strong>the</strong> Philippine peso against <strong>the</strong> U.S. dollar. The Company’s fees are<br />
largely settled in U.S. dollars. The average peso-dollar exchange rate was PHP 45.11 in 2010<br />
against PHP 43.<strong>31</strong> in <strong>2011</strong>, a gain of 4.0% or PHP 1.80 per dollar. In <strong>December</strong> <strong>2011</strong>, <strong>the</strong><br />
average peso-dollar exchange rate was PHP 43.65 per dollar. The value of transactions grew<br />
by 16.7% or USD 202.3 million from USD 1.213 billion in 2010 to USD 1.415 billion in <strong>2011</strong>.<br />
The number of transactions processed by <strong>the</strong> Company grew by only 2% from 2.737 million in<br />
2010 to 2.794 million in <strong>2011</strong>. O<strong>the</strong>r fees decreased by 60.69% or PHP 0.5 million from PHP<br />
0.9 million in 2010 to PHP 0.4 million in <strong>2011</strong> due to lesser number of amendments and<br />
retrievals recorded in <strong>2011</strong>.<br />
Costs of services decreased by 2.3% or PHP 4.7 million from PHP 204.1 million in 2010 to<br />
PHP 199.4 million in <strong>2011</strong>. Total costs of services in <strong>2011</strong> and 2010 are 25.3% and 26.8% of<br />
<strong>the</strong> <strong>2011</strong> and 2010 revenue, respectively. These are mainly due to <strong>the</strong> decrease in delivery<br />
charges by 49.8% or PHP 14.9 million from PHP 29.9 million in 2010 to PHP 15.0 million in<br />
<strong>2011</strong> brought about by <strong>the</strong> huge reduction in door-to-door transactions in <strong>2011</strong>. These are<br />
partly offset by <strong>the</strong> increase in <strong>the</strong> cost of fulfilling delivery of remittances to beneficiaries<br />
mostly in <strong>the</strong> <strong>for</strong>m of bank charges by 5.8% or PHP 10.2 million from PHP <strong>17</strong>4.2 million in<br />
2010 to PHP 184.4 million in <strong>2011</strong>.<br />
O<strong>the</strong>r operating income (loss)-net increased by 56.9% or PHP 9.7 million from PHP <strong>17</strong>.0<br />
million in 2010 to PHP 26.8 million in <strong>2011</strong>. Total o<strong>the</strong>r operating income (loss)-net in <strong>2011</strong><br />
and 2010 are 3.40% and 2.24% of <strong>the</strong> <strong>2011</strong> and 2010 revenue, respectively. These are<br />
mainly due to <strong>the</strong> PHP 21.7 million refund of GST previously paid by International Remittance<br />
(Canada) Limited (IRCL) and Worldwide Exchange Pty Ltd (WEPL) to <strong>the</strong> government of<br />
Canada and Australia, respectively. Both entities are exempt from paying GST. These are<br />
partly offset by <strong>the</strong> decline in net trading gains by PHP 5.5 million or 223.8% from PHP 2.5<br />
million in 2010 to –PHP 3.1 million in <strong>2011</strong> due to unrealized capital loss accrued from<br />
investment on stocks by Power Star Asia Group Limited (PSAGL). PSAGL invested on stocks<br />
at an average cost of 126.90 marked at 126.30 as of <strong>the</strong> close of <strong>December</strong> <strong>31</strong>, <strong>2011</strong>.<br />
Total operating expenses was higher by PHP 11.4 million (2.6%) from PHP 435.9 million in<br />
2010 to PHP 447.3 million in <strong>2011</strong>. Total o<strong>the</strong>r operating expenses in <strong>2011</strong> and 2010 are<br />
56.8% and 57.2% of <strong>the</strong> <strong>2011</strong> and 2010 revenue, respectively. These are mainly on account<br />
of higher rental, salaries, wages and employee benefits, photocopying and supplies,<br />
entertainment, amusement and recreation, communication, light and water and o<strong>the</strong>r<br />
operating expenses. The increase in <strong>the</strong>se expense items are related mainly to <strong>the</strong><br />
Company’s expansion as it opened new offices in Canada, Italy and Japan. Rental expenses<br />
increased by 15.4% from PHP 46.4 million in 2010 to PHP 53.5 million in <strong>2011</strong> due to <strong>the</strong><br />
<strong>year</strong>ly escalation applied by lessors on rented office premises. Salaries, wages and employee<br />
benefits expenses increased by 2.4% from PHP 208.5 million in 2010 to PHP 213.5 million in<br />
<strong>2011</strong>. Photocopying and supplies expenses increased by 24.7% from PHP11.7 million in 2010<br />
to PHP 14.6 in <strong>2011</strong> due to higher production of visa cards and kits in <strong>2011</strong>. Entertainment,<br />
amusement and recreation expenses increased by 56.6% from PHP 3.8 million in 2010 to<br />
PHP 6.0 million in <strong>2011</strong> mainly due to <strong>the</strong> development of offices/tie-ups in Japan, Kuwait,<br />
Saudi Arabia and Oman. Communication, light and water increased by 6.4% from PHP 22.1<br />
million in 2010 to PHP 23.5 million in <strong>2011</strong> due to increase in number of remittance<br />
transactions in <strong>2011</strong> which required more communication between <strong>the</strong> company and its<br />
customers. Along with this, electricity bills also increased as more transactions required<br />
ext<strong>ended</strong> processing time. O<strong>the</strong>r operating expenses increased by 34.0% from PHP 21.0<br />
million in 2010 to PHP 28.2 million in <strong>2011</strong> mainly due to disallowed Input VAT <strong>for</strong> <strong>year</strong>s 2005<br />
and 2006 (PHP 2.1 million), license fee paid <strong>for</strong> <strong>the</strong> start in operation of K.K. I-Remit Japan<br />
38
(PHP 3.9 million), cost of payroll outsourced to Prople BPO, Inc. and increase in association<br />
dues charges by lessors of <strong>the</strong> Parent Company (PHP 1.1 milllion). These are partly offset by<br />
lower marketing, professional fees, transportation and travel, depreciation and amortization<br />
expenses. Marketing expenses decreased by 14.7% from PHP 42.6 million in 2010 to PHP<br />
36.3 million in <strong>2011</strong> while transportation and travel expenses decreased by 10.7% from PHP<br />
26.7 million in 2010 to PHP 23.8 million in <strong>2011</strong> due to cost cutting measures implemented by<br />
<strong>the</strong> Parent Company in all its <strong>for</strong>eign subsidiaries. Professional fees decreased by 8.8% from<br />
PHP 39.7 million in 2010 to PHP 36.2 million in <strong>2011</strong> due to termination of three (3) retainer<br />
contracts of <strong>the</strong> Parent Company and cessation of operation in Austria. Depreciation and<br />
amortization decreased by 13.3% from PHP 13.3 million in 2010 to PHP 11.5 million in <strong>2011</strong><br />
due to higher number of office equipment fully depreciated in <strong>2011</strong>.<br />
Interest income increased by 10.8% or PHP 1.3 million from PHP 12.5 million in 2010 to PHP<br />
13.9 million in <strong>2011</strong>. Interest income in <strong>2011</strong> and 2010 are 1.8% and 1.6% of <strong>the</strong> <strong>2011</strong> and<br />
2010 revenue, respectively. These are mainly due to higher deposits resulting from higher<br />
volume of transactions in <strong>2011</strong>.<br />
Interest expense increased by <strong>31</strong>.2% or PHP 9.1 million from PHP 29.2 million in 2010 to PHP<br />
38.3 million <strong>2011</strong>. Interest expense in <strong>2011</strong> and 2010 are -4.9% and -3.8% of <strong>the</strong> <strong>2011</strong> and<br />
2010 revenue, respectively. These are mainly due to higher availment of loans from bank<br />
partners during <strong>2011</strong> and higher annual interest rates on <strong>the</strong> Parent Company’s unsecured,<br />
short-term interest-bearing peso-denominated bank loans ranging from 5.00% to 7.00% in<br />
<strong>2011</strong> and 5.50% to 6.00% in 2010.<br />
In February 2010, IREMIT Remittance Consulting GmbH (<strong>for</strong>merly IREMIT EUROPE Remittance<br />
Consulting AG) started its remittance business in Italy. On April 28, <strong>2011</strong>, IREMIT Remittance<br />
Consulting GmbH (IRCGmbH) stopped its money remittance operations in Rome and Milan in<br />
Italy in accordance with Article 75 of <strong>the</strong> Transitional and Final Provisions of Austrian Payment<br />
Services Act, which stipulated that credit institutions that have held authorizations pursuant to<br />
Article 1 paragraph 1 no 23 BWG, as am<strong>ended</strong> by <strong>the</strong> Federal Act Federal Law Gazette No.<br />
35/2003, prior to <strong>December</strong> 25, 2009, have only until April 30, <strong>2011</strong> to carry out <strong>the</strong>ir money<br />
remittance operations.<br />
In <strong>December</strong> <strong>2011</strong>, IRCGmbH sold assets relating to its operations in Italy to a third party.<br />
These assets, with an aggregate carrying amount of PHP 7.29 million, were sold <strong>for</strong> a<br />
consideration of PHP 72.43 million <strong>the</strong>reby resulting to a gain on sale of PHP 65.14 million.<br />
The results of IRCGmbH’s operation in Italy follow:<br />
<strong>2011</strong> 2010<br />
Delivery fees PHP5,289,202 PHP7,486,658<br />
Realized <strong>for</strong>eign exchange gains - net 1,006,867 673,204<br />
6,296,069 8,159,862<br />
Cost of services 596,703 3,749,195<br />
Gross income 5,699,366 4,410,667<br />
O<strong>the</strong>r income - net 615,909 38,935<br />
Operating expenses (45,024,921) (34,754,501)<br />
Loss from operations (PHP38,709,646) (PHP30,304,899)<br />
Gain on sale of assets 65,139,395 −<br />
Income (Loss) from discontinued operations PHP26,429,749 (PHP30,304,899)<br />
The total assets of <strong>the</strong> Company decreased by PHP 82.1 million or 3.5% to PHP 2.273 billion<br />
as of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> against PHP 2.356 billion as of <strong>December</strong> <strong>31</strong>, 2010. Cash and cash<br />
equivalents increased by PHP 7.4 million or 0.8% from PHP 883.8 million in 2010 to PHP<br />
891.2 million in <strong>2011</strong>. Financial assets at fair value through profit or loss amounted to PHP<br />
125.2 million at end-<strong>2011</strong> against PHP 102.9 million at end-2010, increasing by PHP 22.3<br />
million or 21.6%. Financial assets at fair value through profit or loss in <strong>2011</strong> and 2010 are<br />
5.5% and 4.4% of <strong>the</strong> total assets in <strong>2011</strong> and 2010, respectively. These assets consist<br />
mainly of investments in debt securities (listed overseas) held <strong>for</strong> trading. Power Star Asia<br />
Group Limited started investing on stocks in <strong>2011</strong>. Accounts receivable declined by PHP<br />
125.8 million or 11.9% from PHP 1,059.3 million in 2010 to PHP 933.5 million in <strong>2011</strong>.<br />
Accounts receivable in <strong>2011</strong> and 2010 are 41.0% and 45.0% of <strong>the</strong> total assets in <strong>2011</strong> and<br />
2010, respectively. These are mainly due to improved collection of advances to agents and<br />
<strong>for</strong>eign subsidiaries in <strong>2011</strong>. O<strong>the</strong>r receivables increased by PHP <strong>31</strong>.0 million or 37.1% from<br />
39
PHP 83.4 million in 2010 to PHP 114.4 million in <strong>2011</strong>. O<strong>the</strong>r receivables in <strong>2011</strong> and 2010<br />
are 5.0% and 3.5% of <strong>the</strong> total assets in <strong>2011</strong> and 2010, respectively. These are mainly due<br />
to nontrade receivable from <strong>the</strong> sale of various assets of IREMIT Remittance Consulting<br />
GmbH related to <strong>the</strong> discontinued operations in Italy which was subsequently collected in<br />
March 2012 and partly offset by <strong>the</strong> application of receivables from non-controlling<br />
shareholders of IREMIT Remittance Consulting GmbH and Worldwide Exchange Pty Ltd<br />
amounting to PHP 12.3 million and PHP 25.01 million, respectively, against <strong>the</strong> acquisition<br />
costs. O<strong>the</strong>r current assets declined by PHP 7.4 million or 20.4% from PHP 36.3 million in<br />
2010 to PHP 28.9 million in <strong>2011</strong>. O<strong>the</strong>r current assets in <strong>2011</strong> and 2010 are 1.3% and 1.5%<br />
of <strong>the</strong> total assets in <strong>2011</strong> and 2010, respectively. These are mainly due to lower balances of<br />
prepaid expenses and visa cards inventory.<br />
The Company’s non-current assets declined by PHP 9.7 million or 5.1% from PHP 190.3<br />
million at end-2010 to PHP 180.6 million at end-<strong>2011</strong>. Total noncurrent assets in <strong>2011</strong> and<br />
2010 are 7.9% and 8.0% of <strong>the</strong> total assets in <strong>2011</strong> and 2010, respectively. These are mainly<br />
due to <strong>the</strong> equity in net earnings of IRemit Singapore Pte Ltd of PHP 1.5 million and Hwa<br />
Kung Hong & Co., Ltd. of PHP 0.6 million in <strong>2011</strong>, lesser investment on fixed assets in <strong>2011</strong>,<br />
deferred tax asset on additional net loss of I-Remit New Zealand Limited in <strong>2011</strong> and issuance<br />
of tax credit certificates by <strong>the</strong> BIR <strong>for</strong> Input VAT <strong>for</strong> <strong>the</strong> <strong>year</strong>s 2005 and 2006 amounting to<br />
PHP 1.71 million and PHP 3.82 million, respectively.<br />
Total liabilities declined by PHP <strong>17</strong>1.6 million or 15.8% from PHP 1.084 billion at end-2010 to<br />
PHP 912.7 million at end-<strong>2011</strong> mainly due to lower level of current liabilities. Total liabilities in<br />
<strong>2011</strong> and 2010 are 40.1% and 46.0% of <strong>the</strong> total liabilities and equity in <strong>2011</strong> and 2010,<br />
respectively. Current liabilities decreased by PHP <strong>17</strong>0.8 million or 15.7% from PHP 1.083<br />
billion in 2010 to PHP 912.6 million in <strong>2011</strong>. Total current liabilities in <strong>2011</strong> and 2010 are<br />
40.1% and 46.0% of <strong>the</strong> total liabilities and equity in <strong>2011</strong> and 2010, respectively.<br />
Beneficiaries and o<strong>the</strong>r payables increased by PHP 40.6 million or 20.3% from PHP 199.5<br />
million in 2010 to PHP 240.1 million in <strong>2011</strong>. Beneficiaries and o<strong>the</strong>r payables in <strong>2011</strong> and<br />
2010 are 10.6% and 8.5% of <strong>the</strong> total liabilities and equity in <strong>2011</strong> and 2010, respectively.<br />
These are mainly due to additional channels opened in <strong>2011</strong> <strong>for</strong> <strong>the</strong> delivery of remittances to<br />
beneficiaries. Interest-bearing loans decreased by PHP 211 million or 24.1% from PHP 877<br />
million in end-2010 to PHP 666 million in end-<strong>2011</strong>. Interest-bearing loans in end-<strong>2011</strong> and<br />
end-2010 are 29.3% and 37.2% of <strong>the</strong> total liabilities and equity in end-<strong>2011</strong> and end-2010,<br />
respectively. These are mainly due to lesser loan exposure at end-<strong>2011</strong> mainly brought about<br />
by improved collection of accounts receivable.<br />
The Company’s stockholders’ equity as of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> stood at PHP 1.361 billion,<br />
higher by PHP 89.4 million or 7.0% against <strong>the</strong> end-2010 level of PHP 1.271 billion. Total<br />
equity in <strong>2011</strong> and 2010 are 59.9% and 54.0% of <strong>the</strong> total liabilities and equity in <strong>2011</strong> and<br />
2010, respectively. Capital stock increased by PHP 55.3 million or 9.8% from PHP 562.4<br />
million in 2010 to PHP 6<strong>17</strong>.7 million in <strong>2011</strong>. Capital stock in <strong>2011</strong> and 2010 are 27.2% and<br />
23.9% of <strong>the</strong> total liabilities and equity in <strong>2011</strong> and 2010, respectively. These are mainly due<br />
to <strong>the</strong> distribution of stock dividend to stockholders on September 8, <strong>2011</strong>. Capital paid-in<br />
excess of par value decreased by PHP 38.3 million or 8.9% from PHP 429.5 million in 2010 to<br />
PHP 391.2 million in <strong>2011</strong>. Capital paid-in excess of par value in <strong>2011</strong> and 2010 are <strong>17</strong>.2%<br />
and 18.2% of <strong>the</strong> total liabilities and equity in <strong>2011</strong> and 2010, respectively. The decrease in<br />
capital paid-in excess of par value in <strong>2011</strong> represents excess of acquisition cost over <strong>the</strong><br />
carrying value of <strong>the</strong> non-controlling interests acquired in <strong>2011</strong> (IREMIT Remittance<br />
Consulting GmbH and Worldwide Exchange Pty Ltd). Treasury stock increased by PHP 12.9<br />
million or 32.1% from -PHP 40.1 million in 2010 to -PHP 53.0 million in <strong>2011</strong>. Treasury stock<br />
in <strong>2011</strong> and 2010 are -2.3% and -1.7% of <strong>the</strong> total liabilities and equity in <strong>2011</strong> and 2010,<br />
respectively. The increase in Treasury stock in <strong>2011</strong> represents buy-back of 5,544,000<br />
shares.<br />
40
Below are <strong>the</strong> comparative key per<strong>for</strong>mance indicators of <strong>the</strong> Company (Parent Company and<br />
subsidiaries):<br />
Per<strong>for</strong>mance<br />
Indicator<br />
Return on Equity<br />
(ROE)<br />
Return on Assets<br />
(ROA)<br />
Earnings per Share<br />
(EPS)<br />
Sales Growth<br />
Gross Income<br />
Definition Dec. <strong>31</strong>, <strong>2011</strong> Dec. <strong>31</strong>, 2010<br />
Net income* over average<br />
stockholders’ equity during <strong>the</strong><br />
period<br />
Net income* over average total<br />
assets during <strong>the</strong> period<br />
Net income* over average number<br />
of outstanding shares<br />
Total transaction value in USD in<br />
present <strong>year</strong> over previous <strong>year</strong><br />
Revenue less total cost of<br />
services (PHP millions)<br />
41<br />
10% 5%<br />
5% 3%<br />
PHP 0.22 PHP 0.11<br />
<strong>17</strong>% 10%<br />
588.4 557.6<br />
* Net Income attributable to equity holders of <strong>the</strong> Parent Company and Minority Interest. EPS<br />
computed using Net Income attributable to equity holders of <strong>the</strong> Parent Company <strong>for</strong> <strong>the</strong> <strong>year</strong><br />
<strong>ended</strong> <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and <strong>for</strong> <strong>the</strong> <strong>year</strong> <strong>ended</strong> <strong>December</strong> <strong>31</strong>, 2010 are P 0.23 and P 0.13,<br />
respectively.<br />
Below are <strong>the</strong> comparative key per<strong>for</strong>mance indicators of <strong>the</strong> Company’s<br />
subsidiaries:<br />
International Remittance (Canada) Ltd.<br />
Per<strong>for</strong>mance<br />
Indicator<br />
Return on Equity<br />
(ROE)<br />
Return on Assets<br />
(ROA)<br />
Earnings per Share<br />
(EPS)<br />
Sales Growth<br />
Gross Income<br />
Lucky Star Management Limited<br />
Per<strong>for</strong>mance<br />
Indicator<br />
Return on Equity<br />
(ROE)<br />
Return on Assets<br />
(ROA)<br />
Earnings per Share<br />
(EPS)<br />
Sales Growth<br />
Gross Income<br />
Definition Dec. <strong>31</strong>, <strong>2011</strong> Dec. <strong>31</strong>, 2010<br />
Net income over average<br />
stockholders’ equity during <strong>the</strong><br />
period<br />
Net income over average total<br />
assets during <strong>the</strong> period<br />
Net income over average number<br />
of outstanding shares<br />
Total transaction value in USD in<br />
present <strong>year</strong> over previous <strong>year</strong><br />
Revenue less total cost of<br />
services (PHP millions)<br />
56% 3%<br />
22% 1%<br />
43.64 1.80<br />
2% 3%<br />
92.6 97.5<br />
Definition Dec. <strong>31</strong>, <strong>2011</strong> Dec. <strong>31</strong>, 2010<br />
Net income over average<br />
stockholders’ equity during <strong>the</strong><br />
period<br />
Net income over average total<br />
assets during <strong>the</strong> period<br />
Net income over average number<br />
of outstanding shares<br />
Total transaction value in USD in<br />
present <strong>year</strong> over previous <strong>year</strong><br />
Revenue less total cost of<br />
services (PHP millions)<br />
-3% 89%<br />
-1% 26%<br />
-1.33 30.53<br />
-25% 8%<br />
<strong>17</strong>.0 25.6
IRemit Global Remittance Limited<br />
Per<strong>for</strong>mance<br />
Indicator<br />
Return on Equity<br />
(ROE)<br />
Return on Assets<br />
(ROA)<br />
Earnings per Share<br />
(EPS)<br />
Sales Growth<br />
Gross Income<br />
I-Remit Australia Pty Ltd<br />
Per<strong>for</strong>mance<br />
Indicator<br />
Return on Equity<br />
(ROE)<br />
Return on Assets<br />
(ROA)<br />
Earnings per Share<br />
(EPS)<br />
Sales Growth<br />
Gross Income<br />
Worldwide Exchange Pty Ltd<br />
Per<strong>for</strong>mance<br />
Indicator<br />
Return on Equity<br />
(ROE)<br />
Return on Assets<br />
(ROA)<br />
Earnings per Share<br />
(EPS)<br />
Sales Growth<br />
Gross Income<br />
I-Remit New Zealand Limited<br />
Per<strong>for</strong>mance<br />
Indicator<br />
Return on Equity<br />
(ROE)<br />
Return on Assets<br />
(ROA)<br />
Earnings per Share<br />
(EPS)<br />
Sales Growth<br />
Gross Income<br />
Definition Dec. <strong>31</strong>, <strong>2011</strong> Dec. <strong>31</strong>, 2010<br />
Net income over average<br />
stockholders’ equity during <strong>the</strong><br />
period<br />
Net income over average total<br />
assets during <strong>the</strong> period<br />
Net income over average number<br />
of outstanding shares<br />
Total transaction value in USD in<br />
present <strong>year</strong> over previous <strong>year</strong><br />
Revenue less total cost of<br />
services (PHP millions)<br />
42<br />
-767% 39%<br />
-33% 6%<br />
-108,090.79 10,191.13<br />
28% 1%<br />
50.7 43.8<br />
Definition Dec. <strong>31</strong>, <strong>2011</strong> Dec. <strong>31</strong>, 2010<br />
Net income over average<br />
stockholders’ equity during <strong>the</strong><br />
period<br />
Net income over average total<br />
assets during <strong>the</strong> period<br />
Net income over average number<br />
of outstanding shares<br />
Total transaction value in USD in<br />
present <strong>year</strong> over previous <strong>year</strong><br />
Revenue less total cost of<br />
services (PHP millions)<br />
0.4% 1%<br />
0.2% 0.2%<br />
7,306.00 14,435.50<br />
- -<br />
0.6 0.3<br />
Definition Dec. <strong>31</strong>, <strong>2011</strong> Dec. <strong>31</strong>, 2010<br />
Net income over average<br />
stockholders’ equity during <strong>the</strong><br />
period<br />
Net income over average total<br />
assets during <strong>the</strong> period<br />
Net income over average number<br />
of outstanding shares<br />
Total transaction value in USD in<br />
present <strong>year</strong> over previous <strong>year</strong><br />
Revenue less total cost of<br />
services (PHP millions)<br />
6% 5%<br />
1% 1%<br />
3.02 2.00<br />
11% 20%<br />
34.6 29.2<br />
Definition Dec. <strong>31</strong>, <strong>2011</strong> Dec. <strong>31</strong>, 2010<br />
Net income over average<br />
stockholders’ equity during <strong>the</strong><br />
period<br />
Net income over average total<br />
assets during <strong>the</strong> period<br />
Net income over average number<br />
of outstanding shares<br />
Total transaction value in USD in<br />
present <strong>year</strong> over previous <strong>year</strong><br />
Revenue less total cost of<br />
services (PHP millions)<br />
40% 20%<br />
-24% -9%<br />
-3,046.61 -1,129.10<br />
23% 38%<br />
5.3 8.8
IREMIT Remittance Consulting GmbH<br />
Per<strong>for</strong>mance<br />
Indicator<br />
Return on Equity<br />
(ROE)<br />
Return on Assets<br />
(ROA)<br />
Earnings per Share<br />
(EPS)<br />
Sales Growth<br />
Gross Income<br />
Power Star Asia Group Limited<br />
Per<strong>for</strong>mance<br />
Indicator<br />
Return on Equity<br />
(ROE)<br />
Return on Assets<br />
(ROA)<br />
Earnings per Share<br />
(EPS)<br />
Sales Growth<br />
Gross Income<br />
2010 compared to 2009<br />
Definition Dec. <strong>31</strong>, <strong>2011</strong> Dec. <strong>31</strong>, 2010<br />
Net income over average<br />
stockholders’ equity during <strong>the</strong><br />
period<br />
Net income over average total<br />
assets during <strong>the</strong> period<br />
Net income over average number<br />
of outstanding shares<br />
Total transaction value in USD in<br />
present <strong>year</strong> over previous <strong>year</strong><br />
Revenue less total cost of<br />
services (PHP millions)<br />
43<br />
194% -193%<br />
14% -74%<br />
141.86 -666.<strong>31</strong><br />
-19% 94%<br />
0.5 11.7<br />
Definition Dec. <strong>31</strong>, <strong>2011</strong> Dec. <strong>31</strong>, 2010<br />
Net income over average<br />
stockholders’ equity during <strong>the</strong><br />
period<br />
Net income over average total<br />
assets during <strong>the</strong> period<br />
Net income over average number<br />
of outstanding shares<br />
Total transaction value in USD in<br />
present <strong>year</strong> over previous <strong>year</strong><br />
Revenue less total cost of<br />
services (PHP millions)<br />
30% 38%<br />
29% 36%<br />
66.53 63.27<br />
- -<br />
70.4 62.4<br />
I-Remit realized a consolidated net income of PHP 65.9 million in 2010, a decrease of PHP<br />
67.2 million or 50.5% over <strong>the</strong> consolidated net income of PHP 133.1 million in 2009.<br />
Revenues decreased by 1.1% or PHP 8.7 million from PHP 778.7 million in 2009 to PHP<br />
769.9 million in 2010 mainly due to <strong>the</strong> decline in realized <strong>for</strong>eign exchange gains. Foreign<br />
exchange gains dropped by 8.6% or PHP24.9 million from PHP287.7 million in 2009 to<br />
PHP262.8 million in 2010. The value of transactions grew by 9.9% or USD109.5 million from<br />
USD1.103 billion in 2009 to USD1.213 billion in 2010. The Company’s revenue from delivery<br />
fees grew by only 3.2% or PHP15.9 million from PHP490.4 million in 2009 to PHP506.2 million<br />
in 2010 largely because of <strong>the</strong> appreciation of <strong>the</strong> Philippine peso against <strong>the</strong> U.S. dollar. The<br />
Company’s fees are largely settled in U.S. dollars. The average peso-dollar exchange rate<br />
was PHP47.63 in 2009 against PHP45.08 in 2010, a gain of 5.3% or PHP2.55 per dollar. In<br />
<strong>December</strong> 2010, <strong>the</strong> average peso-dollar exchange rate was PHP43.95 per dollar. The<br />
number of transactions processed by <strong>the</strong> Company grew by only 2% from 2.683 million in<br />
2009 to 2.737 million in 2010.<br />
Total operating expenses was higher by PHP58.3 million (14.1%) from PHP412.4 million in<br />
2009 to PHP470.7 million in 2010 mainly on account of higher rental, marketing, and<br />
professional fee expenses. Rental expenses increased by 28.1% from PHP39.3 million in<br />
2009 to PHP50.4 million in 2010. Marketing expenses increased by 32.0% from PHP33.0<br />
million in 2009 to PHP43.5 million in 2010. Professional fees increased by 46.9% from<br />
PHP29.7 million in 2009 to PHP43.6 in 2010. The increase in <strong>the</strong>se expense items are<br />
related mainly to <strong>the</strong> Company’s expansion as it opened new offices in Canada and Italy.<br />
O<strong>the</strong>r income decreased by 62.8% or PHP54.3 million from PHP86.4 million in 2009 to<br />
PHP32.1 million in 2010 mainly due to <strong>the</strong> decline in net trading gains on debt securities<br />
(listed overseas) held <strong>for</strong> trading and lower o<strong>the</strong>r income consisting of interest income,<br />
rebates, and unrealized <strong>for</strong>eign exchange gain. Net trading gains declined by PHP30.3 million<br />
or 92.4% from PHP32.8 million in 2009 to PHP2.5 million in 2010.
The total assets of <strong>the</strong> Company decreased by PHP1<strong>31</strong>.9 million or 5.3% to PHP2.356 billion<br />
as of <strong>December</strong> <strong>31</strong>, 2010 against PHP2.488 billion as of <strong>December</strong> <strong>31</strong>, 2009. Cash and cash<br />
equivalents decreased by PHP79.0 million or 8.2% from PHP962.8 million in 2009 to<br />
PHP883.8 million in 2010. Financial assets at fair value through profit or loss amounted to<br />
PHP102.9 million at end-2010 against PHP65.8 million at end-2009, increasing by PHP37.1<br />
million or 56.4%. These assets consist of investments in debt securities (listed overseas) held<br />
<strong>for</strong> trading. Receivables declined by PHP80.2 million or 7.0% from PHP1.139 billion in 2009 to<br />
PHP1.059 billion in 2010. The Company’s non-current assets declined by PHP300,928 or<br />
0.2% from PHP190,039,196 at end-2009 to PHP190,340,124 at end-2010.<br />
Total liabilities declined by PHP151.4 million or 12.2% from PHP1.235 billion at end-2009 to<br />
PHP1.084 billion in 2010 mainly due to a lower level of current liabilities. Current liabilities<br />
decreased by PHP148.6 million or 12.1% from PHP1.232 billion in 2009 to PHP 1.083 billion<br />
in 2010.<br />
The Company’s stockholders’ equity as of <strong>December</strong> <strong>31</strong>, 2010 stood at PHP 1.271 billion,<br />
higher by PHP19.5 million or 1.6% against <strong>the</strong> end-2009 level of PHP 1.252 billion.<br />
Below are <strong>the</strong> comparative key per<strong>for</strong>mance indicators of <strong>the</strong> Company (Parent Company and<br />
subsidiaries):<br />
Per<strong>for</strong>mance Indicator Definition Dec. <strong>31</strong>, 2010 Dec. <strong>31</strong>, 2009<br />
Return on Equity (ROE)<br />
Net income* over average stockholders’<br />
equity during <strong>the</strong> period<br />
5% 11%<br />
Return on Assets<br />
(ROA)<br />
Net income* over average total assets<br />
during <strong>the</strong> period<br />
3% 6%<br />
Earnings per Share<br />
(EPS)<br />
Net income* over average number of<br />
outstanding shares<br />
PHP 0.12 PHP 0.24<br />
Sales Growth<br />
Total transaction value in USD in present<br />
<strong>year</strong> over previous <strong>year</strong><br />
10% 2%<br />
Gross Income<br />
Revenue less total cost of services (PHP<br />
millions)<br />
562.0 547.7<br />
* Net Income attributable to equity holders of <strong>the</strong> Parent Company and Minority Interest. EPS computed using<br />
Net Income attributable to equity holders of <strong>the</strong> Parent Company <strong>for</strong> <strong>the</strong> <strong>year</strong> <strong>ended</strong> <strong>December</strong> <strong>31</strong>, 2010 and<br />
<strong>for</strong> <strong>the</strong> <strong>year</strong> <strong>ended</strong> <strong>December</strong> <strong>31</strong>, 2009 are P 0.14 and P 0.25, respectively.<br />
Below are <strong>the</strong> comparative key per<strong>for</strong>mance indicators of <strong>the</strong> Company’s subsidiaries:<br />
International Remittance (Canada) Ltd.<br />
Per<strong>for</strong>mance Indicator Definition Dec. <strong>31</strong>, 2010 Dec. <strong>31</strong>, 2009<br />
Return on Equity (ROE)<br />
Net income over average stockholders’<br />
equity during <strong>the</strong> period<br />
3% 33%<br />
Return on Assets<br />
(ROA)<br />
Net income over average total assets<br />
during <strong>the</strong> period<br />
1% 10%<br />
Earnings per Share<br />
(EPS)<br />
Net income over average number of<br />
outstanding shares<br />
1.80 18.18<br />
Sales Growth<br />
Total transaction value in USD in present<br />
<strong>year</strong> over previous <strong>year</strong><br />
3% 11%<br />
Gross Income<br />
Revenue less total cost of services (PHP<br />
millions)<br />
97.5 99.7<br />
44
Lucky Star Management Limited<br />
Per<strong>for</strong>mance Indicator Definition Dec. <strong>31</strong>, 2010 Dec. <strong>31</strong>, 2009<br />
Return on Equity (ROE)<br />
Net income over average stockholders’<br />
equity during <strong>the</strong> period<br />
89% 47%<br />
Return on Assets<br />
(ROA)<br />
Net income over average total assets<br />
during <strong>the</strong> period<br />
26% 14%<br />
Earnings per Share<br />
(EPS)<br />
Net income over average number of<br />
outstanding shares<br />
30.53 11.18<br />
Sales Growth<br />
Total transaction value in USD in present<br />
<strong>year</strong> over previous <strong>year</strong><br />
8% 20%<br />
Gross Income<br />
Revenue less total cost of services (PHP<br />
millions)<br />
25.6 21.4<br />
IRemit Global Remittance Limited<br />
Per<strong>for</strong>mance Indicator Definition Dec. <strong>31</strong>, 2010 Dec. <strong>31</strong>, 2009<br />
Return on Equity (ROE)<br />
Net income over average stockholders’<br />
equity during <strong>the</strong> period<br />
39% 60%<br />
Return on Assets<br />
(ROA)<br />
Net income over average total assets<br />
during <strong>the</strong> period<br />
6% 4%<br />
Earnings per Share<br />
(EPS)<br />
Net income over average number of<br />
outstanding shares<br />
10,191.13 10,021.79<br />
Sales Growth<br />
Total transaction value in USD in present<br />
<strong>year</strong> over previous <strong>year</strong><br />
1% -<strong>17</strong>%<br />
Gross Income<br />
Revenue less total cost of services (PHP<br />
millions)<br />
43.8 46.9<br />
I-Remit Australia Pty Ltd<br />
Per<strong>for</strong>mance Indicator Definition Dec. <strong>31</strong>, 2010 Dec. <strong>31</strong>, 2009<br />
Return on Equity (ROE)<br />
Net income over average stockholders’<br />
equity during <strong>the</strong> period<br />
1% <strong>17</strong>6%<br />
Return on Assets<br />
(ROA)<br />
Net income over average total assets<br />
during <strong>the</strong> period<br />
0.2% 24%<br />
Earnings per Share<br />
(EPS)<br />
Net income over average number of<br />
outstanding shares<br />
14,435.50 1,859,480.93<br />
Sales Growth<br />
Total transaction value in USD in present<br />
<strong>year</strong> over previous <strong>year</strong><br />
- -<br />
Gross Income<br />
Revenue less total cost of services (PHP<br />
millions)<br />
0.3 0.2<br />
Worldwide Exchange Pty Ltd<br />
Per<strong>for</strong>mance Indicator Definition Dec. <strong>31</strong>, 2010 Dec. <strong>31</strong>, 2009<br />
Return on Equity (ROE)<br />
Net income over average stockholders’<br />
equity during <strong>the</strong> period<br />
5% 41%<br />
Return on Assets<br />
(ROA)<br />
Net income over average total assets<br />
during <strong>the</strong> period<br />
1% 11%<br />
Earnings per Share<br />
(EPS)<br />
Net income over average number of<br />
outstanding shares<br />
2.00 29.75<br />
Sales Growth<br />
Total transaction value in USD in present<br />
<strong>year</strong> over previous <strong>year</strong><br />
20% -5%<br />
Gross Income<br />
Revenue less total cost of services (PHP<br />
millions)<br />
29.2 32.6<br />
45
I-Remit New Zealand Limited<br />
Per<strong>for</strong>mance Indicator Definition Dec. <strong>31</strong>, 2010 Dec. <strong>31</strong>, 2009<br />
Return on Equity (ROE)<br />
Net income over average stockholders’<br />
equity during <strong>the</strong> period<br />
20% 81%<br />
Return on Assets<br />
(ROA)<br />
Net income over average total assets<br />
during <strong>the</strong> period<br />
-9% -25%<br />
Earnings per Share<br />
(EPS)<br />
Net income over average number of<br />
outstanding shares<br />
-1,129.10 -2,654.42<br />
Sales Growth<br />
Total transaction value in USD in present<br />
<strong>year</strong> over previous <strong>year</strong><br />
38% 595%<br />
Gross Income<br />
Revenue less total cost of services (PHP<br />
millions)<br />
8.8 7.6<br />
IREMIT EUROPE Remittance Consulting AG<br />
Per<strong>for</strong>mance Indicator Definition Dec. <strong>31</strong>, 2010 Dec. <strong>31</strong>, 2009<br />
Return on Equity (ROE)<br />
Net income over average stockholders’<br />
equity during <strong>the</strong> period<br />
-193% -189%<br />
Return on Assets<br />
(ROA)<br />
Net income over average total assets<br />
during <strong>the</strong> period<br />
-74% -<strong>31</strong>%<br />
Earnings per Share<br />
(EPS)<br />
Net income over average number of<br />
outstanding shares<br />
-666.<strong>31</strong> -243.<strong>17</strong><br />
Sales Growth<br />
Total transaction value in USD in present<br />
<strong>year</strong> over previous <strong>year</strong><br />
94% 43%<br />
Gross Income<br />
Revenue less total cost of services (PHP<br />
millions)<br />
11.7 9.1<br />
Power Star Asia Group Limited<br />
Per<strong>for</strong>mance Indicator Definition Dec. <strong>31</strong>, 2010 Dec. <strong>31</strong>, 2009<br />
Return on Equity (ROE)<br />
Net income over average stockholders’<br />
equity during <strong>the</strong> period<br />
38% 89%<br />
Return on Assets<br />
(ROA)<br />
Net income over average total assets<br />
during <strong>the</strong> period<br />
36% 78%<br />
Earnings per Share<br />
(EPS)<br />
Net income over average number of<br />
outstanding shares<br />
63.27 86.35<br />
Sales Growth<br />
Total transaction value in USD in present<br />
<strong>year</strong> over previous <strong>year</strong><br />
- -<br />
Gross Income<br />
Revenue less total cost of services (PHP<br />
millions)<br />
62.4 55.5<br />
2009 compared to 2008<br />
I-Remit realized a consolidated net income of PHP 133.1 million in 2009, an increase of PHP<br />
3.2 million or 2.4% over <strong>the</strong> consolidated net income of PHP 129.98 million in 2008.<br />
Revenues increased by PHP 16.6 million (2.2%) to PHP 778.6 million in 2009 from PHP 762.0<br />
million in 2008 mainly due to <strong>the</strong> 11.9% increase in transaction count (from 2,397,180 in 2008<br />
to 2,683,639 in 2009) and a 1.9% increase in USD remittance volume (from USD 1,083.6<br />
million in 2008 to USD 1,104.0 million in 2009). Of <strong>the</strong> total transaction count in 2009, <strong>the</strong><br />
percentage contributions per region are as follows: Asia-Pacific, 43%; Middle East, 28%; North<br />
America, 16%; and Europe, 9%. In terms of USD remittance volume, <strong>the</strong> regional<br />
contributions are as follows: Asia-Pacific, 33%; Europe, 12%, Middle East, 20%, and North<br />
America, <strong>17</strong>%. The Company’s market share in 2009 was 6.4% from 6.6% in 2008 based on<br />
<strong>the</strong> BSP-reported figure of total inward remittances to <strong>the</strong> Philippines of USD <strong>17</strong>.3 billion.<br />
Accordingly, <strong>the</strong> Company’s gross income decreased by PHP <strong>17</strong>.7 million or -3.1% from PHP<br />
565.4 million in 2008 to 547.7 million in 2009.<br />
46
Total operating expenses was higher by PHP 15.0 million (3.8%) from PHP 397.4 million in<br />
2008 to PHP 412.4 million in 2009 mainly on account of higher salaries, wages and employee<br />
benefits, and rental expenses. O<strong>the</strong>r income increased by 156.7% or PHP 52.7 million from<br />
PHP 33.7 million in 2008 to PHP 86.4 million in 2009 mainly due to net trading gains on debt<br />
securities (listed overseas) held <strong>for</strong> trading and higher o<strong>the</strong>r income of subsidiaries such as<br />
rebates and sub-lease rental income. Interest expense was higher by PHP 35.2 million<br />
(260.4%) from PHP 13.5 million in 2008 to PHP 48.7 million in 2009 due to increased loans.<br />
The total assets of <strong>the</strong> Company increased by PHP 514.5 million or 26.1% to PHP 2.488<br />
billion as of <strong>December</strong> <strong>31</strong>, 2009 against PHP 1.974 billion as of <strong>the</strong> same period in 2008.<br />
Cash and cash equivalents increased by PHP 130.2 million or 15.6% from PHP 832.6 million<br />
in 2008 to PHP 962.8 million in 2009. Financial assets at FVPL amounting to PHP 65.8<br />
million consist of investments in debt securities (listed overseas) held <strong>for</strong> trading. Receivables<br />
increased by PHP <strong>31</strong>0.6 million or 33.2% from PHP 936.9 million in 2008 to PHP 1,247.5<br />
million in 2009. O<strong>the</strong>r current assets increased by PHP 2.0 million or 10.0% from PHP 20.3<br />
million to PHP 22.3 million mainly because of a higher level of Visa cards inventory. Property<br />
and equipment decreased by PHP 3.1 million or 9.9% from PHP 30.9 million in 2008 to PHP<br />
27.8 million in 2009 on account of higher depreciation and amortization expenses. Goodwill<br />
increased by PHP 6.1 million or 6.6% from PHP 91.5 million in 2008 to PHP 97.6 million in<br />
2009 due to exchange adjustment. Deferred tax asset increased by PHP 2.5 million or<br />
305.1% from PHP 0.8 million in 2008 to PHP 3.3 million in 2009. O<strong>the</strong>r noncurrent assets<br />
increased by PHP 4.6 million or 13.2% from PHP 34.7 million in 2008 to PHP 39.3 million in<br />
2009.<br />
Total liabilities increased by PHP 378.2 million or 44.1% from PHP 857.5 million in 2008 to<br />
PHP 1,235.7 million in 2009 mainly higher level of current liabilities. Current liabilities<br />
increased by PHP 380.0 million or 44.6% from PHP 852.1 million in 2008 to PHP 1,232.1<br />
million in 2009 due to <strong>the</strong> increase in interest-earning loans by PHP 350.0 million or 60.3%<br />
from PHP 580.0 million in 2008 to PHP 930.0 million in 2009.<br />
The Company’s stockholders’ equity as of <strong>December</strong> <strong>31</strong>, 2009 stood at PHP 1.252 billion,<br />
higher by PHP 136.4 million or 12.2% against <strong>the</strong> <strong>year</strong>-end 2008 level of PHP 1.116 billion.<br />
Below are <strong>the</strong> comparative key per<strong>for</strong>mance indicators of <strong>the</strong> Company (Parent Company and<br />
subsidiaries):<br />
Per<strong>for</strong>mance Indicator Definition Dec. <strong>31</strong>, 2009 Dec. <strong>31</strong>, 2008<br />
Return on Equity (ROE)<br />
Net income* over average stockholders’<br />
equity during <strong>the</strong> period<br />
11% 12%<br />
Return on Assets<br />
(ROA)<br />
Net income* over average total assets<br />
during <strong>the</strong> period<br />
6% 8%<br />
Earnings per Share<br />
(EPS)<br />
Net income* over average number of<br />
outstanding shares<br />
PHP 0.24 PHP 0.23<br />
Sales Growth<br />
Total transaction value in USD in present<br />
<strong>year</strong> over previous <strong>year</strong><br />
2% 42%<br />
Gross Income<br />
Revenue less total cost of services (PHP<br />
millions)<br />
547.7 565.4<br />
* Net Income attributable to equity holders of <strong>the</strong> Parent Company and Minority Interest. EPS computed using<br />
Net Income attributable to equity holders of <strong>the</strong> Parent Company <strong>for</strong> <strong>the</strong> <strong>year</strong> <strong>ended</strong> <strong>December</strong> <strong>31</strong>, 2009 and<br />
<strong>for</strong> <strong>the</strong> <strong>year</strong> <strong>ended</strong> <strong>December</strong> <strong>31</strong>, 2008 are P 0.25 and P 0.23, respectively.<br />
47
Below are <strong>the</strong> comparative key per<strong>for</strong>mance indicators of <strong>the</strong> Company’s subsidiaries:<br />
International Remittance (Canada) Ltd.<br />
Per<strong>for</strong>mance Indicator Definition Dec. <strong>31</strong>, 2009 Dec. <strong>31</strong>, 2008<br />
Return on Equity (ROE)<br />
Net income over average stockholders’<br />
equity during <strong>the</strong> period<br />
33% 62%<br />
Return on Assets<br />
(ROA)<br />
Net income over average total assets<br />
during <strong>the</strong> period<br />
10% 9%<br />
Earnings per Share<br />
(EPS)<br />
Net income over average number of<br />
outstanding shares<br />
18.18 26.60<br />
Sales Growth<br />
Total transaction value in USD in present<br />
<strong>year</strong> over previous <strong>year</strong><br />
11% 35%<br />
Gross Income<br />
Revenue less total cost of services (PHP<br />
millions)<br />
99.7 85.8<br />
Lucky Star Management Limited<br />
Per<strong>for</strong>mance Indicator Definition Dec. <strong>31</strong>, 2009 Dec. <strong>31</strong>, 2008<br />
Return on Equity (ROE)<br />
Net income over average stockholders’<br />
equity during <strong>the</strong> period<br />
47% 61%<br />
Return on Assets<br />
(ROA)<br />
Net income over average total assets<br />
during <strong>the</strong> period<br />
14% 40%<br />
Earnings per Share<br />
(EPS)<br />
Net income over average number of<br />
outstanding shares<br />
11.18 15.67<br />
Sales Growth<br />
Total transaction value in USD in present<br />
<strong>year</strong> over previous <strong>year</strong><br />
20% 7%<br />
Gross Income<br />
Revenue less total cost of services (PHP<br />
millions)<br />
21.4 20.9<br />
IRemit Global Remittance Limited<br />
Per<strong>for</strong>mance Indicator Definition Dec. <strong>31</strong>, 2009 Dec. <strong>31</strong>, 2008<br />
Return on Equity (ROE)<br />
Net income over average stockholders’<br />
equity during <strong>the</strong> period<br />
60% 5%<br />
Return on Assets<br />
(ROA)<br />
Net income over average total assets<br />
during <strong>the</strong> period<br />
4.08% 0.2%<br />
Earnings per Share<br />
(EPS)<br />
Net income over average number of<br />
outstanding shares<br />
10,021.79 666.34<br />
Sales Growth<br />
Total transaction value in USD in present<br />
<strong>year</strong> over previous <strong>year</strong><br />
-<strong>17</strong>% -4%<br />
Gross Income<br />
Revenue less total cost of services (PHP<br />
millions)<br />
46.9 42.2<br />
I-Remit Australia Pty Ltd<br />
Per<strong>for</strong>mance Indicator Definition Dec. <strong>31</strong>, 2009 Dec. <strong>31</strong>, 2008<br />
Return on Equity (ROE)<br />
Net income over average stockholders’<br />
equity during <strong>the</strong> period<br />
<strong>17</strong>6% 108%<br />
Return on Assets<br />
(ROA)<br />
Net income over average total assets<br />
during <strong>the</strong> period<br />
24% <strong>17</strong>%<br />
Earnings per Share<br />
(EPS)<br />
Net income over average number of<br />
outstanding shares<br />
1,859,480.93 1,623,710.00<br />
Sales Growth<br />
Total transaction value in USD in present<br />
<strong>year</strong> over previous <strong>year</strong><br />
- -<br />
Gross Income<br />
Revenue less total cost of services (PHP<br />
millions)<br />
0.2 0.4<br />
48
Worldwide Exchange Pty Ltd<br />
Per<strong>for</strong>mance Indicator Definition Dec. <strong>31</strong>, 2009 Dec. <strong>31</strong>, 2008<br />
Return on Equity (ROE)<br />
Net income over average stockholders’<br />
equity during <strong>the</strong> period<br />
41% 91%<br />
Return on Assets<br />
(ROA)<br />
Net income over average total assets<br />
during <strong>the</strong> period<br />
11% 45%<br />
Earnings per Share<br />
(EPS)<br />
Net income over average number of<br />
outstanding shares<br />
29.75 106.93<br />
Sales Growth<br />
Total transaction value in USD in present<br />
<strong>year</strong> over previous <strong>year</strong><br />
-5% 40%<br />
Gross Income<br />
Revenue less total cost of services (PHP<br />
millions)<br />
32.6 35.0<br />
I-Remit New Zealand Limited<br />
Per<strong>for</strong>mance Indicator Definition Dec. <strong>31</strong>, 2009 Dec. <strong>31</strong>, 2008<br />
Return on Equity (ROE)<br />
Net income over average stockholders’<br />
equity during <strong>the</strong> period<br />
81% 104%<br />
Return on Assets<br />
(ROA)<br />
Net income over average total assets<br />
during <strong>the</strong> period<br />
-25% -21%<br />
Earnings per Share<br />
(EPS)<br />
Net income over average number of<br />
outstanding shares<br />
-2,654.42 -1,721.28<br />
Sales Growth<br />
Total transaction value in USD in present<br />
<strong>year</strong> over previous <strong>year</strong><br />
595% -<br />
Gross Income<br />
Revenue less total cost of services (PHP<br />
millions)<br />
7.6 1.1<br />
IREMIT EUROPE Remittance Consulting AG<br />
Per<strong>for</strong>mance Indicator Definition Dec. <strong>31</strong>, 2009 Dec. <strong>31</strong>, 2008<br />
Return on Equity (ROE)<br />
Net income over average stockholders’<br />
equity during <strong>the</strong> period<br />
-189% 56%<br />
Return on Assets<br />
(ROA)<br />
Net income over average total assets<br />
during <strong>the</strong> period<br />
-<strong>31</strong>% -34%<br />
Earnings per Share<br />
(EPS)<br />
Net income over average number of<br />
outstanding shares<br />
-243.<strong>17</strong> -259.01<br />
Sales Growth<br />
Total transaction value in USD in present<br />
<strong>year</strong> over previous <strong>year</strong><br />
43% -<br />
Gross Income<br />
Revenue less total cost of services (PHP<br />
millions)<br />
9.1 6.8<br />
Power Star Asia Group Limited<br />
Per<strong>for</strong>mance Indicator Definition Dec. <strong>31</strong>, 2009 Dec. <strong>31</strong>, 2008<br />
Return on Equity (ROE)<br />
Net income over average stockholders’<br />
equity during <strong>the</strong> period<br />
89% 90%<br />
Return on Assets<br />
(ROA)<br />
Net income over average total assets<br />
during <strong>the</strong> period<br />
78% 76%<br />
Earnings per Share<br />
(EPS)<br />
Net income over average number of<br />
outstanding shares<br />
86.35 49.87<br />
Sales Growth<br />
Total transaction value in USD in present<br />
<strong>year</strong> over previous <strong>year</strong><br />
- -<br />
Gross Income<br />
Revenue less total cost of services (PHP<br />
millions)<br />
55.5 59.8<br />
49
2008 compared to 2007<br />
I-Remit realized a consolidated net income of PHP 129.9 million in 2008, an increase of PHP<br />
16.7 million or 15% over <strong>the</strong> consolidated net income of PHP 113.3 million in 2007.<br />
Revenues increased by PHP 200.3 million (36%) to PHP 762.0 million in 2008 from PHP<br />
561.8 million in 2007 mainly due to <strong>the</strong> 29% increase in transaction count (from 1,864,869 in<br />
2007 to 2,397,180 in 2008 ) and a 42% increase in USD remittance volume (from USD 762.3<br />
million in 2007 to USD 1,083.6 million in 2008). Of <strong>the</strong> total transaction count in 2008, <strong>the</strong><br />
percentage contributions per region are as follows: Asia-Pacific, 42%; Middle East, 28%; North<br />
America, 15%; and Europe, 10%. In terms of USD remittance volume, <strong>the</strong> regional<br />
contributions are as follows: Asia-Pacific, 34%; Europe, 13% , Middle East, 20% , and North<br />
America, 15%. The Company’s market share in 2008 grew to 6.60% from 5.28% in 2007<br />
based on <strong>the</strong> BSP-reported figure of total inward remittances to <strong>the</strong> Philippines of USD 16.43<br />
billion. Accordingly, <strong>the</strong> Company’s gross income increased by PHP 158.9 million or 39%<br />
from PHP 406.4 million in 2007 to 565.4 million in 2008.<br />
Total operating expenses was higher by PHP 119.7 million (43%) from PHP 277.7 million in<br />
2007 to PHP 397.4 million in 2008 mainly on account of higher salaries, wages and employee<br />
benefits, and marketing expenses. O<strong>the</strong>r income increased by 99% or PHP 16.7 million from<br />
PHP 16.9 million in 2007 to PHP 33.7 million in 2008 mainly due to higher o<strong>the</strong>r income of<br />
subsidiaries such as sub-lease rental income. Interest expense was lower by PHP 10.8<br />
million (44.5%) from PHP 24.3 million in 2007 to PHP 13.5 million in 2008.<br />
The total assets of <strong>the</strong> Company increased by PHP 572.6 million or 41% to PHP 1.974 billion<br />
as of <strong>December</strong> <strong>31</strong>, 2008 against PHP 1.401 billion as of <strong>the</strong> same period in 2007. Cash and<br />
cash equivalents increased by PHP 151.0 million or 22% from PHP 681.7 million in 2007 to<br />
PHP 832.6 million in 2008. Receivables increased by PHP 390.7 million or 72% from PHP<br />
546.2 million in 2007 to PHP 936.9 million in 2008. O<strong>the</strong>r current assets increased by PHP<br />
15.0 million or 284% from PHP 5.3 million in 2007 to PHP 20.3 million in 2008 mainly because<br />
of a higher level of prepaid expenses and card inventory. Property and equipment increased<br />
by PHP 11.8 million or 62% from PHP 19.1 million in 2007 to PHP 30.9 million in 2008 mainly<br />
due to investments in office and communication equipment. Goodwill decreased by PHP 20.0<br />
million from PHP 111.4 million in 2007 to PHP 91.5 million in 2008 due to exchange<br />
adjustment. O<strong>the</strong>r noncurrent assets increased by PHP 15.2 million or 68% from PHP 22.49<br />
million in 2007 to PHP 37.7 million in 2008.<br />
Total liabilities increased by PHP 533.6 million or 165% from PHP 323.9 million in 2007 to<br />
PHP 857.5 million in 2008 mainly higher level of current liabilities. Current liabilities increased<br />
by PHP 533.7 million or 168% from PHP <strong>31</strong>8.4 million in 2007 to PHP 852.1 million in 2008<br />
due to <strong>the</strong> increase in interest-earning loans by PHP 405.0 million or 2<strong>31</strong>% from PHP <strong>17</strong>5<br />
million in 2007 to PHP 580 million in 2008.<br />
The Company’s stockholders’ equity as of <strong>December</strong> <strong>31</strong>, 2008 stood at PHP 1.116 billion,<br />
higher by PHP 38.9 million or 4% against <strong>the</strong> <strong>year</strong>-end 2007 level of PHP 1.077 billion.<br />
Below are <strong>the</strong> comparative key per<strong>for</strong>mance indicators of <strong>the</strong> Company (Parent Company and<br />
subsidiaries):<br />
Per<strong>for</strong>mance Indicator Definition Dec. <strong>31</strong>, 2008 Dec. <strong>31</strong>, 2007<br />
Return on Equity (ROE)<br />
Net income* over average stockholders’<br />
equity during <strong>the</strong> period<br />
12% 21%<br />
Return on Assets<br />
(ROA)<br />
Net income* over average total assets<br />
during <strong>the</strong> period<br />
8% 11%<br />
Earnings per Share<br />
(EPS)<br />
Net income* over average number of<br />
outstanding shares<br />
PHP 0.23 PHP 0.56<br />
Sales Growth<br />
Total transaction value in USD in present<br />
<strong>year</strong> over previous <strong>year</strong><br />
42% 37%<br />
Gross Income<br />
Revenue less total cost of services (PHP<br />
millions)<br />
565.4 406.4<br />
* Net Income attributable to equity holders of <strong>the</strong> Parent Company and Minority Interest. EPS computed using<br />
Net Income attributable to equity holders of <strong>the</strong> Parent Company <strong>for</strong> <strong>the</strong> <strong>year</strong> <strong>ended</strong> <strong>December</strong> <strong>31</strong>, 2008 and <strong>for</strong><br />
<strong>the</strong> <strong>year</strong> <strong>ended</strong> <strong>December</strong> <strong>31</strong>, 2007 are P 0.23 and P 0.53, respectively.<br />
50
Below are <strong>the</strong> comparative key per<strong>for</strong>mance indicators of <strong>the</strong> Company’s subsidiaries:<br />
International Remittance (Canada) Ltd.<br />
Per<strong>for</strong>mance Indicator Definition Dec. <strong>31</strong>, 2008 Dec. <strong>31</strong>, 2007<br />
Return on Equity (ROE)<br />
Net income over average stockholders’<br />
equity during <strong>the</strong> period<br />
62% 99%<br />
Return on Assets<br />
(ROA)<br />
Net income over average total assets<br />
during <strong>the</strong> period<br />
9% 7%<br />
Earnings per Share<br />
(EPS)<br />
Net income over average number of<br />
outstanding shares<br />
26.60 21.74<br />
Sales Growth<br />
Total transaction value in USD in present<br />
<strong>year</strong> over previous <strong>year</strong><br />
35% 74%<br />
Gross Income<br />
Revenue less total cost of services (PHP<br />
millions)<br />
85.8 67.3<br />
Lucky Star Management Limited<br />
Per<strong>for</strong>mance Indicator Definition Dec. <strong>31</strong>, 2008 Dec. <strong>31</strong>, 2007<br />
Return on Equity (ROE)<br />
Net income over average stockholders’<br />
equity during <strong>the</strong> period<br />
61% -48%<br />
Return on Assets<br />
(ROA)<br />
Net income over average total assets<br />
during <strong>the</strong> period<br />
40% 23%<br />
Earnings per Share<br />
(EPS)<br />
Net income over average number of<br />
outstanding shares<br />
15.67 11.78<br />
Sales Growth<br />
Total transaction value in USD in present<br />
<strong>year</strong> over previous <strong>year</strong><br />
7% 20%<br />
Gross Income<br />
Revenue less total cost of services (PHP<br />
millions)<br />
20.9 19.6<br />
IRemit Global Remittance Limited<br />
Per<strong>for</strong>mance Indicator Definition Dec. <strong>31</strong>, 2008 Dec. <strong>31</strong>, 2007<br />
Return on Equity (ROE)<br />
Net income over average stockholders’<br />
equity during <strong>the</strong> period<br />
5% 33%<br />
Return on Assets<br />
(ROA)<br />
Net income over average total assets<br />
during <strong>the</strong> period<br />
0.2% 1%<br />
Earnings per Share<br />
(EPS)<br />
Net income over average number of<br />
outstanding shares<br />
666.34 4,193.47<br />
Sales Growth<br />
Total transaction value in USD in present<br />
<strong>year</strong> over previous <strong>year</strong><br />
-4% -<br />
Gross Income<br />
Revenue less total cost of services (PHP<br />
millions)<br />
42.2 43.6<br />
I-Remit Australia Pty Ltd<br />
Per<strong>for</strong>mance Indicator Definition Dec. <strong>31</strong>, 2008 Dec. <strong>31</strong>, 2007<br />
Return on Equity (ROE)<br />
Net income over average stockholders’<br />
equity during <strong>the</strong> period<br />
108% 98%<br />
Return on Assets<br />
(ROA)<br />
Net income over average total assets<br />
during <strong>the</strong> period<br />
<strong>17</strong>% 7%<br />
Earnings per Share<br />
(EPS)<br />
Net income over average number of<br />
outstanding shares<br />
1,623,710.00 1,167,012.29<br />
Sales Growth<br />
Total transaction value in USD in present<br />
<strong>year</strong> over previous <strong>year</strong><br />
- -<br />
Gross Income<br />
Revenue less total cost of services (PHP<br />
millions)<br />
0.4 0.3<br />
51
Worldwide Exchange Pty Ltd<br />
