2010 Definitive Information Statement Final 05.04.2010 - 2GO ......2010/04/05 · the Articles of Incorporation of the Yes No Abstain Corporation to include the following trade name

4 4 0 9 SEC Registration Number

A B O I T I Z T R A N S P O R T S Y S T E M ( A T S C )

C O R P O R A T I O N

(Company’s Full Name)

1 2 T H F L O O R T I M E S P L A Z A B U I L D I N G

U. N. A V E. C O R N E R T A F T A V E.

E R M I T A M A N I L A

(Business Address: No. Street City/Town/Province)

ISMAEL R. CABONSE 02-5287516 / 02-5287630 (Contract Person) (Company Telephone Number)

1 2 3 1 2 0 - I S 0 5 2 7 Month Day (Form Type) Month Day

(Fiscal Year) (Annual Meeting)

Definitive Information Statement

(Secondary License Type, If Applicable)

Corporation Finance Department

N/A

Dept. Requiring this Doc. Amended Articles Number/Section

Total Amount of Borrowings

2,147 Total No. of Stockholders Domestic Foreign

To be accomplished by SEC Personnel concerned

File Number LCU

Document ID Cashier

S T A M P S Remarks: Please use BLACK ink for scanning purposes.

COVER SHEET

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SECURITIES AND EXCHANGE COMMISSION

SEC FORM 20-IS INFORMATION STATEMENT PURSUANT TO SECTION 20

OF THE SECURITIES REGULATION CODE 1. Check the appropriate box:

[ ] Preliminary Information Statement [X] Definitive Information Statement

2. ABOITIZ TRANSPORT SYSTEM (ATSC) CORPORATION (formerly: William Gothong and Aboitiz, Inc.)______ Name of the Registrant as specified in its charter 3. PHILIPPINES Province, country or other jurisdiction of incorporation or organization 4. SEC Identification Number _____4409________

5. BIR Tax Identification Code ___000-313-401___ 6. 12th Floor, Times Plaza Building U.N. Ave. corner Taft Avenue, Ermita, Manila Address of principal office Postal Code 1000

7. (02) 528-7171 / 528-7516 / 528-7630 and 528-7608 Registrant’s telephone numbers, including area code 8. May 27, 2010 at 4:00 PM, Grand Ballroom 1 & 2, Mandarin Oriental Hotel, Makati Avenue, Makati

City Date, time and place of the meeting of security holders 9. Approximate date on which the Information Statement is first to be sent or given to security holders

May 5, 2010 10. Securities registered pursuant to Sections 8 and 12 of the Code or Sections 4 and 8 of the RSA

(information on number of shares and amount of debt is applicable only to corporate registrants): Title of Each Class Number of Shares of Common Stock Outstanding or Amount of Debt Outstanding Common Stock 2,446,136,400 Redeemable Preferred Stock 4,560,417 11. Are any or all of registrant's securities listed in a Stock Exchange?

YES [X] NO [ ]

If yes, disclose the name of such Stock Exchange and the class of securities therein: Philippine Stock Exchange - Common Stock and Redeemable PreferredStock

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ABOITIZ TRANSPORT SYSTEM (ATSC) CORPORATION (formerly William, Gothong & Aboitiz, Inc.)

NOTICE OF REGULAR ANNUAL MEETING OF STOCKHOLDERS PLACE:Grand Ballroom 1& 2, Mandarin Oriental Hotel

Makati Avenue, Makati City

DATE: May 27, 2010 TIME: 4:00 P.M.

Dear Stockholder: You are cordially invited to attend the Regular Annual Meeting of Stockholders of Aboitiz Transport System (ATSC) Corporation (the "Company"), which will be held on May 27, 2010 at Grand Ballroom 1 & 2, Mandarin Oriental Hotel, Makati Avenue, Makati City at 4:00 PM. The agenda for the meeting is as follows:

1. Call to Order 2. Certification of Notice 3. Determination and Declaration of Quorum 4. Approval of Minutes of the Stockholders’ Meeting held on May 28, 2009 5. Annual Report for the year ended December 31, 2009 6. Election of the Board of Directors 7. Approval of the statutory merger of Aboitiz Transport System Corporation (ATS) with its

wholly owned subsidiary, Zoom In Packages Inc. (ZIP), whereby ATS will be the surviving corporation.

8. Approval of the amendment to the First Article of the Articles of Incorporation of the Corporation to include the following trade name of the Company - "ATS”, “2GO”, “2GO Together”, “SuperFerry", “SuperFerry Travel and Leisure” and “Cebu Ferries”.

9. Approval to mortgage corporate assets, to act as guarantor and/or surety, from time to time, for the benefit of the Company’s subsidiaries and affiliates.

10. Approval and Ratification of all Acts and Resolutions of the Board of Directors and Management for the period covering 29 March 2009 to 25 March 2010.

11. Such Other Matters as may properly come before it 12. Adjournment

Only stockholders of record in the books of the Company at the close of business on April 16, 2010 will be entitled to vote at said stockholders’ meeting. Manila, Philippines, March 25, 2010.

THE BOARD OF DIRECTORS By:

HELEN G. TIU

Corporate Secretary ========================================================================== We are not soliciting your proxy. However, if you would be unable to attend the meeting but would like to be represented thereat, you may accomplish the enclosed proxy form and submit the same on or before May 18, 2010 to the Office of the Corporate Secretary at 16th Floor Belvedere Tower, San Miguel Avenue, Ortigas Center, Pasig City. Validation of proxies shall be held on May 20, 2010 at 9:00 a.m. at the Office of the Corporate Secretary. Thank you.

PROXY

The undersigned stockholder of ABOITIZ TRANSPORT SYSTEM (ATSC) CORPORATION (the “Company”) hereby appoints __________________________ or in his absence, the Chairman of the meeting, as attorney and proxy, with power of substitution, to present and vote all shares registered in his/her/its name as proxy of the undersigned stockholder, at the Annual Meeting of Stockholders of the Company on May 27, 2010 and at any of the adjournments thereof for the purpose of acting on the following matters:

1. Approval of minutes of previous meetings. 5. Approval of the amendment to the First Article of the Articles of Incorporation of the

Yes No Abstain Corporation to include the following trade name of the Company – “ATS”, “2GO”, “2GO

2. Approval of annual report. Together”, “SuperFerry”, “SuperFerry Travel and

Leisure” and “Cebu Ferries”.

Yes No Abstain Yes No Abstain

3. Election of Board of Directors 6. Approval to mortgage corporate assets, to act as guarantor and/or surety, from time to

Vote for all nominees listed below: time, for the benefit of the Company’s Jon Ramon M. Aboitiz subsidiaries and affiliates. Bob D. Gothong Enrique M. Aboitiz Jr. Yes No Abstain Erramon I. Aboitiz Mikel A. Aboitiz 7. Ratification of all Acts and Resolutions of the Justo A. Ortiz Board of Directors and Management. Sabin M. Aboitiz Washington Z. Sycip (Independent) Yes No Abstain Emily A. Abrera (Independent)

Withhold authority for all nominees listed 8. At their discretion, the proxies named above are above. authorized to vote upon such other matters as may

properly come before the meeting. Withhold authority to vote for the nominees below: Yes No _______________ _______________ _______________ _______________ _______________ _______________ ___________________________________ _______________ _______________ PRINTED NAME OF STOCKHOLDER

4. Approval of statutory merger of Aboitiz Transport System Corporation (ATS) with its wholly owned subsidiary, Zoom In Packages, ___________________________________ Inc. (ZIP), whereby ATS will be the surviving SIGNATURE OF STOCKHOLDER/ Corporation. AUTHORIZED SIGNATORY Yes No Abstain ___________________________________ DATE

THE PROXY SHOULD BE RECEIVED BY THE CORPORATE SECRETARY ON OR BEFORE May 18, 2010, THE DEADLINE FOR SUBMISSION OF PROXIES. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER AS DIRECTED HEREIN BY THE STOCKHOLDER(S). IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF ALL NOMINEES AND FOR THE APPROVAL OF THE MATTERS STATED ABOVE AND FOR SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING IN THE MANNER DESCRIBED IN THE INFORMATION STATEMENT AND/OR AS RECOMMENDED BY MANAGEMENT OR THE BOARD OF DIRECTORS. A STOCKHOLDER GIVING A PROXY HAS THE POWER TO REVOKE IT AT ANY TIME BEFORE THE RIGHT GRANTED IS EXERCISED. A PROXY IS ALSO CONSIDERED REVOKED IF THE STOCKHOLDER ATTENDS THE MEETING IN PERSON AND EXPRESSED HIS INTENTION TO VOTE IN PERSON.

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INFORMATION STATEMENT (SEC FORM 20-IS)

A. GENERAL INFORMATION

WE ARE NOT ASKING YOU FOR A PROXY

AND YOU ARE REQUESTED NOT TO SEND US A PROXY Item 1. DATE, TIME AND PLACE OF MEETING OF SECURITY HOLDERS

Date of meeting : May 27, 2010 Time of meeting : 4:00 P.M. Place of meeting : Grand Ballroom 1 & 2, Mandarin

Oriental Hotel, Makati Avenue Makati City

Approximate date of mailing of this Statement

:

May 5, 2010

Registrant’s Mailing Address : 12th Floor, Times Plaza Bldg. UN Ave.

corner Taft Ave. Ermita, Manila

Item 2. DISSENTERS’ RIGHT OF APPRAISAL Under the Corporation Code, a dissenting stockholder shall have the right of appraisal or the right to demand payment of the fair value of his shares in the following instances:

a. any amendment to the articles of incorporation which has the effect of changing or

restricting the rights of any stockholder or class of shares, or of authorizing preferences in any respect superior to those of outstanding shares of any class, or of extending or shortening the term of corporate existence;

b. sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or substantially all of the corporate property and assets;

c. merger or consolidation; d. investment in another corporation, business or for any purpose other than the

primary purpose for which the corporation was organized.

In the foregoing cases, any stockholder who wishes to exercise his appraisal right must have voted against the proposed corporate action, made a written demand on the corporation within thirty (30) days after the date on which the vote was taken for payment of the fair value of his shares as well as complied with all other requirements provided under Title X of the Corporation Code. Failure to make the demand within such period or comply with the requirements provided under Title X of the Corporation Code shall be deemed a waiver of the appraisal right. If the proposed corporate action is implemented or effected, the corporation shall pay to such stockholder, upon surrender of the certificate or certificates of stock representing his shares, the fair value thereof as of the day prior to the date on which the vote was taken, excluding any appreciation or depreciation in anticipation of such corporate action.

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If within a period of sixty (60) days from the date the corporate action was approved by the stockholders, the withdrawing stockholder and the corporation cannot agree on the fair value of the shares, it shall be determined and appraised by three (3) disinterested persons, one of whom shall be named by the stockholder, another by the corporation, and the third by the two thus chosen. The findings of the majority of the appraisers shall be final, and their award shall be paid by the corporation within thirty (30) days after such award is made. No payment shall be made to any dissenting stockholder unless the corporation has unrestricted retained earnings in its books to cover such payment. Upon payment by the corporation of the agreed or awarded price, the stockholder shall forthwith transfer his shares to the corporation. The following agenda for the stockholders’ meeting to be held on May 27, 2010 call for the approval by stockholders representing at least two-thirds (2/3s) of the Aboitiz Transport System (ATSC) Corporation’s (the “Registrant”, or “ATS”) outstanding capital stock:

1. Approval of the statutory merger of ATS with its wholly owned subsidiary, Zoom In Packages, Inc. (“ZIP”), whereby ATS will be the surviving corporation;

2. Approval of the amendment to the First Article of the Articles of Incorporation of the

Registrant to include the following business or trade names of the Registrant – “ATS”, “2GO”, “2GO Together”, “SuperFerry”, “SuperFerry Travel and Leisure”, and “Cebu Ferries”; and

3. Approval to mortgage corporate assets and/or to act as guarantor and/or surety, from

time to time, for the benefit of the Registrant’s subsidiaries and affiliates. These proposed corporate actions may give rise to a possible exercise by stockholders of their appraisal right. Item 3. INTEREST OF CERTAIN PERSONS IN OR OPPOSITION TO MATTERS TO BE ACTED

UPON No director or officer of the Company at any time since the beginning of the last fiscal year or any nominee for election as a director of the Company or any associate of any of the foregoing persons has any substantial interest, direct or indirect, by security holdings or otherwise, in any matter to be acted upon in the stockholders’ meeting other than their re-election to their respective positions. No director has informed the Company in writing that he intends to oppose any action to be taken by the Company at the meeting.

B. CONTROL & COMPENSATION INFORMATION Item 4. VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF (1) The Registrant has 2,446,136,400 outstanding common shares and 4,560,417 outstanding

redeemable preferred shares as of April 16, 2010. Each common share shall be entitled

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to one vote with respect to all matters to be taken up during the annual stockholders’ meeting. Holders of redeemable preferred shares do not have the right to vote, except on matters specified in Section 6 of the Corporation Code with respect to which holders of non-voting shares shall nevertheless be entitled to vote, i.e.:

(1) Amendment of the articles of incorporation; (2) Adoption and amendment of by-laws; (3) Sale, lease, exchange, mortgage, pledge or other disposition of all or

substantially all of the corporate property; (4) Incurring, creating or increasing bonded indebtedness; (5) Increase or decrease of capital stock; (6) Merger or consolidation of the corporation with another corporation or other

corporations; (7) Investment of corporate funds in another corporation or business in

accordance with this Code; and (8) Dissolution of the corporation.

Accordingly, during the annual stockholders’ meeting, holders of both common and redeemable preferred shares shall each be entitled to vote with respect to the following:

a) Approval of the statutory merger of ATS with its wholly owned subsidiary, ZIP, whereby ATS will be the surviving corporation; and

b) Approval of the amendment to the First Article of the Articles of Incorporation of the Registrant to include the following trade name of ATS – “ATS”, “2GO”, “2GO Together”, “SuperFerry”, “SuperFerry Travel and Leisure”, and “Cebu Ferries”.

(2) The record date for determining stockholders entitled to notice and to vote during the

annual stockholders meeting and also to this information statement is April 16, 2010. (3) At each election for directors, every common stockholder shall have the right to vote, in

person or by proxy, the number of shares owned by him for as many persons as there are directors to be elected, or to cumulate his vote by giving one candidate as many votes as the number of such directors multiplied by the number of shares shall equal, or by distributing such votes on the same principle among any number of candidates.

(4) Security ownership of certain record and beneficial owners and management.

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Security ownership of certain record and beneficial owners of five per centum (5%) or more of the outstanding capital stock of the Registrant as of March 31, 2010:

Title of Class

Name and Address of Record

Owner and Relationship with ATS

Name of Beneficial Owner and Relationship with Record Owner

Citizenship

No. of Shares

Held

Percent of

Class

Common 1. Aboitiz Equity Ventures Inc. Aboitiz Corporate Center Gov. Manuel A. Cuenco Avenue Kasambagan, Cebu City 6000 (PARENT COMPANY)

Aboitiz Equity Ventures Inc. PROXY: Authorized to vote on behalf of AEV are any of the following: Jon Ramon Aboitiz Chairman of the Board Roberto E. Aboitiz Director Erramon I. Aboitiz President & CEO Enrique M. Aboitiz Jr. Director

Filipino 1,889,482,107 77.24%

Common 2. Aboitiz and Company, Inc. Gov. Manuel A. Cuenco Avenue, Kasambagan, Cebu City 6000 (PRINCIPAL STOCKHOLDER)

Aboitiz and Company, Inc. PROXY: Authorized to vote on behalf of ACO are any of the following: Jon Ramon Aboitiz Chairman Erramon I. Aboitiz President & CEO

Roberto E. Aboitiz SVP Enrique M. Aboitiz, Jr. SVP

Filipino 390,322,384 15.96%

Preferred 3. PCD Nominee Corporation (Filipino) 37/f Enterprise Building Ayala Avenue, Makati City (STOCKHOLDER)

Various Clients Filipino 2,905,251 63.71%

Aboitiz Equity Ventures, Inc. (“AEV”) is a publicly listed company and as of March 31, 2010, Aboitiz and Company, Inc. (“ACO”) owns 48.18% of AEV. ACO is a corporation wholly owned by the Aboitiz family. No single stockholder, natural or juridical, owns five per centum (5%) or more of the shareholdings of ACO.

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Security Ownership of Management – Record and Beneficial Owners as of March 31, 2010:

Title of Class

Name of Beneficial Owner and Position

Citizenship Amount and nature of ownership

(Indicate record and/or beneficial) Percent of Class

Common Jon Ramon Aboitiz Chairman of the Board

Filipino 21 – “direct” 1,365,064 – “indirect”

Record Owner: Lekeitio & Company. Inc.

95,877 - “indirect” Record Owner: JIA Management Corp.

95,877 - “indirect” Record Owner: SOFO Management Inc.

95,877 - “indirect” Record Owner: EAA Management Corp.

0.07%

Common Bob D. Gothong Vice Chairman of the Board

Filipino 148 – “direct” 328,750 – “indirect”

Record Owner: One Wilson Place Holdings 1,561,425 – “indirect”

Record Owner: Josephine Te, wife

0.08%

Common Enrique M. Aboitiz, Jr. President and CEO

Filipino 102,010 – “direct” 0.00%

Common Erramon I. Aboitiz Director

Filipino 188,287 – “direct” 1,418,951 – “indirect”

Record Owner: Bauhinia Management, Inc. 0.07%

Common Roberto E. Aboitiz Director

Filipino 170,281 – “direct” 636,078 - “indirect”

Record Owner: Amayana Mgt. & Dev.

0.03%

Common Justo A. Ortiz Director


Common Sabin M. Aboitiz Director

Filipino 1,086,474 – “direct” 0.04%

Common Washington Z. SyCip Independent Director

American 12 – “direct” 0.00%

Common Emily A. Abrera Independent Director


Common Lilian P. Cariaso Treasurer, EVP-CFO and CIO

Filipino 1,147,825 – “direct” 0.05%

Common Susan V. Valdez EVP-CEO Freight


Common Evelyn L. Engel EVP-CEO Passage and CRO


Common Shelley U. Rapes VP-Information Technology

Filipino 400,033– “direct” 0.02%

Common Magdalena A. Anoos VP-Materials Management Division

Filipino 751,173– “direct” 0.03%

Common Norissa L. Ridgwell VP-Freight Operations

Filipino 238 – “indirect” Record Owner: PCD Nominee Corporation

(Filipino)

0.00%

TOTAL 4,999,872”direct”; 5,598,137“indirect”b” Preferred Sabin M. Aboitiz

Director Filipino 2,650 – “direct” 0.00%

TOTAL 2,650 – “direct”

Security Ownership of the Directors and Officers in the Registrant as a Group: Common is 10,598,009 shares; Preferred – 2,650 shares. Voting trust holders of 5% or More No person holds more than five per centum (5%) of a class under a voting trust agreement or similar arrangement.

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Changes in Control In September 2008, the major shareholders of ATS, AEV and ACO, accepted the unsolicited offer of KGLI-NM Holdings, Inc. (KGLI-NM) to purchase all of the shareholdings of AEV and ACO in ATS on a per share purchase price to be computed based on an ATS equity value of P5 billion or equivalent to P2.044 per share. AEV owns 1,889,489,607 common shares of ATS while ACO owns 390,322,384 common shares of ATS, representing 77.24% and 15.96 % respectively of the total outstanding ATS capital stock. This planned acquisition will include all of the shipping and logistics businesses of ATS except the Aboitiz Jebsen Group. ACO is the private holding company of the Aboitiz family and is AEV’s largest shareholder. KGLI-NM is a domestic company, which is jointly owned by Negros Holdings and Management Corporation (NHMC) and KGL Investment BV (KGLIBV), which is beneficially owned by the KGL Investment Company, a Kuwaiti company. On December 19, 2008, AEV and ACO, accepted the Term Sheet offered by KGLI-NM for the acquisition by KGLI-NM of 49% equity stake in ATS instead of the total buy-out proposed in the Memorandum of Agreement signed by the parties in September 2008. The 49% equity stake was to include the 7% equity stake of the public in ATS. Under said modified agreement, which was expected to close on or before April 30, 2009, the purchase price would have been based on a total equity value of ATS in the amount of P4.5 billion or equivalent to P1.84 per share, the adjusted value after KGLI-NM conducted a due diligence examination. The Agreement also provided for an option for KGLI-NM to acquire the remaining 51% equity stake of AEV and ACO anytime between May 1, 2009 to September 30, 2009 at the same price plus a premium of nine and a half percent (9.5%) annualized price per share calculated from 30 April 2009 to 30 September 2009 or to date of acquisition, as applicable. On March 31, 2009, AEV and ACO received notice from KGLI-NM that it will exercise its option to acquire at least US$ 30 million worth of common shares of ATS owned by AEV and ACO. Based on the Term Sheet, the sale was estimated to involve approximately 655,382,609 common shares of ATS owned by AEV and 135,378,261 common shares of ATS owned by ACO computed at the prevailing dollar exchange rate, or a total of approximately 32% of the outstanding common shares of ATS. However, the actual number of shares to be acquired by KGLI-NM would have been determined based on the dollar exchange rate on the expected closing date (i.e., April 30, 2009.) KGLI-NM was going to be entitled to such number of board seats as would have been proportionate to the number of shares that they would have eventually acquired in ATS in accordance with the regulations of the Securities and Exchange Commission and the Philippine Stock Exchange. However on April 30, 2009 ATS received a written advice from AEV and ACO that KGLI-NM will not proceed with the purchase. KGLI-NM cited the then constraints in the debt markets as the reason for its decision not to push through with its planned purchase of the ATS shares owned by AEV and ACO.

