PSC 2013 Annual Report 17 A PSE For Website
PSC 2013 Annual Report 17 A PSE For Website
PSC 2013 Annual Report 17 A PSE For Website
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724-44-41 to 51
Company
Telephone Number
Contact Person
Month
Day
Fiscal Year
FORM TYPE
3rd Thursday
Month
Day
Annual Meeting
ANNUAL REPORT
File Number
LCU
Document I.D.
Cashier
STAMPS
Remarks = pls. use black ink for scanning purposes
(b) Has been subject to such filing requirements for the past 90 days.
Yes
No
13. The aggregate market value of the voting stock held by non- affiliates of the registrant.
The aggregate market value of 147,021,978 share of common stock is Php
14,481,664,833.00 based on the bid price of P98.50 per share as of December 27,
2013, the last transaction date for the year under review.
significant to be considered. PSC has forged a non-exclusive tie-up with Chevron Philippines Inc. in
August 2009 for opening of 7-Eleven stores in selected Caltex stations. Another non-exclusive tie-up
was concluded in May 2011 with Total (Philippines) Corporation to establish 7-Eleven Stores in identified
Total gasoline stations. The Company continues to sustain its leadership by putting stores in strategic
locations, carrying product assortment fit for such market.
In spite of the growing competition in convenience store (C-Store) businesses, PSC maintains
its leadership in the industry. The Corporation estimates its market share in branded C-store businesses
as of December 31, 2013, in terms of number of C-store outlets in Metro Manila and adjacent provinces,
as follows:
Number of
C- stores
1,009
680
366
32
63
2
2,152
7-Eleven
Mercury Drug Self Serve
Ministop
Family Mart
San Mig Food Ave.
Circle K
TOTAL
Market Share
(as of 31 Dec 2013)
47%
32%
17%
1%
3%
0%
100%
PSC addresses the threat of competition with expansion and maintaining its dominance in the
market. The continuous improvement of the Corporations supply chain shall generate further
efficiencies to effectively compete with the entry of other players in the C-store business. The successful
franchise program is another mover to achieve the expansion plans and to dominate the c-store market.
As part of expansion program, the Company opened 7-Eleven Stores in Cebu last July 2012. A total of
45 stores were operational in Cebu and 9 in Bacolod as of end of the year. This shall be the base for the
expansion in Visayas.
The average number of customers that transact in the stores is about 1,012 per day per store with
an average purchase transaction of about P 53.00. The stores carry a wide range of beverages, food
service items, fresh foods, hot foods, frozen foods, confectioneries, cookies and chips, personal care
products, groceries and other daily needs and services for modern convenience which neighborhood
residents, commuters, students and other urban shoppers would look for in a convenience store. Also
offered in the store are proprietary product lines under the 7-Eleven trademark such as but not limited
thereto:
Trademarks
1. Slurpee
Description of Product
Frozen carbonated beverage, prepared
with a variety of high-quality syrups,
properly brixed, and served in
standardized, trademark SLURPEE cups
Application Date
Status
3. Big Gulp
PSC also sells its developed or own branded products/services under the following trademarks:
Trademarks
1. Caf 24/7
Description of Product
Brewed coffee, hot
chocolates, cappuccino,
hot tea and other coffee
and chocolate variants
2. Daily Bread
Different variants of
bread
3. Medi-express
Pharmaceutical
4. Hotta Rice
5. Crisp Bites
6. Fundae Cone
7. Busog Meals
8. Hot Pot
9. Big Time Meals
Application Date
June 05, 2006
Status of Registration
Registered for 10 years (February 16,
2009 to Feb. 16, 2019)
3rd year DAU filed on February 23, 2010
March 2014
Application pending
March 2014
Application pending
Further, the products or services carried by the stores as described above are generally
categorized as General Merchandise which accounts for 77.12%, Food Service and Cupdrinks for
22.13% and Services at 0.75%.
The merchandise stocks are supplied by over 350 vendors/suppliers and are mostly governed by
the standard trading terms contract prescribed by the Company. Among the largest suppliers for the
products carried by the stores are Unilever Philippines Inc., PMFTC Inc., San Miguel Foods Inc., Pepsi
Cola Products Phil., Inc., Coca Cola Bottlers Phils. Inc., Absolute Sales Corp., Universal Robina
Corporation, Nestle Philippines Inc., Del Monte Philippines Inc., JT International Philippines Inc. These
top suppliers account for 50.41% share in the 7-Eleven business.
Item 2. Properties
The following properties are company-owned, free from any lien or encumbrances, as described
below:
Condominium (Owned)
Description
Location
MH del Pilar
Store Branch
151.43
Office Space
1,807.00
22 parking units
th
th
325.00
The Company divested its land holdings to 7 parcels of land, excluding the improvements
thereon, to its affiliate, Store Sites Holdings, Inc. (SSHI) at book value. SSHI was registered with SEC
last November 9, 2000, initially wholly-owned by PSC. It eventually became 40% Company-owned with
the 60% investment in SSHI by Bank of Philippine Islands-Asset Management & Trust Group as trustee
of the PSC Employee Retirement Fund. Anticipating foreign ownership in PSC to exceed 40%, the
divestment was made to SSHI, which is 60% owned by Filipinos and 40% by foreigners to comply with
40% foreign ownership limit for corporations allowed to hold or own land/s in the Philippines.
As part of the normal course of business, the Company shall continue to acquire properties
under lease agreement. The Company, on a case to case basis, may consider purchase of real property
for store sites or office site if there is an opportunity or offer at a reasonable price. However, there is no
capital expenditure allocation for purchase of real properties in the next twelve (12) months.
Leases
The Company leases land or existing building shell for its establishment of 7-Eleven stores. The
lease term for these locations ranges mostly from 5 to 10 years. The numbers of locations which shall
expire within the next 5 years are as follows:
2014
93
2015
126
2016
150
2017
139
2018
123
Rental rates of 7-Eleven Stores vary depending on transaction type as land or building shell
transaction; size of the area being leased; site location in relation to the trade area; and the prevailing
real estate market rates. The total amount of lease payments by the Corporation is contained in the
Financial Notes on Leases of the audited financial statements attached herein. The list of leased
properties for the 7-Eleven Stores operational as Corporate and under a Franchise Agreement is
attached hereto as Appendix A.
Open
41.00
46.20
73.00
90.00
High
49.00
49.50
73.00
92.00
Low
41.00
46.20
72.00
87.70
Close
49.00
48.80
73.00
92.00
Volume
2,100
77,400
110,190
6,570
Open
94.00
89.00
109.00
99.00
High
94.00
91.00
109.00
99.00
Low
94.00
89.00
109.00
98.00
Close
94.00
91.00
109.00
98.50
Volume
200
5,260
280,000
1,010
High
100.00
102.00
98.50
98.50
98.50
97.00
99.00
97.00
99.00
99.50
97.00
98.00
Low
100.00
97.00
98.00
96.00
98.50
90.00
99.00
97.00
97.00
99.50
97.00
97.00
Close
100.00
97.10
98.00
98.50
98.50
97.00
99.00
97.00
97.00
99.50
97.00
97.00
Volume
10
1,060
540
370
200
1,110
20
125,020
600
600
10
200,480
Stock/Cash Dividends
A stock dividend was declared and approved by the stockholder during the annual meeting last 18 July
2013. The stock dividend corresponds to 15% of the outstanding capital stock of the Corporation of
398,639,411 shares or equivalent to 59,795,912 common shares. Also, cash dividend of ten centavos
(Php 0.10) per share was declared and approved during the special board of directors meeting last July
18, 2013. Stockholders of record as of August 15, 2013 were entitled to said stock and cash dividends
and the corresponding shares and cash payments were issued and paid to stockholders on payment
date last September 9, 2013. Total outstanding capital stock of the Corporation after the payment date
of the stock dividend is 458,435,323. Likewise, there was no sale of any unregistered securities. There
is no restriction that limits the ability of the Company to pay dividends on common equity. Below is the
summary of cash and stock dividend declaration of the Corporation.
Year
2013
2012
2011
2010
2009
2008
Cash
0.10
0.10
0.10
0.05
-
Amount
39,863,941
34,664,297
30,142,867
14,353,746
-
Stock
15%
15%
15%
5%
10%
10%
No. of Shares
59,795,912
51,996,445
45,214,300
14,353,746
26,097,720
23,725,200
8
Holders
As of March 31, 2014, there were 649 shareholders of the Companys outstanding common shares
totaling 458,435,323 shares.
The top 20 shareholders and their corresponding shareholdings as of March 31, 2014 are as follows:
TOP 20 SHAREHOLDERS
CITIZENSHIP
Malaysian
Non-Filipino
BVI
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
American
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
TOTAL
236,376,070
61,697,698
48,020,358
30,671,003
12,349,310
11,983,375
11,510,552
9,926,759
8,267,592
6,962,534
5,665,971
3,767,950
2,031,906
1,783,249
1,773,291
1,399,822
813,756
193,228
156,623
115,904
115,904
455,582,855
2,852,468
%
HOLDINGS
51.56%
13.46%
10.47%
6.69%
2.69%
2.61%
2.51%
2.17%
1.80%
1.52%
1.24%
0.82%
0.44%
0.39%
0.39%
0.31%
0.18%
0.04%
0.03%
0.03%
0.03%
99.38%
0.62%
458,435,323
100.00%
SUBSCRIPTION
Financial
There are no changes nor disagreements with external accountants on matters concerning
adoption of generally accepted accounting practices under the Philippine Financial Reporting Standards
and the corresponding reporting and disclosure requirements.
Audit Fees
Tax Fees
All Other Fees
Total
2013
(in thousands)
P1,902
1,464
148
P3,514
2012
P 1,832
1,284
132
P3,248
Audit Fees. During the years 2013 and 2012, the Company had engaged the professional
services of SGV & Co. The Company incurred and accrued an aggregate audit fee of P 1.90 million in
2013 for the said engagement. This covers the examination of the Companys financial statements in
accordance with generally accepted auditing standards. The auditors also provide a discussion of
findings and recommendations that will further improve the Companys accounting and reporting
practices. Further, SGV also provides updates on recent pronouncements made by the BIR and the
SEC.
Tax Services. This category refers to the tax compliance and advisory services rendered by the
tax division of SGV & Co.
All Other Fees. This consists primarily of fees for consultations, special engagements relating to
issuance of long form audit report and securing documents, which are required for the payment of
dividends and other incidental expenses.
The fees presented above include out-of-pocket expenses incidental to our independent auditors
work.
The audit committees approval policies and procedures for external auditors are as follows:
1. Statutory audit of the Companys annual financial statements.
a) The Audit Committee ensures that the services of the external auditor conform with the
provision of the Companys manual of corporate governance.
b) The Audit Committee approves the audit plan and scope of audit presented by the external
auditor before the conduct of audit. The audit plan is derived from series of discussions and
pre-audit planning with Management.
c) The Audit Committee reports to the Board the approved audit plan.
2. For other services other than the audit of the annual financial statements.
a)
b)
The Audit Committee evaluates the necessity of the proposed services presented by
Management taking into account the following factors:
i.
The impact of new tax and accounting regulations and standards.
ii.
Cost and benefit of the proposed undertaking.
The Audit Committee approves and ensures that other services provided by the external
auditor shall not be in conflict with the functions of the external auditor for the annual audit
of its financial statements.
10
NAME
CHIN-YEN KAO
Honorary Chairman of
the Board
AGE
Term in
Present
Position
No. of
Year(s)
In PSC
84
12 yrs.
12 yrs.
88
31 yrs.
31 yrs.
Citizenship: R.O.C.
VICENTE T. PATERNO
Chairman of the Board
and Director
Citizenship: Filipino
Business Experience
Founding
Chairman
Philippine
Seven
Corporation1(7-Eleven Philippines) (October 1982
present)
Chairman - Store Sites Holding Inc.;
Philippine
National
Oil
Company (PNOC) (1986-1987)
Director Sime Darby Berhad, Malaysia (1982-1986)
Short Term Consultancies, UNDP & UNCTAD-GATT
(1981-1982)
Minister of Public Highways (1979-1980)
Minister of Industry (1974-1979)
ASEAN Economic Minister & Chair ASEAN
Committee on Industrial Cooperation (1976-1979)
Director ExOfficio Member of Government BoardsCentral Bank, NEDA, DBP,PNOC (1976-1979)
Treasurer, Vice President Finance & Assistant
Executive Vice President & General Manager
Meralco (1964 1970)
Chairman Board of Investments (1970-1979)
Vice President for Investment, Commercial Credit
Corporation (1960-1964)
Industrial Consultant, General Manager-PHINMA
(1956-1960)
Industrial
Projects
Consultant,
Industrial
Development Center, PHILCUSA (1954-1956)
Mill Engineer, Central Azucarera Don Pedro,
Nasugbu, Batangas (1948-1951)
Awards RVR Award for Nation Building (JCI Manila
& AIM Center for CSR) (2013)
Award: 100 Outstanding Engineers of the Century,
UP College of Engineering (2010)
Most Outstanding Alumnus of the Year, UP Alumni
Association (1998)
Signum Meriti Award, De La Salle University (1993)
Doctor in Humanities (Honoris Causa), Xavier
University, Cagayan de Oro, Mindanao (1991)
Management Man of the Year, 1982 Management
Association of the Philippines (1983)
Doctor in Humane Letters (Honoris Causa), Ateneo
de Manila University (1982)
Order of Sacred Treasure, First Class Imperial
Award by Government of Japan (1981)
11
NAN-BEY LAI
Vice-Chairman and
Director
62
1 yr. & 2
mos.
3 yrs. &
9 mos.
45
8 yrs.
15 yrs.
Citizenship: R.O.C.
JOSE VICTOR P.
PATERNO
President and Director
Citizenship: Filipino
JORGE L. ARANETA
Director
78
25 yrs.
50
15 yrs. &
8 mos.
25 yrs.
Citizenship: Filipino
DIANA PARDOAGUILAR
Director
Citizenship: Filipino
15 yrs. &
8 mos.
12
ANTONIO JOSE U.
PERIQUET, JR.
Independent Director
52
3 yrs. & 5
mos.
3 yrs. &
5 mos.
49
8 yrs. & 5
mos.
8 yrs. &
5 mos.
44
yrs. &
6 mos.
5 yrs. &
6 mos.
56
1 yr. & 2
mos.
1 yr. & 2
mos.
Citizenship: Filipino
MICHAEL B. ZALAMEA
Independent Director
Citizenship: Filipino
WEN-CHI WU
Director
Citizenship: R.O.C.
JUI-TANG CHEN
Director
Citizenship: R.O.C.
13
MAO-CHIA CHUNG
Director
55
1 yr. & 2
mos.
1 yr. & 2
mos.
53
1 yr. & 2
mos.
1 yr. & 2
mos.
39
1 yr. & 5
mos.
2 yrs. &
1 mo.
50
10 yrs. &
5 mos.
24 yrs.
Citizenship: R.O.C
LIEN-TANG HSIEH
Director
Citizenship: R.O.C.
PING-HUNG CHEN
Treasurer & CFO
Citizenship: R.O.C.
EVELYN SADSADENRIQUEZ
Corporate Secretary
Citizenship: Filipino
14
c)
Executive Officers
Name
Chin-Yen Kao
Vicente T. Paterno
Nan-Bey Lai
Ping-Hung Chen
Ying-Jung Lee
Lawrence M. De Leon
Chao-Shun Tseng
Liwayway T. Fernandez
Francis S. Medina
Armi A. Cagasan
Eduardo P. Bataclan
Violeta B. Apolinario
Significant Employees
Other than aforementioned Directors and Executive Officers identified in the item on
Directors and Executive Officers in this Annual Report, there are no other employees of the
Company who may have a significant influence in the Companys major and/or strategic
planning and decision-making.
d) Family Relationships
9. Mr. Jose Victor P. Paterno, President of PSC and concurrent Chairman and President of
Convenience Distribution, Inc. (CDI), a wholly owned subsidiary of PSC, is the son of
PSC Chairman of the Board, Mr. Vicente T. Paterno.
10. Ms. Diana Pardo-Aguilar, director of PSC, is related to PSC Chairman, Mr. Paterno, by
affinity within the 3rd degree.
11. Mr. Raymund Aguilar, Director of Gate Distribution Enterprises, Inc. and President of EC
Payment Network Inc., a supplier of the Company, is the spouse of Ms. Diana PardoAguilar
e)
Litigation
To the knowledge and/or information of the Company, the above-named directors of the
Company, the present members of its Board of Directors and its Corporate Officers are not,
presently or during the past 5 years, involved or have been involved in any material legal
proceeding affecting/involving themselves or their property before any court of law or
administrative body in the Philippines or elsewhere. Likewise, to the knowledge and/or
information of the Company, the said persons have not been convicted by any final
judgment of any offense punishable by the laws of the Republic of the Philippines or the laws
of any nation/country.
f)
wages and damage claims, claims arising from store operations and as co-respondents with
manufacturers on complaints with BFAD, actions on leases for specific performance and
other civil claims. The Company also filed criminal cases against employees and other
persons arising from theft, estafa and robbery; civil claims for collection of sum of money,
specific performance and damages. All such cases are in the normal course of business and
are not deemed or considered as material legal proceeding as stated in Part I, Paragraph (C)
of Annex C of SEC checklist 17-A.
g) Qualification of Directors
To the knowledge and/or information of the Company, the above-named directors have all
the qualifications and none of the disqualifications as provided in the Companys Manual on
Corporate Governance and the revised Securities Regulation Code.
h)
16
Relationship
Under common
control
Nature of
Transactions
Terms and
Conditions
0.5% of earnings
before income tax.
Payable within 30
days.
Non-interest
Unsecured, no
bearing advances impairment in 2013
and 2012. Amounts
are due and
demandable.
Outstanding Balance
as at December 31
2012
2013
Donations
Royalty fee
Unsecured and
payable monthly.
P
=2,667,500
=2,650,000
P
P
=
=
P
1,481,066
P
=4,148,566
1,463,967
=4,113,967
P
3,118,978
P
=3,118,978
1,637,912
=1,637,912
P
=133,085,007 P
=12,579,753
P
=171,714,747 P
=16,305,559 P
As of December 31, 2013 and 2012, the Groups defined benefit retirement fund
has investments in shares of stock of the Parent Company with a cost of =0.12
P
million. The
retirement benefit funds total gains arising from changes in market prices amounted to =
P
0.76 million and =2.35
P
million in 2013 and 2012, respectively.
i)
Election of Directors
The directors of the Company are elected at the Annual Stockholders Meeting to hold office
for one (1) year and until their respective successors have been elected and qualified.
j)
Independent Directors
The independent directors of the Company are Mr. Michael B. Zalamea and Mr. Antonio Jose
U. Periquet, Jr., they are not officers or substantial shareholders of Philippine Seven
Corporation nor are they the directors or officers of its related companies. Their
shareholdings in the Corporation are less than 2% of the Corporations outstanding capital
stock pursuant to Section 38 of the SRC. A brief description of the business experiences of
Mr. Michael B. Zalamea and Mr. Antonio Jose U. Periquet, Jr. is included in Item 9 Part III of
this report.
Nomination Procedure:
1. A stockholder may recommend the nomination of a director to the Nomination
Committee;
2. The nominating stockholder shall submit his proposed nomination in writing to the
Nomination & Governance Committee, together with the acceptance and conformity of
the would-be nominee;
3. The Nomination & Governance Committee shall screen the nominations of directors prior
to the stockholders meeting and come up with the Final List of Candidates;
4. Only nominees whose names appear in the Final List of Candidates shall be eligible for
election as independent director.
k)
Board Committees
Audit Committee
The Audit Committee assists
the
Board
in
the
performance
of
its
oversight
responsibility for the financial reporting process, system of internal control, audit process,
17
and monitoring of compliance with applicable laws, rules and regulations. It also provides
oversight over Managements activities in managing credit, market, liquidity, operational, legal
and other risks of the Corporation; and perform oversight functions over the Corporations
internal and external auditors.
Compensation Committee
The Compensation Committee consists of 3 directors as voting members, one of whom is an
independent director. It also has 2 non-voting members. The Committee shall establish
formal and transparent procedures for developing a policy on remuneration of directors and
officers to ensure that their compensation is consistent with the Corporations culture,
strategy and the business environment in which it operates.
18
Total
(b)
Year
(c)
Salaries
(d)
Bonus
2014
2013
2012
2011
2010
7,314,726.12
6,275,974.68
6,621,039.08
4,940,936.40
5,713,173.16
22,686,104.38
7,086,112.03
6,379,554.44
5,133,368.49
6,486,091.13
2014
2013
2012
2011
2010
9,036.757.80
7,553,463.04
7,720,485.56
7,762,145.04
5,980,927.24
13,805,139.72
5,672,367.59
7,690,127.17
6,319,126.01
5,713,034.49
(e)
Others
N/A
N/A
Estimated compensation of director and executive officers for the ensuing year.
The Company has certain standard arrangements with respect to compensation and profit
sharing. Per diems of P 7,500.00 (as may be fixed by the Board from time to time) are given for
every regular or special meeting of the Board, Executive Committee and Board Committees
attended.
The company established a policy effective January 01, 2012 to provide guidelines for
directors fee to be provided to Independent Directors. As a director and member of the Board, the
Independent Director shall be entitled to an annual directors fee of P 100,000.00, as Chairman of
any Board Committees, the Independent Director shall be entiled to an annual directors fee of P
150, 000.00, as a member of any Board Committees, the Independent Director shall be entitled to
an annual directors fee of P 50,000.00. The independent director shall also be entitled to per diem
of P 7,500.00 for every meeting attended.
In addition to per diems, profit sharing is provided in the Code of By-laws in an amount not
exceeding 15% of the net profits of the Corporation (after tax), which shall be distributed to the
members of the Board of Directors and Executive Committee members and officers of the
Corporation in such amounts and manner as the Board may determine. Profit share not exceeding
15% of net profits after tax of the Corporation shall be submitted to stockholders for approval. The
last profit sharing in 1996 was set at 5% of net income after tax thereon. The directors and the
executive officers did not receive any profit sharing in the years after 1996. In 2009, Target
Incentive for Support Personnel and Annual Performance Bonus were granted based on achievement
rate of target pre-tax income. These are provided to regular employees and executive officers of the
Corporation.
There are no existing options, warrants or stock plan arrangements and none are held by the
directors, executive and corporate officers of the Corporation.
19
Title of
Class
Common
Common
Common
Common
Citizenship
Malaysian
Relationships of
the record
owners
representative
with the issuer
and said owner
Stockholder
Filipino
Chairman
/Stockholder
Filipino
236,376,070 (R)
Stockholder
BVI
Percent of
Outstanding
Common
Stock as of
Dec. 31, 2013
Amount and
Nature of
Record/Benefic
ial Ownership
51.56%
48,020,358
10.47%
1,399,822 (R)
36,647,422 (B)
38,047,244
Stockholder
0.31%
7.99%
8.30%
30,671,003 (R)
6.69%
Footnotes:
1
Mr. Jui-Tang Chen of President Chain Store (Labuan) Holding, Ltd. has the voting power in behalf of the Corporation
2
Ms. Elizabeth Orbeta or Ms. Diana Pardo-Aguilar has the voting power in behalf of Asian Holdings Corporation
3
Mr. Vicente T. Paterno has the power of attorney to vote the 36,647,422 shares of his children: Ma. Cristina Paterno-8,267,592; Jose
Victor Paterno- 11,983,375; Paz Pilar P. Benares -5,665,971; Ma. Elena P. Locsin-6,962,534; Ma. Theresa P. Dickinson-3,767,950
4
Ms. Rebecca Lewis of Arisaig Asia Consumer Fund Limited has the voting power in behalf of the Corporation
Name of Beneficial
Owner
Common
Vicente T. Paterno
Common
Common
Common
Common
Common
Common
Common
Common
Common
Common
Common
Common
Michael B. Zalamea
Jui-Tang Chen
Mao-Chia Chung
Nan-Bey Lai
Wen-Chi Wu
Lien-Tang Hsieh
Evelyn Sadsad-Enriquez
Liwayway T. Fernandez
13
13
13
927,006 2
927,007
13
13
13
13
13
13
3,5732
5,1042
Citizenship
Filipino
Filipino
Filipino
Filipino
Percent of Class
0.31%
7.99%
8.30%
2.61%
0.00%
0.00%
0.20%
Filipino
Filipino
R.O.C.
R.O.C.