Per<strong>for</strong>mance Indicator Definition Dec. <strong>31</strong>, 2008 Dec. <strong>31</strong>, 2007<br />
Return on Equity (ROE)<br />
Net income over average stockholders’<br />
equity during <strong>the</strong> period<br />
91% 58%<br />
Return on Assets<br />
(ROA)<br />
Net income over average total assets<br />
during <strong>the</strong> period<br />
45% 34%<br />
Earnings per Share<br />
(EPS)<br />
Net income over average number of<br />
outstanding shares<br />
106.93 77.14<br />
Sales Growth<br />
Total transaction value in USD in present<br />
<strong>year</strong> over previous <strong>year</strong><br />
40% -<br />
Gross Income<br />
Revenue less total cost of services (PHP<br />
millions)<br />
35.0 20.4<br />
I-Remit New Zealand Limited<br />
Per<strong>for</strong>mance Indicator Definition Dec. <strong>31</strong>, 2008 Dec. <strong>31</strong>, 2007<br />
Return on Equity (ROE)<br />
Net income over average stockholders’<br />
equity during <strong>the</strong> period<br />
104% -<br />
Return on Assets<br />
(ROA)<br />
Net income over average total assets<br />
during <strong>the</strong> period<br />
-21% -<br />
Earnings per Share<br />
(EPS)<br />
Net income over average number of<br />
outstanding shares<br />
-1,721.28 -<br />
Sales Growth<br />
Total transaction value in USD in present<br />
<strong>year</strong> over previous <strong>year</strong><br />
- -<br />
Gross Income<br />
Revenue less total cost of services (PHP<br />
millions)<br />
1.1 -<br />
IREMIT EUROPE Remittance Consulting AG<br />
Per<strong>for</strong>mance Indicator Definition Dec. <strong>31</strong>, 2008 Dec. <strong>31</strong>, 2007<br />
Return on Equity (ROE)<br />
Net income over average stockholders’<br />
equity during <strong>the</strong> period<br />
56% -<br />
Return on Assets<br />
(ROA)<br />
Net income over average total assets<br />
during <strong>the</strong> period<br />
-34% -<br />
Earnings per Share<br />
(EPS)<br />
Net income over average number of<br />
outstanding shares<br />
-259.01 -<br />
Sales Growth<br />
Total transaction value in USD in present<br />
<strong>year</strong> over previous <strong>year</strong><br />
- -<br />
Gross Income<br />
Revenue less total cost of services (PHP<br />
millions)<br />
6.8 -<br />
Power Star Asia Group Limited<br />
Per<strong>for</strong>mance Indicator Definition Dec. <strong>31</strong>, 2008 Dec. <strong>31</strong>, 2007<br />
Return on Equity (ROE)<br />
Net income over average stockholders’<br />
equity during <strong>the</strong> period<br />
90% -<br />
Return on Assets<br />
(ROA)<br />
Net income over average total assets<br />
during <strong>the</strong> period<br />
76% -<br />
Earnings per Share<br />
(EPS)<br />
Net income over average number of<br />
outstanding shares<br />
49.87 -<br />
Sales Growth<br />
Total transaction value in USD in present<br />
<strong>year</strong> over previous <strong>year</strong><br />
- -<br />
Gross Income<br />
Revenue less total cost of services (PHP<br />
millions)<br />
59.8 -<br />
The Company is not aware of any known trends, commitments, events or uncertainties that will have a<br />
material impact on <strong>the</strong> Company’s liquidity. The Company has not defaulted in paying its currently<br />
maturing obligations. In addition, obligations of <strong>the</strong> Company are guaranteed up to a certain extent by<br />
<strong>the</strong> Company’s majority stockholders.<br />
The Company is not aware of any events that will trigger a direct or contingent financial obligation that<br />
is material to <strong>the</strong> Company, including any default or acceleration of an obligation.<br />
52
There are no material off-balance sheet transactions, arrangements, obligations (including contingent<br />
obligations), and o<strong>the</strong>r relationships of <strong>the</strong> Company with unconsolidated entities or o<strong>the</strong>r persons<br />
created during <strong>the</strong> reporting period.<br />
The Company has no material commitments <strong>for</strong> capital expenditures.<br />
Except as discussed above, <strong>the</strong> Company is not aware of any trends, events or uncertainties that have<br />
had or that are reasonably expected to have a material favorable or unfavorable impact on sales,<br />
revenues or income from continuing operations.<br />
Except as discussed above, <strong>the</strong>re are no o<strong>the</strong>r significant elements of income or loss that did not arise<br />
from <strong>the</strong> Company’s continuing operations.<br />
There are no seasonal aspects that had a material effect on <strong>the</strong> financial condition or results of<br />
operations.<br />
The Company does not expect any purchase of significant equipment in <strong>the</strong> next twelve (12) months.<br />
The Company does not expect any significant changes in <strong>the</strong> number of employees in <strong>the</strong> next twelve<br />
(12) months.<br />
53
Item 7. Financial Statements<br />
The consolidated financial statements and schedules listed in <strong>the</strong> accompanying Index to Financial<br />
Statements and Supplementary Schedules are filed as part of this Form <strong>17</strong>-A.<br />
Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure<br />
I-Remit and its subsidiaries had no disagreement with <strong>the</strong> auditors on any matter of accounting principles or<br />
practices, financial statements disclosure, or auditing scope or procedure as of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and<br />
<strong>December</strong> <strong>31</strong>, 2010.<br />
Appointment of and Review of <strong>the</strong> Per<strong>for</strong>mance of <strong>the</strong> External Auditor<br />
The Board of Directors and <strong>the</strong> stockholders approve <strong>the</strong> Audit Committee’s recommendation <strong>for</strong> <strong>the</strong><br />
appointment and <strong>the</strong> review of <strong>the</strong> per<strong>for</strong>mance of <strong>the</strong> external auditors. In appointing its external auditors,<br />
<strong>the</strong> Company considers <strong>the</strong> technical competence, training, experience and professional reputation of <strong>the</strong><br />
audit firm’s partners and staff, its capacity to per<strong>for</strong>m <strong>the</strong> requirements of <strong>the</strong> audit engagement, its<br />
correspondent and o<strong>the</strong>r professional relationships with reputable firms in o<strong>the</strong>r jurisdictions, and <strong>the</strong> general<br />
reputation of <strong>the</strong> firm <strong>for</strong> integrity and efficiency.<br />
Pursuant to <strong>the</strong> General Requirements of SRC Rule 68, Par. 3 (Qualifications and <strong>Report</strong>s of Independent<br />
Auditors), I-Remit engaged <strong>the</strong> services of SyCip Gorres Velayo & Co. (SGV & Co.) (BOA/PRC Reg. No.<br />
0001; SEC Accreditation No. 0012-FR-1) <strong>for</strong> <strong>the</strong> audit of <strong>the</strong> Group’s and Parent Company’s financial<br />
statements which comprise <strong>the</strong> statements of condition as of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010, and <strong>the</strong><br />
statements of income, changes in equity, and cash flows <strong>for</strong> each of <strong>the</strong> three (3) <strong>year</strong>s in <strong>the</strong> period <strong>ended</strong><br />
<strong>December</strong> <strong>31</strong>, <strong>2011</strong>.<br />
SGV & Co. is <strong>the</strong> Philippines’ largest professional services firm with nine (9) offices across <strong>the</strong> country. It<br />
employs over 1,800 people. SGV professionals from various disciplines provide integrated solutions that<br />
draw on diverse and deep competencies in assurance, tax, and risk services. Upholding <strong>the</strong> highest<br />
standards of quality, <strong>the</strong> Assurance and Advisory Business Services division of SGV & Co. has been ISOcertified<br />
since 1996.<br />
SGV & Co.’s track record has remained unmatched in <strong>the</strong> region. It has accumulated invaluable resources in<br />
its more than 60 <strong>year</strong>s of operation --- highly qualified and competent staff, state-of-<strong>the</strong>-art facilities, and an<br />
enviable international network.<br />
SGV & Co. is a member practice of Ernst & Young Global, a leader in professional services with 114,000<br />
people serving as trusted advisors in more than 140 countries offering audit, tax, and transaction advisory<br />
services across all industries to many of today’s leading global corporations as well as emerging growth<br />
companies.<br />
SGV & Co. has served as <strong>the</strong> Company’s external auditors since 2002. Josephine Adrienne A. Abarca (CPA<br />
Certificate No. 92126; SEC Accreditation No. 0466-A) is <strong>the</strong> current audit partner <strong>for</strong> <strong>the</strong> Company. Aris C.<br />
Malantic (CPA Certificate No. 90190; SEC Accreditation No. 0326-AR-1) is <strong>the</strong> <strong>for</strong>mer audit partner <strong>for</strong> <strong>the</strong><br />
Company and he has served as such from 2005 to 2008.<br />
External Audit Fees and Services<br />
For <strong>the</strong> audit of <strong>the</strong> Group’s and Parent Company’s annual financial statements and services provided in<br />
connection with statutory and regulatory filings or engagements, <strong>the</strong> aggregate amounts to be billed/billed,<br />
exclusive of value-added tax (VAT) and out-of-pocket expenses, by SGV & Co. amounts/amounted to PHP<br />
577,500, PHP 550,000, and PHP 550,000 <strong>for</strong> <strong>2011</strong>, 2010, and 2009, respectively.<br />
SGV & Co. did not render professional services <strong>for</strong> tax accounting, compliance, advice, planning and any<br />
o<strong>the</strong>r <strong>for</strong>m of tax services.<br />
SGV & Co. did not provide products and services o<strong>the</strong>r than <strong>the</strong> services reported above.<br />
The Company’s Executive Committee approves <strong>the</strong> audit fees as recomm<strong>ended</strong> by <strong>the</strong> Management<br />
Committee.<br />
54
Changes in Accounting Policies<br />
The accounting policies adopted are consistent with those of <strong>the</strong> previous financial <strong>year</strong> except <strong>for</strong> <strong>the</strong><br />
adoption of <strong>the</strong> following new and am<strong>ended</strong> PFRS, Philippine Accounting Standards (PAS) and<br />
Philippine Interpretations which became effective on January 1, <strong>2011</strong>:<br />
• PAS 24 Amendment, Related Party Disclosures<br />
• PAS 32 Amendment, Financial Instruments: Presentation - Classification of Rights Issues<br />
• Philippine Interpretation International Financial <strong>Report</strong>ing Interpretations Committee (IFRIC) 14<br />
Amendment, Prepayments of a Minimum Funding Requirement<br />
• Philippine Interpretation IFRIC 19, Extinguishing Financial Liabilities with Equity Instruments<br />
The adoption of new standards, amendments and interpretations above did not have impact to <strong>the</strong><br />
Group except <strong>for</strong> <strong>the</strong> adoption of PAS 24 Amendment, Related Party Transactions.<br />
PAS 24 Amendment, Related Party Transactions<br />
PAS 24 clarifies <strong>the</strong> definitions of a related party. The new definitions emphasize a symmetrical view of<br />
related party relationships and clarify <strong>the</strong> circumstances in which persons and key management<br />
personnel affect related party relationships of an entity. In addition, <strong>the</strong> amendment introduces an<br />
exemption from <strong>the</strong> general related party disclosure requirements <strong>for</strong> transactions with government and<br />
entities that are controlled, jointly controlled or significantly influenced by <strong>the</strong> same government as <strong>the</strong><br />
reporting entity. The amendment only affects <strong>the</strong> disclosures and has no impact on <strong>the</strong> Group’s financial<br />
position or per<strong>for</strong>mance.<br />
Improvements to PFRS 2010<br />
Improvements to PFRSs, an omnibus of amendments to standards, deal primarily with a view to<br />
removing inconsistencies and clarifying wording. There are separate transitional provisions <strong>for</strong> each<br />
standard. The adoption of <strong>the</strong> following amendments resulted in changes to accounting policies but did<br />
not have any impact on <strong>the</strong> financial position or per<strong>for</strong>mance of <strong>the</strong> Group.<br />
PFRS 3, Business Combinations (Revised)<br />
The measurement options available <strong>for</strong> noncontrolling interest (NCI) were am<strong>ended</strong>. Only components<br />
of NCI that constitute a present ownership interest that entitles <strong>the</strong>ir holder to a proportionate share of<br />
<strong>the</strong> entity’s net assets in <strong>the</strong> event of liquidation should be measured at ei<strong>the</strong>r fair value or at <strong>the</strong> present<br />
ownership instruments’ proportionate share of <strong>the</strong> acquiree’s identifiable net assets. All o<strong>the</strong>r<br />
components are to be measured at <strong>the</strong>ir acquisition date fair value.<br />
The amendments to PFRS 3 are effective <strong>for</strong> annual periods beginning on or after July 1, <strong>2011</strong>. The<br />
Group, however, adopted <strong>the</strong>se as of January 1, <strong>2011</strong> and changed its accounting policy accordingly as<br />
<strong>the</strong> amendment was issued to eliminate unint<strong>ended</strong> consequences that may arise from <strong>the</strong> adoption of<br />
PFRS 3.<br />
PFRS 7, Financial Instruments - Disclosures<br />
The amendment was int<strong>ended</strong> to simplify <strong>the</strong> disclosures provided by reducing <strong>the</strong> volume of disclosures<br />
around collateral held and improving disclosures by requiring qualitative in<strong>for</strong>mation to put <strong>the</strong><br />
quantitative in<strong>for</strong>mation in context. The Group reflects <strong>the</strong> revised disclosure requirements in Note 4.<br />
PAS 1, Presentation of Financial Statements<br />
The amendment clarifies that an entity may present an analysis of each component of o<strong>the</strong>r<br />
comprehensive income maybe ei<strong>the</strong>r in <strong>the</strong> statement of changes in equity or in <strong>the</strong> notes to <strong>the</strong> financial<br />
statements.<br />
O<strong>the</strong>r amendments resulting from <strong>the</strong> 2010 Improvements to PFRSs to <strong>the</strong> following standards did not<br />
have any impact on <strong>the</strong> accounting policies, financial position or per<strong>for</strong>mance of <strong>the</strong> Group:<br />
• PFRS 3, Business Combinations (Contingent consideration arising from business combination prior<br />
to adoption of PFRS 3 (as revised in 2008))<br />
• PFRS 3, Business Combinations (Un-replaced and voluntarily replaced share-based payment<br />
awards)<br />
• PAS 27, Consolidated and Separate Financial Statements<br />
• PAS 34, Interim Financial Statements<br />
55
The following interpretation and amendments to interpretations did not have any impact on <strong>the</strong><br />
accounting policies, financial position or per<strong>for</strong>mance of <strong>the</strong> Group:<br />
• Philippine Interpretation IFRIC 13, Customer Loyalty Programmes (determining <strong>the</strong> fair value of<br />
award credits)<br />
• Philippine Interpretation IFRIC 19, Extinguishing Financial Liabilities with Equity Instruments<br />
56
PART III. CONTROL AND COMPENSATION INFORMATION<br />
Item 9. Directors and Executive Officers of <strong>the</strong> Issuer<br />
(A) Directors, Executive Officers, Promoters and Control Persons<br />
(1) Directors, Including Independent Directors and Control Persons<br />
Bansan C. Choa, 57, Filipino<br />
Director, Chairman and Chief Executive Officer<br />
Director’s Term of Office July 29, <strong>2011</strong> until <strong>the</strong> next annual stockholders’ meeting<br />
Period Served as Such August 16, 2002 to date<br />
Mr. Choa has served as Chairman and Chief Executive Officer of since 2005 and has been a<br />
Director since 2002. He is involved in various businesses in <strong>the</strong> manufacturing, and<br />
construction and property development sectors. He currently holds <strong>the</strong> following positions:<br />
Chairman, Confed Properties, Inc. (1991 to date); Chairman, Surewell Equities, Inc. (2001 to<br />
date); Director, Sterling Bank of Asia, Inc. (2007 to date); Board Member, Professional<br />
Regulation Commission of Real Estate Service (2010 to date); President, Philippine<br />
Retirement, Inc. (2009 to date) Treasurer, Six Alps Corporation (1997 to date); Treasurer,<br />
Banwood Contruction Center, Inc. (1976 to date); Chairman, Flexi Woodworks, Inc. (1993 to<br />
date), Chairman, Sure Fortune Properties, Inc. (2001 to date), Chairman, OLGC Psychological<br />
Services (2001 to date); Chairman, Lucky Star Management, Ltd. (Hong Kong) (2001 to date);<br />
Chairman, Surewell Enterprise Ltd. (Hong Kong) (1998 to date); Chairman, Surewell Equities<br />
(Singapore) Pte. Ltd. (2001 to date).<br />
Mr. Choa is a licensed real estate broker (Professional Regulation Commission License No.<br />
00002), appraiser (Professional Regulation Commission License No. 00002), and real estate<br />
consultant (Professional Regulation Commission License No. 00002). He is a certified public<br />
accountant (Professional Regulation Commission License No. 030924). He is active in <strong>the</strong> real<br />
property development and property management field and has served and continues to hold<br />
board and officer positions in housing and real property development organizations including<br />
<strong>the</strong> Organization of Socialized Housing Developers as Vice President (2001 to 2008),<br />
President(2008 to 2009) and Board Member (2010); Subdivision and Housing Developers<br />
Association as First Vice President (2008), Chairman (2004), Board Governor (2000 to 2010),<br />
and Board Advisor (<strong>2011</strong> to date). He is also <strong>the</strong> Chairman of <strong>the</strong> Board of Trustees of Kassel<br />
Condominium Corporation (2001 to date).<br />
He was one of <strong>the</strong> finalists of <strong>the</strong> 2006 Entrepreneur of <strong>the</strong> Year award of <strong>the</strong> Ernst & Young<br />
global accounting firm. He is also a member of <strong>the</strong> Board of Trustees and <strong>the</strong> treasurer of<br />
Kabalikat ng Migranteng Pilipino, Inc. (KAMPI), a non-stock non-profit organization serving<br />
overseas Filipino workers.<br />
Mr. Choa obtained his master in business administration degree from <strong>the</strong> Ateneo de Manila<br />
University Graduate School of Business in 1985 and his bachelor’s degree in commerce from<br />
<strong>the</strong> De La Salle University in 1974. He is a certified public accountant (CPA) and a member of<br />
<strong>the</strong> Philippine Institute of Certified Public Accountants (PICPA). He was connected with <strong>the</strong><br />
accounting firm of SyCip Gorres Velayo & Co. from 1974 to 1976.<br />
57
Armin V. Demetillo, 43, Filipino<br />
Director, Chairman of <strong>the</strong> Executive Committee<br />
Director’s Term of Office July 29, <strong>2011</strong> until <strong>the</strong> next annual stockholders’ meeting<br />
Period Served as Such July <strong>17</strong>, 2009 to date<br />
Mr. Demetillo has served as Director and Chairman of <strong>the</strong> Executive Committee of I-Remit,<br />
Inc. since July <strong>17</strong>, 2009. He is <strong>the</strong> Managing Director of Goldleaf Guard Services, Inc. (2002<br />
to date); Executive Vice President, Rapid Security (2002 to date); and vice president, St.<br />
Thomas Security Corporation (2002 to date). Mr. Demetillo is <strong>the</strong> Founding President/Charter<br />
President of <strong>the</strong> Rotary Club of Pasay EDSA, R.I. District 3810. He also served as a member<br />
of <strong>the</strong> Board of Trustees of <strong>the</strong> Rotary Street Children Foundation (2005 to 2007). In 2005 to<br />
2006, he assumed <strong>the</strong> position of Chairman of <strong>the</strong> Board of Virlanie Foundation, Inc. (a street<br />
children foundation supported by Princess Caroline of Monaco, which received an award in<br />
Europe <strong>for</strong> its ef<strong>for</strong>t in protecting children’s rights). He became <strong>the</strong> Faculty Member/Academic<br />
Counselor in College of Business and Economics, De La Salle University (1992 to 2002)<br />
Mr. Demetillo obtained his bachelor of arts degree, major in philosophy cum laude from <strong>the</strong><br />
Saint Joseph Seminary College in 1990.<br />
Harris Edsel D. Jacildo, 50, Filipino<br />
Director, President & Chief Operating Officer<br />
Director’s Term of Office July 29, <strong>2011</strong> until <strong>the</strong> next annual stockholders’ meeting<br />
Period Served as Such August 8, 2002 to date<br />
Mr. Jacildo joined I-Remit, Inc. as Executive Vice President and Chief Operating Officer in<br />
February 2002. He has been a Director and <strong>the</strong> President and Chief Operating Officer of <strong>the</strong><br />
Company since April 2003. He also currently holds <strong>the</strong> following positions: Director, Sterling<br />
Bank of Asia, Inc. (A Savings Bank) (2006 to date); Director, Lucky Star Management Ltd.<br />
(Hong Kong) (2003 to date); Director, Iremit Global Remittance Ltd. (United Kingdom) (2003 to<br />
date); Director, I-Remit Australia Pty Ltd (2002 to date).<br />
He is also a Trustee of <strong>the</strong> Kabalikat ng Migranteng Pilipino, Inc. (KAMPI) (2006 to date), a<br />
non-stock non-profit organization serving overseas Filipino workers and likewise serves as a<br />
Director of <strong>the</strong> Association of Philippine Private Remittance Services, Inc. (APPRISE) (2007 to<br />
2010), an organization of registered non-bank money remittance companies in <strong>the</strong> Philippines.<br />
Prior to joining I-Remit, he spent 20 <strong>year</strong>s in <strong>the</strong> banking industry where he was initially<br />
working in <strong>the</strong> field of in<strong>for</strong>mation technology while employed by <strong>the</strong> Pacific Banking<br />
Corporation (1982 – 1985). In 1985, he joined <strong>the</strong> remittance division of <strong>the</strong> Rizal Commercial<br />
Banking Corporation (RCBC) where he was a Systems Analyst until 1991 and was <strong>the</strong> head of<br />
its TeleMoney Asia-Pacific operations until 2002.<br />
Mr. Jacildo obtained his bachelor of science degree in applied economics from <strong>the</strong> De La Salle<br />
University in 1982. He also completed <strong>the</strong> basic management program of <strong>the</strong> Asian Institute of<br />
Management in 1991.<br />
Gilbert C. Gaw, 62, Filipino<br />
Director<br />
Director’s Term of Office July 29, <strong>2011</strong> until <strong>the</strong> next annual stockholders’ meeting<br />
Period Served as Such August 16, 2002 to date<br />
Mr. Gaw has been a Director of I-Remit since 2002. He is a business engaged in steel<br />
manufacturing. He is currently a partner of JPSA Global Services (2003 to date), and a<br />
Director of Treasure Steelworks Corporation (2004 to date) and Zhangzhou Stronghold Steel<br />
Works Co., Ltd. (China) (2003 to date).<br />
He obtained his bachelor of science degree in electronics and communications engineering<br />
from <strong>the</strong> University of <strong>the</strong> East in 1973.<br />
58
A. Bayani K. Tan, 56, Filipino<br />
Director<br />
Director’s Term of Office July 29, <strong>2011</strong> until <strong>the</strong> next annual stockholders’ meeting<br />
Period Served as Such May 18, 2007 to date<br />
Atty. Tan was <strong>the</strong> Corporate Secretary of I-Remit from 2001 until 2004 and has been a Director<br />
since May 2007. He is currently a Director and Corporate Secretary of <strong>the</strong> following reporting<br />
companies: First Abacus Financial Holdings Corporation (1994 to date); Sinophil<br />
Corporation (1993 to date); TKC Steel Corporation (2007 to date); Tagaytay Highlands<br />
International Golf Club, Inc. (1993 to date); Destiny Financial Plans, Inc. (2003 to date as<br />
Director and 2009 to date as Corporate Secretary).<br />
Mr. Tan has also been <strong>the</strong> Corporate Secretary and a Director of Sterling Bank of Asia, Inc. (A<br />
Savings Bank) (2007 to date); FHE Properties, Inc. (1995 to date); Club Asia, Inc. (1999 to<br />
date). He is also a Director <strong>for</strong> <strong>the</strong> following private companies: Highlands Gourmet Specialist<br />
Corp. (2006 to date); Destiny LendFund, Inc. (2005 to date); and City Cane Corporation (1993<br />
to date).<br />
He is <strong>the</strong> Corporate Secretary of <strong>the</strong> following companies: Belle Corporation (1994 to date);<br />
Pacific Online Systems Corporation (2007 to date); Vantage Equities, Inc. (1993 to date);<br />
Yehey! Corporation (2004 to date); Philequity Fund, Inc. (1997 to date); Philequity Peso Bond<br />
Fund, Inc. (2000 to date); Philequity Dollar Income Fund, Inc. (1999 to date); Philequity PSE<br />
Index Fund, Inc. (1999 to date); HSAI-Raintree, Inc. (1999 to date); Tagaytay Midlands Golf<br />
Club, Inc. (1997 to date); The Country Club at Tagaytay Highlands, Inc. (1995 to date); The<br />
Spa and Lodge at Tagaytay Highlands, Inc. (1999 to date); Monte Oro Grid Resources Corp.<br />
(2006 to date); E-Business Services, Inc. (2001 to date); Hella-Phil., Inc. (1992 to date); JTKC<br />
Equities, Inc. (1998 to date); Good<strong>year</strong> Steel Pipe Corporation (1999 to date); Star Equities<br />
Inc. (2006 to date); Tera Investments, Inc. (2001 to date); The Discovery Leisure Company,<br />
Inc. (2001 to date); Touch Solutions, Inc. (2007 to date); and Karen Marie L. Ty Foundation,<br />
Inc. (1995 to date).<br />
He is a Trustee and <strong>the</strong> Corporate Secretary of Wellington Dee Ty Foundation, Inc. (2004 to<br />
date). He is also a Trustee (2004 to date) and currently is <strong>the</strong> Executive Vice President of UP<br />
Law ’80 Foundation, Inc.<br />
Atty. Tan is also <strong>the</strong> Managing Partner of <strong>the</strong> law firm of Tan Venturanza Valdez. He also<br />
concurrently holds <strong>the</strong> following positions: Managing Director, Shamrock Development<br />
Corporation (1988 to date); Trustee, SC Tan Foundation, Inc. (1986 to date); and Legal<br />
Counsel, Xavier School, Inc. (2005 to date). He is also a lecturer in Center <strong>for</strong> Global<br />
Practices (2009 to date).<br />
In <strong>the</strong> last five <strong>year</strong>s, he has held <strong>the</strong> following positions: Director, Monte Oro Resources and<br />
Energy, Inc. (2005 – 2008); Director, Philequity Fund, Inc. (1997 – 2007); Director, Philequity<br />
Peso Bond Fund, Inc. (2000 – 2007); Director, Philequity Dollar Income Fund, Inc. (1999 –<br />
2007); Director, Philequity PSE Index Fund, Inc. (1999 – 2007); Director, APC Group, Inc.<br />
(1996 – 2006); Director, Metro Manila Turf Club, Inc. (1995 – 2006); Corporate Secretary,<br />
International Exchange Bank (1995 – 2006).<br />
Atty. Tan holds a Master of Laws degree from New York University, USA (class of 1988). He<br />
obtained his Bachelor of Laws degree from <strong>the</strong> University of <strong>the</strong> Philippines in 1980 where he<br />
was a member of <strong>the</strong> Order of <strong>the</strong> Purple Fea<strong>the</strong>r (<strong>the</strong> UP College of Law Honor Society)<br />
having ranked ninth in his class. Atty. Tan was admitted to <strong>the</strong> Philippine Bar in 1981 after<br />
placing sixth in <strong>the</strong> examinations. He also has a Bachelor of Arts Degree (Majored in Political<br />
Science) from San Beda College (class of 1976) from where he graduated class valedictorian<br />
and was awarded <strong>the</strong> medal <strong>for</strong> academic excellence.<br />
59
Ben C. Tiu, 59, Filipino<br />
Director<br />
Director’s Term of Office July 29, <strong>2011</strong> until <strong>the</strong> next annual stockholders’ meeting<br />
Period Served as Such May 18, 2001 to date<br />
Mr. Ben Tiu has been a Director of I-Remit, Inc. since 2001 and has also served as <strong>the</strong><br />
Chairman and Chief Executive Officer of I-Remit, Inc. from 2001 to 2004. He is also <strong>the</strong><br />
Chairman of <strong>the</strong> Boards of Sterling Bank of Asia, Inc. (A Savings Bank) (2007 to date), TKC<br />
Steel Corporation (2007 to date), and The Discovery Leisure Company (<strong>the</strong> group behind <strong>the</strong><br />
Discovery Suites Hotel, The Country Suites at Tagaytay City and Discovery Shores Boracay)<br />
(2001 to date). He is <strong>the</strong> Corporate Nominee in <strong>the</strong> Philippine Stock Exchange of Fidelity<br />
Securities, Inc. (1998 to date). He is also a Director of Iremit Singapore Pte Ltd (2001 to date).<br />
He also concurrently holds <strong>the</strong> following positions: Chairman, Tera Investments, Inc. (2001 to<br />
date); President, JTKC Equities, Inc. (1993 to date); President, Union Pacific Ace Industries,<br />
Inc. (1978 to date); President, Britishwire Industries Corporation (1976 to date); President,<br />
Goodway Marketing Corporation (1998 to date); Executive Vice President, Hotel System Asia,<br />
Inc. (1996 to date); Executive Vice President, JTKC Realty Corporation (1989 to date);<br />
Executive Vice President, Pan Asean Multi Resources Corporation (1976 to date); Executive<br />
Vice President and Treasurer, Aldex Realty Corporation (1982 to date); and Vice President,<br />
Good<strong>year</strong> Steel Pipe Corporation (1976 to date). Mr. Tiu was also <strong>for</strong>merly <strong>the</strong> Vice Chairman<br />
of <strong>the</strong> Board and Chairman of <strong>the</strong> Executive Committee of <strong>the</strong> International Exchange Bank<br />
(1995 – 2006).<br />
He obtained his master in business administration degree from <strong>the</strong> Ateneo de Manila<br />
University Graduate School of Business in 1977 and his bachelor’s degree in mechanical<br />
engineering from <strong>the</strong> Loyola Marymount University, USA in 1975.<br />
John Y. Tiu, Jr., 35, Filipino<br />
Director<br />
Director’s Term of Office July 29, <strong>2011</strong> until <strong>the</strong> next annual stockholders’ meeting<br />
Period Served as Such August 16, 2002 to date<br />
Mr. John Tiu has served as Director of I-Remit since 2002. He is also presently Chairman and<br />
President of Tera Investments, Inc. (2003 to date); and a Director of Sterling Bank of Asia, Inc.<br />
(A Savings Bank) (2007 to date). He is also <strong>the</strong> Director and Treasurer of <strong>the</strong> following<br />
companies: Star Equities Inc. (2006 to date); Touch Solutions, Inc. (2001 to date); JTKC<br />
Equities, Inc. (2003 to date); JTKC Land, Inc. (2003 to date); The Discovery Leisure Company,<br />
Inc. (2001 to date); Cay Islands Corporation; Palawan Cove Corporation; Sonoran<br />
Corporation; Tofino Corporation; Discovery Country Suites, Inc. (2004 to date). He is a<br />
Director of Oakridge Properties, Inc. (2003 to date), Enderun Colleges, Inc., JT Perle<br />
Corporation, One Cerrada Corporation, Sagesoft Solutions, Inc. and Tokyo Holdings, Inc. He<br />
is a Director and President of Sou<strong>the</strong>rn Visayas Property Holdings, Inc. (2003 to date), Director<br />
and First Vice President of JTKC Realty Corporation (2005 to date) and <strong>the</strong> President of<br />
Fidelity Securities, Inc. (2002 to date).<br />
Mr. John Tiu obtained his bachelor of science in electrical engineering degree (minor in<br />
ma<strong>the</strong>matics) from <strong>the</strong> University of Washington, USA in 1998.<br />
60
Ruben C. Tiu, 55, Filipino<br />
Director<br />
Director’s Term of Office July 29, <strong>2011</strong> until <strong>the</strong> next annual stockholders’ meeting<br />
Period Served as Such May 18, 2007 to date<br />
Mr. Ruben Tiu has served as Director of I-Remit from 2002 to 2004 and was reappointed as<br />
such on May 18, 2007. He currently holds <strong>the</strong> following positions: Director, Sterling Bank of<br />
Asia, Inc. (A Savings Bank) (2007 to date); Director, Star Equities Inc. (2006 to date); Director<br />
Tera Investments, Inc. (2001 to date); President, JTKC Realty Corporation (1988 to date);<br />
President, Pan-Asean Multi Resources Corporation (1988 to date); President, Aldex Realty<br />
Corporation (1988 to date); President, Oakridge Properties, Inc. (1996 to date); Executive Vice<br />
President, JTKC Equities, Inc. (1993 to date).<br />
Mr. Ruben Tiu obtained his bachelor of science in business administration degree from <strong>the</strong> De<br />
La Salle University in 1976.<br />
Calixto V. Chikiamco, 61, Filipino<br />
Director<br />
Director’s Term of Office July 29, <strong>2011</strong> until <strong>the</strong> next annual stockholders’ meeting<br />
Period Served as Such August 16, 2002 to date<br />
Mr. Chikiamco has been a Director of I-Remit since 2002. He is a <strong>for</strong>mer columnist of <strong>the</strong><br />
Manila Standard and <strong>the</strong> Manila Times. He has authored two (2) books: “Re<strong>for</strong>ming <strong>the</strong><br />
System” (Orange Publications and Kalikasan Press, 1992) and “Why We Are Who We Are”<br />
(Foundation <strong>for</strong> Economic Freedom, 1998). In 2001, he was awarded by <strong>the</strong> Archdiocese of<br />
Manila <strong>for</strong> <strong>the</strong> Best Business Column (“Agriculture, Not IT”, Manila Standard) in <strong>the</strong> Catholic<br />
Mass Media Awards. He is <strong>the</strong> founder and CEO of Mobilemoco, Inc. ; founder and president<br />
of MRM Studios, Inc., a company involved in mobile entertainment, digital musical services,<br />
and e-commerce (2001 to date). He also concurrently holds <strong>the</strong> following positions: Director,<br />
UPCC Securities (1999 to date); Vice Chairman, CBY, Inc. (1999 to date); Director, Golden<br />
Sunrise (1984 to date); Director, APMC (1985 to date); Director, Foundation <strong>for</strong> Economic<br />
Freedom (1996 to date). He is also involved in several professional and civic organizations<br />
such as <strong>the</strong> Foundation <strong>for</strong> Economic Freedom where he is <strong>the</strong> President. He is also presently<br />
a columnist of Business World and a property rights consultant to <strong>the</strong> Asia Foundation. He is a<br />
member of <strong>the</strong> Philippine Internet Commerce Society and <strong>the</strong> Syracuse University Alumni<br />
Association.<br />
Mr. Chikiamco holds a Master’s degree in Professional Studies in Media Administration from<br />
<strong>the</strong> Syracuse University (New York, USA). He obtained his bachelor’s degree in economics<br />
summa cum laude from <strong>the</strong> De La Salle University.<br />
61
In accordance with <strong>the</strong> requirements of Section 38 of <strong>the</strong> Securities Regulation Code, <strong>the</strong><br />
Revised SRC Rules, and <strong>the</strong> Company’s Manual on Corporate Governance, <strong>the</strong> following<br />
Directors were nominated and elected as Independent Directors of <strong>the</strong> Company during <strong>the</strong><br />
<strong>Annual</strong> Stockholders’ Meeting held on July 29, <strong>2011</strong>:<br />
Jose Joel Y. Pusta, 59, Filipino<br />
Independent Director<br />
Director’s Term of Office July 29, <strong>2011</strong> until <strong>the</strong> next annual stockholders’ meeting<br />
Period Served as Such August 16, 2002 to date<br />
Mr. Pusta has been a Director of I-Remit since 2002. He was a Director and Vice President of<br />
Confed Properties, Inc. (1997 to 2009). He was also <strong>the</strong> Corporate Secretary and a Trustee<br />
of <strong>the</strong> Kabalikat ng Migranteng Pilipino, Inc. (KAMPI) (2003 to 2009) and <strong>the</strong> President and a<br />
Trustee of <strong>the</strong> Kassel Condominium Corporation (2002 to 2009).<br />
Mr. Pusta obtained his bachelor of science in commerce degree (majored in accounting) from<br />
<strong>the</strong> University of San Carlos in Cebu City in 1974. He has also earned units leading to <strong>the</strong><br />
master in business administration degree at <strong>the</strong> Ateneo de Manila University Graduate School<br />
of Business from 1985 to 1988. He is a certified public accountant (CPA) and a member of <strong>the</strong><br />
Philippine Institute of Certified Public Accountants (PICPA) and <strong>the</strong> Institute of Internal<br />
Auditors, Philippines.<br />
Gregorio T. Yu, 53, Filipino<br />
Director<br />
Director’s Term of Office July 29, <strong>2011</strong> until <strong>the</strong> next annual stockholders’ meeting<br />
Period Served as Such May 18, 2007 to date<br />
Mr. Yu was a Director of I-Remit, Inc. from 2001 to 2004 and was re-elected as an<br />
Independent Director of <strong>the</strong> Company on May 18, 2007. He is currently <strong>the</strong> Chairman of CATS<br />
Automobile Corporation (2004 to date), Chairman of CATS Motors, Inc. (2000 to date),<br />
Chairman of CATS Asian Cars, Inc. (Mazda Greenhills) (2004 to date), Director, Prople BPO,<br />
Inc. (<strong>for</strong>merly Summersault, Inc.) (2006 to date), Director and Treasurer of CMB Partners, Inc.<br />
(2003 to date), and President of <strong>the</strong> Domestic Satellite Corporation of <strong>the</strong> Philippines (2001 to<br />
date). He is also <strong>the</strong> Vice Chairman of <strong>the</strong> Board and <strong>the</strong> Chairman of <strong>the</strong> Executive<br />
Committee Sterling Bank of Asia, Inc. (2006 to date) and Chairman and President of Lucky<br />
Star Network Communications Corporation (1994 to date). He is also concurrently a Director<br />
of <strong>the</strong> following companies: National Reinsurance Corporation, (<strong>2011</strong> to date); Ripple E-<br />
Business International, Inc. (2010 to date); Jupiter Systems, Inc. (2001 to date); Wordtext<br />
Systems, Inc. (2001 to date); Yehey, Inc. (2001 to date); Philequity Fund, Inc. (1994 to date)<br />
Philequity PSE Index Fund, Inc. (1999 to date); Philequity Dollar Income Fund, Inc. (1999 to<br />
date); Philequity Peso Bond Fund, Inc.; Philequity Strategic Growth Fund, Inc.; Philequity<br />
Foreign Currency Fixed Income Fund, Inc.; Philequity Balanced Fund; and Philequity<br />
Resources Fund, Inc. Mr. Yu is also a Trustee of <strong>the</strong> Government Service Insurance System<br />
(2010 to date). He is also a Board Member of Ballet Philippines (2009 to date) and Manila<br />
Symphony Orchestra (2009 to date), and a Trustee of <strong>the</strong> Xavier School, Inc. (1998 to date)<br />
and a Trustee and <strong>the</strong> Chairman, Ways and Means Committee of <strong>the</strong> Xavier School<br />
Educational and Trust Fund, Inc. (1998 to date).<br />
Mr. Yu was <strong>for</strong>merly <strong>the</strong> President and Chief Executive Officer of Belle Corporation (1989 –<br />
2001). He was also a Director and a Member of <strong>the</strong> Executive Committee of The International<br />
Exchange Bank (1995 – 2006). He was also a Director of <strong>the</strong> following companies: Nexus<br />
Technologies, Inc. (2001 – <strong>2011</strong>); R.S. Lim & Co., Inc. (1997- 2008); and Ivantage Corporation<br />
(1993 – 2006). He was also <strong>the</strong> President of <strong>the</strong> following organizations: Tagaytay Highlands<br />
International Golf Club (1991 – 2001); President, The Country Club and Tagaytay Highlands<br />
(1995 – 2001). He was also <strong>the</strong> President and Chief Executive Officer of Sinophil Corporation<br />
(1993 – 2001) and Pacific Online Systems Corporation (1994 – 2001). He was also <strong>the</strong> Vice<br />
Chairman of Philippine Global Communications (1996 – 2001) and <strong>the</strong> APC Group, Inc. (1994<br />
– 2001). He was also connected with <strong>the</strong> Chase Manhattan Asia Limited as Director of<br />
Corporate Finance (1988 – 1999) and with The Chase Manhattan Bank, NA Asia Pacific<br />
Regional Headquarters as Vice President – Area Credit. He was also a Second Vice<br />
President of <strong>the</strong> Chase Manhattan Bank, NA Manila Offshore Banking Unit from 1983 to 1986.<br />
62
He was also <strong>the</strong> Assistant Vice President of R.S. Lim and Company, Inc. from 1978 to 1981<br />
and a Lecturer in Economics at Dela Salle University from 1978 to 1980.<br />
Mr. Yu obtained his Master of Business Administration degree from The Wharton School,<br />
Graduate of <strong>the</strong> University of Pennsylvania in 1983. He obtained his bachelor of arts degree in<br />
economics summa cum laude from <strong>the</strong> De La Salle University in 1978.<br />
The above directors shall hold office from <strong>the</strong>ir date of election until <strong>the</strong> next annual<br />
shareholders meeting or <strong>the</strong>ir resignation unless sooner terminated or removed in accordance<br />
with law.<br />
63
The names, ages, citizenship, present positions, previous positions, terms of office, and period<br />
served by <strong>the</strong> Corporate Secretary and <strong>the</strong> Assistant Corporate Secretary are as follows:<br />
Maria Cecilia V. Soria, 35, Filipino<br />
Corporate Secretary<br />
Term of Office July 29, <strong>2011</strong> until <strong>the</strong> next annual stockholders’ meeting<br />
Period Served as Such July 29, <strong>2011</strong> to date<br />
Atty. Atty. Soria is <strong>the</strong> incumbent Corporate Secretary of I-Remit, Inc. She is also <strong>the</strong> Assistant<br />
Corporate Secretary of <strong>the</strong> following companies: Sterling Bank of Asia, Inc., E-Business<br />
Services Inc., FHE Properties Inc., Highlands Gourmet, iRipple, Inc., Philequity Management,<br />
Inc., Touch Solutions, Inc., and JTKC Equities, Inc. She obtained her Bachelor of Arts degree<br />
in Political Science and Bachelor of Laws degree from <strong>the</strong> University of <strong>the</strong> Philippines in 1998<br />
and 2006, respectively. She is currently an associate of Tan Venturanza Valdez (2010 to<br />
date). She was <strong>for</strong>merly connected with Reyes-Fajardo & Associates (2009 – 2010), SGV &<br />
Co. (a member practice of Ernst & Young) (2008 – 2009), and Medialdea Ata Bello & Guevarra<br />
law office (2007 – 2008). She was admitted to <strong>the</strong> Philippine bar in May 2007.<br />
Darlene R. Vivas, 29, Filipino<br />
Assistant Corporate Secretary<br />
Term of Office July 29, <strong>2011</strong> until <strong>the</strong> next annual stockholders’ meeting<br />
Period Served as Such July 29, <strong>2011</strong> to date<br />
Atty. Vivas is <strong>the</strong> incumbent Assistant Corporate Secretary of I-Remit, Inc. She is also <strong>the</strong><br />
Assistant Corporate Secretary of <strong>the</strong> following companies: Jolliville Holdings Corporation; The<br />
Country Club at Tagaytay Highlands, Inc.; and Tagaytay Midlands Golf Club Inc. She obtained<br />
her bachelor of arts degree in political science from <strong>the</strong> University of <strong>the</strong> Philippines and<br />
bachelor of laws degree from San Beda College of Law in 2003 and 2009, respectively. She is<br />
currently an associate of Tan Venturanza Valdez (<strong>2011</strong> to date). She was <strong>for</strong>merly connected<br />
with Pizarras & Associates (2009 – 2010) and Santos Parungao Aquino Abejo & Santos law<br />
office (2010). She was admitted into <strong>the</strong> Philippine bar in May 2010.<br />
64
The names, ages, citizenship, present positions, previous positions, terms of office, and period<br />
served of all Executive Officers are as follows:<br />
Bansan C. Choa, 57, Filipino<br />
Director, Chairman and Chief Executive Officer<br />
Term of Office July 29, <strong>2011</strong> until <strong>the</strong> next annual stockholders’ meeting<br />
Period Served as Such 2005 to date<br />
(see above <strong>for</strong> business experience and positions held under “Directors”)<br />
Harris Edsel D. Jacildo, 50, Filipino<br />
Director, President and Chief Operating Officer<br />
Term of Office July 29, <strong>2011</strong> until <strong>the</strong> next annual stockholders’ meeting<br />
Period Served as Such February 4, 2002 to date<br />
(see above <strong>for</strong> business experience and positions held under “Directors”)<br />
Ronald A. Benito, 42, Filipino<br />
Senior Vice President & Head, International Treasury<br />
Term of Office July 29, <strong>2011</strong> until <strong>the</strong> next annual stockholders’ meeting<br />
Period Served as Such November 15, 2010 to date<br />
Mr. Benito joined I-Remit, Inc. in 2010 and currently heads <strong>the</strong> Company’s international<br />
treasury unit in charge of trading its <strong>for</strong>eign currencies. He was previously connected with<br />
ICAP AP (Singapore) as director of new business initiatives(2007-2010) and vice president<br />
and deputy treasurer of Banco Santander Central Hispano (2001-2004)<br />
He obtained his bachelor of arts degree in economics cum laude from <strong>the</strong> University of Santo<br />
Tomas in 1991. He obtained his master of arts degree in international relations (school of<br />
politics) in 2005 from <strong>the</strong> University of Durham, United Kingdom and his master of science<br />
degree in economics and international business in 2007 from City University London.<br />
Ma. Elizabeth G. Yao, 41, Filipino<br />
Senior Vice President & Head, Service and Operations Division<br />
Term of Office July 29, <strong>2011</strong> until <strong>the</strong> next annual stockholders’ meeting<br />
Period Served as Such August 12, 2002 to date<br />
Ms. Yao joined I-Remit in 2002 and has since been in charge of its Service and Operations<br />
Division. She was previously an equities sales officer of Belson Securities, Inc. (1997 – 2002).<br />
She was previously connected with <strong>the</strong> institutional sales group of Belson PrimeEast Capital<br />
(1996 – 1997) and was also a money market trader of <strong>the</strong> Security Bank Corporation (1995 –<br />
1996).<br />
She obtained her bachelor’s degree in business administration from <strong>the</strong> University of <strong>the</strong><br />
Philippines in 1994. She also att<strong>ended</strong> <strong>the</strong> business administration program of <strong>the</strong> University<br />
of New Mexico (USA) from 1988 to 1990.<br />
Bernadette Cindy C. Tiu, 33, Filipino<br />
First Vice President & Chief Financial Officer; Head, Finance Division<br />
Term of Office July 29, <strong>2011</strong> until <strong>the</strong> next annual stockholders’ meeting<br />
Period Served as Such April 1, 2005 to date<br />
Ms. Tiu has been <strong>the</strong> Chief Financial Officer of I-Remit since 2006. She was previously <strong>the</strong><br />
Finance Manager of IRemit Global Remittance Limited in <strong>the</strong> United Kingdom (2003) and<br />
International Remittance (Canada) Ltd. (2004), both wholly-owned subsidiaries of <strong>the</strong><br />
Company. She joined I-Remit, Inc. in Manila in 2005 as Treasurer and Corporate Governance<br />
Head.<br />
65
She obtained her bachelor’s degree in business administration (majored in accounting and<br />
finance) from <strong>the</strong> Boston University School of Management in 2001.<br />
Fitzgerald S. Duba, 47, Filipino<br />
Vice President & Compliance Officer; Head, Corporate Affairs and In<strong>for</strong>mation Division<br />
Term of Office July 29, <strong>2011</strong> until <strong>the</strong> next annual stockholders’ meeting<br />
Period Served as Such November 16, 2007 to date<br />
Mr. Duba was a Vice President and <strong>the</strong> head of <strong>the</strong> Corporate Strategy Division of <strong>the</strong> Rizal<br />
Commercial Banking Corporation (RCBC) from 2002 to 2005, where he was employed <strong>for</strong> 12<br />
<strong>year</strong>s. He was also a management consultant in <strong>the</strong> Management Services Division of SyCip<br />
Gorres Velayo & Co (SGV) and later, <strong>the</strong> Manila office of Andersen Consulting.<br />
He obtained his bachelor’s degree in industrial engineering from <strong>the</strong> University of <strong>the</strong><br />
Philippines in 1987 and completed <strong>the</strong> basic banking course of <strong>the</strong> Asian Institute of<br />
Management in 1996. He also completed <strong>the</strong> corporate governance seminar of <strong>the</strong> Bangko<br />
Sentral ng Pilipinas (BSP) in 2000. He is a member of <strong>the</strong> Philippine Institute of Industrial<br />
Engineers.<br />
66
(2) Significant Employees<br />
There is no person o<strong>the</strong>r than <strong>the</strong> entire human resources as a whole, and <strong>the</strong> executive<br />
officers who are expected to make a significant contribution to <strong>the</strong> Company.<br />
(3) Family Relationships<br />
Directors Ben C. Tiu, John Y. Tiu, Jr. and Ruben C. Tiu are bro<strong>the</strong>rs. Bernadette Cindy C. Tiu,<br />
First Vice President and Chief Financial Officer of <strong>the</strong> Company, is a daughter of Director Ben<br />
C. Tiu.<br />
There are no o<strong>the</strong>r family relationships among <strong>the</strong> directors or <strong>the</strong> officers listed.<br />
67
(4) Involvement in Certain Legal Proceedings<br />
As a result of <strong>the</strong> delay in <strong>the</strong> delivery of <strong>the</strong> facilities of <strong>the</strong> Universal Leisure Club, Inc.<br />
(ULCI), some of its members have initiated legal actions against ULCI, <strong>the</strong> Universal Rightfield<br />
Property Holdings, Inc. (URPHI) and <strong>the</strong> Universal Leisure Corp. (ULCorp), as well as <strong>the</strong>ir<br />
respective incumbent and <strong>for</strong>mer officers and directors, including <strong>the</strong>ir <strong>for</strong>mer Corporate<br />
Secretary, A. Bayani K. Tan. The cases filed include:<br />
i. Civil actions <strong>for</strong> breach of contract and/or of contract, specific per<strong>for</strong>mance, quieting of<br />
title and reimbursement, damages with request <strong>for</strong> receivership and preliminary<br />
attachment (Civil Case Nos. MC03-075, MC03-077, and MC04-082) be<strong>for</strong>e <strong>the</strong> RTC of<br />
Mandaluyong City, which cases have been settled and <strong>the</strong> RTC Mandaluyong has, on 08<br />
February 2006, promulgated a Joint Decision approving <strong>the</strong> Settlement Agreement,<br />
Supplemental Agreement, and Second Supplemental Agreement re: Civil Case Nos.<br />
MC03-077 and MC04-082. RTC Mandaluyong, noting <strong>the</strong> settlement of Civil Case Nos.<br />
MC03-077 and MC04-082, likewise issued an Order dated 18 May 2006 re: Civil Case<br />
No. MC-075 holding that <strong>the</strong> a<strong>for</strong>ementioned settlement agreement likewise puts an end<br />
to Civil Case No. MC03-075, as it involves substantially similar factual antecedents, and<br />
holding fur<strong>the</strong>r that <strong>the</strong> complaint and counterclaims of <strong>the</strong> parties are withdrawn with<br />
prejudice. While <strong>the</strong> main cases have been settled, a group of ULCI members who were<br />
not included in <strong>the</strong> settlement and are not in favor of its terms have initiated suit to nullify<br />
<strong>the</strong> same. RTC Mandaluyong has rejected such moves to assail <strong>the</strong> settlement,<br />
prompting said group to elevate <strong>the</strong>ir complaint to <strong>the</strong> Court of Appeals. The Court of<br />
Appeals partially granted <strong>the</strong> group’s prayer and revived <strong>the</strong> writs of attachment and<br />
garnishment but only to such extent as to cover <strong>the</strong> remaining claims. Respondents filed<br />
a timely petition with <strong>the</strong> Supreme Court, where it is currently pending.<br />
ii. A Complaint <strong>for</strong> Estafa (docketed as I.S. No. 08-K-19713) filed be<strong>for</strong>e <strong>the</strong> City Prosecutor<br />
of Manila. A Counter-Affidavit has already been filed be<strong>for</strong>e <strong>the</strong> City Prosecutor seeking<br />
to dismiss <strong>the</strong> Complaint <strong>for</strong> lack of cause of action.<br />
Except as provided above, <strong>the</strong> Company is not aware of any of <strong>the</strong> following events wherein<br />
any of its directors, executive officers, nominees <strong>for</strong> election as director, executive officers,<br />
underwriter or control persons were involved during <strong>the</strong> past five (5) <strong>year</strong>s up to <strong>the</strong> latest date.<br />
(1) Any bankruptcy petition filed by or against any business of which any of <strong>the</strong> above<br />
persons was a general partner or executive officer ei<strong>the</strong>r at <strong>the</strong> time of bankruptcy or<br />
within two <strong>year</strong>s prior to that time;<br />
(2) Any order or judgment, or decree, not subsequently reversed, susp<strong>ended</strong> or vacated,<br />
of any court of competent jurisdiction, domestic or <strong>for</strong>eign, permanently or temporarily<br />
enjoining, barring, suspending or o<strong>the</strong>rwise limiting <strong>the</strong> involvement of any of <strong>the</strong><br />
above persons in any type of business, securities, commodities, or banking activities;<br />
and<br />
(3) Any findings by a domestic or <strong>for</strong>eign court of competent jurisdiction (in civil action), <strong>the</strong><br />
SEC or comparable <strong>for</strong>eign body, or a domestic or <strong>for</strong>eign exchange or electronic<br />
marketplace or self-regulatory organization, that any of <strong>the</strong> above persons has violated<br />
a securities or commodities law, and <strong>the</strong> judgment has not been reversed, susp<strong>ended</strong>,<br />
or vacated.<br />
The Company and its major subsidiaries and associates are not involved in, nor are any of<br />
<strong>the</strong>ir properties subject to, any material legal proceedings that could potentially affect <strong>the</strong>ir<br />
operations and financial capabilities.<br />
68
Item 10. Executive Compensation<br />
(B) Executive Compensation<br />
(1) Summary Compensation Table<br />
The following table summarizes <strong>the</strong> aggregate compensation paid or accrued during <strong>the</strong> last<br />
two (2) calendar <strong>year</strong>s and to be paid in <strong>the</strong> ensuing calendar <strong>year</strong> to <strong>the</strong> Company’s Chief<br />
Executive Officer and four (4) o<strong>the</strong>r most highly compensated officers:<br />
Year Name Principal Position<br />
2012<br />
(Estimate)<br />
<strong>2011</strong><br />
(Actual)<br />
2010<br />
(Actual)<br />
(2) Compensation of Directors<br />
Bansan C. Choa Chairman & CEO<br />
Harris E. D. Jacildo President & COO<br />
Ma. Elizabeth G. Yao SVP<br />
Ronald A. Benito SVP<br />
Bernadette Cindy C. Tiu FVP & CFO<br />
69<br />
Aggregate<br />
Compensation<br />
9,745,799.32<br />
All o<strong>the</strong>r officers and directors as a group unnamed 12,196,840.85<br />
Bansan C. Choa Chairman & CEO<br />
Harris E. D. Jacildo President & COO<br />
Ma. Elizabeth G. Yao SVP<br />
9,346,922.42<br />
Ronald A. Benito SVP<br />
Bernadette Cindy C. Tiu FVP & CFO<br />
All o<strong>the</strong>r officers and directors as a group unnamed 11,541,657.95<br />
Bansan C. Choa Chairman & CEO<br />
Harris E. D. Jacildo President & COO<br />
Ma. Elizabeth G. Yao SVP<br />
8,658,723.75<br />
Ronald A. Benito SVP<br />
Bernadette Cindy C. Tiu FVP & CFO<br />
All o<strong>the</strong>r officers and directors as a group unnamed 9,593,788.01<br />
The directors receive per diems <strong>for</strong> attendance in meetings of <strong>the</strong> Board but do not receive<br />
compensation from <strong>the</strong> Company <strong>for</strong> services rendered. There are no o<strong>the</strong>r standard<br />
arrangements, including consultancy contracts, pursuant to which any Director of <strong>the</strong> Company<br />
was compensated, or is to be compensated, directly or indirectly, <strong>for</strong> any services provided as<br />
a Director, including any additional amounts payable <strong>for</strong> committee participation, or special<br />
assignments, during <strong>the</strong> Company’s last completed fiscal <strong>year</strong>, and <strong>the</strong> ensuing <strong>year</strong>.<br />
(3) Employment Contracts and Termination of Employment and Change-in-Control Arrangements<br />
There was no compensatory plan or arrangement with respect to named Executive Officers<br />
that resulted or will result from <strong>the</strong> resignation, retirement or termination of such executive<br />
officer from a change-in-control of <strong>the</strong> Company.<br />
(4) Warrants and Options Outstanding: Repricing<br />
No warrants or options on <strong>the</strong> Company’s shares of stock have been issued to <strong>the</strong> Directors or<br />
Executive Officers as a <strong>for</strong>m of compensation <strong>for</strong> services rendered.