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In view of KGLI-NM’s decision not to close pursuant to the Term Sheet and to its notice dated March 31, 2009, the Term Sheet dated December 19, 2008 as well as the Memorandum of Agreement dated September 23, 2008 between AEV and ACO, on one hand, and KGLI-NM, on the other hand, were deemed terminated. Likewise, the P100 million option money paid by KGLI-NM to AEV and ACO (P82.88 million for AEV and P17.12 million for ACO) was forfeited in accordance with the terms of the Term Sheet. Item 5. DIRECTORS AND EXECUTIVE OFFICERS Board of Directors, Including Independent Directors and Executive Officers The names, ages, citizenship, position and offices held or will hold, and brief description of business experience during the past 5 years (except those years stated otherwise) and other directorships held in reporting companies, including name of each company, of all directors and executive officers are as follows: DIRECTORS

Mr. Jon Ramon M. Aboitiz, 61 years old, Filipino, has served as Chairman of the Board of ATS since September 2002 and Director since 1996. Mr. Aboitiz is also Chairman of the Compensation/Remuneration and Nomination Committee, and the Strategy Committee. He is also a member of the Audit and Corporate Governance Committee starting January 22, 2009, Mr. Aboitiz’s other positions include Chairman of the Board of Directors of Aboitiz Equity Ventures, Inc., Aboitiz and Company, Inc. and Aboitiz Jebsen Bulk Transport Corporation and, Inc.; Vice Chairman of the Board of Directors of Union Bank of the Philippines and Aboitiz Power Corporation; Director of Davao Light & Power Company, Inc., Cotabato Light & Power Company, City Savings Bank, Therma Luzon, Inc., San Fernando Electric and Power Co., Inc. and Cotabato Ice Plant, Inc.; President of Aboitiz Foundation, Inc. and Trustee of the Ramon Aboitiz Foundation, Inc. He graduated with a degree of Bachelor of Science in Commerce major in Management from the University of Santa Clara, California, U.S.A.

Mr. Bob D. Gothong, 54 years old, Filipino, has served as Vice Chairman of the Board of ATS since September 2002. Mr. Gothong is also a Chairman of the Risk Management Committee and member of the Company’s Audit and Corporate Governance Committee. Chairman and Chief Executive Officer of One Wilson Place Holdings, Inc.; Director of Philippine National Oil Co.; Ramon Aboitiz Foundation, Inc., and Vice Chairman of Carlos A. Gothong Holdings, Inc. He graduated with a degree of Bachelor of Science in Commerce Major in Transportation and Utilities and Minor in Finance from the University of British Columbia, Vancouver, Canada.

Mr. Enrique M. Aboitiz, Jr., 56 years old, Filipino, has served as President and Chief

Executive Officer of ATS since May 1999 and Director since 1997. He is a member of the Compensation/Remuneration and Nomination Committee, the Strategy Committee, and the Risk Management Committee. He is also the Director and Senior Vice President of Aboitiz and Company, Inc; Director and President of Aboitiz Jebsen Bulk Transport Corporation; Director and Chairman of the Board of Aboitiz Power Corporation (AP), Aboitiz One, Inc.; Director of Aboitiz Equity Ventures, Inc. (AEV), Amanpulo Resorts, MacroAsia Corporation, E-Media Foundation, Pilmico Foods Corporation and Aboitizland, Inc. He also sits as the

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Chairman of AEV Board’s Risk Management Committee, Chairman of AP Board’s Strategy Committee, and Member of AP Board’s Corporate Governance Committee. He graduated with a degree of Bachelor of Science in Business Administration (Major in Economics) from Gonzaga University, Spokane, Washington U.S.A.

Mr. Erramon I. Aboitiz, 52 years old, Filipino, has served as Director of ATS since September 2002. He was an Audit Committee member until January 22, 2009. He is concurrently President and Chief Executive Officer of Aboitiz Equity Ventures, Inc., Aboitiz Power Corporation, Aboitiz and Company, Inc. and Philippine Hydropower Corporation; Chairman of the Board of Directors of Davao Light and Power Company, Inc., City Savings Bank, Subic EnerZone Corporation, San Fernando Electric Light and Power Company, Mactan Enerzone Corporation, Subic Enerzone Corporation, Balamban Enerzone Corporation and Pilmico Animal Nutrition Corporation (formerly Fil-Am Foods, Inc.); Chairman and Chief Executive Officer of Hedcor, Inc. (formerly, Benguet Hydropower Corporation); Director and Vice President of Pilmico Foods Corporation; Director of Aboitizland Inc., UnionBank of the Philippines, Visayan Electric Company, Inc., Southern Philippine Power Corp., Aboitiz Energy Solutions, Inc., and Cotabato Light and Power Company; and President and Trustee of Aboitiz Foundation, Inc. He received a Bachelor of Science degree in Business Administration, major in Accounting and Finance from Gonzaga University, Spokane, U.S.A.

Mr. Roberto E. Aboitiz, 60 years old, Filipino, has been a Director of ATS since September 2002. He is a member of the Risk Management Committee He is concurrently a Director and Senior Vice President of Aboitiz and Company, Inc.; Chairman and Chief Executive Officer of Aboitiz Construction Group, Inc.; Chairman of the Board of Directors of Cebu Industrial Park Developers, Inc. and Cebu Industrial Park Services, Inc.; Chairman and President of AEV Aviation Inc.; Director of Aboitiz Equity Ventures, Inc., City Savings Bank, Cotabato Light & Power Company, Davao Light & Power Company, Inc., Tsuneishi Heavy Industries (Cebu), Inc., Metaphil International, Inc., Metaphil, Inc. and Visayan Electric Company, Inc. and Trustee of Aboitiz Foundation, Inc. He graduated from Ateneo de Manila University with a Bachelor of Arts degree in Behavioral Science.

Mr. Mikel A. Aboitiz, 55 years old, Filipino, nominated as Director of ATS for the

ensuing year (2010-2011). He is a Director, SVP-Chief Information Officer and Chief Strategy Officer of Aboitiz Equity Ventures, Inc. He is also the SVP-Strategy of Aboitiz and Company, Inc.; President and Chief Executive Officer of City Savings Bank; President and Chief Operating Officer of Cleanergy, Inc.; and Director of Aboitiz Power Corporation, Aboitiz Construction Group, Inc., Aboitiz Land, Inc., Cotabato Light & Power Company, Davao Light & Power Company, Inc., Pilmico Foods Corporation, Pilmico Animal Nutrition Corporation, Metaphil International, Inc., AEV Aviation, Inc., Propriedad Del Norte, Inc., Cebu Praedia Development Corporation, Therma Marine, Inc., and Therma Power, Inc. He received his Bachelor of Science degree in Business Administration from Gonzaga University, Spokane, U.S.A.

Mr. Justo A. Ortiz, 52 years old, Filipino, has served as Director of ATS since September 2002. He is also a Director of Aboitiz Equity Ventures, Inc. since 1994, Chairman and Chief Executive Officer of Union Bank of the Philippines. He is a member of the Audit and Corporate Governance Committee. He graduated Magna Cum Laude with a degree in

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Economics from Ateneo de Manila University and completed his Masteral units in Business Administration at the same university.

Mr. Sabin M. Aboitiz, 45 years old, Filipino, has been a Director of ATS since September 2002. He is also a member of the Audit and Corporate Governance Committee and AEV Group Mancom. He was the President and CEO of Aboitiz One, Inc. from December 1998 up to July 2009 before he was appointed as President and CEO of the Pilmico Food Group in August 2009. His other positions include: Director of Aboitiz Jebsen Bulk Transport Corporation, Manila Oslo Renewable Energy and SN Aboitiz Power. He graduated with a degree of Bachelor of Science in Business Administration, Major in Finance at Gonzaga University, Spokane, Washington U.S.A.

Mr. Washington Z. Sycip, 88 years old, American, has been an Independent Director of ATS since 1996. He sits in the Board Committees of ATS as Chairman of Audit and Corporate Governance Committee and as Member of Risk Management Committee. His other significant positions include: Founder and Chairman for 50 years - Sycip, Gorres and Velayo Group; Chairman Emeritus of the Board of Trustees and the Board of Governors of Asian Institute of Management; Chairman of the Board of Cityland Development Corp., Lufthansa Technik Philippines Inc., MacroAsia Corporation, and Steag State Power Inc.; Independent Director of Belle Corporation, Benpres Holdings Corporation, Commonwealth Foods, Inc., First Philippine Holdings Inc., Global Business Holdings, Inc., Highlands Prime Inc., Philippine Hotelier Inc., Philamlife Inc., The PHINMA Group, and Stateland, Inc; He is also a Director of Philippine Airlines Inc. and Philippine National Bank. He graduated with a degree of Bachelor of Science in Commerce and Master of Science in Commerce from the University of Santo Tomas and further completed his Master of Science in Commerce from University of Columbia, New York, U.S.A.

Emily A. Abrera, 62 years old, Filipino, has been an Independent Director of ATS since

2008. She is a member of the Compensation/Remuneration Committee and Nomination Committee, and the Strategy Committee. Ms. Abrera is concurrently the Chairman of the Cultural Center of the Philippines, and of CCI-Asia, the content-production company behind Living Asia Channel and Isla advocacy programs. She is the President of the Foundation for Communication Initiatives; a Trustee of Children’s Hour Inc., Philippine Board on Books for Young People and Philippine Eagle Foundation; a Board Member of the Ramon Magsaysay Award Foundation. She is a founding member of the Women’s Business Council. She has been a consultant and Chairman-Emeritus at McCann Manila since 2004 and non-executive Chairman of McCann World Group in the Asia-Pacific Region since 2008. She took up Mass Communication at Maryknoll College and Journalism at the University of the Philippines.

Atty. Helen G. Tiu, 49 years old, Filipino, has served as Corporate Secretary of ATS since September 2002. She is treasurer, corporate secretary and one of the managing directors of Lazaro, Bernardo, Tiu and Associates, Inc., a consultancy firm and practices law at H. G. Tiu Law Offices. Under H. G. Tiu Law Offices, she acts as corporate counsel, director, and/or corporate secretary of various clients. She is a certified public accountant and a member of the Philippine Bar. She received her Bachelor of Science in Business Administration and Accountancy (cum laude; 1981) and Bachelor of Laws (1987) from the University of the Philippines. In 1991, she obtained a Masters of Laws degree from Harvard

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University. In 2006, Atty. Tiu was one of the Distinguished Alumni Awardees of the College of Business Administration, University of the Philippines.

Atty. Catherine R. Atay, 31 years old, Filipino, has served as Assistant Corporate

Secretary of ATS since 2008. She also acts as the Corporate Secretary of various corporations of the Aboitiz group including Pilmico Animal Nutrition Corporation, Davao Light and Power Corporation, Cotabato Light and Power Corporation, Aboitiz Construction Group, Metaphil International and Abovant Holdings, Inc. Prior to joining the Aboitiz Group, Atty. Atay was with Landicho and Associates Law Offices. She received her Bachelor of Science in Accountancy (cum laude; 1999) and Bachelor of Laws (2004) from the University of San Carlos. EXECUTIVE OFFICERS

Ms. Lilian P. Cariaso, 50 years old, Filipino, Treasurer, Executive Vice President - Chief Finance Officer, Corporate Information Officer since June 2004 and Chief Resources Officer effective August 2009. She has been with the Aboitiz group since 1979. She is a Director of SuperCat Fast Ferry Corporation, Aboitiz Jebsen Bulk Transport Corporation, Aboitiz One, Inc., and SQL Wizard. She graduated with a degree in Bachelor of Science in Commerce, Major in Accounting (Summa Cum Laude) at the University of San Carlos and earned her Masters degree in Business Management at the University of the Philippines.

Ms. Susan V. Valdez, 49 years old, Filipino, Executive Vice President - Chief Executive Officer of the 2GO Freight Division since January 2004, and President & CEO for the Aboitiz One Inc. Group effective August 2009. She has been with the Aboitiz group since 1981. Previous positions in ATS include: Treasurer, Executive Vice President - Chief Finance Officer, Corporate Information Officer. She graduated with a degree in Bachelor of Science in Commerce, Major in Accounting (Cum Laude) at St. Theresa’s College and earned her Masters degree in Management, Major in Business Management at the University of Philippines. She also completed the Program for Management Development at Harvard Business School, Boston, U.S.A.

Ms. Evelyn L. Engel, 57 years old, Filipino, Executive Vice President - Chief Executive

Officer of the Passage Division since June 2004 and President and Chief Executive Officer of Scanasia Overseas Inc. effective August 2009. Her other positions include Director of Catena Services, Inc. and SQL Wizard, Inc. She has extensive experience in the Aboitiz Transport Group Sales and Marketing, Human Resource and Information Technology. She was a Director of Interferry, an international organization of Ferry Operators in Europe, Asia and Americas. She graduated with B.A. in Economics at St. Paul University.

Rafael L. Sanvictores, 52 years old, Filipino, Senior Vice President of Passenger

Services since May 2006. He has been with the Aboitiz group since 1980. He graduated with a degree in Bachelor of Arts in Economics at San Beda College.

Mr. Ramon G. Villordon, Jr., 57 years old, Filipino, President and Chief Executive Officer of SuperCat Fast Ferry Corporation and Cebu Ferries Corp. since March 2002. He has been with the Aboitiz group since 1974. Previous positions in ATS include President of Philippine Fast Ferry Corporation. He is currently Director of United Southdockhandlers, Inc.

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and is one of the Commissioner of Cebu Ports Authority (private sector representative). He graduated with a degree in Bachelor of Science in Business Management at University of San Carlos.

Mr. Wilmer Jose A. Alfonso, 57 years old, Filipino, Vice President of Ports Services

since May 2006. He has been with the Aboitiz group since 1971. Other positions in 2009 include: Chairman of the Board of Catena Services, Inc.; Chief Operating Officer of North Harbor Tugs Corporation; President of United South Dockhandlers, Inc. He is also the Chairman of the Board of Attina Security Services, Inc. and President of Supersail Services, Inc. Previous positions in ATS include: Vice President and Chief Operating Officer of Passage Services Group; Vice President and Chief Operating Officer, President and Chief Operating Officer of WG&A SuperCommerce, Inc., President of Pilotage Integrated Services Corporation. Mr. Alfonso is a Certified Public Accountant. He graduated with a degree in Bachelor of Science in Commerce Major in Accounting at University of San Carlos.

Ms. Magdalena A. Anoos, 53 years old, Filipino, Vice President of Materials Management since January 2003. She has been with the Aboitiz Group since 1977. Previous positions in ATS include: Finance Vice-President of Strategic Support Center, Aboitiz One, Inc. She graduated with a degree in Bachelor of Science in Commerce Major in Accounting (Cum Laude) at University of San Carlos. She also completed the Senior Executive Program at Columbia Business School, New York, USA. She received the "Division Governor of the Year" award from Philippine Toastmasters District 75 in 2005 and Advanced Toastmaster Gold award by Toastmasters International in 2006.

Ms. Charity Joyce S.D. Marohombsar, 43 years old, Filipino. Currently Vice President for the Customer Management Group of 2GO Scanasia. Other positions held in ATS. Vice President of Customer Interaction Center COO since May 2003 and VP for 2Go Freight and RORO. She has been with ATS since 2003. Previous positions include: General Manager of Source One Asia an International BPO. She graduated with a degree in Bachelor of Arts at Ateneo de Naga.

Ms. Norissa L. Ridgwell, 54 years old, Filipino, Senior Vice President and Chief

Operating Officer of 2GO Freight Operations starting August 2009. She has been with the Aboitiz group since 1994. Previous positions include: COO, Hapag Lloyd Philippines, Vice President for Sales & Marketing, WG&A, Vice President for Liner, Aboitiz Jebsen, Human Resource Director of ATS and Vice President for Operations of ATS. She graduated with a degree in Bachelor of Science in Commerce Major in Management at Silliman University.

Ms. Shelley U. Rapes, 51 years old, Filipino, Vice President and Chief Information Officer of ATS starting August 2009. She has been with the Aboitiz group since 1981. Previous positions include: Assistant Vice President–Information Technology and Information Services Manager of ATS. She graduated with a degree in Bachelor of Science in Mathematics (Cum Laude) from the University of San Carlos, and finished the 3-month Management Development Program of the Asian Institute of Management.

Ms. Annacel A. Natividad, 40 years old, Filipino, Vice President and Chief Finance Officer of the Passage Division since June 2005. She is also concurrently handling Risk Management Department since June 2007. She was also appointed as Chief Finance Officer

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of Scanasia Overseas, Inc. last February 2010, in addition to her existing functions. She has been with the Aboitiz group since January 1998. Previous positions in ATS include: Assistant Vice President for Investor Relations, Corporate Finance, and the Finance Division of Passage Travel and Leisure. She finished her Masters in Business Administration from De La Salle University - Graduate School of Business and she graduated with a degree in Commerce major in Accounting from the University of Santo Tomas.

Mr. Oscar Y. Go, 57 years old, Filipino, Vice President of Sales-Special Accounts since May 2002. He has been with Aboitiz Transport System Corporation since May 2002. Prior to joining the company, he was Vice President of Lorenzo Shipping Corporation. He graduated with a degree in Business Management at Collegio de San Juan de Letran. Mr. Joel Jesus M. Supan, 52 years old, Filipino, Vice President of Security, Safety and Compliance since October 2004 which is also the year he joined ATS. He is a Founder and Proprietor of Stonewall Security Concepts; Director and President of Ethics Call System Inc., and Founder of Balikatan ng Mga Tanod Ng Ari-arian at Yaman (BANTAY). Previous positions include: Vice President and General Manager of Security Solutions of Solutions and Innovations Inc.; Estates Management Division Head of Moldex Group; Vice President for Training and Education of Independent Insights Inc., Naval Officer, Philippine Navy. He graduated with a degree in Bachelor of Science from the Philippine Military Academy in 1981.

Ms. Ellen F. Bolus, 40 years old, Filipino, Vice President of Sales and Marketing of 2GO Freight Operations effective August 2009. She has been with ATS since 1995. Previous positions in ATS include: Assistant Vice President of Sales 2GO Freight, Assistant Vice President and Chief Operating Officer of Hapag Lloyd Phils. Inc., OIC-Chief Operating Officer of AONE Network Brokerage Inc., and Chief Operating Officer of Hapag Lloyd Phils. Inc. She graduated with a degree in Bachelor of Science in Tourism from the University of the Philippines and earned her MBA (Gold Medalist) from the Ateneo Graduate School of Business in 2003.

Ms. Noemi G. Sebastian, 48 years old, Filipino, Vice President of Human Resources and Quest Consulting Group since August 2009. She is concurrently handling Corporate Communications effective March 16, 2010. She has been with ATS since 2003. She graduated with a degree in Bachelor of Science in Business Administration (Cum Laude) from the University of the Philippines. Nomination Committee and Nominees for Election as Members of the Board of Directors The incumbent directors except for Mr. Roberto E. Aboitiz will be nominated as members of the Board of Directors for the ensuing year (2010-2011). To fill in the position vacated by Mr. Roberto E. Aboitiz in the ATS Board, Mr. Mikel A. Aboitiz is nominated as one of the Board of Directors.

In compliance with SEC Guidelines on the Nomination and Election of Independent Directors under SRC Rule 38, the Company Board created on February 26, 2003 a Nomination Committee (which was consolidated with the Compensation/Remuneration Committee in August, 2009.) The current Compensation/Remuneration and Nomination Committee is composed of the following directors: (1) Mr. Jon Ramon M. Aboitiz as chairman, (2) Mr.

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Enrique M. Aboitiz, Jr. as member and (3) Ms. Emily A. Abrera, an independent director, as member. The Compensation/Remuneration and Nomination Committee had promulgated the guidelines which govern the conduct of the nomination of the members of the Company Board. It had pre-screened and short listed all candidates and came up with the following individuals as nominees for independent directors for the ensuing year (2010-2011): (1) Mr. Washington Z. Sycip as nominated by Mr. Jon Ramon M. Aboitiz (2) Ms. Emily A. Abrera as nominated by Mr. Enrique M. Aboitiz Jr.

The nominating persons are not related to the nominees within the fourth degree of consanguinity. Further, the Committee approved on July 20, 2005 the Company’s Amended By-Laws incorporating the procedures for the nomination and election of Independent Directors under Rule 38 of the Securities Regulation Code, as the same may be amended from time to time. Period in Which Directors and Executive Officers Should Serve The directors and executive officers should serve for a period of one (1) year and until the election and qualification of their successors. Terms of Office of a Director The nine (9) directors shall be stockholders and shall be elected annually by the stockholders owning a majority of the outstanding common shares of the Registrant for a term of one (1) year and shall serve until the election and qualification of their successors. Any vacancy in the board of directors other than removal or expiration of term may be filled by a majority vote of the remaining members thereof at a meeting called for that purpose if they still constitute a quorum, and the director or directors so chosen shall serve for the unexpired term.

Significant Employees The Corporation and its subsidiaries consider the contribution of every employee important to the fulfillment of its goals. Family Relationships Messrs. Jon Ramon Aboitiz and Roberto E. Aboitiz are brothers and are, thus, related to each other within the fourth degree of consanguinity. Messrs. Erramon Aboitiz, Enrique M. Aboitiz, Jr. and Sabin M. Aboitiz are brothers and are, thus, also related to each other within the fourth degree of consanguinity. They are cousins to Messrs. Jon Ramon Aboitiz and Roberto E. Aboitiz and are therefore related within the fourth degree of consanguinity. Other than the ones that are disclosed above, there are no other family relationships within the fourth degree of consanguinity known to the Registrant.