R.O.C.
R.O.C.
R.O.C.
Filipino
Filipino
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.0008%
0.0011%
Shares directly owned by Vicente T. Paterno is 1,399,822 which is 0.31%, and he has power of attorney for 36,647,422
shares held by his 5 children including above shares of Jose Victor Paterno 11,983,375 (2.61%)
2
Directly owned shares
3
Qualifying shares
1
The Company has warehousing and distribution management contract with Convenience
Distribution Inc. (CDI), its wholly-owned subsidiary. The Chairman of the Board and President of CDI,
Mr. Jose Victor Paterno, is the son of Mr. Vicente Paterno, the Chairman of the Board of PSC.
Store Sites Holdings, Inc. is a landholding company affiliated with PSC and it leases on long
term basis 7 parcels of land to PSC for its operation of 7-Eleven Stores.
The Company, from time to time, makes purchases of equipment from President Chain Store
Corporation (and its subsidiaries/affiliates), which is the parent company of President Chain Store
(Labuan) Holding Ltd., holding 51.56% of PSCs outstanding shares. Certain products are also
purchased from Uni- President Corporation, which is the parent company of President Chain Store
Corporation.
The Company have lease and/or sublease agreements with Wenphil Corporation and Progressive
Development Corporation for commercial spaces in excess of the requirements of the Company for its 7Eleven stores, and supply arrangement for certain products/services carried by the stores with Gate
Distribution Enterprises Inc. (GATE) and Electronic Commerce Payments Network Inc. (ECPAY). Ms.
Diana Pardo-Aguilar, director of the company, is a Director of Wenphil Corporation (owner of Wendys
Philippine franchise) and GATE, Director and CFO of ECPAY.
She is also the wife of Mr. Raymund
Aguilar, a Director of GATE and President of ECPAY which is the supplier of physical and electronic phone
cards (e-pins) of the company and the system provider for e-pins and bills payment. Mr. Jorge L.
Araneta, also a director of the Company, is the Chairman and President of Progressive Development
Corporation (owner of Pizza Hut Philippine franchise).
In addition to the preceding paragraphs, the related party transactions are described in detail pursuant
to the disclosure requirements prescribed by the Commission. Related party relationships exist when
one party has the ability to control, directly or indirectly through one or more intermediaries, the other
party or exercise significant influence over the other party in making financial and operating decisions.
The following related party transactions are classified as normal in the ordinary course of business. The
commercial terms covering the said transactions are done on an arms length basis and is priced in such
a manner similar to what independent parties would normally agreed with. The discussion on this item
can be correlated with Note 25, Related Party Transactions, of the Notes to the 2013 Audited
Consolidated Financial Statements of the Company.
Transactions with related parties consist of:
a.
PSC has transactions with PFI, a foundation with common key management of the Group,
consisting of donations and noninterest-bearing advances pertaining primarily to salaries, taxes
and other operating expenses initially paid by PSC for PFI.
b.
The Group executed a licensing agreement with Seven Eleven, Inc. (SEI), a stockholder
organized in Texas, U.S.A. This grants the Group the exclusive right to use the 7-Eleven
System in the Philippines. In accordance with the agreement, the Group pays, among others,
royalty fee to SEI based on a certain percentage of monthly gross sales, net of gross receipts
tax.
Balances arising from the foregoing transactions with related parties are as follows:
Related
Parties
Receivables
PFI (Note 5)
Relationship
Under common
control
Nature of
Transactions
Terms and
Conditions
0.5% of earnings
before income tax.
Payable within 30
days.
Non-interest
Unsecured, no
bearing advances impairment in 2013
and 2012. Amounts
are due and
demandable.
Outstanding Balance
as at December 31
2012
2013
Donations
Royalty fee
Unsecured and
payable monthly.
P
=2,667,500
=2,650,000
P
P
=
=
P
1,481,066
P
=4,148,566
1,463,967
=4,113,967
P
3,118,978
P
=3,118,978
1,637,912
=1,637,912
P
=133,085,007 P
=12,579,753
P
=171,714,747 P
=16,305,559 P
As of December 31, 2013 and 2012, the Groups defined benefit retirement fund has
investments in shares of stock of the Parent Company with a cost of =0.12
P
million. The retirement
21
benefit funds total gains arising from changes in market prices amounted to =0.76
P
million and =2.35
P
million in 2013 and 2012, respectively.
22
19. January 28, 2011- Accomplished and submitted PSE Corporate Governance Disclosure Survey
Form for 2010
20. February 11, 2011- Revised Internal Audit Charter
21. January 21, 2011 Submission and compliance of minimum public float pursuant to PSE
Memorandum
22. September 15, 2011- Became signatory to the Integrity Pledge: A commitment to ethical
business practices and good corporate governance
23. October 18, 2011 Execution of Memorandum of Understanding (MOU) between Philippine
Seven Corporation (PSC) and PhilSeven Foundation (PFI) providing that PFI shall implement the
CSR programs of PSC and PSC has committed to donate each year to PFI of 1% of PSCs
annual net income before tax.
24. December 05, 2011 Participation in the Corporate Governance Scorecard of the Institute of
Corporate Directors (ICD)
25. January 01, 2012- Issued Policy on Directors Fee for Independent Directors
26. February 08, 2012- Accomplishment of Self Assessment Forms for the Board of Directors and
Directors
27. March 21, 2012Form for 2011
28. May 2012- PSC recognized as Silver Awardee for the ICD 2011 Corporate Governance
Scorecard
29. September 30, 2012- Adoption of Audit Committee Charter and an evaluation process to assess
the Committees performance
30. Participated in 2012 Corporate Governance Trainings/Seminars:
a.
b.
c.
August 30-31, 2012- Enterprise Risk Management: Robust framework to identify, assess
and manage risks
September 9, 2012- 2nd Integrity Summit: Driving Culture to Change by Makati Business
Club/European Chamber of Commerce (ECCP)
September 11, 2012- ASEAN CG Scorecard Launch by Institute of Corporate Directors
31. January 01, 2013- Adopted the Insider Trading Policy (Trading Blackouts)
32. January 30, 2013- Accomplished and submitted PSE Corporate Governance Disclosure Survey
Form for 2012
33. April 2013- Accomplishment of Self Assessment Forms for the Board of Directors and Directors
34. July 1, 2013- Submission of Annual Corporate Governance Report (ACGR) pursuant to SEC
Memo Circular No. 5 Series of 2013
35. Participated in 2013 Corporate Governance Trainings/Seminars:
a. March 5, 2013- FORUM 11: SEC Reforms to Strengthen an Ethical and Competitive
Business Environment
b. March 20, 2013- ASEAN CG Scorecard Information Briefing by Institute of Corporate
Directors
c. March 20, 2013- Rountable Discussion: Commercial Arbitration, What a Corporate
Director Should Know by Institute of Corporate Directors
d. August 15 & 22, 2013- Enhancing Audit Committee Effectiveness by Institute of
Corporate Directors
e. September 19, 2013- 2nd Integrity Initiative, Building Nation with Integrity by Makati
Business Club and European Chamber of Commerce (ECCP)
f. November 15, 2013- Mastering the ASEAN Corporate Governance Scorecard by Institute
of Corporate Directors
g. November 26, 2013- 2nd Philippine International Corporate Governance Forum by CG
Asia
23
h. November 26, 2013- ACMF Industry Consultation on ASEAN Disclosure Standards and
Review Framework by Securities and Exchange Commission
i. December 2, 2013- PSE Electronic Disclosure Generation Technology System (PSE
EDGE)
j. December 18-20- PSE EDGE Dry-run by the Philippine Stock Exchange
36. January 21, 2014- Submission of Board Meeting Attendance pursuant to SEC Memorandum
Circular No. 1 Series of 2014
37. March 2014- Accomplishment of Self Assessment Forms for the Board of Directors and Directors
38. March 2014- Accomplishment of Audit Committee Self Assessment Work Sheet
39. April 3, 2014- Adopted: a) Nomination & Governance Committee Charter b) Corporate
Governance Framework & Program
40. Participated in 2014 Corporate Governance Training/Seminar:
a. January 20-21, 2014- 2nd Run of PSE Investor Relations Seminar by Philippine Stock
Exchange
Plans on Improvement
1. The Corporation shall continue with setting up an evaluation procedure to measure compliance
with the Manual of Corporate Governance:
a.
b.
c.
d.
Position
Chairman and Independent Director
Member and President
Member and Director
Position
Chairman and Vice-Chairman of the Board
Member and President
Member and Independent Director
Non-voting member/Treasurer & CFO
Non-voting member/ Operations Director & Concurrent
COMPENSATION COMMITTEE
Name
1. Nan-Bey Lai
2. Jose Victor P. Paterno
3. Michael B. Zalamea
4. Ping-Hung Chen
5. Ying-Jung Lee
Marketing Director
NOMINATION & GOVERNANCE COMMITTEE
Name
1. Vicente T. Paterno
2. Michael B. Zalamea
3. Diana Pardo-Aguilar
4. Evelyn S. Enriquez
Position
Chairman of the Board and the Committee
Member and Independent Director
Member and Director
Non-voting member and Corporate Secretary
24
Appendix A
List of Leased Properties for the 7-Eleven Stores operational as Corporate and under a Franchise
Agreement
1
002 BF Homes^^
003 Libertad^^
004 Nagtahan^^
007 Quiapo^^
008 Adriatico^^
010 Muoz
011 Airport^^
012 Roces^^
10
016 RJ-Makati
11
017 Buendia**
12
020 Boni-EDSA
13
022 Retiro
14
024 Paco1 ^^
15
030 Burgos^^
16
031 Barangka
17
032 Maypajo^^
18
033 Dapitan^^
19
20
036 JRC^^
21
037 Nova1^^
22
038 Pilar ^^
23
039 MCU**
24
040 Almeda^^
25
041 Marulas^^
26
043 Malibay^^
27
044 Bacoor^^
28
045 Gagalangin^^
29
046 Pandacan
30
047 Singalong^^
31
051 Alabang 1
32
054 Munti1
33
056 Evangelista^^
34
057 Commonwealth
35
059 Revilla
36
37
38
064 Masinag^^
39
40
41
067 StJames
42
068 Murphy^^
43
069 PCU^^
44
071 A. Bonifacio^^
45
26
46
074 Canaynay
47
48
49
078 Bruger^^
50
080 Marcelo^^
51
52
085 Harrison^^
53
086 Tayuman^^
54
087 Imus**
55
088 Antip1Cir**
56
090 Bangkal
57
58
093 Meycauayan2^^
59
60
61
098 Ylaya
62
099 Dasma1
63
100 Balibago**
64
101 Blumentrit2^^
65
102 Hermosa
66
103 Kabihasnan^^
67
104 Galas^^
68
69
70
107 Cabuyao^^
71
108 Chico^^
72
109 Remedios^^
73
111 Molino1^^
74
75
113 Tanay
76
114 Dasma2**
77
115 Molino2
78
116 Salinas^^
79
118 GMA**
80
119 Bian2^^
81
120 Balagtas
82
83
122 BF Resort^^
84
123 Parang**
85
125 JP Ramoy
86
87
Rizal Blvd. nr. cor. Tatlong Hari St., Sta. Rosa, Laguna
88
89
90
130 Binakayan^^
27
91
92
132 Trece ^^
93
133 Tagaytay**
94
95
135 Panapaan^^
96
136 Apalit^^
97
98
141 Camarin^^
99
142 Tanza
100
101
145 Naic^^
102
147 Shorthorn^^
103
148 JP Rizal^^
104
150 Zabarte^^
105
152 Dasma3^^
106
153 Paco 2
107
154 Insular**
108
155 Onyx**
109
110
158 N. Domingo
111
112
113
165 Superlines**
114
166 Columbia
115
167 Jupiter^^
116
168 TM Kalaw
117
172 West ^^
118
175 Benin^^
119
176 Farmers
120
121
184 D.Jose^^
122
185 Global^^
123
187 Virra**
124
188 Panay**
125
196 Urdaneta^^
126
198 Matalino**
127
194 Angono^^
128
195 RFM
129
192 Turbina
130
200 Carmen^^
131
132
193 Bauan
133
204 Priscilla^^
134
135
209 Dagupn1^^
136
137
212 Lemery^^
28
138
210 Session2^^
139
211 Orosa**
140
208 Angeles1^^
141
215 Crame
142
213 Parkview**
143
217 Nova 3
144
219 P. Campa^^
145
216 Baclaran2^^
146
218 Taytay2^^
147
228 Bocaue^^
148
149
150
224 Luisita^^
151
227 EPZA
152
229 Cityland^^
153
232 CBC^^
154
155
255 Pateros^^
156
240 Salcedo^^
157
158
242 Mabini^^
159
245 QA Araneta^^
160
258 Herrera^^
161
162
271 Starmall
163
243 Merville^^
164
249 Binangonan
165
251 Nobel
166
254 Salauag
167
264 Trece2
168
272 BetterLiving 2
169
261 Calamba3^^
170
268 Arayat2^^
171
274 Fields**
172
252 Talon
173
174
175
270 Bian3
176
177
234 LaHuerta
178
276 Hansel
179
250 Aurora^^
29
180
181
182
275 FEU
183
184
277 Session3^^
185
282 Gatchalian^^
186
278 Sagittarius**
187
237 Orient
188
236 UP Manila
189
190
279 Marina**
191
284 Burgundy**
192
281 T. Morato^^
193
194
289 Karuhatan**
195
196
283 RCBC**
197
292 U Batangas
198
199
293 Plaridel^^
200
285 Emerald**
201
202
203
297 DFA
204
299 Indang^^
205
301 Annapolis^^
206
296 Manansala
207
300 Convergy's
208
304 Starwood**
209
311 PDCP^^
210
310 Malayan**
211
317 Tanauan^^
212
312 US Embassy**
213
214
307 Madrigal**
215
216
217
308 LP Cityhall
30
218
219
220
221
324 Lucena**
222
325 Sta.Cruz**
223
224
225
329 Dangwa
226
313 Northgate**
227
326 Gapan^^
228
330 Imperial^^
229
230
231
332 Legarda2^^
232
340 Manuela
233
234
315 Banaue^^
235
331 Letran
236
345 Baliwag2**
237
334 OWWA2^^
238
342 R. Magsaysay
239
240
338 Pagsanjan^^
241
341 Olivarez^^
242
339 Nasugbu**
243
335 Mamatid**
Banlic,Cabuyao Laguna
244
343 Fields 2
245
246
247
248
347 Bulihan^^
249
352 Baclaran 4
250
251
252
356 Gualberto**
253
366 SM Clark**
254
353 Guagua^^
255
256
257
364 Alimall
258
362 T. Mapua^^
259
369 Balayan^^
260
261
358 Dau^^
31
262
263
367 Riverbanks
264
265
266
267
268
269
270
271
380 Citadella
272
361 Carmona^^
273
274
376 TSU**
275
276
277
278
386 Palico
279
389 Lucban
280
391 Manaoag**
281
282
283
284
285
407 Abanao^^
286
287
396 DLSU-Lipa
288
289
290
393 Trancoville^^
291
292
368 Naguillan^^
293
294
295
375 Villamor**
296
297
298
394 Maragondon
299
300
301
400 FPIP^^
302
303
32
304
401 Philcom^^
305
306
307
423 Calasiao^^
308
453 Tayabas**
309
310
311
312
426 Sindalan**
313
314
444 Calamba 4 **
315
316
424 Capaz^^
317
427 Talavera^^
318
319
436 Leveriza^^
320
321
468 SM Lucena
322
323
450 PWU^^
324
325
326
327
328
329
416 AUF**
330
447 Kimston^^
331
332
333
449 Eastwood 2
334
335
336
337
446 Paniqui**
338
339
340
459 Palapala**
33
341
342
343
344
418 Multinational^^
345
476 Mayapa**
347
348
349
472 Nuvali**
350
351
352
353
474 Wynsum^^
354
355
480 Philtranco**
356
357
358
445 NE Pacific ^^
359
460 Telus**
360
464 OSMAK**
361
454 Cogeo^^
362
363
364
365
366
457 YP**
367
368
369
496 Tordesillas**
370
371
372
525 Muoz 2
373
374
375
376
516 NE Crossing^^
346
34
377
378
510 LKG
379
380
381
382
383
384
385
386
387
478 JP Rizal 2
388
389
390
391
531 La Trinidad**
392
393
512 Philam^^
394
395
473 VG Cruz**
396
397
398
399
400
401
499 RK Subic
402
403
404
405
407
408
409
410
411
535 ATC^^
412
413
414
415
406
35
416
537 Angeles 3
417
418
419
524 R. Papa
420
526 ABS-CBN
421
422
423
424
425
461 Lamuan-Manotok
426
427
511 PBCOM
428
429
430
431
565 Mabalacat**
432
433
434
435
436
437
586 Muzon**
438
439
506 Ascendas**
440
441
585 TRAG
442
500 Binondo^^
443
444
538 Redemptorist^^
445
446
447
448
226 Legarda^^
449
450
451
554 N. Garcia**
452
453
36
454
455
456
457
458
515 Castillejos**
459
564 Rosario 2
460
621 Lifehomes^^
461
462
463
608 Zaragosa^^
464
465
568 Camiling^^
466
590 Kingswood^^
467
595 Tiaong**
468
469
503 Centris 1
470
471
G/F Gem Square Bldg., San Andres St. cor. Mabini, Manila
G/F Eton Cyberpod Centris Edsa, Near Cor. Quezon Ave.,
Quezon City
Mac Arthur Hi-way corner M.A. Flores Balibago, Angeles
City
Kimston Plaza Building, P. Burgos St., Guadalupe, Makati
City
Unit 5 & 6 Ground Floor, Manila Executive Regency, Jorge
Bocobo St., Ermita Manila
Lot 19-B, Don Juico Ave., Malabanas, Angeles City
G/F The Woodridge Bldg., Upper Mckinley Road., Mckinley
Hill, Taguig City
Manuela Pastor Ave. Corner Highway, Pallocan West,
Batangas City
# 4Bansalangin st brgy Veterans Village QC
101 Engineers Hill St., Jude Thaddeus Complex cor.
Nevada Road and Guinto Alley, Baguio City
The Enclave, Fil-Am Friendship Hi-way, Pampang, Angeles
City
Commercial C, G/F Mayfair Tower, UN Ave., cor. Mabini
St., Ermita Manila
St. Francis Drive, Ortigas Center, Pasig City
473
474
551 Woodridge**
475
476
614 Bansalangin
477
478
607 Enclave^^
479
480
481
646 Pulilan^^
482
483
484
619 Buendia 4
485
472
486
487
488
489
490
638 Carmelray^^
491
640 Mangaldan**
37
492
635 Noveleta
493
574 Salawag 2
494
623 Hidalgo^^
495
496
497
633 R. Salas 2
498
499
500
501
668 V. Santos**
502
675 Patts**
503
620 FVR
504
505
506
507
508
509
629 Pansol^^
510
511
512
513
514
717 Malasiqui**
515
516
605 Molina 5
509 Woodlands
Pioneer**
592 Sampol^^
521
Manila East Rd. cor., Italia St. Brgy. Muzon Taytay Rizal
Unit 6 and 7, G/F Makati Executive Tower 3, Sen. Gil J.