Item 11. Security Ownership of Certain Beneficial Owners and Management<br />
(1) Security Ownership of Certain Record and Owners<br />
The following are known to <strong>the</strong> registrant to be directly or indirectly <strong>the</strong> record or beneficial owner of<br />
more than five per cent (5%) of registrant’s voting securities (registrant has only one class of voting<br />
security, i.e., common shares) as of <strong>December</strong> <strong>31</strong>, <strong>2011</strong>:<br />
Class<br />
Name and Address of Record<br />
Owner and Relationship with<br />
Issuer<br />
Common PCD Nominee Corporation<br />
G/F Makati Stock Exchange<br />
Building, 6767 Ayala Avenue,<br />
Makati City<br />
(stockholder)<br />
Common Star Equities Inc.<br />
2/F JTKC Center<br />
2155 Pasong Tamo<br />
Makati City<br />
Common Surewell Equities, Inc.<br />
690-A Quirino Ave.<br />
Tambo, Paranaque City<br />
Common JTKC Equities, Inc.<br />
2/F JTKC Center<br />
2155 Pasong Tamo<br />
Makati City<br />
Name and Address of<br />
Beneficial Owner and<br />
Relationship with<br />
Number of Per cent<br />
Record Owner Citizenship Shares Held<br />
(Please see note below) Filipino 240,775,288¹ 38.9777%<br />
Same as record owner Filipino <strong>17</strong>4,260,047 28.2099%<br />
Same as record owner Filipino 134,248,290 21.7327%<br />
Same as record owner Filipino 47,771,295 7.7334%<br />
NOTE: PCD Nominee Corporation (“PCDNC”) is a wholly-owned subsidiary of <strong>the</strong> Philippine Central Depository, Inc. The<br />
beneficial owners of such shares of <strong>the</strong> Company registered under <strong>the</strong> name of PCDNC are PCD’s participants who hold <strong>the</strong><br />
shares in <strong>the</strong>re own behalf or in behalf of <strong>the</strong>ir clients. No PCD participant currently owns more than five per cent (5%) of<br />
<strong>the</strong> Corporation’s shares <strong>for</strong>ming part of <strong>the</strong> PCNDC account except Fidelity Securities, Inc., viz:<br />
Class<br />
Common<br />
Name and Address of Owner<br />
and Relationship with Issuer Citizenship Number of Shares Per cent Held<br />
Fidelity Securities, Inc.*<br />
2/F JTKC Centre<br />
2155 Pasong Tamo, Makati City<br />
Filipino 146,307,994² 23.6849%<br />
* Fidelity Securities, Inc. (“Fidelity”) is a registered broker and dealer in securities and holds <strong>the</strong> shares of <strong>the</strong> Company in favor of beneficial<br />
owners who hold <strong>the</strong> shares in <strong>the</strong>ir own behalf or on behalf of <strong>the</strong>ir respective clients.<br />
Includes 4,873,000 and 10,000,000 Treasury shares purchased from <strong>the</strong> stock market under <strong>the</strong> Buy-back Program that were approved by<br />
<strong>the</strong> Board on September 16, <strong>2011</strong> and August 15, 2008, respectively.<br />
2 Includes 68,839,952 shares in favor of beneficial owner JTKC Equities, Inc. which owns a total of 116,611,247 shares or per cent held of<br />
18.8775%.<br />
70
(2) Security Ownership of Management (Individual Directors and Executive Officers)<br />
Title of<br />
Nature of Legal &<br />
Per cent of<br />
Class Name of Beneficial Owner Number of Shares Beneficial Ownership Citizenship Class<br />
Common Bansan C. Choa 855,800 Direct Filipino 0.13854%<br />
550,000 Indirect 0.08904%<br />
Common Armin V. Demetillo 55,110 Direct Filipino 0.00892%<br />
Common Harris Edsel D. Jacildo <strong>17</strong>,930 Direct Filipino 0.00290%<br />
Common Calixto V. Chikiamco 110 Direct Filipino 0.00002%<br />
Common Gilbert C. Gaw 902,764 Direct Filipino 0.14614%<br />
Common Jose Joel Y. Pusta 110 Direct Filipino 0.00002%<br />
Common A. Bayani K. Tan 573,044 Direct Filipino 0.09277%<br />
Common Ben C. Tiu 1,199,033 Direct Filipino 0.19410%<br />
Common Ruben C. Tiu 416,856 Direct Filipino 0.06748%<br />
Common John Y. Tiu, Jr. 166,419 Direct Filipino 0.02694%<br />
Common Gregorio T. Yu 110 Direct Filipino 0.00002%<br />
Common Bernadette Cindy C. Tiu 154,990 Direct Filipino 0.02509%<br />
466,950 Indirect 0.07559%<br />
The aggregate number of shares owned of record by all Directors and Executive Officers as a group<br />
named herein as of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> is 5,359,226 common shares or approximately 0.87% of <strong>the</strong><br />
Company’s common shares. This includes <strong>the</strong> indirect ownership of 924,500 shares representing<br />
0.16% of total outstanding and issued common shares.<br />
(3) Voting Trust of 5% or More<br />
The Company is not aware of any voting trust agreement executed granting any person <strong>the</strong> right to<br />
exercise <strong>the</strong> voting rights of a holder of 5% or more of <strong>the</strong> securities.<br />
(4) Changes In Control<br />
There are no arrangements, existing or o<strong>the</strong>rwise, which may result in a change in control of <strong>the</strong><br />
Company.<br />
71
Item 12. Certain Relationships and Related Party Transactions<br />
Parties are considered to be related if one party has <strong>the</strong> ability, directly or indirectly, to control <strong>the</strong><br />
o<strong>the</strong>r party or exercise significant influence over <strong>the</strong> o<strong>the</strong>r party in making financial and operating<br />
decisions. Parties are also considered to be related if <strong>the</strong>y are subject to common control or<br />
common significant influence. Related parties may be individuals or corporate entities.<br />
In <strong>the</strong> ordinary course of business, <strong>the</strong> Group transacts with its related parties. Under <strong>the</strong> Group’s<br />
existing policies, <strong>the</strong>se transactions are made substantially on <strong>the</strong> same terms and conditions as<br />
transactions with o<strong>the</strong>r individuals and businesses of comparable risks. The Group engages in<br />
transactions with related parties consisting primarily of <strong>the</strong> following:<br />
(a) Delivery fees earned from clients of associates are as follows:<br />
<strong>2011</strong> 2010<br />
Hwa Kung Hong & Co., Ltd. (HKHCL) PHP46,127,251 PHP33,202,567<br />
IRemit Singapore Pte Ltd (ISPL) 24,463,777 25,080,948<br />
PHP70,591,028 PHP58,283,515<br />
(b) The Parent Company, as Lessor, entered into four (4) Lease Agreements (please refer to Item 2.<br />
Properties), covering its occupancy of its offices at <strong>the</strong> 25 th , 26 th and 27 th floors of <strong>the</strong> Discovery Center, at<br />
No. 25 ADB Avenue, Ortigas Center, Pasig City, with Oakridge Properties, Inc., a related party by virtue of<br />
JTKC Equities, Inc.’s ownership of <strong>the</strong> Discovery Leisure Company, Inc. which in turn owns Oakridge<br />
Properties, Inc.<br />
(c) I-Remit has office sharing arrangements with Surewell Equities Pte. Ltd. in Singapore <strong>for</strong> an initial term of<br />
two (2) <strong>year</strong>s. Mr. Bansan C. Choa, Chairman and Chief Executive Officer, is a shareholder in this company.<br />
(d) The Parent Company maintains deposit accounts with <strong>the</strong> Sterling Bank of Asia, Inc. (A Savings Bank)<br />
amounting to PHP118.6 million and PHP129.7 million as of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010, respectively.<br />
These deposits earned PHP0.43 million and PHP1.12 million interest income in <strong>2011</strong> and 2010, respectively.<br />
In <strong>2011</strong> and 2010, <strong>the</strong> Company has funded its retirement plan amounting to PHP 6.9 million and PHP 5.2<br />
million, respectively, and maintained with Sterling Bank of Asia. The said bank’s majority shareholders are:<br />
JTKC Equities, Inc., Surewell Equities, Inc. and Star Equities Inc.<br />
In <strong>the</strong> normal course of doing business, <strong>the</strong>re were occasions when <strong>the</strong> stockholders would be advancing<br />
funds <strong>for</strong> working capital requirements of <strong>the</strong> Company. Reciprocally, <strong>the</strong>re would also be occasions when<br />
<strong>the</strong> Company would have excess funds and would employ <strong>the</strong>se to advance funds to some of its affiliates,<br />
payable on demand. In prior <strong>year</strong>s, advances were made to <strong>for</strong>eign offices which, as <strong>the</strong>se still in <strong>the</strong><br />
process of starting <strong>the</strong>ir commercial operations, were <strong>the</strong>n owned by <strong>the</strong> stockholders or associates or<br />
companies owned by <strong>the</strong> stockholders. The funds were <strong>the</strong>n used ei<strong>the</strong>r as working capital, to maintain cash<br />
balances in bank accounts or <strong>for</strong> provision of cash bonds. Presently, <strong>the</strong>se <strong>for</strong>eign offices are ei<strong>the</strong>r<br />
subsidiaries or affiliates of I-Remit.<br />
Fur<strong>the</strong>r to <strong>the</strong> Company’s usual course of business, it also advances funds to its subsidiaries, associates,<br />
and affiliates. These are accounts receivable from subsidiaries, associates, and affiliates pertaining to<br />
remittance transactions. These also consist of advances made to subsidiaries, associates, and affiliates <strong>for</strong><br />
working capital to maintain cash balances in bank accounts and to cover o<strong>the</strong>r financial and operating<br />
requirements. The receivables are usually settled on <strong>the</strong> next banking day. On <strong>the</strong> o<strong>the</strong>r hand, advances<br />
made to cover financial and operating requirements are due on demand.<br />
In addition to <strong>the</strong> related in<strong>for</strong>mation disclosed elsewhere in <strong>the</strong> consolidated financial statements,<br />
<strong>the</strong> following are <strong>the</strong> <strong>year</strong>end balances in respect of transactions with related parties which were<br />
carried in terms that prevail in arm’s length transactions during <strong>the</strong> <strong>year</strong>:<br />
<strong>2011</strong> 2010<br />
Due from related parties - Associates:<br />
IRemit Singapore Pte Ltd (ISPL) PHP16,034,603 PHP16,104,921<br />
Hwa Kung Hong & Co., Ltd. (HKHCL) 8,986,123 10,888,056<br />
PHP25,020,726 PHP26,992,977<br />
Due to related parties – Directors: PHP- PHP1,4<strong>31</strong>,156<br />
72
Advances to associates pertain to unpaid delivery fees. These are non-interest bearing and are due<br />
on demand.<br />
Advances to directors are non-interest bearing and are due on demand.<br />
As of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010, no provision <strong>for</strong> credit losses has been recognized <strong>for</strong> <strong>the</strong><br />
amounts due from related parties.<br />
In 2010, <strong>the</strong> Parent Company recognized dividend income amounting PHP0.6 million from<br />
dividends declared by IRemit Singapore Pte Ltd.<br />
The compensation of <strong>the</strong> key management personnel of <strong>the</strong> Group in <strong>2011</strong> and 2010 are as<br />
follows:<br />
<strong>2011</strong> 2010<br />
Short-term employee benefits PHP27,036,984 PHP21,059,4<strong>31</strong><br />
Post-employment benefits 1,571,444 549,541<br />
PHP28,608,428 PHP21,608,972<br />
The law firm of Tan Venturanza Valdez is among <strong>the</strong> firms engaged by <strong>the</strong> Company to render legal services.<br />
Atty. A. Bayani K. Tan, a Director of <strong>the</strong> Company, is a managing partner of this firm while Atty. Maria Cecilia<br />
V. Soria, <strong>the</strong> current Corporate Secretary, Atty. Nancy Joan M. Javier, <strong>for</strong>mer Corporate Secretary, and Atty.<br />
Darlene R. Vivas, Assistant Corporate Secretary are associates. During <strong>the</strong> <strong>year</strong>, <strong>the</strong> Company paid Tan<br />
Venturanza Valdez certain legal fees that <strong>the</strong> Company believes to be reasonable <strong>for</strong> <strong>the</strong> services rendered.<br />
73
Item 13. Corporate Governance<br />
PART IV. CORPORATE GOVERNANCE<br />
I-Remit practices <strong>the</strong> principles of good corporate governance – transparency, accountability, fairness, and<br />
responsibility – in reporting financial and non-financial in<strong>for</strong>mation about its activities and in its manner of<br />
conducting business with its customers, investors, staff, stockholders, and its various publics.<br />
The basic foundation and framework <strong>for</strong> corporate governance of I-Remit, Inc. is contained in its Articles of<br />
Incorporation and its By-Laws and in <strong>the</strong>ir subsequent amendments.<br />
In ensuring adherence to <strong>the</strong> principles of good corporate governance, <strong>the</strong> Board establishes <strong>the</strong> vision,<br />
strategic direction, key objectives, and <strong>the</strong> major policies and procedures <strong>for</strong> <strong>the</strong> management of <strong>the</strong><br />
Company. The Board also ensures that internal control mechanisms are in place and adequate <strong>for</strong> good<br />
governance.<br />
Manual on Corporate Governance<br />
On June 22, 2007, <strong>the</strong> Board of Directors approved and adopted <strong>the</strong> Company’s Manual on Corporate<br />
Governance (“Manual”) pursuant to SEC Memorandum Circular No. 2, Series of 2002 issued by <strong>the</strong><br />
Securities and Exchange Commission on April 5, 2002. The Manual contains <strong>the</strong> principles of good<br />
corporate governance and best practices and is int<strong>ended</strong> to be kept updated with new governance-related<br />
regulatory issuances. The Manual also established and defined <strong>the</strong> responsibilities and functions of <strong>the</strong><br />
Board and various Board committees necessary <strong>for</strong> good corporate governance, i.e., Audit Committee;<br />
Compensation and Remuneration Committee; and <strong>the</strong> Nominations Committee. The Manual also defines <strong>the</strong><br />
functions of <strong>the</strong> Corporate Secretary and prescribes <strong>the</strong> roles of <strong>the</strong> Company’s external and internal<br />
auditors.<br />
On February 18, <strong>2011</strong>, <strong>the</strong> Board of Directors adopted <strong>the</strong> Company’s Revised Manual on Corporate<br />
Governance in compliance with SEC Memorandum Circular No. 6, Series of 2009: Revised Code of<br />
Corporate Governance.<br />
In addition, <strong>the</strong> Company also has a Conduct, Discipline and Ethics (CODE) Manual that was first adopted on<br />
May 1, 2004 and subsequently revised on July 7, 2004. This manual contains guidelines on matters<br />
involving work per<strong>for</strong>mance; professionalism; behavior and dealings with employees, directors, customers,<br />
and business partners; and handling of assets, records and in<strong>for</strong>mation. This manual is in <strong>the</strong> process of<br />
being revised to include standards on matters of good corporate governance such as insider trading and <strong>the</strong><br />
avoidance of conflict of interest situations.<br />
Independent Directors<br />
In accordance with SEC Memorandum Circular No. 16 Series of 2002, Guidelines on <strong>the</strong> Nomination and<br />
Election of Independent Directors, two (2) of <strong>the</strong> eleven members of <strong>the</strong> Board of Directors are Independent<br />
Directors in <strong>the</strong> persons of Messrs. Jose Joel Y. Pusta and Gregorio T. Yu.<br />
As used in Section 38 of <strong>the</strong> SRC, an independent director is a person who, apart from his fees and<br />
shareholdings, is independent of management and free from any business or o<strong>the</strong>r relationship which could,<br />
or could reasonably be perceived to, materially interfere with his exercise of independent judgment in<br />
carrying out his responsibilities as a Director of <strong>the</strong> Company.<br />
In accordance with SEC Notice on Certificate of Qualification dated October 20, 2006, <strong>the</strong> Independent<br />
Directors of I-Remit have, on August 1 and 12, <strong>2011</strong>, executed sworn Certifications of Independent Directors<br />
stating that <strong>the</strong>y possess all <strong>the</strong> qualifications and none of <strong>the</strong> disqualifications to serve as Independent<br />
Directors of <strong>the</strong> Parent Company, as provided <strong>for</strong> in Section 38 of <strong>the</strong> Securities Regulation Code. The<br />
Certifications of Independent Directors have been submitted to <strong>the</strong> Securities and Exchange Commission on<br />
August 16, <strong>2011</strong>.<br />
74
Committees of <strong>the</strong> Board of Directors<br />
In aid of good corporate governance, <strong>the</strong> Company’s Board created each of <strong>the</strong> following committees and<br />
appointed Board members <strong>the</strong>reto during <strong>the</strong> organizational meeting of <strong>the</strong> Board on July 29, <strong>2011</strong>. Each<br />
member of <strong>the</strong>ir respective committees named below began holding office on July 29, <strong>2011</strong> and will serve<br />
until his successor shall have been duly qualified and elected.<br />
Executive Committee<br />
Except as provided in Section 35 of <strong>the</strong> Corporation Code, <strong>the</strong> Executive Committee has and<br />
exercises all such powers as may be delegated to it by <strong>the</strong> Board. It acts on matters in accordance<br />
with <strong>the</strong> authorities granted to it in case a full Board meeting cannot be convened. The The actions<br />
and decisions of <strong>the</strong> Executive Committee are reported to and are ratified by <strong>the</strong> Board.<br />
The Executive Committee is composed of <strong>the</strong> following: Mr. Armin V. Demetillo as Chairman, and<br />
Messrs. Bansan C. Choa, Gilbert C. Gaw, Harris E. D. Jacildo, and Ben C. Tiu as Members.<br />
Audit Committee<br />
The Audit Committee is responsible in assisting <strong>the</strong> Board in its fiduciary responsibilities by providing<br />
an independent and objective assurance to I-Remit’s management and shareholders of <strong>the</strong><br />
continuous improvement of <strong>the</strong> Company’s risk management systems and business operations, and<br />
<strong>the</strong> proper safeguarding and use of <strong>the</strong> Company’s resources and assets. It also ensures that <strong>the</strong><br />
Board will take appropriate corrective action in addressing control and compliance issues of <strong>the</strong><br />
Company.<br />
I-Remit’s Audit Committee shall have no less than three (3) members at least two (2) of whom are<br />
Independent Directors, one of whom shall serve as <strong>the</strong> Committee’s Chairman. The Committee<br />
reports to <strong>the</strong> Board and meets at twice every month.<br />
The Audit Committee is composed of <strong>the</strong> following: Mr. Gregorio T. Yu (Independent Director) as<br />
Chairman, and Messrs. Bansan C. Choa, John Y. Tiu, and Harris D. Jacildo as Members.<br />
Compensation and Remuneration Committee<br />
The Remuneration and Compensation Committee is responsible <strong>for</strong> objectively recommending a<br />
<strong>for</strong>mal and transparent framework of remuneration and evaluation <strong>for</strong> <strong>the</strong> members of <strong>the</strong> Board and<br />
<strong>the</strong> Company’s Executive Officers. The committee is also responsible <strong>for</strong> providing oversight on <strong>the</strong><br />
remuneration of <strong>the</strong> Executive Officers and o<strong>the</strong>r key personnel and <strong>for</strong> ensuring that compensation is<br />
always consistent with <strong>the</strong> Company’s culture, corporate strategy and control environment.<br />
The Compensation and Remuneration Committee is composed of three (3) members of <strong>the</strong> Board,<br />
one of whom is an Independent Director. The committee is composed of <strong>the</strong> following: Messrs.<br />
Bansan C. Choa, Armin V. Demetillo, and Gregorio T. Yu (Independent Director).<br />
75
Nomination Committee<br />
The Nomination Committee is responsible <strong>for</strong> implementing a process that ensures that all Directors<br />
to be nominated <strong>for</strong> election at <strong>the</strong> <strong>Annual</strong> Stockholders’ Meeting are all qualified and have none of<br />
<strong>the</strong> disqualifications <strong>for</strong> Directors as provided in <strong>the</strong> Company’s By-Laws and Manual on Corporate<br />
Governance. The committee provides <strong>the</strong> shareholders with an independent and objective evaluation<br />
and assurance that <strong>the</strong> members of <strong>the</strong> Board will foster <strong>the</strong> Company’s long-term success and<br />
competitiveness. The Nomination Committee is also responsible <strong>for</strong> reviewing and evaluating <strong>the</strong><br />
qualifications of all persons nominated to positions requiring appointment by <strong>the</strong> Board and <strong>for</strong><br />
assessing <strong>the</strong> Board’s effectiveness in directing <strong>the</strong> process of reviewing and replacing Board<br />
members. The committee is also responsible <strong>for</strong> reviewing <strong>the</strong> qualifications of executives prior to<br />
movement, promotion, or hiring.<br />
The By-Laws of <strong>the</strong> Company require that all nominations <strong>for</strong> Directors shall be submitted to <strong>the</strong><br />
Nomination Committee by any stockholder of record on or be<strong>for</strong>e January 30 of each <strong>year</strong> to allow <strong>for</strong><br />
sufficient time to assess and evaluate <strong>the</strong> qualifications of <strong>the</strong> nominees. All nominations <strong>for</strong><br />
Independent Directors shall be signed by <strong>the</strong> nominating stockholder and shall bear <strong>the</strong> acceptance<br />
and con<strong>for</strong>mity of <strong>the</strong> persons nominated.<br />
The Company’s Nomination Committee is composed of three (3) members of <strong>the</strong> Board, including one<br />
(1) independent director and one non-voting member in <strong>the</strong> person of <strong>the</strong> Human Resources<br />
Manager. The Company’s Nomination Committee reports directly to <strong>the</strong> Board and meets whenever<br />
necessary to review and evaluate <strong>the</strong> qualifications of all persons nominated to <strong>the</strong> Board as well as<br />
those nominated to o<strong>the</strong>r positions requiring appointment by <strong>the</strong> Board.<br />
The Nomination Committee is composed of Messrs. Bansan C. Choa, Armin V. Demetillo, and<br />
Gregorio T. Yu (Independent Director), and Ms. Ca<strong>the</strong>rine M. Chan (Head, Human Capital<br />
Management Department).<br />
76
<strong>Report</strong> on Attendance of Corporate Governance Seminars by Members of <strong>the</strong> Board of Directors<br />
The following is an updated report on <strong>the</strong> attendance by <strong>the</strong> Directors of <strong>the</strong> Company of Corporate<br />
Governance Seminars:<br />
Name of Director Date/s Att<strong>ended</strong> Institution<br />
1 Chikiamco, Calixto V. Jan. 8, 2008 De La Salle Professional Schools, Inc.<br />
Graduate School of Business, Makati City<br />
2 Choa, Bansan C. Jun. 4 & 5, 2003 Rural Bankers’ Research and Development<br />
Foundation, Inc., Academy <strong>for</strong> Banking in <strong>the</strong><br />
Countryside, Manila (<strong>for</strong> <strong>the</strong> directors of GMA<br />
Rural Bank of Cavite)<br />
3 Gaw, Gilbert C. Jan. 8, 2008 De La Salle Professional Schools, Inc.<br />
Graduate School of Business, Makati City<br />
4 Jacildo, Harris E. D. May 24 & 25, 2007 Development Finance Institute, Makati City<br />
5 Pusta, Jose Joel Y. (Independent) Jan. 30 & <strong>31</strong>, 2003 De La Salle Professional Schools, Inc.<br />
Graduate School of Business, Makati City<br />
6 Demetillo, Armin V. July 30 & <strong>31</strong>, 2009 Development Finance Institute/Bangko Sentral<br />
ng Pilipinas, Makati City<br />
7 Tan, A. Bayani K. Oct. <strong>17</strong> & Dec. <strong>17</strong>, 2001 Institute of Corporate Directors, Makati City<br />
(<strong>for</strong> <strong>the</strong> directors of The International<br />
Exchange Bank)<br />
8 Tiu, Ben C. Oct. <strong>17</strong> & Dec. <strong>17</strong>, 2001 Institute of Corporate Directors, Makati City<br />
(<strong>for</strong> <strong>the</strong> directors of The International<br />
Exchange Bank)<br />
9 Tiu, John Jr. Y. Oct. <strong>17</strong> & Dec. <strong>17</strong>, 2001 Institute of Corporate Directors, Makati City<br />
(<strong>for</strong> <strong>the</strong> directors of The International<br />
Exchange Bank)<br />
10 Tiu, Ruben C. Oct. <strong>17</strong> & Dec. <strong>17</strong>, 2001 Institute of Corporate Directors, Makati City<br />
(<strong>for</strong> <strong>the</strong> directors of The International<br />
Exchange Bank)<br />
11 Yu, Gregorio T. (Independent) Dec. <strong>17</strong>, 2002 Institute of Corporate Directors, Makati City<br />
77
Evaluation System<br />
The Company also adopted an evaluation system based on a self-assessment rating questionnaire to<br />
determine <strong>the</strong> extent of compliance with <strong>the</strong> provisions of <strong>the</strong> Manual.<br />
On <strong>December</strong> 11, 2007, <strong>the</strong> Board appointed a Compliance Officer to monitor and ensure compliance with<br />
<strong>the</strong> provisions of <strong>the</strong> Manual.<br />
The Company also adopted an evaluation system based on a self-assessment rating questionnaire to<br />
determine <strong>the</strong> extent of compliance with <strong>the</strong> provisions of <strong>the</strong> Manual.<br />
Results of Evaluation<br />
Based on <strong>the</strong> results of <strong>the</strong> evaluation per<strong>for</strong>med, <strong>the</strong>re has been no significant deviation and, in general, <strong>the</strong><br />
Company has complied with most of <strong>the</strong> provisions and requirements of <strong>the</strong> Manual, SEC Memorandum<br />
Circular No. 6 Series of 2009: Revised Code of Corporate Governance, and <strong>the</strong> leading practices and<br />
principles of good corporate governance <strong>for</strong> <strong>the</strong> <strong>year</strong> 2009.<br />
The Company’s Certificate of Compliance with <strong>the</strong> Manual on Corporate Governance (SEC Form MCG-2002)<br />
was submitted by <strong>the</strong> Compliance Officer to <strong>the</strong> Securities and Exchange Commission and disclosed to <strong>the</strong><br />
Philippine Stock Exchange on January 18, <strong>2011</strong>.<br />
The Company accomplished and submitted <strong>the</strong> <strong>2011</strong> Corporate Governance Guidelines <strong>for</strong> Listed<br />
Companies Disclosure Template of The Philippine Stock Exchange, Inc. on March 28, 2012.<br />
78
PART V. EXHIBITS AND SCHEDULES<br />
The o<strong>the</strong>r exhibits, as indicated in <strong>the</strong> Index to Exhibits, are ei<strong>the</strong>r not applicable to <strong>the</strong> Company or require no<br />
answer.<br />
(a) Exhibit<br />
A – Aging of Consolidated Receivables, Unaudited, <strong>December</strong> <strong>31</strong>, <strong>2011</strong><br />
(b) <strong>Report</strong>s on SEC Form <strong>17</strong>-C<br />
<strong>Report</strong>s under SEC Form <strong>17</strong>-C (Current <strong>Report</strong>) that were filed during <strong>the</strong> last six (6) moths covered<br />
by this report:<br />
Date <strong>Report</strong><br />
July 28, <strong>2011</strong><br />
Press release: I-Remit, Inc. opens its doors in Italy<br />
July 29, <strong>2011</strong> Election of directors in <strong>the</strong> <strong>2011</strong> <strong>Annual</strong> Stockholders’ Meeting and <strong>the</strong> appointment of officers<br />
and committee members in <strong>the</strong> subsequent organizational meeting of <strong>the</strong> Board of Directors;<br />
Stock dividend update<br />
Elected members of <strong>the</strong> Board of Directors<br />
“Please be advised that during <strong>the</strong> annual shareholders’ meeting of I-Remit, Inc (“Corporation”)<br />
held today, <strong>the</strong> following were elected as members of <strong>the</strong> Board of Directors of <strong>the</strong> Corporation <strong>for</strong><br />
<strong>the</strong> <strong>year</strong> <strong>2011</strong> – 2012 to hold office as such until <strong>the</strong>ir successors shall have been duly elected<br />
and qualified:<br />
Jose Joel Y. Pusta - Independent Director<br />
Gregorio T. Yu - Independent Director<br />
Calixto V. Chikiamco - Director<br />
Bansan C. Choa - Director<br />
Armin V. Demetillo - Director<br />
Gilbert C. Gaw - Director<br />
Harris E. D. Jacildo - Director<br />
A. Bayani K. Tan - Director<br />
Ben C. Tiu - Director<br />
John Y. Tiu, Jr. - Director<br />
Ruben C. Tiu - Director<br />
During <strong>the</strong> same meeting, <strong>the</strong> shareholders approved <strong>the</strong> audited financial statements of <strong>the</strong><br />
Corporation as of <strong>year</strong>-end 2010, as well as <strong>the</strong> re-appointment of SyCip Gorres Velayo & Co. as<br />
<strong>the</strong> Corporation’s external auditor <strong>for</strong> <strong>the</strong> <strong>year</strong> <strong>2011</strong>.<br />
Fur<strong>the</strong>r, <strong>the</strong> shareholders approved <strong>the</strong> declaration of Fifty-Five Million Three Hundred Eight<br />
Thousand Eight Hundred (55,308,800) common shares stock dividend with a par value of one<br />
peso per share out of <strong>the</strong> unrestricted retained earnings of <strong>the</strong> Corporation as of <strong>December</strong> <strong>31</strong>,<br />
2010. The stock dividend, which is equivalent to 10% of <strong>the</strong> issued and outstanding shares, will<br />
be taken from <strong>the</strong> unissued capital stock of <strong>the</strong> Corporation and will be submitted to <strong>the</strong> Securities<br />
and Exchange Commission <strong>for</strong> approval. The stock dividend is payable to all of <strong>the</strong> Corporation’s<br />
stockholders of record as of August 15, <strong>2011</strong>. The payment date will be on or be<strong>for</strong>e September<br />
08, <strong>2011</strong>.<br />
In <strong>the</strong> organizational meeting of <strong>the</strong> Board of Directors held after <strong>the</strong> shareholders’ meeting, <strong>the</strong><br />
following persons were elected officers of <strong>the</strong> Corporation <strong>for</strong> <strong>the</strong> <strong>year</strong> <strong>2011</strong> - 2012 to serve as<br />
such until <strong>the</strong>ir successors shall have been duly elected and qualified:<br />
Bansan Choa - Chairman and Chief Executive Officer<br />
Harris E. D. Jacildo - President and Chief Operating Officer<br />
Maria Cecilia V. Soria - Corporate Secretary<br />
Darlene R. Vivas - Assistant Corporate Secretary<br />
Bernadette Cindy C. Tiu - First VP & Chief Financial Officer<br />
Fitzgerald S. Duba - Compliance Officer<br />
79
Also during <strong>the</strong> a<strong>for</strong>esaid organizational meeting of <strong>the</strong> Board, <strong>the</strong> following directors were elected<br />
as members of <strong>the</strong> various Committees <strong>for</strong> <strong>the</strong> <strong>year</strong> <strong>2011</strong> – 2012 to serve as such until <strong>the</strong>ir<br />
successors shall have been duly elected and qualified:<br />
Executive Committee<br />
1. Armin V. Demetillo (Chairman)<br />
2. Bansan C. Choa<br />
3. Gilbert C. Gaw<br />
4. Harris E. D. Jacildo<br />
5. Ben C. Tiu<br />
Audit and Risk Committee<br />
1. Gregorio T. Yu (Chairman)<br />
2. Bansan C. Choa<br />
3. John Y. Tiu, Jr.<br />
4. Harris E. D. Jacildo<br />
Nomination Committee<br />
1. Bansan C. Choa<br />
2. Armin V. Demetillo<br />
3. Gregorio T. Yu<br />
Compensation & Remuneration Committee<br />
1. Bansan C. Choa<br />
2. Armin V. Demetillo<br />
3. Gregorio T. Yu”<br />
August 1, <strong>2011</strong> Clarification of PDI news article: i-Remit sees doubling of net income this <strong>year</strong><br />
September 16, <strong>2011</strong> Board Approval of Buy-back Program of up to 10 million shares<br />
November 11, <strong>2011</strong> Press Release: iRemit named most innovative company<br />
<strong>December</strong> 9, <strong>2011</strong> Approval by <strong>the</strong> Kanto Local Financial Bureau of Japan of <strong>the</strong> registration of K. K. I-Remit Japan<br />
as a Funds Transfer Company effective <strong>December</strong> 07, <strong>2011</strong><br />
80
I-REMIT, INC. AND SUBSIDIARIES<br />
Aging of Consolidated Receivables<br />
Unaudited<br />
<strong>December</strong> <strong>31</strong>, <strong>2011</strong><br />
Exhibit A<br />
Total Current 2-30 Days <strong>31</strong>-60 Days Over 60 Days<br />
Agents 930,022,937 930,022,937<br />
-<br />
-<br />
-<br />
Couriers 3,523,052 - 3,523,052<br />
-<br />
-<br />
Related Parties 10,208,987 -<br />
-<br />
- 10,208,987<br />
O<strong>the</strong>rs 105,309,773 - 1,621,481<br />
- 103,688,292<br />
1,049,064,749 930,022,937 5,144,533 - 113,897,279
SIGNATURES<br />
Pursuant to <strong>the</strong> requirements of Section <strong>17</strong> of <strong>the</strong> Code and Section 14 of <strong>the</strong> Corporation Code, this report is<br />
signed on behalf of <strong>the</strong> Issuer by <strong>the</strong> undersigned, <strong>the</strong>reunto duly authorized, in <strong>the</strong> City of Pasig on June 6, 2012.<br />
By:<br />
/<br />
/ BERNAD~1T6(
P<br />
A 2 0 0 1 0 1 6 3 1<br />
SEC Registration Number<br />
I - R E M I T , I N C . A N D S U B S I D I A R I E S<br />
(Company’s Full Name)<br />
2 6 / F D i s c o v e r y C e n t r e , 2 5 A D B A v e<br />
n u e , O r t i g a s C e n t e r , P a s i g C i t y<br />
(Business Address: No. Street City/Town/Province)<br />
Mr. Bansan C. Choa 706-9999<br />
(Contact Person) (Company Telephone Number)<br />
1 2 3 1 A A F S<br />
Month Day (Form Type) Month Day<br />
(Fiscal Year) (<strong>Annual</strong> Meeting)<br />
(Secondary License Type, If Applicable)<br />
Dept. Requiring this Doc. <strong>Am<strong>ended</strong></strong> Articles Number/Section<br />
Total Amount of Borrowings<br />
Total No. of Stockholders Domestic Foreign<br />
To be accomplished by SEC Personnel concerned<br />
File Number LCU<br />
Document ID Cashier<br />
S T A M P S<br />
COVER SHEET<br />
Remarks: Please use BLACK ink <strong>for</strong> scanning purposes.<br />
*SGVMC116502*
I-REMIT, INC. AND SUBSIDIARIES<br />
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<br />
1. Corporate In<strong>for</strong>mation<br />
I-Remit, Inc. (<strong>the</strong> Parent Company) was incorporated in <strong>the</strong> Philippines and was registered with<br />
<strong>the</strong> Securities and Exchange Commission (SEC) on March 5, 2001 and started commercial<br />
operations on November 11, 2001.<br />
The Parent Company, which is domiciled in <strong>the</strong> Philippines, has its registered office and principal<br />
place of business at <strong>the</strong> 26/F Discovery Centre, 25 ADB Avenue, Ortigas Center, Pasig City. The<br />
Parent Company’s common shares were listed with <strong>the</strong> Philippine Stock Exchange on<br />
October <strong>17</strong>, 2007.<br />
The Parent Company and its subsidiaries (collectively referred to as “<strong>the</strong> Group”), except Power<br />
Star Asia Group Limited (PSAGL), are primarily engaged in <strong>the</strong> business of fund transfer and<br />
remittance services of any <strong>for</strong>m or kind of currencies or monies, ei<strong>the</strong>r by electronic, telegraphic,<br />
wire or any o<strong>the</strong>r mode of transfer; delivery of such funds or monies, both in <strong>the</strong> domestic and<br />
international market, by providing ei<strong>the</strong>r courier or freight <strong>for</strong>warding services; and conduct of<br />
<strong>for</strong>eign exchange transactions as may be allowed by law and o<strong>the</strong>r allied activities relative <strong>the</strong>reto.<br />
PSAGL, on <strong>the</strong> o<strong>the</strong>r hand, provides financial advisory and o<strong>the</strong>r services.<br />
The Group is 28.91% owned by STAR Equities, Inc., 19.34% owned by JTKC Equities, Inc.,<br />
22.27% owned by Surewell Equities, Inc., 3.10% owned by JPSA Global Services Co., and <strong>the</strong><br />
rest by <strong>the</strong> public. The Parent Company is <strong>the</strong> ultimate parent company of <strong>the</strong> Group.<br />
The Parent Company’s subsidiaries and associates follow:<br />
Subsidiaries:<br />
International Remittance<br />
Country of<br />
Incorporation<br />
Functional<br />
Currency<br />
Effective Percentage of Ownership<br />
<strong>December</strong> <strong>31</strong><br />
<strong>2011</strong> 2010 2009<br />
(Canada) Ltd. (IRCL) Canada<br />
Canadian<br />
Dollar (CAD) 100.00 100.00 100.00<br />
Lucky Star Management<br />
Hong Kong<br />
Limited (LSML) Hong Kong Dollar (HKD) 100.00 100.00 100.00<br />
IRemit Global Remittance United Great Britain<br />
Limited (IGRL) Kingdom Pound (GBP) 100.00 100.00 100.00<br />
I-Remit Australia Pty Ltd<br />
Australian<br />
(IAPL) Australia Dollar (AUD) 100.00 100.00 100.00<br />
Worldwide Exchange Pty<br />
Australian<br />
Ltd (WEPL)*<br />
IREMIT Remittance<br />
Consulting GmbH<br />
Australia Dollar (AUD) 100.00 65.00 65.00<br />
(IRCGmbH)** Austria Euro (EUR) 100.00 74.90 74.90<br />
I-Remit New Zealand<br />
New Zealand<br />
Limited (INZL) New Zealand Dollar (NZD)<br />
Hong Kong<br />
100.00 100.00 100.00<br />
PSAGL Hong Kong Dollar (HKD)<br />
Japanese<br />
100.00 100.00 100.00<br />
K.K. Iremit Japan (KKIJ) Japan<br />
Yen (JPY) 100.00 – –<br />
(Forward)<br />
*SGVMC116502*
Associates:<br />
IRemit Singapore Pte Ltd<br />
Country of<br />
Incorporation<br />
- 2 -<br />
Functional<br />
Currency<br />
Effective Percentage of Ownership<br />
<strong>December</strong> <strong>31</strong><br />
<strong>2011</strong> 2010 2009<br />
(ISPL) Singapore<br />
Singapore<br />
Dollar (SGD) 49.00 49.00 49.00<br />
Hwa Kung Hong & Co.,<br />
New Taiwan<br />
Ltd. (HKHCL) Taiwan<br />
Dollar (NTD) 49.00 49.00 49.00<br />
* Consists of direct voting interest of 70.00% and indirect voting interest through IAPL of 30.00%<br />
**Formerly IREMIT EUROPE Remittance Consulting AG (IERCAG)<br />
On March 25, <strong>2011</strong>, <strong>the</strong> Parent Company acquired 35.00% ownership interest in WEPL from <strong>the</strong><br />
noncontrolling stockholders <strong>for</strong> a consideration of P=12.30 million. The carrying value of <strong>the</strong><br />
noncontrolling interest at acquisition was P=1.09 million. The difference of P=11.21 million<br />
between <strong>the</strong> consideration paid and <strong>the</strong> carrying value of <strong>the</strong> noncontrolling interest was<br />
recognized as equity adjustment and deducted from ‘Capital paid-in excess of par value’. The<br />
acquisition increased <strong>the</strong> Parent Company’s effective ownership in WEPL to 100.00% from<br />
65.00%.<br />
On May 5, <strong>2011</strong>, <strong>the</strong> Parent Company acquired <strong>the</strong> 25.10% ownership interest in IERCAG from<br />
<strong>the</strong> noncontrolling stockholder <strong>for</strong> a consideration of P=25.02 million. The carrying value of <strong>the</strong><br />
noncontrolling interest at acquisition was P=2.05 million deficit. The difference of P=27.06 million<br />
between <strong>the</strong> consideration paid and <strong>the</strong> carrying value of <strong>the</strong> noncontrolling interest was<br />
recognized as equity adjustment and deducted from ‘Capital paid-in excess of par value’. The<br />
acquisition increased <strong>the</strong> Parent Company’s ownership interest in IERCAG to 100.00% from<br />
74.90%.<br />
Consequently, on October 11, <strong>2011</strong>, IERCAG changed its legal name to IREMIT Remittance<br />
Consulting GmbH (IRCGmbH) and changed its legal status from a stock company to a limited<br />
liability company. It also am<strong>ended</strong> its Articles of Incorporation to include management<br />
consultancy in its business activities.<br />
On June 10, <strong>2011</strong>, <strong>the</strong> Parent Company incorporated KKIJ in Japan to provide remittance services.<br />
KKIJ has not started commercial operations as of March 23, 2012.<br />
2. Summary of Significant Accounting Policies<br />
Basis of Preparation<br />
The accompanying consolidated financial statements of <strong>the</strong> Group have been prepared on a<br />
historical cost basis except <strong>for</strong> financial assets at fair value through profit or loss (FVPL) that have<br />
been measured at fair value. The financial statements are presented in Philippine peso, <strong>the</strong> Parent<br />
Company’s functional and presentation currency, and all values are rounded to <strong>the</strong> nearest peso<br />
except when o<strong>the</strong>rwise indicated.<br />
Each entity in <strong>the</strong> Group determines its own functional currency and items included in <strong>the</strong><br />
financial statements of each entity are measured using that functional currency. The respective<br />
functional currencies of <strong>the</strong> subsidiaries and associates are presented in Note 1.<br />
*SGVMC116502*
- 3 -<br />
Statement of Compliance<br />
The accompanying consolidated financial statements have been prepared in compliance with<br />
Philippine Financial <strong>Report</strong>ing Standards (PFRS).<br />
Basis of Consolidation<br />
The financial statements of subsidiaries are prepared <strong>for</strong> <strong>the</strong> same reporting <strong>year</strong> as <strong>the</strong> Parent<br />
Company, using consistent accounting policies.<br />
Subsidiaries are all entities over which <strong>the</strong> Group has <strong>the</strong> power to govern <strong>the</strong> financial and<br />
operating policies generally accompanying a shareholding of more than one half of <strong>the</strong> voting<br />
rights. The existence and effect of potential voting rights that are currently exercisable or<br />
convertible are considered when assessing whe<strong>the</strong>r <strong>the</strong> Group has control over <strong>the</strong> entity.<br />
All significant intra-group balances, transactions, income and expenses and profits and losses<br />
resulting from intra-group transactions are eliminated in full.<br />
Subsidiaries are consolidated from <strong>the</strong> date on which control is transferred to <strong>the</strong> Group. Control<br />
is achieved when <strong>the</strong> Group has <strong>the</strong> power to govern <strong>the</strong> financial and operating policies of an<br />
entity so as to obtain benefits from its activities. Consolidation of subsidiaries ceases when<br />
control is transferred out of <strong>the</strong> Group.<br />
The results of subsidiaries acquired or disposed of during <strong>the</strong> <strong>year</strong> are included in <strong>the</strong> consolidated<br />
statement of income from <strong>the</strong> date of acquisition up to <strong>the</strong> date of disposal, as appropriate.<br />
A change in <strong>the</strong> ownership interest of a subsidiary, without a loss of control, is accounted <strong>for</strong> as an<br />
equity transaction. If <strong>the</strong> Group losses control over <strong>the</strong> subsidiary, it:<br />
• derecognizes <strong>the</strong> assets (including goodwill) and liabilities of <strong>the</strong> subsidiary;<br />
• derecognizes <strong>the</strong> carrying amount of any noncontrolling interest;<br />
• derecognizes <strong>the</strong> related o<strong>the</strong>r comprehensive income recorded in equity and recycle <strong>the</strong> same<br />
to profit or loss or retained earnings;<br />
• recognizes <strong>the</strong> fair value of <strong>the</strong> consideration received;<br />
• recognizes <strong>the</strong> fair value of any investment retained; and<br />
• recognizes any surplus or deficit in profit or loss.<br />
Business Combinations and Goodwill<br />
Business combinations from January 1, 2010<br />
Business combinations are accounted <strong>for</strong> using <strong>the</strong> acquisition method. The cost of an acquisition<br />
is measured as <strong>the</strong> aggregate of <strong>the</strong> consideration transferred, measured at acquisition date fair<br />
value and <strong>the</strong> amount of any noncontrolling interest in <strong>the</strong> acquiree. For each business<br />
combination, <strong>the</strong> acquirer measures <strong>the</strong> noncontrolling interest in <strong>the</strong> acquiree ei<strong>the</strong>r at fair value<br />
or at <strong>the</strong> proportionate share of <strong>the</strong> acquiree’s identifiable net assets. Acquisition costs incurred<br />
are expensed and included in operating expenses.<br />
When <strong>the</strong> Group acquires a business, it assesses <strong>the</strong> financial assets and liabilities assumed <strong>for</strong><br />
appropriate classification and designation in accordance with <strong>the</strong> contractual terms, economic<br />
circumstances and pertinent conditions as at <strong>the</strong> acquisition date. This includes <strong>the</strong> separation of<br />
embedded derivatives in host contracts by <strong>the</strong> acquiree.<br />
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If <strong>the</strong> business combination is achieved in stages, <strong>the</strong> acquisition date fair value of <strong>the</strong> acquirer’s<br />
previously held equity interest in <strong>the</strong> acquiree is remeasured to fair value at <strong>the</strong> acquisition date<br />
through profit or loss.<br />
Any contingent consideration to be transferred by <strong>the</strong> acquirer will be recognized at fair value at<br />
<strong>the</strong> acquisition date. Subsequent changes to <strong>the</strong> fair value of <strong>the</strong> contingent consideration which is<br />
deemed to be an asset or liability will be recognized in accordance with Philippine Accounting<br />
Standards (PAS) 39 ei<strong>the</strong>r in profit or loss or as a change to o<strong>the</strong>r comprehensive income. If <strong>the</strong><br />
contingent consideration is classified as equity, it should not be remeasured until it is finally<br />
settled within equity.<br />
Goodwill is initially measured at cost, being <strong>the</strong> excess of <strong>the</strong> aggregate of fair value of <strong>the</strong><br />
consideration transferred and <strong>the</strong> amount recognized <strong>for</strong> noncontrolling interest over <strong>the</strong> net<br />
identifiable assets acquired and liabilities assumed. If this consideration is lower than <strong>the</strong> fair<br />
value of <strong>the</strong> net assets of <strong>the</strong> subsidiary acquired, <strong>the</strong> difference is recognized in profit or loss.<br />
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For<br />
<strong>the</strong> purpose of impairment testing, goodwill acquired in a business combination is, from <strong>the</strong><br />
acquisition date, allocated to each of <strong>the</strong> Group’s cash-generating units (CGU) that are expected to<br />
benefit from <strong>the</strong> combination, irrespective of whe<strong>the</strong>r o<strong>the</strong>r assets or liabilities of <strong>the</strong> acquiree are<br />
assigned to those units.<br />
Business combinations prior to January 1, 2010<br />
In comparison to <strong>the</strong> above-mentioned requirements, <strong>the</strong> following differences apply:<br />
Business combinations were accounted <strong>for</strong> using <strong>the</strong> purchase method. Transaction costs directly<br />
attributable to <strong>the</strong> acquisition <strong>for</strong>med part of <strong>the</strong> acquisition costs. The noncontrolling interest<br />
(<strong>for</strong>merly known as minority interest) was measured at <strong>the</strong> proportionate share of <strong>the</strong> acquiree’s<br />
identifiable net assets.<br />
Business combinations achieved in stages were accounted <strong>for</strong> as separate steps. Any additional<br />
acquired share of interest did not affect previously recognized goodwill.<br />
When <strong>the</strong> Group acquired a business, embedded derivatives separated from <strong>the</strong> host contract by<br />
<strong>the</strong> acquiree were not reassessed on acquisition unless <strong>the</strong> business combination resulted in a<br />
change in <strong>the</strong> terms of <strong>the</strong> contract that significantly modified <strong>the</strong> cash flows that o<strong>the</strong>rwise would<br />
have been required under <strong>the</strong> contract.<br />
Contingent consideration was recognized if, and only if, <strong>the</strong> Group had a present obligation, <strong>the</strong><br />
economic outflow was more likely than not and a reliable estimate was determinable. Subsequent<br />
adjustments to <strong>the</strong> contingent consideration were recognized as part of goodwill.<br />
Noncontrolling Interest<br />
Noncontrolling interest represents <strong>the</strong> portion of profit or loss and net assets not owned, directly or<br />
indirectly, by <strong>the</strong> Parent Company.<br />
Noncontrolling interests are presented separately in <strong>the</strong> consolidated statement of income,<br />
consolidated statement of comprehensive income, and within equity in <strong>the</strong> consolidated balance<br />
sheet, separately from equity attributable to <strong>the</strong> equity holder of <strong>the</strong> Parent Company’s<br />
shareholders’ equity. Any losses applicable to <strong>the</strong> noncontrolling interests are allocated against<br />
<strong>the</strong> interests of <strong>the</strong> noncontrolling interest even if this results in <strong>the</strong> noncontrolling interest having<br />
a deficit balance.<br />
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Changes in Accounting Policies<br />
The accounting policies adopted are consistent with those of <strong>the</strong> previous financial <strong>year</strong> except <strong>for</strong><br />
<strong>the</strong> adoption of <strong>the</strong> following new and am<strong>ended</strong> PFRS, Philippine Accounting Standards (PAS)<br />
and Philippine Interpretations which became effective on January 1, <strong>2011</strong>:<br />
• PAS 24 Amendment, Related Party Disclosures<br />
• PAS 32 Amendment, Financial Instruments: Presentation - Classification of Rights Issues<br />
• Philippine Interpretation International Financial <strong>Report</strong>ing Interpretations Committee (IFRIC)<br />
14 Amendment, Prepayments of a Minimum Funding Requirement<br />
• Philippine Interpretation IFRIC 19, Extinguishing Financial Liabilities with Equity<br />
Instruments<br />
The adoption of new standards, amendments and interpretations above did not have impact to <strong>the</strong><br />
Group except <strong>for</strong> <strong>the</strong> adoption of PAS 24 Amendment, Related Party Transactions.<br />
PAS 24 Amendment, Related Party Transactions<br />
PAS 24 clarifies <strong>the</strong> definitions of a related party. The new definitions emphasize a symmetrical<br />
view of related party relationships and clarify <strong>the</strong> circumstances in which persons and key<br />
management personnel affect related party relationships of an entity. In addition, <strong>the</strong> amendment<br />
introduces an exemption from <strong>the</strong> general related party disclosure requirements <strong>for</strong> transactions<br />
with government and entities that are controlled, jointly controlled or significantly influenced by<br />
<strong>the</strong> same government as <strong>the</strong> reporting entity. The amendment only affects <strong>the</strong> disclosures and has<br />
no impact on <strong>the</strong> Group’s financial position or per<strong>for</strong>mance.<br />
Improvements to PFRS 2010<br />
Improvements to PFRSs, an omnibus of amendments to standards, deal primarily with a view to<br />
removing inconsistencies and clarifying wording. There are separate transitional provisions <strong>for</strong><br />
each standard. The adoption of <strong>the</strong> following amendments resulted in changes to accounting<br />
policies but did not have any impact on <strong>the</strong> financial position or per<strong>for</strong>mance of <strong>the</strong> Group.<br />
PFRS 3, Business Combinations (Revised)<br />
The measurement options available <strong>for</strong> noncontrolling interest (NCI) were am<strong>ended</strong>. Only<br />
components of NCI that constitute a present ownership interest that entitles <strong>the</strong>ir holder to a<br />
proportionate share of <strong>the</strong> entity’s net assets in <strong>the</strong> event of liquidation should be measured at<br />
ei<strong>the</strong>r fair value or at <strong>the</strong> present ownership instruments’ proportionate share of <strong>the</strong> acquiree’s<br />
identifiable net assets. All o<strong>the</strong>r components are to be measured at <strong>the</strong>ir acquisition date fair<br />
value.<br />
The amendments to PFRS 3 are effective <strong>for</strong> annual periods beginning on or after July 1, <strong>2011</strong>.<br />
The Group, however, adopted <strong>the</strong>se as of January 1, <strong>2011</strong> and changed its accounting policy<br />
accordingly as <strong>the</strong> amendment was issued to eliminate unint<strong>ended</strong> consequences that may arise<br />
from <strong>the</strong> adoption of PFRS 3.<br />
PFRS 7, Financial Instruments - Disclosures<br />
The amendment was int<strong>ended</strong> to simplify <strong>the</strong> disclosures provided by reducing <strong>the</strong> volume of<br />
disclosures around collateral held and improving disclosures by requiring qualitative in<strong>for</strong>mation<br />
to put <strong>the</strong> quantitative in<strong>for</strong>mation in context. The Group reflects <strong>the</strong> revised disclosure<br />
requirements in Note 4.<br />
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PAS 1, Presentation of Financial Statements<br />
The amendment clarifies that an entity may present an analysis of each component of o<strong>the</strong>r<br />
comprehensive income maybe ei<strong>the</strong>r in <strong>the</strong> statement of changes in equity or in <strong>the</strong> notes to <strong>the</strong><br />
financial statements.<br />
O<strong>the</strong>r amendments resulting from <strong>the</strong> 2010 Improvements to PFRSs to <strong>the</strong> following standards did<br />
not have any impact on <strong>the</strong> accounting policies, financial position or per<strong>for</strong>mance of <strong>the</strong> Group:<br />
• PFRS 3, Business Combinations (Contingent consideration arising from business combination<br />
prior to adoption of PFRS 3 (as revised in 2008))<br />
• PFRS 3, Business Combinations (Un-replaced and voluntarily replaced share-based payment<br />
awards)<br />
• PAS 27, Consolidated and Separate Financial Statements<br />
• PAS 34, Interim Financial Statements<br />
The following interpretation and amendments to interpretations did not have any impact on <strong>the</strong><br />
accounting policies, financial position or per<strong>for</strong>mance of <strong>the</strong> Group:<br />
• Philippine Interpretation IFRIC 13, Customer Loyalty Programmes (determining <strong>the</strong> fair value<br />
of award credits)<br />
• Philippine Interpretation IFRIC 19, Extinguishing Financial Liabilities with Equity<br />
Instruments<br />
Foreign Currency Translation<br />
The consolidated financial statements are presented in Philippine peso, which is <strong>the</strong> Parent<br />
Company’s functional currency. Each subsidiary in <strong>the</strong> Group determines its own functional<br />
currency and items included in <strong>the</strong> financial statements of each entity are measured using that<br />
functional currency.<br />
Transactions and balances<br />
Transactions denominated in <strong>for</strong>eign currencies are recorded using <strong>the</strong> exchange rate at <strong>the</strong> date of<br />
<strong>the</strong> transaction. Outstanding financial assets and liabilities denominated in <strong>for</strong>eign currencies are<br />
restated in Philippine pesos based on <strong>the</strong> Philippine Dealing System (PDS) closing rate prevailing<br />
at <strong>the</strong> balance sheet date. Exchange differences arising on translation are taken directly to <strong>the</strong><br />
consolidated statement of income.<br />
Non-monetary items that are measured in terms of historical cost in a <strong>for</strong>eign currency are<br />
translated using <strong>the</strong> exchange rates as at <strong>the</strong> dates of <strong>the</strong> initial transactions. Non-monetary items<br />
measured at fair value in a <strong>for</strong>eign currency are translated using <strong>the</strong> exchange rates at <strong>the</strong> date<br />
when <strong>the</strong> fair value was determined. Any goodwill arising on <strong>the</strong> acquisition of a <strong>for</strong>eign<br />
operation and any fair value adjustments to <strong>the</strong> carrying amounts of assets and liabilities arising on<br />
<strong>the</strong> acquisition are treated as assets and liabilities of <strong>the</strong> <strong>for</strong>eign operation and translated at <strong>the</strong><br />
closing rate.<br />
Foreign subsidiaries<br />
As of <strong>the</strong> balance sheet date, <strong>the</strong> assets and liabilities of subsidiaries with functional currency<br />
differs from <strong>the</strong> Philippine peso are translated into <strong>the</strong> Parent Company’s presentation currency<br />
(<strong>the</strong> Philippine peso) at <strong>the</strong> PDS closing rate prevailing at <strong>the</strong> balance sheet date, and <strong>the</strong>ir income<br />
and expenses are translated using <strong>the</strong> PDSWAR <strong>for</strong> <strong>the</strong> <strong>year</strong>. Exchange differences arising on<br />
translation are recognized in o<strong>the</strong>r comprehensive income. Upon disposal of a <strong>for</strong>eign entity, <strong>the</strong><br />
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deferred cumulative amount previously recognized in o<strong>the</strong>r comprehensive income (included<br />
under ‘Cumulative translation adjustment’ in <strong>the</strong> equity section of <strong>the</strong> consolidated balance sheet)<br />
relating to <strong>the</strong> particular <strong>for</strong>eign operation is recognized in <strong>the</strong> consolidated statement of income.<br />
Cash and Cash Equivalents<br />
Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid<br />
investments that are readily convertible to known amounts of cash, with original maturities of<br />
three months or less from <strong>the</strong> dates of placement and that are subject to an insignificant risk of<br />
changes in fair value.<br />
Financial Instruments<br />
Initial Recognition<br />
Financial instruments within <strong>the</strong> scope of PAS 39 are classified as financial assets at FVPL, loans<br />
and receivables, held-to-maturity (HTM) investments, available-<strong>for</strong>-sale (AFS) investments,<br />
financial liabilities at FVPL and o<strong>the</strong>r financial liabilities. The classification of financial<br />
instruments at initial recognition depends on <strong>the</strong> purpose <strong>for</strong> which <strong>the</strong> financial instruments were<br />
acquired and <strong>the</strong>ir characteristics. All financial assets and financial liabilities are recognized<br />
initially at fair value plus any directly attributable cost of acquisition or issue, except in <strong>the</strong> case of<br />
financial assets and financial liabilities at FVPL. Management determines <strong>the</strong> classification of its<br />
instruments at initial recognition and, where allowed and appropriate, re-evaluates such<br />
designation at every balance sheet date.<br />
Financial instruments are recognized in <strong>the</strong> consolidated balance sheet when <strong>the</strong> Group becomes a<br />
party to <strong>the</strong> contractual provisions of <strong>the</strong> instrument. In <strong>the</strong> case of regular way of purchase or<br />
sale of financial assets, recognition and derecognition, as applicable, are done using settlement<br />
date accounting. Settlement date accounting refers to (a) recognition of an asset on <strong>the</strong> day it is<br />
received by <strong>the</strong> Group, and (b) <strong>the</strong> derecognition of an asset and recognition of any gain or loss on<br />
disposal on <strong>the</strong> day that it is delivered by <strong>the</strong> Group.<br />
The subsequent measurement bases <strong>for</strong> financial instruments depend on its classification.<br />
As of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010, <strong>the</strong> Group has no AFS investments, HTM investments and<br />
financial liabilities at FVPL.<br />
Subsequent Measurement<br />
Financial assets at FVPL<br />
Financial assets at FVPL includes financial assets held <strong>for</strong> trading (HFT) and financial assets<br />
designated upon initial recognition at fair value through profit or loss. Financial assets are<br />
classified as HFT if <strong>the</strong>y are acquired <strong>for</strong> <strong>the</strong> purpose of selling and repurchasing in <strong>the</strong> near term.<br />
Included in this classification are debt securities which have been acquired principally <strong>for</strong> trading<br />
purposes.<br />
The Group evaluates its HFT investments to determine whe<strong>the</strong>r <strong>the</strong> intention to sell <strong>the</strong>m in <strong>the</strong><br />
near term is still appropriate. When in rare circumstances <strong>the</strong> Group is unable to trade <strong>the</strong>se<br />
financial assets due to inactive markets and management’s intention to sell <strong>the</strong>m in <strong>the</strong> <strong>for</strong>eseeable<br />
future significantly changes, <strong>the</strong> Group may elect to reclassify <strong>the</strong>se financial assets. The<br />
reclassification to loans and receivables, AFS or HTM depends on <strong>the</strong> nature of <strong>the</strong> asset. This<br />
evaluation does not affect any financial assets designated at FVPL using <strong>the</strong> fair value option at<br />
designation, <strong>the</strong>se instruments cannot be reclassified after initial recognition.<br />
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HFT investments are recorded in <strong>the</strong> consolidated balance sheet at fair value. Changes in fair<br />
value are recognized as ‘Net trading gains’ in <strong>the</strong> consolidated statement of income. Interest<br />
earned is recognized as interest income included under ‘O<strong>the</strong>r income’ in <strong>the</strong> consolidated<br />
statement of income. Quoted market prices, when available, are used to determine <strong>the</strong> fair value<br />
of <strong>the</strong>se financial instruments. If quoted market prices are not available, <strong>the</strong>ir fair values are<br />
estimated based on inputs that are observable in <strong>the</strong> market.<br />
Classified under this category are <strong>the</strong> Group’s HFT investments in debt and equity securities.<br />
Loans and Receivables<br />
Loans and receivables are non-derivative financial assets with fixed or determinable payments that<br />
are not quoted in an active market. After initial measurement, receivables are carried at amortized<br />
cost using <strong>the</strong> effective interest method less any allowance <strong>for</strong> credit losses. Amortized cost is<br />
calculated by taking into account any discount or premium on acquisition and fees and costs that<br />
are an integral part of <strong>the</strong> effective interest rate (EIR). Gains and losses are recognized in <strong>the</strong><br />
consolidated statement of income when <strong>the</strong> receivables are derecognized or impaired, as well as<br />
through <strong>the</strong> amortization process. Receivables are classified as current assets when <strong>the</strong> Group<br />
expects to realize or collect <strong>the</strong> asset within twelve months from <strong>the</strong> balance sheet date. O<strong>the</strong>rwise,<br />
<strong>the</strong>se are classified as non-current assets.<br />
Classified under this category are <strong>the</strong> Group’s ‘Cash and cash equivalents’, ‘Accounts receivable’,<br />
‘O<strong>the</strong>r receivables’ and refundable deposits included under ‘O<strong>the</strong>r noncurrent assets’.<br />
O<strong>the</strong>r financial liabilities<br />
Issued financial instruments or <strong>the</strong>ir components, which are not designated as at FVPL, are<br />
classified as o<strong>the</strong>r financial liability, where <strong>the</strong> substance of <strong>the</strong> contractual arrangement results in<br />
<strong>the</strong> Group having an obligation ei<strong>the</strong>r to deliver cash or ano<strong>the</strong>r financial asset to <strong>the</strong> holder, or to<br />
satisfy <strong>the</strong> obligation o<strong>the</strong>r than by <strong>the</strong> exchange of a fixed amount of cash or ano<strong>the</strong>r financial<br />
asset <strong>for</strong> a fixed number of its own equity shares. These include liabilities arising from operations<br />
or borrowings. The components of issued financial instruments that contain both liability and<br />
equity elements are accounted <strong>for</strong> separately, with <strong>the</strong> equity component being assigned <strong>the</strong><br />
residual amount after deducting from <strong>the</strong> instrument as a whole <strong>the</strong> amount separately determined<br />
as <strong>the</strong> fair value of <strong>the</strong> liability component on <strong>the</strong> date of issue.<br />
After initial measurement, o<strong>the</strong>r financial liabilities are subsequently measured at amortized cost<br />
using <strong>the</strong> EIR method.<br />
O<strong>the</strong>r financial liabilities are classified as current liabilities when <strong>the</strong> Group expects to settle <strong>the</strong><br />
liability within twelve months from <strong>the</strong> balance sheet date. O<strong>the</strong>rwise, <strong>the</strong>se are classified as noncurrent<br />
liabilities.<br />
O<strong>the</strong>r financial liabilities include ‘Beneficiaries and o<strong>the</strong>r payables’ and ‘Interest-bearing loans’.<br />
Determination of fair value<br />
The fair value <strong>for</strong> financial instruments traded in active markets at <strong>the</strong> balance sheet date is based<br />
on <strong>the</strong>ir quoted market prices or dealer price quotations (bid price <strong>for</strong> long positions and ask price<br />
<strong>for</strong> short positions), without any deduction <strong>for</strong> transaction costs. When current bid and ask prices<br />
are not available, <strong>the</strong> price of <strong>the</strong> most recent transaction provides evidence of <strong>the</strong> current fair<br />
value as long as <strong>the</strong>re has not been a significant change in economic circumstances since <strong>the</strong> time<br />
of <strong>the</strong> transaction.<br />
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For all o<strong>the</strong>r financial instruments not listed in an active market, <strong>the</strong> fair value is determined by<br />
using appropriate valuation methodologies. Valuation methodologies include net present value<br />
techniques, comparison to similar instruments <strong>for</strong> which market observable prices exist, option<br />
pricing models, and o<strong>the</strong>r relevant valuation models.<br />
Day 1 difference<br />
Where <strong>the</strong> transaction price in a non-active market is different from <strong>the</strong> fair value from o<strong>the</strong>r<br />
observable current market transactions in <strong>the</strong> same instrument or based on a valuation technique<br />
whose variables include only data from an observable market, <strong>the</strong> Group recognizes <strong>the</strong> difference<br />
between <strong>the</strong> transaction price and fair value (a Day 1 difference) in <strong>the</strong> consolidated statement of<br />
income unless it qualifies <strong>for</strong> recognition as some o<strong>the</strong>r type of asset. In cases where use is made<br />
of data which is not observable, <strong>the</strong> difference between <strong>the</strong> transaction price and model value is<br />
only recognized in <strong>the</strong> consolidated statement of income when <strong>the</strong> inputs become observable or<br />
when <strong>the</strong> instrument is derecognized. For each transaction, <strong>the</strong> Group determines <strong>the</strong> appropriate<br />
method of recognizing <strong>the</strong> Day 1 difference amount.<br />
Derecognition of Financial Assets and Liabilities<br />
Financial asset<br />
A financial asset (or, where applicable a part of a financial asset or part of a group of similar<br />
financial assets) is derecognized when:<br />
• <strong>the</strong> rights to receive cash flows from <strong>the</strong> asset have expired;<br />
• <strong>the</strong> Group retains <strong>the</strong> right to receive cash flows from <strong>the</strong> asset, but has assumed an obligation<br />
to pay <strong>the</strong>m in full without material delay to a third part under a ‘pass through’ arrangement;<br />
or<br />
• <strong>the</strong> Group has transferred its rights to receive cash flows from <strong>the</strong> asset and ei<strong>the</strong>r (a) has<br />
transferred substantially all <strong>the</strong> risks and rewards of <strong>the</strong> asset, or (b) has nei<strong>the</strong>r transferred nor<br />
retained substantially all <strong>the</strong> risks and rewards of <strong>the</strong> asset, but has transferred control of <strong>the</strong><br />
asset.<br />
When <strong>the</strong> Group has transferred its rights to receive cash flows from an asset or has entered into a<br />
pass-through arrangement, and has nei<strong>the</strong>r transferred nor retained substantially all <strong>the</strong> risks and<br />
rewards of <strong>the</strong> asset nor transferred control of <strong>the</strong> asset, <strong>the</strong> asset is recognized to <strong>the</strong> extent of <strong>the</strong><br />
Group’s continuing involvement in <strong>the</strong> asset. Continuing involvement that takes <strong>the</strong> <strong>for</strong>m of a<br />
guarantee over <strong>the</strong> transferred asset is measured at <strong>the</strong> lower of <strong>the</strong> original carrying amount of <strong>the</strong><br />
asset and <strong>the</strong> maximum amount of consideration that <strong>the</strong> Group could be required to repay.<br />
Financial liability<br />
A financial liability is derecognized when <strong>the</strong> obligation under <strong>the</strong> liability is discharged,<br />
cancelled or has expired. When an existing financial liability is replaced by ano<strong>the</strong>r from <strong>the</strong> same<br />
lender on substantially different terms, or <strong>the</strong> terms of an existing liability are substantially<br />
modified, such an exchange or modification is treated as a derecognition of <strong>the</strong> original liability<br />
and <strong>the</strong> recognition of a new liability, and <strong>the</strong> difference in <strong>the</strong> respective carrying amounts is<br />
recognized in <strong>the</strong> consolidated statement of income.<br />
Offsetting Financial Instruments<br />
Financial assets and financial liabilities are offset and <strong>the</strong> net amount reported in <strong>the</strong> consolidated<br />