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Involvement in Certain Legal Proceedings To the knowledge and/or information of ATS, none of its nominees for election as directors, the present members of its Board of Directors or its executive officers, is presently or during the last five (5) years been involved in any legal proceeding in any court or government agency on the Philippines or elsewhere which would put to question their ability and integrity to serve ATS and its stockholders. With respect to its nominees for election as directors, the present members of its Board of Directors and its executive officers, the Company is not aware that during the past five (5) years up to even date of: (a) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (b) any conviction by final judgment of such person in a criminal proceeding, excluding traffic violations and other minor offenses; (c) such person being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, by any court of competent jurisdiction, domestic or foreign, permanently or temporarily enjoining, barring, suspending or otherwise limiting such person’s involvement in any type of business, securities, commodities or banking activities; and (d) such person being found by a domestic or foreign court of competent jurisdiction (in a civil action), the Commission or comparable foreign body, or a domestic or foreign exchange or other organized trading market or self regulatory organization, to have violated a securities or commodities law or regulation and the judgment has not been reversed, suspended, or vacated. Certain Relationships and Related Transactions In the ordinary course of business, the Registrant has transactions with fellow subsidiaries, associates, and other related companies consisting of shipmanagement services, charter hire, management services, courier services, purchases of steward supplies, availment of stevedoring, arrastre, trucking, rental and repair services. The Registrant needs these services to complement its services to the freight and passage customers. The identification of the related parties transacting business with the Registrant and how the transaction prices were determined by the parties are discussed in the Note 22 of the consolidated financial statements. The Registrant will continue to engage the services of these related parties as long as it is economically beneficial to both parties. The Corporation has no transaction during the last two years or proposed transaction to which it was or is to be a party in which any of its directors, officers, or nominees for election as directors or any member of the immediate family of any of the said persons had or is to have a direct or indirect material interest. Resignation or Refusal to Stand for Re-election by Members of the Board of Directors No Director has resigned or declined to stand for re-election to the board of directors since the date of the last annual meeting of the Registrant because of a disagreement with the Registrant on matters relating to the Registrant operations, policies and practices.

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Item 6. COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS The following table summarizes certain information regarding compensation paid or accrued during the last three fiscal years and to be paid in the ensuing fiscal year to the Registrant Chief Executive Officer and each of the Registrant four other most highly compensated executive officers:

SUMMARY OF COMPENSATION TABLE

Amounts in Thousands of Pesos (‘000s) SALARY BONUS

(13th and 14th Months Pay)

OTHER COMPENSATION

TOP FIVE HIGHLY COMPENSATED EXECUTIVES: ENRIQUE M. ABOITIZ JR. – CHIEF EXECUTIVE OFFICER EVELYN L. ENGEL – CHIEF EXECUTIVE OFFICER –

PASSAGE AND PRESIDENT-CEO SCANASIA, INC.

SUSAN V. VALDEZ – CHIEF EXECUTIVE OFFICER – FREIGHT AND PRESIDENT-CEO OF ABOITIZ ONE INC. GROUP

LILIAN P. CARIASO – CHIEF FINANCE OFFICER, CORPORATE INFORMATION OFFICER AND CHIEF RESOURCE OFFICER

MIGUEL A. CAMAHORT – SVP–COO 2GO SOLUTIONS (2008-2009)

NORISSA L. RIDGWELL – SVP-COO 2GO FREIGHT (2010 ONLY)

2008 19,728 3,288 - 2009 22,372 3,729 -

All above named officers as a group

Projected

2010

29,117 4,853 -

2008 21,648 2,214 - 2009 23,911 2,545 -

All officers and directors as group unnamed

Projected

2010

27,258 4,543 -

The Company has no significant or special arrangements of any kind as regard to the compensation of all officers and directors other than the funded, noncontributory tax-qualified retirement plans covering all regular employees. Each director receives a monthly allowance of P80,000 except for the Chairman of the Board who receives P120,000 a month. Further, a per diem of P30,000 is given to each Director and P45,000 for the Chairman for every Board meeting attended. Except for the regular company retirement plan, which by its very nature will be received by the officers concerned only upon retirement from the Company, the above-mentioned directors and officers do not receive any profit sharing nor any other compensation in the form of warrants, options, bonuses, etc. Likewise, there are no standard arrangements that compensate directors directly or indirectly, for any services provided to the Company either as director or as committee member or both or for any other special assignments.

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Item 7. INDEPENDENT PUBLIC ACCOUNTANTS The accounting firm of Sycip, Gorres, Velayo & Company (SGV) has been ATS' Independent Public Accountant since year 1977. This is reckoned to be the approximate date based on the available records. Representatives of SGV will be present during the annual meeting and will be given the opportunity to make a statement if they so desire. They are also expected to respond to appropriate questions if needed. In August 2009, the Board of Directors of ATS approved the consolidation of its Audit Committee to the newly created Audit and Corporate Governance Committee. The said Committee is composed of three Board members, namely, Washington Z. Sycip as chairperson; and Justo A. Ortiz and Sabin M. Aboitiz as members.

At its regular board meeting on April 23, 2009, the Board of Directors approved a resolution to submit for the approval of the stockholders during the Annual Stockholders’ Meeting a proposal to delegate to the Board of Directors the authority to appoint the Company’s external auditors for 2009. This was intended to give the Audit Committee sufficient time to evaluate the different auditing firms which had submitted engagement proposals to act as ATS' external auditor for 2009. On May 28, 2009 on which the annual stockholders' meeting was held, said proposal was approved by stockholders representing at least a majority of the outstanding capital stock of the Company.. In compliance with SEC guidelines on the rotation of external auditors under its SRC Rule 68, Paragraph 3(b)(iv), ATS has already adopted and incorporated the said guidelines in its Code of Corporate Governance. Mr. Ladislao Z. Avila Jr. has been the signing partner since fiscal year 2006. He will be replaced starting fiscal year 2011 in compliance with the five years rotation requirement under SRC Rule 68, Paragraph 3(b)(iv). (1) External Audit Fees and Services

Estimates for

December 31, 2010 Year ended

December 31, 2009 Year ended

December 31, 2008 Audit Fees P 1,240,000 Audit-Related Fees 300,000 All Other Fees

P 1,000,000

P 1,000,000

60,000

TOTAL P 1,000,000 P 1,000,000 P 1,600,000 Audit Fees This represents professional fees for financial assurance services rendered for the Company’s Annual Financial Statements, review and opinion for SEC Annual Report. Audit-Related Fees This represents professional fees for technology and security risk services rendered by the external auditor in connection with the Audit on Company’s Annual Financial Statements.

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All Other Fees This represents fees for services rendered in reviewing and issuing opinion with regards to the Company’s annual reportorial requirement with Maritime Industry Authority (MARINA). Audit services provided to the Company by external auditor, SGV & Co. have been pre-approved by the Audit and Corporate Governance Committee. The Audit and Corporate Governance Committee has reviewed the magnitude and nature of these services to ensure that they are compatible with maintaining the independence of the external auditor. (2) Changes in and Disagreements With Accountants on Accounting and Financial

Disclosure There was no event in the past years where SGV and the Company had any disagreements with regard to any matter relating to accounting principles or practices, financial statement disclosure or auditing scope or procedure. Item 8. MERGERS, CONSOLIDATIONS, ACQUISITIONS AND SIMILAR MATTERS On March 25, 2010, the Board of Directors of ATS approved the statutory merger of ATS with its wholly owned subsidiary, ZIP, whereby ATS will be the surviving corporation. The said corporate action remains subject to shareholders’ approval at the annual stockholders’ meeting on May 27, 2010 as well to certain creditor and regulatory approvals and other conditions precedent. It is also subject to the definitive documentation and formal approval by the Board of Directors of ZIP. ZIP was registered with the SEC on June 6, 2002. It is in the business of supply chain management, specifically in the movement of loose cargoes (less container load). It provides integrated logistics solutions, which include all cost-effective activities from point of origin to point of destination for the purpose of meeting customer requirements, including but not limited to door-to-door pick-up and delivery of goods, warehousing and storage, distribution, supply chain management to loading and re-loading into any carrier either by air, land and sea, whereby the location and status of goods may be tracked electronically at any given time. For more information on ZIP, please refer to Pages 50-52 under the Management Report. The merger will provide integrated service offerings of ATS to clients from full container to loose cargo loads. This will further improve the effectiveness and efficiency of the delivery of freight services of ATS as well as reduce cost as people, process and systems are integrated. With the merger, the total issued and outstanding common stock of ZIP shall be retired and cancelled. No shares will be issued by ATS since it will be an upstream merger. ZIP is a wholly owned subsidiary. Accounting Treatment

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Under paragraph 10 of the Philippine Financial Reporting Standards (PFRS) 3 (effective beginning January 1, 2005) provides that business combination involving entities or businesses under common control is business combination in which all of the combining entities or business are ultimately controlled by the same party or parties both before and after the business combination, and that the control is not transitory. The said merger can be considered as a business combination of entities under common control. However, PFRS 3, paragraph (b) excludes in its scope the business combination of entities under common control but does not provide specific guidance on the accounting treatment of such combination. In the absence of the specific standard or interpretation addressing a particular accounting issue, Philippine Accounting Standards (PAS) 8, “Accounting Policies, Changes in Accounting Estimates and Errors, allows that the other guidance issued by other standard setting body may be invoked as long as that guidance does not conflict with the PFRS Framework or any other PFRS standard or interpretation. Under Appendix D12 of Financial Accounting Standards (FAS) 141, “Business Combination”, which is generally accepted accounting principles in the United States (US GAAP), provides that when accounting for a transfer of net assets or exchange of shares between entities under common control, the entity that receives the net assets or equity interests shall initially recognize the assets and liabilities transferred at their carrying amounts in the accounts of the transferring entity at the date of transfer in a manner similar to that in pooling of interests accounting. The treatment of FAS 141 of US GAAP on transactions involving common control entities is similar to the superceded Statement of Financial Accounting Standards No. 20, “Business Combination” under the Philippine GAAP. Based on the foregoing, ATS will apply pooling of interests method in accounting for the said merger. Under pooling of interests accounting, the investment account shall be eliminated against the net book value of the dissolved entity as of March 31, 2010. Pro-forma entries for such transaction are as follows: Debit Credit Current Assets XXXX Non-current Assets XXXX Current Liabilities XXXX Non-current Liabilities XXXX Accumulated earnings in the dissolved entity XXXX Investment in subsidiaries XXXX

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The following are some of the comparative financial information of ZIP and ATS for the last 2 years (amounts in P ‘000 except for the book value and cash dividend declared per share): ATS ZIP 2009 2008 2009 2008 Net Sales or Operating Revenues P 2,593,118 P 1,851,532 P198,727 P346,770 Income (Loss) from Continuing Operations

622,717 99,424 17,030 188,650

Long term obligations and Redeemable Preferred Stocks

68,131 75,928 434 100

Book Value per Share 2.11 1.88 2.26 8.05 Cash Dividend declared per Share - - 2.17 2.85 In the normal course of business, ATS enters into transactions with ZIP mostly on shipping services. ATS also provides management services based on agreed rates and acts as a guarantor on some bank loans of ZIP. For the past two years, revenues generated from said transactions with ZIP are as follows: 2009 – P515 million and 2008 – P453 million.

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Management Discussion & Analysis of Results of Operation - ZIP Years Ended December 31(In P'000)PROFIT AND LOSS

2007 2008 2009SERVICE REVENUES 924,114 1,208,173 1,088,722 284,059 31% (119,451) -10%COST OF SERVICES 686,185 861,403 889,996 175,218 26% 28,592 3%GROSS PROFIT 237,929 346,770 198,727 108,841 46% (148,043) -43%

GEN & ADMIN EXP (82,328) (159,533) (184,729) (77,204) 94% (25,196) 16%

OTHER INCOME (CHARGES)Interest income 1,357 1,298 2,095 (59) -4% 797 61%Recovery from damaged cargoes 1,238 0 1,238Interest expense (7) (159) (7) (152) 2079%

1,357 1,291 3,173 (67) -5% 1,883 146%

INCOME BEFORE INCOME TAX 156,958 188,528 17,171 31,570 20% (171,357) -91%PROV FOR (BENEFIT FR) DEF INC TAX (Note 17)Current 371 0 371Deferred (5) (121) (230) (117) 2479% (109) 90%

(5) (121) 141 (117) 2479% 263 -216%

NET INCOME 156,963 188,407 17,030 31,444 20% (171,376) -91%

BALANCE SHEETASSETSCurrent AssetsCash and cash equivalents 106,724 54,520 31,543 (52,204) -49% (22,977) -42%Trade and other receivables - net 242,475 349,431 286,806 106,956 44% (62,625) -18%Other current assets 443 351 644 (92) -21% 294 84%Total Current Assets 349,642 404,301 318,993 54,659 16% (85,308) -21%

Noncurrent AssetsProperty and equipment 44,177 57,093 54,840 12,916 29% (2,253) -4%Software development costs - net 6,200 3,057 1,397 (3,143) -51% (1,659) -54%Deferred tax assets 130 0 130Pension asset 738 333 (405) -55% (333) -100%Other noncurrent assets 18,855 18,089 19,615 (767) -4% 1,527 8%Total Noncurrent Assets 69,970 78,572 75,983 8,601 12% (2,589) -3%TOTAL ASSETS 419,612 482,873 394,976 63,261 15% (87,897) -18%

LIABILITIES AND EQUITYCurrent LiabilitiesTrade and other payables 183,202 221,505 242,248 38,303 21% 20,743 9%Prov. for cargo losses & damages 5,154 12,583 16,579 7,430 144% 3,996 32%Total Current Liabilities 188,356 234,088 258,827 45,732 24% 24,739 11%

Noncurrent LiabilitiesPension liability 434Deferred income tax liability 221 100Total Noncurrent Liabilities 221 100 434 (121) -55% 334 335%

STOCKHOLDERS EQUITYIssued and outstanding - 60,000,000 shares17,500 60,000 60,000Deposit for future subs 42,500Retained earningsAppropriated 0 188,000 23,800Unappropriated 171,035 684 51,915Total Equity 231,035 248,684 135,715 17,650 8% (112,970) -45%

TOTAL LIABILITIES & EQUITY 419,612 482,873 394,976 63,261 15% (87,897) -18%

08-09 Variance07-08 Variance

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Fiscal Year 2009 versus 2008 Total revenues of Zoom In Packages (ZIP) decreased P119 million or 10% from the previous year largely from the overall economic slow-down. Overall costs, including freight charges and administrative expenses increased 5%, reducing overall margins of the company, and registering a net income before tax of P17 million, a 91% drop from 2008. The reduction was mitigated by the increase in other income by P1.9 million, mainly as a result of higher interest income from higher placements as well as recovery from damaged goods. ZIP registered net income of P17 million after P141 thousand in provision for income tax. Total Assets of the company reduced by P88 million largely from the reduction in trade receivables brought about by lower revenues and collection of receivables. Total liabilities increased by P25 million due to higher payables. It paid P130 million in dividends for the year. Cash and cash equivalents at the end of the fiscal year amounted to P32 million. Fiscal Year 2008 versus 2007 Total revenues of ZIP increased P284 million or 31% from the previous year coming from the overall increase in volumes. Corresponding costs, including freight charges and administrative expenses likewise increased 33%. Inclusive of interest income of P1.3 million, the company registered a net income before and after tax of P189 million, 20% higher versus the previous year. Total Assets of the company of P63 million is a 15% increase over the previous year. The rise in assets is attributable to higher trade receivables from increased volume sales although cash and cash equivalents of P54 million is 49% lower than 2007. Total capital expenditures of ZIP during the period in review is P34 million, increasing its total property and equipment to P57 million from P44 million in 2007. Total liabilities increased by P46 million due to higher payables. It paid P171 million in dividends for the year. It also issued additional shares from its deposit for future subscription. Total stockholders’ equity registered higher over the previous year to P249 million.

C. OTHER MATTERS Item 9. ACTION WITH RESPECT TO REPORTS

The minutes of the last annual stockholders’ meeting held on May 28, 2009 and the Annual Report of Management for the year ended December 31, 2009 will be submitted to the stockholders for their approval.

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Item 10. MATTERS NOT REQUIRED TO BE SUBMITTED All corporate actions to be taken up at the annual stockholders’ meeting this May 27, 2010 will be submitted to the stockholders of the Registrant for their approval in accordance with the requirements of the Corporation Code. Item 11. AMENDMENT OF ARTICLES OF INCORPORATION For approval of the stockholders this May 27, 2010 meeting is the amendment to the First Article of the Articles of Incorporation of the Corporation as follows (proposed amendment underscored): "FIRST: That the name of the corporation shall be

ABOITIZ TRANSPORT SYSTEM (ATSC) CORPORATION (formerly "William, Gothong & Aboitiz, Inc." also "WILLIAM LINES, INC.")

Doing business under the name and style of "ATS”, “2GO”, “2GO Together”, “SuperFerry", “SuperFerry Travel and Leisure”, and “Cebu Ferries”

This amendment is in response to the Company’s drive to be compliant of all regulatory requirements. BIR requires SEC registration before it grants ATS the approval for the inclusion of these trade/brand names in its Certificate of Registration and the granting of authority to print ATS accountable forms. Item 12. OTHER PROPOSED ACTIONS Other proposed action that is for approval and ratification by stockholders representing at least two-thirds (2/3s) of the Registrant’s outstanding capital stock is for the Registrant to mortgage corporate assets, to act as guarantor and/or surety, from time to time, for the benefit of the Registrant’s subsidiaries and affiliates. Also, the following agenda are also for approval and ratification by stockholders representing at least a majority of the outstanding voting capital stock of the Registrant:

a) Ratification of all acts of the Board of Directors and Management Committee for the period covering March 26, 2009 through March 25, 2010 adopted primarily in the ordinary course of business (including those which have been the subject of previous disclosures to the Securities and Exchange Commission and the Philippine Stock Exchange during said period), such as:

i. approvals for the acquisition (including to participate in related bidding

process, if applicable), lease, bareboat charter (including extension and amendments thereto), financing, transfer, assignment, rent, mortgage, repair and maintenance, dry-dock, and/or disposition of vessels as well as other personal and/or real properties;

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ii approval for the joint purchase of transformers with Fastcargo Logistics Corporation;

iii. approval for entering into the merchant program of Citibank, N. A. to avail of its credit card facilities (including amendments thereof);

iv. approval for entering into certain agreements with the Cagayan Electric Power & Light Co., Inc.;

v. approval for appointing BPI Securities Corporation as the Registrant’s broker to buy and/or sell securities owned by the Registrant;

vi. approval for applying for and maintaining a credit line facility with Cebu Air, Inc.;

vii. appointment of lawyers and/or attorneys-in-fact in connection with legal proceedings (including amicable settlement proceedings) affecting the Registrant and/or its assets;

viii. appointment, election, and/or removal of corporate officers and agents as well as members of the Registrant’s board committees (including correction of disclosures concerning the same);

ix. approval for the creation of certain board committees (i.e., Corporate Governance Committee, Compensation and Remuneration Committee, Strategy Committee and Risk Management Committee), including related amendments to the Registrant’s Corporate Governance Manual;

x. approval of revisions to the Registrant’s Corporate Governance Manual; xi. approval for the availment of certain credit facilities, loans, credit

accommodations, financial lease facilities, credit card facilities, receivables financing facilities, foreign exchange dealings, electronic facilities/systems and/or products and/or services of various banks and/or financial institutions;

xii. approval for the renewal of importer’s accreditation with the Bureau of Customs;

xiii. authority for the Registrant to act as guarantor or surety, and/or to mortgage, pledge or hypothecate its properties for the benefit of its subsidiaries and/or affiliates in connection with loans or credit facilities extended to such subsidiaries and/or affiliates;

xiv. approvals related to regulatory proceedings concerning the Registrant and/or its assets (including intellectual properties) that are/were before the Board of Investments, the Intellectual Property Office, the Bureau of Customs, the Maritime Industry Authority, the Philippine Ports Authority, the Insurance Commission, the Bureau of Internal Revenue, the Philippine Stock Exchange, the Securities and Exchange Commission and/or relevant city governments;

xv. appointment of representatives for the operation of Registrant’s retirement fund account;

xvi. authority to enter into fuel hedging transactions; xvii. adoption of and/or amendments to policies and protocols governing the

trading of securities of the Registrant by insiders (i.e., directors, officers and employees);

xviii. approval for treasury matters related to opening of accounts and bank transactions (including removal of/revisions to authorized bank signatories);

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xix. authority for entering into that certain revised listing agreement with the Philippine Stock Exchange, including addendum thereto;

xx. authority for entering into various regular agreements encountered by the Registrant in its normal course of business, i.e., agency contracts to operate its proprietary marketing outlets, memorandum of agreements for the provisions of apprenticeship programs and group discount grants, electric current service contract with utility companies, subscription agreement for post paid plans of telecommunications companies;

xxi. authority for importing lighting fixtures and for transacting related businesses with the Bureau of Product Standards of the Department of Trade & Industry;

xxii. authority for the Registrant to issue peso-denominated corporate fixed rate notes in the aggregate principal amount not to exceed P2.0 Billion to a consortium of financial institutions;

xxiii. approval relating to the Registrant's 2010 Budget; xxiv. approval relating to the Registrant's Year 2009 audited financial statements

as certified by SyCip Gorres Velayo & Co; xxv. subject to stockholders' approval required by the Corporation Code, the

amendment of the plan of merger of Registrant's wholly owned subsidiary Zoom-in-Packages, Inc. into the Registrant with the Registrant as the surviving corporation; and

xxvi. subject to stockholders' approval required by the Corporation Code, the amendment of the First Article of the Registrant's Articles of Incorporation to include the Registrant's business and trade names, i.e., "ATS”, “2GO”, “2GO Together”, “SuperFerry", “SuperFerry Travel and Leisure”, and “Cebu Ferries."

b) Minutes of Stockholders Meeting held last May 28, 2009.