Puyat Ave., Makati City
McArthur Hi-way Brgy. Maimpis San Fernando Pampanga
522
523
674 Zapanta
524
525
526
681 DENR
527
528
684 Escoda
529
530
645 MCU 3
517
518
519
520
38
531
652 Lagro
532
665 A. Mabini
533
534
535
657 G. Tuazon 2
536
706 Aria**
537
538
664 Tejeron
539
540
694 Pili**
541
542
697 Bayambang**
543
544
456 Sariaya
545
546
547
548
549
550
551
695 Syquia
552
553
554
2356 Jose Syquia St., cor., M. Rozas St., Sta. Ana Manila
Medical Arts Building Cardinal Santos Medical Canter,
Wilson St. San Juan City
17 M.H. Del Pilar Rd., cor. Pureza St.,Tugatog Malabon
City
Manila East Road cor., Col. Guido St. Agono Rizal
555
556
557
558
687 Taytay 4
559
560
663 Moriones
561
644 Citrus
562
564
785
661
San
699
565
566
722 Alimall 2
567
563
568
569
39
570
716 Tumana
571
572
671 Maybunga
573
574
575
576
577
719 Deparo**
578
730 Washington**
579
580
581
582
583
726 Paliparan
584
585
742 Gastambide**
586
587
588
589
655 Salitran
590
591
744 F. Manalo**
592
593
720 El Jardin
594
595
596
653 Bacoor 2
597
718 Towerville^^
598
599
600
772 Tanay 2
601
602
603
760 Comembo**
604
605
607
608
758 Dalandanan^^
606
40
609
838 Mariveles**
610
611
612
613
678 Xevera**
614
710 Tejero**
615
616
808 Binmaley**
617
618
822 Palico 2
619
620
621
795 BF Resort 2
622
623
705 CWC**
624
625
768 Navotas^^
626
627
741 Earnshaw
628
756 Paramount
629
630
631
826 Phoenix
632
762 Supercenter^^
633
634
635
773 Raon
636
637
856 Guimba**
638
639
640
641
642
643
644
828 Bay^^
645
829 Areza**
646
647
648
775 Cabanatuan 4
824 St. Aquinas Sto.
Tomas^^
649
41
650
876 Magalang**
651
652
894 Macabling**
653
654
655
752 Bustos^^
656
781 Kingsville**
657
658
866 Gumaca**
659
661
818 Lucban 2
792 Sta. Monica (Ave. of the
Arts Residences)**
852 Bucandala**
662
663
664
777 P. Guevarra
665
784 Teresa
666
667
806 Villaflor**
668
812 Paciano
669
670
671
672
673
674
555 C. Raymundo
675
676
804 Amorsolo**
677
786 BF Homes 3
678
679
680
681
682
683
817 Malinta 3
684
685
686
896 Katipunan**
687
688
865 Perez
689
660
42
690
859 Landayan**
691
692
895 Cuenca**
693
853 Tayug**
694
835 Banawe 2
695
908 Dinalupihan**
696
697
763 Manhattan**
698
699
801 Riverbanks 2
700
810 Macabebe**
701
702
704
893 Famy
799 Doa Aurora (Milan
Residences)
737 San Roque Tarlac
705
847 Alaminos**
706
707
708
709
886 Libmanan
710
703
711
712
713
714
794 Bagtikan**
715
716
892 Raffles
717
718
719
720
721
723
855 UERM**
747 Lyceum (Ex-Maritime
Agency)**
942 Munoz, Nueva Ecija**
724
883 Madapdap**
725
726
914 Nabua **
727
869 Finman**
728
729
766 K- Zone
730
722
43
731
732
899 Sotto
733
734
925 Tuy^^
735
933 UCLM**
736
737
738
739
740
741
742
749 SM TwoE-com
743
913 Pagsawitan
744
940 Rada **
745
950 Bigfoot
746
747
748
749
750
990 Banilad**
751
752
753
754
755
909 Plaza 66
756
757
758
900 Catanauan ^^
656 Marquinton Cordova
Tower
759
760
761
762
763
764
765
947 CDU**
766
767
768
769
929 Calauan ^^
770
870 Soho
771
772
798 C5 Damayan**
44
773
774
775
776
945 CSPC**
777
778
1019 Banay-Banay**
779
961 La Paz**
780
968 Tagudin**
781
854 Naga 4
782
783
784
785
786
787
788
927 Dasma 4
789
941 Sariaya 2
790
924 Tawilisan ^^
791
793
794
959 Jaen**
795
796
988 Ongpin
1030 Caltex Plaridel
(Cebu)**
1021 Talamban Crossing
(Cebu)**
792
797
798
799
802
803
982 RM Olongapo**
800
801
805
806
957 Bamban**
807
808
809
810
811
965 Siniloan**
812
813
939 Samal**
804
45
815
816
954 Matatalaib**
817
818
819
820
814
822
823
824
826
981 LB Square**
931 Gagfa I.T. Center
(Cebu)**
1050 UV Main**
827
828
829
830
831
832
833
834
1094 Calyx**
835
836
837
838
839
840
880 Alfonso
841
1058 Silang
842
843
844
845
846
847
1003 Tiaong 3
1068 CPI FTI - E. Service
Road**
821
825
848
849
1055 Culiat
850
851
852
853
708 Northwalk**
854
FTI, Taguig
Tandang Sora Ave., cor. San Ponciano St. Brgy. Culiat
Quezon City
MC Briones Street, Tipolo, Mandaue City
Pueblo Verde in Mactan Economic zone II, Basak, LapuLapu City
Pasong Buaya 2, Imus, Cavite
Unit 6A, Northwalk Clark, M.A. Roxas Highway cor. New
Friendship Gate, Clark Freeport Zone, Angeles city
Unit 105 Apple One Tower, Mindanao Ave., cor. Biliran
Road, Ayala Business Park, Cebu City
46
855
856
857
858
860
861
862
1082 Calumpit**
863
864
865
866
1002 Antipolo 3
867
1035 Canlubang**
868
Central Ave. cor. St. Mary St., New Era, Quezon City
869
870
1010 Masinloc**
871
872
1107 Karangalan**
873
859
875
876
1098 Angat**
877
1099 Vermont**
878
1105 Sabang**
879
1124 Mabiga**
880
956 Candaba**
881
1008 Alangilan**
882
883
884
885
886
1053 Calamba 7
887
888
889
1069 Montillano 1
890
891
892
893
894
895
874
47
896
1219 Pan-Asiatic**
897
1197 Silay**
898
1072 Rainforest
899
1063 Cuyapo**
900
901
1018 Daet 2
902
903
905
906
907
1129 Lumban
908
909
910
911
912
913
1108 Roosevelt
914
915
916
917
918
919
920
1152 SWU**
921
1116 Bian 5
922
923
1210 L'Fisher**
924
1096 Libertad-Aurora**
925
1133 Malagasang
926
1089 Paoay
927
928
929
930
1175 Daraga**
931
932
933
934
935
936
904
48
938
939
940
1249 Pandan**
941
942
943
944
945
946
947
948
1109 Cabugao^^
949
1186 Bagbag
950
951
1170 Batac 2
952
953
954
955
956
1171 V. Mapa
957
958
1165 CTU**
959
960
1122 Montillano 2
961
962
1130 Binangonan 3
963
997 BF Almanza
964
965
966
967
968
969
1212 Bonuan**
970
971
972
1229 Bacoor 4
974
975
973
1195 Agoncillo
976
1042 Espeleta**
977
937
49
978
1254 Polangui**
979
980
1150 Baras
981
982
983
984
1123 Greenfield IT
985
1177 Pureza 3
986
987
988
989
1027 Candon
990
991
992
993
1312 Dolores**
994
995
1182 UNO-R
996
997
998
1000
1001
1002
1003
1261 Sipocot
1004
1218 Tabunok**
1005
1145 Caloocan HS
1006
1217 i1 Building**
1007
1173 Labangon**
1008
1009
999
1061 Kingspoint**
50
Appendix B
Part 1: FINANCIAL INFORMATION
Financial Statements
Audited Consolidated Balance Sheets as of December 31, 2013 and 2012
Audited Consolidated Statements of Comprehensive Income for the Years Ended December 31,
2013, 2012 and 2011
Audited Consolidated Statements of Changes in Equity for the Years Ended December 31, 2013,
2012 and 2011
Audited Consolidated Statements of Cash Flow for the Years Ended December 31, 2013, 2012
and 2011
Notes to Audited Consolidated Financial Statements
5
7
8
10
12
Annexes
Supplemental Written Statement of Auditor
ANNEX 1: Schedule of Receivables as of December 31, 2013
ANNEX 2: Reconciliation of Retained Earnings Available for Dividend Declaration
ANNEX 3: Financial Soundness Indicators
ANNEX 4: Relationships Map
ANNEX 5: List of Philippine Financial Reporting Standards (PFRSs)
77
78
79
80
81
82
88
88
90
90
90
90
90
90
91
COVER SHEET
1 0 8 4 7 6
SEC Registration Number
P H I L I P P I N E
S E V E N
C O R P O R A T I O N
A N D
S U B S I D I A R I E S
7 t h
O r t
F l o o r
i g a s
T h e
A v e n u e
C o l u m b i a
,
T o w e r
M a n d a l u y o n g
C i
t y
Steve Chen
705-5200
(Contact Person)
1 2
3 1
A A C F S
0 7
1 7
Month
Day
(Form Type)
Month
Day
(Calendar Year)
(Annual Meeting)
Not Applicable
(Secondary License Type, If Applicable)
650
Total No. of Stockholders
=560M
P
Domestic
Foreign
File Number
LCU
Document ID
Cashier
STAMPS
Remarks: Please use BLACK ink for scanning purposes.
3
A member firm of Ernst & Young Global Limited
-2-
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of Philippine Seven Corporation and Subsidiaries as at December 31, 2013
and 2012, and their financial performance and their cash flows for each of the three years in
the period ended December 31, 2013 in accordance with Philippine Financial Reporting
Standards.
4
A member firm of Ernst & Young Global Limited
December 31
2013
2012
(As restated Note 2)
January 1
2012
(As restated Note 2)
ASSETS
Current Assets
Cash and cash equivalents (Notes 4, 29 and 30)
Short-term investment (Notes 4, 29 and 30)
Receivables (Notes 5, 29 and 30)
Inventories (Note 6)
Prepayments and other current assets (Note 7)
Total Current Assets
P
=973,002,633
10,810,229
450,668,446
900,849,891
270,748,698
2,606,079,897
=415,285,569
P
10,632,115
374,597,843
726,986,563
259,007,887
1,786,509,977
=394,696,749
P
10,409,907
239,289,287
519,258,936
161,522,138
1,325,177,017
Noncurrent Assets
Property and equipment (Note 8)
Deposits (Note 9)
Deferred income tax assets - net (Note 27)
Goodwill and other noncurrent assets (Note 10)
Total Noncurrent Assets
TOTAL ASSETS
2,746,672,621
313,888,467
63,203,127
231,929,220
3,355,693,435
P
=5,961,773,332
2,276,921,044
249,418,061
50,477,480
208,489,602
2,785,306,187
=4,571,816,164
P
1,946,032,976
215,964,826
48,181,800
206,461,345
2,416,640,947
=3,741,817,964
P
P
=560,000,000
=477,777,778
P
=374,666,667
P
1,872,703,489
109,792,774
571,066,689
3,113,562,952
1,261,289,989
105,144,142
541,881,392
2,386,093,301
1,243,937,457
73,922,196
298,435,516
1,990,961,836
202,888,935
96,481,142
181,901,238
86,012,693
171,457,833
90,255,998
6,000,000
6,000,000
6,000,000
1,607,183
306,977,260
P
=3,420,540,212
2,643,179
276,557,110
=2,662,650,411
P
4,057,482
271,771,313
=2,262,733,149
P
December 31
2013
Equity
Common stock (Notes 17 and 31) - P
=1 par value
Authorized - 600,000,000 shares as at
December 31, 2013 and 2012 and
400,000,000 shares as at
December 31, 2011
Issued - 459,121,573 and 399,325,661
shares as at December 31, 2013 and
2012, respectively [held by 650 and 656
equity holders in 2013 and 2012,
respectively (Note 1)]
Additional paid-in capital (Note 31)
Retained earnings (Notes 17 and 31)
Other comprehensive income (loss):
Remeasurements loss on net retirement
obligations - net of deferred income
tax asset (Notes 24 and 27)
Revaluation increment on land - net of
deferred income tax liability
(Notes 8 and 27)
Cost of 686,250 shares held in treasury
(Note 17)
Total Equity
TOTAL LIABILITIES AND EQUITY
P
=459,121,573
293,525,037
1,810,521,305
(22,241,444)
2012
(As restated Note 2)
=399,325,661
P
293,525,037
1,227,553,509
(11,545,103)
January 1
2012
(As restated Note 2)
=347,329,216
P
293,525,037
849,038,228
(11,114,315)
3,229,895
2,544,156,366
3,229,895
1,912,088,999
3,229,895
1,482,008,061
(2,923,246)
2,541,233,120
P
=5,961,773,332
(2,923,246)
1,909,165,753
=4,571,816,164
P
(2,923,246)
1,479,084,815
=3,741,817,964
P
2013
REVENUES
Revenue from merchandise sales
Franchise revenue (Notes 20 and 32)
Marketing income (Note 20)
Rental income (Note 26)
Commission income (Note 32)
Interest income (Notes 4, 9, 22 and 26)
Other income
(As restated
Note 2)
2011
(As restated Note 2)
P
=14,133,649,192
1,367,253,289
346,135,947
48,341,871
43,402,035
7,165,804
214,886,062
16,160,834,200
=11,713,760,468
P
683,572,827
375,768,257
45,751,718
67,396,391
5,377,093
123,025,663
13,014,652,417
=9,435,604,073
P
534,025,712
239,888,660
44,143,593
37,236,539
5,864,713
99,300,756
10,396,064,046
10,626,971,610
8,523,151,274
6,844,562,019
4,520,385,066
16,247,890
13,799,871
15,177,404,437
3,784,875,178
16,596,830
14,595,186
12,339,218,468
3,011,577,592
16,024,647
4,806,251
9,876,970,509
983,429,763
675,433,949
519,093,537
300,802,114
210,257,926
162,330,278
NET INCOME
682,627,649
465,176,023
356,763,259
(10,696,341)
EXPENSES
Cost of merchandise sales (Note 18)
General and administrative expenses
(Notes 19 and 32)
Interest expense (Notes 11, 15 and 21)
Other expenses
(430,788)
(11,114,315)
P
=671,931,308
=464,745,235
P
=345,648,944
P
P
=1.49
=1.01
P
=0.78
P
BASIC/DILUTED EARNINGS
PER SHARE (Note 28)
See accompanying Notes to Consolidated Financial Statements.
Common Stock
(Note 17)
Additional
Paid-in Capital
Total
Treasury
Stock
(Note 17)
Total
P
= 399,325,661
P
= 293,525,037
P
=1,233,432,997
(5,879,488)
P
=
(11,545,103)
P
= 3,229,895
P
=1,929,513,590
(17,424,591)
(P
=2,923,246)
P
=1,926,590,344
(17,424,591)
399,325,661
59,795,912
293,525,037
1,227,553,509
682,627,649
682,627,649
(59,795,912)
(39,863,941)
(11,545,103)
(10,696,341)
(10,696,341)
3,229,895
1,912,088,999
682,627,649
(10,696,341)
671,931,308
(39,863,941)
(2,923,246)
1,909,165,753
682,627,649
(10,696,341)
671,931,308
(39,863,941)
P
= 459,121,573
P
= 293,525,037
P
=1,810,521,305
(P
= 22,241,444)
P
= 3,229,895
P
=2,544,156,366
(P
=2,923,246)
P
=2,541,233,120
P
= 347,329,216
347,329,216
51,996,445
P
= 399,325,661
P
= 293,525,037
293,525,037
P
= 293,525,037
P
= 855,468,208
(6,429,980)
849,038,228
464,625,531
550,492
465,176,023
465,176,023
(51,996,445)
(34,664,297)
P
=1,227,553,509
P
=
(11,114,315)
(11,114,315)
(430,788)
(430,788)
(430,788)
(P
= 11,545,103)
P
= 3,229,895
3,229,895
P
= 3,229,895
P
=1,499,552,356
(17,544,295)
1,482,008,061
464,625,531
550,492
465,176,023
(430,788)
(430,788)
464,745,235
(34,664,297)
P
=1,912,088,999
(P
=2,923,246)
(2,923,246)
(P
=2,923,246)
P
=1,496,629,110
(17,544,295)
1,479,084,815
464,625,531
550,492
465,176,023
(430,788)
(430,788)
464,745,235
(34,664,297)
P
=1,909,165,753
Common Stock
(Note 17)
Balances at January 1, 2011, as previously stated
Effect of adoption of the revised PAS 19 (Note 2)
Balances at January 1, 2011, as restated
Net income, as previously stated
Effect of adoption of the revised PAS 19 (Note 2)
Net income, as restated
Other comprehensive loss, as previously stated
Effect of adoption of the revised PAS 19 (Note 2)
Other comprehensive loss, as restated
Total comprehensive income, as restated
Stock dividends (Note 17)
Cash dividends (Note 17)
Balances at December 31, 2011
P
= 302,114,918
302,114,918
45,214,298
P
= 347,329,216
Additional
Paid-in Capital
P
= 293,525,037
293,525,037
P
= 293,525,037
356,763,259
(45,214,298)
(30,142,867)
P
= 849,038,228
P
=
(11,114,315)
(11,114,315)
(11,114,315)
(P
= 11,114,315)
P
= 3,229,895
3,229,895
P
= 3,229,895
Total
P
=1,173,352,234
(6,850,250)
1,166,501,984
356,342,989
420,270
356,763,259
(11,114,315)
(11,114,315)
345,648,944
(30,142,867)
P
=1,482,008,061
Treasury
Stock
(Note 17)
(P
=2,923,246)
(2,923,246)
(P
=2,923,246)
Total
P
=1,170,428,988
(6,850,250)
1,163,578,738
356,342,989
420,270
356,763,259
(11,114,315)
(11,114,315)
345,648,944
(30,142,867)
P
=1,479,084,815
2013
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax
Adjustments for:
Depreciation and amortization (Notes 8 and 19)
Net retirement benefits cost (Notes 23 and 24)
Interest expense (Notes 11, 15, and 21)
Interest income (Notes 4, 9, 22 and 26)
Amortization of:
Deferred lease (Notes 10 and 26)
Software and other program costs
(Notes 10 and 19)
Deferred revenue on exclusivity contract
(Notes 16 and 32)
Deferred revenue on finance lease
(Notes 16 and 26)
Unrealized foreign exchange loss (gain)
Operating income before working capital changes
Increase in:
Receivables
Inventories
Prepayments and other current assets
Increase (decrease) in:
Accounts payable and accrued expenses
Other current liabilities
Deposits payable
Deferred revenue
Retirement benefits contributions (Note 24)
Cash generated from operations
Income taxes paid
Interest received
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to:
Property and equipment (Note 8)
Software and other program costs (Note 10)
Increase in:
Deposits
Goodwill and other noncurrent assets
Short-term investment
Collection of lease receivable (Note 26)
Net cash used in investing activities
P
=983,429,763
709,518,959
16,858,692
16,247,890
(7,165,804)
=675,433,949
P
527,786,925
15,420,495
16,596,830
(5,377,093)
=519,093,537
P
378,355,521
11,768,015
16,024,647
(5,864,713)
2,410,613
2,485,728
2,779,684
1,316,561
1,490,475
2,598,741
(818,452)
(1,934,524)
(1,934,524)
(589,567)
296,601
1,721,505,256
(589,567)
439,728
1,231,752,946
(589,567)
(49,798)
922,181,543
(75,865,909)
(173,863,328)
(11,740,811)
(130,841,872)
(207,727,627)
(97,485,749)
(75,684,791)
(116,839,359)
(32,811,310)
610,988,026
29,557,320
20,987,697
(21,670,730)
2,099,897,521
(304,294,983)
4,350,085
1,799,952,623
17,353,481
244,555,664
10,443,405
(20,279,212)
1,047,771,036
(181,147,036)
2,866,833
869,490,833
165,298,414
32,636,218
28,595,696
(418,727)
(4,629,263)
918,328,421
(133,352,439)
2,933,116
787,909,098
(1,179,270,536)
(3,019,195)
(858,674,993)
(190,000)
(717,091,736)
(61,940,757)
(24,147,597)
(178,114)
(1,268,556,199)
(35,553,176)
(7,405,740)
(222,208)
1,591,280
(900,454,837)
(37,156,223)
(7,922,962)
(268,352)
1,591,280
(760,847,993)
(Forward)
10
2013
CASH FLOWS FROM FINANCING ACTIVITIES
Availments of bank loans (Note 11)
Payments of bank loans (Note 11)
Interest paid
Cash dividends paid (Note 17)
Net cash provided by financing activities
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS
P
=550,000,000
(467,777,778)
(15,822,416)
(39,863,941)
26,535,865
P210,000,000
=
(106,888,889)
(16,597,779)
(34,664,297)
51,849,035
(215,225)
(296,211)
P230,000,000
=
(175,333,333)
(15,725,011)
(30,142,867)
8,798,789
107,321
557,717,064
20,588,820
35,967,215
415,285,569
394,696,749
358,729,534
P
=973,002,633
=415,285,569
P
=394,696,749
P
11
Corporate Information
Philippine Seven Corporation (the Company or PSC) was incorporated in the Philippines
and registered with the Philippine Securities and Exchange Commission (SEC) on
November 29, 1982. The Company and its subsidiaries (collectively referred to as the
Group), are primarily engaged in the business of retailing, merchandising, buying,
selling, marketing, importing, exporting, franchising, acquiring, holding, distributing,
warehousing, trading, exchanging or otherwise dealing in all kinds of grocery items, dry
goods, food or foodstuffs, beverages, drinks and all kinds of consumer needs or
requirements and in connection therewith, operating or maintaining warehouses, storages,
delivery vehicles and similar or incidental facilities. The Group is also engaged in the
management, development, sale, exchange, and holding for investment or otherwise of
real estate of all kinds, including buildings, houses and apartments and other structures.
The Company is controlled by President Chain Store (Labuan) Holdings, Ltd., an
investment holding company incorporated in Malaysia, which owns 51.56% of the
Companys outstanding shares. The remaining 48.44% of the shares are widely held. The
ultimate parent of the Company is President Chain Store Corporation (PCSC), which is
incorporated in Taiwan, Republic of China.
The Company has its primary listing on the Philippine Stock Exchange. As at December
31, 2013 and 2012, the Company has 650 and 656 equity holders, respectively.
The registered business address of the Company is 7th Floor, The Columbia Tower,
Ortigas Avenue, Mandaluyong City.
Authorization for Issuance of the Consolidated Financial Statements
The consolidated financial statements were authorized for issue by the Board of Directors
(BOD) on February 20, 2014.
2. Summary of Significant Accounting Policies and Financial Reporting Practices
Basis of Preparation
The consolidated financial statements are prepared under the historical cost basis, except
for parcels of land, which are carried at revalued amount. The consolidated financial
statements are presented in Philippine Peso (Peso), which is the Groups functional
currency and all amounts are rounded to the nearest Peso except when otherwise
indicated.
The consolidated financial statements provide comparative information in respect of the
previous period. In addition, the Group presents an additional balance sheet at the
beginning of the earliest period presented when there is a retrospective application of an
accounting policy, a retrospective restatement or a reclassification of items in the
consolidated financial statements. An additional balance sheet as at January 1, 2012 is
presented in these consolidated financial statements due to retrospective application of
12
Amendments to PFRS 1, First-time Adoption of Philippine Financial Reporting Standards Government Loans
These amendments require first-time adopters to apply the requirements of PAS 20,
Accounting for Government Grants and Disclosure of Government Assistance, prospectively
to government loans existing at the date of transition to PFRS. However, entities may choose
to apply the requirements of PAS 39, Financial Instruments: Recognition and Measurement,
and PAS 20 to government loans retrospectively if the information needed to do so had been
obtained at the time of initially accounting for those loans. These amendments do not apply to
the Group as it is not a first-time adopter of PFRS.
13
e.
This is presented separately for financial assets and financial liabilities recognized at the end
of the balance sheet period. The amendments affect disclosures only and have no impact on
the Groups financial position or performance. The additional disclosures required by the
amendments are presented in Note 29 to the consolidated financial statements.
PFRS 10 replaces the portion of PAS 27, Consolidated and Separate Financial
Statements, which addresses the accounting for consolidated financial statements. It
also includes the issues raised in Standing Interpretations Committee (SIC) 12,
Consolidation - Special Purpose Entities. PFRS 10 establishes a single control model
that applies to all entities including special purpose entities. The changes introduced
by PFRS 10 will require management to exercise significant judgment to determine
which entities are controlled, and therefore, are required to be consolidated by a
parent, compared with the requirements that were in PAS 27.
A reassessment of control was performed by the Group in accordance with the
provisions of PFRS 10. The Group determined that there will be no change in the
composition of subsidiaries currently included in the consolidated financial
statements.
PFRS 11 replaces PAS 31, Interests in Joint Ventures, and SIC 13, Jointly Controlled
Entities - Non-Monetary Contributions by Venturers. PFRS 11 removes the option to
account for jointly controlled entities using proportionate consolidation. Instead,
jointly controlled entities that meet the definition of a joint venture must be accounted
for using the equity method. The Group has no existing arrangements with other
entities that falls within the scope of this standard. This standard has no impact in the
Groups financial position or performance.
14
required, are provided in the individual notes relating to the assets and liabilities whose fair
values were determined.
Prior to adoption of the revised standard, the Group recognized actuarial gains and
losses as income or expense when the net cumulative unrecognized gains and losses
for each individual plan at the end of the previous period exceeded 10% of the higher
of the defined benefit obligation and the fair value of the plan assets and recognized
unvested past service costs as an expense on a straight-line basis over the average
vesting period until the benefits become vested. Upon adoption of the revised
standard, the Group changed its accounting policy to recognize all actuarial gains and
losses in other comprehensive income and all past service costs in profit or loss in the
period they occur.
The revised standard replaced the interest cost and expected return on plan assets with
the concept of net interest on defined benefit liability or asset which is calculated by
multiplying the net balance sheet defined benefit liability or asset by the discount rate
used to measure the employee benefit obligation, each as at the beginning of the
annual period.
The revised standard also amended the definition of short-term employee benefits and
requires employee benefits to be classified as short-term based on expected timing of
settlement rather than the employees entitlement to the benefits. In addition, the
revised standard modifies the timing of recognition for termination benefits. The
modification requires the termination benefits to be recognized at the earlier of when
the offer cannot be withdrawn or when the related restructuring costs are recognized.
Changes to definition of short-term employee benefits and timing of recognition for
termination benefits do not have any impact to the Groups financial position and
financial performance.
15
The Group reviewed its existing employee benefits and determined that the amended
standard has significant impact on its accounting for retirement benefits. The Group
obtained the services of an external actuary to compute the impact to the consolidated
financial statements upon adoption of the standard.
The changes in accounting policies have been applied retrospectively. The effects of
adoption on the consolidated financial statements are as follows:
As at
December 31,
2012
As at
January 1,
2012
=24,892,273
P
7,467,682
(11,545,103)
(5,879,488)
=25,063,279
P
7,518,984
(11,114,315)
(6,429,980)
2012
2011
(P
=786,417)
235,925
550,492
(P
=600,386)
180,116
420,270
(615,412) (15,877,593)
184,624
4,763,278
(430,788) (11,114,315)
=119,704 (P
P
=10,694,045)
In 2012 and 2011, effect on basic/diluted earnings per share related to the restatement
amounted to P
=0.0012 and P
=0.0009, respectively.
The adoption did not have any impact on the statements of cash flows in 2012 and 2011.
Philippine Interpretation IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine
16
This interpretation applies to waste removal costs that are incurred in surface mining activity
during the production phase of the mine (production stripping costs) and provides guidance
on the recognition of production stripping costs as an asset and measurement of the stripping
activity asset. This interpretation is not relevant to the Group.
The amendment clarifies that, upon adoption of PFRS, an entity that capitalized
borrowing costs in accordance with its previous generally accepted accounting
principles, may carry forward, without any adjustment, the amount previously
capitalized in its opening balance sheet at the date of transition. Subsequent to the
adoption of PFRS, borrowing costs are recognized in accordance with PAS 23,
Borrowing Costs. The amendment does not apply to the Group as it is not a first-time
adopter of PFRS.
The amendments clarify the requirements for comparative information that are
disclosed voluntarily and those that are mandatory due to retrospective application of
an accounting policy, or retrospective restatement or reclassification of items in the
financial statements. An entity must include comparative information in the related
notes to the financial statements when it voluntarily provides comparative information
beyond the minimum required comparative period. The additional comparative period
does not need to contain a complete set of financial statements. On the other hand,
supporting notes for the third balance sheet (mandatory when there is a retrospective
application of an accounting policy, or retrospective restatement or reclassification of
items in the financial statements) are not required. The amendments affect disclosures
only and have no impact on the Groups financial position or performance.
The amendment clarifies that spare parts, stand-by equipment and servicing equipment
should be recognized as property, plant and equipment when they meet the definition
of property, plant and equipment and should be recognized as inventory if otherwise.
The amendment has no significant impact on the Groups financial position or
performance.
The amendment clarifies that income taxes relating to distributions to equity holders
and to transaction costs of an equity transaction are accounted for in accordance with
PAS 12, Income Taxes. The amendment does not have any significant impact on
Groups financial position or performance.