balance sheet if, and only if, <strong>the</strong>re is a currently en<strong>for</strong>ceable legal right to offset <strong>the</strong> recognized<br />
amounts and <strong>the</strong>re is an intention to settle on a net basis, or to realize <strong>the</strong> asset and settle <strong>the</strong><br />
liability simultaneously.<br />
*SGVMC116502*
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Impairment of Financial Assets<br />
The Group assesses at each balance sheet date whe<strong>the</strong>r <strong>the</strong>re is an objective evidence that a<br />
financial asset or group of financial assets is impaired. A financial asset or a group of financial<br />
assets is deemed to be impaired if, and only if, <strong>the</strong>re is an objective evidence of impairment as a<br />
result of one or more events that has occurred after <strong>the</strong> initial recognition of <strong>the</strong> asset (an incurred<br />
‘loss event’) and that loss event (or events) has an impact on <strong>the</strong> estimated future cash flows of <strong>the</strong><br />
financial asset or <strong>the</strong> group of financial assets that can be reliably estimated. Evidence of<br />
impairment may include indications that <strong>the</strong> borrower or a group of borrowers is experiencing<br />
significant financial difficulty, default or delinquency in interest or principal payments, <strong>the</strong><br />
probability that <strong>the</strong>y will enter bankruptcy or o<strong>the</strong>r financial reorganization, and where <strong>the</strong>re are<br />
observable data that indicates that <strong>the</strong>re is a measurable decrease in <strong>the</strong> estimated future cash<br />
flows, such as changes in arrears or economic conditions that correlate with defaults.<br />
Financial assets carried at amortized cost<br />
For financial assets carried at amortized cost, <strong>the</strong> Group first assesses whe<strong>the</strong>r objective evidence<br />
of impairment exists individually <strong>for</strong> financial assets that are individually significant, or<br />
collectively <strong>for</strong> financial assets that are not individually significant.<br />
If <strong>the</strong>re is objective evidence that an impairment loss has been incurred, <strong>the</strong> amount of <strong>the</strong> loss is<br />
measured as <strong>the</strong> difference between <strong>the</strong> asset’s carrying amount and <strong>the</strong> present value of <strong>the</strong><br />
estimated future cash flows (excluding future credit losses that have not been incurred). The<br />
carrying amount of <strong>the</strong> asset is reduced through <strong>the</strong> use of an allowance account and <strong>the</strong> amount of<br />
loss is charged to <strong>the</strong> consolidated statement of income. Interest income continues to be<br />
recognized based on <strong>the</strong> original EIR of <strong>the</strong> asset. Receivables, toge<strong>the</strong>r with <strong>the</strong> associated<br />
allowance accounts, are written off when <strong>the</strong>re is no realistic prospect of future recovery and all<br />
collateral has been realized. If subsequently, <strong>the</strong> amount of <strong>the</strong> estimated impairment loss<br />
decreases because of an event occurring after <strong>the</strong> impairment was recognized, <strong>the</strong> previously<br />
recognized impairment loss is reduced by adjusting <strong>the</strong> allowance account. If a future write-off is<br />
later recovered, any amounts <strong>for</strong>merly charged are credited to profit or loss.<br />
If <strong>the</strong> Group determines that no objective evidence of impairment exists <strong>for</strong> an individually<br />
assessed financial asset, whe<strong>the</strong>r significant or not, it includes <strong>the</strong> asset in a group of financial<br />
assets with similar credit risk characteristics and collectively assesses <strong>for</strong> impairment. Those<br />
characteristics are relevant to <strong>the</strong> estimation of future cash flows <strong>for</strong> groups of such assets by<br />
being indicative of <strong>the</strong> debtors’ ability to pay all amounts due according to <strong>the</strong> contractual terms of<br />
<strong>the</strong> assets being evaluated. Assets that are individually assessed <strong>for</strong> impairment and <strong>for</strong> which an<br />
impairment loss is, or continues to be, recognized are not included in a collective assessment <strong>for</strong><br />
impairment.<br />
The present value of <strong>the</strong> estimated future cash flows is discounted at <strong>the</strong> financial asset’s original<br />
EIR. If a financial asset has a variable interest rate, <strong>the</strong> discount rate <strong>for</strong> measuring any<br />
impairment loss is <strong>the</strong> current EIR, adjusted <strong>for</strong> <strong>the</strong> original credit risk premium.<br />
For <strong>the</strong> purpose of a collective evaluation of impairment, financial assets are grouped on <strong>the</strong> basis<br />
of such credit risk characteristics as geographical classification. Future cash flows in a group of<br />
financial assets that are collectively evaluated <strong>for</strong> impairment are estimated on <strong>the</strong> basis of<br />
historical loss experience <strong>for</strong> assets with credit risk characteristics similar to those in <strong>the</strong> group.<br />
Historical loss experience is adjusted on <strong>the</strong> basis of current observable data to reflect <strong>the</strong> effects<br />
of current conditions that did not affect <strong>the</strong> period on which <strong>the</strong> historical loss experience is based<br />
and to remove <strong>the</strong> effects of conditions in <strong>the</strong> historical period that do not exist currently.<br />
*SGVMC116502*
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Estimates of changes in future cash flows reflect, and are directionally consistent with changes in<br />
related observable data from period to period (such as changes in payment status, or o<strong>the</strong>r factors<br />
that are indicative of incurred losses in <strong>the</strong> group and <strong>the</strong>ir magnitude). The methodology and<br />
assumptions used <strong>for</strong> estimating future cash flows are reviewed regularly by <strong>the</strong> Group to reduce<br />
any differences between loss estimates and actual loss experience.<br />
Investments in Associates<br />
The Group’s investments in its associates are accounted <strong>for</strong> using <strong>the</strong> equity method of<br />
accounting. An associate is an entity in which <strong>the</strong> Group has significant influence. The Group’s<br />
investments in associates include its 49.00% interest in ISPL and HKHCL, entities based in<br />
Singapore and Taiwan, respectively.<br />
Under <strong>the</strong> equity method, <strong>the</strong> investment in <strong>the</strong> associate is carried in <strong>the</strong> consolidated balance<br />
sheet at cost plus post acquisition changes in <strong>the</strong> Group’s share in <strong>the</strong> net assets of <strong>the</strong> associate.<br />
The consolidated statement of income reflects <strong>the</strong> share in <strong>the</strong> results of operations of <strong>the</strong><br />
associate. Where <strong>the</strong>re has been a change recognized directly in <strong>the</strong> equity of <strong>the</strong> associate, <strong>the</strong><br />
Group recognizes its share of any changes, as applicable, in <strong>the</strong> consolidated statement of changes<br />
in equity. Unrealized gains and losses resulting from transactions between <strong>the</strong> Group and <strong>the</strong><br />
associate are eliminated to <strong>the</strong> extent of <strong>the</strong> interest in <strong>the</strong> associate.<br />
The Group’s share in <strong>the</strong> net income (loss) of its associates is shown in <strong>the</strong> consolidated statement<br />
of income as ‘Equity in net earnings of associates’. This is <strong>the</strong> profit attributable to equity holders<br />
of <strong>the</strong> associate and <strong>the</strong>re<strong>for</strong>e is profit after tax and noncontrolling interests in <strong>the</strong> subsidiaries of<br />
<strong>the</strong> associates.<br />
The financial statements of <strong>the</strong> associates are prepared <strong>for</strong> <strong>the</strong> same reporting period as <strong>the</strong> Parent<br />
Company.<br />
After application of <strong>the</strong> equity method, <strong>the</strong> Group determines whe<strong>the</strong>r it is necessary to recognize<br />
an impairment loss on <strong>the</strong> Group’s investment in its associates. The Group determines at each<br />
balance sheet date whe<strong>the</strong>r <strong>the</strong>re is any objective evidence that <strong>the</strong> investment in <strong>the</strong> associate is<br />
impaired. If this is <strong>the</strong> case, <strong>the</strong> Group calculates <strong>the</strong> amount of impairment as <strong>the</strong> difference<br />
between <strong>the</strong> recoverable amount of <strong>the</strong> associate and its carrying value and recognizes <strong>the</strong> amount<br />
as impairment loss in <strong>the</strong> consolidated statement of income.<br />
Upon loss of significant influence over <strong>the</strong> associate, <strong>the</strong> Group measures and recognizes any<br />
remaining investment at its fair value. Any difference between <strong>the</strong> carrying amount of <strong>the</strong><br />
associate upon loss of significant influence and <strong>the</strong> fair value of <strong>the</strong> retaining investment and<br />
proceeds from disposal is recognized in profit or loss.<br />
Property and Equipment<br />
Property and equipment is stated at cost less accumulated depreciation and amortization and any<br />
impairment in value.<br />
The initial cost of property and equipment comprises its purchase price and any directly<br />
attributable costs of bringing <strong>the</strong> property and equipment to its working condition and location <strong>for</strong><br />
its int<strong>ended</strong> use.<br />
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Expenditures incurred after <strong>the</strong> property and equipment have been put into operation, such as<br />
repairs and maintenance are normally charged to operations in <strong>the</strong> <strong>year</strong> in which <strong>the</strong> costs are<br />
incurred. In situations where it can be clearly demonstrated that <strong>the</strong> expenditures have resulted in<br />
an increase in <strong>the</strong> future economic benefits expected to be obtained from <strong>the</strong> use of an item of<br />
property and equipment beyond its originally assessed standard of per<strong>for</strong>mance, <strong>the</strong> expenditures<br />
are capitalized as an additional cost of property and equipment.<br />
Depreciation and amortization is calculated on a straight-line basis over <strong>the</strong> estimated useful life of<br />
<strong>the</strong> property and equipment as follows:<br />
Office and communication equipment 3 <strong>year</strong>s<br />
Transportation and delivery equipment 3 to 5 <strong>year</strong>s<br />
Furniture and fixtures 3 to 5 <strong>year</strong>s<br />
Leasehold improvements 5 <strong>year</strong>s or <strong>the</strong> term of <strong>the</strong> lease,<br />
whichever is shorter<br />
The carrying values of property and equipment are reviewed <strong>for</strong> impairment when events or<br />
changes in circumstances indicate <strong>the</strong> carrying value may not be recoverable. If any such<br />
indication exists and where <strong>the</strong> carrying values exceed <strong>the</strong> estimated recoverable amount, <strong>the</strong> asset<br />
or CGU are written down to <strong>the</strong>ir recoverable amount (see policy on Impairment of Nonfinancial<br />
Assets).<br />
An item of property and equipment is derecognized upon disposal or when no future economic<br />
benefits are expected from its use or disposal. Any gain or loss arising on derecognition of <strong>the</strong><br />
asset (calculated as <strong>the</strong> difference between <strong>the</strong> net disposal proceeds and <strong>the</strong> carrying amount of<br />
<strong>the</strong> asset) is included in <strong>the</strong> consolidated statement of income in <strong>the</strong> <strong>year</strong> <strong>the</strong> asset is derecognized.<br />
The asset’s residual values, useful lives and methods of depreciation and amortization are<br />
reviewed, and adjusted if appropriate, at each financial <strong>year</strong>-end to ensure that <strong>the</strong>se are consistent<br />
with <strong>the</strong> expected pattern of economic benefits from <strong>the</strong> items of property and equipment.<br />
Intangible Assets<br />
Intangible assets acquired separately are measured on initial recognition at cost. Following initial<br />
recognition, intangible assets are carried at cost less any accumulated amortization and any<br />
accumulated impairment losses.<br />
The useful lives of intangible assets are assessed to be ei<strong>the</strong>r finite or indefinite.<br />
Intangibles assets with finite lives are amortized over <strong>the</strong> useful economic life and assessed <strong>for</strong><br />
impairment whenever <strong>the</strong>re is an indication that <strong>the</strong> intangible assets may be impaired. The<br />
amortization period and <strong>the</strong> amortization method <strong>for</strong> an intangible asset with a finite useful life are<br />
reviewed at least at each balance sheet date. Changes in <strong>the</strong> expected useful life or <strong>the</strong> expected<br />
pattern of consumption of future economic benefits embodied in <strong>the</strong> asset is accounted <strong>for</strong> by<br />
changing <strong>the</strong> amortization period or method, as appropriate, and treated as changes in accounting<br />
estimates. The amortization expense on intangible assets with finite lives is recognized in <strong>the</strong><br />
consolidated statement of income in <strong>the</strong> expense category consistent with <strong>the</strong> function of <strong>the</strong><br />
intangible asset. Intangible assets with indefinite useful lives are tested <strong>for</strong> impairment annually<br />
ei<strong>the</strong>r individually or at <strong>the</strong> CGU level. Such intangibles are not amortized. The useful life of an<br />
intangible asset with an indefinite life is reviewed annually to determine whe<strong>the</strong>r indefinite life<br />
assessment continues to be supportable. If not, <strong>the</strong> change in <strong>the</strong> useful life assessment from<br />
indefinite to finite is made on a prospective basis.<br />
*SGVMC116502*
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Gains or losses arising from <strong>the</strong> derecognition of an intangible asset are measured as <strong>the</strong> difference<br />
between <strong>the</strong> net disposal proceeds and <strong>the</strong> carrying amount of <strong>the</strong> asset and are recognized in <strong>the</strong><br />
consolidated statement of income when <strong>the</strong> asset is derecognized.<br />
Software costs<br />
Software costs are carried at cost less accumulated amortization and any impairment in value. The<br />
cost of <strong>the</strong> asset is <strong>the</strong> amount of cash or cash equivalents paid or <strong>the</strong> fair value of <strong>the</strong> o<strong>the</strong>r<br />
considerations given up to acquire <strong>the</strong> asset at <strong>the</strong> time of its acquisition or production. Software<br />
costs are amortized on a straight-line basis over <strong>the</strong> estimated useful life of three (3) <strong>year</strong>s.<br />
Goodwill<br />
Any excess of <strong>the</strong> acquisition cost over <strong>the</strong> fair values of <strong>the</strong> identifiable net assets acquired is<br />
recognized as goodwill. Goodwill represents <strong>the</strong> excess of <strong>the</strong> acquisition cost over <strong>the</strong> fair value<br />
of <strong>the</strong>ir identifiable net assets at <strong>the</strong> date of acquisition of IRCL, IGRL, IAPL, LSML and WEPL<br />
(see Note 13). Following initial recognition, goodwill is measured at cost less any accumulated<br />
impairment losses. Goodwill is reviewed <strong>for</strong> impairment annually (see accounting policy on<br />
Impairment of Nonfinancial Assets).<br />
Impairment of Nonfinancial assets<br />
Investments in associates<br />
The Group assesses at each balance sheet date whe<strong>the</strong>r <strong>the</strong>re is any indication that its investments<br />
in associates may be impaired. If any indication exists, <strong>the</strong> Group estimates <strong>the</strong> asset’s<br />
recoverable amount. An asset’s recoverable amount is <strong>the</strong> higher of an asset’s or CGU’s fair value<br />
less cost to sell and its value in use. Where <strong>the</strong> carrying amount of an asset or CGU exceeds its<br />
recoverable amount, <strong>the</strong> asset is considered impaired and is written down to its recoverable<br />
amount.<br />
Property and equipment and software costs<br />
At each balance sheet date, <strong>the</strong> Group assesses whe<strong>the</strong>r <strong>the</strong>re is any indication that its property and<br />
equipment and software costs may be impaired. When an indicator of impairment exists or when<br />
an annual impairment testing <strong>for</strong> an asset is required, <strong>the</strong> Group makes a <strong>for</strong>mal estimate of<br />
recoverable amount. Recoverable amount is <strong>the</strong> higher of an asset’s fair value less costs to sell and<br />
its value in use and is determined <strong>for</strong> an individual asset, unless <strong>the</strong> asset does not generate cash<br />
inflows that are largely independent of those from o<strong>the</strong>r assets or groups of assets, in which case<br />
<strong>the</strong> recoverable amount is assessed as part of <strong>the</strong> CGU to which it belongs. Where <strong>the</strong> carrying<br />
amount of an asset (or CGU) exceeds its recoverable amount, <strong>the</strong> asset (or CGU) is considered<br />
impaired and is written down to its recoverable amount. In assessing value in use, <strong>the</strong> estimated<br />
future cash flows are discounted to <strong>the</strong>ir present value using a pre-tax discount rate that reflects<br />
current market assessments of <strong>the</strong> time value of money and <strong>the</strong> risks specific to <strong>the</strong> asset (or<br />
CGU). In determining fair value less cost to sell, recent market transactions are taken into<br />
account, if available. If no such transactions can be identified, an appropriate evaluation model is<br />
used. These calculations are corroborated with available fair value indicators.<br />
An impairment loss is charged to operations in <strong>the</strong> <strong>year</strong> in which it arises, unless <strong>the</strong> asset is<br />
carried at a revalued amount, in which case <strong>the</strong> impairment loss is charged to <strong>the</strong> revaluation<br />
increment of <strong>the</strong> said asset.<br />
An assessment is made at each balance sheet date as to whe<strong>the</strong>r <strong>the</strong>re is any indication that<br />
previously recognized impairment losses may no longer exist or may have decreased. If such<br />
indication exists, <strong>the</strong> recoverable amount is estimated. A previously recognized impairment loss is<br />
reversed only if <strong>the</strong>re has been a change in <strong>the</strong> estimates used to determine <strong>the</strong> asset’s recoverable<br />
*SGVMC116502*
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amount since <strong>the</strong> last impairment loss was recognized. If that is <strong>the</strong> case, <strong>the</strong> carrying amount of<br />
<strong>the</strong> asset is increased to its recoverable amount. That increased amount cannot exceed <strong>the</strong> carrying<br />
amount that would have been determined, net of depreciation and amortization, had no impairment<br />
loss been recognized <strong>for</strong> <strong>the</strong> asset in prior <strong>year</strong>s. Such reversal is recognized in <strong>the</strong> consolidated<br />
statement of income unless <strong>the</strong> asset is carried at a revalued amount, in which case <strong>the</strong> reversal is<br />
treated as a revaluation increase. After such a reversal, <strong>the</strong> depreciation and amortization expense<br />
is adjusted in future <strong>year</strong>s to allocate <strong>the</strong> asset’s revised carrying amount, less any residual value,<br />
on a systematic basis over its remaining life.<br />
Goodwill<br />
Goodwill is reviewed <strong>for</strong> impairment annually or more frequently if events or changes in<br />
circumstances indicate that <strong>the</strong> carrying value may be impaired.<br />
Impairment is determined <strong>for</strong> goodwill by assessing <strong>the</strong> recoverable amount of <strong>the</strong> CGU (or group<br />
of CGUs) to which <strong>the</strong> goodwill relates. Where <strong>the</strong> recoverable amount of <strong>the</strong> CGU (or group of<br />
CGUs) is less than <strong>the</strong> carrying amount of <strong>the</strong> CGU (or group of CGUs) to which goodwill has<br />
been allocated, an impairment loss is recognized immediately in <strong>the</strong> consolidated statement of<br />
income. Impairment losses relating to goodwill cannot be reversed <strong>for</strong> subsequent increases in its<br />
recoverable amount in future periods. The Group per<strong>for</strong>ms its annual impairment test of goodwill<br />
at <strong>the</strong> balance sheet date.<br />
Input Value Added Tax (VAT)<br />
Input VAT represents VAT imposed on <strong>the</strong> Parent Company by its suppliers <strong>for</strong> <strong>the</strong> acquisition of<br />
goods and services as required by Philippine taxation laws and regulations. This will be claimed<br />
as tax credits. Input VAT is stated at its estimated net realizable values.<br />
Revenue Recognition<br />
Revenue is recognized to <strong>the</strong> extent that it is probable that <strong>the</strong> economic benefits will flow to <strong>the</strong><br />
Group and <strong>the</strong> revenue can be reliably measured. The Group assesses its revenue arrangements<br />
against specific criteria in order to determine if it is acting as principal or agent. The following<br />
specific recognition criteria must also be met be<strong>for</strong>e revenue is recognized:<br />
Delivery fees<br />
Revenue from delivery fees is recognized as <strong>the</strong> service is rendered net of amounts payable to<br />
principals (i.e., partner remittance companies) <strong>for</strong> fees billed on <strong>the</strong>ir behalf.<br />
Service revenue<br />
Service revenue is recognized when <strong>the</strong> service is rendered.<br />
Interest income<br />
Interest on financial instruments measured at amortized cost and interest bearing HFT investments<br />
is recognized based on <strong>the</strong> effective interest rate (EIR) method.<br />
The EIR method is a method of calculating <strong>the</strong> amortized cost of a financial asset or a financial<br />
liability and allocating <strong>the</strong> interest income or interest expense over <strong>the</strong> relevant period. The EIR is<br />
<strong>the</strong> rate that exactly discounts estimated future cash payments or receipts throughout <strong>the</strong> expected<br />
life of <strong>the</strong> financial instrument or, when appropriate, a shorter period to <strong>the</strong> net carrying amount of<br />
<strong>the</strong> financial asset or financial liability. When calculating <strong>the</strong> EIR, <strong>the</strong> Group estimates cash flows<br />
from <strong>the</strong> financial instrument (<strong>for</strong> example, prepayment options) but does not consider future<br />
credit losses. The calculation includes all fees and points paid or received between parties to <strong>the</strong><br />
contract that are an integral part of <strong>the</strong> EIR, transaction costs and all o<strong>the</strong>r premiums or discounts.<br />
*SGVMC116502*
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Once a financial asset or a group of financial assets has been written down as a result of an<br />
impairment loss, interest income is recognized <strong>the</strong>reafter using <strong>the</strong> rate of interest used to discount<br />
<strong>the</strong> future cash flows <strong>for</strong> <strong>the</strong> purpose of measuring <strong>the</strong> impairment loss.<br />
Net trading gain/loss<br />
Trading gain/loss represents results arising from trading activities, including all gains and losses<br />
from changes in fair value of HFT investments.<br />
O<strong>the</strong>r income<br />
O<strong>the</strong>r income from processing remittance is recognized as <strong>the</strong> service is rendered.<br />
Rebates<br />
Rebates pertaining to refunds of bank service charges are recognized upon collection.<br />
Cost and Expenses<br />
Costs and expenses encompass losses as well as those expenses that arise in <strong>the</strong> course of <strong>the</strong><br />
ordinary business activities of <strong>the</strong> Group. The following specific recognition criteria must also be<br />
met be<strong>for</strong>e costs and expenses are recognized:<br />
Cost of services<br />
This includes all expenses associated with <strong>the</strong> specific delivery fees. Such costs are recognized<br />
when <strong>the</strong> related delivery fees have been recognized.<br />
Operating expenses<br />
Operating expenses constitute costs incurred related to advertising and administering <strong>the</strong> business<br />
and are recognized when incurred.<br />
Taxes and licenses<br />
This includes all o<strong>the</strong>r taxes, local and national, including real estate taxes, licenses and permit<br />
fees included under ‘O<strong>the</strong>r operating expenses’ in <strong>the</strong> consolidated statement of income.<br />
Retirement Benefits<br />
The Parent Company has a noncontributory defined benefit retirement plan administered by a<br />
trustee, covering its permanent employees.<br />
The retirement cost of <strong>the</strong> Parent Company is determined using <strong>the</strong> projected unit credit method.<br />
Under this method, <strong>the</strong> current service cost is <strong>the</strong> present value of retirement benefits payable in<br />
<strong>the</strong> future with respect to services rendered in <strong>the</strong> current period.<br />
The liability recognized in <strong>the</strong> consolidated balance sheet in respect of defined benefit retirement<br />
plan is <strong>the</strong> present value of <strong>the</strong> defined benefit obligation at <strong>the</strong> balance sheet date less <strong>the</strong> fair<br />
value of plan assets, toge<strong>the</strong>r with adjustments <strong>for</strong> unrecognized actuarial gains or losses and past<br />
service costs. The defined benefit obligation is calculated annually by an independent actuary<br />
using <strong>the</strong> projected unit credit method. The present value of <strong>the</strong> defined benefit obligation is<br />
determined by discounting <strong>the</strong> estimated future cash outflows using interest rates on Philippine<br />
government bonds that have terms to maturity approximating <strong>the</strong> terms of <strong>the</strong> related retirement<br />
liability. Actuarial gains and losses arising from experience adjustments and changes in actuarial<br />
assumptions are credited to or charged against income when <strong>the</strong> net cumulative unrecognized<br />
actuarial gains and losses at <strong>the</strong> end of <strong>the</strong> previous period exceeded 10.00% of <strong>the</strong> higher of <strong>the</strong><br />
defined benefit obligation and <strong>the</strong> fair value of plan assets at that date. These gains or losses are<br />
recognized over <strong>the</strong> expected average remaining working lives of <strong>the</strong> employees participating in<br />
<strong>the</strong> plan.<br />
*SGVMC116502*
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Past-service costs, if any, are recognized immediately in income, unless <strong>the</strong> changes to <strong>the</strong><br />
retirement plan are conditional on <strong>the</strong> employees remaining in service <strong>for</strong> a specified period of<br />
time (<strong>the</strong> vesting period). In this case, <strong>the</strong> past-service costs are amortized on a straight-line basis<br />
over <strong>the</strong> vesting period.<br />
The defined benefit asset or liability comprises <strong>the</strong> present value of <strong>the</strong> defined benefit obligation<br />
less past service costs not yet recognized and less <strong>the</strong> fair value of plan assets out of which <strong>the</strong><br />
obligations are to be settled directly. The value of any asset is restricted to <strong>the</strong> sum of any past<br />
service cost not yet recognized and <strong>the</strong> present value of any economic benefits available in <strong>the</strong><br />
<strong>for</strong>m of refunds from <strong>the</strong> plan or reductions in <strong>the</strong> future contributions to <strong>the</strong> plan.<br />
Leases<br />
The determination of whe<strong>the</strong>r an arrangement is, or contains a lease is based on <strong>the</strong> substance of<br />
<strong>the</strong> arrangement at <strong>the</strong> inception date of whe<strong>the</strong>r <strong>the</strong> fulfillment of <strong>the</strong> arrangement is dependent<br />
on <strong>the</strong> use of a specific asset or assets or <strong>the</strong> arrangement conveys a right to use <strong>the</strong> asset. A<br />
reassessment is made after inception of <strong>the</strong> lease only if one of <strong>the</strong> following applies:<br />
(a) <strong>the</strong>re is a change in contractual terms, o<strong>the</strong>r than a renewal or extension of <strong>the</strong> arrangement;<br />
(b) a renewal option is exercised or extension granted, unless <strong>the</strong> term of <strong>the</strong> renewal or extension<br />
was initially included in <strong>the</strong> lease term;<br />
(c) <strong>the</strong>re is a change in <strong>the</strong> determination of whe<strong>the</strong>r fulfillment is dependent on a specified asset;<br />
or<br />
(d) <strong>the</strong>re is a substantial change to <strong>the</strong> asset.<br />
When a reassessment is made, lease accounting shall commence or cease from <strong>the</strong> date when <strong>the</strong><br />
change in circumstances gave rise to <strong>the</strong> reassessment <strong>for</strong> scenarios (a), (c), or (d) and at <strong>the</strong> date<br />
of renewal or extension <strong>for</strong> scenario (b).<br />
Group as a lessee<br />
Leases where <strong>the</strong> lessor retains substantially all <strong>the</strong> risks and benefits of ownership of <strong>the</strong> asset are<br />
classified as operating leases. Operating lease payments are recognized as an expense in <strong>the</strong><br />
consolidated statement of income on a straight-line basis over <strong>the</strong> lease term.<br />
Group as a lessor<br />
Leases in which <strong>the</strong> Group does not transfer substantially all <strong>the</strong> risks and benefits of ownership of<br />
<strong>the</strong> asset are classified as operating leases. Initial direct costs incurred in negotiating an operating<br />
lease are added to <strong>the</strong> carrying amount of <strong>the</strong> leased asset and recognized over <strong>the</strong> lease term on<br />
<strong>the</strong> same basis as rental income. Contingent rents are recognized as revenue in <strong>the</strong> period in which<br />
<strong>the</strong>y are earned.<br />
Share-based Payment<br />
The Parent Company granted a stock purchase program to certain officers, employees and<br />
individuals (see Note 19) that is subject to a lock-up or vesting period of two (2) <strong>year</strong>s and which<br />
<strong>ended</strong> on September 19, 2009. The Parent Company accounted <strong>for</strong> <strong>the</strong> share-based payment as an<br />
equity-settled transaction. The cost of equity-settled transactions is measured by reference to <strong>the</strong><br />
fair value of <strong>the</strong> equity instrument at <strong>the</strong> date at which <strong>the</strong>y are granted. The expense is<br />
recognized as part of ‘Salaries, wages and employee benefits’ in <strong>the</strong> consolidated statement of<br />
income over <strong>the</strong> lock-up period of two (2) <strong>year</strong>s. The cumulative expense recognized <strong>for</strong> equitysettled<br />
transactions at each balance sheet date until <strong>the</strong> vesting date reflects <strong>the</strong> extent to which <strong>the</strong><br />
vesting period has expired and <strong>the</strong> Group’s best estimate of <strong>the</strong> number of equity instruments that<br />
will ultimately vest. The expense in <strong>the</strong> consolidated statement of income <strong>for</strong> <strong>the</strong> period<br />
represents <strong>the</strong> movement in cumulative expense recognized at <strong>the</strong> beginning and end of <strong>the</strong> period.<br />
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Income Taxes<br />
Current tax<br />
Current tax assets and liabilities <strong>for</strong> <strong>the</strong> current and prior periods are measured at <strong>the</strong> amount<br />
expected to be recovered from or paid to <strong>the</strong> taxation authorities. The tax rates and tax laws used<br />
to compute <strong>the</strong> amount are those that are enacted or substantially enacted at <strong>the</strong> balance sheet date.<br />
Deferred tax<br />
Deferred tax is provided, using <strong>the</strong> balance sheet liability method, on all temporary differences at<br />
<strong>the</strong> balance sheet date between <strong>the</strong> tax bases of assets and liabilities and <strong>the</strong>ir carrying amounts <strong>for</strong><br />
financial reporting purposes.<br />
Deferred tax liabilities are recognized <strong>for</strong> all taxable temporary differences, including asset<br />
revaluations. Deferred tax assets are recognized <strong>for</strong> all deductible temporary differences,<br />
carry<strong>for</strong>ward of unused tax credits from excess minimum corporate income tax (MCIT) over <strong>the</strong><br />
regular corporate income tax (RCIT), if any, and unused net operating loss carryover (NOLCO), if<br />
any, to <strong>the</strong> extent that it is probable that taxable income will be available against which <strong>the</strong><br />
deductible temporary differences and carry<strong>for</strong>ward of unused tax credits from excess MCIT over<br />
RCIT and unused NOLCO can be utilized.<br />
Deferred tax liabilities are not provided on non-taxable temporary differences associated with<br />
investments in associates where <strong>the</strong> timing of <strong>the</strong> reversal of <strong>the</strong> temporary differences can be<br />
controlled and it is probable that <strong>the</strong> temporary differences will not reverse in <strong>the</strong> <strong>for</strong>eseeable<br />
future.<br />
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to<br />
<strong>the</strong> extent that it is no longer probable that sufficient taxable income will be available to allow all<br />
or part of <strong>the</strong> deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at<br />
each balance sheet date and are recognized to <strong>the</strong> extent that it has become probable that future<br />
taxable income will allow <strong>the</strong> deferred tax assets to be recovered.<br />
Deferred tax assets and deferred tax liabilities are measured at <strong>the</strong> tax rates that are applicable to<br />
<strong>the</strong> period when <strong>the</strong> asset is realized or <strong>the</strong> liability is settled, based on tax rates (and tax laws) that<br />
have been enacted or substantially enacted at <strong>the</strong> balance sheet date.<br />
Deferred tax assets and deferred tax liabilities are offset if a legally en<strong>for</strong>ceable right exists to set<br />
off current tax assets against current tax liabilities and <strong>the</strong> deferred taxes relate to <strong>the</strong> same taxable<br />
entity and <strong>the</strong> same taxation authority.<br />
Current tax and deferred tax relating to items recognized directly in equity are also recognized in<br />
equity and not in <strong>the</strong> consolidated statement of income.<br />
Discontinued Operations<br />
A discontinued operation is a component of <strong>the</strong> Group’s business that represents a separate major<br />
line of business or geographical area of operations that had been disposed of or is held <strong>for</strong> sale, or<br />
is a subsidiary acquired exclusively with a view to resale. Classification as a discontinued<br />
operation occurs upon disposal or when <strong>the</strong> operation meets <strong>the</strong> criteria to be classified as held <strong>for</strong><br />
sale, if earlier. When an operation is classified as a discontinued operation, <strong>the</strong> comparative<br />
consolidated statement of income are re-presented as if <strong>the</strong> operation had been discontinued from<br />
<strong>the</strong> start of <strong>the</strong> comparative period. In <strong>the</strong> consolidated statement of income of <strong>the</strong> reporting<br />
period, and of <strong>the</strong> comparable period of <strong>the</strong> previous <strong>year</strong>, income and expenses from<br />
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discontinued operations are reported separately from normal income and expenses down to <strong>the</strong><br />
level of profit after taxes. The resulting profit or loss (after taxes) is reported separately in <strong>the</strong><br />
consolidated statement of income.<br />
Borrowing Costs<br />
Borrowing costs are recognized as an expense when incurred.<br />
Equity<br />
Capital stock is measured at par value <strong>for</strong> all shares issued and outstanding. When <strong>the</strong> shares are<br />
sold at a premium, <strong>the</strong> difference between <strong>the</strong> proceeds and <strong>the</strong> par value is credited to ‘Capital<br />
paid-in excess of par value’ account. Direct costs incurred related to issuance of equity, such as<br />
underwriting, accounting and legal fees, printing costs and taxes are charged to ‘Capital paid-in<br />
excess of par value’ account. If <strong>the</strong> ‘Capital paid-in excess of par value’ is not sufficient, <strong>the</strong><br />
excess is charged to profit or loss.<br />
A change in <strong>the</strong> ownership interest of a subsidiary, without a loss of control, is accounted <strong>for</strong> as an<br />
equity transaction. The excess of acquisition cost over <strong>the</strong> carrying value of <strong>the</strong> noncontrolling<br />
interest is charged against <strong>the</strong> ‘Capital paid-in excess of par value’.<br />
When <strong>the</strong> Group issues more than one class of stock, a separate account is maintained <strong>for</strong> each<br />
class of stock and <strong>the</strong> number of shares issued.<br />
‘Retained earnings’ represents accumulated earnings (losses) of <strong>the</strong> Group less dividends declared.<br />
Own equity instruments which are reacquired (treasury shares) are recognized at cost as ‘Treasury<br />
stock’ and deducted from equity. No gain or loss is recognized in <strong>the</strong> consolidated statement of<br />
income on <strong>the</strong> purchase, sale, issue or cancellation of <strong>the</strong> Group’s own equity instruments. Any<br />
difference between <strong>the</strong> carrying amount and <strong>the</strong> consideration is recognized in ‘Capital paid-in<br />
excess of par value’.<br />
Earnings per Share<br />
Basic earnings per share (EPS) is computed by dividing net income <strong>for</strong> <strong>the</strong> <strong>year</strong> attributable to <strong>the</strong><br />
equity holders of <strong>the</strong> Parent Company by <strong>the</strong> weighted average number of common shares issued<br />
and outstanding during <strong>the</strong> <strong>year</strong>, after giving retroactive effect to any stock dividends or stock<br />
splits, if any, declared during <strong>the</strong> <strong>year</strong>. Diluted EPS is computed by dividing net income<br />
applicable to common stockholders attributable to equity holder of <strong>the</strong> Parent Company by <strong>the</strong><br />
weighted average number of common shares issued and outstanding during <strong>the</strong> <strong>year</strong> after giving<br />
effect to assumed conversion of dilutive potential common shares.<br />
The weighted average number of ordinary shares outstanding during <strong>the</strong> period is <strong>the</strong> number of<br />
ordinary shares outstanding at <strong>the</strong> beginning of <strong>the</strong> period, adjusted by <strong>the</strong> number of ordinary<br />
shares bought back or issued during <strong>the</strong> period multiplied by a time-weighting factor. The timeweighting<br />
factor is <strong>the</strong> number of days that <strong>the</strong> shares are outstanding as a proportion of <strong>the</strong> total<br />
number of days in <strong>the</strong> period; a reasonable approximation of <strong>the</strong> weighted average is adequate in<br />
many circumstances.<br />
Dividends<br />
Cash dividends on common shares are recognized as a liability and deducted from equity when<br />
declared and approved by <strong>the</strong> Board of Directors (BOD) of <strong>the</strong> Parent Company. Stock dividends<br />
are deducted from equity when declared and approved by <strong>the</strong> BOD and stockholders of <strong>the</strong> Parent<br />
Company.<br />
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Related party relationships and transactions<br />
Parties are considered to be related if one party has <strong>the</strong> ability, directly or indirectly, to control <strong>the</strong><br />
o<strong>the</strong>r party or exercise significant influence over <strong>the</strong> o<strong>the</strong>r party in making financial and operating<br />
decisions. Parties are also considered to be related if <strong>the</strong>y are subject to common control or<br />
common significant influence. Related parties may be individuals or corporate entities.<br />
Provisions<br />
Provisions are recognized when <strong>the</strong> Group has a present obligation (legal or constructive) as a<br />
result of a past event, it is probable that an outflow of assets embodying economic benefits will be<br />
required to settle <strong>the</strong> obligation and a reliable estimate can be made of <strong>the</strong> amount of <strong>the</strong><br />
obligation. Where <strong>the</strong> Group expects a provision to be reimbursed, <strong>the</strong> reimbursement is<br />
recognized as a separate asset but only when <strong>the</strong> reimbursement is virtually certain. The expense<br />
relating to any provision is presented in <strong>the</strong> consolidated statement of income, net of any<br />
reimbursement.<br />
Contingencies<br />
Contingent liabilities are not recognized in <strong>the</strong> consolidated financial statements. These are<br />
disclosed unless <strong>the</strong> possibility of an outflow of resources embodying economic benefits is<br />
remote. A contingent asset is not recognized in <strong>the</strong> consolidated financial statements but disclosed<br />
when an inflow of economic benefits is probable.<br />
Events After <strong>the</strong> <strong>Report</strong>ing Period<br />
Post <strong>year</strong>-end events that provide additional in<strong>for</strong>mation about <strong>the</strong> Group’s financial position at<br />
<strong>the</strong> balance sheet date (adjusting events) are reflected in <strong>the</strong> financial statements. Post <strong>year</strong>-end<br />
events that are not adjusting events are disclosed in <strong>the</strong> notes to <strong>the</strong> consolidated financial<br />
statements when material.<br />
Segment <strong>Report</strong>ing<br />
The Group’s operating businesses are organized and managed separately within a particular<br />
economic environment or geographical area, with each segment representing a strategic business<br />
unit which is subject to risks and rewards that are different from those of o<strong>the</strong>r segments.<br />
Financial in<strong>for</strong>mation on business segments is presented in Note 27.<br />
Standards Issued but not Effective<br />
The Group will adopt <strong>the</strong> following standards and interpretations enumerated below when <strong>the</strong>se<br />
become effective. Except as o<strong>the</strong>rwise indicated, <strong>the</strong> Group does not expect <strong>the</strong> adoption of <strong>the</strong>se<br />
new and am<strong>ended</strong> PFRS and Philippine Interpretations to have significant impact on its financial<br />
position and per<strong>for</strong>mance.<br />
Effective in 2012<br />
PFRS 7 Amendments, Financial Instruments: Disclosures - Disclosures - Transfers of Financial<br />
Assets<br />
The amendments to PFRS 7 are effective <strong>for</strong> annual periods beginning on or after July 1, <strong>2011</strong>.<br />
The amendments will allow users of financial statements to improve <strong>the</strong>ir understanding of<br />
transfer transactions of financial assets (<strong>for</strong> example, securitizations), including understanding <strong>the</strong><br />
possible effects of any risks that may remain with <strong>the</strong> entity that transferred <strong>the</strong> assets. The<br />
amendments also require additional disclosures if a disproportionate amount of transfer<br />
transactions are undertaken around <strong>the</strong> end of a reporting period.<br />
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PAS 12 Amendment, Income Taxes - Deferred Tax: Recovery of Underlying Assets<br />
The amendment to PAS 12 is effective <strong>for</strong> annual periods beginning on or after January 1, 2012.<br />
It provides a practical solution to <strong>the</strong> problem of assessing whe<strong>the</strong>r recovery of an asset will be<br />
through use or sale. It introduces a presumption that recovery of <strong>the</strong> carrying amount of an asset<br />
will normally be through sale.<br />
Effective in 2013<br />
PAS 1, Financial Statement Presentation – Presentation of Items of O<strong>the</strong>r Comprehensive Income<br />
(OCI)<br />
The amendment effective <strong>for</strong> annual periods beginning or after July 1, 2012, changes <strong>the</strong> grouping<br />
of items presented in OCI. Items that could be reclassified (or “recycled”) to profit or loss at a<br />
future point in time would be presented separately from items that will never be reclassified.<br />
PAS 27 Revised, Separate Financial Statements<br />
The revised PAS 27 is effective <strong>for</strong> annual periods beginning on or after January 1, 2013. It<br />
establishes that as a consequence of <strong>the</strong> new PFRS 10, Consolidated Financial Statement and<br />
PFRS 12, Disclosure of Interests in O<strong>the</strong>r Entities, what remains of PAS 27 is limited to<br />
accounting <strong>for</strong> subsidiaries, jointly controlled entities, and associates in separate financial<br />
statements.<br />
PFRS 7 Revised, Financial Instruments: Disclosures – Offsetting Financial Assets and Financial<br />
Liabilities<br />
The revised PFRS 7 effective <strong>for</strong> annual periods beginning on or after January 1, 2013, requires an<br />
entity to disclose in<strong>for</strong>mation about rights of set-off and related arrangements (such as collateral<br />
agreements). The new disclosures are required <strong>for</strong> all recognized financial instruments that are set<br />
off in accordance with PAS 32. These disclosures also apply to recognized financial instruments<br />
that are subject to an en<strong>for</strong>ceable master netting arrangement or ‘similar agreement’, irrespective<br />
of whe<strong>the</strong>r <strong>the</strong>y are set-off in accordance with PAS 32.<br />
PFRS 10, Consolidated Financial Statements<br />
The standard, effective <strong>for</strong> annual periods beginning on or after January 1, 2013, establishes<br />
principles <strong>for</strong> <strong>the</strong> presentation and preparation of consolidated financial statements when an entity<br />
controls one or more o<strong>the</strong>r entities. The Group will assess <strong>the</strong> impact of <strong>the</strong> amendment on its<br />
financial position and per<strong>for</strong>mance when <strong>the</strong>y become effective.<br />
PFRS 11, Joint Arrangements<br />
PFRS 11 provides <strong>for</strong> a more realistic reflection of joint arrangements by focusing on <strong>the</strong> rights<br />
and obligations of <strong>the</strong> arrangement, ra<strong>the</strong>r than its legal <strong>for</strong>m. The standard addresses<br />
inconsistencies in <strong>the</strong> reporting of joint arrangements by requiring a single method to account <strong>for</strong><br />
interests in jointly controlled entities. The standard is effective <strong>for</strong> annual periods beginning on or<br />
after January 1, 2013.<br />
PFRS 12, Disclosure of Interests in O<strong>the</strong>r Entities<br />
PFRS 12 is a new and comprehensive standard on disclosure requirements <strong>for</strong> all <strong>for</strong>ms of<br />
interests in o<strong>the</strong>r entities, including subsidiaries, joint arrangements, associates and unconsolidated<br />
structured entities. The standard is effective <strong>for</strong> annual periods beginning on or after January 1,<br />
2013. The Group will assess <strong>the</strong> impact of <strong>the</strong> amendment on its financial position and<br />
per<strong>for</strong>mance when <strong>the</strong>y become effective.<br />
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PFRS 13, Fair Value Measurement<br />
This standard represents <strong>the</strong> completion of <strong>the</strong> joint project to establish a single source <strong>for</strong> <strong>the</strong><br />
requirements on how to measure fair value under PFRS. This standard does not change when an<br />
entity is required to use fair value, but ra<strong>the</strong>r, describes how to measure fair value under PFRS,<br />
when fair value is required or permitted to be used. This standard is effective <strong>for</strong> annual periods<br />
beginning on or after January 1, 2013. The Group will assess <strong>the</strong> impact of <strong>the</strong> amendment on its<br />
financial position and per<strong>for</strong>mance when <strong>the</strong>y become effective.<br />
PAS 19 Amendments, Employee Benefits - Defined Benefit Plans<br />
The amendments focus on <strong>the</strong> following key areas: <strong>the</strong> elimination of <strong>the</strong> option to defer <strong>the</strong><br />
recognition of gains and losses resulting from defined benefit plans (<strong>the</strong> corridor approach); <strong>the</strong><br />
elimination of options <strong>for</strong> <strong>the</strong> presentation of gains and losses relating to those plans; and <strong>the</strong><br />
improvement of disclosure requirements that will better show <strong>the</strong> characteristics of defined benefit<br />
plans and <strong>the</strong> risks arising from those plans. The amendments to <strong>the</strong> recognition, presentation and<br />
disclosure requirements will ensure that <strong>the</strong> financial statements provide investors and o<strong>the</strong>r users<br />
with a clear picture of an entity’s commitments resulting from defined benefit plans. The<br />
amendments to PAS 19 are effective <strong>for</strong> annual periods beginning on or after January 1, 2013.<br />
The Group will assess <strong>the</strong> impact of <strong>the</strong> amendment on its financial position and per<strong>for</strong>mance<br />
when <strong>the</strong>y become effective.<br />
Effective 2014<br />
PAS 32 Amendment, Financial Instruments: Presentation – Offsetting Financial Assets and<br />
Financial Liabilities<br />
The amendment to PAS 32 is effective <strong>for</strong> annual periods beginning on or after January 1, 2014.<br />
This clarifies <strong>the</strong> meaning of “currently has a legally en<strong>for</strong>ceable right to set-off” and <strong>the</strong><br />
application of <strong>the</strong> PAS 32 offsetting criteria to settlement systems (such as central clearing house<br />
systems) which apply gross settlement mechanisms that are not simultaneous.<br />
Effective 2015<br />
PFRS 9, Financial Instruments: Classification and Measurement<br />
The standard is effective <strong>for</strong> annual periods beginning on or after January 1, 2015. It reflects <strong>the</strong><br />
first phase on <strong>the</strong> replacement of PAS 39, Financial Instruments: Recognition and Measurement<br />
and applies to classification and measurement of financial assets and financial liabilities as defined<br />
in PAS 39. The Group will assess <strong>the</strong> impact of <strong>the</strong> amendment on its financial position and<br />
per<strong>for</strong>mance when <strong>the</strong>y become effective.<br />
Philippine Interpretation IFRIC 15, Agreement <strong>for</strong> Construction of Real Estate<br />
This Interpretation, effective <strong>for</strong> annual periods beginning on or after January 1, 2015, covers<br />
accounting <strong>for</strong> revenue and associated expenses by entities that undertake <strong>the</strong> construction of real<br />
estate directly or through subcontractors. The Interpretation requires that revenue on construction<br />
of real estate be recognized only upon completion, except when such contract qualifies as<br />
construction contract to be accounted <strong>for</strong> under PAS 11, Construction Contracts, or involves<br />
rendering of services in which case revenue is recognized based on stage of completion. Contracts<br />
involving provision of services with <strong>the</strong> construction materials and where <strong>the</strong> risks and reward of<br />
ownership are transferred to <strong>the</strong> buyer on a continuous basis will also be accounted <strong>for</strong> based on<br />
stage of completion.<br />
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3. Significant Accounting Judgments and Estimates<br />
The preparation of <strong>the</strong> financial statements in compliance with PFRS requires <strong>the</strong> Group to make<br />
judgments and estimates that affect <strong>the</strong> reported amounts of assets, liabilities, income and<br />
expenses and disclosure of contingent assets and contingent liabilities. Future events may occur<br />
which will cause <strong>the</strong> assumptions used in arriving at <strong>the</strong> estimates to change. The effects of any<br />
change in estimates are reflected in <strong>the</strong> financial statements as <strong>the</strong>y become reasonably<br />
determinable.<br />
Judgments and estimates are continually evaluated and are based on historical experience and<br />
o<strong>the</strong>r factors, including expectations of future events that are believed to be reasonable under <strong>the</strong><br />
circumstances.<br />
Judgments<br />
a. Functional Currency<br />
PAS 21 requires management to use its judgment to determine <strong>the</strong> entity’s functional currency<br />
such that it most faithfully represents <strong>the</strong> economic effects of <strong>the</strong> underlying transactions,<br />
events and conditions that are relevant to <strong>the</strong> entity. In making this judgment, <strong>the</strong> Group<br />
considers <strong>the</strong> following:<br />
• <strong>the</strong> currency that mainly influences sales prices <strong>for</strong> financial instruments and services (this<br />
will often be <strong>the</strong> currency in which sales prices <strong>for</strong> its financial instruments and services<br />
are denominated and settled);<br />
• <strong>the</strong> currency in which funds from financing activities are generated; and<br />
• <strong>the</strong> currency in which receipts from operating activities are usually retained.<br />
Each entity in <strong>the</strong> Group determines its own functional currency being <strong>the</strong> currency that<br />
mainly influences each entity’s revenues and costs and expenses. The functional currency of<br />
<strong>the</strong> Parent Company is <strong>the</strong> Philippine peso, while those of <strong>the</strong> Parent Company’s subsidiaries<br />
are disclosed in Note 1.<br />
b. Fair value of financial instruments<br />
The fair values of financial instruments that are not quoted in active markets are determined<br />
using valuation techniques. The fair values of financial assets and financial liabilities of <strong>the</strong><br />
Group are disclosed in Note 4.<br />
c. Operating leases<br />
Group as lessee<br />
The Group has entered into commercial property leases as a lessee <strong>for</strong> its office premises. The<br />
Group has determined that it has not acquired <strong>the</strong> significant risks and rewards of ownership<br />
of <strong>the</strong> leased properties and so account <strong>for</strong> <strong>the</strong> contracts as operating leases.<br />
Group as lessor<br />
The Group has entered into commercial property leases as lessor. The Group has determined,<br />
based on an evaluation of <strong>the</strong> terms and conditions of <strong>the</strong> arrangements, that it retains all <strong>the</strong><br />
significant risks and rewards of ownership of <strong>the</strong>se properties and accounts <strong>for</strong> <strong>the</strong> contracts as<br />
operating leases.<br />
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d. Discontinued Operations<br />
Management has assessed that <strong>the</strong> Italy operations disposed by IRCGmbH in <strong>2011</strong> constitutes<br />
a disposal group as its business operations and cash flows can be clearly distinguished<br />
operationally (see Note 28).<br />
e. Contingencies<br />
The Group is currently involved in various proceedings. The estimate of <strong>the</strong> probable costs<br />
<strong>for</strong> <strong>the</strong> resolution of <strong>the</strong>se claims has been developed in consultation with outside counsel<br />
handling <strong>the</strong> defense in <strong>the</strong>se matters and is based upon an analysis of potential results. The<br />
Group currently does not believe <strong>the</strong>se proceedings will have a material effect on <strong>the</strong> Group’s<br />
financial position. It is possible, however, that future results of operations could be materially<br />
affected by changes in <strong>the</strong> estimates or in <strong>the</strong> effectiveness of <strong>the</strong> strategies relating to <strong>the</strong>se<br />
proceedings (see Note 29).<br />
f. Determination of whe<strong>the</strong>r <strong>the</strong> Group is acting as a principal or an agent<br />
The Group assesses its revenue arrangements against <strong>the</strong> following criteria to determine<br />
whe<strong>the</strong>r it is acting as a principal or an agent:<br />
• whe<strong>the</strong>r <strong>the</strong> Group has primary responsibility <strong>for</strong> providing <strong>the</strong> goods and services;<br />
• whe<strong>the</strong>r <strong>the</strong> Group has inventory risk;<br />
• whe<strong>the</strong>r <strong>the</strong> Group has discretion in establishing prices; and<br />
• whe<strong>the</strong>r <strong>the</strong> Group bears <strong>the</strong> credit risk.<br />
If <strong>the</strong> Group has determined it is acting as a principal, revenue is recognized on a gross basis<br />
with <strong>the</strong> amount remitted to <strong>the</strong> o<strong>the</strong>r party being accounted <strong>for</strong> as part of costs and expenses.<br />
If <strong>the</strong> Group has determined it is acting as an agent, only <strong>the</strong> net amount retained is recognized<br />
as revenue.<br />
The Group assessed its revenue arrangements and concluded that it is acting as principal in<br />
some arrangements and as an agent in o<strong>the</strong>r arrangements.<br />
g. Going concern<br />
The Group’s management has made an assessment of <strong>the</strong> Group’s ability to continue as a<br />
going concern and is satisfied that <strong>the</strong> Group has <strong>the</strong> resources to continue in business <strong>for</strong> <strong>the</strong><br />
<strong>for</strong>eseeable future. Fur<strong>the</strong>rmore, management is not aware of any material uncertainties that<br />
may cast significant doubt upon <strong>the</strong> Group’s ability to continue as a going concern. There<strong>for</strong>e,<br />
<strong>the</strong> financial statements continue to be prepared on <strong>the</strong> going concern basis.<br />
Estimates<br />
a. Credit losses on receivables<br />
The Group reviews its receivables at each balance sheet date to assess whe<strong>the</strong>r an allowance<br />
<strong>for</strong> credit losses should be recorded in <strong>the</strong> consolidated balance sheet. In particular, judgment<br />
by management is required in <strong>the</strong> estimation of <strong>the</strong> amount and timing of future cash flows<br />
when determining <strong>the</strong> level of allowance required. Such estimates are based on assumptions<br />
about a number of factors such as <strong>the</strong> length of <strong>the</strong> Group’s relationship with counterparties<br />
(e.g., agents and couriers), current credit status, average age of accounts, collection and<br />
historical loss experience. Actual results may differ, resulting in future changes to <strong>the</strong><br />
allowance.<br />
*SGVMC116502*
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As of <strong>December</strong> <strong>31</strong>, <strong>2011</strong>, accounts receivable and o<strong>the</strong>r receivables are carried in <strong>the</strong><br />
consolidated balance sheet at P=0.93 billion and P=0.11 billion, respectively (see Notes 8 and 9).<br />
As of <strong>December</strong> <strong>31</strong>, 2010, accounts receivable and o<strong>the</strong>r receivables are carried in <strong>the</strong><br />
consolidated balance sheet at P=1.06 billion and P=0.08 billion, respectively. The Group has<br />
assessed that <strong>the</strong>re is no need to recognize impairment losses on its receivables as of<br />
<strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010.<br />
b. Impairment of nonfinancial assets<br />
(i) Investments in associates<br />
The Group assesses impairment on its investments in associates whenever events or<br />
changes in circumstances indicate that <strong>the</strong> carrying amount of <strong>the</strong> assets may not be<br />
recoverable. Among o<strong>the</strong>rs, <strong>the</strong> factors that <strong>the</strong> Group considers important, which could<br />
trigger an impairment review on its investments in associates, include <strong>the</strong> following:<br />
• deteriorating or poor financial condition;<br />
• recurring net losses; and<br />
• significant changes with an adverse effect on <strong>the</strong> associate have taken place during <strong>the</strong><br />
period, or will take place in <strong>the</strong> near future, in <strong>the</strong> technological, market, economic, or<br />
legal environment in which <strong>the</strong> associate operates.<br />
(ii) Goodwill<br />
The Group determines whe<strong>the</strong>r goodwill is impaired at least on an annual basis. This<br />
requires an estimation of <strong>the</strong> recoverable amount, which is <strong>the</strong> higher of <strong>the</strong> net selling<br />
price or value in use of <strong>the</strong> CGU to which <strong>the</strong> goodwill is allocated.<br />
The Group’s impairment test <strong>for</strong> goodwill is based on value in use calculations that use a<br />
discounted cash flow model. The cash flows are derived from <strong>the</strong> budget <strong>for</strong> <strong>the</strong> next five<br />
<strong>year</strong>s and do not include restructuring activities that <strong>the</strong> Group is not yet committed to or<br />
significant future investments that will enhance <strong>the</strong> asset base of <strong>the</strong> CGU being tested.<br />
The recoverable amount is most sensitive to <strong>the</strong> discount rate used <strong>for</strong> <strong>the</strong> discounted cash<br />
flow model as well as <strong>the</strong> expected future cash-inflows and <strong>the</strong> growth rate used <strong>for</strong><br />
extrapolation purposes.<br />
(iii) Property and equipment and software costs<br />
The Group assesses impairment on property and equipment and software costs whenever<br />
events or changes in circumstances indicate that <strong>the</strong> carrying amount of <strong>the</strong> asset may not<br />
be recoverable. The factors that <strong>the</strong> Group considers important, which could trigger an<br />
impairment review, include <strong>the</strong> following:<br />
• significant underper<strong>for</strong>mance relative to expected historical or projected future<br />
operating results;<br />
• significant changes in <strong>the</strong> manner of use of <strong>the</strong> acquired assets or <strong>the</strong> strategy <strong>for</strong><br />
overall business; and<br />
• significant negative industry or economic trends.<br />
The Group recognizes an impairment loss whenever <strong>the</strong> carrying amount of <strong>the</strong> asset<br />
exceeds its recoverable amount. The recoverable amount is determined based on <strong>the</strong><br />
asset’s value in use computation, which considers <strong>the</strong> present value of estimated future<br />
cash flows expected to be generated from <strong>the</strong> continued use of <strong>the</strong> asset.<br />
*SGVMC116502*
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As of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010, no impairment losses were recognized on <strong>the</strong> Group’s<br />
nonfinancial assets, including goodwill. The carrying values of <strong>the</strong> Group’s nonfinancial<br />
assets follow:<br />
<strong>2011</strong> 2010<br />
Investments in associates (Note 11) P=23,064,091 P=20,932,236<br />
Property and equipment - net (Note 12) 19,207,458 27,013,308<br />
Goodwill (Note 13) 92,655,340 93,092,118<br />
Software costs - net (Note 14) 1,450,944 2,081,746<br />
c. Estimated useful lives of property and equipment and software costs<br />
The Group reviews <strong>the</strong> estimated useful lives of property and equipment and software costs<br />
annually based on <strong>the</strong> expected asset utilization after considering <strong>the</strong> expected future<br />
technological developments and market behavior. Significant changes in <strong>the</strong>se estimates<br />
resulting from changes in <strong>the</strong> factors a<strong>for</strong>ementioned could possibly affect <strong>the</strong> future results of<br />
operations. Any decrease in <strong>the</strong> estimated useful life of <strong>the</strong> property and equipment and<br />
software costs would decrease <strong>the</strong>ir respective balances and increase <strong>the</strong> recorded depreciation<br />
and amortization (see Note 2).<br />
As of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010, <strong>the</strong> carrying values of Property and equipment and<br />
Software costs follow:<br />
<strong>2011</strong> 2010<br />
Property and equipment (Note 12) P=19,207,458 P=27,013,308<br />
Software costs (Note 14) 1,450,944 2,081,746<br />
In <strong>2011</strong>, 2010 and 2009, <strong>the</strong> Group recognized depreciation and amortization in <strong>the</strong><br />
consolidated statements of income amounting to P=13.27 million, P=14.07 million and<br />
P=14.22 million, respectively.<br />
d. Recognition of deferred tax assets<br />
The Group reviews <strong>the</strong> carrying amounts of deferred tax assets at each balance sheet date and<br />
reduces it to <strong>the</strong> extent that it is no longer probable that sufficient taxable income will be<br />
available to allow all or part of <strong>the</strong> deferred tax assets to be utilized. Significant judgment is<br />
required to determine <strong>the</strong> amount of deferred tax assets that can be recognized, based upon <strong>the</strong><br />
likely timing and level of future taxable income toge<strong>the</strong>r with future tax planning strategies.<br />
As of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010, <strong>the</strong> Group’s recognized deferred tax assets amounted to<br />
P=4.98 million and P=4.23 million, respectively. As of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010, <strong>the</strong><br />
Group’s recognized deferred tax liabilities amounted to P=<strong>31</strong>,969 and P=29,765, respectively.<br />
As of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010, <strong>the</strong> Parent Company did not recognize net deferred tax<br />
assets on existing deductible temporary differences amounting to P=2.80 million and<br />
P=2.85 million, respectively. Management believes that it is not highly probable that <strong>the</strong>se<br />
temporary differences will be realized in <strong>the</strong> future (see Note 25).<br />
e. Present value of net retirement obligation<br />
The cost of defined benefit retirement plan and o<strong>the</strong>r post employment benefits are determined<br />
using actuarial valuations. The actuarial valuation involves making assumptions about<br />
discount rates, expected rates of return on assets, future salary increases, mortality rates and<br />
future retirement increases. Due to <strong>the</strong> long-term nature of <strong>the</strong>se benefits, such estimates are<br />
subject to significant uncertainty.<br />
*SGVMC116502*
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The assumed discount rates were determined using <strong>the</strong> market yields on Philippine<br />
government bonds with terms consistent with <strong>the</strong> expected employee benefit payout as of <strong>the</strong><br />
consolidated balance sheet date. Refer to Note 18 <strong>for</strong> <strong>the</strong> details of assumptions used in <strong>the</strong><br />
calculation. As of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010, <strong>the</strong> Group recognized retirement asset of<br />
P=0.37 million and retirement liability of P=0.78 million, respectively. In <strong>2011</strong>, 2010 and 2009,<br />
<strong>the</strong> Group recognized retirement expense amounting to P=5.75 million, P=2.38 million and<br />
P=3.02 million, respectively (see Note 18).<br />
f. Share-based payment transactions<br />
The Group determined <strong>the</strong> cost of its equity-settled share based program at grant date using<br />
<strong>the</strong> price earnings multiple model taking into account <strong>the</strong> terms and conditions upon which <strong>the</strong><br />
shares were granted. At <strong>year</strong>end, <strong>the</strong> Group estimates <strong>the</strong> number of equity instruments that<br />
will ultimately vest. The Group recognized cost of equity-settled share based payments<br />
amounting to P=1.53 million in 2009 (see Note 19). The vesting period of <strong>the</strong> stock purchase<br />
program <strong>ended</strong> on September 19, 2009.<br />
4. Fair Value Measurement<br />