During the Annual Stockholders Meeting held last May 28, 2009, stockholders representing at least two-thirds of the outstanding capital stock of the Corporation approved for Registrant to mortgage corporate assets, to act as guarantor and/or surety, from time to time, for the benefit of the Registrant’s subsidiaries and affiliates.

Further, majority of the stockholders present approved the delegation to the Board

of the authority to appoint the Company’s external auditor. Item 13. VOTING PROCEDURES As to each matter, which is to be submitted to a vote of security holders, furnish the following information:

(a) Vote required for Approval

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The affirmative vote of stockholders representing at least a majority of the outstanding voting common shares of the Registrant is required for the approval of the following matters:

i. Minutes of Previous Annual Stockholders’ Meeting;

ii. Management Annual Reports for the preceding year;

iii. Election of the Board of Directors; and

iv. All Acts and Resolutions of the Board of Directors and Management since March 29, 2009.

The affirmative vote of stockholders representing at least two-thirds (2/3s) of the outstanding capital stock of the Registrant is required for the approval of the following matters:

i. Statutory merger of ATS with its wholly owned subsidiary, ZIP, whereby ATS will be the surviving corporation; and

ii. To authorize the Registrant to mortgage corporate assets, to act as

guarantor and/or surety, from time to time, for the benefit of its subsidiaries and affiliates; and

iii. Approval of the amendment to the First Article of the Articles of Incorporation of the Corporation to include the following business/trade names of the Company – “ATS”, “2GO”, “2GO Together”, “SuperFerry”, “SuperFerry Travel and Leisure” and “Cebu Ferries”.

(b) Method by which Votes will be counted

At each meeting of the stockholders, every stockholder shall be entitled to vote in person or by proxy, for each share of stock held by him, which has voting power upon the matter in question. As provided in Section 7, Article II of the By-laws of the Registrant, except upon demand by any stockholder, the votes upon any question before the meeting, except with respect to procedural questions that shall be determined by the Chairman of the meeting, shall be by viva voce or show of hand. The method and manner of counting the votes of shareholders shall be in accordance with the general provision of the Corporation Code of the Philippines. The counting of votes shall be witnessed by representatives from the Company’s external auditor, Sycip Gorres Velayo & Company (SGV), stock and transfer agent Securities Transfer Services, Inc. (STSI) and the Company’s Corporate Secretary.

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SIGNATURE PAGE

After reasonable inquiry and to the best of my knowledge and belief, I certify that the

information set forth in this report is true, complete and correct. This report is signed in the

City of Manila on April 05, 2010.

Lilian P. Cariaso Corporate Information Officer

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2009 MANAGEMENT REPORT

I. Consolidated Audited Financial Statements The Consolidated Audited Financial Statements for the year ended and as of December 31, 2009 are attached to this report. II. Disagreements with Accountants on Accounting and Financial Disclosures There was no event in the past years where Sycip Gorres Velayo and Company and the Corporation had any disagreements with regard to any matter relating to accounting principles or practices, financial statement disclosure or auditing scope or procedure III. Management’s Discussion and Analysis Key Performance Indicators (KPI) The following KPI’s are used to evaluate the financial performance of ATS and its subsidiaries: a. Revenues – ATS revenues are mainly composed of freight and passage revenues and they

are recognized when the related services are rendered. Total Revenue in 2009 is P11.8 billion compared to P12.9 billion in 2008. In 2007, ATS registered total revenue of 11.1 billion.

b. Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) - is calculated

by adding back interest expense, amortization and depreciation into income before income tax, excluding extraordinary gains or losses. The Company’s EBITDA for 2009 is P1.5 billion. For 2008 and 2007, ATS EBITDA stood at P1.0 billion each.

c. Income before income tax (IBT) – is the earnings of the company before income tax

expense. The Income Before Income Tax for 2009 is P823.8 million, 460% higher compared to P147.1 million in 2008 mainly because of lower fuel costs brought by lower prices. The average fuel price in 2009 is lower by 36% compared to 2008. In 2007, the Company’s IBT is P603 million

d. Debt-to-equity ratio – is determined by dividing total liabilities over stockholders’ equity.

ATS’ debt-to-equity ratio in 2009 and 2008 is 1.1:1.0 while in 2007 ratio is 0.9:1.0. e. Current ratio – is measured by dividing total current assets by total current liabilities.

The Company’s current ratio in 2009, 2008 and 2007 stood at 0.9:1.0.

1

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The following table shows comparative figures of the Top Five key performance indicators (KPI) for 2009, 2008, and 2007 (amounts in millions except for the financial ratios) based on the consolidated financial statements of ATS as well as each of its subsidiaries: Consolidated ATS and Subsidiaries

Dec. 31, 2009 Dec. 31, 2008 Dec. 31, 2007 Revenues 11,824 12,869 11,056 EBITDA (a) 1,531 992 956 IBT (b) 824 147 603 Debt-to-Equity Ratio (c) 1.1:1.00 1.1:1.00 0.9:1.00 Current Ratio (d) 0.9:1.00 0.9:1.00 0.9:1.00

Consolidated Aboitiz One, Inc and Subsidiaries

Dec. 31, 2009 Dec. 31, 2008 Dec. 31, 2007 Revenues 4,044 2,987 1,701EBITDA (a) 210 219 142IBT (b) 191 139 67Debt-to-Equity Ratio (c) 4.0:1.0 3.9:1.0 2.6:1.0Current Ratio (d) 0.9:1.0 0.9:1.0 1.1:1.0

Zoom-In-Packages, Inc

Dec. 31, 2009 Dec. 31, 2008 Dec. 31, 2007 Revenues 1,089 1,208 924 EBITDA (a) 33 211 177 IBT (b) 17 189 157 Debt-to-Equity Ratio (c) 1.9:1.0 1.0:1.0 0.8:1.0 Current Ratio (d) 0.9:1.0 1.7:1.0 1.9:1.0 Aboitiz Jebsen Bulk Transport Corporation

Dec. 31, 2009 Dec. 31, 2008 Dec. 31, 2007 Revenues 271 223 186 EBITDA (a) 50 53 47 IBT (b) 90 75 38 Debt-to-Equity Ratio (c) 4.8:1.0 4.7:1.0 2.4:1.0 Current Ratio (d) 1.1:1.0 1.1:1.0 1.2:1.0 Jebsens Maritime, Inc.

Dec. 31, 2009 Dec. 31, 2008 Dec. 31, 2007 Revenues 179 174 154 EBITDA (a) 43 27 21 IBT (b) 20 11 12 Debt-to-Equity Ratio (c) 17.4:1.0 34.9:1.0 39.6:1.0 Current Ratio (d) 0.9:1.0 1.0:1.0 1.0:1.0

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Aboitiz Jebsen Manpower Solutions, Inc. Dec. 31, 2009 Dec. 31, 2008 Dec. 31, 2007

Revenues 9 11 8 EBITDA (a) (1) 6 5 IBT (b) 1 5 5 Debt-to-Equity Ratio (c) 5.1:1.0 3.9:1.0 1.3:1.0 Current Ratio (d) 1.1:1.0 1.1:1.0 1.5:1.0 Jebsen Management (BVI) Ltd.

Dec. 31, 2009 Dec. 31, 2008 Dec. 31, 2007 Revenues 910 2,236 2,556 EBITDA (a) 90 (10) 10 IBT (b) 88 (15) 2 Debt-to-Equity Ratio (c) 14.3:1.00 88.3:1.0 76.2:1.0 Current Ratio (d) 1.1:1.0 1.0:1.0 1.0:1.0

Supercat Fast Ferry Corporation Dec. 31, 2009 Dec. 31, 2008 Dec. 31, 2007 Revenues 443 377 375 EBITDA (a) 147 42 45 IBT (b) 79 (19) 30 Debt-to-Equity Ratio (c) 4.9:1.0 11.7:1.0 3.9:1.0 Current Ratio (d) 0.1:1.0 0.1:1.0 0.4:1.0 MCC Transport Philippines, Inc. Dec. 31, 2009 Dec. 31, 2008 Revenues 966 863 EBITDA (a) 197 (132) IBT (b) 195 (131) Debt-to-Equity Ratio (c) 6.3:1.0 -6.8:1.0 Current Ratio (d) 1.2:1.0 0.9:1.0

a) Earnings before interest, taxes, depreciation and amortization (calculated by adding back interest expense and amortization and depreciation into income before income tax, excluding extraordinary gains).

b) Income before income tax c) Total liabilities / total stockholders’ equity d) Total current assets / total current liabilities

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Fiscal Year 2009 versus 2008 Consolidated Income Statement Aboitiz Transport System (ATS) ended the year 2009 with net income of P546 million, a 559% improvement over just P83 million in 2008. Consolidated revenues dropped P1 billion, largely from the drop in freight revenues, mainly from international ship chartering business, brought about by a depressed market. In September 2009, ATS lost a ship and the Maritime Industry Authority thereafter temporarily suspended the remainder of its fleet. This greatly affected freight and passenger business. All vessels ultimately passed the Maritime Industry Authority’s audit and inspection and were cleared for sailing shortly after the suspension. All ATS vessels, their cargo and passengers are fully insured to the extent mandated by law. The last quarter of 2009 was also plagued by devastating typhoons, affecting overall operations although ATS responded with speed and resources. Local freight business contributed P5 billon in 2009, an 8% or P414 million decrease from the same period in 2008. Passenger business, inclusive of auxiliary revenues, reduced by P343 million to register at P2.2 billion revenues from P2.6 billion in 2008. On the other hand, ATS’ overall value added business, inclusive of supply chain, jumped P1 billion to reach P3.2 billion in 2009. ATS continues to build on this business with bright industry prospects. Fuel costs and charter hire costs dropped in 2009 leading to a P2 billion decline in operating expenses and 54% improvement in earnings before interest, taxes, depreciation and amortization (EBITDA) to register at P1.5 billion in 2009. Earnings Per Share Earnings Per Share is computed by dividing Net Income Attributable to Equity Holders of the Parent over weighted average number of common shares outstanding for the year. Earnings per share for 2009 stood at P0.22/share. This is higher versus 2008 because of higher net income. Consolidated Balance Sheet and Cash Flow Statement On April 30, 2009, the principal stockholders of ATS namely, Aboitiz Equity Ventures and Aboitiz and Company, received a firm and final advice from KGLI-NM, that the proposed acquisition of ATS shares will not come to fruition based on the terms agreed upon in the Memorandum of Agreement signed on September 23, 2008. ATS and Negros Navigation however, agreed to continue to explore service and process improvements for better margins and cost benefits to both companies. As of December 31, 2009, consolidated assets of ATS amounted to P10.6 billion, posting a 13% increase from December 31, 2008 of P9.4 billion.

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Total current assets reflected a 15% increase from P4.2 billion to P4.8 billion as of December 31, 2009. The increase was mainly attributed to higher Non-trade receivables by P266.6 million directly related to the SuperFerry 9 incident and higher Inventories such as materials, parts and supplies by P164.8 million. ATS’ net Property and Equipment increased by P580.3 million. Assets of the company were being refleeted and modernized to increase operating efficiencies. Slowly, ATS is increasing its capacities after it sold vessels in the past to capitalize on high market rates. In 2009, internally generated funds were used to purchase two freighters, two fast crafts, and one roro-passenger vessel at very competitive rates. In addition to asset purchases, funds were also use for the regular maintenance of its assets, including drydocking and vessel improvements. Total liabilities amounted to P5.5 billion, a 13% increase from 2008. Total interest bearing debt was up by P100.1 million from P1.3 billion in 2008. ATS continued to be committed in gearing towards a more solid financial position and delivering positive cash flows. Trade and other payables showed a P177.5 million or 5% addition from 2008 mainly from the increase in trade payables. Stockholders’ Equity likewise increased by 12% to P5.2 billion from P4.6 billion as of December 31, 2008 due to higher net income of December 31, 2009. Cash generated from operations amounted to P1.1 billion. Total capital expenditures for the period stood at P1.9 billion. Cash and cash equivalents at the end of the year was at P1.1 billion.

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Material Changes (+/-5% or more) in the financial statement: Income Statement

Dec-09 Dec-08 '09 vs '08%

variance 2009 2008

REVENUE

Freight - net 5,823 7,569 (1,746) -23% 49% 59%

Passage - net 2,238 2,581 (343) -13% 19% 20%

Service fees 1,478 1,014 464 46% 12% 8%

Sale of Goods (AODI and SOI) 1,735 1,164 571 49% 15% 9%Others 550 541 10 2% 5% 4%

11,824 12,869 (1,044) -8% 100% 100%

COSTS AND EXPENSES

Operating 6,765 8,754 (1,989) -23% 57% 68%

Terminal 1,006 1,297 (291) -22% 9% 10%

Overhead 2,096 1,895 201 11% 18% 15%Cost of Sales (AODI and SOI) 1,461 966 494 51% 12% 8%

11,327 12,912 (1,585) -12% 96% 100%

OTHER INCOME (CHARGES)

Finance costs - net (71) (58) (13) 23% -1% 0%

Gain on disposal of property and equipment 27 88 (61) -69% 0% 1%

Gain on disposal of investment (15) 15 -100% 0% 0%Foreign exchange gain – net (12) (10) (2) 20% 0% 0%

Equity in net earnings (losses) of associates 53 (8) 61 -799% 0% 0%Others - net 329 193 136 70% 3% 2%

326 190 136 71% 3% 1%

INCOME BEFORE INCOME TAX 824 147 677 460% 7% 1%

PROVISION FOR (BENEFIT FROM)

INCOME TAX

Current 83 95 (12) -13% 1% 1%Deferred 118 (47) 166 -351% 1% 0%

201 48 153 322% 2% 0%

NET INCOME 623 99 523 526% 5% 1%

ATTRIBUTABLE TO:

Equity holders of the parent 546 83 463 559% 5% 1%Minority interests 77 17 60 361% 1% 0%

623 99 523 526% 5% 1%

% to Total Revenue

8% lower total revenues due to:

o 23% lower freight revenues brought about by the decline in international charter business and cancelled vessel voyages from loss of one ship and the temporary suspension of vessels.

o 13% lower passage revenues due to cancelled voyages and much lower capacity compared to 2008.

o 46% increase in service fees from higher warehousing revenue. o 49% increase in sale of goods due to full year operation of Scanasia Overseas, Inc.,

(Scanasia) a supply chain company acquired by Aboitiz One, Inc. in June 2008.

12% lower costs and expenses as a result of:

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o 23% lower operating expense primarily due to 36% lower fuel price. o 22% lower terminal costs due to lower transshipment fees. o 11% higher overhead expense because of higher personnel cost. o 51% higher cost of sales largely contributed by Scanasia.

71% higher other income from insurance gain. 322% higher income tax principally because of higher taxable income. Balance Sheet

AS RESTATED

Dec-09 Dec-08'09 vs

'08%

variance 2009 2008

ASSETS

Current AssetsCash and cash equivalents 1,096 1,093 3 0% 10% 12%Receivables - net 2,348 1,986 362 18% 22% 21%Inventories 571 376 195 52% 5% 4%Prepaid expenses and other current assets 785 707 79 11% 7% 8%

4,800 4,162 638 15% 45% 44%Total Current Assets 4,800 4,162 638 15% 45% 44%Noncurrent Assets 0%Investments in associates 74 17 57 328% 1% 0%Available-for-sale investments 43 37 6 17% 0% 0%Property and equipment - net 4,818 4,237 580 14% 45% 45%Deferred income tax - net 256 357 (101) -28% 2% 4%Goodwill 256 256 (0) 0% 2% 3%Other noncurrent assets - net 375 343 32 9% 4% 4%Total Noncurrent Assets 5,822 5,247 575 11% 55% 56%TOTAL ASSETS 10,622 9,409 1,213 13% 100% 100%

LIABILITIES AND STOCKHOLDERS’ EQUITYCurrent LiabilitiesLoans payable 1,392 830 563 68% 25% 17%Accounts payable and other current liabilities 3,983 3,805 177 5% 73% 79%Current portion of obligations under finance lease 6 82 (75) -92% 0% 2%Income tax payable 13 17 (4) -21% 0% 0%Total Current Liabilities 5,394 4,733 661 14% 99% 98%

Noncurrent LiabilitiesObligations under finance lease - net of current portion 25 31 (5) -18% 0% 1%Redeemable preferred shares 20 18 2 13% 0% 0%

Pension liability 18 33 (14) -44% 0% 1%

Other Noncurrent Liabilities 4 4 1 20% 0% 0%Total Noncurrent Liabilities 68 85 (17) -20% 1% 2%

Equity Attributable to Equity Holders of the Parent 5,462 4,818 644 13% 100% 100%Common shares 2,485 2,485 (0)Capital in excess of par value 911 911 0Unrealized mark-to-market gain on available-for-sale investments 18 8 10Cummulative Translation Adjustment (2) 2 (4)Share in Cumulative translation adjustments of an associate1 1 (0)Excess of cost over net asset valuation (12) (12) 0

Acquisition of minority interests 6 6 0Retained earnings 1,761 1,215 546Treasury shares (38,516,500) (59) (59) 0

5,109 4,556 552Equity Attributable to Minority Interests 51 35 16Total Stockholders’ Equity 5,160 4,591 569TOTAL LIABLITIES AND STOCKHOLDERS’ EQUITY10,622 9,409 1,213

% to Total

13% higher total assets due to:

o 18% higher net receivable primarily due to increase in non-trade receivables.

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o 52% increase of inventories because of higher merchandise inventory and higher materials, parts and supplies of spareparts.

o 11% higher prepaid expenses o 328% higher investment in associates from MCCP’s improved results of operations

and additional investment with Kerry-Aboitiz Logistics Inc. (KALI), the joint venture with Kerry Logistics Network of Hong Kong or KLN.

o 14% higher property and equipment from additional vessels purchased.

68% higher loans payable from additional bank borrowings. 12% higher stockholders’ equity from higher retained earnings.

Fiscal Year 2008 versus 2007 Consolidated Income Statement Aboitiz Transport System (ATS) ended the year 2008 with consolidated revenues of P12.9 billion, a 16% increase versus P11.1 billion in 2007. Freight business contributed P7.6 billion in revenues in 2008, a 9% or P616.1 million increase from P7.0 billion in 2007. The Company’s freight rates per twenty-equivalent unit (TEU) rose 16% as freight capacity is being filled up with its own supply chain and value added business. ATS has been reducing its reliance on spot and market cargo which is more price driven. In 2008, capacity remained at the same level as last year with close to 250,000 TEUs, at 88% utilization rate. Passage business reduced by P110.1 million to register at P2.58 billion revenues from P2.69 billion in 2007. The average rate per passenger had gone down by 5% as it continued to offer year-round promotional rates to drive up demand and face stiff competition from the airlines. Similar to the freight business, ropax passage capacity remained at the same level as the previous year with over 3.3 million passengers but with a much higher utilization rate at 70%, the highest attained in 4 years. For the year 2008, much of the Company’s efforts were geared towards developing its value-added business where it believes much of its future will lie. Aboitiz One Distribution, Inc.’s new warehouse with 22,000 pallet positions located in Taguig City has been operational since the beginning of 2009. In addition, Aboitiz One, Inc. purchased in June of 2008, Scanasia Overseas, Inc. (SOI), a company engaged in the business of sales, marketing, warehousing and transportation of temperature-controlled and ambient food products to its customers in the Philippines. These resulted in a 114% increase in service fees (inclusive of sales of goods) to P2.18 billion in 2008. Total costs and expenses jumped 14% with fuel, its single biggest expense, being the highest contributor to the rise in costs. Average fuel price for the year jumped 43% from the previous year. ATS directed its efforts in minimizing the impact of rising fuel costs by using less expensive type of fuel, lowering volume consumption and increasing freight rates. Cost of

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sales directly related to the supply chain business also registered an increase with the acquisition of SOI. ATS’ other income totaling P190.4 million is much lower than last year’s of P842.8 million. In 2007, ATS reflected a P748.9 million gain on disposal of property and equipment generated mainly from the sale of three vessels. Despite the rising costs, earnings before interest, taxes, depreciation and amortization (EBITDA) increased to 4% or P36 million versus December 31, 2007. ATS registered P99.4 million in net income from continuing operations. ATS ended the year with net income attributable to equity holders of parent of P82.8 million. This is lower compared to P420.0 million in 2007 since ATS registered after tax gain on disposal of three vessels of P405.0 million. Earnings Per Share Earnings per share for 2008 stood at P0.03/share. This is lower versus 2007 because of lower net income.