PAS 34, Interim Financial Reporting - Interim Financial Reporting and Segment Information
for Total Assets and Liabilities
The amendment clarifies that the total assets and liabilities for a particular reportable segment
need to be disclosed only when the amounts are regularly provided to the chief operating
17
decision maker and there has been a material change from the amount disclosed in the entitys
previous annual financial statements for that reportable segment. The amendment affects
disclosures only and has no impact on the Groups financial position or performance.
Amendments to PAS 19, Employee Benefits - Defined Benefit Plans: Employee Contributions
These amendments apply to contributions from employees or third parties to defined benefit
plans. Contributions that are set out in the formal terms of the plan shall be accounted for as
reductions to current service costs if they are linked to service or as part of the
remeasurements of the net defined benefit asset or liability if they are not linked to service.
Contributions that are discretionary shall be accounted for as reductions of current service cost
upon payment of these contributions to the plans. The amendments to PAS 19 are to be
retrospectively applied for annual periods beginning on or after July 1, 2014. These
amendments are not expected to have an impact to the Groups financial statements as there
are no contributions from employees or third parties to the defined benefit plan.
Amendments to PAS 36, Impairment of Assets - Recoverable Amount Disclosures for NonFinancial Assets
These amendments remove the unintended consequences of PFRS 13 on the disclosures
required under PAS 36. In addition, these amendments require disclosure of the recoverable
amounts for the assets or cash-generating units (CGUs) for which impairment loss has been
recognized or reversed during the period. These amendments are effective retrospectively for
annual periods beginning on or after January 1, 2014 with earlier application permitted,
provided PFRS 13 is also applied. The amendments affect disclosures only and are not
expected to have an impact on the Groups financial position or performance.
18
These amendments provide relief from discontinuing hedge accounting when novation of a
derivative designated as a hedging instrument meets certain criteria. These amendments are
effective for annual periods beginning on or after January 1, 2014. The Company will
consider this amendment for future purchase of derivatives.
19
The amendment is effective for annual periods beginning on or after July 1, 2014. The
amendment shall apply to all revaluations recognized in annual periods beginning on
or after the date of initial application of this amendment and in the immediately
preceding annual period. The Group shall consider this amendment for future
revaluations of property, plant and equipment.
PAS 24, Related Party Disclosures - Key Management Personnel
These amendments clarify that an entity is a related party of the reporting entity if the
said entity, or any member of a group for which it is a part of, provides key
management personnel services to the reporting entity or to the parent company of the
reporting entity. The amendments also clarify that a reporting entity that obtains
management personnel services from another entity (also referred to as management
entity) is not required to disclose the compensation paid or payable by the
management entity to its employees or directors. The reporting entity is required to
disclose the amounts incurred for the key management personnel services provided by
a separate management entity. The amendments are effective for annual periods
beginning on or after July 1, 2014 and are applied retrospectively. The amendments
affect disclosures only and are not expected to have an impact on the Groups balance
sheet or statement of comprehensive income.
PAS 38, Intangible Assets - Revaluation Method - Proportionate Restatement of
Accumulated Amortization
These amendments clarify that, upon revaluation of an intangible asset, the carrying
amount of the asset shall be adjusted to the revalued amount, and the asset shall be
treated in one of the following ways:
a. The gross carrying amount is adjusted in a manner that is consistent with the revaluation
of the carrying amount of the asset. The accumulated amortization at the date of
20
revaluation is adjusted to equal the difference between the gross carrying amount and the
carrying amount of the asset after taking into account any accumulated impairment losses.
b. The accumulated amortization is eliminated against the gross carrying amount of the asset.
The amendments also clarify that the amount of the adjustment of the accumulated
amortization should form part of the increase or decrease in the carrying amount
accounted for in accordance with the standard. The amendments are effective for
annual periods beginning on or after July 1, 2014. The amendments shall apply to all
revaluations recognized in annual periods beginning on or after the date of initial
application of this amendment and in the immediately preceding annual period. The
Group shall consider these amendments for future revaluations of intangible assets.
21
Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate
This interpretation covers accounting for revenue and associated expenses by entities
that undertake the construction of real estate directly or through subcontractors. The
SEC and the FRSC have deferred the effectivity of this interpretation until the final
Revenue standard is issued by the International Accounting Standards Board and an
evaluation of the requirements of the final Revenue standard against the practices of
the Philippine real estate industry is completed. Adoption of the interpretation when it
becomes effective is not expected to have an impact on the financial statements of the
Group.
22
Basis of Consolidation
The consolidated financial statements comprise the financial statements of the Company
and its subsidiaries as at December 31, 2013. Control is achieved when the Company is
exposed, or has rights, to variable returns from its involvement with the investee and has
the ability to affect those returns through its power over the investee. Specifically, the
Company controls an investee if and only if the Company has:
Power over the investee (i.e. existing rights that give it the current ability to direct the relevant
activities of the investee);
Exposure, or rights, to variable returns from its involvement with the investee; and
The ability to use its power over the investee to affect its returns
When the Company has less than a majority of the voting or similar rights of an investee,
the Company considers all relevant facts and circumstances in assessing whether it has
power over an investee, including:
The contractual arrangement with the other vote holders of the investee
Rights arising from other contractual arrangements
The Groups voting rights and potential voting rights
The Company re-assesses whether or not it controls an investee if facts and circumstances
indicate that there are changes to one or more of the three elements of control. Consolidation
of a subsidiary begins when the Company obtains control over the subsidiary and ceases when
the Company loses control of the subsidiary. Assets, liabilities, income and expenses of a
subsidiary acquired or disposed of during the year are included in the statement of
comprehensive income from the date the Company gains control until the date the Company
ceases to control the subsidiary.
When necessary, adjustments are made to the financial statements of subsidiaries to bring their
accounting policies into line with the Companys accounting policies. All intra-group assets and
liabilities, equity, income, expenses and cash flows relating to transactions between members of
the Company are eliminated in full on consolidation.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an
equity transaction. If the Company loses control over a subsidiary, it:
23
The consolidated financial statements include the accounts of the Company and the following
wholly-owned subsidiaries:
Country of
Incorporation
Convenience Distribution, Inc.
(CDI)
Store Sites Holding, Inc. (SSHI)
Principal
Activity
Warehousing
Philippines and Distribution
Philippines
Holding
Percentage of
Ownership
100
100
SSHIs capital stock, which is divided into 40% common shares and 60% preferred shares
are owned by the Company and by Philippine Seven Corporation-Employees Retirement
Plan (PSC-ERP) through its trustee, Bank of the Philippines Islands-Asset Management
and Trust Group (BPI-AMTG), respectively. These preferred shares which accrue and
pay guaranteed preferred dividends and are redeemable at the option of the holder are
recognized as a financial liability in accordance with PFRS (see Note 15). The Company
owns 100% of SSHIs common shares, which, together with common key management,
gives the Company control over SSHI.
The financial statements of the subsidiaries are prepared for the same balance sheet period
as the Company, using uniform accounting policies. Intercompany transactions, balances
and unrealized gains and losses are eliminated in full.
Cash and Cash Equivalents
Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid
investments that are readily convertible to known amounts of cash with original maturities
of three months or less from the date of acquisition and that are subject to an insignificant
risk of change in value.
Financial Instruments
The Group recognizes a financial asset or a financial liability in the consolidated balance
sheet when it becomes a party to the contractual provisions of the instrument.
Initial Recognition and Measurement
Financial assets and financial liabilities are recognized initially at fair value. Transaction
costs are included in the initial measurement of all financial assets and financial liabilities,
except for financial instruments measured at fair value through profit or loss (FVPL).
All regular way purchases and sales of financial assets are recognized on the trade date,
i.e. the date the Group commits to purchase or sell the financial asset. Regular way
purchases or sales of financial assets require delivery of assets within the time frame
generally established by regulation in the market place.
The Group classifies its financial assets as financial assets at FVPL, held-to-maturity
(HTM) financial assets, available-for-sale (AFS) financial assets or loans and receivables.
Financial liabilities, on the other hand, are classified as either financial liabilities at FVPL
or other financial liabilities. The classification depends on the purpose for which the
financial assets and financial liabilities were acquired. Management determines the
24
The principal or the most advantageous market must be accessible to by the Group.
25
The fair value of an asset or a liability is measured using the assumptions that market
participants would use when pricing the asset or liability, assuming that market
participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market
participants ability to generate economic benefits by using the asset in its highest and best
use or by selling it to another market participant that would use the asset in its highest and
best use.
Day- 1 Difference
Where the transaction price in a non-active market is different from the fair value from
other observable current market transactions in the same instrument or based on a
valuation technique whose variables include only data from observable market, the Group
recognizes the difference between the transaction price and fair value (a Day 1 difference)
in profit or loss unless it qualifies for recognition as some other type of asset. In cases
where use is made of data which is not observable, the difference between the transaction
price and model value is only recognized in profit or loss when the inputs become
observable or when the instrument is derecognized. For each transaction, the Group
determines the appropriate method of recognizing the Day 1 difference.
Offsetting Financial Instruments
Financial assets and financial liabilities are offset and the net amount is reported in the
consolidated balance sheet if, and only if, there is a currently enforceable legal right to
offset the recognized amounts and there is an intention to settle on a net basis, or to realize
the asset and settle the liability simultaneously.
Impairment of Financial Assets
The Group assesses at each balance sheet date whether a financial asset or a group of
financial assets is impaired.
Financial Assets Carried at Amortized Cost
If there is objective evidence that an impairment loss on loans and receivables has been incurred,
the amount of impairment loss is measured as the difference between the financial assets carrying
amount and the present value of estimated future cash flows (excluding future expected credit
losses that have not been incurred) discounted at the financial assets original effective interest rate
(i.e., the effective interest rate computed at initial recognition). The carrying amount of the asset
is reduced by the impairment loss, which is recognized in profit or loss.
The Group first assesses whether objective evidence of impairment exists for financial assets that
are individually significant and collectively for financial assets that are not individually
significant. Objective evidence includes observable data that comes to the attention of the Group
about loss events such as but not limited to significant financial difficulty of the counterparty, a
breach of contract, such as a default or delinquency in interest or principal payments, probability
that the borrower will enter bankruptcy or other financial reorganization. If it is determined that
no objective evidence of impairment exists for an individually or collectively assessed financial
asset, whether significant or not, the asset is included in the group of financial assets with similar
credit risk characteristics and that group of financial assets is collectively assessed for impairment.
Assets that are individually assessed for impairment and for which an impairment loss is or
continue to be recognized are not included in a collective assessment of impairment. The
26
impairment assessment is performed at each balance sheet date. For the purpose of a collective
evaluation of impairment, financial assets are grouped on the basis of such credit risk
characteristics such as customer type, payment history, past-due status and term.
Loans and receivables, together with the related allowance, are written off when there is
no realistic prospect of future recovery and all collateral has been realized. If, in a
subsequent period, the amount of the impairment loss decreases and the decrease can be
related objectively to an event occurring after the impairment was recognized, the
previously recognized impairment loss is reversed. Any subsequent reversal of an
impairment loss is recognized in profit or loss, to the extent that the carrying value of the
asset does not exceed its amortized cost at the reversal date.
Derecognition of Financial Assets and Liabilities
Financial Assets
A financial asset (or, where applicable, a part of a financial asset or a part of a group of
similar financial assets) is derecognized when:
the right to receive cash flows from the asset has expired;
the Group retains the right to receive cash flows from the asset, but has assumed an
obligation to pay them in full without material delay to a third party under a passthrough arrangement; or
the Group has transferred its right to receive cash flows from the asset and either (a)
has transferred substantially all the risks and rewards of the asset, or (b) has neither
transferred nor retained substantially all risks and rewards of the asset, but has
transferred control of the asset.
Where the Group has transferred its rights to receive cash flows from an asset and has
neither transferred nor retained substantially all the risks and rewards of the asset nor
transferred control of the asset, the asset is recognized to the extent of the Groups
continuing involvement in the asset. Continuing involvement that takes the form of a
guarantee over the transferred asset is measured at the lower of the original carrying
amount of the asset and the maximum amount of consideration that the Group could be
required to repay.
Financial Liabilities
A financial liability is derecognized when the obligation under the liability is discharged,
cancelled or has expired.
Where an existing financial liability is replaced by another from the same lender on
substantially different terms, or the terms of an existing liability are substantially
modified, such an exchange or modification is treated as a derecognition of the original
liability and the recognition of a new liability, and the difference in the respective carrying
amounts is recognized in profit or loss.
Inventories
Inventories are stated at the lower of cost and net realizable value (NRV). Cost of
inventories is determined using the first-in, first-out method. NRV is the selling price in
the ordinary course of business, less the estimated cost of marketing and distribution.
27
Years
10 to 12
5 to 10
3 to 5
3 to 5
3
Leasehold improvements are amortized over the estimated useful life of the
improvements, ranging from five to ten years, or the term of the lease, whichever is
shorter.
The assets estimated useful lives and depreciation and amortization method are reviewed periodically to
ensure that the period and method of depreciation and amortization are consistent with the expected pattern
28
of economic benefits from the items of property and equipment. When assets are retired or otherwise
disposed of, the cost or revalued amount and the related accumulated depreciation and amortization and any
impairment in value are removed from the accounts and any resulting gain or loss is recognized in profit or
loss. The revaluation increment in equity relating to the revalued asset sold is transferred to retained
earnings.
Land is carried at revalued amount less any impairment in value. Revaluations shall be
made with sufficient regularity to ensure that the carrying amount does not differ
materially from that which would be determined using fair value at the end of the balance
sheet period. When the fair value of a revalued land differs materially from its carrying
amount, a further revaluation is required.
A revaluation surplus is recorded in OCI and credited to the Revaluation increment on
land - net of deferred tax account in equity. However, to the extent that the Group
reverses a revaluation deficit of the same asset previously recognized in profit or loss, the
increase is recognized in profit or loss. A revaluation deficit is recognized in the profit or
loss, except to the extent that it offsets an existing surplus on the same asset recognized in
Revaluation increment on land - net of deferred income tax liability account in equity.
Deposits
Deposits are amounts paid as guarantee in relation to noncancelable lease agreements
entered into by the Group. These deposits are recognized at cost and can be refunded or
applied to future billings.
Intangible Assets
Intangible assets acquired separately are measured on initial recognition at cost. Following initial
recognition, intangible assets are carried at cost less accumulated amortization and any
accumulated impairment loss, if any. Internally-generated intangible assets, if any, excluding
capitalized development costs, are not capitalized and expenditure is reflected in profit or loss in
which the expenditure is incurred.
The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets
with finite lives are amortized over the useful economic life and assessed for impairment
whenever there is an indication that the intangible asset may be impaired. The amortization period
and amortization method for an intangible asset with a finite useful life is reviewed at least at each
balance sheet date. Changes in the expected useful life or the expected pattern of consumption of
future economic benefits embodied in the asset is accounted for by changing the amortization
period or method, as appropriate, and treated as changes in accounting estimates. The amortization
expense on intangible assets with finite lives is recognized in profit or loss in the expense category
consistent with the function of the intangible asset. Intangible assets with indefinite useful lives
are tested for impairment annually at the cash generating unit level and are not amortized. The
useful life of an intangible asset with an indefinite life is reviewed annually to determine whether
indefinite useful life assessment continues to be supportable. If not, the change in the useful life
assessment from indefinite to finite is made on a prospective basis. Gains or losses arising from
derecognition of an intangible asset are measured as the difference between the net disposal
proceeds, if any, and the carrying amount of the asset and are recognized in profit or loss when
the asset is derecognized.
29
Goodwill
Goodwill, included in Goodwill and other noncurrent assets in the consolidated balance
sheet, represents the excess of the cost of an acquisition over the fair value of the
businesses acquired. Following initial recognition, goodwill is measured at cost less any
accumulated impairment losses.
Impairment of Non-financial Assets
The Group assesses at each balance sheet date whether there is an indication that its nonfinancial assets such as property and equipment, deposits and intangible assets may be
impaired. If any such indication exists, or when annual impairment testing for an asset is
required, the Group makes an estimate of the assets recoverable amount. An assets
recoverable amount is the higher of an assets or cash generating units fair value less
costs to sell and its value-in-use and is determined for an individual asset, unless the asset
does not generate cash inflows that are largely independent of those from other assets or
groups of assets. For land, the assets recoverable amount is the lands net selling price,
which may be obtained from its sale in an arms length transaction. For goodwill, the
assets recoverable amount is its value-in-use. Where the carrying amount of an asset
exceeds its recoverable amount, the asset is considered impaired and is written down to its
recoverable amount. In assessing value-in-use, the estimated future cash flows are
discounted to their present value, using a pre-tax discount rate that reflects current market
assessments of the time value of money and risks specific to the asset. Impairment losses,
if any, are recognized in profit or loss, except for revalued property and equipment when
revaluation was taken to OCI. In this case, the impairment is also recognized in OCI up to
the amount of any previous revaluation.
For non-financial assets, excluding goodwill, an assessment is made at each balance sheet
date as to whether there is any indication that previously recognized impairment losses
may no longer exist or may have decreased. If such indication exists, the recoverable
amount is estimated. A previously recognized impairment loss is reversed only if there
has been a change in the estimates used to determine the assets recoverable amount since
the last impairment loss was recognized. If that is the case, the carrying amount of the
asset is increased to its recoverable amount. That increased amount cannot exceed the
carrying amount that would have been determined, net of depreciation and amortization,
had no impairment loss been recognized for the asset in previous years. Such reversal is
recognized in profit or loss, unless the asset is carried at revalued amount, in which case,
the reversal is treated as a revaluation increase. After such reversal, the depreciation
charge is adjusted in the future periods to allocate the assets revised carrying amount, less
any residual value, on a systematic basis over its remaining useful life.
Goodwill is reviewed for impairment, annually or more frequently if event or changes in
circumstances indicate that the carrying value may be impaired. Impairment is
30
determined for goodwill by assessing the recoverable amount of the cash-generating unit
or group of cash-generating units to which the goodwill relates. Where the recoverable
amount of the cash-generating unit or group of cash-generating units is less than the
carrying amount of the cash-generating unit or group of cash-generating units to which
goodwill has been allocated, an impairment loss is recognized. Impairment losses relating
to goodwill cannot be reversed in future periods.
Deposits Payable
Deposits payable are amounts received from franchisees, store operators and sub lessees
as guarantee in relation to various agreements entered into by the Group. These deposits
are recognized at cost and payable or applied to future billings.
Cumulative Redeemable Preferred Shares
Cumulative redeemable preferred shares that exhibit characteristics of a liability is
recognized as a financial liability in the consolidated balance sheet, net of transaction cost.
The corresponding dividends on those shares are charged as interest expense in profit or
loss.
Deferred Revenue
Deferred revenue is recognized for cash received for income not yet earned. Deferred
revenue is recognized as revenue over the life of the revenue contract or upon delivery of
goods or services.
Equity
Common Stock
Common stock is measured at par value for all shares issued and outstanding.
Additional Paid-in Capital
When the shares are sold at premium, the difference between the proceeds and the par
value is credited to the Additional paid-in capital account. When shares are issued for a
consideration other than cash, the proceeds are measured by the fair value of the
consideration received. In case the shares are issued to extinguish or settle the liability of
the Group, the shares shall be measured either at the fair value of the shares issued or fair
value of the liability settled, whichever is more reliably determinable.
Retained Earnings
Retained earnings represent the cumulative balance of periodic net income or loss and
changes in accounting policy. When the retained earnings account has a debit balance, it is
called deficit. A deficit is not an asset but a deduction from equity.
Treasury Stock
Treasury stock is stated at acquisition cost and is deducted from equity. No gain or loss is
recognized in profit or loss on the purchase, sale, issuance or cancellation of the Groups
own equity instruments.
OCI
OCI comprises of items of income and expenses that are not recognized in profit or loss as
required or permitted by other PFRS. The Groups OCI pertains to actuarial gains and
31
losses from pension benefits and revaluation increment on land which are recognized in
full in the period in which they occur.
Revenue Recognition
Revenue is recognized to the extent that it is probable that the economic benefits will flow
to the Group and the amount of revenue can be measured reliably. The Group has
assessed
its
revenue
arrangements against the criteria enumerated under PAS 18, Revenue Recognition, and
concluded that it is acting as principal in all arrangements, except for its sale of consigned
goods. The following specific recognition criteria must also be met before revenue is
recognized:
Merchandise Sales
Revenue from merchandise sales is recognized when the significant risks and rewards of
ownership of the goods have passed to the buyer. Revenue is measured at the fair value of
the consideration received, excluding discounts, returns, rebates and sales taxes.
The Group operates a customer loyalty programme, Every Day! Rewards, which allows
customers to accumulate points when they purchase products in the stores. The points can
be redeemed for free products, subject to a minimum number of points being obtained.
Consideration received is allocated between the products sold and the points issued, with
the consideration allocated to the points equal to their fair value. Fair value of the points is
equal to the retail value of the products that can be redeemed. The fair value of the points
issued is deferred (included as part of other current liabilities in the consolidated
balance sheet) and recognized as revenue when the points are redeemed.
Franchise
Franchise fee is recognized upon execution of the franchise agreement and performance of
initial services required under the franchise agreement. Franchise revenue is recognized
in the period earned.
Marketing
Marketing income is recognized when service is rendered. In case of marketing support
funds, revenue is recognized upon start of promotional activity for the suppliers.
Rental
Rental income is accounted for on a straight-line basis over the term of the lease.
Commission
Commission income is recognized upon the sale of consigned goods.
Interest
Interest income is recognized as it accrues based on the effective interest rate method.
Other Income
Other income is recognized when there are incidental economic benefits, other than the
usual business operations, that will flow to the Company and can be measured reliably.
32
Service cost
Net interest on the net defined benefit liability or asset
Remeasurements of net defined benefit liability or asset
Service costs which include current service costs, past service costs and gains or losses on
non-routine settlements are recognized as expense in profit or loss. Past service costs are
recognized when plan amendment or curtailment occurs. These amounts are calculated
periodically by independent qualified actuaries.
Net interest on the net defined benefit liability or asset is the change during the period in
the net defined benefit liability or asset that arises from the passage of time which is
determined by applying the discount rate based on government bonds to the net defined
benefit liability or asset. Net interest on the net defined benefit liability or asset is
recognized as expense or income in profit or loss.
Remeasurements comprising actuarial gains and losses, return on plan assets and any
change in the effect of the asset ceiling (excluding net interest on defined benefit liability)
are recognized immediately in other comprehensive income in the period in which they
arise. Remeasurements are not reclassified to profit or loss in subsequent periods.
Plan assets are assets that are held by a long-term employee benefit fund or qualifying
insurance policies. Plan assets are not available to the creditors of the Group, nor can they
be paid directly to the Group. Fair value of plan assets is based on market price
information. When no market price is available, the fair value of plan assets is estimated
by discounting expected future cash flows using a discount rate that reflects both the risk
associated with the plan assets and the maturity or expected disposal date of those assets
(or, if they have no maturity, the expected period until the settlement of the related
obligations). If the fair value of the plan assets is higher than the present value of the
defined benefit obligation, the measurement of the resulting defined benefit asset is
limited to the present value of economic benefits available in the form of refunds from the
plan or reductions in future contributions to the plan.
33
The Groups right to be reimbursed of some or all of the expenditure required to settle a
defined benefit obligation is recognized as a separate asset at fair value when and only
when reimbursement is virtually certain.
Termination Benefit
Termination benefits are employee benefits provided in exchange for the termination of an
employees employment as a result of either an entitys decision to terminate an
employees employment before the normal retirement date or an employees decision to
accept an offer of benefits in exchange for the termination of employment.
A liability and expense for a termination benefit is recognized at the earlier of when the
entity can no longer withdraw the offer of those benefits and when the entity recognizes
related restructuring costs. Initial recognition and subsequent changes to termination
benefits are measured in accordance with the nature of the employee benefit, as either
post-employment benefits, short-term employee benefits, or other long-term employee
benefits.
Employee Leave Entitlement
Employee entitlements to annual leave are recognized as a liability when they are accrued
to the employees. The undiscounted liability for leave expected to be settled wholly before
twelve months after the end of the annual reporting period is recognized for services
rendered by employees up to the end of the reporting period.
Leases
Finance leases, which transfer to the lessee substantially all the risks and rewards of
ownership of the asset, are capitalized at the inception of the lease at the fair value of the
leased property or, if lower, at the present value of the minimum lease payments. Lease
payments are apportioned between the interest income and reduction of the lease
receivable so as to achieve a constant rate of interest on the remaining balance of the
receivable. Interest income is recognized directly in profit or loss.