The following tables summarize <strong>the</strong> carrying amounts and fair values of <strong>the</strong> Group’s financial<br />
assets and financial liabilities:<br />
<strong>2011</strong> 2010<br />
Carrying Value Fair Value Carrying Value Fair Value<br />
Financial Assets<br />
Financial assets at FVPL<br />
Debt securities P=112,624,807 P=112,624,807 P=102,905,294 P=102,905,294<br />
Equity securities<br />
Loans and receivables:<br />
Cash and cash equivalents<br />
12,601,457 12,601,457 – –<br />
Cash on hand 47,998,476 47,998,476 52,322,332 52,322,332<br />
Cash in banks 806,000,555 806,000,555 821,<strong>31</strong>5,584 821,<strong>31</strong>5,584<br />
Short-term deposits<br />
Accounts receivable<br />
37,236,592 37,236,592 10,180,0<strong>31</strong> 10,180,0<strong>31</strong><br />
Agents 930,022,937 930,022,937 1,025,016,072 1,025,016,072<br />
Couriers<br />
O<strong>the</strong>r receivables<br />
3,523,052 3,523,052 34,283,201 34,283,201<br />
Nontrade receivable 72,432,683 72,432,683 – –<br />
Related parties 25,020,726 25,020,726 26,992,977 26,992,977<br />
Officers and employees 9,514,306 9,514,306 9,686,457 9,686,457<br />
Interest receivable 3,624,850 3,624,850 3,512,291 3,512,291<br />
Noncontrolling shareholders – – 39,981,243 39,981,243<br />
O<strong>the</strong>rs<br />
O<strong>the</strong>r noncurrent assets:<br />
3,838,695 3,838,695 3,267,906 3,267,906<br />
Refundable deposits <strong>17</strong>,291,585 <strong>17</strong>,018,242 14,099,442 12,755,091<br />
Total<br />
O<strong>the</strong>r Financial Liabilities<br />
Beneficiaries and o<strong>the</strong>r payables:<br />
P=2,081,730,721 P=2,081,457,378 P=2,143,562,830 P=2,142,218,479<br />
Beneficiaries P=155,140,304 P=155,140,304 P=144,960,550 P=144,960,550<br />
Agents, couriers and trading clients 65,550,071 65,550,071 44,773,236 44,773,236<br />
Accrued expenses 14,801,411 14,801,411 2,701,805 2,701,805<br />
Payable to suppliers 1,391,836 1,391,836 2,958,634 2,958,634<br />
Advances from related parties – – 1,4<strong>31</strong>,156 1,4<strong>31</strong>,156<br />
O<strong>the</strong>rs – – 5,165 5,165<br />
Interest-bearing loans 666,000,000 666,000,000 877,000,000 877,000,000<br />
Total P=902,883,622 P=902,883,622 P=1,073,830,546 P=1,073,830,546<br />
*SGVMC116502*
- 27 -<br />
The following methods and assumptions were used to estimate <strong>the</strong> fair value of <strong>the</strong> financial<br />
instruments:<br />
Cash and cash equivalents, Account receivables, O<strong>the</strong>r receivables, Beneficiaries and o<strong>the</strong>r<br />
payables and Interest-bearing loans - carrying amounts approximate fair values due to <strong>the</strong><br />
relatively short-term maturities of <strong>the</strong>se instruments.<br />
Financial assets at FVPL - fair values are based on quoted market prices.<br />
Refundable deposits - fair values are based on <strong>the</strong> present value of future cash flows discounted<br />
using prevailing interest rates ranging from 2.71% to 8.00% and 4.05% to 10.19% as at<br />
<strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010, respectively.<br />
Fair Value Hierarchy<br />
The Group uses <strong>the</strong> following hierarchy <strong>for</strong> determining and disclosing <strong>the</strong> fair value of financial<br />
instruments by valuation technique:<br />
Level 1: quoted prices in active markets <strong>for</strong> identical assets or liabilities;<br />
Level 2: inputs o<strong>the</strong>r than quoted prices included in Level 1 that are observable <strong>for</strong> <strong>the</strong> asset or<br />
liability, ei<strong>the</strong>r directly (as prices) or indirectly (derived from prices); and<br />
Level 3: inputs that are not based on observable market data or unobservable inputs.<br />
As of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010, <strong>the</strong> financial instruments carried at fair value only pertains to<br />
<strong>the</strong> Group’s financial assets at FVPL, which consist of investments in debt and equity securities<br />
(see Note 7). The fair values of <strong>the</strong>se debt and equity securities are based on quoted prices<br />
(Level 1). There were no transfers between Level 1 and Level 2 fair value measurements, and no<br />
transfers into and out of Level 3 fair value measurement in <strong>2011</strong> and 2010.<br />
5. Financial Risk Management Objectives and Policies<br />
The Group’s principal financial instruments mainly comprise of short-term loans from banks. The<br />
main purpose of <strong>the</strong>se financial instruments is to raise funds <strong>for</strong> <strong>the</strong> Group’s fulfillment or delivery<br />
of remittance transactions to beneficiaries. The Group also has various o<strong>the</strong>r financial assets and<br />
liabilities such as cash and cash equivalents, accounts receivables, and accounts payable to<br />
beneficiaries, which arise directly from its remittance operations.<br />
The main risks arising from <strong>the</strong> Group’s financial instruments are credit risk, <strong>for</strong>eign currency<br />
risk, cash flow interest rate risk, fair value interest rate risk and liquidity risk. The BOD reviews<br />
and approves policies <strong>for</strong> managing each of <strong>the</strong>se risks and <strong>the</strong>se are summarized below:<br />
Credit Risk<br />
Credit risk is <strong>the</strong> risk of loss resulting from <strong>the</strong> failure of a borrower or counterparty to per<strong>for</strong>m its<br />
obligations during <strong>the</strong> life of <strong>the</strong> transaction. This includes risk of non-payment by borrowers or<br />
issuers, failed settlement of transactions and default on contracts.<br />
The nature of its business exposes <strong>the</strong> Group to potential risk from difficulties in recovering<br />
transaction money from <strong>for</strong>eign partners. Receivables from agents arise as a result of its<br />
remittance operations in various regions of <strong>the</strong> globe. In order to address this, <strong>the</strong> Group has<br />
maintained <strong>the</strong> following credit policies: (a) implement a contract that incorporates a bond and<br />
advance payment cover such that <strong>the</strong> full amount of <strong>the</strong> transaction will be credited to <strong>the</strong> Group<br />
*SGVMC116502*
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prior to <strong>the</strong>ir delivery to <strong>the</strong> beneficiaries, which applies generally to all new agents of <strong>the</strong> Group<br />
and in certain cases to old agents; (b) all <strong>for</strong>eign offices and agents must settle <strong>the</strong>ir accounts<br />
within <strong>the</strong> agreed credit terms, o<strong>the</strong>rwise, <strong>the</strong> fulfillment or delivery of <strong>the</strong>ir remittance<br />
transactions will be put on hold; (c) evaluation of individual potential partners and preferred<br />
associates’ creditworthiness, as well as a close look into <strong>the</strong> o<strong>the</strong>r pertinent aspects of <strong>the</strong>ir<br />
partners’ businesses which assures <strong>the</strong> Group of <strong>the</strong> financial soundness of <strong>the</strong>ir partner firms; and<br />
(d) receivable balances are monitored daily by <strong>the</strong> regional managers with <strong>the</strong> result that <strong>the</strong><br />
Group’s exposure to bad debts is not significant.<br />
Receivables from agents and couriers are highly collectible and have a turnover ranging from 1 to<br />
5 days and 30 to 60 days, respectively. O<strong>the</strong>r receivables, which include advances to related<br />
parties, are also highly collectible and are due in less than one <strong>year</strong>.<br />
The table below shows <strong>the</strong> maximum credit exposure of <strong>the</strong> Group per account classification as of<br />
<strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010 (see Notes 6, 7, 8, 9 and 14):<br />
<strong>2011</strong> 2010<br />
Financial assets at FVPL P=125,226,264 P=102,905,294<br />
Loans and receivables:<br />
Cash and cash equivalents* 843,237,147 8<strong>31</strong>,495,615<br />
Accounts receivable 933,545,989 1,059,299,273<br />
O<strong>the</strong>r receivables<br />
Nontrade receivable 72,432,683 −<br />
Related parties 25,020,726 26,992,977<br />
Officers and employees 9,514,306 9,686,457<br />
Interest receivable 3,624,850 3,512,291<br />
Noncontrolling shareholders – 39,981,243<br />
O<strong>the</strong>rs 3,838,695 3,267,906<br />
O<strong>the</strong>r noncurrent assets<br />
Refundable deposits <strong>17</strong>,291,585 14,099,442<br />
P=2,033,732,245 P=2,091,240,498<br />
* excludes cash on hand<br />
Maximum exposure <strong>for</strong> financial instruments recorded at fair value as shown above represent <strong>the</strong><br />
risk exposure as of respective balance sheet dates but not <strong>the</strong> maximum risk exposure that could<br />
arise in <strong>the</strong> future as a result of changes in value.<br />
The table below shows <strong>the</strong> maximum credit exposure of <strong>the</strong> Group per geographical classification<br />
as of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010:<br />
<strong>2011</strong> 2010<br />
Asia Pacific P=1,742,418,296 P=1,869,788,619<br />
Middle East 108,885,265 106,023,556<br />
North America 74,982,548 58,180,050<br />
Europe 107,446,136 57,248,273<br />
Total P=2,033,732,245 P=2,091,240,498<br />
The Group classifies its nei<strong>the</strong>r past due nor impaired receivables as high grade. High grade<br />
financial assets includes instruments with credit ratings of excellent, strong, good, or satisfactory,<br />
wherein <strong>the</strong> borrower has a low probability of default and could withstand <strong>the</strong> normal business<br />
cycle. Financial assets at FVPL are also assessed as high grade since <strong>the</strong>se are issued by reputable<br />
companies.<br />
*SGVMC116502*
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As at <strong>December</strong> <strong>31</strong>, <strong>2011</strong>, <strong>the</strong> Group has past due but not impaired receivables from agents<br />
amounting to P=8.77 million. These receivables have been outstanding <strong>for</strong> more than six months<br />
but less than one <strong>year</strong>. No impairment was recognized relative to <strong>the</strong>se receivables. There are no<br />
past due but not impaired receivables as of <strong>December</strong> <strong>31</strong>, 2010.<br />
Foreign Currency Risk<br />
Foreign currency risk is <strong>the</strong> risk to earnings or capital arising from changes in <strong>for</strong>eign exchange<br />
rates. It is <strong>the</strong> Group’s policy that all daily <strong>for</strong>eign currencies, which arise as a result of its<br />
remittance transactions, must be traded daily with bank partners only at prevailing <strong>for</strong>eign<br />
exchange rates in <strong>the</strong> market. The daily closing <strong>for</strong>eign exchange rates shall be <strong>the</strong> guiding rate in<br />
providing wholesale rates and retail rates to <strong>for</strong>eign offices and agents, respectively. The trading<br />
proceeds will be used to pay out bank loans and o<strong>the</strong>r obligations of <strong>the</strong> Group.<br />
The tables below summarize <strong>the</strong> Group’s exposure to <strong>for</strong>eign exchange risk. Included in <strong>the</strong> tables<br />
are <strong>the</strong> Group’s <strong>for</strong>eign currency-denominated monetary assets and liabilities as of<br />
<strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010, and <strong>the</strong>ir PHP equivalent.<br />
<strong>2011</strong><br />
Cash and Cash<br />
PHP<br />
Currency<br />
Equivalents Receivables Payables Total Equivalent<br />
CAD 1,774,<strong>31</strong>7 2,993,761 (52,132) 4,715,946 P=201,888,510<br />
EUR 1,079,751 370,790 (58,203) 1,392,338 78,985,839<br />
HKD 12,632,975 10,000 (106,006) 12,536,969 70,680,963<br />
SGD 440,811 1,628,629 – 2,069,440 69,903,060<br />
AUD 792,392 765,809 (45,767) 1,512,434 66,901,848<br />
USD 1,263,619 246,093 – 1,509,712 66,185,751<br />
GBP 166,587 851,560 (23,301) 994,846 67,396,873<br />
NTD – 20,248,641 – 20,248,641 29,205,344<br />
NZD 128,013 268,978 (5,630) 391,361 13,192,205<br />
QAR 275 – – 275 3,<strong>31</strong>1<br />
Net exposure P=664,343,704<br />
2010<br />
Cash and Cash<br />
PHP<br />
Currency<br />
Equivalents Receivables Payables Total Equivalent<br />
CAD 1,109,576 2,765,810 (121,524) 3,753,862 P=164,519,939<br />
EUR 1,303,292 360,688 (96,888) 1,567,092 90,850,6<strong>17</strong><br />
HKD 5,410,983 14,370,305 (154,859) 19,626,429 110,564,<strong>31</strong>0<br />
SGD 89,587 1,254,112 – 1,343,699 45,565,156<br />
AUD 470,898 718,244 (14,991) 1,<strong>17</strong>4,151 52,360,146<br />
USD 1,026,855 901,651 – 1,928,506 84,545,703<br />
GBP 153,415 570 (25,738) 128,247 8,715,202<br />
NTD – 23,7<strong>31</strong>,378 – 23,7<strong>31</strong>,378 35,581,120<br />
NZD 128,277 105,825 (5,412) 228,690 7,659,688<br />
QAR 275 – – 275 3,<strong>31</strong>2<br />
Net exposure P=600,365,193<br />
*SGVMC116502*
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The following tables set <strong>for</strong>th <strong>for</strong> <strong>the</strong> <strong>year</strong> indicated <strong>the</strong> impact of reasonably possible changes in<br />
<strong>the</strong> rates of o<strong>the</strong>r currencies on pretax income.<br />
<strong>2011</strong><br />
Change in<br />
Change in<br />
nominal<br />
nominal<br />
<strong>for</strong>eign currency Effect on <strong>for</strong>eign currency Effect on<br />
Currency<br />
exchange rate pretax income exchange rate pretax income<br />
CAD +2.81 P= 10,959,401 -1.60 (P= 6,238,760)<br />
EUR +7.36 9,585,8<strong>17</strong> -0.25 (324,205)<br />
SGD +1.95 4,038,058 -0.66 (1,363,182)<br />
AUD +2.95 3,715,845 -2.94 (3,714,735)<br />
GBP +4.40 3,573,796 -1.06 (856,884)<br />
NTD +0.10 1,985,663 -0.12 (2,434,616)<br />
USD +0.91 1,373,837 -1.94 (2,928,840))<br />
NZD +3.50 1,099,962 -2.44 (766,071)<br />
HKD +0.11 169,062 -0.26 (399,9<strong>17</strong>)<br />
QAR +0.24 66 -0.53 (147)<br />
2010<br />
Change in<br />
Change in<br />
nominal<br />
nominal<br />
<strong>for</strong>eign currency Effect on <strong>for</strong>eign currency Effect on<br />
Currency<br />
exchange rate pretax income exchange rate pretax income<br />
CAD +1.75 P=6,041,607 -2.09 (P=7,215,405)<br />
EUR +8.87 7,430,736 -3.04 (2,546,724)<br />
SGD +0.32 429,984 -1.87 (2,512,7<strong>17</strong>)<br />
AUD +0.13 125,764 -7.05 (6,820,290)<br />
GBP +8.01 118,164 -3.57 (52,665)<br />
NTD +0.01 237,<strong>31</strong>4 -0.12 (2,847,765)<br />
USD +3.55 6,846,196 -1.61 (3,104,895)<br />
NZD +1.03 226,486 -3.09 (679,457)<br />
HKD +0.41 637,042 -0.08 (124,301)<br />
QAR +1.73 476 -4.08 (1,122)<br />
Translation Risk<br />
The Group’s consolidated statement of financial position is exposed to <strong>for</strong>eign exchange<br />
fluctuations as <strong>the</strong>se affect <strong>the</strong> translation of subsidiaries’ net assets and income and expenses<br />
denominated in <strong>for</strong>eign currencies. The following tables set <strong>for</strong>th <strong>for</strong> <strong>the</strong> <strong>year</strong> indicated <strong>the</strong> impact<br />
of reasonably possible changes in <strong>the</strong> rates of o<strong>the</strong>r currencies on equity.<br />
Change in nominal<br />
<strong>for</strong>eign currency<br />
<strong>2011</strong><br />
Change in nominal<br />
<strong>for</strong>eign currency<br />
Effect on<br />
Effect on<br />
Currency<br />
exchange rate<br />
equity exchange rate<br />
equity<br />
HKD +0.11 P=5,233,309 -0.26 (P=12,369,640)<br />
CAD +2.81 2,386,352 -1.60 (1,358,777)<br />
EUR +7.36 1,578,924 -0.25 (53,632)<br />
NZD +3.50 (955,612) -2.44 666,198<br />
AUD +2.95 600,471 -2.94 (598,435)<br />
GBP +4.40 (12,964) -1.06 3,123<br />
*SGVMC116502*
- <strong>31</strong> -<br />
Change in nominal<br />
2010<br />
Change in nominal<br />
<strong>for</strong>eign currency<br />
Effect on <strong>for</strong>eign currency<br />
Effect on<br />
Currency<br />
exchange rate<br />
equity exchange rate<br />
equity<br />
HKD +0.41 P=14,638,271 -0.08 (P=2,856,248)<br />
CAD +1.75 855,520 -2.09 (1,021,735)<br />
EUR +8.87 (299,049) -3.04 102,493<br />
NZD +1.03 (189,295) -3.09 567,885<br />
AUD +0.13 25,632 -7.05 (738,995)<br />
GBP +8.01 355,672 -3.57 (158,520)<br />
Cash Flow Interest Rate Risk<br />
Interest rate risk arises from <strong>the</strong> possibility that changes in interest rates will affect future cash<br />
flows of financial instruments.<br />
As of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010, <strong>the</strong> Group’s exposure to cash flow interest rate risk is<br />
minimal. The Group’s policy is to manage its interest cost by entering only into fixed rate shortterm<br />
loans from banks.<br />
Fair Value Interest Rate Risk<br />
Fair value interest rate risk is <strong>the</strong> risk that <strong>the</strong> fair value of a financial instrument will fluctuate due<br />
to changes in market interest rates.<br />
The Group accounts <strong>for</strong> its debt investments at fair value. Thus, changes in <strong>the</strong> benchmark interest<br />
rate will cause changes in <strong>the</strong> fair value of quoted debt instruments.<br />
The following table demonstrates <strong>the</strong> sensitivity to a reasonably possible change in interest rates,<br />
with all o<strong>the</strong>r variables held constant, of <strong>the</strong> Group’s profit be<strong>for</strong>e tax as of <strong>December</strong> <strong>31</strong>, <strong>2011</strong><br />
and 2010. There is no impact on <strong>the</strong> Group’s equity o<strong>the</strong>r than those already affecting <strong>the</strong> profit or<br />
loss.<br />
<strong>2011</strong> 2010<br />
Increase in Sensitivity of Increase in Sensitivity of<br />
basis points trading gains basis points trading gains<br />
USD Interest Rate +50bps (2,016,773) +50bps (1,495,140)<br />
USD Interest Rate -50bps 2,099,428 -50bps 1,226,880<br />
Equity Price Risk<br />
Equity price risk is <strong>the</strong> risk to earnings or capital arising from changes in stock exchange indices<br />
relating to its quoted equity securities. The Group’s exposure to equity price risk relates primarily<br />
to its investments in equity securities.<br />
The Group’s policy is to maintain <strong>the</strong> risk to an acceptable level. Movement of share price is<br />
monitored regularly to determine impact on its consolidated balance sheet.<br />
Based on <strong>the</strong> historical movement of <strong>the</strong> stock exchange index, management’s assessment of<br />
reasonable possible change was determined to be an increase (decrease) of 5.00% in <strong>2011</strong>,<br />
resulting to a possible effect of increase (decrease) of P=0.63 million in <strong>the</strong> <strong>2011</strong>consolidated<br />
statement of income.<br />
Liquidity Risk<br />
Liquidity or funding risk is <strong>the</strong> risk that an entity will encounter difficulty in raising funds to meet<br />
commitments associated with financial instruments.<br />
*SGVMC116502*
- 32 -<br />
The Group’s objective is to maintain a balance between continuity of funding and flexibility<br />
through <strong>the</strong> use of short-term debts. In addition, <strong>the</strong> Group maintains credit facilities with local<br />
banks. As of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010, <strong>the</strong> Parent Company has unused credit facilities<br />
amounting to P=1.48 billion and P=1.02 billion, respectively (see Note 16).<br />
Financial assets<br />
Maturity profile of financial assets held <strong>for</strong> liquidity purposes is shown below. Analysis of debt<br />
securities at FVPL into maturity groupings is based on <strong>the</strong> expected date on which <strong>the</strong>se assets<br />
will be realized. For o<strong>the</strong>r assets, <strong>the</strong> analysis is based on <strong>the</strong> remaining period from <strong>the</strong> end of <strong>the</strong><br />
reporting period to <strong>the</strong> contractual maturity date, or if earlier, <strong>the</strong> expected date <strong>the</strong> assets will be<br />
realized.<br />
Financial liabilities<br />
The maturity grouping is based on <strong>the</strong> remaining period from <strong>the</strong> end of <strong>the</strong> reporting period to <strong>the</strong><br />
contractual maturity date. When a counterparty has a choice of when <strong>the</strong> amount is paid, <strong>the</strong><br />
liability is allocated to <strong>the</strong> earliest period in which <strong>the</strong> Group can be required to pay.<br />
The tables below summarize <strong>the</strong> maturity profile of <strong>the</strong> Group’s financial instruments based on<br />
undiscounted contractual payments.<br />
<strong>2011</strong><br />
Less than 5 days 5 to 30 days 30 to 60 days<br />
Over 60 days<br />
but less than<br />
one <strong>year</strong> Total<br />
Financial assets<br />
Cash and cash equivalents<br />
Financial assets at fair value through<br />
P=853,999,0<strong>31</strong> P=37,236,592 P=– P=– P=891,235,623<br />
profit or loss – – 125,226,264<br />
– 125,226,264<br />
Accounts receivable 921,249,158 – 3,523,052 8,773,779 933,545,989<br />
P=1,775,248,189 P=37,236,592 P=128,749,<strong>31</strong>6 P=8,773,779 P=1,950,007,876<br />
Financial liabilities<br />
Beneficiaries and o<strong>the</strong>r payables:<br />
Beneficiaries P=155,140,304 P=– P=– P=– P=155,140,304<br />
Agents, couriers and trading clients 65,550,071 – – – 65,550,071<br />
Accrued expenses – – 14,801,411 – 14,801,411<br />
Advances from related parties – – – – –<br />
Payable to suppliers – – 1,391,836 – 1,391,836<br />
O<strong>the</strong>rs – – − – −<br />
Interest-bearing loans 95,050,139 571,866,010 – – 666,916,149<br />
P=<strong>31</strong>5,740,514 P=571,866,010 P=16,193,247 P=– P=903,799,771<br />
2010<br />
Less than 5 days 5 to 30 days 30 to 60 days<br />
Over 60 days<br />
but less than<br />
one <strong>year</strong> Total<br />
Financial assets<br />
Cash and cash equivalents<br />
Financial assets at fair value through<br />
P=873,637,916 P=10,180,0<strong>31</strong> P=– P=– P=883,8<strong>17</strong>,947<br />
profit or loss – – 102,905,294<br />
– 102,905,294<br />
Accounts receivable 1,025,016,072 – 34,283,201 – 1,059,299,273<br />
P=1,898,653,988 P=10,180,0<strong>31</strong> P=137,188,495 P=– P=2,046,022,514<br />
Financial liabilities<br />
Beneficiaries and o<strong>the</strong>r payables:<br />
Beneficiaries P=144,960,550 P=– P=– P=– P=144,960,550<br />
Agents, couriers and trading clients 44,773,236 – – – 44,773,236<br />
Payable to suppliers – – 2,958,634 – 2,958,634<br />
Accrued expenses – – 2,701,805 – 2,701,805<br />
Advances from related parties – – 1,4<strong>31</strong>,156 – 1,4<strong>31</strong>,156<br />
O<strong>the</strong>rs – – 5,165 – 5,165<br />
Interest-bearing loans 395,273,055 483,077,528 – – 878,350,583<br />
P=585,006,841 P=483,077,528 P=7,096,760 P=– P=1,075,181,129<br />
*SGVMC116502*
6. Cash and Cash Equivalents<br />
This account consists of:<br />
- 33 -<br />
<strong>2011</strong> 2010<br />
Cash on hand P=47,998,476 P=52,322,332<br />
Cash in banks (Note 24) 806,000,555 821,<strong>31</strong>5,584<br />
Short-term deposits 37,236,592 10,180,0<strong>31</strong><br />
P=891,235,623 P=883,8<strong>17</strong>,947<br />
Cash in banks earn interest at <strong>the</strong> respective bank deposit rates. Short-term deposits are made <strong>for</strong><br />
varying periods of up to three months and earn interest at <strong>the</strong> respective short-term deposit rates.<br />
In <strong>2011</strong>, 2010 and 2009, interest income amounted to P=3.14 million, P=3.47 million and<br />
P=7.90 million, respectively.<br />
The Group’s cash and cash equivalents denominated in <strong>for</strong>eign currency, with corresponding<br />
Philippine peso (PHP) equivalent, are as follows:<br />
<strong>December</strong> <strong>31</strong>, <strong>2011</strong> <strong>December</strong> <strong>31</strong>, 2010<br />
Amount PHP equivalent Amount PHP equivalent<br />
CAD 1,774,<strong>31</strong>7 P=75,958,092 1,109,576 P=48,629,219<br />
HKD 12,609,757 71,222,227 5,410,983 30,482,448<br />
EUR 1,079,751 61,253,141 1,303,292 75,557,071<br />
USD 1,263,619 55,397,074 1,026,855 45,0<strong>17</strong>,323<br />
AUD 792,392 35,051,104 470,898 20,999,248<br />
SGD 440,811 14,890,037 89,587 3,037,9<strong>17</strong><br />
GBP 166,587 11,285,606 153,415 10,425,529<br />
NZD 128,013 4,<strong>31</strong>5,137 128,277 4,296,479<br />
QAR 275 3,<strong>31</strong>1 275 3,<strong>31</strong>2<br />
P=329,375,729 P=238,448,546<br />
Cash in banks earn interest rates in <strong>2011</strong>, 2010 and 2009 ranging as follows <strong>for</strong>:<br />
PHP-Denominated 0.50% to 2.00%<br />
Foreign Currency-Denominated 0.25% to 0.50%<br />
7. Financial Assets at Fair Value Through Profit or Loss<br />
This account consists of:<br />
<strong>2011</strong> 2010<br />
Debt securities P=112,624,807 P=102,905,294<br />
Equity securities 12,601,457 –<br />
P=125,226,264 P=102,905,294<br />
Debt securities are bonds issued by various <strong>for</strong>eign private corporations and <strong>for</strong>eign government<br />
and are listed overseas. As of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010, <strong>the</strong> carrying amount includes net<br />
unrealized gain of P=0.01 million and P=0.57 million, respectively. Interest income earned in <strong>2011</strong>,<br />
2010 and 2009 amounted to P=10.72 million, P=9.04 million and P=7.28 million, respectively.<br />
*SGVMC116502*
- 34 -<br />
Equity securities are common shares of various <strong>for</strong>eign corporations. As of <strong>December</strong> <strong>31</strong>, <strong>2011</strong>,<br />
<strong>the</strong> carrying amount includes net unrealized loss of P=3.37 million.<br />
Gains and losses from fair value changes of financial assets at FVPL are included in ‘Net trading<br />
gains’ in <strong>the</strong> consolidated statements of income.<br />
8. Accounts Receivable<br />
This account consists of receivables from:<br />
<strong>2011</strong> 2010<br />
Agents P=930,022,937 P=1,025,016,072<br />
Couriers 3,523,052 34,283,201<br />
P=933,545,989 P=1,059,299,273<br />
Receivables from agents pertain to advances made to fund <strong>the</strong> remittance transactions to<br />
beneficiaries. These are settled within 1 to 5 days from transaction date.<br />
Receivables from couriers pertain to advances made to <strong>the</strong> courier companies to ease up <strong>the</strong> doorto-door<br />
delivery of <strong>the</strong> remittances to <strong>the</strong> beneficiaries. These are settled within 30 to 60 days<br />
from transaction date.<br />
9. O<strong>the</strong>r Receivables<br />
O<strong>the</strong>r receivables consist of:<br />
<strong>2011</strong> 2010<br />
Nontrade receivable P=72,432,683 P=–<br />
Related parties (Note 24) 25,020,726 26,992,977<br />
Officers and employees 9,514,306 9,686,457<br />
Interest receivable 3,624,850 3,512,291<br />
Noncontrolling shareholders – 39,981,243<br />
O<strong>the</strong>rs 3,838,694 3,267,906<br />
P=114,4<strong>31</strong>,259 P=83,440,874<br />
Nontrade receivable pertains to <strong>the</strong> receivable from <strong>the</strong> sale of various assets of IRCGmbH related<br />
to <strong>the</strong> discontinued operations in Italy (see Note 28). The receivable was subsequently collected in<br />
March 2012.<br />
The amounts due from noncontrolling shareholders pertain to <strong>the</strong> noncontrolling shareholders of<br />
IRCGmbH and WEPL. In <strong>2011</strong>, <strong>the</strong> Parent Company acquired additional interest in IRCGmbH<br />
and WEPL and <strong>the</strong> receivables amounting to P=12.30 million and P=25.01 million, respectively,<br />
were applied against <strong>the</strong> acquisition costs (see Note 1). The remaining balance of P=2.67 million,<br />
was subsequently collected in July <strong>2011</strong>.<br />
Advances to officers and employees are non-interest bearing and are due on demand.<br />
*SGVMC116502*
10. O<strong>the</strong>r Current Assets<br />
This account consists of:<br />
- 35 -<br />
<strong>2011</strong> 2010<br />
Receivable from Bureau of Internal Revenue (BIR) P=13,160,535 P=13,160,535<br />
Prepaid expenses 9,907,410 14,882,159<br />
Visa cards inventory 3,371,662 8,054,220<br />
Advances to suppliers and contractors 1,087,500 50,000<br />
Refundable taxes 1,208,422 –<br />
Office supplies 190,328 199,689<br />
Creditable withholding tax 2,979 −<br />
P=28,928,836 P=36,346,603<br />
Receivable from <strong>the</strong> BIR pertains to <strong>the</strong> excess payments made by <strong>the</strong> Parent Company in 2007<br />
<strong>for</strong> <strong>the</strong> Initial Public Offering (IPO) percentage tax. As of <strong>December</strong> <strong>31</strong>, <strong>2011</strong>, <strong>the</strong> case is pending<br />
resolution with <strong>the</strong> Court of Tax Appeals. The Parent Company believes that it will be able to<br />
obtain <strong>the</strong> refund from <strong>the</strong> BIR.<br />
Prepaid expenses include prepayments <strong>for</strong> interest, rent, association dues and insurance.<br />
Refundable taxes pertain to <strong>the</strong> advance income taxes paid by LSML at <strong>the</strong> beginning of <strong>the</strong> <strong>year</strong><br />
based on <strong>the</strong> tax assessment on <strong>the</strong> projected income. In <strong>2011</strong>, LSML operations resulted to a loss<br />
making <strong>the</strong> advance tax payments ei<strong>the</strong>r refundable or applicable to o<strong>the</strong>r tax obligations.<br />
11. Investments in Associates<br />
The Parent Company’s investments in associates consist of <strong>the</strong> following:<br />
<strong>2011</strong> 2010<br />
Acquisition cost:<br />
ISPL P=12,600,000 P=12,600,000<br />
HKHCL 3,573,974 3,573,974<br />
16,<strong>17</strong>3,974 16,<strong>17</strong>3,974<br />
Accumulated equity in net earnings:<br />
Balance at beginning of <strong>year</strong> 4,758,262 2,850,188<br />
Equity in net earnings during <strong>the</strong> <strong>year</strong> 2,1<strong>31</strong>,855 2,504,455<br />
Dividends – (596,381)<br />
Balance at end of <strong>year</strong> 6,890,1<strong>17</strong> 4,758,262<br />
P=23,064,091 P=20,932,236<br />
Acquisition of associates<br />
HKHCL<br />
On July 1, 2009, <strong>the</strong> Parent Company acquired 49.00% ownership interest in HKHCL, <strong>for</strong> a<br />
consideration of NTD2.45 million (P=3.57 million). HKHCL is a remittance business based in<br />
Taiwan.<br />
*SGVMC116502*
- 36 -<br />
ISPL<br />
On June 29, 2007, <strong>the</strong> Parent Company acquired 49.00% ownership interest in ISPL through <strong>the</strong><br />
execution of a deed of assignment by <strong>the</strong> previous stockholders (who are also stockholders of <strong>the</strong><br />
Parent Company) of <strong>the</strong> entity <strong>for</strong> a consideration of P=12.60 million. ISPL is a remittance<br />
business based in Singapore.<br />
The following tables present <strong>the</strong> summarized financial in<strong>for</strong>mation of <strong>the</strong> Parent Company’s<br />
associates as of and <strong>for</strong> <strong>the</strong> <strong>year</strong>s <strong>ended</strong> <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010:<br />
<strong>2011</strong><br />
Balance Sheets Statements of Income<br />
Total Total<br />
Gross<br />
Assets Liabilities Revenue<br />
(In thousands)<br />
Income Net Income<br />
HKHCL P=26,875 P=23,906 P=19,340 P=13,151 P=1,223<br />
ISPL 73,254 49,703 55,924 <strong>31</strong>,894 3,127<br />
P=100,129 P=73,609 P=75,264 P=45,045 P=4,350<br />
2010<br />
Balance Sheets Statements of Income<br />
Total<br />
Gross<br />
Assets Total Liabilities Revenue<br />
(In thousands)<br />
Income Net Income<br />
HKHCL P=24,398 P=22,561 P=21,010 P=14,287 P=359<br />
ISPL 61,209 40,638 56,130 33,198 4,754<br />
P=85,607 P=63,199 P=77,140 P=47,485 P=5,113<br />
2009<br />
Balance Sheets Statements of Income<br />
Total<br />
Gross Net Income<br />
Assets Total Liabilities Revenue<br />
(In thousands)<br />
Income (Loss)<br />
HKHCL P=74,159 P=42,914 P=38,046 P=37,708 P=13,027<br />
ISPL <strong>31</strong>,970 30,572 21,096 14,295 (966)<br />
P=106,129 P=73,486 P=59,142 P=52,003 P=12,061<br />
12. Property and Equipment<br />
The composition of and movements in this account follow:<br />
Office and<br />
Communication<br />
Equipment<br />
Transportation<br />
and Deliver<br />
Equipment<br />
<strong>2011</strong><br />
Furniture<br />
and Fixtures<br />
Leasehold<br />
Improvements Total<br />
Cost<br />
Balance at beginning of <strong>year</strong> P=43,553,651 P=7,002,071 P=10,147,352 P=30,636,325 P=91,339,399<br />
Additions 5,425,325 35,<strong>31</strong>5 473,849 1,<strong>17</strong>5,690 7,110,<strong>17</strong>9<br />
Disposals (2,711,355) – (1,518,214) (1,984,214) (6,213,783)<br />
Exchange adjustments 194,442 1,073 (23,832) (132,<strong>17</strong>8) 39,505<br />
Balance at end of <strong>year</strong> 46,462,063 7,038,459 9,079,155 29,695,623 92,275,300<br />
Accumulated Depreciation and<br />
Amortization<br />
Balance at beginning of <strong>year</strong> 33,075,135 3,046,690 6,497,396 21,706,870 64,326,091<br />
Depreciation and amortization 5,889,913 1,329,460 962,326 3,079,596 11,261,295<br />
Disposals (738,675) – (776,847) (628,335) (2,143,857)<br />
Exchange adjustments (1<strong>31</strong>,<strong>31</strong>7) 74 (16,230) (228,214) (375,687)<br />
Balance at <strong>the</strong> end of <strong>the</strong> <strong>year</strong> 38,095,056 4,376,224 6,666,645 23,929,9<strong>17</strong> 73,067,842<br />
Net Book Value at End of Year 8,367,007 2,662,235 2,412,510 5,765,706 19,207,458<br />
*SGVMC116502*
Office and<br />
Communication<br />
Equipment<br />
- 37 -<br />
Transportation<br />
and Delivery<br />
Equipment<br />
2010<br />
Furniture<br />
and Fixtures<br />
Leasehold<br />
Improvements Total<br />
Cost<br />
Balance at beginning of <strong>year</strong> P=38,536,745 P=6,084,508 P=9,454,682 P=27,086,081 P=81,162,016<br />
Additions 6,135,953 3,116,461 1,074,464 3,712,282 14,039,160<br />
Disposals (195,500) (2,202,818) (91,412) – (2,489,730)<br />
Exchange adjustments (923,547) 3,920 (290,382) (162,038) (1,372,047)<br />
Balance at end of <strong>year</strong> 43,553,651 7,002,071 10,147,352 30,636,325 91,339,399<br />
Accumulated Depreciation and<br />
Amortization<br />
Balance at beginning of <strong>year</strong> 27,932,474 2,422,598 5,391,722 <strong>17</strong>,595,090 53,341,884<br />
Depreciation and amortization 5,770,034 1,330,203 1,255,968 4,188,639 12,544,844<br />
Disposals (88,344) (708,790) (25,900) – (823,034)<br />
Exchange adjustments (539,029) 2,679 (124,394) (76,859) (737,603)<br />
Balance at <strong>the</strong> end of <strong>the</strong> <strong>year</strong> 33,075,135 3,046,690 6,497,396 21,706,870 64,326,091<br />
Net Book Value at End of Year P=10,478,516 P=3,955,381 P=3,649,956 P=8,929,455 P=27,013,308<br />
As of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010, <strong>the</strong> cost of fully depreciated property and equipment still in<br />
use by <strong>the</strong> Group amounted to P=22.64 million and P=18.28 million, respectively.<br />
Details of depreciation and amortization follow:<br />
Consolidated<br />
<strong>2011</strong> 2010 2009<br />
Property and equipment - net P=11,261,295 P=12,544,844 P=12,554,5<strong>31</strong><br />
Software costs - net (Note 14) 2,006,374 1,525,720 1,665,896<br />
P=13,267,669 P=14,070,564 P=14,220,427<br />
Depreciation and amortization amounting to P=1.76 million and P=0.80 million pertains to <strong>the</strong><br />
discontinued operations in Italy <strong>for</strong> <strong>the</strong> <strong>year</strong>s <strong>ended</strong> <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010, respectively<br />
(see Note 28).<br />
13. Goodwill<br />
Movements in goodwill follow:<br />
<strong>2011</strong> 2010<br />
Balance at beginning of <strong>year</strong> P=93,092,118 P=97,582,106<br />
Foreign exchange adjustment (436,778) (4,489,988)<br />
Balance at end of <strong>year</strong> P=92,655,340 P=93,092,118<br />
The Group’s goodwill relate to <strong>the</strong> excess of <strong>the</strong> acquisition cost over <strong>the</strong> ownership interest<br />
acquired by <strong>the</strong> Parent Company in IGRL, IAPL, IRCL, LSML and WEPL, as follows:<br />
IGRL and IAPL<br />
On June 2, 2007, <strong>the</strong> Parent Company’s BOD approved <strong>the</strong> acquisition of 100.00% ownership<br />
interest in both IGRL and IAPL <strong>for</strong> a consideration of P=71.20 million and P=8.55 million,<br />
respectively. IGRL and IAPL are based in United Kingdom and Australia, respectively. These<br />
entities, which are in <strong>the</strong> remittance business, have <strong>the</strong> same operations as <strong>the</strong> Parent Company.<br />
Accordingly, on June 29, 2007, <strong>the</strong> Parent Company acquired 100.00% ownership interest in<br />
*SGVMC116502*
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IGRL and IAPL through <strong>the</strong> execution of deeds of assignment by <strong>the</strong> previous stockholders (who<br />
are also <strong>the</strong> stockholders of <strong>the</strong> Parent Company) of both entities. Under <strong>the</strong> deeds of assignment,<br />
<strong>the</strong> existing advances by <strong>the</strong> Parent Company to certain stockholders were applied as payment <strong>for</strong><br />
<strong>the</strong> purchase of IGRL and IAPL.<br />
WEPL<br />
On June 2, 2007, <strong>the</strong> Parent Company’s BOD also approved <strong>the</strong> acquisition of 20.00% ownership<br />
interest in WEPL <strong>for</strong> a consideration of P=5.60 million. WEPL was incorporated and is based in<br />
Australia, and has <strong>the</strong> same operations as <strong>the</strong> Parent Company. Accordingly, on June 29, 2007,<br />
<strong>the</strong> Parent Company acquired 20.00% ownership interest in WEPL through <strong>the</strong> execution of a<br />
deed of assignment by <strong>the</strong> previous stockholders (who are also stockholders of <strong>the</strong> Parent<br />
Company) of <strong>the</strong> entity. Under <strong>the</strong> deed of assignment, <strong>the</strong> existing advances of <strong>the</strong> Parent<br />
Company to certain stockholders were applied as payment <strong>for</strong> <strong>the</strong> purchase of WEPL. On<br />
September 4, 2007, an additional 15.00% ownership interest in WEPL was acquired by <strong>the</strong> Parent<br />
Company <strong>for</strong> a consideration of P=3.43 million.<br />
On March 25, <strong>2011</strong>, <strong>the</strong> Parent Company’s BOD approved <strong>the</strong> acquisition of ano<strong>the</strong>r 35.00%<br />
ownership interest in WEPL <strong>for</strong> a consideration of AUD0.27 million (P=12.30 million). As<br />
discussed in Note 1, WEPL is effectively 100.00% owned by <strong>the</strong> Parent Company through its<br />
direct interest of 70.00% and indirect interest of 30.00% through IAPL.<br />
IRCL<br />
On October 1, 2004, <strong>the</strong> Parent Company’s BOD approved <strong>the</strong> acquisition of 65.00% of IRCL <strong>for</strong><br />
a consideration of P=10.34 million. IRCL, which was incorporated on July 16, 2001, is based in<br />
Canada, and has <strong>the</strong> same operations as <strong>the</strong> Parent Company. The fair value of <strong>the</strong> net assets of<br />
IRCL at acquisition date is P=8.25 million and <strong>the</strong> fair value of <strong>the</strong> 65.00% ownership interest was<br />
P=5.36 million. The difference of P=4.98 million between <strong>the</strong> consideration paid and <strong>the</strong> fair value<br />
of <strong>the</strong> interest acquired in IRCL was recognized as goodwill. On July 26, 2006, <strong>the</strong> additional<br />
30.00% ownership interest from a noncontrolling stockholder in IRCL was transferred to <strong>the</strong><br />
Parent Company at no additional cost.<br />
On June 2, 2007, <strong>the</strong> Parent Company’s BOD approved <strong>the</strong> acquisition of 5.00% ownership<br />
interest from a noncontrolling stockholder <strong>for</strong> a consideration of P=3.10 million taking its<br />
ownership in IRCL to 100.00%. Accordingly on June 29, 2007, IRCL’s noncontrolling<br />
stockholder executed a deed of assignment to transfer <strong>the</strong> ownership interest to <strong>the</strong> Parent<br />
Company. Under <strong>the</strong> deed of assignment, <strong>the</strong> existing advances by <strong>the</strong> Parent Company to a<br />
certain stockholder was applied as payment <strong>for</strong> <strong>the</strong> purchase of IRCL. The fair value of <strong>the</strong> net<br />
assets of IRCL at acquisition date was P=11.50 million, and <strong>the</strong> fair value of <strong>the</strong> additional interest<br />
acquired was P=0.57 million. The difference of P=2.53 million between <strong>the</strong> consideration paid and<br />
<strong>the</strong> noncontrolling interest acquired in IRCL was recognized as goodwill.<br />
LSML<br />
LSML was incorporated on March 16, 2001, is based in Hong Kong, and has <strong>the</strong> same operations<br />
as <strong>the</strong> Parent Company. On June 2, 2007, <strong>the</strong> Parent Company’s BOD approved <strong>the</strong> acquisition of<br />
49.00% ownership interest in LSML <strong>for</strong> a consideration of P=24.70 million <strong>the</strong>reby taking its<br />
ownership in LSML to 100.00%. Accordingly, on June 29, 2007, <strong>the</strong> noncontrolling stockholder<br />
of LSML (who is also a stockholder of <strong>the</strong> Parent Company) executed a deed of assignment to<br />
transfer its ownership interest to <strong>the</strong> Parent Company. Under <strong>the</strong> deed of assignment, <strong>the</strong> existing<br />
advances by <strong>the</strong> Parent Company to <strong>the</strong> stockholder were applied as payment <strong>for</strong> <strong>the</strong> purchase of<br />
LSML. The fair value of <strong>the</strong> net assets of LSML at acquisition date was P=8.23 million and <strong>the</strong> fair<br />
*SGVMC116502*
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value of <strong>the</strong> additional interest acquired was P=4.03 million. The difference of P=20.67 million<br />
between <strong>the</strong> consideration paid and <strong>the</strong> noncontrolling interest acquired in LSML was recognized<br />
as goodwill.<br />
Goodwill acquired through business combinations has been allocated to five individual CGUs as<br />
follows:<br />
<strong>2011</strong> 2010<br />
IGRL P=50,833,394 P=50,991,293<br />
LSML 19,695,652 19,681,102<br />
IAPL 8,555,256 8,624,783<br />
IRCL 7,268,<strong>17</strong>7 7,440,857<br />
WEPL 6,302,861 6,354,083<br />
P=92,655,340 P=93,092,118<br />
The recoverable amount of <strong>the</strong> CGUs have been determined based on value-in-use calculation<br />
using cash flow projections from financial budgets approved by senior management covering a<br />
five-<strong>year</strong> period. The discount rates applied to cash flow projections range from 8.55% to 10.60%<br />
in <strong>2011</strong>and 7.<strong>31</strong>% to 8.83% in 2010, and cash flows beyond <strong>the</strong> five <strong>year</strong>-period were extrapolated<br />
using a steady growth rate of 1.00% in <strong>2011</strong> and 0.13% to 1.43% in 2010.<br />
The calculation of <strong>the</strong> value-in-use of <strong>the</strong> CGUs are most sensitive to <strong>the</strong> following assumptions:<br />
• Growth rate - The <strong>for</strong>ecasted growth rate is based on a very conservative steady growth rate<br />
that does not exceed <strong>the</strong> long term average rate <strong>for</strong> <strong>the</strong> industry.<br />
• Pre-tax discount rates - Discount rates reflect management’s estimate of <strong>the</strong> risks specific to<br />
each CGU. This is <strong>the</strong> benchmark used by management to assess operating per<strong>for</strong>mance.<br />
With regard to <strong>the</strong> assessment of <strong>the</strong> value-in-use of each CGU, management believes that no<br />
reasonably possible change in any of <strong>the</strong> above key assumptions would cause <strong>the</strong> carrying value<br />
of <strong>the</strong> goodwill to materially exceed its recoverable amount.<br />
14. Software Costs - net and O<strong>the</strong>r Noncurrent Assets<br />
Movements in software costs follow:<br />
<strong>2011</strong> 2010<br />
Cost<br />
Balance at beginning of <strong>year</strong> P=12,384,629 P=11,425,409<br />
Additions 2,034,070 852,274<br />
Disposals (941,474) –<br />
Foreign exchange adjustment (237,921) 106,946<br />
Balance at end of <strong>year</strong><br />
Accumulated Amortization<br />
13,239,304 12,384,629<br />
Balance at beginning of <strong>year</strong> 10,302,883 8,720,725<br />
Amortization (Note 12) 2,006,374 1,525,720<br />
Disposals (459,811) –<br />
Foreign exchange adjustment (61,086) 56,438<br />
Balance at end of <strong>year</strong> 11,788,360 10,302,883<br />
Net Book Value at end of <strong>year</strong> P=1,450,944 P=2,081,746<br />
*SGVMC116502*
O<strong>the</strong>r noncurrent assets consist of:<br />
- 40 -<br />
<strong>2011</strong> 2010<br />
Input VAT P=21,242,725 P=28,493,804<br />
Refundable deposits <strong>17</strong>,291,585 14,099,442<br />
Deferred input VAT 326,057 350,550<br />
O<strong>the</strong>rs 44,000 44,000<br />
P=38,904,367 P=42,987,796<br />
The Parent Company has applied <strong>for</strong> tax credits on Input VAT with <strong>the</strong> BIR and is waiting <strong>for</strong> <strong>the</strong><br />
issuance of Tax Credit Certificates (TCCs). In <strong>2011</strong>, <strong>the</strong> BIR issued two tax credit certificates to<br />
<strong>the</strong> Parent Company <strong>for</strong> its Input VAT filed <strong>for</strong> <strong>year</strong>s 2005 and 2006 amounting to P=1.71 million<br />
and P=3.82 million, respectively. Management of <strong>the</strong> Company believes that it will able to collect<br />
<strong>the</strong> rest of <strong>the</strong> TCCs applicable to its outstanding claims. The carrying amounts are already net of<br />
claims disallowed by <strong>the</strong> BIR amounting to P=2.06 million, nil and P=1.34 million in <strong>2011</strong>, 2010 and<br />
2009, respectively (see Note 22).<br />
Refundable deposits pertain to <strong>the</strong> security deposits made by <strong>the</strong> Parent Company and some of its<br />
subsidiaries in relation to rental lease agreements <strong>for</strong> <strong>the</strong> office spaces in <strong>the</strong> Philippines, Hong<br />
Kong, United Kingdom, Canada and Italy.<br />
15. Beneficiaries and O<strong>the</strong>r Payables<br />
This account consists of:<br />
<strong>2011</strong> 2010<br />
Beneficiaries P=155,140,304 P=144,960,550<br />
Agents, couriers and trading clients 65,550,<strong>31</strong>0 44,773,236<br />
Accrued expenses 14,801,<strong>17</strong>1 2,701,805<br />
Payable to SSS, Philhealth and HDMF 1,636,232 620,661<br />
Withholding tax payable 1,543,424 2,045,708<br />
Payable to suppliers 1,391,836 2,958,634<br />
Output VAT <strong>17</strong>,875 −<br />
Due to related parties (Note 24) – 1,4<strong>31</strong>,156<br />
O<strong>the</strong>rs – 5,165<br />
P=240,081,152 P=199,496,915<br />
Payables to beneficiaries, agents, couriers and trading clients are noninterest-bearing and are<br />
normally settled within 1 to 30 days.<br />
Accrued expenses include <strong>the</strong> Group’s accrual <strong>for</strong> various operating expenses such as vacation and<br />
sick leave benefits, courier charges, training and development, professional fees and utilities.<br />
*SGVMC116502*
16. Interest-Bearing Loans<br />
- 41 -<br />
This account pertains to <strong>the</strong> Parent Company’s unsecured, short-term interest-bearing pesodenominated<br />
bank loans.<br />
As of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010, <strong>the</strong> outstanding loans payable of <strong>the</strong> Parent Company<br />
amounted to P=666.00 million and P=877.00 million, respectively.<br />
In <strong>2011</strong>, 2010 and 2009, <strong>the</strong>se loans bear annual interest rates ranging from 5.00% to 7.00%,<br />
5.50% to 6.00%and 7.00% to 8.00%, respectively. In <strong>2011</strong>, 2010 and 2009, <strong>the</strong> Parent Company<br />
recognized interest expense of P=38.32 million, P=29.21 million and P=48.68 million, respectively.<br />
The Parent Company has unused credit facilities with various banks aggregating to P=1.48 billion<br />
and P=1.02 billion as of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010, respectively.<br />
<strong>17</strong>. Equity<br />
Capital Stock<br />
The Parent Company’s capital stock consists of:<br />
<strong>2011</strong> 2010 2009<br />
Number of<br />
Shares Amount<br />
Number of<br />
Shares Amount<br />
Number of<br />
Shares Amount<br />
Common Stock<br />
Authorized - P=1 par value<br />
per share 1,000,000,000 P=1,000,000,000 1,000,000,000 P=1,000,000,000 1,000,000,000 P=1,000,000,000<br />
Issued:<br />
Balance at beginning<br />
of <strong>the</strong> <strong>year</strong> 562,4<strong>17</strong>,000 P=562,4<strong>17</strong>,000 562,4<strong>17</strong>,000 P=562,4<strong>17</strong>,000 562,4<strong>17</strong>,000 P=562,4<strong>17</strong>,000<br />
Stock dividends 55,308,800 55,308,800 – – – –<br />
Balance at end of <strong>the</strong> <strong>year</strong> 6<strong>17</strong>,725,800 6<strong>17</strong>,725,800 562,4<strong>17</strong>,000 562,4<strong>17</strong>,000 562,4<strong>17</strong>,000 562,4<strong>17</strong>,000<br />
Treasury stock:<br />
Balance at beginning<br />
of <strong>the</strong> <strong>year</strong> (9,329,000) (40,115,150) (9,329,000) (40,115,150) (10,006,200) (40,792,350)<br />
Acquisitions (5,544,000) (12,872,058) – – (130,900) (130,900)<br />
Reissaunce – – – – 808,100 808,100<br />
Balance at end of <strong>the</strong> <strong>year</strong> (14,873,000) (52,987,208) (9,329,000) (40,115,150) (9,329,000) (40,115,150)<br />
Issued and outstanding 602,852,800 P=564,738,592 553,088,000 P=522,301,850 553,088,000 P=522,301,850<br />
On September 13, 2007, <strong>the</strong> SEC approved <strong>the</strong> registration of 140,604,000 common shares with<br />
offer price of P=4.68 and 454,950,000 outstanding shares with par value of P=1.00. There are <strong>17</strong><br />
registered common stockholders as of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 13 registered common stockholders<br />
as of <strong>December</strong> <strong>31</strong>, 2010 and 2009. Shares lodged with <strong>the</strong> Philippine Central Depository are<br />
registered under <strong>the</strong> name of PCD Nominee Corporation and as such are treated as being held by<br />
only one shareholder.<br />
Capital Paid-in Excess of Par Value<br />
The Parent Company’s capital paid-in excess of par value is composed of excess of proceeds on<br />
issuance of <strong>the</strong> Parent Company’s shares amounting to P=429.51 million and excess of acquisition<br />
costs over <strong>the</strong> carrying value of <strong>the</strong> noncontrolling interests acquired in <strong>2011</strong> amounting to<br />
P=38.28 million (see Note 1).<br />
*SGVMC116502*
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Dividends<br />
On March 23, 2009, <strong>the</strong> BOD of <strong>the</strong> Parent Company declared cash dividends amounting to<br />
P=26.01 million or P=0.0471 per share, payable to shareholders-of-record as of April 7, 2009. The<br />
declaration was subsequently ratified and confirmed by <strong>the</strong> Parent Company’ shareholders during<br />
<strong>the</strong>ir annual meeting held on July <strong>17</strong>, 2009. The payment of dividends was made on May 6, 2009.<br />
On March 19, 2010, <strong>the</strong> BOD of <strong>the</strong> Parent Company declared cash dividends amounting to<br />
P=26.60 million or P=0.0481 per share, payable to shareholders-of-record as of April 8, 2010. The<br />
declaration was subsequently ratified and confirmed by <strong>the</strong> Parent Company’ shareholders during<br />
<strong>the</strong>ir annual meeting held on July 23, 2010. The payment was made on May 5, 2010.<br />
On June <strong>17</strong>, <strong>2011</strong>, <strong>the</strong> BOD of <strong>the</strong> Parent Company authorized <strong>the</strong> declaration of stock dividends<br />
equivalent to 10% of outstanding shares of 553,088,000 in favor of its stockholders-of-record as of<br />
August 15, <strong>2011</strong>. The declaration was subsequently ratified and confirmed by <strong>the</strong> Parent<br />
Company’s stockholders during <strong>the</strong>ir annual meeting held on July 29, <strong>2011</strong>.<br />
Accumulated net earnings of <strong>the</strong> subsidiaries amounting to P=200.65 million and P=121.85 million<br />
as of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010, respectively, are not available <strong>for</strong> dividend declaration. This<br />
accumulated equity in net earnings becomes available <strong>for</strong> dividend upon receipt of cash dividends<br />
from <strong>the</strong> investees by <strong>the</strong> Parent Company.<br />
Treasury Stock<br />
On August 15, 2008, <strong>the</strong> Parent Company’s BOD approved <strong>the</strong> buy-back program to acquire up to<br />
ten million (10,000,000) of its shares, representing approximately 1.87% of <strong>the</strong> Parent Company’s<br />
total outstanding common shares, from <strong>the</strong> market. The Parent Company purchased 9,329,000<br />
shares (P=40.11 million) in 2008 under <strong>the</strong> buy-back program.<br />
In 2009 and 2008, <strong>the</strong> Parent Company purchased 130,900 shares (P=0.13 million) and<br />
548,500 shares (P=0.55 million), respectively, under <strong>the</strong> SSPP. The 808,100 shares (including<br />
128,700 shares purchased in 2007) purchased under <strong>the</strong> SSPP, were subsequently transferred in<br />
September 2009 to <strong>the</strong> retirement fund of <strong>the</strong> Parent Company (see Notes 18 and 19).<br />
On September 16, <strong>2011</strong>, <strong>the</strong> BOD of <strong>the</strong> Parent Company adopted a resolution authorizing <strong>the</strong><br />
buy-back of up to ten million (10,000,000) of its shares from <strong>the</strong> market. The Parent Company<br />
purchased 4,873,000 shares (P=11.35 million) under this buy-back program.<br />
In <strong>2011</strong>, <strong>the</strong> Parent Company also purchased 671,000 shares (P=1.52 million) under <strong>the</strong> buy-back<br />
program approved on August 15, 2008 as discussed above.<br />
Capital Management<br />
The Group’s capital is composed of its equity, which amounts to P=1.36 billion and P=1.27 billion as<br />
of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010, respectively.<br />
The Group’s capital management activities seek to ensure that it maintains a healthy capital ratio<br />
in order to support its businesses and maximize shareholder’s value by optimizing <strong>the</strong> level and<br />
mix of its capital resources. Decisions on <strong>the</strong> allocation of capital resources are being per<strong>for</strong>med as<br />
part of <strong>the</strong> strategic planning review.<br />
The Group manages its capital structure and makes adjustments to it, in light of changes in<br />
economic conditions. To maintain or adjust <strong>the</strong> capital structure, <strong>the</strong> Group may adjust <strong>the</strong><br />
dividend payment to shareholders, return capital to shareholders or issue new shares. No changes<br />
were made in <strong>the</strong> objectives, policies or processes during <strong>the</strong> <strong>year</strong>s <strong>ended</strong> <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and<br />
2010.<br />
*SGVMC116502*
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The Group’s objective is to ensure that <strong>the</strong>re are no known events that may trigger direct or<br />
contingent financial obligation that is material to <strong>the</strong> Company, including default or acceleration<br />
of an obligation.<br />
The Group is not subject to externally imposed capital requirements.<br />
18. Retirement Plan<br />
The Parent Company has a noncontributory defined benefit retirement plan covering substantially<br />
all of its regular employees. Under this retirement plan, all qualified employees are entitled to<br />
cash benefits after satisfying age and service requirements.<br />
Provisions <strong>for</strong> pension obligations are established <strong>for</strong> benefits payable in <strong>the</strong> <strong>for</strong>m of retirement<br />
pensions. Benefits are dependent on <strong>year</strong>s of service and <strong>the</strong> respective employee’s latest monthly<br />
salary.<br />
The Parent Company determined its transitional liability <strong>for</strong> defined benefit retirement plan merely<br />
as <strong>the</strong> present value of <strong>the</strong> obligation since <strong>the</strong> Parent Company had no plan assets at <strong>the</strong> date of<br />
<strong>the</strong> adoption. Transitional liability is amortized prospectively over five (5) <strong>year</strong>s starting on<br />
January 1, 2005.<br />
The latest actuarial valuation report on <strong>the</strong> retirement plan is dated <strong>December</strong> <strong>31</strong>, <strong>2011</strong>.<br />
The principal actuarial assumptions used in determining <strong>the</strong> retirement liability of <strong>the</strong> Parent<br />
Company as of January 1, <strong>2011</strong> and 2010 follow:<br />
<strong>2011</strong> 2010<br />
Discount rate 9.69% 11.25%<br />
Future salary increases 8.00% 9.00%<br />
Expected return on plan assets 6.00% 6.00%<br />
Average remaining working life (in <strong>year</strong>s) 32.1 <strong>31</strong>.8<br />
The discount rates used to arrive at <strong>the</strong> present value of <strong>the</strong> obligation as of <strong>December</strong> <strong>31</strong>, <strong>2011</strong><br />
and 2010 are 6.70% and 9.69%, respectively.<br />
The amounts recognized in <strong>the</strong> consolidated balance sheets follow:<br />
<strong>2011</strong> 2010<br />
Present value of obligation P=22,524,680 P=21,847,360<br />
Fair value of plan assets 21,816,324 15,196,930<br />
Deficit 708,356 6,650,430<br />
Unrecognized actuarial loss (1,076,750) (5,872,169)<br />
Retirement (asset) liability (P=368,394) P=778,261<br />
*SGVMC116502*
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The movements in <strong>the</strong> fair value of plan assets in <strong>2011</strong> and 2010 are as follows:<br />
<strong>2011</strong> 2010<br />
Balance at beginning of <strong>year</strong> P=15,196,930 P=12,421,022<br />
Contributions 6,895,233 5,229,490<br />
Expected return on plan assets 1,118,673 738,073<br />
Actuarial loss (1,394,512) (2,643,029)<br />
Benefits paid from plan assets – (548,626)<br />
Balance at end of <strong>year</strong> P=21,816,324 P=15,196,930<br />
The actual return on <strong>the</strong> plan assets of <strong>the</strong> Parent Company in <strong>2011</strong> and 2010 amounted to a loss<br />
of P=0.28 million and P=1.90 million, respectively.<br />
The Parent Company expects to contribute P=6.53 million to its retirement fund in 2012.<br />
The movements in <strong>the</strong> present value of obligation follow:<br />
<strong>2011</strong> 2010<br />
Balance at beginning of <strong>year</strong> P=21,847,360 P=10,080,516<br />
Current service cost 4,618,548 2,143,246<br />
Interest cost 2,1<strong>17</strong>,009 1,134,058<br />
Benefits paid from plan assets – (548,626)<br />
Actuarial (gain) loss (6,058,237) 9,038,166<br />
Balance at end of <strong>year</strong> P=22,524,680 P=21,847,360<br />
The amounts of retirement expense included in ‘Salaries, wages and employee benefits’ in <strong>the</strong><br />
consolidated statements of income follow:<br />
<strong>2011</strong> 2010 2009<br />
Current service cost P=4,618,548 P=2,143,246 P=1,819,273<br />
Interest cost 2,1<strong>17</strong>,009 1,134,058 999,326<br />
Expected return on plan assets (1,118,673) (738,073) –<br />
Actuarial (gain) loss recognized 1<strong>31</strong>,694 (163,104) (53,418)<br />
Amortization of transitional liability – – 252,228<br />
P=5,748,578 P=2,376,127 P=3,0<strong>17</strong>,409<br />
The movements in <strong>the</strong> retirement (asset) liability recognized in <strong>the</strong> balance sheets are as follows:<br />
<strong>2011</strong> 2010<br />
Balance at beginning of <strong>year</strong> P=778,261 P=3,6<strong>31</strong>,624<br />
Retirement expense 5,748,578 2,376,127<br />
Contributions (6,895,233) (5,229,490)<br />
Balance at end of <strong>year</strong> (P=368,394) P=778,261<br />
Movements in <strong>the</strong> unrecognized actuarial (gains) losses are as follows:<br />
<strong>2011</strong> 2010<br />
Balance at beginning of <strong>year</strong> P=5,872,169 (P=5,972,130)<br />
Actuarial loss (gain) during <strong>the</strong> <strong>year</strong> (4,663,725) 11,681,195<br />
Actuarial (loss) gain recognized (1<strong>31</strong>,694) 163,104<br />
Balance at end of <strong>year</strong> P=1,076,750 P=5,872,169<br />
*SGVMC116502*
The major categories of plan assets follow:<br />
- 45 -<br />
<strong>2011</strong> 2010<br />
Private equity securities* P=9,245,139 P=10,249,745<br />
Deposits in banks 7,613,374 2,047,387<br />
Government debt securities 4,763,467 2,760,719<br />
Interest receivable 215,615 162,126<br />
Trust fee payable (21,271) (23,047)<br />
P=21,816,324 P=15,196,930<br />
*This includes P=0.81 million of <strong>the</strong> Parent Company’s own equity securities bought under <strong>the</strong> SSPP (see Note 19).<br />
The amounts of experience adjustments relating to <strong>the</strong> plan liabilities of <strong>the</strong> Parent Company<br />
follow:<br />
<strong>2011</strong> 2010 2009 2008 2007<br />
Present value of obligation 22,524,680 P=21,847,360 P=10,080,516 P=6,574,511 P=7,770,113<br />
Fair value of plan assets 21,816,324 15,196,930 12,421,022 3,168,050 −<br />
Deficit (surplus) 708,356 6,650,430 (2,340,506) 3,406,461 7,770,113<br />
Changes in actuarial assumptions (498,493) 9,932,542 1,070,082 (3,766,<strong>31</strong>2) (9,785,892)<br />
Experience adjustments on plan<br />
liabilities (5,559,744) (894,376) (382,676) (206,448) 4,<strong>17</strong>6,250<br />
Experience adjustments on plan assets (1,394,512) (2,643,029) 4,452,972 – −<br />
The subsidiaries are not required to establish and accrue retirement obligation.<br />
19. Special Stock Purchase Program (SSPP)<br />
On July 20, 2007, <strong>the</strong> Parent Company’s BOD approved <strong>the</strong> proposal to set up a SSPP totaling<br />
15,000,000 shares <strong>for</strong> <strong>the</strong> employees of <strong>the</strong> Parent Company who have been in <strong>the</strong> service <strong>for</strong> at<br />
least one (1) calendar <strong>year</strong> as of June 30, 2007, as well as its BOD members, resource persons and<br />
consultants (collectively referred to as “<strong>the</strong> Participants”). A Notice of Exemption under Section<br />
10.2 of <strong>the</strong> Securities Regulations Code had been approved by <strong>the</strong> SEC on September 13, 2007.<br />
Notwithstanding <strong>the</strong> a<strong>for</strong>esaid confirmation by <strong>the</strong> SEC of <strong>the</strong> exempt status of <strong>the</strong> SSPP shares,<br />
<strong>the</strong> SEC none<strong>the</strong>less required <strong>the</strong> Parent Company to include <strong>the</strong> SSPP shares among <strong>the</strong> shares<br />
of <strong>the</strong> Parent Company which were registered with <strong>the</strong> SEC prior to <strong>the</strong> conduct of its Initial<br />
Public Offering in October 2007. The registration of <strong>the</strong> Parent Company shares, toge<strong>the</strong>r with<br />
<strong>the</strong> SSPP shares, was rendered effective on October 5, 2007.<br />
All 15,000,000 shares were exercised. The shares subject to <strong>the</strong> SSPP were sold at par value or<br />
P=1.00 per share. Total shares amounting to P=11.74 million were paid in full, while <strong>the</strong> difference<br />
totaling P=3.26 million were paid by way of salary loan. Shares acquired through SSPP are subject<br />
to a lock-up period of two <strong>year</strong>s from date of issue, which <strong>ended</strong> on September 19, 2009.<br />
The sale is fur<strong>the</strong>r subject to <strong>the</strong> condition that should <strong>the</strong> officer or employee resign from <strong>the</strong><br />
Parent Company prior to <strong>the</strong> expiration of <strong>the</strong> lock-up period, <strong>the</strong> shares purchased by such<br />
resigning employee or officer shall be purchased at cost by <strong>the</strong> Parent Company as Treasury stock.<br />
As of <strong>December</strong> <strong>31</strong>, 2009, 24 employees resigned (9 in 2009, 13 in 2008 and 2 in 2007) and <strong>the</strong>ir<br />
shares totaling 808,100 (130,900 in 2009, 548,500 in 2008 and 128,700 in 2007) were bought<br />
back by <strong>the</strong> Parent Company at par value.<br />
*SGVMC116502*
- 46 -<br />
As approved by <strong>the</strong> Parent Company’s BOD, <strong>the</strong> fair value of <strong>the</strong> shares issued under <strong>the</strong> SSPP<br />
was measured at <strong>the</strong> grant date using <strong>the</strong> price-earnings multiple model taking into account <strong>the</strong><br />
terms and conditions upon which <strong>the</strong> shares were granted. The fair value at grant date was<br />
P=1.33 per share. This transaction also resulted in an increase in equity by P=1.53 million,<br />
P=2.16 million and P=1.00 million in 2009, 2008 and 2007, respectively.<br />
On September 19, 2009, which is <strong>the</strong> end of <strong>the</strong> lock up period, <strong>the</strong> 808,100 shares bought back at<br />
cost was transferred to <strong>the</strong> Parent Company’s retirement fund upon reimbursement of <strong>the</strong><br />
P=0.81 million paid by <strong>the</strong> Parent Company <strong>for</strong> those shares.<br />
The expense arising from <strong>the</strong> share-based payment plan is recognized over <strong>the</strong> two-<strong>year</strong> lock-up<br />
period. The expense recognized under ‘Salaries, wages and employee benefits’ in <strong>the</strong> statements<br />
of income amounted to P=1.53 million in 2009.<br />
20. Operating Lease Commitments<br />
The Parent Company has entered into <strong>the</strong> following lease agreements <strong>for</strong> its office spaces:<br />
(a) On September 30, 2008, a lease agreement with Sta. Elena Divisoria Condo was made <strong>for</strong> a<br />
period of 60 months commencing on October 1, 2008 to September 30, 2013 with a 10.00%<br />
escalation rate effective on <strong>the</strong> second <strong>year</strong> up to <strong>the</strong> fifth <strong>year</strong> of <strong>the</strong> lease term. The contract<br />
was cancelled in May 2009.<br />
(b) A lease agreement with Wynsum Realty was entered into <strong>for</strong> a period of 24 months<br />
commencing on September 1, 2008 to August <strong>31</strong>, 2010 with a 5.00% escalation on <strong>the</strong><br />
monthly rental on <strong>the</strong> second <strong>year</strong> of <strong>the</strong> lease term. The contract was renewed <strong>for</strong> ano<strong>the</strong>r<br />
period of 2 <strong>year</strong>s from September 1, 2010 to August <strong>31</strong>, 2012 with <strong>the</strong> same terms.<br />
(c) On February 7, 2007, a lease agreement with Oakridge Properties (Unit 2503) was made <strong>for</strong> a<br />
period of 36 months commencing on February 1, 2007 to January <strong>31</strong>, 2010 with a 10.00%<br />
escalation on <strong>the</strong> monthly rental payable effective on <strong>the</strong> 13th and 25th month of <strong>the</strong> lease<br />
term. The contract was renewed <strong>for</strong> ano<strong>the</strong>r period of 2 <strong>year</strong>s from February 1, 2010 to<br />
January <strong>31</strong>, 2012 with <strong>the</strong> same terms.<br />
(d) A lease agreement with Oakridge Properties (Unit 2603) was entered into <strong>for</strong> a period of 12<br />
months, which commenced on <strong>December</strong> 1, 2008 and expired on November 30, 2009. The<br />
contract was renewed <strong>for</strong> a period of 2 <strong>year</strong>s commencing on <strong>December</strong> 1, 2009 to<br />
November 30, <strong>2011</strong> with a 10.00% escalation on <strong>the</strong> monthly rental on <strong>the</strong> 13th month of <strong>the</strong><br />
lease term. The contract was renewed <strong>for</strong> ano<strong>the</strong>r period of 2 <strong>year</strong>s from <strong>December</strong> 1, <strong>2011</strong> to<br />
November 30, 2013 with <strong>the</strong> same terms.<br />
(e) On January 6, 2009, a lease agreement with Oakridge Properties (Unit 2703) was entered into<br />
<strong>for</strong> a period of 24 months commencing February 1, 2009 to January <strong>31</strong>, <strong>2011</strong> with a 10.00%<br />
escalation rate on <strong>the</strong> aggregate monthly rental effective on <strong>the</strong> 13th month of <strong>the</strong> lease term.<br />
The contract was renewed <strong>for</strong> a period of 2 <strong>year</strong>s from February 1, <strong>2011</strong> to January <strong>31</strong>, 2013<br />
with <strong>the</strong> same terms.<br />
*SGVMC116502*
- 47 -<br />
(f) On July 1, <strong>2011</strong>, <strong>the</strong> Parent Company entered into a sublease agreement with Surewell<br />
Equities Pte Ltd., one of <strong>the</strong> stockholders of <strong>the</strong> Parent Company, <strong>for</strong> <strong>the</strong> use of <strong>the</strong> latter’s<br />
office space in Singapore <strong>for</strong> an initial term of two (2) <strong>year</strong>s.<br />
The subsidiaries have <strong>the</strong>ir respective operating lease agreements <strong>for</strong> <strong>the</strong>ir office spaces. The<br />
lease contracts are <strong>for</strong> periods ranging from 1 to 10 <strong>year</strong>s and may be renewed under <strong>the</strong> terms and<br />
conditions mutually agreed upon by <strong>the</strong> subsidiaries and <strong>the</strong> lessors.<br />
Rent expense of <strong>the</strong> Group amounted to P=57.43 million, P=50.38 million, and P=39.33 million in<br />
<strong>2011</strong>, 2010 and 2009, respectively. P=3.92 million and P=4.02 million of <strong>the</strong> total rent expense<br />
pertain to rent expense of <strong>the</strong> discontinued operations of Italy <strong>for</strong> <strong>the</strong> <strong>year</strong>s <strong>ended</strong><br />
<strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010, respectively.<br />
Future minimum rentals payable under non-cancelable operating leases are as follows:<br />
<strong>2011</strong> 2010<br />
Within one <strong>year</strong> P=43,590,836 P=51,662,348<br />
After one <strong>year</strong> but not more than five <strong>year</strong>s 53,212,9<strong>17</strong> 71,152,989<br />
P=96,803,753 P=122,815,337<br />
In 2007, WEPL subleased its office space in Liverpool <strong>for</strong> a period of 20 months commencing on<br />
August 2007 to April 2009.<br />
21. Marketing Expenses<br />
This account consists of:<br />
<strong>2011</strong> 2010 2009<br />
Marketing and promotions P=27,746,400 P=34,637,750 P=22,120,718<br />
Advertising and publicity 9,6<strong>17</strong>,140 8,883,266 10,856,700<br />
P=37,363,540 P=43,521,016 P=32,977,418<br />
Expenses amounting to P=1.02 million and P=0.93 million pertain to <strong>the</strong> marketing expenses of <strong>the</strong><br />
discontinued operations of Italy <strong>for</strong> <strong>the</strong> <strong>year</strong>s <strong>ended</strong> <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010, respectively<br />
(see Note 28).<br />
22. O<strong>the</strong>r Operating Expenses<br />
This account consists of:<br />