Consolidated Balance Sheet and Cash Flow On December 19, 2008, the major shareholders of ATS namely, Aboitiz Equity Ventures, Inc. (AEV) and Aboitiz & Company, Inc. (ACO) accepted the Terms Sheet offered by KGLI-NM for the acquisition by KGLI-NM of 49% equity stake in ATS instead of the total buy-out proposed in the Memorandum of Agreement signed by the parties in September 2008. KGLI-NM is a domestic company, which is jointly owned by Negros Holdings and Management Corporation and KGL Investment BV, which is beneficially owned by the KGL Investment Company, a Kuwaiti company. The 49% equity stake was to include the 7% equity stake of the public in ATS. Under said modified agreement, which was expected to close on or before April 30, 2009, the purchase price would have been based on a total equity value of ATS in the amount of P4.5 billion or equivalent to P1.84 per share. The Agreement also provided for an option for KGLI-NM to acquire the remaining 51% equity stake of AEV and ACO anytime between May 1, 2009 to September 30, 2009 at the same price plus a premium of nine and a half percent (9.5%) annualized price per share calculated from 30 April 2009 to 30 September 2009, or to date of acquisition, as applicable. It was agreed that KGLI-NM would have to make a tender offer for the ATS shares held by the public in accordance with the rules under the Securities Regulation Code. On March 31, 2009, AEV and ACO received a written notice that KGLI-NM will proceed with the acquisition of US$ 30 million worth of ATS common shares owned by AEV and ACO. This was estimated to involve approximately 655,382,609 common shares owned by AEV and 135,378,261 common shares owned by ACO computed at the prevailing dollar exchange rate, or a total of approximately 32% of the outstanding common shares. The actual number of shares to be acquired by KGLI-NM would have been determined based on the dollar exchange rate on the expected closing date (i.e., April 30, 2009.) KGLI-NM’s intention to proceed with the purchase of US$30 million worth of ATS shares from AEV and ACO was

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without prejudice to KGLI-NM’s right under the Term Sheet to acquire the remaining ATS shares of AEV and ACO. The planned acquisition excludes the Aboitiz Jebsen Group. Consequently, ATS posted P778.6 million of assets and P697.2 million of liabilities directly associated with asset of disposal group classified as held for sale. Consolidated assets as of December 31, 2008, amounted to P9.4 billion. Its receivables of P2 billion increased by 6% as a result of higher trade receivables by P113.6 million from last year. Property and equipment is maintained at P4.2 billion. During the period in review, Goodwill of P256.5 million was reflected in the books from the purchase of SOI. Total liabilities reached P4.8 billion, 17% higher compared to 2007. The increase was a result of higher Interest bearing debt amounted to P1.3 billion in 2008 versus P570.2 million in 2007. The funds were utilized for the expansion of its supply-chain business, the purchase of a vessel under its Cebu Ferries brand and fuel-efficient fast craft vessels under its SuperCat brand. Stockholders’ Equity stood at P4.6 billion, a slight 2% increase over the previous year. Cash generated from operations amounted to P1.1 billion. Total capital expenditures for the period stood at P1.1 billion. The bulk of the capital expenditures were accounted for by the purchase of a vessel under its Cebu Ferries brand and fuel-efficient fast craft vessels under its SuperCat brand. Cash and cash equivalents at the end of the year was at P1.1 billion. Material changes (+/- 5% or more) in the financial statements Income Statement

• 9% increase in freight revenues is largely due to higher average freight rates and increased revenues from its subsidiary companies Zoom in Packages and Aboitiz One, Inc.

• 4% decrease in passage revenues is due to lower volume and average passenger rates • 418% higher revenues from sale of goods generated by its value added businesses,

Scanasia Overseas, Inc., a company purchased by Aboitiz One, Inc. in June 2008 and Aboitiz One Distribution, Inc.

• 37% increase in other revenues is due to overall higher passage auxiliary revenues. • 16% increase in total revenues largely from the increase in freight revenues. • 5% increase in operating expenses primarily due to 28% rise in fuel costs • 20% increase in terminal expenses largely due to the 125% increase in transportation

and delivery costs which comprises the bulk of the company’s terminal expenses. • 414% increase in cost of sales because of Scanasia Overseas, Inc., a company acquired

in June 2008. • 88% reduction on gain on disposal of property and equipment primarily because of the

sale of three vessels in 2007. • 654% reduction on gain on disposal of investment due to the disposal of its none core

business such as Cox Trucking and Refrigerated Transport Services, Inc. • 25% lower net finance costs due to lower interest bearing debt for the year.

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• 141% lower net foreign exchange gain is due to the weakening of the peso against the dollar throughout the year.

• 1963% higher equity in net losses of associates is due to the Company’s share in MCC Philippines’ net loss.

• 42% higher other income is largely attributable to management fee income rendered to third party entities.

• 74% lower income tax principally because of lower taxable income. • 80% lower net income attributable to equity holders of parent largely because of vessel

sales in 2007. Balance Sheet

• 6% higher net receivables due to higher trade receivables • 39% higher inventories because of higher materials, parts and supplies and higher fuel

inventory. • 208% increase in loans payable mainly to finance the expansion of its supply-chain

business • 5% higher accounts payable and other current liabilities largely due to higher trade

payables All of these material changes were explained in detail in the management’s discussion and analysis of financial condition and results of operations stated above. Fiscal Year 2007 versus 2006

Consolidated Income Statement ATS registered total consolidated revenues of P11.1 billion lower versus P10.6 billion in 2006. Earnings before interest, taxes, depreciation and amortization (EBITDA) stood at P956 million and its net income attributable to equity holders of parent reached P420.0 million or 113% higher compared to the previous year 2006. ATS continued to right-size its fleet. It operated at reduced capacity in 2007 as a result of the sale of three vessels as well as having the majority of its fleet being dry-docked during the year. As s a result, passage revenues each decreased 12% and other revenues decreased 30%. In increasing the earning capacity of its assets, unused passage capacity was converted to freight to make room for increasing freight demand. Load factors were higher by 10% and 13% in freight and passage respectively. Competition in the passage business is fierce so initiatives such as offering passengers year-round promotional rates are in place to continue to drive up passage demand. In 2007, ATS entered into a joint venture with the A.P. Moller-Maersk Group to form MCC Transport Philippines, Inc. This joint venture company operated a 600-teu container ship, offering regular weekly sailings, servicing the ports of Manila, Cebu and Cagayan de Oro. In line with its strategy of building its supply chain management services, ATS’ services fees grew 123% and generated revenues from sale of goods P224.5 million. ATS continued to collaborate with customers to provide value added services through integrated logistics

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solutions. Early 2007, Aboitiz One, Inc., a 100% subsidiary of ATS, established Aboitiz One Distribution, Inc. (AODI) to focus on supply chain management services. It also fully acquired Refrigerated Transport Services, Inc. and Reefer Van Specialist, Inc. for its cold chain solutions. ATS believes much of its future growth will be generated from these value added services. Despite challenges in rising fuel prices, overall fuel costs decreased by 22% as a result of lower volume. This contributed to lower total costs by 5%. For the year in review, three vessels were sold reflecting total gains of P405 million, net of taxes. The proceeds of the vessel sales were utilized to pay down P1.8 billion of debt. Consequently, net finance costs decreased 71%, from P356.1 million to just P102.6 million. The reduction in gain on disposal of investment pertained to the sale of Davao Integrated Port and Stevedoring Services Corporation (DIPPSCOR) which was reflected in 2006. Net income from continuing operations reached P438.8 million, an improvement of P246.9 million from last year. ATS net income attributable to equity holders of the parent rose to P420 million from P197.3 million, mainly due to gain on sale of vessels. Without the gains, ATS registered P15 million in net income, an improvement versus P117 million net loss in 2006. Earnings Per Share Earnings per share for 2007 stood at P0.17/share, higher versus 2006 because of higher net income. Consolidated Balance Sheet and Cashflow Statement As of December 31, 2007, consolidated assets of ATS amounted to P8.6 billion, posting a 16% decrease from year-end 2006 of P10.3 billion. Total current assets reflected a 19% decrease to P3.7 billion in 2007 from P4.6 billion as of year-end 2006. The reduction was mainly attributed to the noncurrent asset Classified as held for sale which represents the SuperFerry 17 vessel sold as per Memorandum of Agreement dated November 13, 2006. This was delivered to the buyer on May 10, 2007. Trade and other receivables decreased 11% with the receipt of the dividend and full proceeds of the sale of DIPPSCOR. The DIPPSCOR sale was completed in December 2006. In contrast, prepaid expenses and other current assets rose 37% mainly due to higher prepaid time charter of the international chartering business as well as the accumulation of creditable withholding taxes withheld by customers. ATS’ net Property and Equipment reduced by P664 million largely due to the sale of vessels.

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Total liabilities amounted to P4.1 billion, a 25% reduction from 2006. Total interest bearing debt was down to P570.2 million from P2.4 billion in 2006. ATS continued to be committed in gearing towards a more solid financial position and delivering positive cash flows. Stockholders’ Equity likewise decreased 6% to P4.5 billion from P4.8 billion as of December 2006, after ATS paid P0.30/share dividend or P735 million to both common and preferred shareholders. Cash generated from operations amounted to P1.5 billion and proceeds from the sale of assets generated P2.5 billion. The proceeds were partially utilized to pay loans and interests amounting to P1.9 billion. It also funded P735 million in dividends declared. Total capital expenditures for the period stood at P1.5 billion. Cash and Cash equivalents at the end of the fiscal year 2007 was P820.9 million. Material changes (+/- 5% or more) in the financial statements Income Statement

• 6 % increase in freight revenues partly attributable to higher revenues generated by international chartering business

• 11 % decrease in passage revenues is due to lower capacity as excess passage capacity was converted to freight capacity, in addition to the reduction in the number of vessels.

• 123% increase in service fees generated primarily from the increase in Aboitiz One Distribution, a new company that started operating in January of 2007.

• 4% decrease in operating expenses due to 22% lower fuel cost • 71% decrease in finance costs due to lower average interest bearing debt • 231% increase in gain on disposal of property and equipment generated from the sale

of three vessels • 291% higher income tax primarily because of higher taxable income.

Balance Sheet

• 11 % decrease in trade and other receivables due to the receipt of dividend and full proceeds of the sale of DIPPSCOR. The DIPPSCOR sale was completed in December 2006.

• 6% decrease in inventories is due to the reduction of fuel and lubricants by 53% • 14% decrease in property and equipment is due to the sale of three vessels

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Other Information Other material events and uncertainties known to management that would address the past and would have an impact on ATS’ future operations are discussed below.

i. Total fuel/lubes expense is a major component of ATS’ total cost and expenses. ATS is

constantly looking for ways to reduce fuel consumption to lessen the impact of the increasing fuel prices on the bottom line.

ii. For 2010, ATS estimates over P2.5 billion in capital expenditures. The bulk of these

expenditures are earmarked for vessel purchase and maintenance. It is a policy of the company for vessels to be drydocked every 30 months. ATS will also continue to right-size and replace old tonnage. As of March 2010, it has committed to purchase 2 roro-passenger vessels. Other than this, ATS has not made any other material commitments for capital expenditures outside of its usual business operations.

iii. Except as disclosed in the management discussion and notes to the financial

statements, there are no other known events that will trigger direct or contingent financial obligation that is material to ATS, including any default or acceleration of an obligation. There are also no other known trends, events or uncertainties that have had or that are reasonably expected to have a material favorable or unfavorable impact on revenues or income from operations.

iv. All significant elements of income or loss from continuing operations are already

discussed in the management discussion and notes to financial statements. Likewise any significant elements of income or loss that did not arise from ATS’ continuing operations are disclosed either in the management discussion or notes to financial statements.

v. There is no material off-balance sheet transaction, arrangement, obligation, and

other relationships of ATS with unconsolidated entities or other persons created during the reporting period.

vi. Seasonal aspects of the business are considered in ATS’ financial forecast. vii. ATS does not expect any liquidity or cash problem within the next twelve months.

Capital expenditures are funded through cash generated from operations and additional borrowings.

viii. As markets contract, the business climate will become more competitive. These

factors may have an unfavorable impact on our financial performance.

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Outlook The strategies implemented have served the company well. Earning capacity of assets is maximized, costs are lowered, and the value-added businesses are gaining market acceptance. Balance sheet and cashflows remain strong as ATS demonstrates its resilience and drive to excel even under the most trying conditions. Most of 2010 will be focused on continuing to maximize assets. The Abojeb group continues to expand its ship management and crewing business. Supercat has started calling new ports like Bacolod-Iloilo. With more vessels in place, ATS can offer speed, frequency and reliability to its customers, serving them better and better. Risk Factors ATS follows a structured approach to Enterprise Wide Risk Management (EWRM) using a framework that incorporates the processes for identifying, assessing, responding, monitoring and reporting risks and ultimately bringing significant risks to the attention of management for immediate action. ATS operations and financial performance are subject to risks from changing conditions in competitive, economic, political, legal, regulatory, social, industry, business and financial areas. Investors should consider these risks prior to making an investment decision.

Supply and cost of fuel Political and/or economic market conditions Sourcing and retaining crew and skilled employees Competition from sea players, airlines, logistics and supply chain industries Information technology network and system failures Health, safety, and security risks Ability to obtain adequate funding from financial institutions

Please refer to section ‘Corporate Governance – Enterprise Wide Risk Management’ for more information on EWRM. IV. Brief Description of the General Nature and Scope of the Business of the Registrant

and its Subsidiaries Aboitiz Transport System (ATSC) Corporation is the only integrated transport solutions provider in the country. Its principal business units are engaged in the movement of people operating under brand names ‘SuperFerry’, ‘SuperCat’, and ‘Cebu Ferries’ and the movement of cargos operating under the brand name ‘2GO’. ATS’ array of services geared towards cargo movements includes containerization, RoRo services, logistics and supply chain solutions. The Company also provides ship management and manpower solutions worldwide under the Aboitiz-Jebsen group of companies. As of December 31, 2009, ATS has a total fleet of 23 operating vessels, of which 19 are company-owned ships.

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ATS’ history dates back to May 26, 1949. It is majority-owned by AEV, one of the largest and most diversified publicly listed corporations in the country with business interests spanning in various industries such as power, banking, food production, property development, construction, shipbuilding, and leisure/resort. Many companies work together to bring the brands of ATS to life. They enable us to deliver on our brand promises. There are instances when two or more companies work together to provide the products and service offered by a single brand, such as the case of 2GO, which has evolved into a total supply chain solutions provider. Brand Structure

ATS has 8 operating subsidiaries and affiliates, Aboitiz One, Inc. (AONE), Aboitiz Jebsen Bulk Transport Corp. (Abojeb), Jebsen Maritime Inc. (JMI), Aboitiz Jebsen Manpower Solutions, Inc. (AJMSI), Jebsen Management (BVI) Limited (JMBVI), Supercat Fast Ferry Corp. (SFFC), Zoom In Packages, Inc. (ZIP) and MCC Transport Philippines, Inc (MCCP).

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Corporate Structure

1. Aboitiz One, Inc. and Subsidiaries (A-One) A-One was incorporated on July 20, 1978. It is 100% owned by ATS. It is in the business of offering supply chain solutions in accordance with customers’ needs. A-One’s operations are supported by a logistical backbone which comprise 140 delivery vans, 45 motorcycles, 176 trucks and vans, 176 refrigerated vans, prime movers and trailers as well as ATS’ vessels ships. The company has more than 237 retail outlets and agents at various strategic locations nationwide, providing customers easy access and convenience. A-One Subsidiaries

Hapag-Lloyd Philippines, Inc. (HLP) HLP was incorporated on April 23, 1992. It is 85% owned by AONE. It is in the business of acting as an agent of Hapag-Lloyd AG, a global shipping container line engaged in global door-to-door container transport. Hapag-Lloyd AG provides global shipping services to major trade lanes such as Europe, Asia, North America, Canada, the Middle East and the South American East Coast. Aboitiz Projects T.S. Corporation (APTSC) APTSC was incorporated on August 5, 1996. It is 50% owned by AONE.

Aboitiz One, Inc.

(Freight Solutions)

Zoom In Packages, Inc.

(Freight Solutions)

SuperCat Fast Ferry Corp.

(Passage Solutions)

100% 100%100%

MCC Transport Philippines, Inc.

(Freight Solutions)

33%

Aboitiz Jebsen Bulk Transport

Corp. (Shipmanagement

Services)

Jebsens Maritime, Inc .

(Sea based Manpower Solutions)

Aboitiz Jebsen Manpower

Solutions, Inc. (Land based Manpower

Jebsen Management

(BVI) Ltd (Int’l Ship

Chartering)

50%62.5%62.5%62.5%

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It is in the business of project cargo transportation and management, which involves the haulage and transportation of heavy and bulk-sized equipment such as those used in mining, power plants and telecommunication infrastructure. It is a joint venture between AONE and Hansameyer Global Transport Pte. Ltd., a transportation company headquartered in Germany specializing in project transport logistics and engineering project management consultancy. Reefer Van Specialist, Inc. (RVSI) RVSI was incorporated on April 7, 1993, respectively. It is 100% owned by AONE. The Company is in the business of offering refrigerated transportation services under the ‘CRYO’ brand name for perishables food products such as processed meat, poultry, fruits, vegetables, and non-food industries like electronics, flowers, and chemicals.

Aboitiz One Distribution Inc. (AODI)

AODI was incorporated last January 15, 2007. It is 100% owned by AONE. It is in business of providing complete supply chain management. It has two (2) state-of-the-art warehouses -

Edan warehouse – 6,500 pallet positions Elisco warehouse – 24,148 pallet positions

By the end of 2010, the capacity of Edan warehouse will remain at 6,500 pallet positions while for Elisco warehouse, it will increase into 30,148 pallet positions. ScanAsia Overseas Inc. (SOI) The 100%-purchase of ScanAsia Overseas, Inc., in June 2008 completes AONE’s portfolio for a full supply chain solutions provider. SOI was incorporated on September 13, 1985. It is in the business of sales, marketing, warehousing and transportation of temperature-controlled and ambient food products to its customers in the Philippines. It is the Philippines’ premier chilled distributor carrying approximately 80% of the products in the chiller section in any supermarket today. It currently represents 19 international principals carrying 46 brands and 4 domestic/local principals carrying 39 brands. SOI has nationwide coverage for both retail and foodservice segments. SOI is considered as brand builders vs. regular trading companies.

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Kerry – Aboitiz Logistics Inc. (KALI) KALI was incorporated in March 30, 2009. It is 51% owned by AONE. It is in the business that aims to offer innovative, cost effective and reliable services on international air and sea freight and cargo forwarding, cargo consolidation, as a project cargo and break bulk agent, warehousing and distribution, trucking and door-to-door delivery. With the global clout of KLN and the domestic dominance of ATS, KALI is poised to provide better service to its clients.

2. Aboitiz Jebsen Bulk Transport Corp. (Abojeb) Abojeb was incorporated on May 13, 1966. It is 62.5% owned by ATS. It is in the business of providing complete ship management service, by offering technical management, crew management, dry-docking services, supervision and consulting for conversions and repairs, new-building supervision, safety and quality assurance inspections and other services to ship owners. It adheres to an unequivocal commitment to quality thus maintaining its objective of ensuring the smooth and safe sailing operations of its managed fleet, resulting in increased efficiency and minimum off-hire period. ABOJEB handles the management of all of ATS vessels. 3. Jebsens Maritime Inc. (JMI) JMI was incorporated on November 2, 1970. It is 62.5% owned by ATS. It is in the business of rendering manning and crew management services consisting primarily of the employment of crew for the principals’ vessels. As such, the principals have authorized JMI to act as their agent with respect to all matters relating to the manning of the vessels. Over the years, JMI has provided technical and crew management services to various principals which include container vessels, log/bulk carriers, passenger and cruise vessels, belt self-discharge vessels, hopper dredgers, floating production, storage and offshore loading vessels, ore bulk oil vessels, roll-on roll-off vessels, flexible fall pipe vessels, multi-purpose vessels, woodchip carriers, very large crude carriers and product and chemical tankers. 4. Aboitiz Jebsens Manpower Solutions Inc. (AJMSI) AJMan was incorporated on May 31, 1994. It is 62.5% owned by ATS. It is in the business of providing worldwide companies qualified personnel in the following fields: Healthcare, Engineering and Construction, Information Technology, Hotel and Restaurant, Education and Finance and Office Administration.

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AJMan has an extensive database of professionals and customized screening and selection process. AJMan has the resources, expertise and professionalism to meet companies’ staffing requirements. 5. Jebsen Management (BVI) Ltd. (JMBVI) JMBVI was incorporated on August 27, 1999. It is 50% owned by ATS. It is in the business of providing the transport of dry bulk commodities. It maintains a fleet of modern, self–sustaining, geared bulkers ranging from 15,000 to 30,000 DWT bulk carriers. 6. Supercat Fast Ferry Corp. (SFFC) SFFC was incorporated on June 20, 2001. It is 100% owned by ATS. It is in the business of providing fast craft passenger services under the SuperCat brand name. At present, SFFC operates six fast craft vessels with a total gross weight of 1,355 tons and a total passage capacity of 1,484 passengers. Its vessels service the ports of Cebu, Ormoc, Tagbilaran, Batangas and Calapan. 7. MCC Transport Philippines, Inc. (MCCP)

MCCP was incorporated on May 11, 2007. It is 33% owned by ATS. It is in the business of providing containerized services in the Philippines. 8. Zoom-In-Packages, Inc. (ZIP) Business Development ZIP was incorporated on June 6, 2002. It is 100% owned by ATS. The registered office address of the company is 12th floor, Times Plaza Bldg., United Nations Ave. corner Taft Ave., Ermita, Manila. It is in the business of supply chain management, specifically in the movement of loose cargoes (less container load). It provides integrated logistics solutions which include all cost-effective activities from point of origin to point of destination for the purpose of meeting customer requirements, including but not limited to door-to-door pick-up and delivery of goods, warehousing and storage, distribution, supply chain management to loading and re-loading into any carrier wither by air, land and sea, whereby the location and status of goods may be tracked electronically at any given time. Products & Services ZIP enables customers to efficiently plan their order-to-delivery schedules. The pioneer in time-defined, time-priced service, ZIP has redefined the movement of loose cargo nationwide. Simply put, ZIP stands for your choice to send cargo in 3 days or 6 days. The longer the leadtime, the lower the freight charges will be.