Leases where the lessor retains substantially all the risks and rewards of ownership of the
asset are classified as operating leases. Operating leases are recognized as an expense in
profit or loss on a straight-line basis over the lease term.
The determination of whether an arrangement is, or contains a lease is based on the
substance of the arrangement and requires an assessment of whether the fulfillment of the
arrangement is dependent on the use of a specific asset or assets and the arrangement
conveys a right to use the asset. A reassessment is made after inception of the lease only
if one of the following applies:
a. there is a change in contractual terms, other than a renewal or extension of the
arrangement; or
b. a renewal option is exercised or extension is granted, unless the term of the renewal or
extension was initially included in the lease term; or
c. there is a change in the determination of whether fulfillment is dependent on a specified asset;
or
34
Where a re-assessment is made, lease accounting shall commence or cease from the date when the
change in circumstance gave rise to the re-assessment for scenarios (a), (c) or (d) above, and the
date of renewal or extension for scenario (b).
Borrowing Costs
Borrowing costs directly attributable to the acquisition, construction or production of an
asset that necessarily takes a substantial period of time to get ready for its intended use or
sale are capitalized as part of the cost of the respective assets. All other borrowing costs
are expensed in the period they occur. Borrowing costs consist of interest and other costs
that an entity incurs in connection with the borrowing of funds.
Foreign Currency-denominated Transactions
Transactions in foreign currency are initially recorded at the exchange rate at the date of
transaction. Outstanding foreign currency-denominated monetary assets and liabilities are
translated using the applicable exchange rate at balance sheet date. Exchange differences
arising from translation of foreign currency monetary items at rates different from those at
which they were originally recorded are recognized in profit or loss.
Taxes
Current Income Tax
Current income tax assets and liabilities for the current and prior periods are measured at
the amount expected to be recovered from or paid to the taxation authorities. The tax rates
and tax laws used to compute the amount are those that have been enacted or substantively
enacted at the balance sheet date.
Deferred Income Tax
Deferred income tax is recognized for all temporary differences at the balance sheet date
between the tax bases of assets and liabilities and their carrying amounts for financial
reporting purposes.
Deferred income tax liabilities are recognized for all taxable temporary differences.
Deferred income tax assets are recognized for all deductible temporary differences to the
extent that it is probable that sufficient future taxable profits will be available against
which the deductible temporary differences can be utilized.
Deferred income tax relating to items recognized directly in equity is recognized in profit
or loss.
The carrying amount of deferred income tax assets is reviewed at each balance sheet date
and reduced to the extent that it is no longer probable that sufficient future taxable profits
will be available to allow all or part of the deferred income tax assets to be utilized.
Unrecognized deferred income tax assets are reassessed at each balance sheet date and are
recognized to the extent that it has become probable that sufficient future taxable profits
will allow the deferred income tax assets to be recovered.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to
apply to the period when the asset is realized or the liability is settled, based on tax rates
(and tax laws) that have been enacted or substantively enacted at the balance sheet date.
35
Deferred income tax assets and liabilities are offset, if a legally enforceable right exists to
set off current tax assets against current tax liabilities and the deferred income taxes relate
to the same taxable entity and the same taxation authority.
VAT
Input VAT is the 12% indirect tax paid by the Group in the course of the Groups trade or
business on local purchase of goods or services, including lease or use of property, from a
VAT-registered entity. For acquisition of capital goods over P
=1,000,000, the related input
taxes are deferred and amortized over the useful life of the asset or 60 months, whichever
is shorter, commencing on the date of acquisition. Deferred input VAT which is expected
to be utilized for more than 12 months after the balance sheet date is included under
Goodwill and other noncurrent assets account in the consolidated balance sheet.
Output VAT pertains to the 12% tax due on the sale of merchandise and lease or exchange
of taxable goods or properties or services by the Group.
If at the end of any taxable month the output VAT exceeds the input VAT, the excess
shall be paid by the Group. Any outstanding balance is included under Accounts payable
and accrued expenses account in the consolidated balance sheet. If the input VAT
exceeds the output VAT, the excess shall be carried over to the succeeding month or
months. Excess input VAT is included under Prepayments and other current assets
account in the consolidated balance sheet. Input VAT on capital goods may, at the option
of the Group, be refunded or credited against other internal revenue taxes, subject to
certain tax laws.
Revenue, expenses and assets are recognized net of the amount of VAT.
Earnings (Loss) Per Share
Basic earnings (loss) per share is calculated by dividing the net income or (loss) for the
year attributable to common shareholders by the weighted average number of shares
outstanding during the year, excluding treasury shares.
Diluted earnings (loss) per share is calculated by dividing the net income or (loss) for the
year attributable to common shareholders by the weighted average number of shares
outstanding during the year, excluding treasury shares and adjusted for the effects of all
potential dilutive common shares, if any.
In determining both the basic and diluted earnings (loss) per share, the effect of stock
dividends, if any, is accounted for retrospectively.
Segment Reporting
Operating segments are components of an entity for which separate financial information
is available and evaluated regularly by management in deciding how to allocate resources
and assessing performance. The Group considers the store operation as its primary
activity and its only business segment. Franchising, renting of properties and
commissioning on bills payment services are considered an integral part of the store
operations.
36
Provisions
Provisions are recognized when: (a) the Group has a present obligation (legal or
constructive) as a result of a past event; (b) it is probable that an outflow of resources
embodying economic benefits will be required to settle the obligation; and (c) a reliable
estimate can be made of the amount of the obligation. If the effect of the time value of
money is material, provisions are determined by discounting the expected future cash
flows at a pre-tax rate that reflects current market assessments of the time value of money
and, where appropriate, the risks specific to the liability. Where discounting is used, the
increase in the provision due to the passage of time is recognized as interest expense.
When the Group expects a provision or loss to be reimbursed, the reimbursement is
recognized as a separate asset only when the reimbursement is virtually certain and its
amount is estimable. The expense relating to any provision is presented in profit or loss,
net of any reimbursement.
Contingencies
Contingent liabilities are not recognized in the consolidated financial statements. They
are disclosed unless the possibility of an outflow of resources embodying economic
benefits is remote. Contingent assets are not recognized in the consolidated financial
statements but disclosed when an inflow of economic benefit is probable. Contingent
assets are assessed continually to ensure that developments are appropriately reflected in
the consolidated financial statements. If it has become virtually certain that an inflow of
economic benefits will arise, the asset and the related income are recognized in the
consolidated financial statements.
Events after the Balance Sheet Date
Post year-end events that provide additional information about the Groups position at the
balance sheet date (adjusting events) are reflected in the consolidated financial statements.
Post year-end events that are non-adjusting events are disclosed in the notes to the
consolidated financial statements when material.
3.
The preparation of the consolidated financial statements in accordance with PFRS requires
management to make judgments, estimates and assumptions that affect the amounts
reported in the consolidated financial statements and notes. The judgments, estimates and
assumptions used in the consolidated financial statements are based upon managements
evaluation of relevant facts and circumstances as of balance sheet date. Future events may
occur which can cause the assumptions used in arriving at those judgments, estimates and
assumptions to change. The effects of any changes will be reflected in the consolidated
financial statements of the Group as they become reasonably determinable.
Judgments
In the process of applying the Groups accounting policies, management has made the following
judgments, apart from those involving estimations, which have the most significant effect on
amounts recognized in the consolidated financial statements:
37
currency of the primary economic environment in which the Group operates. It is the
currency that mainly influences the revenue, costs and expenses of the Group.
Classification of Financial Instruments
The Group classifies a financial instrument, or its components, on initial recognition as a
financial asset, liability or equity instrument in accordance with the substance of the
contractual arrangement and the definitions of a financial asset, liability or equity
instrument. The substance of a financial instrument, rather than its legal form, governs its
classification in the consolidated balance sheet.
Financial assets are classified as financial assets at FVPL, HTM financial assets, AFS
financial assets and loans and receivables. Financial liabilities, on the other hand, are
classified as financial liabilities at FVPL and other financial liabilities.
The Group determines the classification at initial recognition and, where allowed and
appropriate, re-evaluates this classification at every balance sheet date.
The Groups financial instruments consist of loans and receivables and other financial liabilities
(see Note 29).
Classification of Leases
a. Finance lease as lessor
The Group entered into a sale and leaseback transaction with an armored car service
provider where it has determined that the risks and rewards related to the armored
vehicles leased out will be transferred to the lessee at the end of the lease term. As
such, the lease agreement was accounted for as a finance lease (see Note 26).
b. Operating lease as lessee
The Group entered into various property leases, where it has determined that the risks
and rewards related to the properties are retained with the lessors. As such, the lease
agreements were accounted for as operating leases (see Note 26).
c. Operating lease as lessor
The Company entered into property subleases on its leased properties. The Company
determined that it retains all the significant risks and rewards of these properties which
are leased out on operating leases (see Note 26).
Impairment of Non-financial Assets Other than Goodwill
The Group assesses whether there are any indicators of impairment for all non-financial
assets, other than goodwill, at each balance sheet date. These non-financial assets
(property and equipment, rent deposits, and software and program cost) are tested for
impairment when there are indicators that the carrying amounts may not be recoverable.
The factors that the Group considers important which could trigger an impairment review
include the following:
38
As at December 31, 2013 and 2012, the Group has not identified any indicators or
circumstances that would indicate that the Groups property and equipment, rent deposits
and software and program cost are impaired. Thus, no impairment losses on these nonfinancial assets were recognized in the years ended December 31, 2013, 2012 and 2011.
The carrying value of these non-financial assets is as follows:
Property and equipment (Note 8)
Rent deposits (Note 9)
Software and program cost (Note 10)
2012
2013
=2,276,921,044
P
=2,746,672,621 P
232,020,464
2,886,285
183,893,042
1,183,651
Estimates
The key assumptions concerning the future and other key sources of estimation
uncertainty at the balance sheet date that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities follow:
Determination of Fair Values
The fair value for financial instruments traded in active markets at the balance sheet date
is based on their quoted market price or dealer price quotations (bid price for long
positions and ask price for short positions), without any deduction for transaction costs.
When current bid and asking prices are not available, the price of the most recent
transaction provides evidence of the current fair value as long as there has not been a
significant change in economic circumstances since the time of the transaction.
For all other financial instruments not listed in an active market, the fair value is
determined by using appropriate valuation techniques. Valuation techniques include net
present value techniques, comparison to similar instruments for which observable market
prices exist, options pricing models, and other relevant valuation models.
Note 29 presents the fair values of the financial instruments and the methods and
assumptions used in estimating their fair values.
Impairment of Loans and Receivables
The Group reviews its loans and receivables at each balance sheet date to assess whether a
provision for impairment should be recognized in profit or loss or loans and receivables
balance should be written off. In particular, judgment by management is required in the
estimation of the amount and timing of future cash flows when determining the level of
allowance required. Such estimates are based on assumptions about a number of factors
and actual results may differ, resulting in future changes to the allowance. Moreover,
management evaluates the presence of objective evidence of impairment which includes
observable data that comes to the attention of the Group about loss events such as but not
limited to significant financial difficulty of the counterparty, a breach of contract, such as
a default or delinquency in interest or principal payments, probability that the borrower
will enter bankruptcy or other financial re-organization.
In addition to specific allowances against individually significant loans and receivables,
the Group also makes a collective impairment allowance against exposures which,
39
although not specifically identified as requiring a specific allowance, have a greater risk of
default than when originally granted. This takes into consideration the credit risk
characteristics such as customer type, payment history, past due status and term.
The Group estimates the useful lives of its property and equipment and software and
program cost based on a period over which the assets are expected to be available for use
and on collective assessment of industry practices, internal evaluation and experience with
similar arrangement. The estimated useful lives of property and equipment and software
and program cost are revisited at the end of each balance sheet period and updated if
expectations differ materially from previous estimates.
Property and equipment, net of accumulated depreciation and amortization, amounted to
P
=2,746,672,621 and P
=2,276,921,044 as at December 31, 2013 and 2012, respectively (see
Note 8). The carrying amount of software and program cost amounted to P
=2,886,285 and
P
=1,183,651 as at December 31, 2013 and 2012, respectively (see Note 10).
Revaluation of Land
The Groups parcels of land are carried at revalued amounts, which approximate its fair
values at the date of the revaluation, less any subsequent accumulated impairment losses.
The valuations of land are performed by independent appraisers. Revaluations are made
every three to five years or more frequently as necessary, to ensure that the carrying
amounts do not differ materially from those which would be determined using fair values
at balance sheet date.
The last appraisal made on the Groups parcels of land was on February 5, 2007, where it
resulted to an appraisal increase of P
=3,229,895, net of P
=1,384,241 deferred income tax
liability. The Group believes that carrying value of the revalued parcels of land as at
December 31, 2013 and 2012 amounting to P
=44,481,000 does not materially differ from
its fair value as of these balance sheet dates (see Note 8).
40
Impairment of Goodwill
The Group determines whether goodwill is impaired at least on an annual basis. This
requires an estimation of the value-in-use of the cash-generating units to which the
goodwill is allocated. Estimating the value-in-use amount requires management to make
an estimate of the expected future cash flows from the cash-generating unit and also to
choose a suitable discount rate in order to calculate the present value of those cash flows.
Based on the assessment made by the Group, there is no impairment of goodwill as the
recoverable amount of the cash-generating units exceeds the carrying amount of the unit,
including goodwill as at December 31, 2013 and 2012. The carrying value of goodwill
amounted to
P
=65,567,524 as at December 31, 2013 and 2012 (see Note 10). No impairment losses
were recognized in 2013, 2012 and 2011.
Estimation of Retirement Benefits
The net retirement benefits cost and the present value of retirement obligations are
determined using actuarial valuations. The actuarial valuation involves making various
assumptions. These include the determination of the discount rates, future salary
increases, mortality rates and future pension increases. Due to the complexity of the
valuation, the underlying assumptions and its long-term nature, defined benefit obligations
are highly sensitive to changes in these assumptions. All assumptions are reviewed at each
reporting date.
In determining the appropriate discount rate, management considers the interest rates of
government bonds that are denominated in the currency in which the benefits will be paid, with
extrapolated maturities corresponding to the expected duration of the defined benefit obligation.
The mortality rate is based on publicly available mortality tables for the specific country. Future
salary increases and pension increases are based on expected future inflation rates for the specific
country.
The Group has pending legal cases. The Groups estimate of the probable costs for the
resolution of these legal cases has been developed in consultation with in-house and
outside legal counsels and is based upon the analysis of the potential outcomes. It is
possible, however, that future results of operations could be affected by changes in the
estimates or in the effectiveness of strategies relating to these proceedings.
As at December 31, 2013 and 2012, the Group has provisions amounting to P
=13,704,073
and
P
=7,066,290, respectively and is reported as part of Others under Accounts payable and
accrued expenses in the consolidated balance sheets (see Note 12). Provisions and
contingencies are further explained in Note 34.
41
4.
Cash equivalents
2013
2012
P
=922,422,571
=367,285,569
P
50,580,062
P
=973,002,633
48,000,000
=415,285,569
P
Cash in banks earn interest at the respective bank deposit rates. Cash equivalents are
made for varying periods up to three months depending on the immediate cash
requirements of the Group and earn interest at the respective cash equivalent rates.
As at December 31, 2013 and 2012, short-term investment amounting to P
=10,810,229 and
P
=10,632,115, respectively, pertains to time deposit which has a maturity date of more than
90 days.
Interest income from savings and deposits accounts and short-term investment amounted
to
P
=4,350,085, P
=2,857,696 and P
=2,911,480 in 2013, 2012 and 2011, respectively (see Note
22).
5.
Receivables
2013
P
=379,544,124
2012
=184,444,213
P
48,657,689
139,512,975
14,936,783
12,993,209
12,547,006
19,452,194
4,760,464
5,638,673
3,118,978
1,637,912
3,086,114
1,033,914
585,057
1,394,060
1,403,344
614,135
42
2013
1,358,499
469,628,628
18,960,182
P
=450,668,446
Others
Less allowance for impairment
2012
15,734,389
382,825,104
8,227,261
=374,597,843
P
Receivables are noninterest-bearing and are generally on 30 to 90 day terms except for
lease receivable with a 7% interest rate per annum (see Note 26).
Impairment on receivables is based on individual assessment of accounts. Movements in
allowance for impairment are as follows:
Franchisees
Suppliers
Employees
Store operators
Rent
Total
Beginning
balances
P
=214,342
5,804,455
391,918
365,801
1,450,745
P
=8,227,261
2013
Provision
for the year
(Note 19)
P
=
11,700,044
148,003
823,439
P
=12,671,486
Write-off
P
=
(1,938,565)
(P
=1,938,565)
Ending
Balances
P
=214,342
15,565,934
539,921
365,801
2,274,184
P
=18,960,182
43
Franchisees
Suppliers
Employees
Store operators
Rent
Total
6.
Beginning
balances
=214,342
P
5,304,455
391,918
365,801
1,161,967
=7,438,483
P
Write-off
=
P
=
P
Ending
Balances
=214,342
P
5,804,455
391,918
365,801
1,450,745
=8,227,261
P
Inventories
At cost (Note 18):
Warehouse merchandise
Store merchandise
7.
2012
Provision
for the year
(Note 19)
=
P
500,000
288,778
=788,778
P
2013
2012
P
=618,738,640
=415,590,676
P
282,111,251
311,395,887
P
=900,849,891
=726,986,563
P
2013
2012
P
=78,364,535
=64,041,931
P
1,421,460
421,194
63,373,604
42,241,979
2013
P
=34,455,780
6,066,259
4,765,253
1,218,655
55,761,777
13,788,613
3,528,830
571,651
7,432,281
2012
=11,625,230
P
1,704,252
3,558,689
2,214,838
109,149,544
6,600,314
3,256,203
2,983,004
11,210,709
P
=270,748,698
=259,007,887
P
Store expenses
Uniform
Taxes
Repairs and maintenance
Advances to suppliers
Advances for expenses
Supplies
Dues and subscription
Others
Deferred input VAT pertains to the input VAT on the acquisition of capital goods over P
=
1,000,000 which are being amortized over the useful life or 60 months, whichever is
shorter, commencing on the date of acquisition.
44
8.
P
= 44,481,000 P
= 118,154,849 P
=1,740,413,144 P
=579,371,098
525,981,492 207,879,041
(66,288,608) (24,194,070)
44,481,000
118,154,849 2,200,106,028 763,056,069
P
= 44,481,000
70,181,591
=44,481,000
P
44,481,000
=44,481,000
P
690,911,415
256,680,089
3,943,271
367,196,300 112,543,884
(66,288,608) (24,194,070)
74,124,862
991,819,107 345,029,903
P
= 44,029,987 P
= 1,208,286,921 P
=418,026,166
Store
Furniture and
Equipment
64,958,094
425,110,107
194,721,454
5,223,497
281,563,647
65,818,055
(15,762,339)
(3,859,420)
70,181,591
690,911,415
256,680,089
=47,973,258 P
P
=1,049,501,729 =
P322,691,009
Total
P
= 43,646,176 P
=211,556,342 P
= 1,201,609,872 P
= 67,369,297 P
=4,006,601,778
10,587,6 73
33,864,213
205,468,926 195,489,191 1,179,270,536
(9,103,746)
(435,198) (152,838,708)
(252,860,330)
167,659,566 (167,659,566)
20,199,135
134,639,263
8,272,483
(9,103,746)
19,367,872
P
= 25,762,231
31,165,352
(435,198)
165,369,417
P
=79,615,940
2012
Office
Furniture and Transportation
Equipment
Equipment
=110,179,849 =
P
P1,307,026,502 =
P454,106,297
7,975,000
449,148,981
129,124,221
(15,762,339)
(3,859,420)
118,154,849 1,740,413,144
579,371,098
Computer
Leasehold Construction
Equipment Improvements In-Progress
557,069,241
1,729,680,734
186,397,669
709,518,959
(152,838,708)
(252,860,330)
590,628,202
2,186,339,363
P
=831,271,454 P
= 95,198,922 P
=2,746,672,621
Computer
Leasehold
Equipment Improvements
Construction
In-Progress
Total
=38,988,602 =
P
P176,359,215 P
=978,634,236
=72,806,750 P
P
=3,182,582,451
8,818,393
36,162,964
127,255,239
100,190,195
858,674,993
(4,160,819)
(965,837)
(9,907,251)
(34,655,666)
105,627,648 (105,627,648)
43,646,176
211,556,342 1,201,609,872
67,369,297 4,006,601,778
15,683,194
8,676,760
(4,160,819)
20,199,135
=23,447,041
P
105,282,852
430,793,774
30,322,248
136,182,718
(965,837)
(9,907,251)
134,639,263
557,069,241
=76,917,079 =
P
P644,540,631
1,236,549,475
527,786,925
(34,655,666)
1,729,680,734
=67,369,297 P
P
=2,276,921,044
Construction in-progress pertains to costs of constructing new stores and renovation of old
stores. Completion of construction and renovation is expected within three months to one
year from construction date. The costs of constructed stores are accumulated until such
time the relevant assets are completed and put into operational use.
On February 5, 2007, the Group revalued its land with cost amounting to P
=39,866,864 at
appraised value of P
=44,481,000, as determined by a professionally qualified independent
appraiser. The appraisal increase of P
=3,229,895, net of P
=1,384,241 deferred income tax
liability (see Note 22), resulting from the revaluation was credited to Revaluation
increment on land account under equity section of the consolidated balance sheets. The
appraised value was determined using the market data approach, wherein the value of the
land is based on sales and listings of comparable properties registered within the vicinity.
The cost of fully depreciated property and equipment that are still being used in operations
amounted to P
=428,587,084 and P
=232,325,091 as at December 31, 2013 and 2012,
respectively. No property and equipment are pledged nor treated as security for the
outstanding liabilities as at December 31, 2013 and 2012.
9.
Deposits
Rent
Utilities (Notes 29 and 30)
Refundable (Notes 29 and 30)
Others (Notes 29 and 30)
2013
P
=232,020,464
42,509,396
34,871,384
4,487,223
P
=313,888,467
2012
=183,893,042
P
33,663,791
25,843,670
6,017,558
=249,418,061
P
45
Refundable
Refundable deposits on rent are computed at amortized cost as follows:
Face value of security deposits
Additions
Refunded
Unamortized discount
2013
P
=46,053,889
7,446,475
(18,628,980)
P
=34,871,384
2012
=48,602,936
P
2,248,407
(4,797,455)
(20,210,218)
=25,843,670
P
10.
P
=20,210,218
948,411
(2,529,649)
P
=18,628,980
2012
=21,813,932
P
496,227
(2,099,941)
=20,210,218
P
2013
2012
P
=143,808,850
12,819,183
=115,865,751
P
15,281,651
559,441
2,054,276
955,355
65,567,524
2,886,285
4,876,522
1,411,415
P
=231,929,220
65,567,524
1,183,651
5,223,977
2,357,417
=208,489,602
P
Deferred Lease
Deferred lease pertains to Day 1 loss recognized on refundable deposits on rent, which is
amortized on a straight-line basis over the term of the related leases.
Movements in deferred lease are as follows:
Beginning balance
Additions
Less amortization (Note 26)
Ending balance
Less current portion (Note 7)
Noncurrent portion
2013
2012
P
=15,702,845
948,411
2,410,613
14,240,643
1,421,460
P
=12,819,183
=17,692,345
P
496,228
2,485,728
15,702,845
421,194
=15,281,651
P
46
Goodwill
On March 22, 2004, the Group purchased the leasehold rights and store assets of Jollimart
Philippines Corporation (Jollimart) for a total consideration of P
=130,000,000. The excess
of the acquisition cost over the fair value of the assets acquired was recorded as goodwill
amounting to P
=70,178,892. In 2008, the Group recognized an impairment loss in
goodwill amounting to P
=4,611,368.
The recoverable amount of the goodwill was estimated based on the value-in-use
calculation using cash flow projections from financial budgets approved by senior
management covering a five year period. The pre-tax discount rate applied to cash flow
projections is 8.27% in 2013 and 10.67% in 2012. The cash flows beyond the five-year
period are extrapolated using a 3% growth rate in 2013 and 2012 which is the same as the
long-term average growth rate for the retail industry.