<strong>2011</strong> 2010 2009<br />
Taxes and licenses P=9,020,616 P=7,910,719 P=4,5<strong>31</strong>,430<br />
Repairs and maintenance 4,770,543 4,902,356 4,634,302<br />
Association dues 3,230,078 1,927,949 2,066,643<br />
Business development 2,974,651 2,679,500 943,210<br />
Fines and penalty 2,992,353 − −<br />
Disallowance of input VAT by BIR 2,058,616 – 1,338,804<br />
Insurance 1,974,703 1,835,663 1,726,711<br />
Donations and contributions – 1,155,280 1,209,115<br />
O<strong>the</strong>r charges − − 4,982,042<br />
Miscellaneous 1,213,551 652,704 1,730,305<br />
P=28,235,111 P=21,064,<strong>17</strong>1 P=23,162,562<br />
*SGVMC116502*
- 48 -<br />
‘Business development’ pertains to various expenses incurred <strong>for</strong> development of potential <strong>for</strong>eign<br />
offices and o<strong>the</strong>r related expenses.<br />
‘Miscellaneous’ includes expenses <strong>for</strong> recruitment, Christmas party expenses, and Christmas<br />
giveaways.<br />
O<strong>the</strong>r charges of <strong>the</strong> Group in 2009 pertain mainly to goods and services tax (GST) written off.<br />
23. Realized Foreign Exchange Gains - Net and O<strong>the</strong>r Income<br />
‘Realized <strong>for</strong>eign exchange gains - net’ represents currency exchange income (net of losses)<br />
arising primarily from trading third currencies to Philippine pesos. These third currencies are<br />
sourced from <strong>the</strong> remittance transactions.<br />
‘O<strong>the</strong>r income’ consists of:<br />
<strong>2011</strong> 2010 2009<br />
GST refund P=21,668,641 P=– P=–<br />
Unrealized <strong>for</strong>eign exchange gain - net 1,205,505 1,769,202 5,<strong>17</strong>2,<strong>17</strong>1<br />
Rebates 2,881,469 6,728,713 14,608,204<br />
O<strong>the</strong>rs 4,060,301 6,081,539 12,488,020<br />
P=29,815,916 P=14,579,454 P=32,268,395<br />
GST refund pertains to refund of GST previously paid by IRCL and WEPL to <strong>the</strong> government of<br />
Canada and Australia, respectively. Both entities are exempt from paying GST.<br />
Interest income pertains to interest earned from deposits, short-term placements with banks and<br />
financial assets at FVPL.<br />
Rebates pertain to refund of bank service charges and <strong>for</strong>eign exchange special rates relating to <strong>the</strong><br />
remittance transactions of WEPL.<br />
‘O<strong>the</strong>rs’ pertains to commission from processing of remittance from one <strong>for</strong>eign office to ano<strong>the</strong>r.<br />
In 2009, this also includes WEPL’s income from sublease of office space (see Note 20).<br />
24. Related Party Transactions<br />
Parties are considered to be related if one party has <strong>the</strong> ability, directly or indirectly, to control <strong>the</strong><br />
o<strong>the</strong>r party or exercise significant influence over <strong>the</strong> o<strong>the</strong>r party in making financial and operating<br />
decisions. Parties are also considered to be related if <strong>the</strong>y are subject to common control or<br />
common significant influence. Related parties may be individuals or corporate entities.<br />
*SGVMC116502*
- 49 -<br />
In <strong>the</strong> ordinary course of business, <strong>the</strong> Group transacts with its related parties. Under <strong>the</strong> Group’s<br />
existing policies, <strong>the</strong>se transactions are made substantially on <strong>the</strong> same terms and conditions as<br />
transactions with o<strong>the</strong>r individuals and businesses of comparable risks. The Group engages in<br />
transactions with related parties consisting primarily of <strong>the</strong> following:<br />
(a) Delivery fees earned from clients of associates are as follows:<br />
<strong>2011</strong> 2010 2009<br />
HKHCL P=46,127,251 P=33,202,567 P=25,364,567<br />
ISPL 24,463,777 25,080,948 27,016,303<br />
P=70,591,028 P=58,283,515 P=52,380,870<br />
(b) The Parent Company leases office spaces from Oakridge Properties (see Note 20). Rent<br />
expense amounted to P=9.96 million, P=9.25 million and P=8.<strong>17</strong> million in <strong>2011</strong>, 2010 and 2009,<br />
respectively. Oakridge Properties is owned by JTKC, one of <strong>the</strong> stockholders of <strong>the</strong> Parent<br />
Company.<br />
(c) The Parent Company entered into a sublease agreement with Surewell Equities Pte Ltd., one<br />
of <strong>the</strong> stockholders of <strong>the</strong> Parent Company (see Note 20). Rent expense amounted to<br />
P=0.90 million in <strong>2011</strong>.<br />
(d) The Parent Company’s retirement fund is maintained with Sterling Bank of Asia (SBA), an<br />
affiliate due to common stockholders, as trustee (see Note 18). The Parent Company also has<br />
deposits amounting to P=118.62 million and P=129.71 million with SBA as of<br />
<strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010, respectively. These deposits earned P=0.43 million,<br />
P=1.12 million and P=1.16 million interest income in <strong>2011</strong>, 2010 and 2009, respectively.<br />
In addition to <strong>the</strong> related in<strong>for</strong>mation disclosed elsewhere in <strong>the</strong> consolidated financial statements,<br />
<strong>the</strong> following are <strong>the</strong> <strong>year</strong>end balances in respect of transactions with related parties which were<br />
carried in terms that prevail in arm’s length transactions during <strong>the</strong> <strong>year</strong>:<br />
<strong>2011</strong> 2010<br />
Due from related parties (Note 9):<br />
Associates<br />
ISPL P=16,034,603 P=16,104,921<br />
HKHCL 8,986,123 10,888,056<br />
Due to related parties (Note 15):<br />
P=25,020,726 P=26,992,977<br />
Directors P= − P=1,4<strong>31</strong>,156<br />
Advances to associates pertain to unpaid delivery fees. These are non-interest bearing and are due<br />
on demand.<br />
Advances to directors are non-interest bearing and are due on demand.<br />
As of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010, no provision <strong>for</strong> credit losses has been recognized <strong>for</strong> <strong>the</strong><br />
amounts due from related parties.<br />
*SGVMC116502*
- 50 -<br />
In 2010, <strong>the</strong> Parent Company recognized dividend income amounting P=0.60 million from<br />
dividends declared by ISPL. In 2009, <strong>the</strong> Parent Company’s dividend income includes dividends<br />
declared by ISPL (P=14.40 million), IRCL (P=9.54 million), WEPL (P=3.93 million), IAPL (P=3.30)<br />
and PSAGL (P=3.07 million).<br />
The compensation of <strong>the</strong> key management personnel of <strong>the</strong> Group in <strong>2011</strong>, 2010 and 2009 are as<br />
follows:<br />
<strong>2011</strong> 2010 2009<br />
Short-term employee benefits P=27,036,984 P=21,059,4<strong>31</strong> P=19,232,0<strong>31</strong><br />
Post-employment benefits 1,571,444 549,541 721,632<br />
Share-based payment − – 435,303<br />
P=28,608,428 P=21,608,972 P=20,388,966<br />
25. Income Taxes<br />
The provision <strong>for</strong> income tax consists of:<br />
<strong>2011</strong> 2010 2009<br />
Current:<br />
RCIT P=36,053,005 P=28,576,367 P=40,862,007<br />
Final 589,871 643,945 1,534,105<br />
Deferred (745,224) (921,460) (2,471,568)<br />
P=35,897,652 P=28,298,852 P=39,924,544<br />
Parent Company<br />
Republic Act (RA) No. 9337, An Act Amending National Internal Revenue Code, provides that <strong>the</strong><br />
RCIT rate shall be 35.00% until <strong>December</strong> <strong>31</strong>, 2008. Starting January 1, 2009, <strong>the</strong> RCIT rate shall<br />
be 30.00%. It also provides that <strong>the</strong> interest allowed as a deductible expense is reduced by an<br />
amount equivalent to 42.00% until <strong>December</strong> <strong>31</strong>, 2008 and 33.00% starting January 1, 2009 of<br />
interest income subjected to final tax.<br />
An MCIT of 2.00% on modified gross income is computed and compared with <strong>the</strong> RCIT. Any<br />
excess of <strong>the</strong> MCIT over <strong>the</strong> RCIT is deferred and can be used as a tax credit against future<br />
income tax liability <strong>for</strong> <strong>the</strong> next three <strong>year</strong>s. In addition, current tax regulations provide <strong>for</strong> <strong>the</strong><br />
ceiling on <strong>the</strong> amount of entertainment, amusement and recreation (EAR) expenses that can be<br />
claimed as a deduction against taxable income. The actual EAR expenses incurred by <strong>the</strong> Parent<br />
Company was P=4.46 million, P=2.84 million and P=2.62 million in <strong>2011</strong>, 2010 and 2009,<br />
respectively. The allowed EAR limit was P=4.90 million, P=2.80 million and P=2.74 million in <strong>2011</strong>,<br />
2010 and 2009, respectively. Under <strong>the</strong> regulation, EAR expenses allowed as deductible expense<br />
<strong>for</strong> taxpayers engaged in <strong>the</strong> sale of services, including exercise of profession and use of lease<br />
properties, like <strong>the</strong> Parent Company, is limited to <strong>the</strong> actual EAR paid or incurred but not to<br />
exceed 1.00% of net revenue.<br />
RA No. 9504, An Act Amending National Internal Revenue Code, provides that starting<br />
July 1, 2008, <strong>the</strong> optional standard deduction (OSD) equivalent to 40.00% of gross income may be<br />
claimed as an alternative deduction in computing <strong>for</strong> <strong>the</strong> RCIT. For <strong>the</strong> <strong>2011</strong> and 2010 RCIT<br />
computation, <strong>the</strong> Parent Company elected to claim itemized expense deductions instead of <strong>the</strong><br />
OSD.<br />
*SGVMC116502*
- 51 -<br />
The table below shows <strong>the</strong> income tax rates provided on <strong>the</strong> assessable profit <strong>for</strong> <strong>the</strong> <strong>year</strong> of each<br />
subsidiary:<br />
<strong>2011</strong> 2010<br />
PSAGL 16.50% 16.50%<br />
LSML 16.50% 16.50%<br />
IAPL 30.00% 30.00%<br />
WEPL 30.00% 30.00%<br />
INZL 28.00% 30.00%<br />
IGRL 21.00% 21.00%<br />
IRCL 34.20% 34.20%<br />
As of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010, <strong>the</strong> deferred tax assets and liability recognized by <strong>the</strong> Group<br />
relates to <strong>the</strong> tax effects of <strong>the</strong> following:<br />
<strong>2011</strong> 2010<br />
Deferred tax assets on:<br />
Unused tax losses P=4,980,348 P=3,669,877<br />
Unused tax credits − 443,755<br />
Accumulated depreciation − 119,288<br />
Subtotal<br />
Less deferred tax liability on:<br />
4,980,348 4,232,920<br />
Capital allowance <strong>31</strong>,969 29,765<br />
Net deferred tax assets P=4,948,379 P=4,203,155<br />
The Parent Company did not set up deferred tax assets on <strong>the</strong> following temporary differences:<br />
<strong>2011</strong> 2010<br />
Temporary differences on:<br />
Accrued interest expense P=1,994,506 P=2,074,213<br />
Accrued courier charges − 393,793<br />
O<strong>the</strong>rs 808,582 381,961<br />
P=2,803,088 P=2,849,967<br />
The management of <strong>the</strong> Parent Company believes that it is not highly probable that <strong>the</strong>se<br />
temporary differences will be realized in <strong>the</strong> future.<br />
A reconciliation of <strong>the</strong> statutory income tax rates and <strong>the</strong> effective income tax rates in <strong>2011</strong>, 2010<br />
and 2009 follows:<br />
<strong>2011</strong> 2010 2009<br />
Statutory income tax 30.00% 30.00% 30.00%<br />
Tax effects of:<br />
Nondeductible (nontaxable) expenses<br />
(income) (0.58) (1.62) (3.91)<br />
Interest income subject to final tax (0.<strong>17</strong>) (0.34) (0.44)<br />
Unrecognized deferred tax asset (0.04) (0.71) (1.82)<br />
Difference in tax jurisdiction (8.33) 2.71 (0.77)<br />
Effective income tax 20.88% 30.04% 23.06%<br />
*SGVMC116502*
26. Earnings Per Share<br />
- 52 -<br />
Basic earnings per share amounts are calculated by dividing net profit <strong>for</strong> <strong>the</strong> <strong>year</strong> attributable to<br />
ordinary equity holders of <strong>the</strong> Parent Company by <strong>the</strong> weighted average number of ordinary shares<br />
outstanding during <strong>the</strong> <strong>year</strong>.<br />
The following reflects <strong>the</strong> income and share data used in <strong>the</strong> basic earnings per share<br />
computations:<br />
<strong>2011</strong> 2010 2009<br />
a. Net income from continuing operations P=109,633,447 P=96,219,135 P=133,148,358<br />
b. Income/(loss) from discontinued operations 26,429,749 (30,304,899) −<br />
c. Net income (a+b) 136,063,196 65,914,236 133,148,358<br />
d. Net income attributable to ordinary equity<br />
holders of <strong>the</strong> Parent Company <strong>for</strong> basic<br />
earnings 138,069,380 77,551,227 136,379,766<br />
e. Weighted average number of shares <strong>for</strong><br />
basic earnings per share 607,014,606 608,396,800 607,823,506<br />
f. Basic earnings per share (c/e) 0.22 0.11 0.22<br />
g. Basic earnings per share attributable to<br />
ordinary equity holders of <strong>the</strong> Parent<br />
Company (d/e) 0.23 0.13 0.22<br />
h. Basic earnings per share from continuing<br />
operations (a/e) 0.18 0.16 0.22<br />
i. Basic earnings (loss) per share attributable<br />
to equity holders of <strong>the</strong> Parent Company<br />
from discontinued operations (b/e) 0.04 (0.05) −<br />
As of <strong>December</strong> <strong>31</strong>, <strong>2011</strong>, 2010 and 2009, <strong>the</strong>re are no dilutive potential common shares.<br />
27. Segment <strong>Report</strong>ing<br />
The Group’s operating businesses are organized and managed separately according to<br />
geographical areas representing strategic business units. These segments are <strong>the</strong> bases on which<br />
<strong>the</strong> Group reports its segment in<strong>for</strong>mation. Transactions among segments are conducted at market<br />
rates on an arm’s length basis. The Group only reports a geographical segment analysis and no<br />
secondary business segment was presented since all operations relate to <strong>the</strong> remittance business.<br />
Segment assets are those operating assets that are employed by a segment in its operating activities<br />
that are ei<strong>the</strong>r directly attributable to <strong>the</strong> segment or can be allocated to <strong>the</strong> segment on a<br />
reasonable basis.<br />
Segment liabilities are those operating liabilities that result from <strong>the</strong> operating activities of a<br />
segment and that are ei<strong>the</strong>r directly attributable to <strong>the</strong> segment or can be allocated to <strong>the</strong> segment<br />
on a reasonable basis.<br />
*SGVMC116502*
- 53 -<br />
Segment in<strong>for</strong>mation as of and <strong>for</strong> <strong>the</strong> <strong>year</strong>s <strong>ended</strong> <strong>December</strong> <strong>31</strong>, <strong>2011</strong>, 2010 and 2009 follow<br />
(amounts in thousands):<br />
Philippines Asia Pacific Europe<br />
<strong>2011</strong><br />
North<br />
America<br />
Adjustments<br />
and eliminations Total<br />
Financial Per<strong>for</strong>mance<br />
Revenue P=490,087 P=1<strong>31</strong>,329 P=64,288 P= 103,124 (P=969) P=787,859<br />
Cost of services (<strong>17</strong>5,332) (3,440) (10,384) (10,271) − (199,427)<br />
Gross income <strong>31</strong>4,755 127,889 53,904 92,853 (969) 588,432<br />
Operating expenses (213,536) (67,598) (78,730) (94,336) 6,876 (447,324)<br />
O<strong>the</strong>r income (expense) (21,949) 14,071 (1,450) <strong>17</strong>,901 (4,150) 4,423<br />
Income be<strong>for</strong>e income tax 79,270 74,362 (26,276) 16,418 1,757 145,5<strong>31</strong><br />
Provision <strong>for</strong> income tax (23,764) (10,830) (1,034) (270) − (35,898)<br />
Net income 55,506 63,532 (27,<strong>31</strong>0) 16,148 1,757 109,633<br />
Noncontrolling interest − − − − 2,006 2,006<br />
Net income attributable to equity<br />
holders of <strong>the</strong> Parent Company P=55,506 P=63,532 (P=27,<strong>31</strong>0) P=16,148 P=3,763 P=111,639<br />
Financial Position<br />
Total assets P=2,161,338 P=356,540 P=125,544 P= 87,150 (P=456,573) P=2,273,999<br />
Total liabilities P=959,263 P=82,971 P=113,573 P=50,795 (P=293,925) P=912,677<br />
O<strong>the</strong>r Segment In<strong>for</strong>mation<br />
Capital expenditures P=2,593 P=158 P=1,489 P=2,681 P= − =6,921 P<br />
Depreciation and amortization P=6,535 P=1,307 P=1,534 P=2,1<strong>31</strong> P= − =11,507 P<br />
2010<br />
North Adjustments<br />
Philippines Asia Pacific Europe America and eliminations Total<br />
Financial Per<strong>for</strong>mance<br />
Revenue P=463,249 P=128,963 P= 60,481 P=109,058 P=– P=761,751<br />
Cost of services (180,569) (2,665) (9,411) (11,532) – (204,<strong>17</strong>7)<br />
Gross income 282,680 126,298 51,070 97,526 – 557,574<br />
Operating expenses (204,595) (67,535) (66,600) (97,186) – (435,916)<br />
O<strong>the</strong>r income (expense) (21,110) 20,957 490 675 1,848 2,860<br />
Income be<strong>for</strong>e income tax 56,975 79,720 (15,040) 1,015 1,848 124,518<br />
Provision <strong>for</strong> income tax (16,430) (11,242) (278) (349) – (28,299)<br />
Net income 40,545 68,478 (15,<strong>31</strong>8) 666 1,848 96,219<br />
Noncontrolling interest<br />
Net income attributable to equity<br />
– – – – 11,637 11,637<br />
holders of <strong>the</strong> Parent Company P=40,545 P=68,478 (P=15,<strong>31</strong>8) P=666 P=13,485 P=107,856<br />
Financial Position<br />
Total assets P= 2,298,118 P=256,8<strong>31</strong> P=85,245 P=62,144 (P=346,188) P=2,356,150<br />
Total liabilities P= 1,138,677 P=53,107 P=84,182 P=40,718 (P=232,437) P=1,084,247<br />
O<strong>the</strong>r Segment In<strong>for</strong>mation<br />
Capital expenditures P=5,949 P=1,015 P=6,081 P=994 P=– P=14,039<br />
Depreciation and amortization P=8,059 P=1,800 P= 1,341 P=2,075 P=– P=13,275<br />
*SGVMC116502*
- 54 -<br />
2009<br />
North Adjustments<br />
Philippines Asia Pacific Europe America and eliminations Total<br />
Financial Per<strong>for</strong>mance<br />
Revenue P=473,446 P=119,824 P=73,103 P=112,284 P=– P=778,657<br />
Cost of services (198,769) (2,502) (<strong>17</strong>,047) (12,619) – (230,937)<br />
Gross income 274,677 1<strong>17</strong>,322 56,056 99,665 – 547,720<br />
Operating expenses (<strong>17</strong>9,005) (69,321) (73,965) (90,068) – (412,359)<br />
O<strong>the</strong>r income (expense) 60,933 53,687 2,167 5<strong>17</strong> (79,592) 37,712<br />
Income be<strong>for</strong>e income tax 156,605 101,688 (15,742) 10,114 (79,592) <strong>17</strong>3,073<br />
Provision <strong>for</strong> income tax (27,198) (9,060) (278) (3,389) – (39,925)<br />
Net income 129,407 92,628 (16,020) 6,725 (79,592) 133,148<br />
Noncontrolling interest<br />
Net income attributable to equity<br />
– – – – 3,2<strong>31</strong> 3,2<strong>31</strong><br />
holders of <strong>the</strong> Parent Company P=129,407 P=92,628 (P=16,020) P=6,725 (P=76,361) P=136,379<br />
Financial Position<br />
Total assets P=2,404,902 P=248,228 P=73,889 P=81,580 (P=320,488) P=2,488,111<br />
Total liabilities P=1,160,025 P=103,799 P=21,373 P=60,602 (P=110,115) P=1,235,684<br />
O<strong>the</strong>r Segment In<strong>for</strong>mation<br />
Capital expenditures P=1,914 P=1,192 P=729 P=5,548 P=– P=9,383<br />
Depreciation and amortization P=8,615 P=1,755 P=1,574 P=2,276 P=– P=14,220<br />
The Group has no intersegment revenues and costs of services in <strong>2011</strong> and 2010.<br />
The Group has no significant customers which contributes 10% or more of <strong>the</strong> consolidated<br />
revenues.<br />
Segment assets as of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010 do not include investments in subsidiaries<br />
amounting to P=279.16 million and P=228.98 million, respectively and inter-segment receivables<br />
amounting to P=291.98 million and P=211.64, respectively, which are eliminated on consolidation.<br />
Capital expenditures, which pertain to property, plant and equipment acquired, are disclosed<br />
according to <strong>the</strong> asset’s physical location.<br />
The Group’s share in net income of associates amounting to P=2.05 million, P=2.50 million and<br />
P=6.15 million in <strong>2011</strong>, 2010 and 2009, respectively, are included under Asia Pacific.<br />
28. Discontinued Operations<br />
In February 2010, IRCGmbH (<strong>for</strong>merly IERCAG) started its remittance business in Italy. On<br />
April 28, <strong>2011</strong>, IRCGmbH stopped its money remittance operations in Rome and Milan in Italy in<br />
accordance with Article 75 of <strong>the</strong> Transitional and Final Provisions of Austrian Payment Services<br />
Act, which stipulated that credit institutions that have held authorizations pursuant to Article 1<br />
paragraph 1 no 23 BWG, as am<strong>ended</strong> by <strong>the</strong> Federal Act Federal Law Gazette No. 35/2003, prior<br />
to <strong>December</strong> 25, 2009, have only until April 30, <strong>2011</strong> to carry out <strong>the</strong>ir money remittance<br />
operations.<br />
In <strong>December</strong> <strong>2011</strong>, IRCGmbH sold assets relating to its operations in Italy to a third party. These<br />
assets, with an aggregate carrying amount of P=7.29 million, were sold <strong>for</strong> a consideration of<br />
P=72.43 million <strong>the</strong>reby resulting to a gain on sale of P=65.14 million.<br />
*SGVMC116502*
- 55 -<br />
The results of IRCGmbH’s operation in Italy follow:<br />
<strong>2011</strong> 2010<br />
Delivery fees P=5,289,202 P=7,486,658<br />
Realized <strong>for</strong>eign exchange gains - net 1,006,867 673,204<br />
6,296,069 8,159,862<br />
Cost of services 596,703 3,749,195<br />
Gross income 5,699,366 4,410,667<br />
O<strong>the</strong>r income - net 615,909 38,935<br />
Operating expenses (45,024,921) (34,754,501)<br />
Loss from operations (P=38,709,646) (P=30,304,899)<br />
Gain on sale of assets 65,139,395 −<br />
Income (Loss) from discontinued operations P=26,429,749 (P=30,304,899)<br />
The net cash flows incurred by IRCGmbH in its Italy operations are as follows:<br />
<strong>2011</strong> 2010<br />
Operating P=27,911,882 (P=29,509,273)<br />
Financing (27,911,882) 30,152,409<br />
P= − P=643,136<br />
29. Contingencies<br />
The Group has various contingencies arising in <strong>the</strong> ordinary conduct of business which have<br />
pending decision with <strong>the</strong> courts or are being contested, <strong>the</strong> outcome of which are not presently<br />
determinable.<br />
In <strong>the</strong> opinion of management and its legal counsel, <strong>the</strong> eventual liability under <strong>the</strong>se lawsuits or<br />
claims, if any, will not have a material or adverse effect on <strong>the</strong> Group’s financial position and<br />
results of operations. The in<strong>for</strong>mation usually required by PAS 37 is not disclosed on <strong>the</strong> grounds<br />
that it can be expected to prejudice <strong>the</strong> outcome of <strong>the</strong>se lawsuits, claims and assessments.<br />
30. Approval of <strong>the</strong> Release of <strong>the</strong> Financial Statements<br />
The accompanying consolidated financial statements were approved and authorized <strong>for</strong> issue by<br />
<strong>the</strong> Parent Company’s BOD on March 23, 2012.<br />
*SGVMC116502*
I-REMIT, INC. AND SUBSIDIARIES<br />
INDEX TO THE<br />
CONSOLIDATED FINANCIAL STATEMENTS<br />
AND SUPPLEMENTARY SCHEDULES<br />
<strong>December</strong> <strong>31</strong>, <strong>2011</strong><br />
Schedu le Content Page No.<br />
Part 1<br />
I Schedule<br />
of Retained Earnings Available <strong>for</strong> Dividend Declaration<br />
(Part 1 4C,<br />
Annex 68-C)<br />
II Schedule of all effective standards and interpretations under PFRS<br />
(Part 1 4J)<br />
III Map showing<br />
relationships between and among parent, subsidiaries, an<br />
associate,<br />
and joint venture (Part 1 4H)<br />
Part 2<br />
A Financial<br />
Assets 8<br />
B Amounts<br />
Receivable from Directors, Officers, Employees, Related Parties<br />
and Principal<br />
Stockholders (O<strong>the</strong>r than Affiliates)<br />
9<br />
C Amounts<br />
Receivable from Related Parties which are eliminated during <strong>the</strong><br />
consolidation of financial statements 10<br />
D Intangible Assets - O<strong>the</strong>r Assets 11<br />
E Long-Term<br />
Debt 12<br />
F Indebtedness<br />
to Related Parties (included in <strong>the</strong> consolidated statement of<br />
position) 13<br />
G Guarantees of Securities of O<strong>the</strong>r Issuers 14<br />
H Capital Stock 15<br />
1<br />
2 - 6<br />
7
- 1 -<br />
I-REMIT, INC.<br />
SCHEDULE OF RETAINED EARNINGS<br />
AVAILABLE FOR DIVIDEND DECLARATION<br />
DECEMBER <strong>31</strong>, <strong>2011</strong><br />
Schedule I<br />
Unappropriated retained<br />
earnings, as adjusted to available <strong>for</strong> dividend<br />
distribution, beginning<br />
P=161,219,561<br />
Add: Net income earned<br />
during <strong>the</strong> <strong>year</strong><br />
Net income during<br />
<strong>the</strong> <strong>year</strong> 55,506,145<br />
Less: Unrealized <strong>for</strong>eign<br />
exchange gains - net (except those attributable<br />
to cash and cash<br />
equivalents) 1,205,505<br />
Subtotal<br />
54,300,640<br />
Add: Realized income categorized as unrealized in previous <strong>year</strong>s 6,419,981<br />
Net income actually earned<br />
during <strong>the</strong> <strong>year</strong> 60,720,621<br />
Less: Dividend declarations<br />
during <strong>the</strong> <strong>year</strong> 55,308,800<br />
Treasury shares<br />
12,872,058<br />
Subtotal<br />
(7,460,237)<br />
Retained earnings available <strong>for</strong> dividend distribution, ending P=153,759,324
- 2 -<br />
I-REMIT, INC.<br />
SCHEDULE OF ALL EFFECTIVE STANDARDS<br />
AND INTERPRETATIONS UNDER PFRS<br />
DECEMBER <strong>31</strong>, <strong>2011</strong><br />
Schedule II<br />
Page 1 of 5<br />
PFRSs<br />
Adopted/Not adopted/<br />
Not applicable<br />
PFRS 1, First-time Adoption of Philippine Financial <strong>Report</strong>ing Standards Not applicable<br />
PFRS 2, Share-based Payment Adopted PFRS 3, Business Combinations Adopted<br />
PFRS 4, Insurance Contracts<br />
Not applicable<br />
PFRS 5, Non-current Assets Held <strong>for</strong> Sale and Discontinued Operati ons<br />
Adopted<br />
PFRS 6, Exploration <strong>for</strong> and Evaluation of Mineral Resources Not applicable<br />
PFRS 7, Financial Instruments: Disclosures Adopted<br />
PFRS 8, Operating Segments Adopted<br />
PAS 1, Presentation of Financial Statements Adopted<br />
PAS 2, Inventories Not applicable<br />
PAS 7, Statement of Cash Flows Adopted<br />
PAS 8, Accounting Policies, Changes in Accounting Estimates and Errors Adopted<br />
PAS 10, Events after <strong>the</strong> <strong>Report</strong>ing Period<br />
Adopted<br />
PAS 11, Construction Contracts Not applicable<br />
PAS 12, Income Taxes Adopted PAS 16, Property, Plant and Equipment Adopted<br />
PAS <strong>17</strong>, Leases Adopted<br />
PAS 18, Revenue Adopted<br />
PAS 19, Employee Benefits<br />
PAS 20, Accounting <strong>for</strong> Government Grants and Disclosure of Government<br />
Adopted<br />
Assistance<br />
Not applicable<br />
PAS 21, The Effects of Changes in Foreign Exchange Rates Adopted<br />
PAS 23, Borrowing Costs<br />
Adopted<br />
PAS 24, Related Party Disclosures Adopted<br />
PAS 26, Accounting and <strong>Report</strong>ing by Retirement Benefit Plans Not applicable<br />
PAS 27, Consolid ated and Separate Financial Statements Adopted<br />
PAS 28, Investments in Associates<br />
Adopted<br />
PAS 29, Financial <strong>Report</strong>ing in Hyperinflationary Economies Not applicable<br />
PAS <strong>31</strong>, Interests in Joint Ventures Not applicable<br />
PAS 32, Financial Instruments: Presentation Adopted<br />
PAS 33, Earnings per Share Adopted
- 3 -<br />
Schedule II<br />
Page 2 of 5<br />
PFRSs<br />
Adopted/Not adopted/<br />
Not applicable<br />
PAS 34, Interim Financial<br />
<strong>Report</strong>ing Adopted<br />
PAS 36, Impairment of Assets Adopted<br />
PAS 37, Provisions, Contingent Liabilities and Contingent Assets Adopted<br />
PAS 38, Intangible Assets Adopted<br />
PAS 39, Financial Instruments: Recognition and Measurement Adopted<br />
PAS 40, Investment Property Not applicable<br />
PAS 41, Agriculture<br />
Philippine Interpretation<br />
IFRIC–1, Changes in Existing Decommissioning,<br />
Not applicable<br />
Restoration and Similar Liabilities Philippine Interpretation<br />
IFRIC–2, Members' Shares in Co-operative<br />
Not<br />
Applicable<br />
Entities and Similar Instruments<br />
Philippine Interpretation IFRIC–4, Determining whe<strong>the</strong>r an Arrangement<br />
Not Applicable<br />
contains a Lease Philippine Interpretation<br />
IFRIC–5, Rights to Interests arising from<br />
Not Applicable<br />
Decommissioning, Restoration and<br />
Environmental Rehabilitation Funds<br />
Philippine Interpretation IFRIC–6, Liabilities arising from Participating in<br />
Not Applicable<br />
a Specific Market - Waste Electrical and Electronic Equipment<br />
Philippine Interpretation<br />
IFRIC–7, Applying <strong>the</strong> Restatement Approach<br />
Not Applicable<br />
under PAS 29, Financial<br />
<strong>Report</strong>ing in Hyperinflationary Economies Not Applicable<br />
Philippine Interpretation IFRIC–9, Reassessment of Embedded Derivatives<br />
Philippine Interpretation IFRIC–10, Interim Financial <strong>Report</strong>ing and<br />
Not Adopted<br />
Impairment Adopted<br />
Philippine Interpretation IFRIC–12, Service Concession Arrangements Not Applicable<br />
Philippine Interpretation IFRIC–13, Customer Loyalty Programmes<br />
Philippine Interpretation<br />
IFRIC–14, PAS 19 - The Limit on a Defined<br />
Not applicable<br />
Benef it Asse t, Minimum Funding Requirements and <strong>the</strong>ir Interaction<br />
Philippine Interpretation IFRIC–16, Hedges of a Net Investment in a<br />
Adopted<br />
Forei gn Oper ation<br />
Philippine Interpretation IFRIC–<strong>17</strong>, Distributions of Non-cash Assets to<br />
Not Applicable<br />
Owners Not applicable<br />
Philippine Interpretation IFRIC–18, Transfers of Assets from Customers<br />
Philippine Interpretation IFRIC–19, Extinguishing Financia l Liabilities<br />
Not Applicable<br />
with Equity Instruments Not Applicable Philippine Interpretation SIC–7, Introduction of <strong>the</strong> Euro Philippine Interpretation SIC–10, Government Assistance - No<br />
Specific<br />
Not applicable Relation t o Operating Activities Not applicable Philippine Interpretation SIC–12, Consolida tion - Special Purpose Entities Philippine Interpretation SIC–13, Jointly Controlled Entities - Non-<br />
Not Applicable Moneta ry Contributions by Venturers Not Applicable<br />
Philippine Interpretation SIC–15, Operating Leases – Incentives<br />
Philippine Interpretation<br />
SIC–21, Income Taxes - Recovery of Revalued<br />
Not Applicable<br />
Non-Depreciable Assets<br />
Not Applicable
- 4 -<br />
Schedule II<br />
Page 3 of 5<br />
Philippine Interpretation<br />
SIC–25, Income Taxes - Changes in <strong>the</strong> Tax Status<br />
of an Entity or its Shareholders<br />
Not Applicable<br />
Philippine Interpretation<br />
SIC–27, Evaluating <strong>the</strong> Substance of Transactions<br />
Involving <strong>the</strong> Legal Form<br />
of a Lease Not Applicable<br />
Philippine Interpretation<br />
SIC–29, Service Concession Arrangements:<br />
Disclosures Not Applicable<br />
Philippine Interpretation SIC–<strong>31</strong>, Revenue - Barter Transactions Involving<br />
Advertising Services Not Applicable<br />
Philippine Interpretation SIC–32, Intangible Assets - Web Site Costs Not applicable<br />
PIC Q&A No. 2006-01:<br />
PAS 18, Appendix, paragraph 9 - Revenue<br />
recognition <strong>for</strong> sales of property units under pre-completion<br />
contracts<br />
Not Applicable<br />
PIC Q&A No. 2006-02: PAS 27.10(d) - Clarification<br />
of criteria <strong>for</strong><br />
exempti on from presenting consolidated financial statements Not Applicable<br />
PIC Q&A No. 2007-03:<br />
PAS 40.27 - Valuation of bank real and o<strong>the</strong>r<br />
properties acquired<br />
(ROPA) Not Applicable<br />
PIC Q&A No. 2008-01<br />
(Revised): PAS 19.78 - Rate used in discounting<br />
post-employment<br />
benefit obligations Not Applicable<br />
PIC Q&A No. 2008-02:<br />
PAS 20.43 - Accounting <strong>for</strong> government loans<br />
with low interest<br />
rates under <strong>the</strong> amendments to PAS 20 Not Applicable<br />
PIC Q&A No. 2009-01:<br />
Framework.23 and PAS 1.23 - Financial<br />
statements prepared on a basis o<strong>the</strong>r than going concern<br />
Not Applicable<br />
PIC Q&A No. 2010-01:<br />
PAS 39.AG71-72 - Rate used in determining <strong>the</strong><br />
fa ir valu e of government<br />
securities in <strong>the</strong> Philippines Not Applicable<br />
PIC Q&A No. 2010-02:<br />
PAS 1R.16 - Basis of preparation of financial<br />
statements Adopted<br />
PIC Q&A No. <strong>2011</strong>-01:<br />
PAS 1.10(f) - Requirements <strong>for</strong> a Third Statement<br />
of Financial Position Not Applicable
- 5 -<br />
Schedule II<br />
Page 4 of 5<br />
Important: If an entit y has early adopted any of <strong>the</strong> following pronouncements, please take note of<br />
<strong>the</strong>: (1) additional disclosures <strong>the</strong> entity has to make <strong>for</strong> <strong>the</strong> early adoption of <strong>the</strong> said<br />
pronouncement s and (2) <strong>the</strong> existing pronouncements<br />
that <strong>the</strong> entity may have to mark as “Not<br />
applicable”:<br />
Applicable to annual Early<br />
Pronouncemen ts issued<br />
but period beginning on application<br />
not yet effective<br />
Amendments to PFRS 7:<br />
or after<br />
allowed Remarks<br />
Disclosures-Transfers of<br />
Financial<br />
To be adopted<br />
Asse ts<br />
July 1, <strong>2011</strong> Yes when effective<br />
Amendments to PFRS 7:<br />
Disclosures-Offsetting Financial<br />
Assets and Financial Liabilities<br />
January 1, 2013 Not mentioned<br />
To be adopted<br />
when effective<br />
PFRS 9, Financial Instruments January 1, 2015 Yes Adopted<br />
PFRS 10, Consolidated Financial<br />
Statements<br />
January 1, 2013 Yes<br />
To be adopted<br />
when effective<br />
PFRS 11, Joint Arrangements<br />
January 1, 2013 Yes<br />
To be adopted<br />
when effective<br />
PFRS 12, Disclosure of Interests<br />
in<br />
O<strong>the</strong>r Entities<br />
January 1, 2013 Yes<br />
To be adopted<br />
when effective<br />
PFRS 13, Fair Value Measurement<br />
January 1, 2013 Yes<br />
To be adopted<br />
when effective<br />
Amendments to PAS 1: Presentation<br />
To be adopted<br />
of Items of O<strong>the</strong>r Comprehensive<br />
Income<br />
July 1, 2012 Yes when effective<br />
Amendments to PAS 12-Deferred<br />
Tax: Recovery of Underlying<br />
Assets<br />
January 1, 2012 Yes<br />
To be adopted<br />
when effective<br />
PAS 19, Employee Benefits<br />
(Revised)<br />
January 1, 2013 Yes<br />
To be adopted<br />
when effective<br />
PAS 27, Separate Financial<br />
Statements<br />
January 1, 2013 Yes<br />
To be adopted<br />
when effective<br />
PA S 28, Investments in Associates<br />
and Joint Ventures<br />
January 1, 2013 Yes Not applicable<br />
Amendments to PAS 32, Offsetting<br />
Financial Assets and Financial<br />
Liabilities<br />
January 1, 2014 Yes<br />
To be adopted<br />
when effective<br />
Philippine Interpretation IFRIC-15,<br />
Agreements <strong>for</strong> <strong>the</strong> Construction<br />
of<br />
Real Estate<br />
Philippine Interpretation IFRIC-20,<br />
Deferred by SEC and<br />
FRSC<br />
No<br />
To be adopted<br />
when effective<br />
Strippin g Costs in <strong>the</strong> Production Phase of a Surface Mine PIC Q&A No. <strong>2011</strong>-02: PFRS<br />
3.2 -<br />
January 1, 2013 Yes Not applicable<br />
Common Control Business<br />
Combinations<br />
January 1, 2012 Yes Not applicable
- 6 -<br />
Schedule II<br />
Page 5 of 5<br />
Applicable to annual Early<br />
Pronouncements issued but period beginning on application<br />
not yet effective<br />
or after allowed Remarks<br />
PIC Q&A No. <strong>2011</strong>-03: Accounting<br />
<strong>for</strong> Inter-company Loans<br />
January 1, 2012 Yes<br />
To be adopted<br />
when effective<br />
PIC Q&A No. <strong>2011</strong>-04: PAS<br />
32.37-<br />
38 - Costs of Public Offering<br />
of<br />
Shares<br />
January 1, 2012 Yes<br />
To be adopted<br />
when effective<br />
PIC Q&A No. <strong>2011</strong>-05: PFRS<br />
1.D1-<br />
D8 - Fair Value or Revaluation<br />
as<br />
Deemed Cost<br />
January 25, 2012 Not mentioned<br />
To be adopted<br />
when effective
- 7 -<br />
I-REMIT, INC. AND SUBSIDIARIES<br />
MAP SHOWING RELATIONSHIPS BETWEEN AND AMONG PARENT,<br />
SUBSIDIARIES, AN ASSOCIATE, AND JOINT VENTURE<br />
Schedule III
Name of issuing entity and<br />
association of each issue<br />
- 8 -<br />
I-Remit, Inc. and Subsidiaries<br />
Schedule A – Financial Assets<br />
<strong>December</strong> <strong>31</strong>, <strong>2011</strong><br />
Number of shares or<br />
principal amount of bonds<br />
or notes<br />
Amount shown on <strong>the</strong><br />
balance sheet<br />
Income accrued<br />
Debt securities<br />
Republic of Venezuela<br />
$782,748 P=35,<strong>31</strong>3,120 P=3,563,146<br />
Citic Pacific Ltd.<br />
402,000 16,834,560 996,362<br />
FTP Finance Ltd 300,650 13,842,918 899,532<br />
Royal Capi tal BV<br />
301,775 13,388,736 726,518<br />
Claudius Limited Notes<br />
208,000 8,753,971 732,756<br />
Various private corporations<br />
599,579 24,491,502 1,940,997<br />
Equity securities (shares)<br />
P=112,624,807 P=8,859,<strong>31</strong>1<br />
SHS General Motors 5,400 4,798,639 P=–<br />
Apple Inc<br />
200<br />
3,551,040 –<br />
HSBC Holdings<br />
10,000<br />
3,326,<strong>31</strong>6 –<br />
Global X Silver ( SIL)<br />
1,000<br />
925,462 –<br />
P=12,601,457 P=–<br />
P=125,226,264 P=8,859,<strong>31</strong>1
Name of Debtor<br />
- 9 -<br />
I-Remit, Inc. and Subsidiaries<br />
Schedule B - Amounts Receivable from Directors, Officers, Employees, Related Parties and<br />
Principal Stockholders (O<strong>the</strong>r than Related Parties)<br />
<strong>December</strong> <strong>31</strong>, <strong>2011</strong><br />
Balance at<br />
beginning of<br />
period Additions<br />
Amounts<br />
Collected<br />
Amounts<br />
Written-off Current<br />
Non-<br />
Current<br />
Balance at end<br />
of period<br />
Annie Angeles P=338,944 P=– P= 203,242<br />
P=– P= 135,702 P= – P=135,702<br />
Bansan Choa 281,891 – –<br />
– 281,891 – 281,891<br />
Bernadette Tiu 7,864,414 11, 126 239,287 – 7,<br />
636,253 – 7,636,253<br />
Ca<strong>the</strong>rine Chan – 27, 493 13,747 – 13,746 – 13,746<br />
Ian Chryzl Gonzales – 2,999<br />
– –<br />
2,999 – 2,999<br />
Dina Simbulan 56,124 – – – 56,124 – 56,124<br />
Fatima Ramos – 2,800 2,800 –<br />
0 –<br />
0<br />
Gabriel de Guzman – 864 864 –<br />
0 –<br />
0<br />
Joanna Badilla – 2,800 2,800 –<br />
0 –<br />
0<br />
Jonathan Bunag – 64,143 50,000 – 14,143 – 14,143<br />
Joselyn Bagalan – 2, 577<br />
–<br />
–<br />
2,577 – 2,577<br />
Juan Miguel Guerero – 10,000 10,000 –<br />
0 –<br />
0<br />
Junell Dasun – 16,086 – – 16,086 – 16,086<br />
Justine Castellon 272,<strong>31</strong>0 – – – 272,<strong>31</strong>0 – 272,<strong>31</strong>0<br />
Karen Remo – 955<br />
955 –<br />
0 –<br />
0<br />
Ma Cristina Castellejo – 503, 405<br />
43,077<br />
– 460,328 – 460,328<br />
Michael Velasco –<br />
1, 841<br />
1,841<br />
–<br />
0 – 0<br />
Paul Art Vidallo – 1,926<br />
1,926 –<br />
0 – 0<br />
Paul Erick Villaluz – 1,518<br />
– –<br />
1,518 – 1,518<br />
Ronald Santos 222,362 – – – 22 2,362 – 222,362<br />
P=9,036,045 P=650, 533<br />
P=570,539 P= – P= 9,116,039 P=– P=9,116,039
Name of Debtor<br />
- 10 -<br />
I-Remit, Inc. and Subsidiaries Schedule C - Amounts Receivable from Related Parties which are eliminated<br />
during <strong>the</strong> consolidation of financial statements)<br />
<strong>December</strong> <strong>31</strong>, <strong>2011</strong><br />
Balance at<br />
beginning of<br />
period Additions<br />
Amounts<br />
Collected<br />
Amounts<br />
Written-off Current<br />
Non-<br />
Current<br />
Balance at end<br />
of period<br />
Lucky Star Management Ltd. P=4,454,735 P=15,392,560 P=4,633,819 P= – P=1 5,213, 476<br />
P=– P=15,213,<br />
476<br />
Iremit Global Remittance Ltd 5,099,127 26,168,530 10,846,363 – 20,421,294 – 20,421,<br />
294<br />
Worldwide Exchange Pty. Ltd 94,113 25,973,348 1,893,496 – 24,<strong>17</strong>3 ,965<br />
– 24,<strong>17</strong>3,<br />
965<br />
International Remittance Canada Ltd. 71,646 43,<strong>31</strong>6,090 1,096,561 – 42,291,<strong>17</strong>5 – 42,291,<br />
<strong>17</strong>5<br />
Iremit New Zealand Limited 9,285,149 11,594,400 3,824 – 20,875,725 – 20,875,<br />
725<br />
Power Star Group Asia Ltd. – 33,166 –<br />
–<br />
33,166 – 33,<br />
166<br />
K.K. Iremit Japan – 5,611,520 –<br />
– 5,611,520 – 5,611,<br />
520<br />
Iremit Europe Remittance Consulting AG 54,579,655 34,162,850 25,9<strong>31</strong>,196 – 62,811,309 – 62,811,<br />
309<br />
Iremit Australia Pyt. Ltd – 697,587 323, 847<br />
–<br />
373 ,740<br />
– 373,<br />
740<br />
P=73,584,425 P=162,950,051 P=44,729,106 P= – P=191,805,370 P=– P=191,805,<br />
370
- 11 -<br />
I-Remit, Inc. and Subsidiaries<br />
Schedule D - Intangible Assets - O<strong>the</strong>r Assets<br />
<strong>December</strong> <strong>31</strong>, <strong>2011</strong><br />
Description (i) Beginning<br />
Balance<br />
Additions at Cost<br />
(ii)<br />
Charged to cost<br />
and expenses<br />
Charged to o<strong>the</strong>r<br />
accounts<br />
O<strong>the</strong>r changes<br />
additions<br />
(iii)<br />
(deductions)<br />
Ending Balance<br />
Goodwill 93,092,118 – – – (436,778) 92,655,340<br />
Software 2,081, 747 2,034,070 (2, 4 56,524)<br />
– (208,349) 1,450,944<br />
_______________________________________________ (I)<br />
The in<strong>for</strong>mation required<br />
shall be grouped into ( a) intangibles shown under<br />
<strong>the</strong> caption<br />
intangible<br />
assets and (b) de ferrals shown under <strong>the</strong><br />
caption O<strong>the</strong>r Assets in <strong>the</strong> related<br />
balance sheet.<br />
Show by major<br />
classifications.<br />
(II)<br />
For each change representing<br />
o<strong>the</strong>r<br />
than an acquisition,<br />
clearly<br />
state <strong>the</strong> na ture of <strong>the</strong><br />
change and <strong>the</strong> o<strong>the</strong>r accounts affected.<br />
Describe<br />
cost of<br />
additions representing o<strong>the</strong>r<br />
than cash expenditures.<br />
(III)<br />
If provision <strong>for</strong> amortization<br />
of int<br />
angible assets is credited in <strong>the</strong> books<br />
di rectly to <strong>the</strong> intangible<br />
asset account,<br />
<strong>the</strong> amounts<br />
shall<br />
be stated<br />
with explanations, including<br />
<strong>the</strong> accounts<br />
charged.<br />
Clearly state<br />
<strong>the</strong> nature<br />
of deductions<br />
if <strong>the</strong>se<br />
represent anything<br />
o<strong>the</strong>r<br />
than regular<br />
amortization.
Title of issue and<br />
type of obligation (i)<br />
Amount authorized<br />
by indenture<br />
- 12 -<br />
I-Remit, Inc. and Subsidiaries<br />
Schedule E - Long-Term Debt<br />
<strong>December</strong> <strong>31</strong>, <strong>2011</strong><br />
Amount shown under caption “Current<br />
portion of long-term debt’ in related<br />
balance sheet (ii)<br />
None to <strong>Report</strong><br />
Amount shown under caption<br />
“Long-Term Debt” in related<br />
balance sheet (iii)<br />
Interest<br />
Rate<br />
%<br />
Maturity<br />
Date
- 13 -<br />
I-Remit, Inc. and Subsidiaries<br />
Schedule F - Indebtedness to Related Parties<br />
(included in <strong>the</strong> consolidated financial statement of position)<br />
<strong>December</strong> <strong>31</strong>, <strong>2011</strong><br />
Name of Related Parties (i) Balance at beginning of period Balance at end of period (ii)<br />
__________________________________________________<br />
None to <strong>Report</strong><br />
(i)<br />
The related parties named shall be grouped as in Schedule<br />
D. The<br />
in<strong>for</strong>matio<br />
n called shall be stated <strong>for</strong> any persons whose<br />
investments<br />
shown separately in such related schedule.<br />
(ii)<br />
For each affiliate named in <strong>the</strong> first column, explain<br />
in a note hereto <strong>the</strong> nature<br />
and purpose<br />
o f any material increase during <strong>the</strong> period<br />
that<br />
is in excess of 10 percent of <strong>the</strong> related b alance at ei<strong>the</strong>r <strong>the</strong> beginning<br />
or end<br />
of <strong>the</strong> period.
Name of issuing entity of<br />
securities guaranteed by<br />
<strong>the</strong> company <strong>for</strong> which<br />
this statement is filed<br />
Title of issue of each class<br />
of securitie s guaranteed<br />
_____________________________________________________ - 14 -<br />
I-Remit, Inc. and Subsidiaries<br />
Schedule G - Guarantees of Securities of O<strong>the</strong>r Issuers<br />
<strong>December</strong> <strong>31</strong>, <strong>2011</strong><br />
Total amount of<br />
guaranteed and<br />
outstanding (i)<br />
None<br />
to <strong>Report</strong><br />
Amount owned by person<br />
of which statement is Nature of guarantee (ii)<br />
filed<br />
(i) Indicate in a note<br />
any<br />
significant changes since<br />
<strong>the</strong> date of<br />
<strong>the</strong> last balance sheet file. If this schedule<br />
is filed in support<br />
of consolidated<br />
financial statements,<br />
<strong>the</strong>re shall be set <strong>for</strong>th guarantees by any person<br />
included<br />
in <strong>the</strong> consolidation except such guarantees<br />
of securities<br />
which<br />
are inclu ded in <strong>the</strong> consolidated<br />
balance sheet.<br />
(ii) There m ust be a brief<br />
statement of <strong>the</strong> nature<br />
of <strong>the</strong> guarantee,<br />
such<br />
as “Guarantee<br />
of principal and interest”, “Guarantee<br />
of Interest”,<br />
or<br />
“Guarantee of Divid ends”. If <strong>the</strong> guarantee is of interest, dividends,<br />
or both,<br />
state <strong>the</strong> annual aggregate<br />
amount of interest<br />
or dividends<br />
so<br />
guaranteed.
Title of Issue (i)<br />
Number of<br />
shares<br />
authorized Common stock<br />
- P= 1 par value 1,000,000,000<br />
_________________________________________________ - 15 -<br />
I-Remit, Inc. and Subsidiaries<br />
Schedule H - Capital Stock<br />
<strong>December</strong> <strong>31</strong>, <strong>2011</strong><br />
Number of<br />
shares issued<br />
and<br />
outstanding as<br />
shown under<br />
<strong>the</strong> related<br />
balance sheet<br />
caption<br />
602,852,800<br />
Number of<br />
shares reserved<br />
<strong>for</strong> options,<br />
warrants,<br />
conversion<br />
and<br />
o<strong>the</strong>r<br />
rights<br />
Number of<br />
shares held by<br />
related parties<br />
(ii)<br />
– 443,819,584<br />
Directors,<br />
officers and O<strong>the</strong>rs (iii)<br />
employees<br />
(i)<br />
Include in this col umn each type of issue authorized<br />
(ii)<br />
Related parties referred to include persons<br />
<strong>for</strong> which<br />
separate financial<br />
statements<br />
are filed and those<br />
included<br />
in <strong>the</strong> consolidated financial<br />
statements, o<strong>the</strong>r than <strong>the</strong> issuer of <strong>the</strong> particular security.<br />
(iii)<br />
Indi cate in a note any significant changes<br />
since<br />
<strong>the</strong> date of <strong>the</strong><br />
last balance<br />
sheet file<br />
110<br />
159,033,106
P<br />
I - R E M I T , I N C .<br />
(Company’s Full Name)<br />
A 2 0 0 1 0 1 6 3 1<br />
SEC Registration Number<br />
2 6 / F D i s c o v e r y C e n t r e , 2 5 A D B A v e<br />
n u e , O r t i g a s C e n t e r , P a s i g C i t y<br />
(Business Address: No. Street City/Town/Province)<br />
Mr. Bansan C. Choa 706-9999<br />
(Contact Person) (Company Telephone Number)<br />
1 2 3 1 A A F S<br />
Month Day (Form Type) Month Day<br />
(Fiscal Year) (<strong>Annual</strong> Meeting)<br />
(Secondary License Type, If Applicable)<br />
Dept. Requiring this Doc. <strong>Am<strong>ended</strong></strong> Articles Number/Section<br />
Total Amount of Borrowings<br />
Total No. of Stockholders Domestic Foreign<br />
To be accomplished by SEC Personnel concerned<br />
File Number LCU<br />
Document ID Cashier<br />
S T A M P S<br />
COVER SHEET<br />
Remarks: Please use BLACK ink <strong>for</strong> scanning purposes.<br />
*SGVMC116501*
I-REMIT, INC.<br />
NOTES TO PARENT COMPANY FINANCIAL STATEMENTS<br />
1. Corporate In<strong>for</strong>mation<br />
I-Remit, Inc. (<strong>the</strong> Parent Company) was incorporated in <strong>the</strong> Philippines and was registered with<br />
<strong>the</strong> Securities and Exchange Commission (SEC) on March 5, 2001 and started commercial<br />
operations on November 11, 2001.<br />
The Parent Company, which is domiciled in <strong>the</strong> Philippines, has its registered office and principal<br />
place of business at <strong>the</strong> 26/F Discovery Centre, 25 ADB Avenue, Ortigas Center, Pasig City. The<br />
Parent Company’s common shares were listed with <strong>the</strong> Philippine Stock Exchange (PSE) on<br />
October <strong>17</strong>, 2007.<br />
The Parent Company and its subsidiaries (collectively referred to as “<strong>the</strong> Group”), except Power<br />
Star Asia Group Limited (PSAGL), are primarily engaged in <strong>the</strong> business of fund transfer and<br />
remittance services of any <strong>for</strong>m or kind of currencies or monies, ei<strong>the</strong>r by electronic, telegraphic,<br />
wire or any o<strong>the</strong>r mode of transfer; delivery of such funds or monies, both in <strong>the</strong> domestic and<br />
international market, by providing ei<strong>the</strong>r courier or freight <strong>for</strong>warding services; and conduct of<br />
<strong>for</strong>eign exchange transactions as may be allowed by law and o<strong>the</strong>r allied activities relative <strong>the</strong>reto.<br />
PSAGL, on <strong>the</strong> o<strong>the</strong>r hand, provides financial advisory and o<strong>the</strong>r services.<br />
The Group is 28.91% owned by STAR Equities, Inc., 19.34% owned by JTKC Equities, Inc.,<br />
22.27% owned by Surewell Equities, Inc., 3.10% owned by JPSA Global Services Co., and <strong>the</strong><br />
rest by <strong>the</strong> public. The Parent Company is <strong>the</strong> ultimate parent company of <strong>the</strong> Group.<br />
The Parent Company’s subsidiaries and associates are as follows:<br />
Subsidiaries:<br />
International Remittance<br />
Country of<br />
Incorporation<br />
Functional<br />
Currency<br />
Effective Percentage of Ownership<br />
<strong>December</strong> <strong>31</strong><br />
<strong>2011</strong> 2010 2009<br />
(Canada) Ltd. (IRCL) Canada<br />
Canadian<br />
Dollar (CAD) 100.00 100.00 100.00<br />
Lucky Star Management<br />
Hong Kong<br />
Limited (LSML) Hong Kong Dollar (HKD) 100.00 100.00 100.00<br />
IRemit Global Remittance United Great Britain<br />
Limited (IGRL)<br />
Kingdom Pound (GBP) 100.00 100.00 100.00<br />
I-Remit Australia Pty Ltd<br />
Australian<br />
(IAPL) Australia<br />
Dollar (AUD) 100.00 100.00 100.00<br />
Worldwide Exchange Pty<br />
Australian<br />
Ltd (WEPL)*<br />
IREMIT Remittance<br />
Consulting GmbH<br />
Australia<br />
Dollar (AUD) 100.00 65.00 65.00<br />
(IRCGmbH)** Austria Euro (EUR) 100.00 74.90 74.90<br />
I-Remit New Zealand<br />
New Zealand<br />
Limited (INZL) New Zealand Dollar (NZD)<br />
Hong Kong<br />
100.00 100.00 100.00<br />
PSAGL Hong Kong Dollar (HKD)<br />
Japanese<br />
100.00 100.00 100.00<br />
K.K. Iremit Japan (KKIJ)<br />
(Forward)<br />
Japan<br />
Yen (JPY) 100.00 – –
Associates:<br />
IRemit Singapore Pte Ltd<br />
Country of<br />
Incorporation<br />
- 2 -<br />
Functional<br />
Currency<br />
Effective Percentage of Ownership<br />
<strong>December</strong> <strong>31</strong><br />
<strong>2011</strong> 2010 2009<br />
(ISPL) Singapore<br />
Singapore<br />
Dollar (SGD) 49.00 49.00<br />
Hwa Kung Hong & Co.,<br />
New Taiwan<br />
Ltd.(HKHCL) Taiwan<br />
Dollar (NTD) 49.00 49.00<br />
* Consists of direct voting interest of 70.00% and indirect voting interest through IAPL of 30.00%<br />
**Formerly IREMIT EUROPE Remittance Consulting AG (IERCAG)<br />
2. Summary of Significant Accounting Policies<br />
Basis of Preparation<br />
The accompanying financial statements of <strong>the</strong> Parent Company have been prepared on a historical<br />
cost basis. The Parent Company’s financial statements are presented in Philippine peso, <strong>the</strong><br />
Parent Company’s functional and presentation currency, and all values are rounded to <strong>the</strong> nearest<br />
peso except when o<strong>the</strong>rwise indicated.<br />
Statement of Compliance<br />
The accompanying financial statements of <strong>the</strong> Parent Company have been prepared in compliance<br />
with Philippine Financial <strong>Report</strong>ing Standards (PFRS).<br />
Changes in Accounting Policies<br />
The accounting policies adopted in <strong>the</strong> preparation of <strong>the</strong> parent company financial statements are<br />
consistent with those of <strong>the</strong> previous financial <strong>year</strong> except <strong>for</strong> <strong>the</strong> adoption of <strong>the</strong> following new<br />
and am<strong>ended</strong> PFRS, Philippine Accounting Standards (PAS) and Philippine Interpretations which<br />
became effective on January 1, <strong>2011</strong>.<br />
• PAS 24 Amendment, Related Party Disclosures<br />
• PAS 32 Amendment, Financial Instruments: Presentation - Classification of Rights Issues<br />
• Philippine Interpretation International Financial <strong>Report</strong>ing Interpretations Committee (IFRIC)<br />
14 Amendment, Prepayments of a Minimum Funding Requirement<br />
• Philippine Interpretation IFRIC 19, Extinguishing Financial Liabilities with Equity<br />
Instruments<br />
The adoption of new standards, amendments and interpretations above did not have impact to <strong>the</strong><br />
Parent Company except <strong>for</strong> <strong>the</strong> adoption of PAS 24 Amendment, Related Party Transactions.<br />
PAS 24 Amendment, Related Party Transactions<br />
PAS 24 clarifies <strong>the</strong> definitions of a related party. The new definitions emphasize a symmetrical<br />
view of related party relationships and clarify <strong>the</strong> circumstances in which persons and key<br />
management personnel affect related party relationships of an entity. In addition, <strong>the</strong> amendment<br />
introduces an exemption from <strong>the</strong> general related party disclosure requirements <strong>for</strong> transactions<br />
with government and entities that are controlled, jointly controlled or significantly influenced by<br />
<strong>the</strong> same government as <strong>the</strong> reporting entity. The amendment only affects <strong>the</strong> disclosures and has<br />
no impact on <strong>the</strong> Parent Company’s financial position or per<strong>for</strong>mance.<br />
Improvements to PFRS 2010<br />
The omnibus amendments to PFRSs were issued in 2010 primarily with a view to remove<br />
inconsistencies and clarify wording. There are separate transitional provisions <strong>for</strong> each standard.<br />
49.00<br />
49.00<br />
*SGVMC116501*
- 3 -<br />
The adoption of <strong>the</strong> following amendment resulted in changes to accounting policies but did not<br />
have any impact on <strong>the</strong> financial position or per<strong>for</strong>mance of <strong>the</strong> Parent Company.<br />
PFRS 7, Financial Instruments - Disclosures<br />
The amendment was int<strong>ended</strong> to simplify <strong>the</strong> disclosures provided by reducing <strong>the</strong> volume of<br />
disclosures around collateral held and improving disclosures by requiring qualitative in<strong>for</strong>mation<br />
to put <strong>the</strong> quantitative in<strong>for</strong>mation in context. The Parent Company reflects <strong>the</strong> revised disclosure<br />
requirements in Note 4.<br />
PAS 1, Presentation of Financial Statements: The amendment clarifies that an entity may present<br />
an analysis of each component of o<strong>the</strong>r comprehensive income maybe ei<strong>the</strong>r in <strong>the</strong> statement of<br />
changes in equity or in <strong>the</strong> notes to <strong>the</strong> financial statements.<br />
O<strong>the</strong>r amendments resulting from <strong>the</strong> 2010 Improvements to PFRSs to <strong>the</strong> following standards did<br />
not have any impact on <strong>the</strong> accounting policies, financial position or per<strong>for</strong>mance of <strong>the</strong> Parent<br />
Company:<br />
• PFRS 3, Business Combinations (Contingent consideration arising from business combination<br />
prior to adoption of PFRS 3 (as revised in 2008))<br />
• PFRS 3, Business Combinations (Un-replaced and voluntarily replaced share-based payment<br />
awards)<br />
• PAS 27, Consolidated and Separate Financial Statements<br />
• PAS 34, Interim Financial <strong>Report</strong>ing<br />
The following interpretation and amendments to interpretations did not have any impact on <strong>the</strong><br />
accounting policies, financial position or per<strong>for</strong>mance of <strong>the</strong> Parent Company:<br />
• Philippine Interpretation IFRIC 13, Customer Loyalty Programmes (determining <strong>the</strong> fair value<br />
of award credits)<br />
• Philippine Interpretation IFRIC 19, Extinguishing Financial Liabilities with Equity<br />
Instruments<br />
Foreign Currency Transactions and Translations<br />
The functional and presentation currency of <strong>the</strong> Parent Company is <strong>the</strong> Philippine peso.<br />
Transactions denominated in <strong>for</strong>eign currencies are recorded in Philippine peso using <strong>the</strong><br />
exchange rate at <strong>the</strong> date of <strong>the</strong> transaction. For financial reporting purposes, <strong>for</strong>eign currencydenominated<br />
accounts are translated into <strong>the</strong>ir equivalents in Philippine pesos based on <strong>the</strong><br />
Philippine Dealing System (PDS) closing rate prevailing at <strong>the</strong> balance sheet date (<strong>for</strong> assets and<br />
liabilities). Foreign exchange differences arising from revaluation and translation of <strong>for</strong>eign<br />
currency-denominated monetary assets and liabilities are credited to or charged against operations<br />
in <strong>the</strong> <strong>year</strong> in which <strong>the</strong> rates change. Non-monetary items that are measured in terms of historical<br />
cost in a <strong>for</strong>eign currency are translated using <strong>the</strong> exchange rates as at <strong>the</strong> dates of <strong>the</strong> initial<br />
transactions.<br />
Cash and Cash Equivalents<br />
Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid<br />
investments that are readily convertible to known amounts of cash, with original maturities of<br />
three months or less from <strong>the</strong> dates of placement and that are subject to an insignificant risk of<br />
changes in fair value.<br />
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Financial Instruments<br />
Initial Recognition<br />
Financial instruments within <strong>the</strong> scope of PAS 39 are classified as financial assets at fair value<br />
through profit or loss (FVPL), loans and receivables, held-to-maturity (HTM) investments,<br />
available-<strong>for</strong>-sale (AFS) investments, financial liabilities at FVPL and o<strong>the</strong>r financial liabilities.<br />
The classification of financial instruments at initial recognition depends on <strong>the</strong> purpose <strong>for</strong> which<br />
<strong>the</strong> financial instruments were acquired and <strong>the</strong>ir characteristics. All financial assets and financial<br />
liabilities are recognized initially at fair value plus any directly attributable cost of acquisition or<br />
issue, except in <strong>the</strong> case of financial assets and financial liabilities at FVPL. Management<br />
determines <strong>the</strong> classification of its instruments at initial recognition and, where allowed and<br />
appropriate, re-evaluates such designation at every balance sheet date.<br />
Financial instruments are recognized in <strong>the</strong> consolidated balance sheet when <strong>the</strong> Parent Company<br />
becomes a party to <strong>the</strong> contractual provisions of <strong>the</strong> instrument. In <strong>the</strong> case of regular way of<br />
purchase or sale of financial assets, recognition and derecognition, as applicable, are done using<br />
settlement date accounting. Settlement date accounting refers to (a) recognition of an asset on <strong>the</strong><br />
day it is received by <strong>the</strong> Parent Company, and (b) <strong>the</strong> derecognition of an asset and recognition of<br />
any gain or loss on disposal on <strong>the</strong> day that it is delivered by <strong>the</strong> Parent Company. Receivables,<br />
beneficiaries and o<strong>the</strong>r payables, and interest-bearing loans are recognized when cash is received<br />
by <strong>the</strong> Parent Company or advanced to <strong>the</strong> borrowers/beneficiaries.<br />
The subsequent measurement bases <strong>for</strong> financial instruments depend on its classification.<br />
As of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010, <strong>the</strong> Parent Company has no financial assets and financial<br />
liabilities at FVPL, AFS investments and HTM investments.<br />
Subsequent Measurement<br />
Loans and receivables<br />
Loans and receivables are non-derivative financial assets with fixed or determinable payments that<br />
are not quoted in an active market. After initial measurement, receivables are carried at amortized<br />
cost using <strong>the</strong> effective interest method less any allowance <strong>for</strong> credit losses. Amortized cost is<br />
calculated by taking into account any discount or premium on acquisition and fees and costs that<br />
are an integral part of <strong>the</strong> effective interest rate (EIR). Gains and losses are recognized in <strong>the</strong><br />
parent company statement of income when <strong>the</strong> receivables are derecognized or impaired, as well<br />
as through <strong>the</strong> amortization process. Receivables are classified as current assets when <strong>the</strong> Parent<br />
Company expects to realize or collect <strong>the</strong> asset within twelve months from <strong>the</strong> balance sheet date.<br />
O<strong>the</strong>rwise, <strong>the</strong>se are classified as non-current assets.<br />
Classified under this category are <strong>the</strong> Parent Company’s ‘Cash and cash equivalents’, ‘Accounts<br />
receivable’, ‘O<strong>the</strong>r receivables’ and refundable deposits included under ‘O<strong>the</strong>r noncurrent assets’.<br />
O<strong>the</strong>r financial liabilities<br />
Issued financial instruments or <strong>the</strong>ir components, which are not designated as at FVPL, are<br />
classified as o<strong>the</strong>r financial liability, where <strong>the</strong> substance of <strong>the</strong> contractual arrangement results in<br />
<strong>the</strong> Parent Company having an obligation ei<strong>the</strong>r to deliver cash or ano<strong>the</strong>r financial asset to <strong>the</strong><br />
holder, or to satisfy <strong>the</strong> obligation o<strong>the</strong>r than by <strong>the</strong> exchange of a fixed amount of cash or ano<strong>the</strong>r<br />
financial asset <strong>for</strong> a fixed number of its own equity shares. These include liabilities arising from<br />
operations or borrowings. The components of issued financial instruments that contain both<br />
liability and equity elements are accounted <strong>for</strong> separately, with <strong>the</strong> equity component being<br />
assigned <strong>the</strong> residual amount after deducting from <strong>the</strong> instrument as a whole <strong>the</strong> amount separately<br />
determined as <strong>the</strong> fair value of <strong>the</strong> liability component on <strong>the</strong> date of issue.<br />
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After initial measurement, o<strong>the</strong>r financial liabilities are subsequently measured at amortized cost<br />
using <strong>the</strong> EIR method.<br />
O<strong>the</strong>r financial liabilities are classified as current liabilities when <strong>the</strong> Parent Company expects to<br />
settle <strong>the</strong> liability within twelve months from <strong>the</strong> balance sheet date. O<strong>the</strong>rwise, <strong>the</strong>se are<br />
classified as non-current liabilities.<br />
O<strong>the</strong>r financial liabilities include ‘Beneficiaries and o<strong>the</strong>r payables’ and ‘Interest-bearing loans’.<br />
Determination of fair value<br />
The fair value <strong>for</strong> financial instruments traded in active markets at <strong>the</strong> balance sheet date is based<br />
on <strong>the</strong>ir quoted market prices or dealer price quotations (bid price <strong>for</strong> long positions and ask price<br />
<strong>for</strong> short positions), without any deduction <strong>for</strong> transaction costs. When current bid and ask prices<br />
are not available, <strong>the</strong> price of <strong>the</strong> most recent transaction provides evidence of <strong>the</strong> current fair<br />
value as long as <strong>the</strong>re has not been a significant change in economic circumstances since <strong>the</strong> time<br />
of <strong>the</strong> transaction.<br />
For all o<strong>the</strong>r financial instruments not listed in an active market, <strong>the</strong> fair value is determined by<br />
using appropriate valuation methodologies. Valuation methodologies include net present value<br />
techniques, comparison to similar instruments <strong>for</strong> which market observable prices exist, option<br />
pricing models, and o<strong>the</strong>r relevant valuation models.<br />
Day 1 difference<br />
Where <strong>the</strong> transaction price in a non-active market is different from <strong>the</strong> fair value from o<strong>the</strong>r<br />
observable current market transactions in <strong>the</strong> same instrument or based on a valuation technique<br />
whose variables include only data from an observable market, <strong>the</strong> Parent Company recognizes <strong>the</strong><br />
difference between <strong>the</strong> transaction price and fair value (a Day 1 difference) in <strong>the</strong> parent company<br />
statement of income unless it qualifies <strong>for</strong> recognition as some o<strong>the</strong>r type of asset. In cases where<br />
use is made of data which is not observable, <strong>the</strong> difference between <strong>the</strong> transaction price and<br />
model value is only recognized in <strong>the</strong> parent company statement of income when <strong>the</strong> inputs<br />
become observable or when <strong>the</strong> instrument is derecognized. For each transaction, <strong>the</strong> Parent<br />
Company determines <strong>the</strong> appropriate method of recognizing <strong>the</strong> Day 1 difference amount.<br />
Derecognition of Financial Assets and Liabilities<br />
Financial asset<br />
A financial asset (or, where applicable a part of a financial asset or part of a group of similar<br />
financial assets) is derecognized when:<br />
• <strong>the</strong> rights to receive cash flows from <strong>the</strong> asset have expired;<br />
• <strong>the</strong> Parent Company retains <strong>the</strong> right to receive cash flows from <strong>the</strong> asset, but has assumed an<br />
obligation to pay <strong>the</strong>m in full without material delay to a third part under a ‘pass through’<br />
arrangement; or<br />
• <strong>the</strong> Parent Company has transferred its rights to receive cash flows from <strong>the</strong> asset and ei<strong>the</strong>r<br />
(a) has transferred substantially all <strong>the</strong> risks and rewards of <strong>the</strong> asset, or (b) has nei<strong>the</strong>r<br />
transferred nor retained substantially all <strong>the</strong> risks and rewards of <strong>the</strong> asset, but has transferred<br />
control of <strong>the</strong> asset.<br />
When <strong>the</strong> Parent Company has transferred its rights to receive cash flows from an asset or has<br />
entered into a pass-through arrangement, and has nei<strong>the</strong>r transferred nor retained substantially all<br />
<strong>the</strong> risks and rewards of <strong>the</strong> asset nor transferred control of <strong>the</strong> asset, <strong>the</strong> asset is recognized to <strong>the</strong><br />
extent of <strong>the</strong> Parent Company’s continuing involvement in <strong>the</strong> asset. Continuing involvement that<br />
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takes <strong>the</strong> <strong>for</strong>m of a guarantee over <strong>the</strong> transferred asset is measured at <strong>the</strong> lower of <strong>the</strong> original<br />
carrying amount of <strong>the</strong> asset and <strong>the</strong> maximum amount of consideration that <strong>the</strong> Parent Company<br />
could be required to repay.<br />
Financial liability<br />
A financial liability is derecognized when <strong>the</strong> obligation under <strong>the</strong> liability is discharged,<br />
cancelled or has expired. When an existing financial liability is replaced by ano<strong>the</strong>r from <strong>the</strong> same<br />
lender on substantially different terms, or <strong>the</strong> terms of an existing liability are substantially<br />
modified, such an exchange or modification is treated as a derecognition of <strong>the</strong> original liability<br />
and <strong>the</strong> recognition of a new liability, and <strong>the</strong> difference in <strong>the</strong> respective carrying amount of a<br />
financial liability (or part of a financial liability) extinguished or transferred to ano<strong>the</strong>r party and<br />
<strong>the</strong> consideration paid, including any non-cash assets transferred or liabilities assumed, shall be<br />
recognized in <strong>the</strong> parent company statement of income.<br />
Offsetting Financial Instruments<br />
Financial assets and financial liabilities are offset and <strong>the</strong> net amount reported in <strong>the</strong> balance sheet<br />
if, and only if, <strong>the</strong>re is a currently en<strong>for</strong>ceable legal right to offset <strong>the</strong> recognized amounts and<br />
<strong>the</strong>re is an intention to settle on a net basis, or to realize <strong>the</strong> asset and settle <strong>the</strong> liability<br />
simultaneously.<br />
Impairment of Financial Assets<br />
The Parent Company assesses at each balance sheet date, whe<strong>the</strong>r <strong>the</strong>re is an objective evidence<br />
that a financial asset or group of financial assets is impaired. A financial asset or a group of<br />
financial assets is deemed to be impaired if, and only if, <strong>the</strong>re is an objective evidence of<br />
impairment as a result of one or more events that has occurred after <strong>the</strong> initial recognition of <strong>the</strong><br />
asset (an incurred ‘loss event’) and that loss event (or events) has an impact on <strong>the</strong> estimated<br />
future cash flows of <strong>the</strong> financial asset or <strong>the</strong> group of financial assets that can be reliably<br />
estimated. Evidence of impairment may include indications that <strong>the</strong> borrower or a group of<br />
borrowers is experiencing significant financial difficulty, default or delinquency in interest or<br />