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Rates are simplified and flexible especially on identified special commodities. ZIP offers door-to-door service for all transport modes at reasonable prices. ZIP revenue is composed of 75% Day 6 services and 25% Day 3 services. 50% of the total revenue is contributed by corporate accounts and the other 50% from walk-in client. Competition ZIP specializes in the time defined, loose container load (lcl) cargo movement and has no direct competitor who offers the same kind of services. Government Regulations ZIP ensures compliance to all provisions and mandates of all governing departments, agencies/bureaus and local municipalities such as SEC, Bureau of Internal Revenue, Department of Trade and Industry, Board of Investment (BOI) and Bureau of Food and Drug. ZIP is a BOI-registered company. Employees Total manpower to carry ZIP business operations is 102. Major Risks Involved in the Business ZIP acknowledges the presence of risk implications in its business operations. Risks are considered as barriers in achieving the business objectives. ZIP has formulated the Risk Identification Report, which reflects the issues/risks, causes and impact analysis. Based on the Risk Identification report, ZIP has developed projects and process improvements to mitigate the impact of the identified risks. Properties The following is the summary of ZIP’s property and equipment (amounts in P’000): Historical

Cost Accumulated Depreciation

Net Book Value

Furniture, Fixtures & Equipments 20,032 13,781 6,251 Transportation & Delivery Equipments 4,837 2,395 2,442 Land & Improvements 90,276 44,129 46,147 115,145 60,305 54,840 Leases ZIP entered into various lease agreements for its sales outlets, warehouses, and administrative office locations. The contracts have terms ranging from 3 to 10 years and are subject to escalation clauses. Dividends ZIP declared cash dividends amounting to P171million in 2008 and P130 million in 2009.

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Changes and Disagreements with Accountants on Accounting and Financial Disclosure There was no event in the past years where SGV and the ZIP had any disagreements with regard to any matter relating to accounting principles or practices, financial statement disclosure or auditing scope or procedure. Vessel Fleet As of December 31, 2009, ATS has a total fleet of 23 operating vessels, of which 19 are company-owned ships. The fleet consists of 7 fast crafts under the brand name ‘SuperCat’, 10 RoRo/Pax vessels including 6 under the ‘SuperFerry’ brand, 4 vessels under ‘Cebu Ferries’ brand, and 2 freighters under the ‘2GO’ brand. ATS vessel fleet has a combined Gross Registered Tonnage of approximately 93,151 metric tons, total passenger capacity of approximately 15,206 passengers and aggregate cargo capacity (including the chartered freighters) of approximately 6,014 twenty-foot equivalent units (TEUs). Land, Buildings and Warehouses The Company owns several pieces of land and a number of buildings and warehouses. These are used in the normal course of business. Details of said properties are attached to the Company’s SEC Form 17-A under Schedules E.1 and E.2. Ports of call ATS’ extensive presence throughout the country is carried out through its branch operations and agency networks. These are located primarily in Bacolod, Batangas, Butuan, Cagayan de Oro, Calapan, Cebu, Cotabato, Davao, Dumaguete, General Santos, Iligan, Iloilo, Manila, Nasipit, Ormoc, Ozamis, Puerto Princesa, Surigao, Tagbilaran, and Zamboanga. Market Share As of December 31, 2009, ATS continues to dominate the Philippine Sea Travel with 49% market share in the passage ferry service and 30% market share in the passenger fast craft service specifically in ports that they serve. Freight market share is estimated at 34%. Legal Proceedings There are certain legal cases filed against ATS and its subsidiaries in the normal course of business. Management and its legal counsel believe that they have substantial legal and factual bases for their position and are of the opinion that losses arising from these cases, if any, will not have material adverse impact on the consolidated financial statements.

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V. Directors and Executive Officers of the Registrant The Names and Business Background of the registrant’s directors and executive officers are discussed in the information statement on page nos. 8-14. For ZIP, the following are the company’s directors and executive officers:

Mr. Enrique M. Aboitiz, Jr., Chairman of the Board (for the business background, please refer to Page 9) Ms. Susan V. Valdez, Director, President and Chief Executive Officer (for the business background, please refer to Page 11) Mr. Sabin M. Aboitiz, Director (for the business background, please refer to Page 10) Ms. Evelyn L. Engel, Director (for the business background, please refer to Page 11) Ms. Marlita M. Villacampa, 45 years old, Filipino, Director and Chief Finance Officer of

ZIP. She is also the Vice President and Chief Finance Officer of Aboitiz One, Inc. since 2005. Prior to joining Aboitiz One, Inc., Ms. Villacampa was the Chief Finance Officer of Toyota Alabang. She finished her Masters at Ateneo De Manila in 2002, graduating as a Gold Medalist. She took her undergraduate degree of Bachelor in Science Major in Accounting in 1985 from De La Salle University.

Atty. Lehua L. Cabrera, Filipino, has served as the Corporate Secretary of Zoom In

Packages Inc. since 2008. She also acts as the Corporate Secretary of various corporations of the Aboitiz Group including Aboitiz One, Inc., Aboitiz One Distribution, Inc., Kerry-Aboitiz Logistics, Inc., Aboitiz Projects T. S. Corporation, Hapag Lloyd Philippines, Inc., Scanasia Overseas, Inc., Subic Enerzone Corporation among others. Prior to joining the Aboitiz Group, Atty. Cabrera was with Banco De Oro Commercial Bank as Documentation Manager. She received her Bachelor of Laws from the San Beda College of Law.

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VI. Market Price of and Dividends on Registrant’s Common Equity and Related Stockholder

Matters A. Market Information

The Common Stock of the Corporation is listed at the Philippine Stock Exchange. As of latest market date, April 26, 2010, the market price of the Company’s common stock is P1.16 per share. Below is the range of high and low bid information for the Company’s common equity for each quarter within the last two fiscal years and any subsequent interim period:

High Low 2010 First Quarter 2009 First Quarter Second Quarter Third Quarter Fourth Quarter 2008 First Quarter Second Quarter Third Quarter Fourth Quarter

P= 1.16

P= 1.62 1.66 1.34 1.22

P= 1.30 1.16 1.90 1.66

P= 1.02

P= 1.42 1.20 1.16 1.12

P= 1.14 1.00 1.00 1.42

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B. Stockholders The number of common shareholders of record as of March 31, 2010 was 2,145. The top 20 common stockholders as of March 31, 2010 are as follows:

Name No. of Shares Held % to total 1. Aboitiz Equity Ventures Inc. 1,889,482,107 77.24 2. Aboitiz and Company, Inc. 390,322,384 15.96 3. PCD Nominee Corporation (Filipino) 87,295,286 3.57 4. PCD Nominee Corporation (Non-Filipino) 13,176,681 0.54 5. Francis C. Zosa, Jr. 9,651,000 0.39 6. China Banking Corporation 4,882,130 0.20 7. Miguel G. De Asis 1,655,153 0.07 8. Union Properties, Inc. 9. Josephine Te

1,578,125 1,561,425

0.06 0.06

10. Abacus Securities Corporation 11. Bauhinia Management, Inc.

1,530,000 1,418,951

0.06 0.06

12. Lekeitio & Company, Inc. 1,365,064 0.06 13. Santiago Tanchan III 1,262,500 0.05 14. Constantine Tanchan 1,262,500 0.05 15. Parraz Management and Development Corp. 1,183,929 0.05 16. Lilian P. Cariaso 17. Xavier Jose Aboitiz 18. Sabin M. Aboitiz

1,147,825 1,039,727 1,019,562

0.05 0.04 0.04

19. Montavo Management & Dev. Corp. 20. Harrison Abella Ong

946,875 890,062

0.04 0.04

C. Cash Dividends Declaration There was no cash dividends declared in 2008, 2009 and the first quarter of 2010. In August 30, 2007, the Board of Directors of ATS approved the declaration of cash dividend amounting to Thirty Centavos (P0.30) for every common as well as preferred share outstanding, which were paid and distributed on September 28, 2007 to the holders of record as of September 12, 2007. Total amount of cash dividend declared in 2007 for common stockholders was P 733,840,920.

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VII. Corporate Governance Corporate governance is all about doing business by living the principles of fairness, transparency, accountability and ethics. Today, business and economic forces have included business ethics as strategically important. It has been said that real corporate governance happens when doing the right thing has become the only way of doing business. But while corporate governance principles are necessary, they are not sufficient to ensure business success. The key driver for success is not just mere compliance to the principles but on self-governance and doing one’s works ethically and with integrity. The Board of Directors, management, officers and staff of the Aboitiz Transport System and its subsidiaries commit themselves to the principles and best practices of Corporate Governance—individually and as a team. Governance Framework The ATS corporate governance framework has four (4) major components: the Board, the Management, the organization of the information system within the company, and the independent audit mechanisms.

The Board characterized by independence, objectivity, and effectiveness sets the tone at the top. The Board plays a key role in harmonizing the competing interests of the various stakeholders of the company. The Board appoints the members of senior management and regularly monitors company performance. Management reports to and is accountable to the Board. They are responsible for the execution and monitoring of the effectiveness and efficiency of day-to-day operations, strategy setting and planning, implementation of internal control systems, management of risks as well as operational and financial reporting. Internal control covers both organizational and procedural controls effected within the company. Through the oversight role of the Board Audit and Corporate Governance

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Committee, audit mechanisms are put in place to provide reasonable assurance to management and the Board on the effectiveness of the control environment that includes reliability of financial information; compliance with policies, laws and regulations; safeguarding of company assets; and efficacy and validity of its risk management programs. Corporate Governance Manual The 2003 ATS Corporate Governance Manual was approved for amendment during the September 24, 2009 ATS Board Meeting in accordance with the Revised Code on Corporate Governance issued by the Securities and Exchange Commission (SEC) under its Circular No. 6, Series of 2009 dated June 22, 2009. It was duly submitted to SEC on October 5, 2009. The 2009 ATS Revised Corporate Governance Manual took effect in October 1, 2009. It is applicable not only to ATS but also to all the subsidiaries of ATS. The SEC Code has specified the accountabilities of the Board and has set higher qualification and ethical standards for board directors and the board committees. The Corporate Governance Manual is used for reference purposes only to guide the company on the best and most ethical way to attain its corporate goals and strategies. It does not constitute any legal requirement on the company, its officers, directors and auditors but compliance must be ensured with the provisions of applicable laws and regulations. Board Structure and Composition Compliance to the principles of good governance starts at the top. The director’s position is one built on trust and integrity. The Board has the fiduciary responsibility to ensure the company’s prosperity by collectively directing the company’s affairs, while meeting the appropriate interests of all its stakeholders. The ATS Board is a team of nine (9) highly respectable individuals—eight (8) non-executive directors which includes the Chairman and only one (1) executive director. Of the nine (9), there are two (2) independent directors who are experts in their respective fields. Chairman : Jon Ramon M. Aboitiz Members : Bob D. Gothong

Enrique M. Aboitiz, Jr. Erramon I. Abotiz Roberto E. Aboitiz Justo A. Ortiz Sabin M. Aboitiz Washington Z. Sycip, Independent Director Emily A. Abrera, Independent Director

Splitting up the role of the Chairman and the Chief Executive Officer (CEO) was brought into focus when shortcomings in corporate governance were observed in companies where the two roles are combined. Thus, to foster an appropriate balance of power, increased transparency, accountability and control over company operations, the elected Chairman of the Board, a non-executive director is separate and distinct from the appointed CEO of ATS.

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Role of Directors In governance, the fulfilment of the stewardship responsibilities is entrusted primarily to the Board of Directors. The directors represent the shareholders of the company and are expected to preserve and enhance the shareholder value of the corporation they represent. Their focus is geared towards the strategic objectives of the company responsive to the needs of all the stakeholders. The board is also responsible in ensuring that systems and procedures are in place that allows them to monitor compliance to company policies, regulatory and statutory rules and regulations, as well as to the principles of good governance. Directors can enhance their effectiveness if they are legally empowered, have the requisite qualifications for the board committees they sit in, devote sufficient time to understand company operations and given directorship training where needed, allot time commitment for board meetings, and are provided with appropriate information needed for them to properly perform their oversight function. Non-Executive Directors Legally, there is no distinction between an executive and a non-executive director. All directors are expected to see company and business issues from a broad perspective. However by definition, a non-executive director is a director who is not a head of a department nor performs any work related to its operations. In ATS, eight (8) of the nine (9) directors are non-executive directors, two (2) of which are independent directors. Essentially, the roles of a non-executive director are to provide creative and informed contribution in the area of strategic direction; to monitor executive performance; and communication and networking between the board and potentially useful people and organizations. Non-executive directors in ATS bring in independent judgment on issues of corporate strategies, performance and resources including key appointments and standards of conduct. They are appointed to bring to the board independence, impartiality, breadth of experience, special knowledge, of appropriate calibre and personal qualities. They provide general counsel and a different perspective on matters of concern. As an outsider, they supply objective criticism during board discussion. Board Meetings Dynamic. That is the most fitting word to describe the ATS Board at work. The Board takes its roles and responsibilities seriously. There is active participation in the discussion of matters pertaining to strategy, present and future opportunities, threats and risks in the external environment and current and future strengths, weaknesses and risks relating to the company. The Board, by promoting goodwill and support, exercise accountability to the ATS shareholders and are highly responsible to relevant stakeholders.

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The main function of a board member is to actively participate in Board meetings and the primary reason for holding meetings is to allow the Board to make decisions on corporate matters requiring immediate action/resolution. The Board held eleven (11) meetings in 2009. Below is the summary of the attendance of the Directors:

Meetings Held in 2009 Director Jan

22 Feb 18

Mar 26

Apr 23

May 28

Jul 23

Aug 27

Sep 24

Oct 22

Nov 26

Dec 17

P/M

Jon Ramon M. Aboitiz P A P P P P P P P P P 10/11 Bob D. Gothong P P P P P P P P P A P 10/11 Enrique M. Aboitiz, Jr. P P P P P P P P P P P 11/11 Erramon I. Aboitiz P P P P A P P P P P P 10/11 Roberto E. Aboitiz P A P P A P P P P P P 9/11 Justo A. Ortiz P P P P P P P P P P A 10/11 Sabin M. Aboitiz P P P P P P A P P A P 9/11 Washington Z. Sycip (Independent Director)

A P A P A P A P P A P 6/11

Emily A. Abrera (Independent Director)

A A P P P P P P P P A 8/11

Board Committees The Board delegates work to sub-committees to more efficiently make use of the directors’ time and to more effectively deal with complex or specialized issues needing priority attention. The committees give recommendations for action to the full Board, who retain collective responsibility for decision-making. These committees are independent of management. Committee involvement allows directors to have a deeper understanding of and active involvement in the workings of the organization. The existence of committees also serves a signal to investors that the Board is taking its responsibilities and addressing particular issues seriously. In 2009, there was a restructuring of the ATS Board Committees. From three (3) committees, it has now grown to four (4). The Nomination Committee was consolidated with the Compensation and Remuneration Committee. Corporate Governance has been incorporated with the Audit Committee. Two new committees were created to ensure that focus is given to both Strategy and Risk Management. The composition of each Board Committee was approved and disclosed to the Philippine Stock Exchange (PSE) in a letter dated August 27, 2009. Compensation, Remuneration and Nomination Committee. The quality of leadership is a key success factor to any corporation. The Compensation, Remuneration and Nomination Committee promotes the selection of directors and a CEO of the highest calibre. It is likewise responsible in ensuring that a succession plan is in place and recommendations are made for the appropriate compensation structure particularly for the CEO and other key senior leadership positions such as the Chief Finance Officer, the Chief Strategy Officer, and the Chief Resource Officer. The Committee is there to assist the Board and not to pre-empt any board responsibility in making the final decision on nomination and compensation matters. The Committee does not have decision making authority except on matters explicitly delegated by the Board.

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Effective August 2009, the Compensation, Remuneration and Nomination Committee is composed of at least three (3) board members, one (1) of which is an independent director and at least one (1) ex-officio member. Currently, said committee is composed of five (5) members (one of whom is an independent director) and two (2) ex-officio members. To wit:

Chairman : Jon Ramon M. Aboitiz Members : Enrique M. Abotiz, Jr. Emily. A. Abrera, Independent Director Xavier Jose Aboitiz, Ex-Officio member Lilian P. Cariaso, Ex-Officio member Mr. Xavier Jose Aboitiz is the Senior Vice President for Human Resources of Aboitiz Equity Ventures, Inc. (AEV). Ms. Lilian P. Cariaso is the Executive Vice President, Chief Financial Officer and Chief Resource Officer of ATS. Audit and Corporate Governance Committee. The Audit Committee is guided by the Board Audit Charter. The committee plays a vital role in ensuring the Company's integrity and public reputation. Its four (4) major critical functions with decision made by the full board include: (1) engaging, communicating with, and providing oversight of external auditors; (2) ensuring the adequacy and effectiveness of a system of risk management and internal controls; (3) ensuring that there is proper disclosure of the accounts giving a true and fair view, and favoring substance over form; and (4) communicating with internal auditors. An effective audit committee meets with appropriate frequency, reviews the internal audit master plan for the year, provides a direct channel of communication between internal and external auditors, reviews annually the performance of external auditors and the extent of their non-audit services, and value for money obtained from auditors fees, reviews annually the auditors’ independence, ensures that there are no conflict of interests that may hamper the auditors performance of his job, and reviews management’s monitoring of compliance to the company’s Code of Conduct. Effective August 2009, the Audit and Corporate Governance Committee is composed of at least three (3) board members (one (1) of whom is an independent director) and at least one (1) ex-officio member. Currently, the Committee is composed of five (5) members (one (1) of whom is an independent director and also chairs the Committee) and two (2) ex-officio members. To wit:

Chairman : Washington Z. Sycip, Independent Director Members : Justo A. Ortiz Sabin M. Aboitiz Stephen G. Paradies, Ex-Officio member Lilian P. Cariaso, Ex-Officio member Mr. Stephen G. Paradies is the Senior Vice President and Chief Financial Officer of AEV.

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With the explicit incorporation of Corporate Governance to the function of the Audit Committee, there is a need to revisit the scope of the existing Board Audit Charter to ensure that governance principles are clearly defined and documented. Meanwhile, the Committee is clear on its additional function to take the lead in promulgating the principles of and shaping corporate governance in the company. A separate and more detailed Audit Committee report is provided in the succeeding section. Strategy Committee. The Board Strategy Committee was formed in 2009 following the results of the Board Evaluation Survey where majority of the directors raised the need for the Board to give extra focus on discussions about corporate strategies. The formulation of a Strategy Committee offers the company a mechanism to utilize the wealth of talent offered by the directors of the ATS board at the same time enabling the board to play a larger role in overseeing and enhancing strategic direction as well as focusing on critical areas of business risk appropriate for board involvement including key matters that will impact on company reputation and standing in the business community. Effective August 2009, the Strategy Committee is composed of at least three (3) board members (one (1) of which is an independent director) and at least one (1) ex-officio member. Currently, the newly formed Strategy Committee is composed of eight (8) members (one of whom is an independent director) and three (3) ex-officio members. To wit: Chairman : Jon Ramon M. Aboitiz Members : Enrique M. Aboitiz, Jr. Bob D. Gothong Erramon I. Aboitiz Emily A. Abrera, Independent Director Susan V. Valdez, Ex-Officio member Evelyn L. Engel, Ex-Officio member Lilian P. Cariaso, Ex-Officio member Both Ms. Susan V. Valdez and Ms. Evelyn L. Engel are Executive Vice Presidents and CEOs of ATS. Having a Strategy Committee allows the Board to have a more direct voice in the Company’s planning process and have greater influence on the overall direction that ATS will take. Risk Management Committee. In previous years, risk management was subsumed in the function of the Audit Committee. However, as business risk management activities continue to gain ground, the need to carry out additional functions, policies and procedures has become paramount in the light of changing business, legislative, regulatory, legal or other conditions that a separate board committee had to be formed to focus on this.

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The main purpose of the Risk Management Committee is to provide assistance to the Board in (1) assessing and providing oversight function to management relating to the identification and evaluation of major strategic, operational, regulatory, and external risks inherent to the business; (2) overseeing risk management compliance and control; and (3) overseeing legal and regulatory compliance and control of operational systems and the conduct of company business. Effective August 2009, the Risk Management Committee is composed of at least three (3) board members (one (1) of whom is an independent director) and at least one (1) ex-officio member. Currently, the newly formed Committee is composed of seven (7) members (one of which is an independent director) and three (3) ex-officio members. To wit: Chairman : Bob D. Gothong Members : Enrique M. Aboitiz, Jr. Roberto E. Aboitiz Washington Z. Sycip, Independent Director Rolando C. Cabrera, Ex-Officio member Lilian P. Cariaso, Ex-Officio member Annacel A. Natividad, Ex-Officio member Mr. Rolando C. Cabrera is First Vice President and Chief Risk Management Officer of AEV. Ms. Annacel A. Natividad is Vice President and Risk Management Officer for ATS. The Risk Management Committee, in fulfilling its role, will ensure a constructive and collaborative relationship with ATS senior leaders, particularly the CEO and the Chief Risk Officer, as well as the key officers of the each of the major business units in ATS. Remuneration Policy ATS espouses the philosophy that each individual should be rewarded based on his/her performance to execute assigned duties and responsibilities. The board and key senior officers of the Company ensures that the Company offers competitive remuneration. Further, the Board determines a reasonable compensation payable to each member of the board within a limit specified in Section 11 of the ATS By-Laws which states that “every member of the Board shall receive such amount, not to exceed ten percent (10%), of the net income before income tax of the corporation during the preceding year, as may be determined by the Board of Directors, as compensation, subject to the approval by the stockholders. Compensation of Directors and Senior Management In 2009, each Director received a monthly allowance of P80,000 except for the Chairman of the Board who received P120,000 a month. Further, a per diem of P30,000 is given to each Director and P45,000 for the Chairman for every Board meeting attended.