No store acquired from Jollimart was closed in 2013 and 2012. In 2011, the Group has
closed one store out of the 25 remaining stores it purchased from Jollimart. No
impairment loss was recognized in 2013, 2012 and 2011.
Goodwill is allocated to the group of cash generating unit (CGU) which comprises the
working capital and property and equipment of all the purchased stores assets.
Key assumptions used in value-in-use calculations in 2013 and 2012 follow:
a. Sales and Cost Ratio
Sales and cost ratio are based on average values achieved in the three years preceding
the start of the budget period. These are increased over the budget period for
anticipated efficiency improvements. Sales are projected to increase by two to three
percent per annum while the cost ratio is set at 67.00% - 72.00% of sales per annum.
b. Discount Rates
Discount rates reflect managements estimates of the risks specific to the CGU.
Management computed for its weighted average cost of capital (WACC). In
computing for its WACC, the following items were considered:
Average high and low range of average bank lending rates as of year-end
Yield on a 10-year Philippine zero coupon bond as of valuation date
Market risk premium
Company relevered beta
Alpha risk
Rates are based on average historical growth rate which is consistent with the expected
average growth rate for the industry. Annual inflation and rate of possible reduction in
transaction count were also considered in determining growth rates used.
Management recognized that unfavorable conditions could materially affect the
assumptions used in the determination of value in use. An increase of 6.84% and 6.10%
in the discount rates, or a reduction of growth rates by 12.90% and 3.00%, would give a
47
value in use equal to the carrying amount of the cash generating units in 2013 and 2012,
respectively.
Software and Program Cost
Movements in software and program cost are as follows:
Cost:
Beginning balance
Additions
Ending balance
Accumulated amortization:
Beginning balance
Amortization (Note 19)
Ending balance
Net book value
2013
2012
P
=14,851,985
3,019,195
17,871,180
=14,661,985
P
190,000
14,851,985
13,668,334
1,316,561
14,984,895
P
=2,886,285
12,177,859
1,490,475
13,668,334
=1,183,651
P
Garnished Accounts
Garnished accounts pertain to the amount set aside by the Group, as required by the
courts, in order to answer for litigation claims should the results be unfavorable to the
Group (see Note 34).
11.
Bank Loans
Beginning balance
Availments
Payments
Ending balance
2013
P
=477,777,778
550,000,000
(467,777,778)
P
=560,000,000
2012
=374,666,667
P
210,000,000
(106,888,889)
=477,777,778
P
48
12.
Trade payable
Utilities
Rent (Note 26)
Employee benefits
Advertising and promotion
Outsourced services
Bank charges
Security services
Interest (Notes 11 and 15)
Others
2013
P
=1,575,446,279
71,354,276
58,097,685
39,622,810
37,844,609
24,844,921
13,487,060
3,375,831
1,947,803
46,682,215
2012
=1,077,213,586
P
55,148,912
51,355,557
22,772,206
8,754,528
14,531,473
3,361,310
3,860,300
1,522,329
22,769,788
P
=1,872,703,489
=1,261,289,989
P
The trade suppliers generally provide 15 or 30 day credit terms to the Group. Prompt
payment discounts ranging from 0.5% to 5.0% are given by a number of trade suppliers.
All other payables are due within 3 months.
Others include provisions and accruals of various expenses incurred in the stores
operations.
13.
2013
P
=362,508,354
61,134,099
48,466,743
33,462,627
27,210,000
16,305,559
10,381,467
2012
=423,183,843
P
25,064,839
24,673,598
26,913,389
2,481,125
12,579,753
20,586,182
589,567
446,429
10,561,844
589,567
818,452
4,990,644
=541,881,392
P
=571,066,689 P
Non-trade accounts payable pertains to payable to suppliers of goods or services that
forms part of general and administrative expenses. These are noninterest-bearing and are
due within one year.
Retention payable pertains to the 10% of progress billings related to the construction of
stores to be paid upon satisfactory completion of the construction.
49
Service fees payable pertains to management fee to store operators of service agreement
stores computed based on a graduated percentage multiplied to stores gross profit and is
payable the following month.
14.
Deposits Payable
15.
2013
2012
P
=99,370,298
89,707,363
13,811,274
P
=202,888,935
=89,860,690
P
79,041,337
12,999,211
=181,901,238
P
Cumulative redeemable preferred shares, which are redeemable at the option of the
holder, represent the share of PSC-ERP through its trustee, BPI-AMTG, in SSHIs net
assets pertaining to preferred shares. PSC-ERP is entitled to an annual Guaranteed
Preferred Dividend in the earnings of SSHI starting April 5, 2002, the date when the 25%
of the subscription on preferred shares have been paid, in accordance with the Corporation
Code.
The guaranteed annual dividends shall be calculated and paid in accordance with the
Shareholders Agreement dated November 16, 2000 which provides that the dividend
shall be determined by the BOD of SSHI using the prevailing market conditions and other
relevant factors. Further, the preferred shareholder shall not participate in the earnings of
SSHI except to the extent of guaranteed dividends and whatever is left of the retained
earnings will be declared as dividends in favor of common shareholders. Guaranteed
preferred dividends included under Interest expense in the consolidated statements of
comprehensive income amounted to P
=214,620, P
=258,750, P
=327,000 in 2013, 2012 and
2011, respectively (see Note 21). Interest payable amounted to P
=258,750 and P
=348,750 as
at December 31, 2013 and 2012, respectively (see Note 12).
16.
Deferred Revenue
2013
2012
P
=98,264
=687,831
P
1,508,919
P
=1,607,183
446,429
1,508,919
=2,643,179
P
50
2013
P
=1,277,398
589,567
687,831
589,567
P
=98,264
2012
=1,866,965
P
589,567
1,277,398
589,567
=687,831
P
Beginning balance
Less amortization (Note 32)
Ending balance (Note 32)
Less current portion (Note 13)
Noncurrent portion
17.
2013
2012
P
=1,264,881
818,452
446,429
446,429
P
=
=3,199,405
P
1,934,524
1,264,881
818,452
=446,429
P
Equity
Common Stock
The Group was listed with the Philippine Stock Exchange on February 4, 1998 with total
listed shares of 71,382,000 common shares consisting of 47,000,000 shares for public
offering and 24,382,000 shares for private placement. The Group offered the share at a
price of P
=4.40. Below is the Companys track record of the registration of securities:
Date of SEC order
rendered effective or
permit to sell/
Date of SEC approval
January 9, 1998
February 4, 1998
Event
Outstanding common
shares
Listed shares:
Public offering
Private
placement
10% stock dividends
10% stock dividends
5% stock dividends
15% stock dividends
15% stock dividends
15% stock dividends
Authorized
Capital Stock
Issued shares
Issue price/
Par value
400,000,000
166,556,250
=1.00
P
400,000,000
400,000,000
47,000,000
4.40
4.40
400,000,000
400,000,000
400,000,000
400,000,000
600,000,000
600,000,000
24,382,000
23,725,200
26,097,720
14,353,746
45,214,300
51,996,445
59,795,912
459,121,573
1.00
1.00
1.00
1.00
1.00
1.00
As at December 31, 2013 and 2012, the Company has a total of 650 and 656 shareholders
on record.
51
On July 24, 2012, the BOD and at least 2/3 of the Companys stockholders approved the
increase of the Companys authorized common stock from P
=400,000,000, divided into
400,000,000 common shares with par value of P
=1 per share, to P
=600,000,000, divided into
600,000,000 common shares with a par value of P
=1 per share.
The Philippine SEC approved the Companys application for the increase in its authorized
capital stock on October 19, 2012.
Retained Earnings
The Groups retained earnings is restricted to the extent of P
=83,238,361 and P
=54,212,460
as at December 31, 2013 and 2012, respectively for the undistributed earnings of
subsidiaries and P
=2,923,246 as at December 31, 2013 and 2012 for the cost of treasury
shares.
Details of the Groups stock dividend declaration for the years ended December 31, 2013,
2012 and 2011 are as follows:
Stock
Declaration date Record date
dividend %
July 18, 2013
August 15, 2013
15%
July 24, 2012
November 15, 2012
15%
July 21, 2011
August 19, 2011
15%
Outstanding no. of
common shares as at
Total stock
declaration date dividend issued
398,639,411
59,795,912
346,642,966
51,996,445
301,428,666
45,214,298
The Groups BOD and at least 2/3 of the Groups stockholders approved all the
aforementioned stock dividend declarations above.
Details of the Groups cash dividend declaration for the years ended December 31, 2013,
2012 and 2011 are shown below:
Declaration date
July 18, 2013
July 24, 2012
July 21, 2011
Record date
August 15, 2013
August 22, 2012
August 19, 2011
Payment date
September 9, 2013
September 14, 2012
September 13, 2011
Dividend
per share
P
=0.10
0.10
0.10
Outstanding no. of
common shares as
of declaration date
398,639,411
346,642,966
301,428,666
Total cash
dividends
P
= 39,863,941
34,664,297
30,142,867
The Groups BOD approved all the cash dividends presented above.
Treasury Shares
There are 686,250 shares that are in the treasury amounting to P
=2,923,246 as at
December 31, 2013 and 2012. There are no movement in the Groups treasury shares in
2013 and 2012.
52
18.
Merchandise inventory,
beginning
Net purchases
Less merchandise inventory,
ending
2013
2012
2011
P
=726,986,563
10,800,834,938
11,527,821,501
=519,258,936
P
8,730,878,901
9,250,137,837
=402,419,577
P
6,961,401,378
7,363,820,955
726,986,563
519,258,936
900,849,891
=8,523,151,274 P
=6,844,562,019
P
=10,626,971,610 P
2013
Communication, light and
water
Depreciation and amortization
(Note 8)
Outside services (Note 32)
2012
(As restated Note 2)
2012
(As restated Note 2)
P
=908,791,566
=822,136,123
P
=610,997,841
P
709,518,959
665,732,867
527,786,925
663,221,838
378,355,521
527,283,460
(Forward)
2012
(As restated Note 2)
2012
(As restated Note 2)
2013
P
=553,791,399
=488,292,500
P
=401,628,602
P
342,606,112
246,559,168
218,412,580
171,714,747
141,077,370
139,538,097
113,159,695
104,669,922
46,379,337
269,182,182
139,445,376
171,676,338
133,085,007
95,052,873
120,154,712
119,944,818
85,985,255
38,476,668
271,325,009
119,151,632
128,105,699
106,490,524
69,397,133
101,447,166
98,718,890
76,189,697
26,472,937
33,472,479
24,609,677
28,169,708
12,671,486
12,561,816
11,579,746
10,311,574
788,778
23,875,151
9,355,941
8,968,897
3,810,991
19,906,752
5,898,075
6,032,839
1,316,561
1,490,475
2,598,741
53
2012
(As restated Note 2)
Others
2012
(As restated Note 2)
2013
41,345,644
29,596,375
76,519,585
=3,784,875,178 P
=3,011,577,592
P
=4,520,385,066 P
Promotions
Marketing support funds
(Note 32)
2013
P
=288,895,179
2012
P
=339,113,279
2011
P
=171,330,886
57,240,768
P
=346,135,947
36,654,978
P
=375,768,257
68,557,774
P
=239,888,660
2013
P
=16,033,270
2012
P
=16,338,080
2011
P
=15,697,647
214,620
P
=16,247,890
258,750
P
=16,596,830
327,000
P
=16,024,647
2013
P
=4,154,524
2012
P
=2,589,071
2011
P
=2,597,676
2,529,649
197,219
195,561
88,851
P
=7,165,804
2,099,941
291,205
268,625
128,251
P
=5,377,093
2,387,787
378,850
313,804
186,596
P
=5,864,713
2013
P
=175,765,448
149,981,972
2012
(As restated Note 2)
=217,356,126
P
36,405,561
2011
(As restated Note 2)
=227,335,598
P
32,221,396
16,858,692
P
=342,606,112
15,420,495
=269,182,182
P
11,768,015
=271,325,009
P
54
The Group maintains a trusteed, non-contributory defined benefit retirement plan covering
all qualified employees administered by a trustee bank under the supervision of the Board
of Trustees of the plan. The Board of Trustees is responsible for investment of the assets.
It defines the investment strategy as often as necessary, at least annually, especially in the
case of significant market developments or changes to the structure of the plan
participants. When defining the investment strategy, it takes account of the plans
objectives, benefit obligations and risk capacity. The investment strategy is defined in the
form of a long-term target structure (investment policy). The Board of Trustees delegates
the implementation of the investment policy in accordance with the investment strategy as
well as various principles and objectives to an Investment Committee, which also consists
of members of the Board of Trustees, a Director and a Controller. The Controller of the
fund is the one who oversees the entire investment process.
Under the existing regulatory framework, Republic Act 7641 requires a provision for
retirement pay to qualified private sector employees in the absence of any retirement plan
in the entity, provided however that the employees retirement benefits under any
collective bargaining and other agreements shall not be less than those provided under the
law. The law does not require minimum funding of the plan.
55
Changes in net defined benefit liability of funded funds in 2013 are as follows:
Net retirement benefits cost in consolidated statement
of comprehensive income
January 1, 2013
(As restated Note 2)
Current
service cost
Net interest
(P
=109,977,260)
(6,625,244)
(116,602,504)
(P
=11,184,138)
(1,145,926)
(12,330,064)
(P
=5,806,799)
(334,575)
(6,141,374)
(P
=16,990,937)
(1,480,501)
(18,471,438)
=4,021,523
P
4,021,523
29,548,266
1,041,545
30,589,811
(P
=86,012,693)
(P
=12,330,064)
1,560,148
52,598
1,612,746
(P
=4,528,628)
1,560,148
52,598
1,612,746
(P
=16,858,692)
(4,021,523)
(4,021,523)
=
P
Subtotal
Benefits
paid
(56,468)
(15,005)
(71,473)
(P
=71,473)
Subtotal
Contribution by
employer
(P
=14,261,393)
(451,957)
(14,713,350)
(P
=846,903)
351,239
(495,664)
(P
=15,108,296)
(100,718)
(15,209,014)
P
=
(P
=138,054,970)
(8,206,463)
(146,261,433)
(P
=14,713,350)
(P
=495,664)
(56,468)
(15,005)
(71,473)
(P
=15,280,487)
21,670,730
21,670,730
=21,670,730
P
48,701,153
1,079,138
49,780,291
(P
=96,481,142)
Changes in net defined benefit liability of funded funds in 2012 are as follows:
Net retirement benefits cost in consolidated statement
of comprehensive income
January 1,
2012
(As restated Note 2)
Present value of the retirement
obligations
PSC
CDI
Fair value of plan assets
PSC
CDI
Net retirement obligations
Current
service cost
Net interest
(P
=96,296,328)
(6,764,360)
(103,060,688)
(P
=9,655,975)
(545,788)
(10,201,763)
(P
=5,585,187)
(374,746)
(5,959,933)
(P
=15,241,162)
(920,534)
(16,161,696)
P4,686,898
=
1,245,962
5,932,860
12,239,143
565,547
12,804,690
(P
=90,255,998)
(P
=10,201,763)
709,870
31,331
741,201
(P
=5,218,732)
709,870
31,331
741,201
(P
=15,420,495)
(4,686,898)
(1,245,962)
(5,932,860)
=
P
Subtotal
Benefits
paid
Subtotal
Contribution by
employer
P
=
(P
=8,858,149)
(225,804)
(9,083,953)
=5,731,481
P
39,492
5,770,973
(P
=3,126,668)
(186,312)
(3,312,980)
P
=
(P
=109,977,260)
(6,625,244)
(116,602,504)
2,687,354
10,214
2,697,568
=2,697,568
P
(P
=9,083,953)
=5,770,973
P
2,687,354
10,214
2,697,568
(P
=615,412)
18,598,797
1,680,415
20,279,212
=20,279,212
P
29,548,266
1,041,545
30,589,811
(P
=86,012,693)
56
The fair value of plan assets by each classes as at the end of each balance sheet date
as follows:
PSC
CDI
December 31,
January 1,
December 31,
January 1,
2012
2012
2012
2012
December 31, (As restated - (As restated - December 31, (As restated - (As restated Note 2)
Note 2)
Note 2)
Note 2)
2013
2013
BPI short term fund
Unit investment trust fund
BPI ALFM mutual fund
Investments in equity securities
PSC - listed shares 40,848 and 35,520
shares as at
December 31, 2013
and 2012,
respectively
SSHI - unlisted shares
Fair value of plan assets
P
=38,677,625
P1,591,027
=
18,689,399
=
P
5,319,175
P
=1,079,138
=1,041,545
P
=565,547
P
4,023,528
6,000,000
P
=48,701,153
3,267,840
6,000,000
=29,548,266
P
919,968
6,000,000
=12,239,143
P
P
=1,079,138
=1,041,545
P
=565,547
P
The trustee exercises voting rights over the PSC and SSHI shares held by the
retirement fund.
The retirement benefits cost and the present value of the retirement are determined
using actuarial valuations. The actuarial valuation involves making various
assumptions. The principal assumptions used in determining the net retirement
obligations are shown below:
Discount rates
Salary increase rates
Turnover rates:
Age 17-24
25-29
30-49
50-59
PSC
2013
5.28%
5.50%
2012
5.80%
5.50%
CDI
2013
5.05%
5.50%
2012
5.54%
5.50%
5.00%
3.00%
1.00%
0.00%
5.00%
3.00%
1.00%
0.00%
5.00%
3.00%
1.00%
0.00%
5.00%
3.00%
1.00%
0.00%
The sensitivity analysis below has been determined based on reasonably possible
changes of each significant assumption on the defined benefit obligation as at
December 31, 2013, assuming if all other assumptions were held constant:
Discount rates
Turnover rate
Increase
(Decrease)
+0.5%
-0.5%
PSC
(P
=10,397,512)
11,589,388
CDI
(P
=311,910)
341,681
+1%
-1%
23,545,481
(19,357,509)
719,772
(620,295)
+3 years
-3 years
(5,956,710)
6,087,323
(171,926)
166,914
57
Shown below is the maturity analysis and weighted average duration of the retirement
benefits obligations:
Benefits Payments
PSC
CDI
=7,565,958 P
P
=4,467,312
1,812,478
27,091,028
448,718
106,236,000 4,540,298
1,497,894,560 6,281,385
1,872,763,104 34,506,490
Related party relationships exist when one party has the ability to control, directly or
indirectly through one or more intermediaries, the other party or exercise significant
influence over the other party in making financial and operating decisions. Such
relationships also exist between and/or among entities which are under common
control with the reporting enterprise, or between and/or among the reporting
enterprises and their key management personnel, directors or its stockholders.
Transactions with related parties consist of:
c. PSC has transactions with PFI, a foundation with common key management of the
Group, consisting of donations and noninterest-bearing advances pertaining
primarily to salaries, taxes and other operating expenses initially paid by PSC for
PFI.
d. The Group executed a licensing agreement with Seven Eleven, Inc. (SEI), a
stockholder organized in Texas, U.S.A. This grants the Group the exclusive right
to use the 7-Eleven System in the Philippines. In accordance with the agreement,
the Group pays, among others, royalty fee to SEI based on a certain percentage of
monthly gross sales, net of gross receipts tax.
Balances arising from the foregoing transactions with related parties are as follows:
Related
Parties
Receivables
PFI (Note 5)
Relationship
Under common
control
Nature of
Transactions
Terms and
Conditions
0.5% of earnings
before income tax.
Payable within 30
days.
Non-interest
Unsecured, no
bearing advances impairment in 2013
and 2012. Amounts
are due and
demandable.
Outstanding Balance
as at December 31
2012
2013
Donations
Royalty fee
Unsecured and
payable monthly.
P
=2,667,500
=2,650,000
P
P
=
=
P
1,481,066
P
=4,148,566
1,463,967
=4,113,967
P
3,118,978
P
=3,118,978
1,637,912
=1,637,912
P
=133,085,007 P
=12,579,753
P
=171,714,747 P
=16,305,559 P
e. As of December 31, 2013 and 2012, the Groups defined benefit retirement fund
has investments in shares of stock of the Parent Company with a cost of P
=0.12
million. The retirement benefit funds total gains arising from changes in market
58
prices amounted to P
=0.76 million and P
=2.35 million in 2013 and 2012,
respectively.
f. Compensation of key management personnel are as follows:
2013
P
=35,130,247
2,855,806
776,964
P
=38,763,017
2012
=34,979,611
P
430,000
376,073
=35,785,684
P
2011
=31,624,639
P
1,664,000
376,073
=33,664,712
P
26. Leases
2013
P
=3,182,560
565,213
3,747,773
102,218
2012
=1,591,280
P
2,156,493
3,747,773
299,437
3,645,555
3,086,114
P
=559,441
3,448,336
1,394,060
=2,054,276
P
2013
P
=3,086,114
559,441
3,645,555
3,086,114
2012
=1,394,060
P
2,054,276
3,448,336
1,394,060
P
=559,441
=2,054,276
P
59
2013
P
=53,181,751
83,822,903
9,551,874
P
=146,556,528
2012
P62,130,526
=
131,556,590
12,654,307
=206,341,423
P
b. In April 2012, CDI entered into a 2-year lease contract for the lease of a warehouse in
Cebu commencing in April 2012 until April 2014. The lease has a renewal option and is
subject to an annual escalation rate of 5%.
In 2011, CDI entered into a 10-year lease contract for the lease of its warehouse extension
effective March 2011. The lease is subject to an annual escalation rate of 4.0% starting
on the second year of the lease.
In 2005, CDI entered into a 15-year operating lease contract for the lease of its warehouse
effective November 1, 2005.
On June 30, 2007, PSC has assumed the lease agreement for the warehouse and subleased
the warehouse back to CDI. The lease has a renewal option and is subject to an escalation
rate of 7.0% every after two years starting on the third year of the lease. In February
2013, CDI transferred the lease contract to PSC and the sublease was terminated. Rent
expense related to the lease agreement was recorded by PSC.
60
2013
2012
P
=32,636,578
132,218,529
82,629,568
P
=247,484,675
P36,902,700
=
183,491,415
75,839,671
=296,233,786
P
CDI also has other various short-term operating leases pertaining to rental of
warehouse and equipments. Related rent expense amounted to P
=5,240,182, P
=
4,424,506 and P
=1,892,401 in 2013, 2012 and 2011, respectively (see Note 19).
Operating Lease as Lessor
The Group has various sublease agreements with third parties which provide for lease
rentals based on an agreed fixed monthly rate or as agreed upon by the parties. Rental
income related to these sublease agreements amounted to P
=48,341,871, P
=45,751,718
and P
=44,143,593 in 2013, 2012 and 2011, respectively.
a. The components of the Groups provision for (benefit from) income tax are as
follows:
2012
2013
Current:
Regular corporate income
tax
Final tax on interest
income
Deferred
2011
(As restated Note 2)
P
=308,105,233
=211,923,436
P
=161,398,364
P
838,382
308,943,615
(8,141,501)
P
=300,802,114
445,546
212,368,982
(2,111,056)
=210,257,926
P
586,624
161,984,988
345,290
=162,330,278
P
.
b. The components of the Groups net deferred income tax assets are as follows:
61
PSC
Deferred income tax assets:
Net retirement obligations
Accrued rent
Unamortized discount on refundable
deposit
Allowance for impairment on
receivables
Provision for litigation losses
Unamortized past service cost
Deferred revenue on exclusivity
contracts
Unearned rent income
Unamortized discount on receivable
Unrealized foreign exchange loss
(Forward)
Deferred income tax liabilities:
Deferred lease expense
Unamortized discount on purchase
of refundable deposit
Revaluation increment on land
Unrealized foreign exchange gain
Net deferred income tax assets (liability)
SSHI
Total
P
=26,806,145
16,833,945
P
=2,138,198
595,361
P
=
P
=28,944,343
17,429,306
4,031,977
1,556,717
5,588,694
6,269,624
2,119,887
6,193,281
1,991,335
294,794
6,269,624
4,111,222
6,488,075
133,929
95,040
11,820
59,579
62,555,227
6,576,405
133,929
95,040
11,820
59,579
69,131,632
P
=2,858,206
P
=1,413,987
P
=
P
=4,272,193
267,083
3,125,289
P
=59,429,938
4,988
1,418,975
P
=5,157,430
PSC
Deferred income tax assets:
Net retirement obligations
Accrued rent
Unamortized discount on refundable
deposit
Allowance for impairment on
receivables
Provision for litigation losses
Unamortized past service cost
Deferred revenue on exclusivity
contracts
Unearned rent income
Unamortized discount on receivable
Unrealized foreign exchange loss
2013
CDI
1,384,241
1,384,241
(P
=1,384,241)
267,083
1,384,241
4,988
5,928,505
P
=63,203,127
Total
=24,128,698
P
8,700,799
=1,675,110
P
6,705,868
=
P
=25,803,808
P
15,406,667
4,336,926
1,726,139
6,063,065
2,468,178
2,119,887
3,952,094
29,082
2,468,178
2,119,887
3,981,176
379,464
127,680
37,324
37,765
46,288,815
79,008
10,215,207
379,464
127,680
37,324
116,773
56,504,022
3,088,956
1,248,107
4,337,063
305,238
3,394,194
=42,894,621
P
1,248,107
=8,967,100
P
1,384,241
1,384,241
(P
=1,384,241)
305,238
1,384,241
6,026,542
=50,477,480
P
c. The reconciliation of the provision for income tax computed at the statutory
income tax rate to provision for income tax shown in the consolidated statements
of comprehensive income follow:
62
2012
(As restated Note 2)
2011
(As restated Note 2)
P
=295,028,929
=202,630,185
P
=155,728,061
P
3,768,545
2,446,834
7,162,545
867,483
5,972,026
955,165
2013
Provision for income tax
computed at statutory income
tax rate
Adjustments for:
Nondeductible expenses:
Inventory losses
Interest expense and others
Tax effect of rate difference
between final tax and
statutory tax rate on bank
interest income
Nontaxable other income
(404,040)
(38,154)
P
=300,802,114
(364,133)
(38,154)
=210,257,926
P
(286,820)
(38,154)
=162,330,278
P
2012
2013
a. Net income
2011
(As restated Note 2)
P
=682,627,649
=465,176,023
P
=356,763,259
P
459,121,573
459,121,573
459,121,573
686,250
686,250
686,250
458,435,323
458,435,323
458,435,323
P
=1.49
=1.01
P
=0.78
P
The Group does not have potentially dilutive common shares as at December 31,
2013, 2012 and 2011. Thus, the basic earnings per share is equal to the diluted
earnings per share as at those dates.