principal payments, <strong>the</strong> probability that <strong>the</strong>y will enter bankruptcy or o<strong>the</strong>r financial<br />
reorganization, and where <strong>the</strong>re are observable data that indicates that <strong>the</strong>re is a measurable<br />
decrease in <strong>the</strong> estimated future cash flows, such as changes in arrears or economic conditions that<br />
correlate with defaults.<br />
Financial assets carried at amortized cost<br />
For financial assets carried at amortized cost, <strong>the</strong> Parent Company first assesses whe<strong>the</strong>r objective<br />
evidence of impairment exists individually <strong>for</strong> financial assets that are individually significant, or<br />
collectively <strong>for</strong> financial assets that are not individually significant.<br />
If <strong>the</strong>re is objective evidence that an impairment loss has been incurred, <strong>the</strong> amount of <strong>the</strong> loss is<br />
measured as <strong>the</strong> difference between <strong>the</strong> asset’s carrying amount and <strong>the</strong> present value of <strong>the</strong><br />
estimated future cash flows (excluding future credit losses that have not been incurred). The<br />
carrying amount of <strong>the</strong> asset is reduced through <strong>the</strong> use of an allowance account and <strong>the</strong> amount of<br />
loss is charged to <strong>the</strong> parent company statement of income. Interest income continues to be<br />
recognized based on <strong>the</strong> original EIR of <strong>the</strong> asset. Receivables, toge<strong>the</strong>r with <strong>the</strong> associated<br />
allowance accounts, are written off when <strong>the</strong>re is no realistic prospect of future recovery and all<br />
collateral has been realized. If subsequently, <strong>the</strong> amount of <strong>the</strong> estimated impairment loss<br />
decreases because of an event occurring after <strong>the</strong> impairment was recognized, <strong>the</strong> previously<br />
recognized impairment loss is reduced by adjusting <strong>the</strong> allowance account. If a future write-off is<br />
later recovered, any amounts <strong>for</strong>merly charged are credited to profit or loss.<br />
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If <strong>the</strong> Parent Company determines that no objective evidence of impairment exists <strong>for</strong> an<br />
individually assessed financial asset, whe<strong>the</strong>r significant or not, it includes <strong>the</strong> asset in a group of<br />
financial assets with similar credit risk characteristics and collectively assesses <strong>for</strong> impairment.<br />
Those characteristics are relevant to <strong>the</strong> estimation of future cash flows <strong>for</strong> groups of such assets<br />
by being indicative of <strong>the</strong> debtors’ ability to pay all amounts due according to <strong>the</strong> contractual<br />
terms of <strong>the</strong> assets being evaluated. Assets that are individually assessed <strong>for</strong> impairment and <strong>for</strong><br />
which an impairment loss is, or continues to be, recognized are not included in a collective<br />
assessment <strong>for</strong> impairment.<br />
The present value of <strong>the</strong> estimated future cash flows is discounted at <strong>the</strong> financial asset’s original<br />
EIR. If a financial asset has a variable interest rate, <strong>the</strong> discount rate <strong>for</strong> measuring any<br />
impairment loss is <strong>the</strong> current EIR, adjusted <strong>for</strong> <strong>the</strong> original credit risk premium.<br />
For <strong>the</strong> purpose of a collective evaluation of impairment, financial assets are grouped on <strong>the</strong> basis<br />
of such credit risk characteristics as geographical classification. Future cash flows in a group of<br />
financial assets that are collectively evaluated <strong>for</strong> impairment are estimated on <strong>the</strong> basis of<br />
historical loss experience <strong>for</strong> assets with credit risk characteristics similar to those in <strong>the</strong> group.<br />
Historical loss experience is adjusted on <strong>the</strong> basis of current observable data to reflect <strong>the</strong> effects<br />
of current conditions that did not affect <strong>the</strong> period on which <strong>the</strong> historical loss experience is based<br />
and to remove <strong>the</strong> effects of conditions in <strong>the</strong> historical period that do not exist currently.<br />
Estimates of changes in future cash flows reflect, and are directionally consistent with changes in<br />
related observable data from period to period (such as changes in payment status, or o<strong>the</strong>r factors<br />
that are indicative of incurred losses in <strong>the</strong> group and <strong>the</strong>ir magnitude). The methodology and<br />
assumptions used <strong>for</strong> estimating future cash flows are reviewed regularly by <strong>the</strong> Parent Company<br />
to reduce any differences between loss estimates and actual loss experience.<br />
Investments in Subsidiaries and Associates<br />
Subsidiaries<br />
Investments in subsidiaries in <strong>the</strong> parent company financial statements are accounted <strong>for</strong> at cost.<br />
Subsidiaries of <strong>the</strong> Parent Company are shown in Note 1.<br />
Associates<br />
The Parent Company’s investments in its associates are accounted <strong>for</strong> at cost. An associate is an<br />
entity in which <strong>the</strong> Parent Company has significant influence. The Parent Company's investments<br />
in associates include its 49.00% interest in ISPL and HKHCL, entities based in Singapore and<br />
Taiwan, respectively.<br />
Property and Equipment<br />
Property and equipment is stated at cost less accumulated depreciation and amortization and any<br />
impairment in value.<br />
The initial cost of property and equipment comprises its purchase price and any directly<br />
attributable costs of bringing <strong>the</strong> property and equipment to its working condition and location <strong>for</strong><br />
its int<strong>ended</strong> use.<br />
Expenditures incurred after <strong>the</strong> property and equipment have been put into operation, such as<br />
repairs and maintenance are normally charged to operations in <strong>the</strong> <strong>year</strong> in which <strong>the</strong> costs are<br />
incurred. In situations where it can be clearly demonstrated that <strong>the</strong> expenditures have resulted in<br />
an increase in <strong>the</strong> future economic benefits expected to be obtained from <strong>the</strong> use of an item of<br />
property and equipment beyond its originally assessed standard of per<strong>for</strong>mance, <strong>the</strong> expenditures<br />
are capitalized as an additional cost of property and equipment.<br />
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Depreciation and amortization is calculated on a straight-line basis over <strong>the</strong> estimated useful life of<br />
<strong>the</strong> property and equipment as follows:<br />
Office and communication equipment 3 <strong>year</strong>s<br />
Transportation and delivery equipment 3 to 5 <strong>year</strong>s<br />
Furniture and fixtures 3 to 5 <strong>year</strong>s<br />
Leasehold improvements 5 <strong>year</strong>s or <strong>the</strong> term of <strong>the</strong> lease,<br />
whichever is shorter<br />
The carrying values of property and equipment are reviewed <strong>for</strong> impairment when events or<br />
changes in circumstances indicate <strong>the</strong> carrying value may not be recoverable. If any such<br />
indication exists and where <strong>the</strong> carrying values exceed <strong>the</strong> estimated recoverable amount, <strong>the</strong> asset<br />
or cash-generating units (CGU) are written down to <strong>the</strong>ir recoverable amount (see policy on<br />
Impairment of Nonfinancial Assets).<br />
An item of property and equipment is derecognized upon disposal or when no future economic<br />
benefits are expected from its use or disposal. Any gain or loss arising on derecognition of <strong>the</strong><br />
asset (calculated as <strong>the</strong> difference between <strong>the</strong> net disposal proceeds and <strong>the</strong> carrying amount of<br />
<strong>the</strong> asset) is included in <strong>the</strong> parent company statement of income in <strong>the</strong> <strong>year</strong> <strong>the</strong> asset is<br />
derecognized.<br />
The asset’s residual values, useful lives and methods of depreciation and amortization are<br />
reviewed, and adjusted if appropriate, at each financial <strong>year</strong>-end to ensure that <strong>the</strong>se are consistent<br />
with <strong>the</strong> expected pattern of economic benefits from <strong>the</strong> items of property and equipment.<br />
Software costs<br />
Software costs are carried at cost less accumulated amortization and any impairment in value. The<br />
cost of <strong>the</strong> asset is <strong>the</strong> amount of cash or cash equivalents paid or <strong>the</strong> fair value of <strong>the</strong> o<strong>the</strong>r<br />
considerations given up to acquire <strong>the</strong> asset at <strong>the</strong> time of its acquisition or production. Software<br />
costs are amortized on a straight-line basis over its estimated useful life of three (3) <strong>year</strong>s.<br />
The asset’s amortization period and amortization method are reviewed at least at each balance<br />
sheet date. Changes in <strong>the</strong> expected useful life or <strong>the</strong> expected pattern of consumption of future<br />
economic benefits embodied in <strong>the</strong> asset is accounted <strong>for</strong> by changing <strong>the</strong> amortization period or<br />
method, as appropriate, and treated as changes in accounting estimates.<br />
Impairment of Nonfinancial assets<br />
Investments in subsidiaries and associates<br />
The Parent Company assesses at each balance sheet date whe<strong>the</strong>r <strong>the</strong>re is any indication that its<br />
investments in subsidiaries and associates may be impaired. If any indication exists, <strong>the</strong> Parent<br />
Company estimates <strong>the</strong> asset’s recoverable amount. An asset’s recoverable amount is <strong>the</strong> higher<br />
of an asset’s or CGU’s fair value less cost to sell and its value in use. Where <strong>the</strong> carrying amount<br />
of an asset or CGU exceeds its recoverable amount, <strong>the</strong> asset is considered impaired and is written<br />
down to its recoverable amount.<br />
Property and equipment and software costs<br />
At each balance sheet date, <strong>the</strong> Parent Company assesses whe<strong>the</strong>r <strong>the</strong>re is any indication that its<br />
property and equipment and software costs may be impaired. When an indicator of impairment<br />
exists or when an annual impairment testing <strong>for</strong> an asset is required, <strong>the</strong> Parent Company makes a<br />
<strong>for</strong>mal estimate of recoverable amount. Recoverable amount is <strong>the</strong> higher of an asset’s (or<br />
CGU’s) fair value less costs to sell and its value in use and is determined <strong>for</strong> an individual asset,<br />
unless <strong>the</strong> asset does not generate cash inflows that are largely independent of those from o<strong>the</strong>r<br />
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assets or groups of assets, in which case <strong>the</strong> recoverable amount is assessed as part of <strong>the</strong> CGU to<br />
which it belongs. Where <strong>the</strong> carrying amount of an asset (or CGU) exceeds its recoverable<br />
amount, <strong>the</strong> asset (or CGU) is considered impaired and is written down to its recoverable amount.<br />
In assessing value in use, <strong>the</strong> estimated future cash flows are discounted to <strong>the</strong>ir present value<br />
using a pre-tax discount rate that reflects current market assessments of <strong>the</strong> time value of money<br />
and <strong>the</strong> risks specific to <strong>the</strong> asset (or CGU). In determining fair value less cost to sell, recent<br />
market transactions are taken into account, if available. If no such transactions can be identified,<br />
an appropriate valuation model is used. These calculations are corroborated by available fair<br />
value indicators.<br />
An impairment loss is charged to operations in <strong>the</strong> <strong>year</strong> in which it arises, unless <strong>the</strong> asset is<br />
carried at a revalued amount, in which case <strong>the</strong> impairment loss is charged to <strong>the</strong> revaluation<br />
increment of <strong>the</strong> said asset.<br />
An assessment is made at each balance sheet date as to whe<strong>the</strong>r <strong>the</strong>re is any indication that<br />
previously recognized impairment losses may no longer exist or may have decreased. If such<br />
indication exists, <strong>the</strong> recoverable amount is estimated. A previously recognized impairment loss is<br />
reversed only if <strong>the</strong>re has been a change in <strong>the</strong> estimates used to determine <strong>the</strong> asset’s recoverable<br />
amount since <strong>the</strong> last impairment loss was recognized. If that is <strong>the</strong> case, <strong>the</strong> carrying amount of<br />
<strong>the</strong> asset is increased to its recoverable amount. That increased amount cannot exceed <strong>the</strong> carrying<br />
amount that would have been determined, net of depreciation and amortization, had no impairment<br />
loss been recognized <strong>for</strong> <strong>the</strong> asset in prior <strong>year</strong>s. Such reversal is recognized in <strong>the</strong> parent<br />
company statement of income unless <strong>the</strong> asset is carried at a revalued amount, in which case <strong>the</strong><br />
reversal is treated as a revaluation increase. After such a reversal, <strong>the</strong> depreciation and<br />
amortization expense is adjusted in future <strong>year</strong>s to allocate <strong>the</strong> asset’s revised carrying amount,<br />
less any residual value, on a systematic basis over its remaining life.<br />
Input Value Added Tax (VAT)<br />
Input VAT represents VAT imposed on <strong>the</strong> Parent Company by its suppliers <strong>for</strong> <strong>the</strong> acquisition of<br />
goods and services as required by Philippine taxation laws and regulations. This will be claimed<br />
as tax credits. Input VAT is stated at its estimated net realizable values.<br />
Revenue Recognition<br />
Revenue is recognized to <strong>the</strong> extent that it is probable that <strong>the</strong> economic benefits will flow to <strong>the</strong><br />
Parent Company and <strong>the</strong> revenue can be reliably measured. The Parent Company assesses its<br />
revenue arrangements against specific criteria in order to determine if it is acting as principal or<br />
agent. The following specific recognition criteria must also be met be<strong>for</strong>e revenue is recognized:<br />
Delivery fees<br />
Revenue from delivery fees is recognized as <strong>the</strong> service is rendered net of amounts payable to<br />
principals (i.e., partner remittance companies) <strong>for</strong> fees billed on <strong>the</strong>ir behalf.<br />
Service revenue<br />
Service revenue is recognized when <strong>the</strong> service is rendered.<br />
Interest income<br />
Interest on financial instruments measured at amortized cost is recognized based on <strong>the</strong> EIR<br />
method.<br />
The EIR method is a method of calculating <strong>the</strong> amortized cost of a financial asset or a financial<br />
liability and allocating <strong>the</strong> interest income or interest expense over <strong>the</strong> relevant period. The EIR is<br />
<strong>the</strong> rate that exactly discounts estimated future cash payments or receipts throughout <strong>the</strong> expected<br />
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life of <strong>the</strong> financial instrument or, when appropriate, a shorter period to <strong>the</strong> net carrying amount of<br />
<strong>the</strong> financial asset or financial liability. When calculating <strong>the</strong> EIR, <strong>the</strong> Parent Company estimates<br />
cash flows from <strong>the</strong> financial instrument (<strong>for</strong> example, prepayment options) but does not consider<br />
future credit losses. The calculation includes all fees and points paid or received between parties<br />
to <strong>the</strong> contract that are an integral part of <strong>the</strong> EIR, transaction costs and all o<strong>the</strong>r premiums or<br />
discounts.<br />
Once a financial asset or a group of financial assets has been written down as a result of an<br />
impairment loss, interest income is recognized <strong>the</strong>reafter using <strong>the</strong> rate of interest used to discount<br />
<strong>the</strong> future cash flows <strong>for</strong> <strong>the</strong> purpose of measuring <strong>the</strong> impairment loss.<br />
Dividends<br />
Dividend income is recognized when <strong>the</strong> Parent Company’s right to receive payment is<br />
established.<br />
Rebates<br />
Rebates pertaining to refunds of bank service charges are recognized upon collection.<br />
Costs and Expenses<br />
Costs and expenses encompass losses as well as those expenses that arise in <strong>the</strong> course of <strong>the</strong><br />
ordinary business activities of <strong>the</strong> Parent Company. The following specific recognition criteria<br />
must also be met be<strong>for</strong>e costs and expenses are recognized:<br />
Cost of services<br />
This includes all expenses associated with <strong>the</strong> specific delivery fees. Such costs are recognized<br />
when <strong>the</strong> related delivery fees have been recognized.<br />
Operating expenses<br />
Operating expenses constitute costs incurred related to advertising and administering <strong>the</strong> business<br />
and are recognized when incurred.<br />
Taxes and licenses<br />
This includes all o<strong>the</strong>r taxes, local and national, including real estate taxes, licenses and permit<br />
fees included under ‘O<strong>the</strong>r operating expenses’ in <strong>the</strong> parent company statement of income.<br />
Retirement Benefits<br />
The Parent Company has a noncontributory defined benefit retirement plan administered by a<br />
trustee, covering its permanent employees.<br />
The retirement cost of <strong>the</strong> Parent Company is determined using <strong>the</strong> projected unit credit method.<br />
Under this method, <strong>the</strong> current service cost is <strong>the</strong> present value of retirement benefits payable in<br />
<strong>the</strong> future with respect to services rendered in <strong>the</strong> current period.<br />
The liability recognized in <strong>the</strong> parent company balance sheet in respect of defined benefit<br />
retirement plan is <strong>the</strong> present value of <strong>the</strong> defined benefit obligation at <strong>the</strong> balance sheet date less<br />
<strong>the</strong> fair value of plan assets, toge<strong>the</strong>r with adjustments <strong>for</strong> unrecognized actuarial gains or losses<br />
and past service costs. The defined benefit obligation is calculated annually by an independent<br />
actuary using <strong>the</strong> projected unit credit method. The present value of <strong>the</strong> defined benefit obligation<br />
is determined by discounting <strong>the</strong> estimated future cash outflows using interest rates on Philippine<br />
government bonds that have terms to maturity approximating <strong>the</strong> terms of <strong>the</strong> related retirement<br />
liability. Actuarial gains and losses arising from experience adjustments and changes in actuarial<br />
assumptions are credited to or charged against income when <strong>the</strong> net cumulative unrecognized<br />
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actuarial gains and losses at <strong>the</strong> end of <strong>the</strong> previous period exceeded 10.00% of <strong>the</strong> higher of <strong>the</strong><br />
defined benefit obligation and <strong>the</strong> fair value of plan assets at that date. These gains or losses are<br />
recognized over <strong>the</strong> expected average remaining working lives of <strong>the</strong> employees participating in<br />
<strong>the</strong> plan.<br />
Past-service costs, if any, are recognized immediately in income, unless <strong>the</strong> changes to <strong>the</strong><br />
retirement plan are conditional on <strong>the</strong> employees remaining in service <strong>for</strong> a specified period of<br />
time (<strong>the</strong> vesting period). In this case, <strong>the</strong> past-service costs are amortized on a straight-line basis<br />
over <strong>the</strong> vesting period.<br />
The defined benefit asset or liability comprises <strong>the</strong> present value of <strong>the</strong> defined benefit obligation<br />
less past service costs not yet recognized and less <strong>the</strong> fair value of plan assets out of which <strong>the</strong><br />
obligations are to be settled directly. The value of any asset is restricted to <strong>the</strong> sum of any past<br />
service cost not yet recognized and <strong>the</strong> present value of any economic benefits available in <strong>the</strong><br />
<strong>for</strong>m of refunds from <strong>the</strong> plan or reductions in <strong>the</strong> future contributions to <strong>the</strong> plan.<br />
Leases<br />
The determination of whe<strong>the</strong>r an arrangement is, or contains a lease is based on <strong>the</strong> substance of<br />
<strong>the</strong> arrangement at <strong>the</strong> inception date of whe<strong>the</strong>r <strong>the</strong> fulfillment of <strong>the</strong> arrangement is dependent<br />
on <strong>the</strong> use of a specific asset or assets or <strong>the</strong> arrangement conveys a right to use <strong>the</strong> asset. A<br />
reassessment is made after inception of <strong>the</strong> lease only if one of <strong>the</strong> following applies:<br />
(a) <strong>the</strong>re is a change in contractual terms, o<strong>the</strong>r than a renewal or extension of <strong>the</strong> arrangement;<br />
(b) a renewal option is exercised or extension granted, unless <strong>the</strong> term of <strong>the</strong> renewal or extension<br />
was initially included in <strong>the</strong> lease term;<br />
(c) <strong>the</strong>re is a change in <strong>the</strong> determination of whe<strong>the</strong>r fulfillment is dependent on a specified asset;<br />
or<br />
(d) <strong>the</strong>re is a substantial change to <strong>the</strong> asset.<br />
When a reassessment is made, lease accounting shall commence or cease from <strong>the</strong> date when <strong>the</strong><br />
change in circumstances gave rise to <strong>the</strong> reassessment <strong>for</strong> scenarios (a), (c), or (d) and at <strong>the</strong> date<br />
of renewal or extension <strong>for</strong> scenario (b).<br />
Parent Company as a lessee<br />
Leases where <strong>the</strong> lessor retains substantially all <strong>the</strong> risks and benefits of ownership of <strong>the</strong> asset are<br />
classified as an operating lease. Operating lease payments are recognized as an expense in <strong>the</strong><br />
parent company statement of income on a straight-line basis over <strong>the</strong> lease term.<br />
Share-based Payment<br />
The Parent Company granted a stock purchase program to certain officers, employees and<br />
individuals (see Note <strong>17</strong>) that is subject to a lock-up or vesting period of two (2) <strong>year</strong>s and which<br />
<strong>ended</strong> on September 19, 2009. The Parent Company accounted <strong>for</strong> <strong>the</strong> share-based payment as an<br />
equity-settled transaction. The cost of equity-settled transactions is measured by reference to <strong>the</strong><br />
fair value of <strong>the</strong> equity instrument at <strong>the</strong> date at which <strong>the</strong>y are granted. The expense is<br />
recognized as part of ‘Salaries, wages and employee benefits’ in <strong>the</strong> statement of income over <strong>the</strong><br />
lock-up period of two (2) <strong>year</strong>s. The cumulative expense recognized <strong>for</strong> equity-settled<br />
transactions at each balance sheet date until <strong>the</strong> vesting date reflects <strong>the</strong> extent to which <strong>the</strong><br />
vesting period has expired and <strong>the</strong> Parent Company’s best estimate of <strong>the</strong> number of equity<br />
instruments that will ultimately vest. The expense in <strong>the</strong> statement of income <strong>for</strong> <strong>the</strong> period<br />
represents <strong>the</strong> movement in cumulative expense recognized at <strong>the</strong> beginning and end of <strong>the</strong> period.<br />
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Income Taxes<br />
Current tax<br />
Current tax assets and liabilities <strong>for</strong> <strong>the</strong> current and prior periods are measured at <strong>the</strong> amount<br />
expected to be recovered from or paid to <strong>the</strong> taxation authorities. The tax rates and tax laws used<br />
to compute <strong>the</strong> amount are those that are enacted or substantively enacted at <strong>the</strong> balance sheet<br />
date.<br />
Deferred tax<br />
Deferred tax is provided, using <strong>the</strong> balance sheet liability method, on all temporary differences at<br />
<strong>the</strong> balance sheet date between <strong>the</strong> tax bases of assets and liabilities and <strong>the</strong>ir carrying amounts <strong>for</strong><br />
financial reporting purposes.<br />
Deferred tax liabilities are recognized <strong>for</strong> all taxable temporary differences, including asset<br />
revaluations. Deferred tax assets are recognized <strong>for</strong> all deductible temporary differences,<br />
carry<strong>for</strong>ward of unused tax credits from excess minimum corporate income tax (MCIT) over <strong>the</strong><br />
regular corporate income tax (RCIT), if any, and unused net operating loss carryover (NOLCO), if<br />
any, to <strong>the</strong> extent that it is probable that taxable income will be available against which <strong>the</strong><br />
deductible temporary differences and carry<strong>for</strong>ward of unused tax credits from excess MCIT over<br />
RCIT and unused NOLCO can be utilized.<br />
Deferred tax liabilities are not provided on non-taxable temporary differences associated with<br />
investments in associates where <strong>the</strong> timing of <strong>the</strong> reversal of <strong>the</strong> temporary differences can be<br />
controlled and it is probable that <strong>the</strong> temporary differences will not reverse in <strong>the</strong> <strong>for</strong>eseeable<br />
future.<br />
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to<br />
<strong>the</strong> extent that it is no longer probable that sufficient taxable income will be available to allow all<br />
or part of <strong>the</strong> deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at<br />
each balance sheet date and are recognized to <strong>the</strong> extent that it has become probable that future<br />
taxable income will allow <strong>the</strong> deferred tax assets to be recovered.<br />
Deferred tax assets and deferred tax liabilities are measured at <strong>the</strong> tax rates that are applicable to<br />
<strong>the</strong> period when <strong>the</strong> asset is realized or <strong>the</strong> liability is settled, based on tax rates (and tax laws) that<br />
have been enacted or substantially enacted at <strong>the</strong> balance sheet date.<br />
Deferred tax assets and deferred tax liabilities are offset if a legally en<strong>for</strong>ceable right exists to set<br />
off current tax assets against current tax liabilities and <strong>the</strong> deferred taxes relate to <strong>the</strong> same taxable<br />
entity and <strong>the</strong> same taxation authority.<br />
Current tax and deferred tax relating to items recognized directly in equity are also recognized in<br />
equity and not in <strong>the</strong> consolidated statement of income.<br />
Borrowing Costs<br />
Borrowing costs are recognized as an expense when incurred.<br />
Equity<br />
Capital stock is measured at par value <strong>for</strong> all shares issued and outstanding. When <strong>the</strong> shares are<br />
sold at a premium, <strong>the</strong> difference between <strong>the</strong> proceeds and <strong>the</strong> par value is credited to ‘Capital<br />
paid-in excess of par value’ account. Direct costs incurred related to issuance of equity, such as<br />
underwriting, accounting and legal fees, printing costs and taxes are chargeable to ‘Capital paid-in<br />
excess of par value’. If <strong>the</strong> ‘Capital paid-in excess of par value’ is not sufficient, <strong>the</strong> excess is<br />
charged to profit or loss.<br />
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A change in <strong>the</strong> ownership interest of a subsidiary, without a loss of control, is accounted <strong>for</strong> as an<br />
equity transaction. The excess of acquisition cost over <strong>the</strong> carrying value of <strong>the</strong> noncontrolling<br />
interest (<strong>for</strong>merly known as minority interest) is charged against <strong>the</strong> ‘Capital paid-in excess of par<br />
value’.<br />
When <strong>the</strong> Parent Company issues more than one class of stock, a separate account is maintained<br />
<strong>for</strong> each class of stock and <strong>the</strong> number of shares issued.<br />
‘Retained earnings’ represents accumulated earnings (losses) of <strong>the</strong> Parent Company less<br />
dividends declared.<br />
Own equity instruments which are reacquired (treasury shares) are recognized at cost and<br />
deducted from equity as ‘Treasury stock’. No gain or loss is recognized in <strong>the</strong> parent company<br />
statement of income on <strong>the</strong> purchase, sale, issue or cancellation of <strong>the</strong> Parent Company’s own<br />
equity instruments. Any difference between <strong>the</strong> carrying amount and <strong>the</strong> consideration is<br />
recognized in ‘Capital paid-in excess of par value’.<br />
Dividends<br />
Cash dividends on common shares are recognized as a liability and deducted from equity when<br />
declared and approved by <strong>the</strong> Board of Directors (BOD) of <strong>the</strong> Parent Company. Stock dividends<br />
are deducted from equity when declared and approved by <strong>the</strong> BOD and stockholders of <strong>the</strong> Parent<br />
Company.<br />
Related party relationships and transactions<br />
Parties are considered to be related if one party has <strong>the</strong> ability, directly or indirectly, to control <strong>the</strong><br />
o<strong>the</strong>r party or exercise significant influence over <strong>the</strong> o<strong>the</strong>r party in making financial and operating<br />
decisions. Parties are also considered to be related if <strong>the</strong>y are subject to common control or<br />
common significant influence. Related parties may be individuals or corporate entities.<br />
Provisions<br />
Provisions are recognized when <strong>the</strong> Parent Company has a present obligation (legal or<br />
constructive) as a result of a past event, it is probable that an outflow of assets embodying<br />
economic benefits will be required to settle <strong>the</strong> obligation and a reliable estimate can be made of<br />
<strong>the</strong> amount of <strong>the</strong> obligation. Where <strong>the</strong> Parent Company expects a provision to be reimbursed,<br />
<strong>the</strong> reimbursement is recognized as a separate asset but only when <strong>the</strong> reimbursement is virtually<br />
certain. The expense relating to any provision is presented in <strong>the</strong> parent company statement of<br />
income, net of any reimbursement.<br />
Contingencies<br />
Contingent liabilities are not recognized in <strong>the</strong> parent company financial statements. These are<br />
disclosed unless <strong>the</strong> possibility of an outflow of resources embodying economic benefits is<br />
remote. A contingent asset is not recognized in <strong>the</strong> parent company financial statements but<br />
disclosed when an inflow of economic benefits is probable.<br />
Events After <strong>the</strong> <strong>Report</strong>ing Period<br />
Post <strong>year</strong>-end events that provide additional in<strong>for</strong>mation about <strong>the</strong> Parent Company’s financial<br />
position at <strong>the</strong> balance sheet date (adjusting events) are reflected in <strong>the</strong> parent company financial<br />
statements. Post <strong>year</strong>-end events that are not adjusting events are disclosed in <strong>the</strong> notes to <strong>the</strong><br />
parent company financial statements when material.<br />
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Standards Issued but not yet Effective<br />
The Parent Company will adopt <strong>the</strong> following standards and interpretations enumerated below<br />
when <strong>the</strong>se become effective. Except as o<strong>the</strong>rwise indicated, <strong>the</strong> Parent Company does not expect<br />
<strong>the</strong> adoption of <strong>the</strong>se new and am<strong>ended</strong> PFRS and Philippine Interpretations to have significant<br />
impact on its financial position and per<strong>for</strong>mance.<br />
Effective in 2012<br />
PFRS 7 Amendments, Financial Instruments: Disclosures - Disclosures - Transfers of Financial<br />
Assets<br />
The amendments to PFRS 7 are effective <strong>for</strong> annual periods beginning on or after July 1, <strong>2011</strong>.<br />
The amendments will allow users of financial statements to improve <strong>the</strong>ir understanding of<br />
transfer transactions of financial assets (<strong>for</strong> example, securitizations), including understanding <strong>the</strong><br />
possible effects of any risks that may remain with <strong>the</strong> entity that transferred <strong>the</strong> assets. The<br />
amendments also require additional disclosures if a disproportionate amount of transfer<br />
transactions are undertaken around <strong>the</strong> end of a reporting period.<br />
PAS 12 Amendment, Income Taxes - Deferred Tax: Recovery of Underlying Assets<br />
The amendment to PAS 12 is effective <strong>for</strong> annual periods beginning on or after January 1, 2012.<br />
It provides a practical solution to <strong>the</strong> problem of assessing whe<strong>the</strong>r recovery of an asset will be<br />
through use or sale. It introduces a presumption that recovery of <strong>the</strong> carrying amount of an asset<br />
will normally be through sale.<br />
Effective in 2013<br />
PAS 1, Financial Statement Presentation - Presentation of Items of O<strong>the</strong>r Comprehensive Income<br />
(OCI)<br />
The amendment effective <strong>for</strong> annual periods beginning or after July 1, 2012, changes <strong>the</strong> grouping<br />
of items presented in OCI. Items that could be reclassified (or “recycled”) to profit or loss at a<br />
future point in time would be presented separately from items that will never be reclassified.<br />
PAS 27 Revised, Separate Financial Statements<br />
The revised PAS 27 is effective <strong>for</strong> annual periods beginning on or after January 1, 2013. It<br />
establishes that as a consequence of <strong>the</strong> new PFRS 10, Consolidated Financial Statement and<br />
PFRS 12, Disclosure of Interests in O<strong>the</strong>r Entities, what remains of PAS 27 is limited to<br />
accounting <strong>for</strong> subsidiaries, jointly controlled entities, and associates in separate financial<br />
statements.<br />
PFRS 7 Revised, Financial instruments: Disclosures - Offsetting Financial Assets and Financial<br />
Liabilities<br />
The revised PFRS 7 effective <strong>for</strong> annual periods beginning on or after January 1, 2013, requires an<br />
entity to disclose in<strong>for</strong>mation about rights of set-off and related arrangements (such as collateral<br />
agreements). The new disclosures are required <strong>for</strong> all recognized financial instruments that are set<br />
off in accordance with PAS 32. These disclosures also apply to recognized financial instruments<br />
that are subject to an en<strong>for</strong>ceable master netting arrangement or ‘similar agreement’, irrespective<br />
of whe<strong>the</strong>r <strong>the</strong>y are set-off in accordance with PAS 32.<br />
PFRS 10, Consolidated Financial Statements<br />
The standard, effective <strong>for</strong> annual periods beginning on or after January 1, 2013, establishes<br />
principles <strong>for</strong> <strong>the</strong> presentation and preparation of consolidated financial statements when an entity<br />
controls one or more o<strong>the</strong>r entities. The Parent Company will assess <strong>the</strong> impact of <strong>the</strong> amendment<br />
on its financial position and per<strong>for</strong>mance when <strong>the</strong>y become effective.<br />
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PFRS 11, Joint Arrangements<br />
PFRS 11 provides <strong>for</strong> a more realistic reflection of joint arrangements by focusing on <strong>the</strong> rights<br />
and obligations of <strong>the</strong> arrangement, ra<strong>the</strong>r than its legal <strong>for</strong>m. The standard addresses<br />
inconsistencies in <strong>the</strong> reporting of joint arrangements by requiring a single method to account <strong>for</strong><br />
interests in jointly controlled entities. The standard is effective <strong>for</strong> annual periods beginning on or<br />
after January 1, 2013.<br />
PFRS 12, Disclosure of Interests in O<strong>the</strong>r Entities<br />
PFRS 12 is a new and comprehensive standard on disclosure requirements <strong>for</strong> all <strong>for</strong>ms of<br />
interests in o<strong>the</strong>r entities, including subsidiaries, joint arrangements, associates and unconsolidated<br />
structured entities. The standard is effective <strong>for</strong> annual periods beginning on or after January 1,<br />
2013. The Parent Company will assess <strong>the</strong> impact of <strong>the</strong> amendment on its financial position and<br />
per<strong>for</strong>mance when <strong>the</strong>y become effective.<br />
PFRS 13, Fair Value Measurement<br />
This standard represents <strong>the</strong> completion of <strong>the</strong> joint project to establish a single source <strong>for</strong> <strong>the</strong><br />
requirements on how to measure fair value under PFRS. This standard does not change when an<br />
entity is required to use fair value, but ra<strong>the</strong>r, describes how to measure fair value under PFRS,<br />
when fair value is required or permitted to be used. This standard is effective <strong>for</strong> annual periods<br />
beginning on or after January 1, 2013. The Parent Company will assess <strong>the</strong> impact of <strong>the</strong><br />
amendment on its financial position and per<strong>for</strong>mance when <strong>the</strong>y become effective.<br />
PAS 19 Amendments, Employee Benefits - Defined Benefit Plans<br />
The amendments focus on <strong>the</strong> following key areas: <strong>the</strong> elimination of <strong>the</strong> option to defer <strong>the</strong><br />
recognition of gains and losses resulting from defined benefit plans (<strong>the</strong> corridor approach); <strong>the</strong><br />
elimination of options <strong>for</strong> <strong>the</strong> presentation of gains and losses relating to those plans; and <strong>the</strong><br />
improvement of disclosure requirements that will better show <strong>the</strong> characteristics of defined benefit<br />
plans and <strong>the</strong> risks arising from those plans. The amendments to <strong>the</strong> recognition, presentation and<br />
disclosure requirements will ensure that <strong>the</strong> financial statements provide investors and o<strong>the</strong>r users<br />
with a clear picture of an entity’s commitments resulting from defined benefit plans. The<br />
amendments to PAS 19 are effective <strong>for</strong> annual periods beginning on or after January 1, 2013.<br />
The Parent Company will assess <strong>the</strong> impact of <strong>the</strong> amendment when this becomes effective.<br />
Effective 2014<br />
PAS 32 Amendment, Financial Instruments: Presentation - Offsetting Financial Assets and<br />
Financial Liabilities<br />
The amendment to PAS 32 is effective <strong>for</strong> annual periods beginning on or after January 1, 2014.<br />
This clarifies <strong>the</strong> meaning of “currently has a legally en<strong>for</strong>ceable right to set-off” and <strong>the</strong><br />
application of <strong>the</strong> PAS 32 offsetting criteria to settlement systems (such as central clearing house<br />
systems) which apply gross settlement mechanisms that are not simultaneous.<br />
Effective 2015<br />
PFRS 9, Financial Instruments: Classification and Measurement<br />
The standard is effective <strong>for</strong> annual periods beginning on or after January 1, 2015. It reflects <strong>the</strong><br />
first phase on <strong>the</strong> replacement of PAS 39, Financial Instruments: Recognition and Measurement<br />
and applies to classification and measurement of financial assets and financial liabilities as defined<br />
in PAS 39. The Parent Company will assess <strong>the</strong> impact of <strong>the</strong> amendment on its financial position<br />
and per<strong>for</strong>mance when <strong>the</strong>y become effective.<br />
Philippine Interpretation IFRIC 15, Agreement <strong>for</strong> Construction of Real Estate<br />
This Interpretation, effective <strong>for</strong> annual periods beginning on or after January 1, 2015, covers<br />
accounting <strong>for</strong> revenue and associated expenses by entities that undertake <strong>the</strong> construction of real<br />
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estate directly or through subcontractors. The Interpretation requires that revenue on construction<br />
of real estate be recognized only upon completion, except when such contract qualifies as<br />
construction contract to be accounted <strong>for</strong> under PAS 11, Construction Contracts, or involves<br />
rendering of services in which case revenue is recognized based on stage of completion. Contracts<br />
involving provision of services with <strong>the</strong> construction materials and where <strong>the</strong> risks and reward of<br />
ownership are transferred to <strong>the</strong> buyer on a continuous basis will also be accounted <strong>for</strong> based on<br />
stage of completion.<br />
3. Significant Accounting Judgments and Estimates<br />
The preparation of <strong>the</strong> parent company financial statements in compliance with PFRS requires <strong>the</strong><br />
Parent Company to make judgments and estimates that affect <strong>the</strong> reported amounts of assets,<br />
liabilities, income and expenses and disclosure of contingent assets and contingent liabilities.<br />
Future events may occur which will cause <strong>the</strong> assumptions used in arriving at <strong>the</strong> estimates to<br />
change. The effects of any change in estimates are reflected in <strong>the</strong> parent company financial<br />
statements as <strong>the</strong>y become reasonably determinable.<br />
Judgments and estimates are continually evaluated and are based on historical experience and<br />
o<strong>the</strong>r factors, including expectations of future events that are believed to be reasonable under <strong>the</strong><br />
circumstances.<br />
Judgments<br />
a. Functional Currency<br />
PAS 21 requires management to use its judgment to determine <strong>the</strong> entity’s functional currency<br />
such that it most faithfully represents <strong>the</strong> economic effects of <strong>the</strong> underlying transactions,<br />
events and conditions that are relevant to <strong>the</strong> entity. In making this judgment, <strong>the</strong> Parent<br />
Company considers <strong>the</strong> following:<br />
• <strong>the</strong> currency that mainly influences sales prices <strong>for</strong> financial instruments and services (this<br />
will often be <strong>the</strong> currency in which sales prices <strong>for</strong> its financial instruments and services<br />
are denominated and settled);<br />
• <strong>the</strong> currency in which funds from financing activities are generated; and<br />
• <strong>the</strong> currency in which receipts from operating activities are usually retained.<br />
The Parent Company determined its functional currency to be Philippine peso, being <strong>the</strong><br />
currency that mainly influences <strong>the</strong> Parent Company’s revenues and cost and expenses.<br />
b. Operating leases<br />
Parent Company as lessee<br />
The Parent Company has entered into commercial property leases as a lessee <strong>for</strong> its office<br />
premises. The Parent Company has determined that it has not acquired <strong>the</strong> significant risks<br />
and rewards of ownership of <strong>the</strong> leased properties and so account <strong>for</strong> <strong>the</strong> contracts as operating<br />
leases.<br />
c. Fair value of financial instruments<br />
The fair values of financial instruments that are not quoted in active markets are determined<br />
using valuation techniques. The fair values of financial assets and financial liabilities of <strong>the</strong><br />
Parent Company are disclosed in Note 4.<br />
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d. Contingencies<br />
The Parent Company is currently involved in various proceedings. The estimate of <strong>the</strong><br />
probable costs <strong>for</strong> <strong>the</strong> resolution of <strong>the</strong>se claims has been developed in consultation with<br />
outside counsel handling <strong>the</strong> defense in <strong>the</strong>se matters and is based upon an analysis of<br />
potential results. The Parent Company currently does not believe <strong>the</strong>se proceedings will have<br />
a material effect on <strong>the</strong> Parent Company’s financial position. It is possible, however, that<br />
future results of operations could be materially affected by changes in <strong>the</strong> estimates or in <strong>the</strong><br />
effectiveness of <strong>the</strong> strategies relating to <strong>the</strong>se proceedings (see Note 24).<br />
e. Determination of whe<strong>the</strong>r <strong>the</strong> Parent Company is acting as a principal or an agent<br />
The Parent Company assesses its revenue arrangements against <strong>the</strong> following criteria to<br />
determine whe<strong>the</strong>r it is acting as a principal or an agent:<br />
• whe<strong>the</strong>r <strong>the</strong> Parent Company has primary responsibility <strong>for</strong> providing <strong>the</strong> goods and<br />
services;<br />
• whe<strong>the</strong>r <strong>the</strong> Parent Company has inventory risk;<br />
• whe<strong>the</strong>r <strong>the</strong> Parent Company has discretion in establishing prices; and<br />
• whe<strong>the</strong>r <strong>the</strong> Parent Company bears <strong>the</strong> credit risk.<br />
If <strong>the</strong> Parent Company has determined it is acting as a principal, revenue is recognized on a<br />
gross basis with <strong>the</strong> amount remitted to <strong>the</strong> o<strong>the</strong>r party being accounted <strong>for</strong> as part of costs and<br />
expenses.<br />
If <strong>the</strong> Parent Company has determined it is acting as an agent, only <strong>the</strong> net amount retained is<br />
recognized as revenue.<br />
The Parent Company assessed its revenue arrangements and concluded that it is acting as<br />
principal in some arrangements and as an agent in o<strong>the</strong>r arrangements.<br />
Estimates<br />
a. Credit losses on receivables<br />
The Parent Company reviews its receivables at each balance sheet date to assess whe<strong>the</strong>r an<br />
allowance <strong>for</strong> credit losses should be recorded in <strong>the</strong> parent company balance sheet. In<br />
particular, judgment by management is required in <strong>the</strong> estimation of <strong>the</strong> amount and timing of<br />
future cash flows when determining <strong>the</strong> level of allowance required. Such estimates are based<br />
on assumptions about a number of factors such as length of <strong>the</strong> Parent Company’s relationship<br />
with counterparties (e.g., agents and couriers), current credit status, average age of accounts,<br />
collection and historical loss experience. Actual results may differ, resulting in future changes<br />
to <strong>the</strong> allowance.<br />
As of <strong>December</strong> <strong>31</strong>, <strong>2011</strong>, accounts receivable and o<strong>the</strong>r receivables are carried in <strong>the</strong> parent<br />
company balance sheet at P=1.00 billion and P=0.14 billion, respectively. As of<br />
<strong>December</strong> <strong>31</strong>, 2010, accounts receivable and o<strong>the</strong>r receivables are carried in <strong>the</strong> balance sheet<br />
at P=1.12 billion and P=0.14 billion, respectively. The Parent Company has assessed that <strong>the</strong>re<br />
is no need to recognize impairment losses on its receivables as of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and<br />
2010.<br />
*SGVMC116501*
- 18 -<br />
b. Impairment of nonfinancial assets<br />
(i) Investments in subsidiaries and associates<br />
The Parent Company assesses impairment on its investments in subsidiaries and associates<br />
whenever events or changes in circumstances indicate that <strong>the</strong> carrying amount of <strong>the</strong><br />
assets may not be recoverable. Among o<strong>the</strong>rs, <strong>the</strong> factors that <strong>the</strong> Parent Company<br />
considers important, which could trigger an impairment review on its investments in<br />
subsidiaries and associates, include <strong>the</strong> following:<br />
• deteriorating or poor financial condition;<br />
• recurring net losses; and<br />
• significant changes with an adverse effect on <strong>the</strong> subsidiary/associate have taken place<br />
during <strong>the</strong> period, or will take place in <strong>the</strong> near future, in <strong>the</strong> technological, market,<br />
economic, or legal environment in which <strong>the</strong> subsidiary/associate operates.<br />
(ii) Property and equipment and software costs<br />
The Parent Company assesses impairment on property and equipment and software costs<br />
whenever events or changes in circumstances indicate that <strong>the</strong> carrying amount of <strong>the</strong><br />
asset may not be recoverable. The factors that <strong>the</strong> Parent Company considers important,<br />
which could trigger an impairment review, include <strong>the</strong> following:<br />
• significant underper<strong>for</strong>mance relative to expected historical or projected future<br />
operating results;<br />
• significant changes in <strong>the</strong> manner of use of <strong>the</strong> acquired assets or <strong>the</strong> strategy <strong>for</strong><br />
overall business; and<br />
• significant negative industry or economic trends.<br />
The Parent Company recognizes an impairment loss whenever <strong>the</strong> carrying amount of <strong>the</strong><br />
asset exceeds its recoverable amount. The recoverable amount is determined based on <strong>the</strong><br />
asset’s value in use computation, which considers <strong>the</strong> present value of estimated future cash<br />
flows expected to be generated from <strong>the</strong> continued use of <strong>the</strong> asset.<br />
As of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010, no impairment losses were recognized on <strong>the</strong> Parent<br />
Company’s nonfinancial assets. The carrying values of <strong>the</strong> Parent Company’s nonfinancial<br />
assets as of <strong>December</strong> <strong>31</strong> follow:<br />
<strong>2011</strong> 2010<br />
Investments in subsidiaries and associates (Note 10) P=295,334,077 P=245,149,252<br />
Property and equipment - net (Note 11) 7,094,474 9,493,115<br />
Software costs - net (Note 12) 1,396,241 1,868,072<br />
c. Estimated useful lives of property and equipment and software costs<br />
The Parent Company reviews <strong>the</strong> estimated useful lives of property and equipment and<br />
software costs annually based on <strong>the</strong> expected asset utilization after considering <strong>the</strong> expected<br />
future technological developments and market behavior. Significant changes in <strong>the</strong>se estimates<br />
resulting from changes in <strong>the</strong> factors a<strong>for</strong>ementioned could possibly affect <strong>the</strong> future results of<br />
operations. Any decrease in <strong>the</strong> estimated useful life of <strong>the</strong> property and equipment and<br />
software costs would decrease <strong>the</strong>ir respective balances and increase <strong>the</strong> recorded depreciation<br />
and amortization.<br />
*SGVMC116501*
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As of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> <strong>the</strong> carrying values of Property and equipment and Software costs<br />
follow:<br />
<strong>2011</strong> 2010<br />
Property and equipment - net (Note 11) P=7,094,474 P=9,493,115<br />
Software costs - net (Note 12) 1,396,241 1,868,072<br />
In <strong>2011</strong>, 2010 and 2009, <strong>the</strong> Parent Company recognized depreciation and amortization in <strong>the</strong><br />
statements of income amounting to P=6.54 million, P=8.06 million and P=8.61 million,<br />
respectively.<br />
d. Recognition of deferred tax assets<br />
The Parent Company reviews <strong>the</strong> carrying amounts of deferred tax assets at each balance sheet<br />
date and reduces it to <strong>the</strong> extent that it is no longer probable that sufficient taxable income will<br />
be available to allow all or part of <strong>the</strong> deferred tax assets to be utilized. Significant judgment<br />
is required to determine <strong>the</strong> amount of deferred tax assets that can be recognized, based upon<br />
<strong>the</strong> likely timing and level of future taxable income toge<strong>the</strong>r with future tax planning<br />
strategies.<br />
As of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010, <strong>the</strong> Parent Company did not recognize net deferred tax<br />
assets on existing deductible temporary differences amounting to P=2.80 million and<br />
P=2.85 million, respectively. Management believes that it is not highly probable that <strong>the</strong>se<br />
temporary differences will be realized in <strong>the</strong> future (see Note 23).<br />
e. Present value of net retirement obligation<br />
The cost of defined benefit retirement plan and o<strong>the</strong>r post-employment benefits are<br />
determined using actuarial valuations. The actuarial valuation involves making assumptions<br />
about discount rates, expected rates of return on assets, future salary increases, mortality rates<br />
and future retirement increases. Due to <strong>the</strong> long-term nature of <strong>the</strong>se benefits, such estimates<br />
are subject to significant uncertainty.<br />
The assumed discount rates were determined using <strong>the</strong> market yields on Philippine<br />
government bonds with terms consistent with <strong>the</strong> expected employee benefit payout as of <strong>the</strong><br />
consolidated balance sheet date. Refer to Note 16 <strong>for</strong> <strong>the</strong> details of assumptions used in <strong>the</strong><br />
calculation. As of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010, <strong>the</strong> Parent Company recognized retirement<br />
asset of P=0.37 million and retirement liability of P=0.78 million, respectively. In <strong>2011</strong>, 2010<br />
and 2009, <strong>the</strong> Parent Company recognized retirement expense amounting to P=5.75 million,<br />
P=2.38 million and P=3.02 million, respectively (see Note 16).<br />
f. Share-based payment transactions<br />
The Parent Company determined <strong>the</strong> cost of its equity-settled share based program at grant<br />
date using <strong>the</strong> price earnings multiple model taking into account <strong>the</strong> terms and conditions<br />
upon which <strong>the</strong> shares were granted. At <strong>year</strong>end, <strong>the</strong> Parent Company estimates <strong>the</strong> number<br />
of equity instruments that will ultimately vest. The Parent Company recognized cost of<br />
equity-settled share based payments amounting to P=1.53 million in 2009 (see Note <strong>17</strong>). The<br />
vesting period of <strong>the</strong> stock purchase program <strong>ended</strong> on September 19, 2009.<br />
*SGVMC116501*
4. Fair Value Measurement<br />
- 20 -<br />
The following tables summarize <strong>the</strong> carrying amounts and fair values of <strong>the</strong> Parent Company’s<br />
financial assets and financial liabilities:<br />
<strong>2011</strong> 2010<br />
Carrying Value Fair Value Carrying Value Fair Value<br />
Financial Assets<br />
Loans and receivables:<br />
Cash and cash equivalents<br />
Cash on hand P=24,772,521 P=24,772,521 P=41,745,551 P=41,745,551<br />
Cash in banks<br />
Accounts receivable<br />
642,750,978 642,750,978 685,920,368 685,920,368<br />
Agents 993,280,050 993,280,050 1,081,402,745 1,081,402,745<br />
Couriers<br />
O<strong>the</strong>r receivables<br />
3,523,052 3,523,052 34,283,201 34,283,201<br />
Related parties 137,260,244 137,260,244 97,767,888 97,767,888<br />
Advances to officers and employees 2,526,259 2,526,259 2,991,428 2,991,428<br />
Noncontrolling shareholders – – 39,981,243 39,981,243<br />
O<strong>the</strong>rs 3,457,329 3,457,329 1,166,686 1,166,686<br />
Refundable deposits 4,568,661 4,492,159 4,099,9<strong>31</strong> 3,860,098<br />
Total P=1,812,139,094 P=1,812,062,592 P=1,989,359,041 P=1,989,119,208<br />
O<strong>the</strong>r Financial Liabilities<br />
Beneficiaries and o<strong>the</strong>r payables:<br />
Beneficiaries P=155,140,304 P=155,140,304 P=144,960,550 P=144,960,550<br />
Advances from related parties 79,753,1<strong>17</strong> 79,753,1<strong>17</strong> 74,161,090 74,161,090<br />
Agents, couriers and trading clients 44,404,974 44,404,974 27,101,8<strong>17</strong> 27,101,8<strong>17</strong><br />
Accrued expenses 7,019,510 7,019,510 6,250,462 6,250,462<br />
Payable to suppliers 1,391,836 1,391,836 2,958,634 2,958,634<br />
O<strong>the</strong>rs 476,730 476,730 803,350 803,350<br />
Interest-bearing loans 666,000,000 666,000,000 877,000,000 877,000,000<br />
Total P=954,186,471 P=954,186,471 P=1,133,235,903 P=1,133,235,903<br />
The following methods and assumptions were used to estimate <strong>the</strong> fair value of <strong>the</strong> financial<br />
instruments:<br />
Cash and cash equivalents, Accounts receivable, O<strong>the</strong>r receivables, Beneficiaries and o<strong>the</strong>r<br />
payables and Interest-bearing loans - carrying amounts approximate fair values due to <strong>the</strong><br />
relatively short-term maturities of <strong>the</strong>se instruments.<br />
Refundable deposits - fair values are based on <strong>the</strong> present value of future cash flows discounted<br />
using prevailing interest rates ranging from 1.56% to 2.14% and 2.<strong>31</strong>% to 3.12% as at<br />
<strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010, respectively.<br />
As of <strong>December</strong> <strong>31</strong> <strong>2011</strong> and 2010, <strong>the</strong> Parent Company has no financial instruments carried at<br />
fair value.<br />
5. Financial Risk Management Objectives and Policies<br />
The Parent Company’s principal financial instruments mainly comprise of short-term loans from<br />
banks. The main purpose of <strong>the</strong>se financial instruments is to raise funds <strong>for</strong> <strong>the</strong> Parent Company’s<br />
fulfillment or delivery of remittance transactions to beneficiaries. The Parent Company also has<br />
various o<strong>the</strong>r financial assets and liabilities such as cash and cash equivalents, accounts receivable<br />
and accounts payable to beneficiaries, which arise directly from its remittance operations.<br />
*SGVMC116501*
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The main risks arising from <strong>the</strong> Parent Company’s financial instruments are credit risk, <strong>for</strong>eign<br />
currency risk, cash flow interest rate risk, and liquidity risk. The BOD reviews and approves<br />
policies <strong>for</strong> managing each of <strong>the</strong>se risks and <strong>the</strong>se are summarized below:<br />
Credit Risk<br />
Credit risk is <strong>the</strong> risk of loss resulting from <strong>the</strong> failure of a borrower or counterparty to per<strong>for</strong>m its<br />
obligations during <strong>the</strong> life of <strong>the</strong> transaction. This includes risk of non-payment by borrowers or<br />
issuers, failed settlement of transactions and default on contracts.<br />
The nature of its business exposes <strong>the</strong> Parent Company to potential risk from difficulties in<br />
recovering transaction money from <strong>for</strong>eign partners. Receivables from <strong>for</strong>eign offices and agents<br />
arise as a result of its remittance operations in various regions of <strong>the</strong> globe. In order to address<br />
this, <strong>the</strong> Parent Company has maintained <strong>the</strong> following credit policies: (a) implement a contract<br />
that incorporates a bond and advance payment cover such that <strong>the</strong> full amount of <strong>the</strong> transaction<br />
will be credited to <strong>the</strong> Parent Company prior to <strong>the</strong>ir delivery to <strong>the</strong> beneficiaries, which applies<br />
generally to all new agents and in certain cases to old agents; (b) all <strong>for</strong>eign offices and agents<br />
must settle <strong>the</strong>ir accounts within <strong>the</strong> agreed credit terms, o<strong>the</strong>rwise, <strong>the</strong> fulfillment or delivery of<br />
<strong>the</strong>ir remittance transactions will be put on hold; (c) evaluation of individual potential partners and<br />
preferred associates’ creditworthiness, as well as a close look into <strong>the</strong> o<strong>the</strong>r pertinent aspects of<br />
<strong>the</strong>ir partners’ businesses which assures <strong>the</strong> Parent Company of <strong>the</strong> financial soundness of <strong>the</strong>ir<br />
partner firms; and (d) receivable balances are monitored daily by <strong>the</strong> regional managers with <strong>the</strong><br />
result that <strong>the</strong> Parent Company’s exposure to bad debts is not significant.<br />
The Parent Company’s receivables from agents and courier companies are highly collectible and<br />
have a turnover ranging from 1 to 5 days and 30 to 60 days, respectively. The o<strong>the</strong>r receivables,<br />
which include advances to related parties, are also highly collectible and are due in less than one<br />
<strong>year</strong>.<br />
The table below shows <strong>the</strong> maximum credit exposure of <strong>the</strong> Parent Company per account<br />
classification as of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010 (see Notes 6, 7, 8 and 12):<br />
<strong>2011</strong> 2010<br />
Loans and receivables:<br />
Cash and cash equivalents* P=642,750,978 P=685,920,368<br />
Accounts receivable<br />
O<strong>the</strong>r receivables<br />
996,803,102 1,115,685,946<br />
Related parties 137,260,244 97,767,888<br />
Advances to officers and employees 2,526,259 2,991,428<br />
Noncontrolling shareholders – 39,981,243<br />
O<strong>the</strong>rs<br />
O<strong>the</strong>r noncurrent assets<br />
3,457,329 1,166,686<br />
Refundable deposits 4,568,661 4,099,9<strong>31</strong><br />
Total<br />
* excludes cash on hand<br />
P=1,787,366,573 P=1,947,613,490<br />
*SGVMC116501*
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The table below shows <strong>the</strong> maximum credit exposure of <strong>the</strong> Parent Company per geographical<br />
classification as of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010:<br />
<strong>2011</strong> 2010<br />
Asia Pacific P=1,386,607,212 P=1,742,336,664<br />
North America 169,629,594 54,214,381<br />
Europe 122,244,502 52,265,667<br />
Middle East 108,885,265 98,796,778<br />
Total P=1,787,366,573 P=1,947,613,490<br />
The Parent Company classifies its nei<strong>the</strong>r past due nor impaired receivables as high grade. High<br />
grade financial assets includes instruments with credit ratings of excellent, strong, good, or<br />
satisfactory, wherein <strong>the</strong> borrower has a low probability of default and could withstand <strong>the</strong> normal<br />
business cycle.<br />
As at <strong>December</strong> <strong>31</strong>, <strong>2011</strong>, <strong>the</strong> Parent Company has past due but not impaired receivables from<br />
agents amounting to P=8.77 million. These receivables have been outstanding <strong>for</strong> more than six<br />
months but less than one <strong>year</strong>. No impairment was recognized relative to <strong>the</strong>se receivables. There<br />
are no past due but not impaired receivables as of <strong>December</strong> <strong>31</strong>, 2010.<br />
Foreign Currency Risk<br />
Foreign currency risk is <strong>the</strong> risk to earnings or capital arising from changes in <strong>for</strong>eign exchange<br />
rates. It is <strong>the</strong> Parent Company’s policy that all daily <strong>for</strong>eign currencies, which arise as a result of<br />
its remittance transactions, must be traded daily with bank partners only at prevailing <strong>for</strong>eign<br />
exchange rates in <strong>the</strong> market. The daily closing <strong>for</strong>eign exchange rates shall be <strong>the</strong> guiding rate in<br />
providing wholesale rates and retail rates to <strong>for</strong>eign offices and agents, respectively. The trading<br />
proceeds will be used to pay out bank loans and o<strong>the</strong>r obligations of <strong>the</strong> Parent Company.<br />
The tables below summarize <strong>the</strong> Parent Company’s exposure to <strong>for</strong>eign exchange risk. Included<br />
in <strong>the</strong> tables are <strong>the</strong> Parent Company’s <strong>for</strong>eign currency-denominated monetary assets and<br />
liabilities and <strong>the</strong>ir PHP equivalent.<br />
Cash and Cash<br />
Equivalents Receivables Total<br />
<strong>2011</strong> 2010<br />
PHP<br />
Equivalent<br />
Cash and Cash<br />
Equivalents Receivables Total<br />
PHP<br />
Equivalent<br />
Currency<br />
CAD − 3,899,810 3,899,810 P=166,949,916 139,422 3,<strong>31</strong>2,925 3,452,347 P=151,305,487<br />
EUR 600,992 702,086 1,303,078 73,922,243 321,739 515,999 837,738 48,567,036<br />
SGD 440,811 1,628,629 2,069,440 69,903,060 89,587 1,254,112 1,343,699 45,565,156<br />
USD 1,263,619 246,093 1,509,712 66,185,751 1,026,855 901,651 1,928,506 84,545,703<br />
AUD 45,588 1,215,971 1,261,559 55,804,483 184,346 783,071 967,4<strong>17</strong> 43,141,040<br />
GBP 14,873 796,606 811,479 54,974,473 14,752 – 14,752 1,002,493<br />
NTD − 20,248,641 20,248,641 29,205,344 – 23,7<strong>31</strong>,378 23,7<strong>31</strong>,378 35,581,120<br />
NZD 4,809 309,338 <strong>31</strong>4,147 10,589,449 7,518 212,371 219,889 7,364,909<br />
HKD 23,219 1,496,086 1,519,305 8,565,572 – 1,553,760 1,553,760 8,753,014<br />
QAR 275 – 275 3,<strong>31</strong>1 275 – 275 3,<strong>31</strong>2<br />
Net exposure P=536,103,602 P=425,829,270<br />
*SGVMC116501*
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The following tables set <strong>for</strong>th <strong>for</strong> <strong>the</strong> <strong>year</strong> indicated <strong>the</strong> impact of reasonably possible changes in<br />
<strong>the</strong> rates of o<strong>the</strong>r currencies on pretax income.<br />
Currency<br />
Change in nominal<br />
<strong>for</strong>eign currency<br />
exchange rate<br />
Effect on<br />
pretax<br />
income<br />
<strong>2011</strong><br />
Change in nominal<br />
<strong>for</strong>eign currency<br />
exchange rate<br />
Effect on<br />
pretax<br />
income<br />
CAD +2.81 P=10,959,401 -1.60 (P=6,238,760)<br />
EUR +7.36 9,585,8<strong>17</strong> -0.25 (324,205)<br />
SGD +1.95 4,038,058 -0.66 (1,363,182)<br />
AUD +2.95 3,715,845 -2.94 (3,714,735)<br />
GBP +4.40 3,573,796 -1.06 (856,884)<br />
NTD +0.10 1,985,663 -0.12 (2,434,616)<br />
USD +0.91 1,373,837 -1.94 (2,928,840)<br />
NZD +3.50 1,099,962 -2.44 (766,071)<br />
HKD +0.11 169,062 -0.26 (399,9<strong>17</strong>)<br />
QAR +0.24 66 -0.53 (147)<br />
Change in nominal<br />
2010<br />
Change in nominal<br />
<strong>for</strong>eign currency<br />
Effect on <strong>for</strong>eign currency Effect on<br />
Currency<br />
exchange rate pretax income exchange rate pretax income<br />
CAD +1.75 P=6,041,607 -2.09 (P=7,215,405)<br />
EUR +8.87 7,430,736 -3.04 (2,546,724)<br />
SGD +0.32 429,984 -1.87 (2,512,7<strong>17</strong>)<br />
AUD +0.13 125,764 -7.05 (6,820,290)<br />
GBP +8.01 118,164 -3.57 (52,665)<br />
NTD +0.01 237,<strong>31</strong>4 -0.12 (2,847,765)<br />
USD +3.55 6,846,196 -1.61 (3,104,895)<br />
NZD +1.03 226,486 -3.09 (679,457)<br />
HKD +0.41 637,042 -0.08 (124,301)<br />
QAR +1.73 476 -4.08 (1,122)<br />
There is no o<strong>the</strong>r impact on <strong>the</strong> Parent Company’s equity o<strong>the</strong>r than those already affecting <strong>the</strong><br />
profit or loss.<br />
Cash Flow Interest Rate Risk<br />
Interest rate risk arises from <strong>the</strong> possibility that changes in interest rates will affect future cash<br />
flows of financial instruments.<br />
As of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010, <strong>the</strong> Parent Company’s exposure to cash flow interest rate risk<br />
is minimal. The Parent Company’s policy is to manage its interest cost by entering only into fixed<br />
rate short-term loans from banks.<br />
Liquidity Risk<br />
Liquidity or funding risk is <strong>the</strong> risk that an entity will encounter difficulty in raising funds to meet<br />
commitments associated with financial instruments.<br />
The Parent Company’s objective is to maintain a balance between continuity of funding and<br />
flexibility through <strong>the</strong> use of short-term debts. In addition, <strong>the</strong> Parent Company maintains credit<br />
facilities with local banks. As of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010, <strong>the</strong> Parent Company has unused<br />
credit facilities amounting to P=1.48 billion and P=1.02 billion, respectively (see Note 14).<br />
*SGVMC116501*
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Financial assets<br />
Maturity profile of financial assets held <strong>for</strong> liquidity purposes is shown below. The analysis is<br />
based on <strong>the</strong> remaining period from <strong>the</strong> end of <strong>the</strong> reporting period to <strong>the</strong> contractual maturity<br />
date, or if earlier, <strong>the</strong> expected date <strong>the</strong> assets will be realized.<br />
Financial liabilities<br />
The maturity grouping is based on <strong>the</strong> remaining period from <strong>the</strong> end of <strong>the</strong> reporting period to <strong>the</strong><br />
contractual maturity date. When counterparty has a choice of when <strong>the</strong> amount is paid, <strong>the</strong><br />