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Total compensation paid/accrued for services in all capacities provided by the Directors and ATS Senior Management during the year ended December 31, 2009 amounted to P52.6M. Said amount covers basic salary, the statutory 13th month pay and the performance bonus. Board Evaluation Providing opportunities for board members to rate their job performance is a fundamental part of the overall board evaluation system and integral to best governance practices. Performance evaluations of individual board members have been established as a good governance practice for public, private and non-profit boards. The self-evaluation process reinforces to the directors their accountability to the organization, the greater community served by the organization, and the resources consumed. ATS conducted its first Board Self-Evaluation Survey in July 2009. Two (2) surveys were conducted—the Individual Assessment and the Group Assessment. The Individual Assessment is a Director’s self-assessment of his/her performance as a member of the ATS Board. The Group Assessment, on the other hand, is a director’s assessment of the overall performance of the ATS Board as a group. Overall, the results of both assessments showed that all directors perform their duties and functions and act in the best interest of ATS and its stakeholders in a manner characterized by transparency, accountability and fairness. There was a consensus that the performance of the Board can be improved during the next couple years by focusing on long-term goals and strategies. CEO Evaluation With new emphasis on transparency, embraced as one of the key principles of corporate governance, governing boards need to ensure that the right metrics, targets, and processes are in place to support effective decision making. One proactive approach that maximizes the impact for the Company and its most critical leader is to have a formal process to evaluate CEO performance. ATS has completed its CEO Evaluation Survey form this year, to be accomplished for the first time in 2010. The survey intends to also cover the performance of all officers of ATS and of its subsidiaries functioning in the capacity of a CEO. Results Presentation and Analysts Meetings All annual results presentations as well as quarterly analyst meetings are announced in advance on the ATS website (www.atsc.com.ph) and through a regulatory release. Discussions in such meetings are limited to information already available to the public. Further, the Annual Financial Report, Quarterly Analysts Briefing, other SEC filings and PSE disclosures are uploaded in the ATS website to ensure that all stakeholders, both internal and external, will have equal opportunity and access to information available. Other than the website, the presentation of the Financial Report and the approval of Financial Statements for the preceding year are included in the regular Order of Business during the Annual General Stockholders Meeting held every 4th Thursday of May of each year. In 2009, the ATS Annual General Stockholders Meeting was held last on May 28 at the Mandarin Oriental Hotel in Makati City.

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Code of Business Conduct The ATS Code of Business Conduct summarizes ethical principles and policies that deal with issues involving conflict of interest, confidential information, insider trading, bribery or gratuity, equal employment opportunity, safety and health, and the environment. It serves as a reminder to employees that everyone has a common obligation to uphold the ATS corporate values, responsibilities and obligations. The Code sets the benchmark for ATS' commitment to always work within ethical and legal standards. Whistleblowing The key driver for compliance is not a set of rules, laws or regulations. It is founded on self-governance. Corporate ethics, values and integrity are only as good as the ethics, values and integrity of each individual playing a role in the governance structure. ATS provides avenues for employees or internal whistleblowers to anonymously raise issues and concerns about wrongdoings occurring in the organization. The revealed misconduct may take the form of a violation of a policy, proper office decorum, or the general principles of good governance. The ATS Corporate Intranet serves as the window to voice out compliance, ethics, and bureaucracy concerns. On the other hand, incident reports and observations that may involve irregular transactions, anomalous and criminal acts, health and safety violations as well as any observation that may pose a threat to the security of an employee or to the business may be reported through the Security, Safety and Compliance Office (SSCO) Incident Report System also found in the ATS Intranet. There is also an avenue available for clients/customers or external whistleblowers. The ATS Customer Interaction Center has a Complaints Management System. All complaints, issues and concerns received from various sources such as through the telephone, the website, through e-mail, short messaging system (SMS) and written communication are logged and monitored until resolved. It is no less that members of senior management who take the lead in addressing and monitoring the progress of all issues raised whether internal or external. ATS Scorecard The SEC in partnership with the Institute of Corporate Directors (ICD) has implemented the Corporate Governance Scorecard for publicly listed companies. The scorecard measures a company’s level of compliance to corporate governance principles and standards. Over the years, ATS has improved its rating from 70% in 2007 to 86% in 2008.

2007 2008 Philippine Score 65% 72% ATS Score 70% 86% ATS Rank Second Quartile First Quartile

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This is proof that shows that ATS is committed to raise the standards by which it does its business and consequently enhances the long-term value of the Company by practicing good corporate governance and social responsibility. Outlook Corporate governance is not just a set of written rules and principles. It is a way of doing good business. And doing good business means each person in the organization must demonstrate conduct consistent with corporate governance principles. The overriding commitment to a culture of governance starts from the top. In ATS, all aspects of Board and management are one in this commitment. Good corporate governance is effecting appropriate changes to existing practices to better meet the collective interests of all stakeholders. Rules must be designed in accordance with the governance principles they are designed to maintain. We continue aiming to align, as much as possible, the interests of individuals, of the Company and of society. Further Information The following are available on www.atsc.com.ph/IR/governance

ATS Corporate Governance ATS Articles of Incorporation ATS Code of Business Conduct ATS By-Laws ATS Anti-Money Laundering Statement of Policies and Procedures

INFORMATION TECHNOLOGY GOVERNANCE The use of Information Technology continues to play a strategic role in the different businesses of ATS. In 2009, new system capabilities were rolled out both the passage and freight business to help maximize vessel capacity and improve pricing and promotion. A new ticketing channel was also launched for outlets and partners, allowing them to do book-and-buy and other services via the Internet. For the value-added business, Radio Frequency scanning was implemented to facilitate cargo tracking and a Disaster Recovery facility for the SAP system was established. The latter is to boost the confidence level of ATS customers and principals that business will continue in case of any untoward incident. Focus was also given to standardize the backroom support processes and systems. All business units using the Oracle Financial and Human Resource Management modules are now standardized on the 11i version. Additional Human Resource self-service facilities were also deployed that make services to employees more efficient and reduce the use of paper forms. This simplifies and improves the backroom management and support and at the same time contributes to the ‘Green Initiatives’ of ATS. As changes in technology are constant, ATS adapts to these changes based on the needs of the organization. Substantial efforts were invested to upgrade the IT infrastructures, which

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include network, data center and databases. This is to ensure the high availability of all ATS business applications as well as to address technology obsolescence. IT Governance remains a strategic focus area of the organization. Improvements done on the IT Planning Process, one of the identified priority improvement areas of IT Governance, resulted in a more meaningful output in 2009. Six (6) high level IT Goals and supporting objectives were outlined in the 2009 Strategic IT Plan that showed alignment to the corporate strategies. More IT process improvements are underway that will further benefit the business. This includes the areas of IT Service Delivery, Information Security, Software Quality Assurance, IT Continuity Management and Innovations that will create new revenue channels for the business. To further strengthen the governance structure, the newly formed Strategy Committee will serve as a venue to discuss the effective use of technology and major IT investments. This will ensure that all future IT initiatives and directions are consistently aligned to the business and, thus, deliver their maximum value to the organization. ENTERPRISE WIDE RISK MANAGEMENT PROGRAM To be able to carry on contributing to a resilient ATS, management and employees need a deeper understanding of precisely what the key threats are to our stability. We carry on to raise risk awareness in ATS through the cascade of Enterprise Risk Management (ERM) program and concepts, across the company from the vessel officers and crew down to the boarding officers and container yard personnel. ERM is also part of the training program and corporate orientation for the new employees to make sure that risk management is embedded into the culture of ATS. In 2009, we continued to focus on addressing operational risks. We have identified the following as the Top 20 Risks of ATS:

1. Crew Shortage 2. Improper handling of dangerous goods 3. Economic downturn 4. New competition and capacity influx 5. Business loss or interruption 6. Loss of network and IT systems 7. Sabotage 8. Theft of sensitive information 9. Loss of key equipment 10. Loss of key facilities 11. Workplace safety 12. Fire 13. Health epidemic 14. Delay during drydocking 15. Hijacking 16. Terrorist activities

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17. Lack of security culture 18. Passenger safety 19. Vessel Engine Breakdown 20. Misdeclaration of Cargoes

Risk awareness is not enough unless it results in tangible action. In 2009, Risk response and mitigation programs were implemented focusing on the top 20 risks.

Preparedness also means business must have the right systems and processes in place. We continue to focus on improving our Emergency Response and Disaster Recovery Plans that we have implemented in passage and freight business units. In 2010, we will embark on Business Continuity Management.

Putting in place effective business continuity management will help ATS get back to business following disruptions that are beyond our control. At present, we have a contingency plan in place to cover interruption that could hit bottom line profits. The ATS ERM approach focuses on approaching risk as an opportunity. It is all about seizing the opportunity to grow, develop and maintain our foothold in the industry by being prepared for most uncertainties. Whether it is to Avoid, Mitigate, Transfer, Hedge, Retain or Share in risks. ATS maintains its direction that ERM is a firm wide responsibility with all employees expected to contribute their share thereby creating a "risk culture" in ATS. All employees are expected to have high levels of risk awareness ensuring that everyone is proactive in identifying and managing risks within their responsibilities as well as those affecting the department and corporate objectives. Using this approach, ATS embeds into the ATS culture that Risk Management is not just the responsibility of Top Management or specialist but it is a shared responsibility of every ATS employee. In 2009, the ERM program has already put into place Policies, Procedures and Projects to mitigate risks bringing the program closer to the Established Phase of the ERM Model. The approved and implemented Risk Management Policy Statement now covers: 1. Policy on who is responsible for managing risks and support available 2. Strategic Business Unit (SBU) Accountabilities and Responsibilities 3. Employees Training 4. Risk Management as part of CBS / KRA / KPI (employee performance assessment tools) 5. Risk Communication 6. Risk Reporting 7. Guidelines on what maybe considered as Acceptable Risks 8. Guidelines in closure of Risks 9. Risk Analysis 10. Review of Contracts Risk Management is also incorporated as part of the Competency Based System of ATS employees. We have implemented the guidelines as to the level of competency required for

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each employee level and corresponding trainings and activities said employee should attend and focus on. We have also launched the Risk Management Portal as part of the company’s Intranet system. The next phase for 2010 shall focus on monitoring and addressing the identified Top 20 risks. Each Business Unit will continue to monitor their own respective risks and the corresponding programs and projects identified as Risk Response. The Risk Management Committee on the other hand will monitor the ATS-wide ultra risks with each SBU providing quarterly updates. Implementation of the ERM program will also be implemented across the Transport Group. Thus by end of 2010, it is expected that ERM be fully established. The ERM program has provided ATS with the necessary tools to be more resilient in the face of a very difficult 2009. Though unfortunate, past events have opened the eyes of the Company to possible risks and uncertainties in the future and the ERM program shall be one of the guides that will empower ATS to full recovery. Continued focus and attention on raising risk awareness, encouraging tangible risk management action and engaging through greater risk partnership by embedding risk management into the culture of the Company will make ATS more resilient and more confident about facing the future.

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AUDIT COMMITTEE REPORT The Board Audit and Corporate Governance Committee is an integral part of the corporate governance framework of ATS. It plays an important role in achieving and maintaining the expected standards in the Company’s governance and ethical arrangements. Its key responsibilities are to assist the Board of Directors in carrying out its responsibilities as they relate to the oversight of the internal controls and financial reporting process; and to ensure compliance with applicable external legal and regulatory requirements, the ATS Code of Business Conduct, and the ATS Code of Corporate Governance. Its work the last year has ensured that ATS activities have been subject to independent scrutiny and challenge and that high standards of governance are maintained. The Committee is guided by the objectives and authorities outlined in the Audit Committee Charter duly approved by the Board. Membership The Audit and Corporate Governance Committee is composed of three (3) directors (one of whom is an independent director who chairs the Committee) and has extensive accounting and finance background. The other members complement this with their broad knowledge and experience in company operations and knowledge on regulatory issues that affect the business. The ATS Board, in its meeting dated August 27, 2009 revised and further enhanced the membership of the Audit and Corporate Governance Committee by having two (2) additional ex-officio members:

From To Chairman Washington Z. Sycip No change

Member Bob D. Gothong Justo A. Ortiz Member Jon Ramon M. Aboitiz Sabin M. Aboitiz Ex-Officio not applicable Stephen G. Paradies Ex-Officio not applicable Lilian P. Cariaso The change is brought about by the creation of additional board committees and the consolidation of existing committees to ensure better compliance with standards set forth by regulatory agencies.

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Meetings In 2009, the Audit Committee held three (3) meetings:

Committee Member Feb 18 July 2 Oct 22 Washington Z. Sycip

Bob D. Gothong n/a Jon Ramon Aboitiz x x n/a Justo A. Ortiz x x

Sabin M. Aboitiz x x Also in attendance during said meetings were the Head of ATS Internal Audit, the CFO of ATS and the CFO of Aboitiz Equity Ventures. It is worth noting that both CFOs were duly appointed as ex-officio members of the Committee effective August 27, 2009. Depending on the agenda, other members of ATS management were invited to attend and were present during the Board Audit Committee meetings. Risk Assessment and Internal Control ATS espouses the risk-based approach in the prioritization of its audit engagements. Risk exposure of each auditable unit is assessed, discussed and reviewed with the operating leaders. Inputs from the Risk Management team that includes action plans to mitigate, eliminate, avoid, transfer, diversify, exploit or accept identified risks are likewise incorporated in the assessment. With the limited resources of the internal audit team, efforts are primarily focused on the “Very High” and “High” risk areas. The general assessment in terms of efficiency and effectiveness of the system of internal controls is reviewed and discussed with the Committee, with management and with the operating units to ensure that appropriate action plans are effected to resolve issues raised by the auditors. Financial Results The Committee reviewed, discussed and endorsed for Board approval the annual audited financial statements prepared and presented by the Company’s external auditors during the February 25, 2010 meeting of the Board Audit and Corporate Governance Committee. Prior to finalization of the annual report, the Committee likewise assessed the comprehensiveness of the audit scope as well as the appropriateness of the audit procedures to be implemented. Recommendations and resolutions to audit findings that warrant immediate attention were prioritized. Above activities were performed by the Committee on the basis that the key deliverables of external auditors are (1) to express an opinion on the statutory financial statements of the company; and (2) to issue a management letter that provides recommendations regarding

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internal controls and opportunities for improvement or efficiency, based on observations made during the course of the audit. External Audit Sycip, Gorres and Velayo (SGV) was appointed external auditor to ATS for 2009. Ladislao Z. Avila, Jr. is serving his fourth year term as the signing partner assigned by SGV to the Company since 2006. The 2009 Financial Statement Audit Plan for Aboitiz Transport System Corporation and its subsidiaries was presented by SGV and duly approved by the Committee at its meeting dated October 22, 2009. Included in the presentation made by SGV are the accounting and auditing developments for 2009 that may impact on the Company’s financial reporting process such as Amendments to PAS 1 – Presentation of Financial Statements; PFRS 8 – Operating Segments; and Amendments to PFRS 7 – Financial Instruments: Disclosures. SGV also presented key risk areas and audit issues for 2009. Total audit and other related services fees paid to SGV in 2009 amounted to P1 million. Internal Audit The Committee, with its oversight function over internal audit activities, monitors the adequacy of both financial and people resources including their qualifications, expertise, independence and objectivity. Annual assessment of auditor’s competencies is done in conjunction with the Performance Management System of the Company. In the review and discussion of results of internal audit engagements, the Committee ensures that key risks are covered in the scope of audit. The performance and effectiveness of internal audit is assessed every year. Approval This report was approved by the ATS Board Audit Committee and signed on its behalf by:

Mr. Washington Z. Sycip Chairman, ATS Board Audit Committee

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Name and Address – Request for SEC Form 17-A Annual Report Any Stockholder, upon request, will be provided with a copy of the Company’s Annual Report in SEC Form 17-A without charge. The name and address of the person whom such written request is to be directed is as follows:

LILIAN P. CARIASO CHIEF FINANCE OFFICER ABOITIZ TRANSPORT SYSTEM (ATSC) CORPORATION 12/F TIMES PLAZA BUILDING U.N. COR TAFT AVE., ERMITA MANILA

This Information Statement and the Annual Report in SEC Form 17-A will be posted at ATS’ website: http://www.atsc.com.ph

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INDEPENDENT AUDITORS’ REPORT The Stockholders and the Board of Directors Aboitiz Transport System (ATSC) Corporation 12th Floor, Times Plaza Building United Nations Avenue corner Taft Avenue Ermita, Manila We have audited the accompanying financial statements of Aboitiz Transport System (ATSC) Corporation and Subsidiaries, which comprise the consolidated balance sheets as at December 31, 2009 and 2008, and the consolidated statements of income, consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows for each of the three years in the period ended December 31, 2009, and a summary of significant accounting policies and other explanatory notes. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Philippine Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Philippine Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

SyCip Gorres Velayo & Co. 6760 Ayala Avenue 1226 Makati City Philippines

Phone: (632) 891 0307 Fax: (632) 819 0872 www.sgv.com.ph BOA/PRC Reg. No. 0001 SEC Accreditation No. 0012-FR-2

A member firm of Ernst & Young Global Limited

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- 2 -

Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Aboitiz Transport System (ATSC) Corporation and Subsidiaries as at December 31, 2009 and 2008, and their financial performance and their cash flows for each of the three years in the period ended December 31, 2009 in accordance with Philippine Financial Reporting Standards. SYCIP GORRES VELAYO & CO.

Ladislao Z. Avila, Jr. Partner CPA Certificate No. 69099 SEC Accreditation No. 0111-AR-2 Tax Identification No. 109-247-891 PTR No. 2087361, January 4, 2010, Makati City February 25, 2010

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ABOITIZ TRANSPORT SYSTEM (ATSC) CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts in Thousands)

December 31 2009 2008

ASSETS

Current Assets Cash and cash equivalents (Note 7) P=1,095,711 P=860,254 Trade and other receivables - net (Notes 8 and 22) 2,347,627 1,620,675 Inventories - net (Note 9) 571,179 344,665 Other current assets - net (Note 10) 785,366 627,949 4,799,883 3,453,543 Assets of disposal group classified as held for sale (Note 32) – 778,635 Total Current Assets 4,799,883 4,232,178

Noncurrent Assets Property and equipment - net (Notes 14 and 19) 4,817,558 4,194,497 Available-for-sale (AFS) investments (Note 13) 43,323 27,634 Investments in associates (Note 11) 74,208 12,358 Deferred income tax assets - net (Note 31) 255,531 344,742 Goodwill (Notes 5 and 6) 256,463 256,463 Software development costs - net (Note 15) 112,127 188,210 Other noncurrent assets - net (Note 16) 262,903 152,938 Total Noncurrent Assets 5,822,113 5,176,842

TOTAL ASSETS P=10,621,996 P=9,409,020

LIABILITIES AND EQUITY

Current Liabilities Loans payable (Note 17) P=1,392,390 P=551,000 Trade and other payables (Notes 18 and 22) 3,982,707 3,406,193 Current portion of obligations under finance lease (Notes 14 and 19) 6,222 81,692 Income tax payable 12,974 6,249 5,394,293 4,045,134 Liabilities directly associated with disposal group classified as held for sale (Note 32) – 697,172 Total Current Liabilities 5,394,293 4,742,306 (Forward)

74

- 2 -

December 31 2009 2008

Noncurrent Liabilities Obligations under finance lease - net of

current portion (Notes 14 and 19) P=25,346 P=30,832 Pension liability (Note 30) 18,115 23,570 Redeemable preferred shares (Notes 20 and 21) 20,176 17,790 Other noncurrent liabilities 4,494 3,736 Total Noncurrent Liabilities 68,131 75,928

Equity Attributable to Equity Holders of the Parent Common shares (Note 21) 2,484,653 2,484,653 Capital in excess of par value 910,901 910,901 Unrealized mark-to-market gain on AFS

investments (Note 13) 18,312 5,621 Cumulative translation adjustments (1,513) 685 Excess of cost over net asset value of an investment

(Note 36) (11,700) (11,700) Acquisitions of minority interests (Note 36) 5,940 5,940 Reserves of disposal group classified as held for sale

(Note 32) – 4,185 Retained earnings (Note 21) 1,760,853 1,214,711 Treasury shares (Note 21) (58,715) (58,715) 5,108,731 4,556,281

Minority Interests 50,841 34,505 Total Equity 5,159,572 4,590,786

TOTAL LIABILITIES AND EQUITY P=10,621,996 P=9,409,020

See accompanying Notes to Consolidated Financial Statements.