The Groups outstanding common shares increased from 399,325,661 to 459,121,573
as a result of stock dividend issuance equivalent to 15% of the outstanding common
shares of the Group of 398,639,411 shares approved on July 18, 2013 (see Note 17).
63
Therefore, the calculation of basic/diluted earnings per share for all periods presented
has been adjusted retrospectively.
The comparison of the carrying value and fair value of all of the Companys financial
instruments (those with carrying amounts that are not equal to their fair values) as at
December 31 are as follows:
2012
2013
FINANCIAL ASSETS
Loans and Receivables
Receivables
Lease receivable
Deposits
Refundable
Carrying Value
Fair Value
Carrying Value
Fair Value
P
=3,645,555
P
=3,691,723
=3,448,336
P
=3,606,990
P
34,871,384
P
=38,516,939
41,815,472
P
=45,507,195
25,843,670
=29,292,006
P
32,667,920
=36,274,910
P
Lease receivable and refundable deposits are categorized under level 3 in the fair
value hierarchy.
Fair Value Information
Current Financial Assets and Financial Liabilities
Due to the short-term nature of the related transactions, the fair values of cash and
cash equivalents, short-term investment, receivables (except for lease receivables),
accounts payable and accrued expenses and other current liabilities approximates their
carrying values as of balance sheet date.
Lease Receivable
The fair value of lease receivable is determined by discounting the sum of future cash
flows using the prevailing market rates for instruments with similar maturities as at
December 31, 2013 and 2012, which is 2.73% and 3.80%, respectively.
Utility and Other Deposits
The fair value of utility and other deposits approximates its carrying value as it earns
interest based on repriced market conditions.
Refundable Deposits
The fair value of deposits is determined by discounting the sum of future cash flows
using the prevailing market rates for instruments with similar maturities as at
December 31, 2013 and 2012 ranging from 0.5% to 4.35% and 1.33% to 4.36%,
respectively.
64
Bank Loans
The carrying value approximates fair value because of recent and monthly repricing
of related interest based on market conditions.
Cumulative Redeemable Preferred Shares
The carrying value approximates fair value because corresponding dividends on these
shares that are charged as interest expense in profit or loss are based on recent
treasury bill rates repriced annually at year end.
Fair Value Hierarchy
The Group uses the following hierarchy for determining and disclosing the fair value
of financial instruments by valuation technique:
Level 1 - quoted (unadjusted) prices in active markets for identical assets or liabilities
Level 2 - valuation techniques for which the lowest level input that is significant to the
fair value measurement is directly or indirectly observable
Level 3 - valuation techniques for which the lowest level input that is significant to the
fair value measurement is unobservable
As at December 31, 2013 and 2012, the Group has no financial instruments measured
at fair value.
The main risks arising from the Groups financial instruments are credit risk, liquidity
risk, interest rate risk and foreign exchange risk. The BOD reviews and approves
policies for managing each of these risks. The BOD also created a separate boardlevel entity, which is the Audit Committee, with explicit authority and responsibility
in managing and monitoring risks. The Audit Committee, which ensures the integrity
of internal control activities throughout the Group, develops, oversees, checks and
pre-approves financial management functions and systems in the areas of credit,
market, liquidity, operational, legal and other risks of the Group, and crisis
management. The Internal Audit Department and the External Auditor directly report
to the Audit Committee regarding the direction, scope and coordination of audit and
any related activities.
Listed below are the summarized risk identified by the BOD.
Credit Risk
Credit risk is the risk that one party to a financial instrument will cause a financial
loss to the other party by failing to discharge an obligation. The receivable balances
are monitored on an ongoing basis with the result that the Groups exposure to
impairment is managed to a not significant level. The Group deals only with
counterparty duly approved by the BOD.
The following tables provide information regarding the maximum credit risk exposure
of the Group as at December 31:
65
2013
2012
P
=734,552,645
=204,668,267
P
50,580,062
785,132,707
10,810,229
48,000,000
252,668,267
10,632,115
379,329,782
33,091,755
14,396,862
12,181,205
2,486,280
3,118,978
184,229,871
133,708,520
12,601,291
19,086,393
4,187,928
1,637,912
3,086,114
1,033,914
585,057
1,358,499
1,394,060
1,403,344
614,135
15,734,389
450,668,446
374,597,843
42,509,396
34,871,384
4,487,223
81,868,003
33,663,791
25,843,670
6,017,558
65,525,019
559,441
559,441
P
=1,329,038,826
2,054,276
955,355
3,009,631
=706,432,875
P
Cash in bank
Cash equivalents
Short-term investment
Receivables
Franchisees
Suppliers
Employees
Store operators
Rent
Due from PFI
Current portion of:
Lease receivable
Notes receivable
Insurance receivable
Others
Deposits
Utilities
Refundable
Others
Other noncurrent assets
Noncurrent portion of:
Lease receivable
Notes receivable
The following tables provide information regarding the credit risk exposure of the
Group by classifying assets according to the Groups credit ratings of debtors:
2013
Neither Past Due nor Impaired
Standard
Past Due
High Grade
Grade
Or Impaired
Cash and cash equivalents
Cash in bank
Cash equivalents
Short-term investment
Receivables
Franchisees
Suppliers
Employees
Store operators
Rent
Due from PFI
Current portion of:
Lease receivable
Notes receivable
Insurance receivable
Others
Total
P
= 734,552,645
50,580,062
785,132,707
10,810,229
P
=
P
=
P
=734,552,645
50,580,062
785,132,707
10,810,229
379,329,782
28,271,501
14,396,862
12,181,205
2,486,280
3,118,978
214,342
20,386,188
539,921
365,801
2,274,184
379,544,124
48,657,689
14,936,783
12,547,006
4,760,464
3,118,978
3,086,114
1,033,914
585,057
1,358,499
3,086,114
1,033,914
585,057
1,358,499
66
2013
Neither Past Due nor Impaired
Standard
Past Due
High Grade
Grade
Or Impaired
445,848,192
23,780,436
Deposits
Utilities
Refundable
Others
Other noncurrent asset
Noncurrent portion of lease receivable
42,509,396
34,871,384
4,487,223
81,868,003
P
= 795,942,936
559,441
559,441
P
= 528,275,636
Total
469,628,628
42,509,396
34,871,384
4,487,223
81,868,003
559,441
559,441
P
=23,780,436 P
=1,347,999,008
2012
Neither Past Due nor Impaired
Standard
Past Due
High Grade
Grade
Or Impaired
Cash and cash equivalents
Cash in bank
Cash equivalents
Short-term investment
Receivables
Franchisees
Suppliers
Employees
Store operators
Rent
Due from PFI
Current portion of:
Lease receivable
Notes receivable
Insurance receivable
Others
Deposits
Utilities
Refundable
Others
Other noncurrent assets
Noncurrent portion of:
Lease receivable
Notes receivable
Total
=204,668,267
P
48,000,000
252,668,267
10,632,115
=
P
=
P
=204,668,267
P
48,000,000
252,668,267
10,632,115
184,229,871
104,343,424
12,601,291
19,086,393
4,187,928
1,637,912
214,342
35,169,551
391,918
365,801
1,450,745
184,444,213
139,512,975
12,993,209
19,452,194
5,638,673
1,637,912
1,394,060
1,403,344
614,135
15,734,389
345,232,747
37,592,357
1,394,060
1,403,344
614,135
15,734,389
382,825,104
2012
Neither Past Due nor Impaired
Standard
Past Due
High Grade
Grade
Or Impaired
Total
=
P
=33,663,791
P
25,843,670
6,017,558
65,525,019
=
P
=33,663,791
P
25,843,670
6,017,558
65,525,019
=263,300,382
P
2,054,276
955,355
3,009,631
=413,767,397
P
=37,592,357
P
2,054,276
955,355
3,009,631
=714,660,136
P
Receivables:
Franchisees
Suppliers
Employees
Store operators
Rent
Total
P
=
4,820,254
P
= 4,820,254
P
= 214,342
15,565,934
539,921
365,801
2,274,184
P
= 18,960,182
P
= 214,342
20,386,188
539,921
365,801
2,274,184
P
= 23,780,436
2012
Aging analysis of financial assets past due but not impaired
31 to 60 days
61 to 90 days
> 90 days
Total
Total
=214,342
P
5,804,455
391,918
365,801
1,450,745
=8,227,261
P
=214,342
P
35,169,551
391,918
365,801
1,450,745
=37,592,357
P
P
=
1,601,652
P
= 1,601,652
=
P
9,537,555
=9,537,555
P
P
=
868,379
P
= 868,379
=
P
8,726,274
=8,726,274
P
P
=
2,350,223
P
= 2,350,223
=
P
11,101,267
=11,101,267
P
=
P
29,365,096
=29,365,096
P
68
Three months
or less
More than
three months
to one year
2013
More than
one year
to five years
More than
five years
Total
P
=922,422,571
50,580,062
973,002,633
10,810,229
P
=
P
=
P
=
P
=922,422,571
50,580,062
973,002,633
10,810,229
379,329,782
28,271,501
14,396,862
12,181,205
2,486,280
3,118,978
4,820,254
379,329,782
33,091,755
14,396,862
12,181,205
2,486,280
3,118,978
1,955,265
1,033,914
1,358,499
444,132,286
1,130,849
585,057
6,536,160
3,086,114
1,033,914
585,057
1,358,499
450,668,446
42,509,396
34,871,384
4,487,223
81,868,003
42,509,396
34,871,384
4,487,223
81,868,003
P
=1,427,945,148
P
=6,536,160
559,441
559,441
P
=82,427,444
Three months
or less
More than
three months
to one year
2012
More than
one year
to five years
More than
five years
Total
=367,285,569
P
48,000,000
415,285,569
10,632,115
=
P
=
P
=
P
=367,285,569
P
48,000,000
415,285,569
10,632,115
184,229,871
104,343,424
12,601,291
19,086,393
4,187,928
29,365,096
1,637,912
184,229,871
133,708,520
12,601,291
19,086,393
4,187,928
1,637,912
339,448
201,610
15,734,389
340,724,354
1,054,612
1,201,734
614,135
33,873,489
1,394,060
1,403,344
614,135
15,734,389
374,597,843
33,663,791
25,843,670
6,017,558
65,525,019
33,663,791
25,843,670
6,017,558
65,525,019
=766,642,038
P
=33,873,489
P
2,054,276
955,355
3,009,631
= 68,534,650
P
=
P
2,054,276
955,355
3,009,631
=869,050,177
P
559,441
P
= P
=1,516,908,752
69
The tables below summarize the maturity profile of the financial liabilities of the
Group based on remaining undiscounted contractual obligations:
2013
Bank loans
Accounts payable and accrued expenses
Trade payable
Utilities
Rent
Employee benefits
Advertising and promotion
Outsourced services
Bank charges
Security services
Interest
Others
Other current liabilities
Non-trade accounts payable
Retention payable
Employee related liabilities
Royalty
Service fees payable
Others
Cumulative redeemable preferred shares
Three months
or less
P
= 350,000,000
More than
three
months
to one year
P
=210,000,000
More than
one year
P
=
Total
P
= 560,000,000
1,575,446,279
71,354,276
58,097,685
39,622,810
37,844,609
24,844,921
13,487,060
3,375,831
1,947,803
46,682,215
1,872,703,489
1,575,446,279
71,354,276
58,097,685
39,622,810
37,844,609
24,844,921
13,487,060
3,375,831
1,947,803
46,682,215
1,872,703,489
43,501,002
27,210,000
16,305,559
87,016,561
6,000,000
P
=2,315,720,050
319,007,352
48,466,743
10,381,467
10,561,844
388,417,406
362,508,354
48,466,743
27,210,000
16,305,559
10,381,467
10,561,844
475,433,967
6,000,000
P
= P
= 2,914,137,456
P
=598,417,406
2012
Bank loans
Accounts payable and accrued expenses
Trade payable
Utilities
Rent
Employee benefits
Advertising and promotion
Outsourced services
Bank charges
Security services
Interest
Others
Other current liabilities
Non-trade accounts payable
Retention payable
Employee related liabilities
Royalty
Service fees payable
Others
Cumulative redeemable preferred shares
Three months
or less
=457,777,778
P
More than
three months
to one year
=20,000,000
P
1,077,213,586
55,148,912
51,355,557
22,772,206
8,754,528
14,531,473
3,361,310
3,860,300
1,522,329
22,769,788
1,261,289,989
47,226,209
2,481,125
12,579,753
62,287,087
6,000,000
=1,787,354,854
P
375,957,634
24,673,598
20,586,182
4,990,644
426,208,058
=446,208,058
P
More than
one year
=
P
Total
=477,777,778
P
1,077,213,586
55,148,912
51,355,557
22,772,206
8,754,528
14,531,473
3,361,310
3,860,300
1,522,329
22,769,788
1,261,289,989
423,183,843
24,673,598
2,481,125
12,579,753
20,586,182
4,990,644
488,495,145
6,000,000
= P
P
=2,233,562,912
fair value and cash flows interest rate risk mainly arise from bank loans with floating
interest rates. The Group is expecting to substantially reduce the level of bank loans
over time. Internally generated funds coming from its cash generating units and from
its franchising business will be used to pay off outstanding debts and consequently
reduce the interest rate exposure.
The maturity profile of financial instruments that are exposed to interest rate risk are
as follows:
2012
2013
Due in less than one year
=477,777,778
P
=560,000,000 P
Rate
2.5%-3.3% 3.30%-3.75%
Interest of financial instruments classified as floating rate is repriced at intervals of 30
days. The other financial instruments of the Group that are not included in the above
tables are noninterest-bearing and are therefore not subject to interest rate risk.
The following table demonstrates the sensitivity to a reasonably possible change in
interest rates, with all other variables held constant, of the Groups income before
income tax (through the impact on floating rate borrowings):
2013
Increase/
Effect on
Decrease in Income Before
Basis Points
Income Tax
+100
(P
=5,600,000)
-100
P
= 5,600,000
2012
Increase/
Effect on
Decrease in Income Before
Basis Points
Income Tax
+100
(P
=4,777,778)
-100
4,777,778
There is no other impact on the Groups equity other than those already affecting
profit or loss.
Foreign Exchange Risk
Foreign exchange risk is the risk to earnings or capital arising from changes in foreign
exchange rates. The Groups foreign exchange exposure arises from holding foreign
currency denominated rates, cash and cash equivalents, loans and receivables and
merchandise sale to foreign entity. In order to balance this exposure, the Group has
some sales denominated in foreign currency and maintains a foreign currency
accounts in a reputable commercial bank. The Group does not enter into derivatives to
hedge the exposure. The Groups cash and receivables denominated in foreign
currency and converted into Peso using the closing exchange rates at each balance
sheet date are summarized below.
2013
Cash in banks
Receivables
Dollar
$94,533
$94,533
Peso
P
=4,197,265
P
=4,197,265
2012
Dollar
Peso
$141,607
=5,812,967
P
27,049
1,110,362
$168,656
=6,923,329
P
As at December 31, 2013 and 2012, the closing functional currency exchange rate is P
=
44.40 and P
=41.05 to US$1, respectively.
The following table represents the impact on the Groups income before income tax
brought about by reasonably possible changes in Peso to Dollar exchange rate
71
(holding all other variables constant) as at December 31, 2013 and 2012 until its next
financial reporting date:
Change in Peso to Dollar
Effect on Income
Exchange Rate
before Income Tax
2013
Increase by 8.16%
(P
=342,497)
Decrease by 8.16%
342,497
2012
Increase by 6.36%
Decrease by 6.36%
(P
=440,323)
440,323
There is no other effect on the Companys equity other than those already affecting
profit or loss.
31. Capital Management
Total assets
Net worth
P
=459,121,573
293,525,037
1,810,521,305
2,563,167,915
2,923,246
P
=2,560,244,669
=399,325,661
P
293,525,037
1,227,553,509
1,920,404,207
2,923,246
=1,917,480,961
P
P
=5,961,773,332
=4,571,816,164
P
43%
42%
As at December 31, 2013 and 2012, the Group was able to meet its objective.
32. Significant Agreements
a. Franchise Agreements
The Group has various store franchise agreements with third parties for the
operation of certain stores. The agreement includes a one-time franchise fee
payment and an annual 7-Eleven charge for the franchisee, which is equal to a
certain percentage of the franchised stores gross profit. Details follows:
72
Franchise revenue
Franchise fee
2013
P
=1,265,753,174
101,500,115
P
=1,367,253,289
2012
=602,379,025
P
81,193,802
=683,572,827
P
2011
=478,827,511
P
55,198,201
=534,025,712
P
The Group has entered into agreements with a phone card supplier and various
third parties. Under the arrangements, the Group earns commission on the sale of
phone cards and collection of bills payments based on a certain percentage of net
sales and collections for the month and a fixed monthly rate. Commission income
amounted to P
=43,402,035, P
=67,396,391 and P
=37,236,539 in 2013, 2012 and 2011,
respectively.
d. 2010 Exclusivity Contract
The Group has also entered into a 3-year exclusivity contract with a Third Party
soda manufacturer in the Philippines effective April 2010 to March 2013. The
contract indicates that the Third Party soda manufacturer will exclusively supply
all slurpee products of 7-Eleven. The Group received a one-time signing bonus
amounting to P
=4,464,286 upon the effectivity of the exclusivity supply contract
amortized over three years. Income from exclusivity contract included as part of
Marketing support funds under Marketing income in profit or loss amounted
to P
=372,023, P
=1,488,095 and P
=1,488,095 in 2013, 2012 and 2011, respectively
(see Note 20). Deferred revenue as at December 31, 2013 and 2012 amounted to
nil and P
=372,024, respectively (see Note 16).
e. 2010 Signing Bonus
73
f.
The Group has entered into MOA with Chevron Philippines, Inc. (CPI) on August
6, 2009, wherein CPI has granted the Group as authorized co-locator for a full
term of three-years to establish, operate and/or franchise its 7-Eleven stores in CPI
service stations. Both parties have identified 22 CPI service stations, wherein the
Group will give the Retailers of these service stations a Letter Offer to Franchise
(LOF) 7-Eleven stores. Upon acceptance of the Retailers of the LOF, the
Retailers will sign a Store Franchise Agreement (SFA) with the Group. If LOF is
not accepted by one of the 22 original service stations identified, that service
station will be replaced with another mutually acceptable service station site.
Upon signing of the MOA, CPI executed a Caltex Retail Agreement with each of
the 22 service station Retailers, which shall have a full term of three years and
which will be co-terminus with the SFA.
As at December 31, 2013 and 2012, the Group has already opened 32 and 37
franchised serviced stations, respectively.
33. Segment Reporting
The Group considers the store operations as its only business segment based on its
primary business activity. Franchising, renting of properties and commissioning on
bills payment services are considered an integral part of the store operations. The
Groups identified operating segments below are consistent with the segments
reported to the BOD, which is the Chief Operating Decision Maker of the Group.
The products and services from which the store operations derive its revenues from
are as follows:
Merchandise sales
Franchise revenue
Marketing income
Rental income
Commission income
Interest income
Revenue
Revenue from merchandise sales
Franchise revenue
Marketing income
Rental income
Commission income
Interest income
Other income
2013
2012
(As restated Note 2)
2011
(As restated Note 2)
P
=14,133,649,192
1,367,253,289
346,135,947
48,341,871
43,402,035
7,165,804
214,886,062
16,160,834,200
=11,713,760,468
P
683,572,827
375,768,257
45,751,718
67,396,391
5,377,093
123,025,663
13,014,652,417
=9,435,604,073
P
534,025,712
239,888,660
44,143,593
37,236,539
5,864,713
99,300,756
10,396,064,046
74
2013
2012
(As restated Note 2)
2011
(As restated Note 2)
10,626,971,610
8,523,151,274
6,844,562,019
709,518,959
3,810,866,107
16,247,890
13,799,871
15,177,404,437
983,429,763
300,802,114
P
=682,627,649
527,786,925
3,257,088,253
16,596,830
14,595,186
12,339,218,468
675,433,949
210,257,926
=465,176,023
P
378,355,521
2,633,222,071
16,024,647
4,806,251
9,876,970,509
519,093,537
162,330,278
=356,763,259
P
Segment Assets
P
=5,961,773,332
=4,571,816,164
P
=3,741,817,964
P
Segment Liabilities
P
=3,420,540,212
=2,662,650,411
P
=2,262,733,149
P
P
=1,179,270,536
=858,674,993
P
=717,091,736
P
Expenses
Cost of merchandise sales
General and administrative expenses:
Depreciation and amortization
Others
Interest expense
Other expenses
The Group is a party to various litigations and claims. All cases are in the normal
course of business and are not deemed to be considered as material legal proceedings.
Further, the cases are either pending in courts or under protest, the outcome of which
are not presently determinable. Management and its legal counsel believe that the
liability, if any, that may result from the outcome of these litigations and claims will
not materially affect their financial position or financial performance.
As at December 31, 2013 and 2012, the Group has provisions amounting to
=13,704,073 and P
P
=7,066,290, respectively.
The principal non-cash transaction of the Group under financing activities pertains to
the issuance of stock dividends (see Note 17).
75
Schedule of Receivables
Annex 2:
Annex 3.
Annex 4.
Annex 5:
Schedules:
76
77
A member firm of Ernst & Young Global Limited
ANNEX 1
2013
P
=379,544,124
2012
=184,444,213
P
48,657,689
139,512,975
14,936,783
12,993,209
12,547,006
19,452,194
4,760,464
5,638,673
3,118,978
1,637,912
3,086,114
1,033,914
585,057
1,358,499
469,628,628
18,960,182
P
=450,668,446
1,394,060
1,403,344
614,135
15,734,389
382,825,104
8,227,261
=374,597,843
P
Suppliers - pertains to receivables from the Groups suppliers for display allowances,
annual volume discount and commission income from different service providers.
Franchisee - pertains to receivables for the inventory loans obtained by the franchisees at
the start of their store operations.
Employees - includes car loans, salary loans and cash shortages from stores which are
charged to employees.
Rent - pertains to receivables from sublease agreements with third parties, which are
based on an agreed fixed monthly rate or as agreed upon by the parties.
Store operators - pertains to the advances given to third party store operators under
service agreements.
Receivable from suppliers are non-interest bearing and are generally on 30 to 90 days terms.