liability is allocated to <strong>the</strong> earliest period in which <strong>the</strong> Parent Company can be required to pay.<br />
The tables below summarize <strong>the</strong> maturity profile of <strong>the</strong> Parent Company’s financial instruments<br />
based on undiscounted contractual payments.<br />
<strong>2011</strong><br />
Over 60 days<br />
but less than<br />
Less than 5 days 5 to 30 days 30 to 60 days one <strong>year</strong> Total<br />
Financial assets<br />
Cash and cash equivalents<br />
Cash on hand P=24,772,521 P=– P=– P= − =24,772,521 P<br />
Cash in banks<br />
Accounts receivable<br />
642,750,978 − − − 642,750,978<br />
Agents 984,506,271 − − 8,773,779 993,280,050<br />
Couriers − − 3,523,052 − 3,523,052<br />
P=1,652,029,770 P=– P=3,523,052 P=8,773,779 P=1,664,326,601<br />
Financial liabilities<br />
Beneficiaries and o<strong>the</strong>r<br />
payables:<br />
Beneficiaries<br />
Advances from related<br />
P=155,140,304 P=– P=– P= − =155,140,304 P<br />
parties<br />
Agents, couriers and<br />
– – 79,753,1<strong>17</strong><br />
− 79,753,1<strong>17</strong><br />
trading clients 44,404,974 – –<br />
− 44,404,974<br />
Accrued expenses – – 7,019,510 − 7,019,510<br />
Payable to suppliers – – 1,391,836 − 1,391,836<br />
O<strong>the</strong>rs – – 476,730 − 476,730<br />
Interest-bearing loans 95,050,139 571,866,010 − − 666,916,149<br />
P=294,595,4<strong>17</strong> P=571,866,010 P=88,641,193 P= − =955,102,620 P<br />
2010<br />
Less than 5 days 5 to 30 days 30 to 60 days<br />
Over 60 days<br />
but less than<br />
one <strong>year</strong> Total<br />
Financial assets<br />
Cash and cash equivalents<br />
Cash on hand P=41,745,551 P=– P=– P=– P=41,745,551<br />
Cash in banks<br />
Accounts receivable<br />
685,920,368 – – – 685,920,368<br />
Agents 1,081,402,745 – – − 1,081,402,745<br />
Couriers – – 34,283,201 – 34,283,201<br />
P=1,809,068,664 P=– P=34,283,201 P=− P=1,843,351,865<br />
Financial liabilities<br />
Beneficiaries and o<strong>the</strong>r<br />
payables:<br />
Beneficiaries<br />
Advances from related<br />
P=144,960,550 P=– P=– P=− P=144,960,550<br />
parties<br />
Agents, couriers and<br />
– – 74,161,090<br />
− 74,161,090<br />
trading clients 27,101,8<strong>17</strong> – –<br />
− 27,101,8<strong>17</strong><br />
Accrued expenses – – 6,250,462 − 6,250,462<br />
Payable to suppliers – – 2,958,634 − 2,958,634<br />
O<strong>the</strong>rs – – 803,350 − 803,350<br />
Interest-bearing loans 395,273,055 483,077,528 – − 878,350,583<br />
P=567,335,422 P=483,077,528 P=84,<strong>17</strong>3,536 P=− P=1,134,586,486<br />
*SGVMC116501*
6. Cash and Cash Equivalents<br />
This account consists of:<br />
- 25 -<br />
<strong>2011</strong> 2010<br />
Cash on hand P=24,772,521 P=41,745,551<br />
Cash in banks (Note 22) 642,750,978 685,920,368<br />
P=667,523,499 P=727,665,919<br />
Cash in banks earn interest at <strong>the</strong> respective bank deposit rates.<br />
In <strong>2011</strong>, 2010 and 2009, interest income amounted to P=2.95 million, P=3.22 million and<br />
P=7.67 million, respectively.<br />
The Parent Company’s cash and cash equivalents denominated in <strong>for</strong>eign currency, with<br />
corresponding Philippine peso (PHP) equivalent, are as follows:<br />
<strong>December</strong> <strong>31</strong>, <strong>2011</strong> <strong>December</strong> <strong>31</strong>, 2010<br />
Amount PHP equivalent Amount PHP equivalent<br />
USD 1,263,619 P=55,397,057 1,026,855 P=45,0<strong>17</strong>,323<br />
EUR 600,992 34,093,651 321,739 18,652,502<br />
SGD 440,811 14,890,0<strong>31</strong> 89,587 3,037,9<strong>17</strong><br />
AUD 45,588 2,016,565 184,346 8,220,734<br />
GBP 14,873 1,007,585 14,752 1,002,493<br />
NZD 4,809 162,105 7,518 251,806<br />
HKD 23,219 130,905 − −<br />
QAR 275 3,<strong>31</strong>2 275 3,<strong>31</strong>2<br />
CAD – – 139,422 6,110,427<br />
P=107,701,211 P=82,296,514<br />
Cash in banks earn interest rates in <strong>2011</strong>, 2010 and 2009 ranging as follows <strong>for</strong>:<br />
PHP-Denominated 0.50% to 2.00%<br />
Foreign Currency-Denominated 0.25% to 0.50%<br />
7. Accounts Receivable<br />
This account consists of receivables from:<br />
<strong>2011</strong> 2010<br />
Agents P=993,280,050 P=1,081,402,745<br />
Couriers 3,523,052 34,283,201<br />
P=996,803,102 P=1,115,685,946<br />
Receivables from agents pertain to advances made to fund <strong>the</strong> remittance transactions to<br />
beneficiaries. These are settled within 1 to 5 days from transaction date.<br />
Receivables from couriers pertain to advances made to <strong>the</strong> courier companies to ease up <strong>the</strong> doorto-door<br />
delivery of <strong>the</strong> remittances to <strong>the</strong> beneficiaries. These are settled within 30 to 60 days<br />
from transaction date.<br />
*SGVMC116501*
8. O<strong>the</strong>r Receivables<br />
This account consists of:<br />
- 26 -<br />
<strong>2011</strong> 2010<br />
Related parties (Note 22) P=137,260,244 P=97,767,888<br />
Officers and employees 2,526,259 2,991,428<br />
Noncontrolling shareholders (Note 10) – 39,981,243<br />
O<strong>the</strong>rs 3,457,329 1,166,686<br />
P=143,243,832 P=141,907,245<br />
Receivable from <strong>the</strong> noncontrolling shareholders pertain to <strong>the</strong> Parent Company’s advances to <strong>the</strong><br />
noncontrolling shareholders of IRCGmbH and WEPL. In <strong>2011</strong>, <strong>the</strong> Parent Company acquired<br />
additional interest in IRCGmbH and WEPL. The receivable from noncontrolling shareholders of<br />
IRCGmbH and WEPL amounting to P=25.01 million and P=12.30 million, respectively, were<br />
applied against <strong>the</strong> acquisition costs (see Note 10). The remaining P=2.67 million was settled in<br />
July <strong>2011</strong>.<br />
‘O<strong>the</strong>rs’ includes advances to contractors and trading clients <strong>for</strong> <strong>for</strong>eign exchange transactions.<br />
These outstanding receivables are due within one <strong>year</strong>.<br />
9. O<strong>the</strong>r Current Assets<br />
This account consists of:<br />
<strong>2011</strong> 2010<br />
Receivable from Bureau of Internal Revenue (BIR) P=13,160,535 P=13,160,535<br />
Prepaid expenses 5,579,968 1,895,811<br />
Visa cards inventory 3,371,662 8,054,220<br />
Suppliers and contractors 1,087,500 50,000<br />
Office supplies 190,328 199,689<br />
Creditable withholding tax 2,979 –<br />
P=23,392,972 P=23,360,255<br />
Receivable from BIR pertains to <strong>the</strong> excess payments made by <strong>the</strong> Parent Company in 2007 <strong>for</strong><br />
<strong>the</strong> Initial Public Offering (IPO) percentage tax. As of <strong>December</strong> <strong>31</strong>, <strong>2011</strong>, <strong>the</strong> case is pending<br />
resolution with <strong>the</strong> Court of Tax Appeals. The Parent Company believes that it will be able to<br />
obtain <strong>the</strong> refund from <strong>the</strong> BIR.<br />
Prepaid expenses include prepayments <strong>for</strong> business development, rent, internet connection and<br />
association dues.<br />
*SGVMC116501*
10. Investments in Subsidiaries and Associates<br />
- 27 -<br />
The Parent Company’s investments in subsidiaries and associates consist of <strong>the</strong> following:<br />
<strong>2011</strong> 2010<br />
Subsidiaries:<br />
IRCGmbH P=103,215,083 P=78,200,341<br />
IGRL 78,653,145 71,200,000<br />
LSML 42,554,665 42,554,665<br />
WEPL 21,336,890 9,033,072<br />
IRCL 13,444,000 13,444,000<br />
IAPL 8,552,000 8,552,000<br />
PSAGL 5,958,800 5,958,800<br />
KKIJ 5,413,120 –<br />
INZL<br />
Associates:<br />
32,400 32,400<br />
ISPL 12,600,000 12,600,000<br />
HKHCL 3,573,974 3,573,974<br />
P=295,334,077 P=245,149,252<br />
Establishment of subsidiaries<br />
IRCGmbH<br />
The Parent Company’s BOD approved IRCGmbH’s incorporation on July 8, 2005 as a stock<br />
corporation to be organized and registered in Austria. Accordingly, <strong>the</strong> Parent Company made an<br />
investment of P=3.55 million on July 18, 2005.<br />
On <strong>December</strong> 21, 2009, <strong>the</strong> shareholders of IRCGmbH made a non-refundable shareholders’<br />
contribution amounting to EUR1.50 million (P=99.66 million) to <strong>the</strong> entity to streng<strong>the</strong>n its equity.<br />
The additional investments were taken from <strong>the</strong> outstanding receivables of <strong>the</strong> Parent Company<br />
from IRCGmbH amounting to P=91.16 million and were recognized by <strong>the</strong> latter as capital reserves<br />
to wipe out its accumulated deficit amounting to GBP0.56 million (P=52.41 million). As a result of<br />
<strong>the</strong> application of receivables, <strong>the</strong> Parent Company recognized a receivable amounting to<br />
P=16.52 million from <strong>the</strong> noncontrolling shareholder. The remaining P=8.49 million was recognized<br />
as a receivable from <strong>the</strong> noncontrolling shareholder in <strong>the</strong> separate financial statements of<br />
IRCGmbH. On September 28, 2010, <strong>the</strong> Parent Company advanced <strong>the</strong> P=8.49 million to<br />
IRCGmbH as payment of <strong>the</strong> receivable from <strong>the</strong> noncontrolling shareholder. This resulted to <strong>the</strong><br />
increase in <strong>the</strong> Parent Company’s receivable by P=8.49 million (see Note 8). The existing<br />
ownership ratio of 74.90% and 25.10% was maintained towards <strong>the</strong> end of <strong>December</strong> <strong>31</strong> 2010.<br />
On May 5, <strong>2011</strong>, <strong>the</strong> Parent Company acquired <strong>the</strong> remaining 25.10% ownership interest in<br />
IRCGmbH from <strong>the</strong> noncontrolling stockholder <strong>for</strong> a consideration of P=25.01 million. The<br />
acquisition increased <strong>the</strong> Parent Company’s ownership interest in IRCGmbH to 100.00% from<br />
74.90%. The receivable from noncontrolling shareholder was applied in full against <strong>the</strong> total<br />
consideration (see Note 8).<br />
Consequently, on October 11, <strong>2011</strong>, IERCAG changed its legal name to IREMIT Remittance<br />
Consulting GmbH (IRCGmbH) and changed its legal status from a stock company to a limited<br />
liability company. It also am<strong>ended</strong> its Articles of Incorporation to include management<br />
consultancy in its business activities.<br />
*SGVMC116501*
- 28 -<br />
INZL<br />
On August <strong>17</strong>, 2007, <strong>the</strong> Parent Company’s BOD approved <strong>the</strong> incorporation of INZL as a stock<br />
corporation to be organized and registered in New Zealand. Accordingly, <strong>the</strong> Parent Company<br />
made an investment of NZD1,000 (P=32,400). INZL started commercial operations on<br />
February 13, 2008.<br />
KKIJ<br />
On June 10, <strong>2011</strong>, <strong>the</strong> Parent Company incorporated KKIJ in Japan with <strong>the</strong> primary purpose of<br />
engaging in money remittance services and o<strong>the</strong>r activities related <strong>the</strong>reto. Accordingly, <strong>the</strong><br />
Parent Company made an investment of JPY10.00 million (P=5.41 million). KKIJ has not started<br />
commercial operations as of March 23, 2012.<br />
Acquisition of subsidiaries<br />
IGRL and IAPL<br />
On June 2, 2007, <strong>the</strong> Parent Company’s BOD approved <strong>the</strong> acquisition of 100.00% ownership<br />
interest in both IGRL and IAPL <strong>for</strong> a consideration of P=71.20 million and P=8.55 million,<br />
respectively. IGRL and IAPL are based in United Kingdom and Australia, respectively. These<br />
two entities, which are in <strong>the</strong> remittance business, have <strong>the</strong> same operations as <strong>the</strong> Parent<br />
Company. Accordingly, on June 29, 2007, <strong>the</strong> Parent Company acquired 100.00% ownership<br />
interest in IGRL and IAPL through <strong>the</strong> execution of deeds of assignment by <strong>the</strong> previous<br />
stockholders (who are also <strong>the</strong> stockholders of <strong>the</strong> Parent Company) of <strong>the</strong> two entities. Under <strong>the</strong><br />
deeds of assignment, <strong>the</strong> existing advances by <strong>the</strong> Parent Company to certain stockholders were<br />
applied as payment <strong>for</strong> <strong>the</strong> purchase of IGRL and IAPL.<br />
On April 15, <strong>2011</strong>, IGRL was authorized by <strong>the</strong> Financial Services Authority (FSA) of <strong>the</strong> United<br />
Kingdom as an Authorized Payment Institution under <strong>the</strong> European Payment Services Directive, a<br />
legislation adopted by <strong>the</strong> European Union that aims to harmonize laws across Europe pertaining<br />
to <strong>the</strong> provision of payment services, including money transfer services. Prior to this grant, <strong>the</strong><br />
BOD of IGRL approved <strong>the</strong> increase of IGRL’s authorized shares to 105,000. Accordingly, <strong>the</strong><br />
Parent Company invested GBP0.10 million (P=7.45 million) <strong>for</strong> <strong>the</strong> additional capital requirement.<br />
WEPL<br />
On June 2, 2007, <strong>the</strong> Parent Company’s BOD also approved <strong>the</strong> acquisition of 20.00% ownership<br />
interest in WEPL <strong>for</strong> a consideration of P=5.60 million. WEPL was incorporated and is based in<br />
Australia, and has <strong>the</strong> same operations as <strong>the</strong> Parent Company. Accordingly, on June 29, 2007,<br />
<strong>the</strong> Parent Company acquired 20.00% ownership interest in WEPL through <strong>the</strong> execution of a<br />
deed of assignment by <strong>the</strong> previous stockholders (who are also stockholders of <strong>the</strong> Parent<br />
Company) of <strong>the</strong> entity. Under <strong>the</strong> deed of assignment, <strong>the</strong> existing advances of <strong>the</strong> Parent<br />
Company to certain stockholders were applied as payment <strong>for</strong> <strong>the</strong> purchase of WEPL. On<br />
September 4, 2007, an additional 15.00% ownership interest in WEPL was acquired by <strong>the</strong> Parent<br />
Company <strong>for</strong> a consideration of P=3.43 million.<br />
On March 25 <strong>2011</strong>, <strong>the</strong> Parent Company’s BOD approved <strong>the</strong> acquisition of 35.00% ownership<br />
interest from <strong>the</strong> noncontrolling stockholders of WEPL <strong>for</strong> a consideration of AUD0.27 million<br />
(P=12.30 million), consequently making <strong>the</strong> ownership of <strong>the</strong> Parent Company over WEPL at<br />
100.00%. The Parent Company applied its receivables from <strong>the</strong> noncontrolling shareholders<br />
against <strong>the</strong> acquisition cost (see Note 8).<br />
As discussed in Note 1, WEPL is effectively 100.00% owned by <strong>the</strong> Parent Company through its<br />
direct interest of 70.00% and indirect interest of 30.00% through IAPL.<br />
*SGVMC116501*
- 29 -<br />
IRCL<br />
On October 1, 2004, <strong>the</strong> Parent Company’s BOD approved <strong>the</strong> acquisition of 65.00% of IRCL <strong>for</strong><br />
a consideration of P=10.34 million. IRCL was incorporated on July 16, 2001 and is based in<br />
Canada and has <strong>the</strong> same operations as <strong>the</strong> Parent Company. On July 26, 2006, <strong>the</strong> additional<br />
30.00% ownership interest from a noncontrolling stockholder in IRCL was transferred to <strong>the</strong><br />
Parent Company at no additional cost.<br />
On June 2, 2007, <strong>the</strong> Parent Company’s BOD approved <strong>the</strong> acquisition of 5.00% ownership<br />
interest from a noncontrolling stockholder <strong>for</strong> a consideration of P=3.10 million <strong>the</strong>reby taking its<br />
ownership in IRCL to 100.00%. Accordingly on June 29, 2007, <strong>the</strong> IRCL noncontrolling<br />
stockholder executed a deed of assignment to transfer <strong>the</strong> ownership interest to <strong>the</strong> Parent<br />
Company. Under <strong>the</strong> deed of assignment, <strong>the</strong> existing advances by <strong>the</strong> Parent Company to certain<br />
stockholder were applied as payment <strong>for</strong> <strong>the</strong> purchase of IRCL.<br />
PSAGL<br />
On November 28, 2008, <strong>the</strong> Parent Company’s BOD ratified <strong>the</strong> acquisition of 100.00%<br />
ownership interest in PSAGL <strong>for</strong> a consideration of P=5.96 million. PSAGL is based in Hong<br />
Kong and was incorporated on April 28, 2008 to engage in <strong>for</strong>eign currencies trading services.<br />
LSML<br />
LSML was incorporated on March 16, 2001 and is based in Hong Kong and has <strong>the</strong> same<br />
operations as <strong>the</strong> Parent Company. On April 2001, <strong>the</strong> Parent Company’s BOD approved <strong>the</strong><br />
acquisition of 51.00% ownership interest in LSML <strong>for</strong> a consideration of P=<strong>17</strong>.85 million. On<br />
June 2, 2007, <strong>the</strong> Parent Company’s BOD approved <strong>the</strong> acquisition of <strong>the</strong> 49.00% ownership<br />
interest in LSML from its noncontrolling stockholder <strong>for</strong> a consideration of P=24.70 million.<br />
Accordingly on June 29, 2007, <strong>the</strong> noncontrolling stockholder of LSML (who is also a stockholder<br />
of <strong>the</strong> Parent Company) executed deed of assignment to transfer its ownership interest to <strong>the</strong><br />
Parent Company.<br />
Acquisition of associates<br />
HKHCL<br />
On July 1, 2009, <strong>the</strong> Parent Company acquired 49.00% ownership interest in HKHCL, <strong>for</strong> a<br />
consideration of NTD2.45 million (P=3.57 million). HKHCL is a remittance business based in<br />
Taiwan.<br />
ISPL<br />
On June 29, 2007, <strong>the</strong> Parent Company acquired 49.00% ownership interest in ISPL through <strong>the</strong><br />
execution of a deed of assignment by <strong>the</strong> previous stockholders (who are also stockholders of <strong>the</strong><br />
Parent Company) of <strong>the</strong> entity <strong>for</strong> a consideration of P=12.60 million. ISPL is a remittance<br />
business based in Singapore.<br />
*SGVMC116501*
- 30 -<br />
The following tables present <strong>the</strong> summarized financial in<strong>for</strong>mation of <strong>the</strong> Parent Company’s<br />
subsidiaries and associates as of and <strong>for</strong> <strong>the</strong> <strong>year</strong>s <strong>ended</strong> <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010:<br />
<strong>2011</strong><br />
Balance Sheets Statements of Income<br />
Total Total<br />
Gross Net Income<br />
Assets Liabilities Revenue<br />
(In thousands)<br />
Income (Loss)<br />
Subsidiaries:<br />
PSAGL P=260,768 P=1,959 P=70,608 P=70,409 P=66,526<br />
IRCL 87,150 50,795 102,900 92,629 16,148<br />
IRCGmbH 76,487 64,<strong>31</strong>7 7,053 6,<strong>17</strong>4 9,930<br />
IGRL 49,057 49,256 60,754 50,653 (10,809)<br />
WEPL 33,093 28,188 36,404 34,563 302<br />
LSML 26,072 16,658 <strong>17</strong>,064 <strong>17</strong>,055 (265)<br />
INZL 13,083 22,286 6,338 5,277 (3,047)<br />
IAPL 12,301 8,236 953 623 15<br />
KKIJ 11,223 5,612 − − −<br />
Associates:<br />
569,234 247,307 302,074 277,383 78,800<br />
ISPL 73,254 49,703 55,924 <strong>31</strong>,894 3,127<br />
HKHCL 26,875 23,906 19,340 13,151 1,223<br />
P=669,363 P=320,916 P=377,338 P=322,428 P=83,150<br />
2010<br />
Balance Sheets Statements of Income<br />
Total Total<br />
Gross Net Income<br />
Assets Liabilities Revenue<br />
(In thousands)<br />
Income (Loss)<br />
Subsidiaries:<br />
PSAGL P=193,141 P=1,722 P=62,610 P=62,413 P=63,271<br />
IRCL 62,144 40,718 109,058 97,525 666<br />
IRCGmbH 68,553 70,507 13,400 11,711 (46,642)<br />
IGRL 16,662 13,645 55,240 43,769 1,019<br />
WEPL 21,785 <strong>17</strong>,111 30,546 29,226 200<br />
LSML 24,435 14,722 25,562 25,553 6,107<br />
INZL 11,870 18,025 9,618 8,798 (1,129)<br />
IAPL 5,600 1,526 628 308 29<br />
Associates:<br />
404,190 <strong>17</strong>7,976 306,662 279,303 23,521<br />
ISPL 61,209 40,638 56,130 33,198 4,754<br />
HKHCL 69,159 53,006 65,648 22,037 5,996<br />
P=534,558 P=271,620 P=428,440 P=334,538 P=34,271<br />
*SGVMC116501*
- <strong>31</strong> -<br />
2009<br />
Balance Sheets Statements of Income<br />
Total Total<br />
Gross Net Income<br />
Assets<br />
(In thousands)<br />
Liabilities Revenue Income (Loss)<br />
Subsidiaries:<br />
PSAGL P=156,824 P=19,388 P=55,647 P=55,480 P=86,354<br />
IRCL 81,580 60,602 112,284 99,665 6,725<br />
IRCGmbH 57,672 7,355 10,750 9,146 (<strong>17</strong>,022)<br />
IGRL 16,2<strong>17</strong> 14,018 62,353 46,910 1,003<br />
WEPL 27,696 23,595 33,940 32,627 2,975<br />
LSML 21,719 <strong>17</strong>,771 21,404 21,392 2,236<br />
INZL 13,113 <strong>17</strong>,987 8,243 7,580 (2,654)<br />
IAPL 28,877 25,058 590 244 3,719<br />
Associates:<br />
403,698 185,774 305,211 273,044 83,336<br />
ISPL 74,159 42,914 38,046 37,708 13,027<br />
HKHCL <strong>31</strong>,970 30,572 21,096 14,295 (966)<br />
P=509,827 P=259,260 P=364,353 P=325,047 P=95,397<br />
11. Property and Equipment<br />
The composition of and movements in this account follow:<br />
Office and<br />
Communication<br />
Equipment<br />
Transportation<br />
and Delivery<br />
Equipment<br />
<strong>2011</strong><br />
Furniture<br />
and Fixtures<br />
Leasehold<br />
Improvements Total<br />
Cost<br />
Balance at beginning of <strong>year</strong> P=25,050,187 P=6,834,602 P=3,779,467 P=11,795,343 P=47,459,599<br />
Additions 2,222,849 35,<strong>31</strong>5 285,181 50,000 2,593,345<br />
Disposals – – (10) – (10)<br />
Balance at end of <strong>year</strong> 27,273,036 6,869,9<strong>17</strong> 4,064,638 11,845,343 50,052,934<br />
Accumulated Depreciation and<br />
Amortization<br />
Balance at beginning of <strong>year</strong> 21,499,889 2,944,869 2,984,108 10,537,618 37,966,484<br />
Depreciation and amortization 2,483,026 1,309,027 414,913 785,010 4,991,976<br />
Balance at end of <strong>year</strong> 23,982,915 4,253,896 3,399,021 11,322,628 42,958,460<br />
Net Book Value at End of Year P=3,290,121 P=2,616,021 P=665,6<strong>17</strong> P=522,715 P=7,094,474<br />
Office and<br />
Communication<br />
Equipment<br />
Transportation<br />
and Delivery<br />
Equipment<br />
2010<br />
Furniture<br />
and Fixtures<br />
Leasehold<br />
Improvements Total<br />
Cost<br />
Balance at beginning of <strong>year</strong> P=22,623,757 P=5,920,959 P=3,692,945 P=11,762,843 P=44,000,504<br />
Additions 2,621,930 3,116,461 <strong>17</strong>7,934 32,500 5,948,825<br />
Disposals (195,500) (2,202,818) (91,412) – (2,489,730)<br />
Balance at end of <strong>year</strong> 25,050,187 6,834,602 3,779,467 11,795,343 47,459,599<br />
Accumulated Depreciation and<br />
Amortization<br />
Balance at beginning of <strong>year</strong> 18,066,791 2,350,632 2,594,128 9,227,166 32,238,7<strong>17</strong><br />
Depreciation and amortization 3,521,442 1,303,027 415,880 1,<strong>31</strong>0,452 6,550,801<br />
Disposals (88,344) (708,790) (25,900) – (823,034)<br />
Balance at end of <strong>year</strong> 21,499,889 2,944,869 2,984,108 10,537,618 37,966,484<br />
Net Book Value at End of Year P=3,550,298 P=3,889,733 P=795,359 P=1,257,725 P=9,493,115<br />
As of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010, <strong>the</strong> cost of fully depreciated property and equipment still in<br />
use amounted to P=23.13 million and P=22.64 million, respectively.<br />
*SGVMC116501*
- 32 -<br />
Details of depreciation and amortization follow:<br />
<strong>2011</strong> 2010 2009<br />
Property and equipment P=4,991,976 P=6,550,801 P=6,948,635<br />
Software cost (Note 12) 1,543,083 1,507,900 1,665,896<br />
P=6,535,059 P=8,058,701 P=8,614,5<strong>31</strong><br />
12. Software Costs - net and O<strong>the</strong>r Noncurrent Assets<br />
Movements in software costs follow:<br />
<strong>2011</strong> 2010<br />
Cost<br />
Balance at beginning of <strong>year</strong> P=12,096,697 P=11,425,409<br />
Additions 1,071,252 671,288<br />
Balance at end of <strong>year</strong><br />
Accumulated Amortization<br />
13,167,949 12,096,697<br />
Balance at beginning of <strong>year</strong> 10,228,625 8,720,725<br />
Amortization (Note 11) 1,543,083 1,507,900<br />
Balance at end of <strong>year</strong> 11,771,708 10,228,625<br />
Net Book Value at end of <strong>year</strong> P=1,396,241 P=1,868,072<br />
O<strong>the</strong>r noncurrent assets consist of:<br />
<strong>2011</strong> 2010<br />
Input VAT P=21,242,725 P=28,493,804<br />
Refundable deposits 4,568,661 4,099,9<strong>31</strong><br />
Deferred input VAT 326,056 350,550<br />
O<strong>the</strong>rs 44,000 44,000<br />
P=26,181,442 P=32,988,285<br />
The Parent Company has applied <strong>for</strong> tax credits on Input VAT with <strong>the</strong> BIR and is waiting <strong>for</strong> <strong>the</strong><br />
issuance of Tax Credit Certificates (TCCs). In <strong>2011</strong>, <strong>the</strong> BIR issued two tax credit certificates to<br />
<strong>the</strong> Parent Company <strong>for</strong> its input VAT filed <strong>for</strong> <strong>year</strong>s 2005 and 2006 amounting to P=1.71 million<br />
and P=3.82 million, respectively. Management of <strong>the</strong> Company believes that it will able to collect<br />
<strong>the</strong> rest of <strong>the</strong> TCCs applicable to its outstanding claims. The carrying amounts are already net of<br />
claims disallowed by <strong>the</strong> BIR amounting to P=2.06 million, nil and P=1.34 million in <strong>2011</strong>, 2010 and<br />
2009, respectively (see Note 20).<br />
Refundable deposits pertain to <strong>the</strong> security deposits made by <strong>the</strong> Parent Company in relation to<br />
rental lease agreements <strong>for</strong> its office spaces.<br />
*SGVMC116501*
13. Beneficiaries and O<strong>the</strong>r Payables<br />
This account consists of:<br />
- 33 -<br />
<strong>2011</strong> 2010<br />
Beneficiaries P=155,140,304 P=144,960,550<br />
Advances from related parties (Note 22) 79,753,1<strong>17</strong> 74,161,090<br />
Agents, couriers and trading clients 44,404,974 27,101,8<strong>17</strong><br />
Accrued expenses 7,019,510 6,250,462<br />
Payable to suppliers 1,391,836 2,958,634<br />
Withholding tax payable 819,129 814,996<br />
Payable to SSS, Philhealth and HDMF 639,773 7,754<br />
Vat payable <strong>17</strong>,875 −<br />
O<strong>the</strong>rs 476,730 803,350<br />
P=289,663,248 P=257,058,653<br />
Payables to beneficiaries, agents, couriers and trading clients are noninterest-bearing and are<br />
normally settled within 1 to 30 days.<br />
Accrued expenses include accruals <strong>for</strong> various operating expenses such as vacation and sick leave<br />
benefits, courier charges, training and development, professional fees and utilities.<br />
14. Interest-Bearing Loans<br />
This account pertains to <strong>the</strong> Parent Company’s unsecured, short-term interest-bearing pesodenominated<br />
bank loans.<br />
As of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010, <strong>the</strong> outstanding loans payable of <strong>the</strong> Parent Company<br />
amounted to P=666.00 million and P=877.00 million, respectively.<br />
In <strong>2011</strong>, 2010 and 2009, <strong>the</strong>se loans bear annual interest rates ranging from 5.00% to 7.00%,<br />
5.50% to 6.00% and 7.00% to 8.00%, respectively. In <strong>2011</strong>, 2010 and 2009, <strong>the</strong> Parent Company<br />
recognized interest expense of P=38.32 million, P=29.21 million and P=48.68 million, respectively.<br />
The Parent Company has unused credit facilities with various banks amounting to P=1.48 billion<br />
and P=1.02 billion as of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010, respectively.<br />
The loans outstanding as of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> were subsequently paid on various dates in<br />
January and February 2012.<br />
*SGVMC116501*
15. Equity<br />
- 34 -<br />
Capital Stock<br />
The Parent Company’s capital stock consists of:<br />
<strong>2011</strong> 2010 2009<br />
Number of<br />
Shares Amount<br />
Number of<br />
Shares Amount<br />
Number of<br />
Shares Amount<br />
Common Stock<br />
Authorized - P=1 par value<br />
per share 1,000,000,000 P=1,000,000,000 1,000,000,000 P=1,000,000,000 1,000,000,000 P=1,000,000,000<br />
Issued:<br />
Balance at beginning<br />
of <strong>the</strong> <strong>year</strong> 562,4<strong>17</strong>,000 P=562,4<strong>17</strong>,000 562,4<strong>17</strong>,000 P=562,4<strong>17</strong>,000 562,4<strong>17</strong>,000 P=562,4<strong>17</strong>,000<br />
Stock dividends 55,308,800 55,308,800 – – – –<br />
Balance at end of <strong>the</strong> <strong>year</strong> 6<strong>17</strong>,725,800 6<strong>17</strong>,725,800 562,4<strong>17</strong>,000 562,4<strong>17</strong>,000 562,4<strong>17</strong>,000 562,4<strong>17</strong>,000<br />
Treasury stock:<br />
Balance at beginning<br />
of <strong>the</strong> <strong>year</strong> (9,329,000) (40,115,150) (9,329,000) (40,115,150) (10,006,200) (40,792,350)<br />
Acquisitions (5,544,000) (12,872,058) – – (130,900) (130,900)<br />
Reissaunce – – – – 808,100 808,100<br />
Balance at end of <strong>the</strong> <strong>year</strong> (14,873,000) (52,987,208) (9,329,000) (40,115,150) (9,329,000) (40,115,150)<br />
Issued and outstanding 602,852,800 P=564,738,592 553,088,000 P=522,301,850 553,088,000 P=522,301,850<br />
On September 13, 2007, <strong>the</strong> SEC approved <strong>the</strong> registration of 140,604,000 common shares with<br />
offer price of P=4.68 and 454,950,000 outstanding shares with par value of P=1.00. There are <strong>17</strong><br />
registered common stockholders as of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 13 registered common stockholders<br />
as of <strong>December</strong> <strong>31</strong>, 2010 and 2009. Shares lodged with <strong>the</strong> Philippine Central Depository are<br />
registered under <strong>the</strong> name of PCD Nominee Corporation and as such are treated as being held by<br />
only one shareholder.<br />
Dividends<br />
On March 23, 2009, <strong>the</strong> BOD of <strong>the</strong> Parent Company declared cash dividends amounting to<br />
P=26.01 million or P=0.0471 per share, payable to shareholders-of-record as of April 7, 2009.<br />
The declaration was subsequently ratified and confirmed by <strong>the</strong> Parent Company’ shareholders<br />
during <strong>the</strong>ir annual meeting held on July <strong>17</strong>, 2009. The payment of dividends was made on<br />
May 6, 2009.<br />
On March 19, 2010, <strong>the</strong> BOD of <strong>the</strong> Parent Company declared cash dividends amounting to<br />
P=26.60 million or P=0.0481 per share, payable to shareholders-of-record as of April 8, 2010.<br />
The declaration was subsequently ratified and confirmed by <strong>the</strong> Parent Company’ shareholders<br />
during <strong>the</strong>ir annual meeting held on July 23, 2010. The payment was made on May 5, 2010.<br />
On June <strong>17</strong>, <strong>2011</strong>, <strong>the</strong> Board of Directors of <strong>the</strong> Parent Company authorized <strong>the</strong> declaration of<br />
stock dividends equivalent to 10% of outstanding shares of 553,088,000 in favor of its<br />
stockholders-of-record as of August 15, <strong>2011</strong>. The declaration was subsequently ratified and<br />
confirmed by <strong>the</strong> Parent Company’s stockholders during <strong>the</strong>ir annual meeting held on<br />
July 29, <strong>2011</strong>.<br />
Treasury Stock<br />
On August 15, 2008, <strong>the</strong> Parent Company’s BOD approved <strong>the</strong> buy-back program to acquire up to<br />
ten million (10,000,000) of its shares, representing approximately 1.87% of <strong>the</strong> Parent Company’s<br />
total outstanding common shares, from <strong>the</strong> market. The Parent Company purchased 9,329,000<br />
shares (P=40.12 million) in 2008 under <strong>the</strong> buy-back program.<br />
*SGVMC116501*
- 35 -<br />
In 2009 and 2008, <strong>the</strong> Parent Company purchased 130,900 shares (P=0.13 million) and<br />
548,500 shares (P=0.55 million), respectively, under <strong>the</strong> SSPP. The 808,100 shares (including<br />
128,700 shares purchased in 2007) purchased under <strong>the</strong> SSPP, were subsequently transferred on<br />
September 2009 to <strong>the</strong> retirement fund of <strong>the</strong> Parent Company (see Notes 16 and <strong>17</strong>).<br />
On September 16, <strong>2011</strong>, <strong>the</strong> Board of Directors of <strong>the</strong> Parent Company adopted a resolution<br />
authorizing <strong>the</strong> buy-back of up to ten million (10,000,000) of its shares from <strong>the</strong> market. The<br />
Parent Company purchased 4,873,000 shares (P=11.35 million) under <strong>the</strong> buy-back program.<br />
In <strong>2011</strong>, <strong>the</strong> Parent Company also purchased 671,000 shares (P=1.52 million) under <strong>the</strong> buy-back<br />
program approved in August 15, 2008 as discussed above.<br />
Capital Management<br />
The Parent Company’s capital is composed of its equity, which amounts to P=1.20 billion and<br />
P=1.16 billion as of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010, respectively.<br />
The Parent Company’s capital management activities seek to ensure that it maintains a healthy<br />
capital ratio in order to support its businesses and maximize shareholder value by optimizing <strong>the</strong><br />
level and mix of its capital resources. Decisions on <strong>the</strong> allocation of capital resources are being<br />
per<strong>for</strong>med as part of <strong>the</strong> strategic planning review.<br />
The Parent Company manages its capital structure and makes adjustments to it, in light of changes<br />
in economic conditions. To maintain or adjust <strong>the</strong> capital structure, <strong>the</strong> Parent Company may<br />
adjust <strong>the</strong> dividend payment to shareholders, return capital to shareholders or issue new shares.<br />
No changes were made in <strong>the</strong> objectives, policies or processes during <strong>the</strong> <strong>year</strong>s <strong>ended</strong><br />
<strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010.<br />
The Parent Company’s objective is to ensure that <strong>the</strong>re are no known events that may trigger direct<br />
or contingent financial obligation that is material to <strong>the</strong> Company, including default or<br />
acceleration of an obligation.<br />
The Parent Company is not subject to externally imposed capital requirements.<br />
16. Retirement Plan<br />
The Parent Company has a noncontributory defined benefit retirement plan covering substantially<br />
all of its regular employees. Under this retirement plan, all qualified employees are entitled to<br />
cash benefits after satisfying age and service requirements.<br />
Provisions <strong>for</strong> pension obligations are established <strong>for</strong> benefits payable in <strong>the</strong> <strong>for</strong>m of retirement<br />
pensions. Benefits are dependent on <strong>year</strong>s of service and <strong>the</strong> respective employee’s latest monthly<br />
salary.<br />
The Parent Company determined its transitional liability <strong>for</strong> defined benefit retirement plan merely<br />
as <strong>the</strong> present value of <strong>the</strong> obligation since <strong>the</strong> Parent Company had no plan assets at <strong>the</strong> date of<br />
<strong>the</strong> adoption. Transitional liability is amortized prospectively over five (5) <strong>year</strong>s starting on<br />
January 1, 2005.<br />
The latest actuarial valuation report on <strong>the</strong> retirement plan is dated <strong>December</strong> <strong>31</strong>, <strong>2011</strong>.<br />
*SGVMC116501*
- 36 -<br />
The principal actuarial assumptions used in determining <strong>the</strong> retirement liability of <strong>the</strong> Parent<br />
Company as of January 1, <strong>2011</strong> and 2010 follow:<br />
<strong>2011</strong> 2010<br />
Discount rate 9.69% 11.25%<br />
Future salary increases 8.00% 9.00%<br />
Expected return on plan assets 6.00% 6.00%<br />
Average remaining working life (in <strong>year</strong>s) 32.10 <strong>31</strong>.8<br />
The discount rates used to arrive at <strong>the</strong> present value of <strong>the</strong> obligation as of <strong>December</strong> <strong>31</strong>, <strong>2011</strong><br />
and 2010 are 6.70% and 9.69%, respectively.<br />
The amounts recognized in <strong>the</strong> parent company balance sheets follow:<br />
<strong>2011</strong> 2010<br />
Present value of obligation P=22,524,680 P=21,847,360<br />
Fair value of plan assets 21,816,324 15,196,930<br />
Deficit (surplus) 708,356 6,650,430<br />
Unrecognized actuarial losses (1,076,750) (5,872,169)<br />
Retirement (asset) liability (P=368,394) P=778,261<br />
The movements in <strong>the</strong> fair value of plan assets in <strong>2011</strong> and 2010 are as follows:<br />
<strong>2011</strong> 2010<br />
Balance at beginning of <strong>year</strong> P=15,196,930 P=12,421,022<br />
Contributions 6,895,233 5,229,490<br />
Expected return on plan assets 1,118,673 738,073<br />
Benefits paid from plan assets – (548,626)<br />
Actuarial (loss) gain (1,394,512) (2,643,029)<br />
Balance at end of <strong>year</strong> P=21,816,324 P=15,196,930<br />
The actual return on <strong>the</strong> plan assets of <strong>the</strong> Parent Company in <strong>2011</strong> and 2010 amounted to a loss<br />
of P=1.90 million and a gain of P=4.45 million, respectively.<br />
The Parent Company expects to contribute P=6.53 million to its retirement fund in 2012.<br />
The movements in <strong>the</strong> present value of obligation are as follows:<br />
<strong>2011</strong> 2010<br />
Balance at beginning of <strong>year</strong> P=21,847,360 P=10,080,516<br />
Current service cost 4,618,548 2,143,246<br />
Interest cost 2,1<strong>17</strong>,009 1,134,058<br />
Benefits paid from plan assets – (548,626)<br />
Actuarial loss (6,058,237) 9,038,166<br />
Balance at end of <strong>year</strong> P=22,524,680 P=21,847,360<br />
*SGVMC116501*
- 37 -<br />
The amounts of retirement expense included in ‘Salaries, wages and employee benefits’ in <strong>the</strong><br />
parent company statements of income are as follows:<br />
<strong>2011</strong> 2010 2009<br />
Current service cost P=4,618,548 P=2,143,246 P=1,819,273<br />
Interest cost 2,1<strong>17</strong>,009 1,134,058 999,326<br />
Expected return on plan assets (1,118,673) (738,073) –<br />
Actuarial (gains) loss recognized 1<strong>31</strong>,694 (163,104) (53,418)<br />
Amortization of transitional liability – – 252,228<br />
P=5,748,578 P=2,376,127 P=3,0<strong>17</strong>,409<br />
The movements in <strong>the</strong> retirement (asset) liability recognized in <strong>the</strong> parent company balance sheets<br />
are as follows:<br />
<strong>2011</strong> 2010<br />
Balance at beginning of <strong>year</strong> P=778,261 P=3,6<strong>31</strong>,624<br />
Retirement expense 5,748,578 2,376,127<br />
Contributions (6,895,233) (5,229,490)<br />
Balance at end of <strong>year</strong> (P=368,394) P=778,261<br />
Movements in <strong>the</strong> unrecognized actuarial (gains) losses are as follows:<br />
<strong>2011</strong> 2010<br />
Balance at beginning of <strong>year</strong> 5,872,169 (P=5,972,130)<br />
Actuarial loss (gain) during <strong>the</strong> <strong>year</strong> (4,663,725) 11,681,195<br />
Actuarial (loss) gain recognized (1<strong>31</strong>,694) 163,104<br />
Balance at end of <strong>year</strong> P=1,076,750 P=5,872,169<br />
The major categories of plan assets follow:<br />
<strong>2011</strong> 2010<br />
Private equity securities* P=9,245,139 P=10,249,745<br />
Deposits in banks 7,613,374 2,047,387<br />
Government debt securities 4,763,467 2,760,719<br />
Interest receivable 215,615 162,126<br />
Trust fee payable (21,271) (23,047)<br />
P=21,816,324 P=15,196,930<br />
*This includes P=0.81 million of <strong>the</strong> Parent Company’s own equity securities bought under <strong>the</strong> SSPP (see Note <strong>17</strong>).<br />
The amounts of experience adjustments relating to <strong>the</strong> plan liabilities of <strong>the</strong> Parent Company<br />
follow:<br />
<strong>2011</strong> 2010 2009 2008 2007<br />
Present value of obligation 22,524,680 P=21,847,360 P=10,080,516 P=6,574,511 P=7,770,113<br />
Fair value of plan assets 21,816,324 15,196,930 12,421,022 3,168,050 −<br />
Deficit (surplus) 708,356 6,650,430 (2,340,506) 3,406,461 7,770,113<br />
Changes in actuarial assumptions (498,493) 9,932,542 1,070,082 (3,766,<strong>31</strong>2) (9,785,892)<br />
Experience adjustments on plan<br />
liabilities (5,559,744) (894,376) (382,676) (206,448) 4,<strong>17</strong>6,250<br />
Experience adjustments on plan assets (1,394,512) (2,643,029) 4,452,972 – −<br />
*SGVMC116501*
<strong>17</strong>. Special Stock Purchase Program (SSPP)<br />
- 38 -<br />
On July 20, 2007, <strong>the</strong> Parent Company’s BOD approved <strong>the</strong> proposal to set up an SSPP totaling<br />
15,000,000 shares <strong>for</strong> <strong>the</strong> employees of <strong>the</strong> Parent Company who have been in <strong>the</strong> service <strong>for</strong> at<br />
least one (1) calendar <strong>year</strong> as of June 30, 2007, as well as its BOD members, resource persons and<br />
consultants (collectively referred to as “<strong>the</strong> Participants”). A Notice of Exemption under<br />
Section 10.2 of <strong>the</strong> Securities Regulations Code had been approved by <strong>the</strong> SEC on<br />
September 13, 2007. Notwithstanding <strong>the</strong> a<strong>for</strong>esaid confirmation by <strong>the</strong> SEC of <strong>the</strong> exempt<br />
status of <strong>the</strong> SSPP shares, <strong>the</strong> SEC none<strong>the</strong>less required <strong>the</strong> Parent Company to include <strong>the</strong> SSPP<br />
shares among <strong>the</strong> shares of <strong>the</strong> Parent Company which were registered with <strong>the</strong> SEC prior to <strong>the</strong><br />
conduct of its Initial Public Offering in October 2007. The registration of <strong>the</strong> Parent Company<br />
shares, toge<strong>the</strong>r with <strong>the</strong> SSPP shares, was rendered effective on October 5, 2007.<br />
All 15,000,000 shares were exercised. The shares subject to <strong>the</strong> SSPP were sold at par value or<br />
P=1.00 per share. Total shares amounting to P=11.74 million were paid in full, while <strong>the</strong> difference<br />
totaling P=3.26 million were paid by way of salary loan. Shares acquired through SSPP are subject<br />
to a lock-up period of 2 <strong>year</strong>s from date of issue, which <strong>ended</strong> on September 19, 2009.<br />
The sale is fur<strong>the</strong>r subject to <strong>the</strong> condition that should <strong>the</strong> officer or employee resign from <strong>the</strong><br />
Parent Company prior to <strong>the</strong> expiration of <strong>the</strong> lock-up period, <strong>the</strong> shares purchased by such<br />
resigning employee or officer shall be purchased at cost by <strong>the</strong> Parent Company as Treasury<br />
stock. As of <strong>December</strong> <strong>31</strong>, 2009, 24 employees resigned (9 in 2009, 13 in 2008 and 2 in 2007)<br />
and <strong>the</strong>ir shares totaling 808,100 (130,900 in 2009, 548,500 in 2008 and 128,700 in 2007) were<br />
bought back by <strong>the</strong> Parent Company.<br />
As approved by <strong>the</strong> Parent Company’s BOD, <strong>the</strong> fair value of <strong>the</strong> shares issued under <strong>the</strong> SSPP<br />
was measured at <strong>the</strong> grant date using <strong>the</strong> price-earnings multiple model taking into account <strong>the</strong><br />
terms and conditions upon which <strong>the</strong> shares were granted. The fair value at grant date was<br />
P=1.33 per share. This transaction also resulted in an increase in equity by P=1.53 million,<br />
P=2.16 million and P=1.00 million recognized as ‘Share-based payment’ under equity in 2009, 2008<br />
and 2007, respectively.<br />
On September 19, 2009, which is <strong>the</strong> end of <strong>the</strong> lock up period, <strong>the</strong> 808,100 shares bought back at<br />
cost was transferred to <strong>the</strong> Parent Company’s retirement fund upon reimbursement of <strong>the</strong><br />
P=0.81 million paid by <strong>the</strong> Parent Company <strong>for</strong> those shares (see Note 16).<br />
The expense arising from <strong>the</strong> share-based payment plan is recognized over <strong>the</strong> two-<strong>year</strong> lock-up<br />
period. The expense recognized under ‘Salaries, wages and employee benefits’ in <strong>the</strong> parent<br />
company statements of income amounted to P=1.53 million in 2009.<br />
18. Operating Lease Commitments<br />
The Parent Company has entered into <strong>the</strong> following lease agreements <strong>for</strong> its office spaces:<br />
(a) On September 30, 2008, a lease agreement with Sta. Elena Divisoria Condo was made <strong>for</strong> a<br />
period of 60 months commencing on October 1, 2008 to September 30, 2013 with a 10.00%<br />
escalation rate effective on <strong>the</strong> second <strong>year</strong> up to <strong>the</strong> fifth <strong>year</strong> of <strong>the</strong> lease term. The contract<br />
was cancelled in May 2009.<br />
*SGVMC116501*
- 39 -<br />
(b) A lease agreement with Wynsum Realty was entered into <strong>for</strong> a period of 24 months<br />
commencing on September 1, 2008 to August <strong>31</strong>, 2010 with a 5.00% escalation on <strong>the</strong><br />
monthly rental on <strong>the</strong> second <strong>year</strong> of <strong>the</strong> lease term. The contract was renewed <strong>for</strong> ano<strong>the</strong>r<br />
period of 2 <strong>year</strong>s from September 1, 2010 to August <strong>31</strong>, 2012 with <strong>the</strong> same terms.<br />
(c) On February 7, 2007, a lease agreement with Oakridge Properties (Unit 2503) was made <strong>for</strong> a<br />
period of 36 months commencing on February 1, 2007 to January <strong>31</strong>, 2010 with a 10.00%<br />
escalation on <strong>the</strong> monthly rental payable effective on <strong>the</strong> 13th and 25th month of <strong>the</strong> lease<br />
term. The contract was renewed <strong>for</strong> ano<strong>the</strong>r period of 2 <strong>year</strong>s from February 1, 2010 to<br />
January <strong>31</strong>, 2012 with <strong>the</strong> same terms.<br />
(d) A lease agreement with Oakridge Properties (Unit 2603) was entered into <strong>for</strong> a period of 12<br />
months, which commenced on <strong>December</strong> 1, 2008 and expired on November 30, 2009. The<br />
contract was renewed <strong>for</strong> a period of 2 <strong>year</strong>s commencing on <strong>December</strong> 1, 2009 to<br />
November 30, <strong>2011</strong> with a 10.00% escalation on <strong>the</strong> monthly rental on <strong>the</strong> 13th month of <strong>the</strong><br />
lease term. The contract was renewed <strong>for</strong> ano<strong>the</strong>r period of 2 <strong>year</strong>s from <strong>December</strong> 1, <strong>2011</strong> to<br />
November 30, 2013 with <strong>the</strong> same terms.<br />
(e) On January 6, 2009, a lease agreement with Oakridge Properties (Unit 2703) was entered into<br />
<strong>for</strong> a period of 24 months commencing February 1, 2009 to January <strong>31</strong>, <strong>2011</strong> with a 10.00%<br />
escalation rate on <strong>the</strong> aggregate monthly rental effective on <strong>the</strong> 13th month of <strong>the</strong> lease term.<br />
The contract was renewed <strong>for</strong> a period of 2 <strong>year</strong>s from February 1, <strong>2011</strong> to January <strong>31</strong>, 2013<br />
with <strong>the</strong> same terms.<br />
(f) On July 1, <strong>2011</strong>, <strong>the</strong> Parent Company entered into a sublease agreement with Surewell<br />
Equities Pte Ltd., one of <strong>the</strong> stockholders of <strong>the</strong> Parent Company, <strong>for</strong> <strong>the</strong> use of <strong>the</strong> latter’s<br />
office space in Singapore <strong>for</strong> an initial term of two (2) <strong>year</strong>s.<br />
Total rent expense of <strong>the</strong> Parent Company amounted to P=14.23 million, P=11.74 million and<br />
P=11.11 million in <strong>2011</strong>, 2010 and 2009, respectively (see Note 22).<br />
Future minimum rentals payable under non-cancelable operating leases are as follows:<br />
<strong>2011</strong> 2010<br />
Within one <strong>year</strong> P=10,458,903 P=11,225,119<br />
After one <strong>year</strong> but not more than five <strong>year</strong>s 7,101,949 3,122,961<br />
P=<strong>17</strong>,560,852 P=14,348,080<br />
19. Marketing Expenses<br />
This account consists of:<br />
<strong>2011</strong> 2010 2009<br />
Marketing and promotions P=22,<strong>31</strong>0,186 P=27,448,244 P=11,465,823<br />
Advertising and publicity 5,937,904 4,950,676 3,378,503<br />
P=28,248,090 P=32,398,920 P=14,844,326<br />
*SGVMC116501*
20. O<strong>the</strong>r Operating Expenses<br />
This account consists of:<br />
- 40 -<br />
<strong>2011</strong> 2010 2009<br />
Taxes and licenses P=6,726,300 P=6,085,301 P=2,253,135<br />
Association dues 3,230,078 1,927,949 2,066,643<br />
Business development 2,974,650 2,679,500 943,210<br />
Disallowance of input VAT by BIR 2,058,616 – 1,338,804<br />
Insurance 814,865 613,229 754,666<br />
Repairs and maintenance 691,037 799,563 508,566<br />
Donations and contributions – 1,155,280 1,209,115<br />
Miscellaneous 2,136,107 1,784,742 1,730,305<br />
P=18,6<strong>31</strong>,653 P=15,045,564 P=10,804,444<br />
‘Miscellaneous’ includes various expenses incurred on recruitment, Christmas parties, and<br />
Christmas giveaways.<br />
21. Realized Foreign Exchange Gains - Net and O<strong>the</strong>r Income<br />
‘Realized <strong>for</strong>eign exchange gains - net’ represents currency exchange income (net of losses)<br />
arising primarily from trading third currencies to Philippine pesos. These third currencies are<br />
sourced from <strong>the</strong> remittance transactions.<br />
‘O<strong>the</strong>r operating income’ consists of:<br />
<strong>2011</strong> 2010 2009<br />
Service fees P=6,<strong>31</strong>6,114 P=– P=–<br />
Rebates 2,881,469 687,509 2,595,006<br />
Foreign exchange gain - net 2,722,754 116,205 5,<strong>17</strong>2,<strong>17</strong>1<br />
Reversal of <strong>for</strong>eign income tax − 2,406,695 −<br />
Dividends – 596,381 34,242,442<br />
O<strong>the</strong>rs 1,504,014 1,077,589 2,594,154<br />
P=13,424,351 P=4,884,379 P=44,603,773<br />
Service fees pertain to revenue earned from services rendered by <strong>the</strong> call center agents employed<br />
by <strong>the</strong> Parent Company to service <strong>the</strong> phone in transactions of its <strong>for</strong>eign subsidiary offices in<br />
Canada, New Zealand, Australia and UK (see Note 22). Also included on this classification is <strong>the</strong><br />
service fee collected from <strong>the</strong> Social Security System (SSS) <strong>for</strong> remittance accepted and transacted<br />
by <strong>the</strong> Parent Company on its behalf amounting to P=0.15 million.<br />
Foreign exchange gain - net represents currency exchange income (net of losses) arising from<br />
revaluation of <strong>for</strong>eign currency denominated assets and liabilities.<br />
Rebates pertain to <strong>the</strong> refund of bank service charges.<br />
*SGVMC116501*
22. Related Party Transactions<br />
- 41 -<br />
Parties are considered to be related if one party has <strong>the</strong> ability, directly or indirectly, to control <strong>the</strong><br />
o<strong>the</strong>r party or exercise significant influence over <strong>the</strong> o<strong>the</strong>r party in making financial and operating<br />
decisions. Parties are also considered to be related if <strong>the</strong>y are subject to common control or<br />
common significant influence. Related parties may be individuals or corporate entities.<br />
In <strong>the</strong> ordinary course of business, <strong>the</strong> Parent Company transacts with its related parties. Under<br />
<strong>the</strong> Parent Company’s existing policies, <strong>the</strong>se transactions are made substantially on <strong>the</strong> same<br />
terms and conditions as transactions with o<strong>the</strong>r individuals and businesses of comparable risks.<br />
The Parent Company engages in transactions with related parties consisting primarily of <strong>the</strong><br />
following:<br />
(a) Delivery fees earned from clients of subsidiaries and associates are as follows:<br />
<strong>2011</strong> 2010 2009<br />
IRCL P=55,556,118 P=55,227,0<strong>17</strong> P=51,071,109<br />
HKHCL 46,127,251 33,202,567 25,364,567<br />
IAPL and WEPL 28,136,596 26,166,135 30,787,242<br />
ISPL 24,463,777 25,080,948 27,016,303<br />
IGRL <strong>17</strong>,147,494 21,562,260 22,736,884<br />
LSML 7,562,975 10,342,216 9,633,356<br />
INZL 4,032,091 3,498,875 2,697,639<br />
IRCGmbH 1,242,098 3,899,549 4,368,628<br />
P=184,268,400 P=<strong>17</strong>8,979,567 P=<strong>17</strong>3,675,728<br />
(b) The Parent Company leases office spaces from Oakridge Properties (see Note 18). Rent<br />
expense amounted to P=9.88 million, P=9.25 million and P=8.<strong>17</strong> million in <strong>2011</strong>, 2010, and 2009,<br />
respectively. Oakridge Properties is owned by JTKC, one of <strong>the</strong> stockholders of <strong>the</strong> Parent<br />
Company.<br />
(c) The Parent Company entered into a sublease agreement with Surewell Equities Pte Ltd., one<br />
of <strong>the</strong> stockholders of <strong>the</strong> Parent Company (see Note 18). Rent expense amounted to<br />
P=0.90 million in <strong>2011</strong>.<br />
(d) The Parent Company’s retirement fund is maintained with Sterling Bank of Asia (SBA), an<br />
affiliate due to common stockholders, as trustee (see Note 16). The Parent Company also has<br />
deposits amounting to P=118.62 million and P=129.71 million with SBA as of<br />
<strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010, respectively. These deposits earned P=0.43 million, P=1.12<br />
million and P=1.16 million interest income in <strong>2011</strong>, 2010, and 2009, respectively.<br />
(e) In <strong>2011</strong>, <strong>the</strong> Parent Company provides call center services to process <strong>the</strong> phone-in transactions<br />
of IRCL, INZL, IGRL and WEPL. Service income earned amounted to P=6.<strong>17</strong> million.<br />
*SGVMC116501*
- 42 -<br />
In addition to <strong>the</strong> related in<strong>for</strong>mation disclosed elsewhere in <strong>the</strong> Parent Company’s financial<br />
statements, <strong>the</strong> following are <strong>the</strong> <strong>year</strong>end balances in respect of transactions with related parties<br />
which were carried in terms that prevail in arm’s length transactions during <strong>the</strong> <strong>year</strong>:<br />
<strong>2011</strong> 2010<br />
Accounts receivable (Note 7):<br />
Subsidiaries:<br />
IRCL 42,142,000 28,873,378<br />
WEPL 23,569,790 11,794,898<br />
IGRL 19,114,840 –<br />
LSML 8,434,669 8,750,196<br />
INZL 5,149,801 7,113,107<br />
IRCGmbH – 9,476,775<br />
IAPL<br />
Associates:<br />
– 25,949<br />
ISPL 66,321,905 38,681,856<br />
HKHCL 29,463,514 35,543,489<br />
P=194,196,519 P=140,259,648<br />
Advances to related parties (Note 8):<br />
Subsidiaries:<br />
IRCGmbH P=62,811,308 P=54,579,655<br />
IGRL 20,421,294 5,099,127<br />
INZL 15,725,924 9,285,149<br />
LSML 6,778,807 4,454,735<br />
KKIJ 5,611,520 –<br />
WEPL 604,<strong>17</strong>5 94,113<br />
IAPL 373,740 –<br />
IRCL 150,199 71,646<br />
PSAGL 33,166 –<br />
Associates:<br />
ISPL 16,034,604 16,104,921<br />
HKHCL 8,715,507 8,078,542<br />
P=137,260,244 P=97,767,888<br />
Advances from related parties (Note 13):<br />
Subsidiaries:<br />
PSAGL P=75,534,429 P=70,214,989<br />
IAPL 4,218,688 3,946,101<br />
P=79,753,1<strong>17</strong> P=74,161,090<br />
Accounts receivable pertains to advances made by <strong>the</strong> Parent Company to beneficiaries of<br />
remittance transactions processed by <strong>the</strong> subsidiaries and associates.<br />
Advances to subsidiaries include operational cash advances from <strong>the</strong> Parent Company. These are<br />
non-interest bearing and are due on demand.<br />
Advances to associates pertain to unpaid delivery fees. These are non-interest bearing and are due<br />
on demand.<br />
*SGVMC116501*
- 43 -<br />
The amounts payable to PSAGL pertain to cash advances <strong>for</strong> Parent Company’s trading<br />
transactions. These are non-interest bearing and are due on demand.<br />
Advances from IAPL include unremitted dividend income from dividends declared by WEPL.<br />
This is non-interest bearing and is due on demand.<br />
As of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010, no provision <strong>for</strong> credit losses has been recognized <strong>for</strong> <strong>the</strong><br />
amounts due from related parties.<br />
In 2010, <strong>the</strong> Parent Company recognized dividend income amounting P=0.60 million from<br />
dividends declared by ISPL. In 2009, <strong>the</strong> Parent Company’s dividend income includes dividends<br />
declared by ISPL (P=14.40 million), IRCL (P=9.54 million), WEPL (P=3.93 million), IAPL (P=3.30)<br />
and PSAGL (P=3.07 million).<br />
The compensation of <strong>the</strong> key management personnel of <strong>the</strong> Parent Company in <strong>2011</strong>, 2010 and<br />
2009 are as follows:<br />
<strong>2011</strong> 2010 2009<br />
Short-term employee benefits P=21,<strong>31</strong>0,932 P=19,605,330 P=<strong>17</strong>,836,472<br />
Post-employment benefits 1,571,444 549,541 721,632<br />
Share-based payment − – 435,303<br />
P=22,882,376 P=20,154,871 P=18,993,407<br />
23. Income Taxes<br />
The provision <strong>for</strong> income tax consists of:<br />
<strong>2011</strong> 2010 2009<br />
Current<br />
RCIT P=23,<strong>17</strong>4,<strong>17</strong>2 P=15,785,947 P=25,662,740<br />
Final 589,871 643,945 1,534,105<br />
P=23,764,043 P=16,429,892 P=27,196,845<br />
Republic Act (RA) No. 9337, An Act Amending National Internal Revenue Code, provides that <strong>the</strong><br />
RCIT rate shall be 35.00% until <strong>December</strong> <strong>31</strong>, 2008. Starting January 1, 2009, <strong>the</strong> RCIT rate shall<br />
be 30.00%. It also provides that <strong>the</strong> interest allowed as a deductible expense is reduced by an<br />
amount equivalent to 42.00% until <strong>December</strong> <strong>31</strong>, 2008 and 33.00% starting January 1, 2009 of<br />
interest income subjected to final tax.<br />
An MCIT of 2.00% on modified gross income is computed and compared with <strong>the</strong> RCIT. Any<br />
excess of <strong>the</strong> MCIT over <strong>the</strong> RCIT is deferred and can be used as a tax credit against future<br />
income tax liability <strong>for</strong> <strong>the</strong> next three <strong>year</strong>s. In addition, current tax regulations provide <strong>for</strong> <strong>the</strong><br />
ceiling on <strong>the</strong> amount of entertainment, amusement and recreation (EAR) expenses that can be<br />
claimed as a deduction against taxable income. The actual EAR expenses incurred by <strong>the</strong> Parent<br />
Company was P=4.46 million, P=2.84 million and P=2.62 million in <strong>2011</strong>, 2010 and 2009,<br />
respectively. The allowed EAR limit was P=4.90 million, P=4.63 million and P=4.73 million in <strong>2011</strong>,<br />
2010 and 2009, respectively. Under <strong>the</strong> regulation, EAR expenses allowed as deductible expense<br />
<strong>for</strong> taxpayers engaged in <strong>the</strong> sale of services, including exercise of profession and use of lease<br />
properties, like <strong>the</strong> Parent Company, is limited to <strong>the</strong> actual EAR paid or incurred but not to<br />
exceed 1.00% of net revenue.<br />
*SGVMC116501*
- 44 -<br />
RA No. 9504, An Act Amending National Internal Revenue Code, provides that starting<br />
July 1, 2008, <strong>the</strong> optional standard deduction (OSD) equivalent to 40.00% of gross income may be<br />
claimed as an alternative deduction in computing <strong>for</strong> <strong>the</strong> RCIT. For <strong>the</strong> <strong>2011</strong> and 2010 RCIT<br />
computation, <strong>the</strong> Parent Company elected to claim itemized expense deductions instead of <strong>the</strong><br />
OSD.<br />
As of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> and 2010, <strong>the</strong> deferred tax assets and liability recognized by <strong>the</strong> Parent<br />
Company relates to <strong>the</strong> tax effects of <strong>the</strong> following:<br />
<strong>2011</strong> 2010<br />
Deferred tax assets on:<br />
Accrued courier charges P=245,354 P=249,069<br />
O<strong>the</strong>r accrued expenses 184,629 −<br />
Retirement liability − 281,692<br />
Subtotal<br />
Less deferred tax liability on<br />
429,983 530,761<br />
Unrealized <strong>for</strong>eign exchange gain 361,652 530,761<br />
Retirement asset 68,3<strong>31</strong> −<br />
Subtotal 429,983 530,761<br />
Net deferred tax assets P=– P=–<br />
The Parent Company did not set up deferred tax assets on <strong>the</strong> following temporary differences:<br />
<strong>2011</strong> 2010<br />
Temporary differences on:<br />
Accrued interest P=1,994,506 P=2,074,213<br />
Accrued courier charges − 393,793<br />
O<strong>the</strong>rs 808,582 381,961<br />
P=2,803,088 P=2,849,967<br />
The management of <strong>the</strong> Parent Company believes that it is not highly probable that <strong>the</strong>se<br />
temporary differences will be realized in <strong>the</strong> future.<br />
A reconciliation of <strong>the</strong> statutory income tax rates and <strong>the</strong> effective income tax rates in <strong>2011</strong>, 2010<br />
and 2009 follows:<br />
<strong>2011</strong> 2010 2009<br />
Statutory income tax 30.00% 30.00% 30.00%<br />
Tax effects of:<br />
Unrecognized deferred tax asset (0.02) (1.15) (2.59)<br />
Interest income subject to final tax (0.37) (0.57) (0.77)<br />
Nondeductible interest expense 0.37 0.56 0.76<br />
Effective income tax 29.98% 28.84% 27.40%<br />
24. Contingencies<br />
The Parent Company has various contingencies arising in <strong>the</strong> ordinary conduct of business which<br />
have ei<strong>the</strong>r pending decision by <strong>the</strong> courts or are being contested, <strong>the</strong> outcome of which are not<br />
presently determinable.<br />
*SGVMC116501*
- 45 -<br />
In <strong>the</strong> opinion of management and its legal counsel, <strong>the</strong> eventual liability under <strong>the</strong>se lawsuits or<br />
claims, if any, will not have a material or adverse effect on <strong>the</strong> Parent Company’s financial<br />
position and results of operations. The in<strong>for</strong>mation usually required by PAS 37 is not disclosed on<br />
<strong>the</strong> grounds that it can be expected to prejudice <strong>the</strong> outcome of <strong>the</strong>se lawsuits, claims and<br />
assessments.<br />
25. Approval of <strong>the</strong> Release of <strong>the</strong> Parent Company Financial Statements<br />
The accompanying financial statements of <strong>the</strong> Parent Company were approved and authorized <strong>for</strong><br />
issue by <strong>the</strong> BOD on March 23, 2012.<br />
26. Supplementary In<strong>for</strong>mation Required Under Revenue Regulations No. 19-<strong>2011</strong><br />
On <strong>December</strong> 9, <strong>2011</strong>, <strong>the</strong> BIR issued RR No. 19-<strong>2011</strong> prescribing <strong>the</strong> new income tax <strong>for</strong>ms to<br />
be used effective calendar <strong>year</strong> <strong>2011</strong>. In <strong>the</strong> case of corporations using BIR Form <strong>17</strong>02, <strong>the</strong><br />
taxpayer is now required to include as part of its notes to <strong>the</strong> financial statements, schedules and<br />
in<strong>for</strong>mation on taxable income and deductions.<br />
In compliance with <strong>the</strong> requirements set <strong>for</strong>th by RR 19-<strong>2011</strong>, <strong>the</strong> schedule and in<strong>for</strong>mation of<br />
taxable income and deductions are as follows:<br />
Service income P=490,087,163<br />
Cost of services <strong>17</strong>5,332,116<br />
<strong>31</strong>4,755,047<br />
Non-Operating Taxable O<strong>the</strong>r Income<br />
Miscellaneous Income 14,350,754<br />
Total Gross Income 329,105,801<br />
Less: Itemized deductions<br />
Salaries and Allowances 89,059,553<br />
Interest 38,322,540<br />
Advertising and promotions 28,248,090<br />
Transportation and travel 21,159,472<br />
Rent 14,230,999<br />
Communication, Light and Water 13,782,359<br />
Office Supplies 8,941,140<br />
Professional fees 8,488,153<br />
Taxes and Licenses 6,726,300<br />
Depreciation and amortization 6,535,059<br />
Representation and entertainment 4,459,545<br />
Insurance 814,865<br />
Repairs and maintenance 691,037<br />
Miscellaneous 7,169,373<br />
O<strong>the</strong>rs 3,230,078<br />
251,858,563<br />
Net Taxable Income P=77,247,238<br />
*SGVMC116501*
- 46 -<br />
27. Supplementary In<strong>for</strong>mation Required Under Revenue Regulations No. 15-2010<br />
The Parent Company reported and/or paid <strong>the</strong> following types of taxes in <strong>2011</strong>:<br />
Value added tax (VAT)<br />
The Parent Company’s sales are subject to output VAT while its purchases from o<strong>the</strong>r VATregistered<br />
individuals or corporations are subject to input VAT. The VAT rate is 12.0%.<br />
a. Output VAT <strong>for</strong> <strong>2011</strong><br />
Zero-rated sales of goods and services consist of export sales and those rendered to persons or<br />
entities whose exemptions are provided under special laws or international agreements to<br />
which <strong>the</strong> Philippines is a signatory.<br />
The Parent Company, being engaged in <strong>the</strong> business of fund transfer and remittance services<br />
of any <strong>for</strong>m or kind of currencies or monies, is registered as a zero-rated VAT taxpayer under<br />
Section 108 (B)(2) of NIRC .<br />
By way of exception, <strong>the</strong> Parent Company started collecting service fee from <strong>the</strong> Social<br />
Security System in July <strong>2011</strong> <strong>for</strong> contributions remitted by SSS members abroad to <strong>the</strong> <strong>for</strong>eign<br />
subsidiary offices of <strong>the</strong> Parent Company and released subsequently to SSS’s offices by <strong>the</strong><br />
Parent Company. The output VAT recognized related to <strong>the</strong> service fee collected amounts to<br />
P=<strong>17</strong>,875 as of <strong>December</strong> <strong>31</strong>, <strong>2011</strong>.<br />
b. Input VAT<br />
Amount<br />
Balance at January 1, <strong>2011</strong> P=28,493,804<br />
Current <strong>year</strong>’s domestic purchases/payments <strong>for</strong>:<br />
Goods o<strong>the</strong>r than <strong>for</strong> resale or manufacture −<br />
Capital goods subject to amortization 24,493<br />
Capital goods not subject to amortization 11,820<br />
Services lodged under o<strong>the</strong>r accounts 307,055<br />
Total 28,837,<strong>17</strong>2<br />
Write-off (2,058,616)<br />
Penalty (6,250)<br />
Claims <strong>for</strong> Tax Credit/Refund (5,529,581)<br />
Balance at <strong>December</strong> <strong>31</strong>, <strong>2011</strong> P=21,242,725<br />
c. Withholding taxes<br />
Details of total remittances in <strong>2011</strong> and balance as of <strong>December</strong> <strong>31</strong>, <strong>2011</strong> of withholding taxes<br />
are as follows:<br />
Total Remittances Balance<br />
Withholding taxes on compensation and benefits P=9,242,698 P=284,404<br />
Expanded withholding taxes 6,400,381 534,725<br />
P=15,643,079 P=819,129<br />
*SGVMC116501*
- 47 -<br />
Taxes and licenses<br />
O<strong>the</strong>r taxes and licenses include all o<strong>the</strong>r taxes, local and national, recognized as ‘Taxes and<br />
licenses’. Details follow:<br />
Amount<br />
Documentary stamp taxes:<br />
Applied on loans P=3,708,779<br />
Applied on o<strong>the</strong>r transactions 323,286<br />
Licenses and permits 2,163,071<br />
O<strong>the</strong>rs 5<strong>31</strong>,164<br />
P=6,726,300<br />
*SGVMC116501*
INDEPENDENT AUDITORS’ REPORT<br />
ON SUPPLEMENTARY SCHEDULES<br />
The Stockholders and <strong>the</strong> Board of Directors<br />
I-Remit, Inc.<br />
26/F Discovery Centre, 25 ADB Avenue<br />
Ortigas Center, Pasig City<br />
We have audited in accordance with Philippine Standards on Auditing, <strong>the</strong> financial statements of<br />
I-Remit, Inc. (<strong>the</strong> Parent Company) and have issued our report <strong>the</strong>reon dated March 23, 2012. Our<br />
audits were made <strong>for</strong> <strong>the</strong> purpose of <strong>for</strong>ming an opinion on <strong>the</strong> basic financial statements taken as a<br />
whole. The accompanying Schedule of Retained Earnings Available <strong>for</strong> Dividend Declaration as of<br />
<strong>December</strong> <strong>31</strong>, <strong>2011</strong> is <strong>the</strong> responsibility of <strong>the</strong> Parent Company’s management. This schedule is<br />
presented <strong>for</strong> <strong>the</strong> purpose of complying with Securities Regulation Code Rule 68.1 and Securities and<br />
Exchange Commission Memorandum Circular No. 11, Series of 2008, and is not part of <strong>the</strong> basic<br />
financial statements. This schedule has been subjected to <strong>the</strong> auditing procedures applied in <strong>the</strong> audit<br />
of <strong>the</strong> basic financial statements and, in our opinion, fairly states in all material respects <strong>the</strong> financial<br />
data required to be set <strong>for</strong>th <strong>the</strong>rein in relation to <strong>the</strong> basic financial statements taken as a whole.<br />
SYCIP GORRES VELAYO & CO.<br />
Josephine Adrienne A. Abarca<br />
Partner<br />
CPA Certificate No. 92126<br />
SEC Accreditation No. 0466-AR-1 (Group A),<br />
February 11, 2010, valid until February 10, 2013<br />
Tax Identification No. 163-257-145<br />
BIR Accreditation No. 08-001998-61-2009,<br />
June 1, 2009, valid until May <strong>31</strong>, 2012<br />
PTR No. <strong>31</strong>74577, January 2, 2012, Makati City<br />
March 23, 2012<br />
SyCip Gorres Velayo & Co.<br />
6760 Ayala Avenue<br />
1226 Makati City<br />
Philippines<br />
Phone: (632) 891 0307<br />
Fax: (632) 819 0872<br />
www.sgv.com.ph<br />
BOA/PRC Reg. No. 0001,<br />
January 25, 2010, valid until <strong>December</strong> <strong>31</strong>, 2012<br />
SEC Accreditation No. 0012-FR-2 (Group A),<br />
February 4, 2010, valid until February 3, 2013<br />
*SGVMC116501*<br />
A member firm of Ernst & Young Global Limited
I-REMIT, INC.<br />
26/F Discovery Centre, 25 ADB Avenue,<br />
Ortigas Center, Pasig City<br />
SCHEDULE OF RETAINED EARNINGS<br />
AVAILABLE FOR DIVIDEND DECLARATION<br />
DECEMBER <strong>31</strong>, <strong>2011</strong><br />
Unappropriated retained earnings, as adjusted to available <strong>for</strong> dividend<br />
distribution, beginning P=161,219,561<br />
Add: Net income earned during <strong>the</strong> <strong>year</strong><br />
Net income during <strong>the</strong> <strong>year</strong> 55,506,145<br />
Less: Unrealized <strong>for</strong>eign exchange gains - net (except those attributable<br />
to cash and cash equivalents) 1,205,505<br />
Subtotal 54,300,640<br />
Add: Realized income categorized as unrealized in previous <strong>year</strong>s 6,419,981<br />
Net income actually earned during <strong>the</strong> <strong>year</strong> 60,720,621<br />
Less: Dividend declarations during <strong>the</strong> <strong>year</strong> 55,308,800<br />
Treasury shares 12,872,058<br />
Subtotal (7,460,237)<br />
Retained earnings available <strong>for</strong> dividend distribution, ending P=153,759,324<br />
*SGVMC116501*