78
ANNEX 2
The reconciliation of retained earnings available for dividend declaration as of December 31,
2013 follows:
Unappropriated retained earnings as of December 31,
2012
Less: Deferred income tax asset
Non-actual/unrealized income, net of tax
Accretion of interest income*
Treasury shares
Unrealized foreign exchange gain
Unappropriated retained earnings as adjusted,
December 31, 2012
Net income during the year closed to retained earnings
Less: Non-actual unrealized income, net of tax
Accretion of interest income
Movement in deferred income tax asset
Net income actually earned during the year
Less: Dividend declarations during the year
Unappropriated retained earnings as adjusted,
December 31, 2013
P
=1,172,941,755
(46,288,815)
(6,990,361)
(2,923,246)
(684)
1,116,738,649
654,001,042
(1,139,998)
(16,266,413)
636,594,631
(99,659,853)
P
=1,653,673,427
79
ANNEX 3
Ratios
Formula
In Php
2013
2012
% Change
Current assets
Current liabilities
2,606,079,897
3,113,562,952
0.84
0.75
12.00%
Debt-to-equity ratio
Total liabilities
Total stockholders equity
3,420,540,212
2,541,233,120
1.35
1.39
-2.88%
Asset-to-equity ratio
Total assets
Total stockholders equity
5,961,773,332
2,541,233,120
2.35
2.39
-1.67%
999,677,653
16,247,890
61.53
41.70
47.55%
Net income
Revenue from Merchandise
Sales
682,627,649
14,133,649,192
4.83%
3.97%
21.66%
Net income
Ave. Total stockholders equity
682,627,649
(2,541,233,120+
1,909,165,753)/2
30.68%
27.46%
11.72
Current Ratio
Return on equity
80
ANNEX 4
Subsidiary
Subsidiary
81
ANNEX 5
Adopted
Not
Adopted
Not
Applicable
PFRS 2
Share-based Payment
Business Combinations
82
ANNEX 5
PHILIPPINE FINANCIAL REPORTING STANDARDS AND
INTERPRETATIONS
Effective as of December 31, 2013
Adopted
Not
Adopted
Not
Applicable
Insurance Contracts
PFRS 5
PFRS 6
PFRS 7
PFRS 4
PFRS 8
PFRS 9
PFRS 10
Operating Segments
Financial Instruments *
PFRS 11
Joint Arrangements
PFRS 12
83
ANNEX 5
PHILIPPINE FINANCIAL REPORTING STANDARDS AND
INTERPRETATIONS
Effective as of December 31, 2013
Adopted
Not
Adopted
Not
Applicable
PAS 2
Inventories
PAS 7
PAS 8
PAS 10
PAS 11
Construction Contracts
PAS 12
Income Taxes
PAS 1
(Revised)
PAS 16
PAS 17
Leases
PAS 18
Revenue
PAS 19
Employee Benefits
Employee Benefits
PAS 19
(Amended)
PAS 20
PAS 21
PAS 23
(Revised)
Borrowing Costs
PAS 24
(Revised)
84
ANNEX 5
PHILIPPINE FINANCIAL REPORTING STANDARDS AND
INTERPRETATIONS
Effective as of December 31, 2013
Adopted
Not
Adopted
Not
Applicable
PAS 26
PAS 27
PAS 27
(Amended)
PAS 28
Investments in Associates
PAS 28
(Amended)
PAS 29
PAS 31
PAS 32
PAS 33
PAS 34
PAS 36
Impairment of Assets
PAS 37
PAS 38
Intangible Assets
85
ANNEX 5
PHILIPPINE FINANCIAL REPORTING STANDARDS AND
INTERPRETATIONS
Effective as of December 31, 2013
Adopted
Investment Property
Agriculture
Not
Applicable
Not
Adopted
Interpretations
IFRIC 1
IFRIC 2
IFRIC 4
IFRIC 5
IFRIC 6
IFRIC 7
IFRIC 8
Scope of PFRS 2
IFRIC 9
IFRIC 10
IFRIC 11
IFRIC 12
IFRIC 13
86
ANNEX 5
PHILIPPINE FINANCIAL REPORTING STANDARDS AND
INTERPRETATIONS
Effective as of December 31, 2013
IFRIC 14
Adopted
Not
Adopted
Not
Applicable
IFRIC 15
IFRIC 16
IFRIC 17
IFRIC 18
IFRIC 19
IFRIC 20
IFRIC 21
SIC-7
SIC-10
SIC-15
SIC-25
SIC-27
SIC-29
SIC-31
* Standards and interpretations which will become effective subsequent to December 31, 2013.
87
Number of shares
or principal
amount of bonds
and notes
N/A
N/A
N/A
N/A
N/A
Valued based on
market quotations
at end of reporting
period
Amount shown
in the balance
sheet
=973,002,633
P
10,810,229
450,668,446
81,868,003
559,441
=1,516,908,752
P
Income
received and
accrued
N/A
N/A
N/A
N/A
N/A
=4,154,524
P
195,561
88,851
2,529,649
=6,968,585
P
Balance of
Beginning
of Period
Additions
Amounts
collected
Amounts
Written
off
Balance at
end of
period
Non
Current
Current
=182,998
P
=4,085
P
=19,122
P
=P
=61,829
P
=106,132
P
=167,961
P
100,089
2,181
7,784
23,713
70,773
94,486
47,644
2,241
37,786
12,092
12,099
607,684
13,119
59,858
179,727
381,218
560,945
577,387
12,527
71,196
219,343
299,375
518,718
526,106
12,134
72,483
170,206
295,551
465,757
658,814
14,599
61,253
205,274
406,886
612,160
FIN - Accounting
250,240
5,575
18,683
55,649
181,483
237,132
302,250
6,228
50,122
245,900
296,022
FIN - Tax
286,283
11,711
47,482
227,090
274,572
HRAD - Common
326,392
7,165
31,138
102,210
200,209
302,419
HRAD - ESD
HRAD - Labor Rel &
Plang
214,144
4,684
13,701
37,871
167,256
205,127
187,481
4,104
11,832
32,464
147,289
179,753
AUDIT - Inventory
BDD - Common
88
Balance of
Beginning
of Period
Additions
Amounts
collected
Amounts
Written
off
Balance at
end of
period
Non
Current
Current
=291,910
P
=6,296
P
=18,683
P
=P
=52,420
P
=227,103
P
=279,523
P
MIS - IT Support
228,169
5,032
18,683
57,768
156,750
214,518
MKTG - Common
221,226
4,914
53,670
122,244
50,226
172,470
685,177
17,046
51,634
150,513
500,076
650,589
446,073
187,371
49,192
168,762
415,490
584,252
91,122
2,238
19,122
71,903
2,335
74,238
267,037
182,295
33,653
131,418
284,261
415,679
MKTG - Support
75,709
1,679
4,982
13,979
58,427
72,406
OPS - Central
95,003
2,127
11,155
37,214
48,761
85,975
175,238
3,962
31,871
118,848
28,481
147,329
480,796
13,493
79,579
387,724
467,303
OPS - North1
28,546
178,381
23,201
39,949
143,777
183,726
OPS - North2
282,033
6,312
21,796
65,528
201,021
266,549
OPS - North3
98,424
177,192
11,155
65,944
198,517
264,461
OPS - South
489,242
8,157
33,773
108,405
355,221
463,626
OPS - South2
119,727
178,945
10,898
64,001
223,773
287,774
OPS - Support
122,442
2,694
10,898
34,720
79,518
114,238
OPS - West
205,077
4,618
18,683
59,520
131,492
191,012
OPS - Zone 1
154,397
3,309
19,122
65,311
73,273
138,584
OPS - Zone 2
45,555
178,536
26,388
54,431
143,272
197,703
203,794
4,431
15,235
45,381
147,609
192,990
PRD - Common
400,294
5,892
127,590
107,161
171,435
278,596
VR - Visayas Region
672,504
13,269
136,665
279,880
269,228
549,108
3,915,531
4,243,744
3,102,309
4,716,976
=12,993,209 P
P
=6,570,183
=4,286,626
P
=P
=3,192,861
P
=7,026,939
P
=14,936,783
P
MKTG - Masterdata
MKTG - Non Food Cat
OPS - Common
OPS - East
Various Employees
Loan
TOTAL
89
Balance of
Beginning
of Period
CONVENIENCE
DISTRIBUTION,INC.
-Subsidiary
STORE SITES
HOLDINGS,INC.Subsidiary
Amounts
Written
off
Additions
Amounts
collected
=919,338
P
=4,619,626
P
=1,871,676
P
218,848
954,411
797,173
Non
Current
Balance at
end of
period
=3,667,288
P
=3,667,288
P
376,086
376,086
Current
Description
Charged to
cost and
expenses
Additions at
cost
Charged to
other
accounts
Other Charges
additions
(deductions)
Ending
balance
Software &
Program Cost
=1,183,651
P
=3,019,195
P
=1,316,561
P
=
P
=
P
=2,886,285
P
Goodwill
65,567,524
65,567,524
Amount
authorized by
indenture
NONE
NONE
Title of issue of
each class of
securities
guaranteed
Total amount
guaranteed and
outstanding
NONE
Amount owned by
person for which
statement is filed
Nature of
Guarantee
SCHEDULE
V
Title of
Issue
Number of
Shares
authorized
COMMON
STOCK
600,000,000
Number of
shares issued
and outstanding
as shown under
related balance
sheet caption
Number of
shares reserved
for options,
warrants,
conversion and
other rights
Number of
shares held
by related
parties
Directors,
officers
and
employees
Others
458,435,323
236,376,070
14,313,785
207,745,468
90
Appendix C
2012 vs.
2011
2013
17,240,457
2012*
2011*
13,363,925
10,696,614
29%
25%
14,133,649
11,713,760
9,435,604
21%
24%
Franchise revenue
1,367,253
683,573
534,026
100%
28%
Marketing income
346,136
375,768
239,889
-8%
57%
Others
313,796
241,551
186,546
30%
29%
10,626,972
8,523,151
6,844,562
25%
25%
26%
4,520,385
3,785,662
3,011,578
19%
16,248
16,597
16,025
-2%
4%
682,628
465,176
356,763
47%
30%
(10,697)
671,931
(431)
464,745
(11,114)
345,649
2380%
45%
-96%
34%
1.49
1.01
0.78
48%
29%
Total assets
5,961,773
4,571,816
3,741,818
30%
22%
Total liabilities
3,420,540
2,662,650
2,262,733
28%
18%
2,541,233
1,909,166
1,479,085
33%
29%
1,799,953
869,491
787,909
107%
10%
18%
489%
Interest expense
Net income
Other comprehensive loss-remeasurement
loss on retirement obligations
(1,268,556)
(900,455)
(760,848)
41%
26,536
51,849
8,799
-49%
* 2012 and 2011 balances were restated to recognize the remeasurement loss on net retirement obligations
** Amount in thousands of Pesos, except EPS
91
OVERVIEW
Philippine Seven Corporation (PSC) operates the largest convenience store network in
the country. It acquired from Southland Corporation (now Seven Eleven Inc.) of Dallas,
Texas the license to operate 7-Eleven stores in the Philippines in December 1982.
We opened our first store in February 1984 at the corner of Kamias Road and EDSA
Quezon City, and grew slowly as the economy struggled. Expansion was stepped up in
1993, followed by an IPO in 1998. President Chain Store Corporation of Taiwan took a
majority stake in 2000 at managements invitation, providing technology transfer from a
more advanced market.
After a period of consolidation of organization, processes, and systems, the rate of
expansion was stepped up further in 2007 through the franchise business model and
close collaboration with business partners. This was backed by a strong logistics system
and head office support.
At the end of 2013, 7-Eleven has 1,009 stores, mainly in Metro Manila and in major
towns and cities in Luzon. The Company successfully penetrated the Visayas as it was
able to end the year with 54 stores in the Cebu and Bacolod market.
Cebu is the 2nd largest city after Metro Manila, and, we believe, the key to the Visayas.
It is a tourist favorite, has a fast growing BPO sector, and is rapidly urbanizing. Given the
importance of this market, we invested in logistics and advertising, and were rewarded
with sales that exceeded our expectations. We intend to have over a hundred stores on
our 3rd year.
This is the Companys first venture outside Luzon, which is home to half the countrys
population as well as the capital of Metro Manila. It is a significant first step in the
companys push to bring modern convenience wherever feasible to the rest of the
archipelago a more logistically complex market than the contiguous and highly
urbanized Luzon.
Our retail chain of convenience stores is sustained by a manpower complement of 3,210
(regular and outsourced) employees engaged in corporate store operations and in
support service units. Despite of growing competition, we maintain our leadership in the
CVS industry.
We seek to meet the needs of our customers and maintain a leadership position in the
C-store industry by taking advantage of economies of scale, technology, people and a
widely recognized brand. Our vision is to be the best retailer of convenience for
emerging markets.
92
93
94
periods were also restated for comparability. There is no impact on net income and
retained earnings.
As the Company continues to scale up, total selling, general and administrative expenses
(SG & A) went down as a percentage of revenues from 28.3% in 2012 to 26.2% at the
end of last year.
EBITDA (earnings before interest, taxes, depreciation and amortization) rose by 40.1
percent from P1.2 billion in 2012 to P1.7 billion at end 2013 while EBITDA margin
improved to 9.9 percent from 9.1 in 2012 percent, as based from system wide sales.
Operating margin likewise improved to 5.8% from 5.1% in 2013 and 2012, respectively.
The ability of the Company to generate free cash flow became stronger in 2013 as cash
inflow from operations exceeded cash outflow used in investing activities by P531.4
million. This enabled the Company to be in a net cash position of P413.0 million by the
end of the year.
Stock price breached the 100-peso mark during the fourth quarter from P70.0 at the
beginning of the year. Dividends paid to shareholders were in the form of stock of 15%
and cash at 10 centavos. Dividends paid correspond to 21.4% of previous years
earnings, which is consistent with the 20-25% dividend payout policy.
Revenue and Gross Margin
The Company registered total revenue from merchandise sales of P14.1 billion in 2013,
an increase of 21.0 percent over the 2012 level. Cost of merchandise sold rose by P2.1
billion or by 25.0% during the year.
Gross profit in peso terms stood at P3.5 billion, while GP in relation to sales went down
to 24.8% owing to the dilution brought about by the higher merchandise sales to
franchise stores due to the increase in number of franchisees. Sales of merchandise to
franchisees are accounted for at zero mark-up. Further, system wide gross profit
percentage improved to more than 30.0% as the share in gross profit (lodged under
franchise revenue) is taken into account.
Along with its 24/7 convenience, PSC also offers services including bills payment,
phone/call cards, and 7-Connect that allows customers to pay for selected online
purchases with cash through any 7-Eleven store. These products in the services category
plus consigned goods formed part of commission income, which declined in 2013 as a
result of the temporary suspension of services with the aim of enhancing internal
controls. The services line were restored to normal prior to the end of the year.
We intend to grow services as new opportunities surface due to technological progress,
we announced a partnership with Philippine Airlines and Air Asia that allows passengers
95
to pay for tickets booked online at our stores. This latest innovation will be
implemented in partnership with our third party payment processor ECPay.
2013
Revenue from merchandise sales
Cost of merchandise sales
Gross profit
Commission income
14,133,649
10,626,972
3,506,677
43,402
2012
11,713,760
8,523,151
3,190,609
67,396
Increase (Decrease)
Value
Percentage
2,419,889
21%
2,103,821
25%
316,068
10%
-23,994
-36%
Other Income
Other income mainly consists of franchise revenues, marketing and rental income. The
Companys total other income increased by P750.3 million, to almost P2.0 billion as a
result of the following:
Franchise revenues went up by 100.0% to P1.4 billion due to the increase in the number
of franchisees from 554 at the end of 2012 to 690 in 2013. In addition, the restructuring
made in the industrial-type franchise package, which was previously under service
agreement to full franchise agreement affected comparability. Under the service
agreement, service fees are treated as part of SG & A expense with the revenue from
merchandise sales booked as retail sales of the Company. As a result of the transition,
the revenue from merchandise sales is now credited to the franchisee, while the share
in gross profit is classified as franchise revenues. There is no significant impact to the
net income as we account for the full transition.
In order to conform reporting of financial performance to the practice of listed local and
international retailers, some components of marketing income were reclassified to cost
of goods sold. Display charges and certain marketing support funds previously recorded
within marketing income have been reclassified to net purchases under cost of
merchandise sales. Previous periods were also restated for comparability.
Net marketing income decreased resulting from the reclassification. However, total
discounts, rebates and marketing income grew both in absolute terms and as
percentage of revenues mainly driven by the increase in sales volume and also due to
increased supplier-supported ad and promo spending, driven by system innovations
that allow an increasing number of options for our supplier partners to build their
brands in our stores. The goal is to leverage the convenience of our locations and the
interconnectedness of our systems to become the preferred venue for manufacturer's
brand building needs. Increased sales have also made it easier for us to seek a fairer
share of manufacturers trade spend vis--vis other more established channels such as
supermarkets.
96
Moreover, rent income related to the stores subleased spaces increased by 6.0 percent
to P48.3 million and can be attributed to the increase in occupancy rate.
Other income rose by 73.0% to P222.0 million partly due to penalties imposed on
suppliers, which incurred low inbound fill rate and delayed deliveries.
No significant element of income came from sources other than the result of the
Companys continuing operations.
Franchise revenue
Marketing income
Rental income
Other income
Total
2013
2012
1,367,253
346,136
48,342
222,052
1,983,783
683,573
375,768
45,752
128,403
1,233,496
Increase (Decrease)
Value
Percentage
683,680
100%
-29,632
-8%
2,590
6%
93,649
73%
750,287
61%
97
All other expense types went up over preceding years level as a result of the increased
number of stores. The said growth is considered to be incidental and proportionate as
PSC continues to grow its store base.
There are no significant nor unusual expense incurred during the calendar year and is
considered to be in the normal course of business.
2013
Communication, light and water
Depreciation and amortization
Outside services
Rent
Personnel costs
Advertising and promotion
Trucking services
Royalties
Warehousing services
Repairs and maintenance
Supplies
Taxes and licenses
Entertainment and amusement
Transportation and travel
Others
Total
(amount in thousand Pesos)
908,792
709,519
665,733
553,791
342,606
246,559
218,413
171,715
141,077
139,538
113,160
104,670
33,472
46,379
124,961
4,520,385
2012
822,136
527,787
663,222
488,293
269,182
139,445
171,676
133,085
95,053
120,155
119,945
85,985
24,610
38,477
85,824
3,784,875
Increase (Decrease)
Value
Percentage
86,656
11%
181,732
34%
2,511
0%
65,498
13%
73,424
27%
107,114
77%
46,737
27%
38,630
29%
46,024
48%
19,383
16%
-6,785
-6%
18,685
22%
8,862
36%
7,902
21%
39,137
46%
735,510
19%
Interest Expense
Interest incurred to service debt slightly decreased by 2.1% to P16.3 million. Outstanding
loan balance at the end of 2013 was pegged at P560.0 million, up by P82.2 million or
17.2% from the start of the year. Loans are short-term in nature and proceeds were
used to fund expansion.
Net Income
Net income in 2013 grew by P217.4 million or 46.7 percent to P682.6 million. This was
primarily due to improved sales, higher margins and continued store expansion.
The net income generated during the year translated into a 4.0% return on system wide
sales, higher compared with 3.5% in 2012, while return on equity improved to 30.7%
from 27.5%. Moreover, EPS reached P1.49 per share at the end of 2013, up from P1.01 a
year earlier.
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Financial Condition
7,000
6,000
5,000
4,000
2013
3,000
2012
2,000
1,000
2013
%
Change
Total Assets
5,961.8
30%
Current Assets
2,606.1
46%
Non-current Assets
3,355.7
20%
Current Liabilities
3,113.6
30%
Total Liabilities
3,420.6
28%
Stockholders Equity
2,541.2
33%
5.54
33%
Total Assets
Total Liabili es
Total Equity
Total assets went up by P1.39 billion or 30.4 percent to P5.96 billion at the end of 2013.
This was mainly driven by the increase in cash and cash equivalents by 134.0% to end the
year with P983.8 million. Cash level grew as a result of improved profitability and net
working capital increase.
Receivables rose by P76.1 million or 20.3 percent due to the increase in supplier
collectibles arising from ad and promo programs implemented during the year. Other
receivables also grew as the company leverages its balance sheet to provide
collateralized financing to franchisees.
The increase in non-current assets of 20.5% was mainly due to store expansion and
renovation that drove the 20.6% growth in property and equipment account, which
stood at P2.75 billion at the end of 2013. Rental deposits made to acquire new sites
contributed to the 25.8% increase in this account and reached P313.9 million at the end
of the year.
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During the year, the company invested in the remodeling of 60 existing stores to a new
look, which features softer lighting, earthier tones, and increased dining space.
On the other hand, current liabilities rose by P727.5 million or 30.5 percent owing to the
increase in accounts payable and accrued expenses and outstanding loans. Payables
grew as a result of increase in inventories, while loan balance was higher by 17.0% to
partly finance expansion. Average payable period was longer at 42.3 days in 2013
compared to 40.8 days a year ago.
Stockholders equity at the end of 2013 comprises 42.6% of total assets, compared to
41.8% at the beginning of 2013. The increase in equity account was driven by improved
profitability and was reduced by dividends paid to shareholders, which were in the form
of stock and cash.
100
The following are the discussion of the sources and uses of cash in 2013.
2013
2012
983.4
709.5
107.0
1,799.9
-1,179.3
-89.3
-1,268.6
82.2
-39.9
-15.8
26.5
557.7
415.3
973.0
674.6
527.8
-332.9
869.5
-858.7
-41.8
-900.5
103.1
-34.7
-16.6
51.8
20.6
394.7
415.3
Variance
Amount
308.8
181.7
-439.9
930.4
-320.6
-47.5
-368.1
-20.9
-5.2
0.8
-25.3
537.1
20.6
557.7
46%
34%
-132%
107%
37%
114%
41%
-20%
15%
-5%
-49%
2607%
5%
134%
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We expect to take advantage of our working capital and utilizing the short-term line
extended by leading local banks in funding our growth strategies.
Discussion of the Companys Key Performance Indicators
EBITDA Margin
The ratio of earnings before interest, taxes, depreciation and amortization over
revenue from merchandise sales. This measures the level of free cash flow
generated by retail operations and is a main indicator of profitability.
2013
2012
17,240,457
13,363,925
29.0%
14,133,649
1,703,347
12.1%
7.0%
682,628
4.8%
30.7%
11,713,760
1,215,931
10.4%
5.9%
465,176
4.0%
27.5%
20.7%
40.1%
16.3%
18.6%
46.7%
20.0%
11.6%
1.49
1.01
47.5%
% change
System wide sales generated by all 7-Eleven stores continued with its upward trajectory
by posting growth of 29.0% to P17.24 billion at the end of 2013.
102
The increase in total sales can be attributed to the opening of new stores and
improvement in average sales of mature stores.
At the end of the year, 7-Eleven stores in the Philippines totaled to 1,009, up by 180
stores or 21.7 percent from same period in 2012.
EBITDA margin improved to 8.8% of system wide sales from 7.1% during the same
period in 2012. As percentage of revenue from merchandise sales, EBITDA rose to
12.1% from 10.4%.
This was largely driven by the increase in operating income resulting from the faster rate
of increase in sales by 29.0% compared to the 19.0% increase in SG & A expense.
Operating income or EBIT margin stood at 7.0% of revenues from 5.9% in 2012.
Net income rose by 46.7% to P682.6 million, translating into a net margin and EPS of
4.8% and P1.49, respectively.
Formula
2013
2012
0.84
0.75
0.46
0.34
0.57
1.35
61.53
2.35
0.58
1.39
41.70
2.39
24.81%
27.24%
4.83%
11.45%
30.68%
3.97%
10.17%
27.46%
67
91
Liquidity Ratio
Current ratio
Quick ratio
Financial Leverage
Debt ratio
Debt to equity ratio
Interest coverage
Asset to equity ratio
Profitability Ratio
Current Assets/Current
Liabilities
Cash + Receivables/Current
Liabilities
Total Debt/Total Assets
Total Debt/Total Equity
EBIT/Interest charges
Total Assets/Total Equity
Price/earnings ratio
103
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SIGNATURE
Pursuant to the requirements of the Securities Regulation Code, the issuer has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.
Registrant:
PING-HUNG CHEN
Treasurer and CFO
April 15, 2014
LAWRENCE M. DE LEON
Head
Finance & Accounting Services Division
April 15, 2014
105