75

ABOITIZ TRANSPORT SYSTEM (ATSC) CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Amounts in Thousands, Except Earnings Per Share Amounts) Years Ended December 31 2008 2007 (as re-presented, (as re-presented, 2009 see Note 32) see Note 32)

Freight - net (Note 22) P=5,823,034 P=7,569,220 P=6,953,164 Passage - net 2,237,812 2,580,572 2,690,677 Sale of goods 1,735,155 1,163,859 – Service fees (Notes 22 and 36) 1,477,966 1,014,255 1,016,722 Others 550,464 540,612 395,405 11,824,431 12,868,518 11,055,968

COSTS AND EXPENSES Operating (Note 23) 6,764,671 8,753,900 8,312,462 Overhead (Notes 14 and 25) 2,095,737 1,894,809 1,888,639 Cost of sales (Note 9) 1,460,875 966,463 – Terminal (Note 24) 1,005,767 1,296,623 1,076,792 11,327,050 12,911,795 11,277,893

OTHER INCOME (CHARGES) Equity in net earnings (losses) of associates (Note 11) 53,434 (7,639) 410 Gain (loss) on disposal of: Investments in AFS, subsidiary and

associates (Note 5) 52,500 (15,125) 2,732 Property and equipment (Note 14) 26,807 87,732 748,858 Interest income (Note 37) 28,530 19,405 32,704 Foreign exchange gains (losses) - net (12,194) (10,142) 24,980 Finance costs (Notes 28 and 37) (99,110) (76,985) (102,586) Others (Notes 14 and 29) 276,425 193,126 135,751 326,392 190,372 842,849

INCOME BEFORE INCOME TAX 823,773 147,095 620,924

PROVISION FOR (BENEFIT FROM) INCOME TAX (Notes 31 and 35)

Current 82,609 94,828 66,708 Deferred 118,447 (47,157) 115,435 201,056 47,671 182,143

NET INCOME P=622,717 P=99,424 P=438,781

ATTRIBUTABLE TO: Equity holders of the parent P=546,142 P=82,815 P=419,970 Minority interests 76,575 16,609 18,811 P=622,717 P=99,424 P=438,781

EARNINGS PER COMMON SHARE (Note 34) Basic and diluted, for net income attributable to ordinary equity holders of the parent P=0.22 P=0.03 P=0.17 See accompanying Notes to Consolidated Financial Statements.

76

ABOITIZ TRANSPORT SYSTEM (ATSC) CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Amounts in Thousands)

Years Ended December 31

2009

2008 (as re-presented,

Note 32)


Note 32)

NET INCOME P=622,717 P=99,424 P=438,781

OTHER COMPREHENSIVE INCOME (LOSS) Unrealized gains (losses) on AFS investments (Note 13) 11,219 (5,040) (5,374) Realized valuation gains on AFS investments (Note 13) – – (3,465) Changes in cumulative translation adjustments (7,943) 24,752 (14,915) Income tax relating to the components of other comprehensive income – – –

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX, FOR THE YEAR 3,276 19,712 (23,754)

TOTAL COMPREHENSIVE INCOME, NET OF TAX, FOR THE YEAR P=625,993 P=119,136 P=415,027

ATTRIBUTABLE TO: Equity holders of the parent P=552,450 P=90,912 P=408,187 Minority interests 73,543 28,224 6,840 P=625,993 P=119,136 P=415,027


ABOITIZ TRANSPORT SYSTEM (ATSC) CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007

(Amounts in Thousands)

Attributable to Equity Holders of the Parent

Common Shares

(Note 21)

Capital in Excess of Par Value

Unrealized Mark-to-

Market Gain on AFS

Investments (Note 13)

Cumulative Translation

Adjustments

Excess of CostOver Net Asset

Value of anInvestment

(Note 36)

Acquisitionof Minority

Interests(Note 36)

Disposal Group

(Note 32)

Retained Earnings (Note 21)

Treasury Shares

(Note 21) Total Minority

Interests Total Equity

Balances at January 1, 2009 P=2,484,653 P=910,901 P=5,621 P=685 (P=11,700) P=5,940 P=4,185 P=1,214,711 (P=58,715) P=4,556,281 P=34,505 P=4,590,786

Re-presentation of comprehensive income (Note 32) – – 2,315 1,870 – – (4,185) – – – – –

Balances at January 1, 2009, as re-presented (Note 32) 2,484,653 910,901 7,936 2,555 (11,700) 5,940 – 1,214,711 (58,715) 4,556,281 34,505 4,590,786

Net income for the year – – – – – – – 546,142 – 546,142 76,575 622,717

Other comprehensive income for the year – – 10,376 (4,068) – – – – – 6,308 (3,032) 3,276

Total comprehensive income for the year – – 10,376 (4,068) – – – 546,142 – 552,450 73,543 625,993

Dividend distribution to minority interest (see Note 21) – – – – – – – – – – (57,405) (57,405)

Net changes in minority interest – – – – – – – – – – 198 198

Balances at December 31, 2009 P=2,484,653 P=910,901 P=18,312 (P=1,513) (P=11,700) P=5,940 P=– P=1,760,853 (P=58,715) P=5,108,731 P=50,841 P=5,159,572


- 2 -


Common Shares

(Note 21)

Capital in Excess

of Par Value

Unrealized Mark-to-

Market Gain on AFS

Investments (Note 13)


Adjustments

Excess of Cost Over Net Asset


(Note 36)

Acquisitionof Minority

Interests(Note 36)

Disposal Group

(Note 32)

Retained Earnings (Note 21)

Treasury Shares



Balances at January 1, 2008 P=2,484,653 P=910,901 P=12,563 (P=10,169) (P=11,700) P=5,940 P=– P=1,120,608 (P=58,715) P=4,454,081 P=49,559 P=4,503,640

Net income for the year – – – – – – – 82,815 – 82,815 16,609 99,424

Other comprehensive income for the year – – (6,942) 10,854 – – 4,185 – – 8,097 11,615 19,712

Total comprehensive income for the year – – (6,942) 10,854 – – 4,185 82,815 – 90,912 28,224 119,136

Minority interest of disposed subsidiaries – – – – – – – – – – (7,570) (7,570)

Net changes in minority interest – – – – – – – 11,288 – 11,288 (35,708) (24,420)

Balances at December 31, 2008 P=2,484,653 P=910,901 P=5,621 P=685 (P=11,700) P=5,940 P=4,185 P=1,214,711 (P=58,715) P=4,556,281 P=34,505 P=4,590,786

- 3 -


Common Shares

(Note 21)

Capital in Excess

of Par Value

UnrealizedMark-to-

Market Gainon AFS

Investments(Note 13)


Adjustments

Excess of CostOver Net Asset


(Note 36)

Acquisition ofMinority

Interests(Note 36)

RetainedEarnings(Note 21)

Treasury Shares



Balances at January 1, 2007 P=2,484,653 P=910,901 P=19,600 (P=5,423) P=– P=5,000 P=1,435,847 (P=58,715) P=4,791,863 P=23,789 P=4,815,652

Net income for the year – – – – – – 419,970 – 419,970 18,811 438,781

Other comprehensive income for the year – – (7,037) (4,746) – – – – (11,783) (11,971) (23,754)

Total comprehensive income for the year – – (7,037) (4,746) – – 419,970 – 408,187 6,840 415,027

Cash dividends at P=0.30 per share – – – – – – (735,209) – (735,209) – (735,209)

Excess of cost over net asset value (Note 36) – – – – (11,700) – – – (11,700) – (11,700)

Acquisition of minority interest (Note 36) – – – – – 940 – – 940 (940) –

Issuance of shares to minority interest – – – – – – – – – 750 750

Net changes in minority interest – – – – – – – – – 19,120 19,120

Subtotal – – – – (11,700) 940 (735,209) – (745,969) 18,930 (727,039)

Balances at December 31, 2007 P=2,484,653 P=910,901 P=12,563 (P=10,169) (P=11,700) P=5,940 P=1,120,608 (P=58,715) P=4,454,081 P=49,559 P=4,503,640

ABOITIZ TRANSPORT SYSTEM (ATSC) CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in Thousands) Years Ended December 31

2009


Note 32)


Note 32)

CASH FLOWS FROM OPERATING ACTIVITIES

Income before income tax P=823,773 P=147,095 P=620,924 Adjustments for:

Depreciation and amortization (Note 26) 1,033,545 1,035,731 1,178,343 Interest expense (Note 28) 99,110 76,985 102,586 Provisions for:

Impairment loss on receivables 30,129 8,504 11,906 Probable cargo losses and damages 16,064 15,104 1,698 Inventory losses – 23,062 1,215

Unrealized foreign exchange loss (gain) 4,260 18,347 (25,560) Recovery of provision for probable losses – (5,002) – Dividend income (6,743) (11,272) (460) Interest income (28,530) (19,405) (32,705) Equity in net loss (earnings) of associates

(Note 11) (53,434) 7,639 (410) Recovery of impairment of receivable (60,884) – – Gain on insurance claims (79,484) – – Loss (gain) on disposal of:

Property and equipment (26,807) (87,732) (748,858) Investment in subsidiary (see Note 5) (52,500) – – Investment in associates – 15,051 – Impairment of assets – 15,188 6,171 AFS investments – 74 (2,732)

Operating income before working capital changes 1,698,499 1,239,369 1,112,118

Decrease (increase) in: Trade and other receivables (308,065) (112,762) 220,279 Inventories (210,907) (124,570) (15,442) Pension asset (28,088) 11,280 (12,926) Other current assets (78,580) 52,069 (261,982)

Increase (decrease) in: Trade and other payables 115,495 55,570 387,879 Pension liability (14,442) 10,214 12,453 Other noncurrent liabilities (16,499) 2,186 1,550

Net cash generated from operations 1,157,413 1,133,356 1,443,929 Interest received 39,836 10,088 33,353 Income taxes paid (86,138) (78,483) (38,505) Net cash flows from operating activities 1,111,111 1,064,961 1,438,777 (Forward)

- 2 -

Years Ended December 31

2009


Note 32)


Note 32)

CASH FLOWS FROM INVESTING ACTIVITIES

Additions to: Property and equipment (Note 13) (P=1,940,756) (P=1,113,177) (P=1,543,101) Software development cost (6,264) (29,710) (38,530)

Acquisition of: A subsidiary net of cash acquired (Note 5) (4,800) (225,624) 3,901 An associate (3,600) – –

Proceeds from: Insurance claims 300,452 – – Disposal of property and equipment 180,534 187,647 2,529,660 Disposal of investments in a subsidiary 57,300 46,274 – Sale of AFS investments – 1,462 6,588 Sale of investment in an associate – 400 –

Decrease (increase) in: AFS investments 1,200 – 4,106 Investments in associates – – (12,514) Other noncurrent assets (77,457) (45,070) 87,884

Dividends received 6,743 11,272 460 Net cash flows from (used in) investing

activities (1,486,648) (1,166,526) 1,038,454

CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from availments of loans payable 1,042,720 623,168 149,268 Payments of:

Loans payable (480,209) (52,369) (254,908) Interest (99,270) (76,812) (117,486) Obligations under finance lease (57,659) (50,303) (463,722) Long-term debt – (55,083) (1,219,954)

Dividends paid (27,375) – (735,209) Net changes in minority interests 198 (15,054) (6,959) Net cash flows from (used in) financing

activities 378,405 373,547 (2,648,970)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,868 271,982 (171,739)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,092,843 820,861 992,600

CASH AND CASH EQUIVALENTS AT END OF YEAR (Note 7) P=1,095,711 P=1,092,843 P=820,861


ABOITIZ TRANSPORT SYSTEM (ATSC) CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in Thousands, Except Share and Exchange Rate Data and When Otherwise Indicated) 1. Corporate Information

Aboitiz Transport System (ATSC) Corporation (the Parent Company) was incorporated in the Philippines on May 26, 1949. The Parent Company’s shares of stocks are listed in the Philippine Stock Exchange. The Parent Company and its Subsidiaries (collectively referred to as “the Group”) are primarily engaged in the business of operating steamships, motorboats and other kinds of watercrafts; operating flight equipment and trucks; and acting as agent for domestic and foreign shipping companies for purposes of transportation of cargoes and passengers by air, land and sea within the waters and territorial jurisdiction of the Philippines. The Parent Company’s registered office address is 12th Floor, Times Plaza Building, United Nations Avenue corner Taft Avenue, Ermita, Manila. The Company’s parent is Aboitiz Equity Ventures, Inc. (AEV), a publicly-listed company incorporated in the Philippines, and the ultimate parent company is Aboitiz & Company, Inc. (ACO), also incorporated in the Philippines. On September 23, 2008, AEV together with ACO entered into a Memorandum of Agreement (MOA) with KGLI-NM Holdings Inc. (KGLI-NM). The MOA states that KGLI-NM will purchase all of the shareholdings of AEV and ACO in the Parent Company on a per share purchase price to be computed based on the Group’s equity value of P=5 billion or equivalent to P=2.044 per share. The final terms of the sale will be subject to the due diligence audit and the execution of a definitive share purchase agreement between the parties. AEV owns 1,889,482,107 common shares of the Parent Company while ACO owns 390,322,384 common shares of the Parent Company, representing 77.24% and 15.96 %, respectively, of the Parent Company’s total outstanding capital stock. The MOA also provides that should KGLI-NM decide to proceed with the purchase, it shall also undertake a tender offer of the shares owned by the minority shareholders at the same terms offered to ACO and AEV in accordance with the requirements of the Securities Regulation Code. KGLI-NM further undertakes to pay in cash for the Parent Company shares acquired under the tender offer. The planned acquisition would include all the shipping and logistics businesses of the Group except for the following subsidiaries: Aboitiz Jebsen Bulk Transport Corporation (AJBTC) and Subsidiaries, Jebsen Maritime, Inc. (JMI), Aboitiz Jebsen Manpower Solutions, Inc. (AJMSI) and Jebsen Management Limited (JMBVI) and Subsidiaries (collectively called “Aboitiz Jebsen Group”). On December 19, 2008, the Parent Company received written advice that AEV, together with ACO, accepted the Term Sheet offered by KGLI-NM for the acquisition by KGLI-NM of 49% equity stake in the Parent Company instead of the total buy-out proposed in the MOA. The 49% equity stake shall include the 7% equity stake of the public in the Parent Company. Under the agreement, which was expected to close on or before April 30, 2009, the purchase price will be based on a total equity value of the Group in the amount of P=4.5 billion or equivalent to P=1.84 per share. Accordingly, the Aboitiz Jebsen Group will be acquired by AEV and ACO on or before April 30, 2009. The agreement also gives KGLI-NM an option to acquire the remaining 51%

2

equity stake of AEV and ACO anytime from May 1, 2009 to September 30, 2009 at the same price of P=1.84 per share plus a premium of 9.5% annualized price per share calculated from April 30, 2009 to September 30, 2009 or to date of acquisition. On April 30, 2009, the Parent Company received written advice from AEV and ACO that KGLI-NM will not proceed with the purchase of US$30 million worth of the Parent Company’s common shares owned by the former. KGLI-NM cited the current constraints in the debt markets as the reason for its decision not to push through with its planned purchase of the Parent Company shares owned by AEV and ACO. KGLI-NM had previously informed AEV and ACO on March 31, 2009 that the former is exercising its option under Section 5 (c) (i) of the Term Sheet dated December 19, 2008 to purchase US$30 million worth of the Parent Company’s shares from AEV and ACO. In view of KGLI-NM’s decision not to close pursuant to the Term Sheet and its notice dated March 31, 2009, the Term Sheet dated December 19, 2008 as well as the Memorandum of Agreement dated September 23, 2008 between AEV and ACO, on one hand, and KGLI-NM, on the other hand, have been deemed terminated. The consolidated financial statements as at December 31, 2009 and 2008 and for each of the three years in the period ended December 31, 2009, were authorized for issue by the Board of Directors (BOD) on February 25, 2010.

2. Summary of Significant Accounting Policies

Basis of Preparation The consolidated financial statements have been prepared on a historical cost basis, except for AFS investments which have been measured at fair value. The financial statements are presented in Philippine pesos, and all values are rounded to the nearest thousand (P=000), except when otherwise indicated. Statement of Compliance The consolidated financial statements of the Group have been prepared in accordance with Philippine Financial Reporting Standards (PFRS). Basis of Consolidation The consolidated financial statements comprise the financial statements of the Parent Company and its subsidiaries as at December 31 of each year. The following are the subsidiaries:

Percentage of Ownership 2009 2008 2007

Subsidiaries Nature of Business Direct Indirect Direct Indirect Direct Indirect W G & A Supercommerce, Inc. (WSI)1 Ships’ hotel

management 100.0 – 100.0 – 100.0 –

Zoom In Packages, Inc. (ZIP) Transportation/ logistics

100.0 – 100.0 – 100.0 –

Aboitiz One, Inc. (AOI) and Subsidiaries: Transportation/ logistics

100.0 – 100.0 – 100.0 –

Reefer Van Specialist Inc. (RVSI) Transportation – 100.0 – 100.0 – 100.0 Aboitiz One Distribution, Inc.(AODI) Distribution – 100.0 – 100.0 – 100.0 Scanasia Overseas Inc. (SOI)4 Distribution – 100.0 – 100.0 – – Hapag-Lloyd Philippines, Inc.(HLP) Transportation/

logistics – 94.0 – 94.0 – 85.0

Reefer Truck Specialists Inc. (RTSI)5 Transportation – – – – – 100.0 Cox Trucking Corporation (COX)4 Transportation – – – – – 80.0

(Forward)

3

Percentage of Ownership 2009 2008 2007

Subsidiaries Nature of Business Direct Indirect Direct Indirect Direct Indirect Supercat Fast Ferry Corp. (SFFC)2 Shipping 100.0 – 100.0 – 100.0 – Aboitiz Jebsen Bulk Transport Corporation

(AJBTC) and Subsidiaries: 6 Ship management 62.5 – 62.5 – 62.5 –

Filscan Shipping, Inc. (FILSCAN) Manning and crew management services

– 62.5 – 62.5 – 62.5

General Charterer, Inc (GCI) Manning and crew management services

– 62.5 – 62.5 – 62.5

NOR-PHIL Ocean Shipping, Inc. (NOR-PHIL)

Manning and crew management services

– 62.5 – 62.5 – 62.5

Overseas Bulk Transport, Inc. (OVERSEAS)


– 62.5 – 62.5 – 62.5

Viking International Carriers, Inc. (VIKING)


– 62.5 – 62.5 – 62.5

Joss Asian Feeders, Inc. (JOSSAF) Shipping – 62.5 – 62.5 – 62.5 Harbor Training Center, Inc. (HTC) Training – 62.5 – 62.5 – 62.5 EMS Crew Management Philippines,Inc.

(EMS) Manning and crew management services

– 46.9 – 46.9 – 46.9

Aboitiz Jebsen Manpower Solutions, Inc. AJMSI) 6

Manpower services 62.5 – 62.5 – 62.5 –

Jebsen Maritime, Inc. (JMI) 6 Manpower services 62.5 – 62.5 – 62.5 – Jebsen Management (JMBVI) Limited

and Subsidiaries: 3 and 6 Shipping 50.0 – 50.0 – 50.0

Jebsens International (Australia) Pty. Ltd.

Chartering and Shipping

– 50.0 – 50.0 – 50.0

Jebsen Orient Shipping Services AS Chartering and Shipping

– 50.0 – 50.0 – 50.0

Jebsens International (Singapore) Pte. Ltd

Chartering and Shipping

– 50.0 – 50.0 – 50.0

Jebsens Logistics Services Fertilizer Bagging – 50.0 – 50.0 – 50.0 Cebu Ferries Corporation5 Shipping – – – – 100 – 1Ceased operations in February 2006 2Acquired from Accuria, Inc., an affiliate under common control, on August 30, 2007. 3Parent Company exercises power to govern the financial and operating policies. 4Acquired SOI in July 2008, and disposed COX and RTSI in August and September 2008, respectively 5Liquidated in May 2008. 6Classified as disposal group held for sale in December 2008 Subsidiaries are fully consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. Consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances. All significant intra-group balances, income and expenses, and unrealized profits and losses resulting from intra-group transactions are eliminated in the consolidation. Minority interests represent the portion of profit or loss and net assets in the subsidiaries not held by the Group and are presented separately in the consolidated statement of income and within equity in the consolidated balance sheet, separately from the equity attributable to equity holders of the parent. Acquisitions of minority interests are accounted for using the entity concept method, whereby, the difference between the consideration paid or payable and the book value of the share of the net assets acquired is recognized as an equity transaction. Merger On July 2, 2007, the SEC approved the merger of ALI and AOI, with the latter as the surviving entity, effective July 2, 2007. ALI is a wholly owned subsidiary of the AOI. Consequently, by operation of law, the separate corporate existence of ALI ceased as provided under the Corporation Code. Thus, upon the implementation of the merger, all outstanding shares of capital stock of ALI were cancelled.

4

Changes in Accounting Policies and Disclosures The Group has adopted the following new, revised and amended standards and interpretations that have been issued and are effective as of January 1, 2009. Except as otherwise indicated, adoption of these new standards and interpretations did not have significant impact on the Group’s consolidated financial statements. PAS 1, Presentation of Financial Statements The revised standard separates owner and non-owner changes in equity. The statement of changes in equity includes only details of transactions with owners, with non-owner changes in equity presented in a reconciliation of each component of equity. In addition, the standard introduces the statement of comprehensive income: it presents all items of recognized income and expense, either in one single statement, or in two linked statements. The Group has elected to present two linked statements. PAS 23, Borrowing Costs (Revised) The revised PAS 23 requires capitalization of borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset. PFRS 8, Operating Segments PFRS 8 replaced PAS 14, Segment Reporting, upon its effective date. The Group concluded that the operating segments determined in accordance with PFRS 8 are the same as the business segments previously identified under PAS 14. Philippine Interpretation IFRIC-13, Customer Loyalty Programmes Philippine Interpretation IFRIC-13 requires customer loyalty credits to be accounted for as a separate component of the sales transaction in which they are granted. A portion of the fair value of the consideration received is allocated to the award credits and deferred. This is then recognized as revenue over the period that the award credits are redeemed. This interpretation did not have any impact in the Group’s financial statements as it does not have any loyalty programs with customers. Philippine Interpretation IFRIC 16, Hedges of a Net Investment in a Foreign Operation This Interpretation is to be applied prospectively. Philippine Interpretation IFRIC-16 provides guidance on the accounting for a hedge of a net investment. As such it provides guidance on identifying the foreign currency risks that qualify for hedge accounting in the hedge of a net investment, where within the group the hedging instruments can be held in the hedge of a net investment and how an entity should determine the amount of foreign currency gain or loss, relating to both the net investment and the hedging instrument, to be recycled on disposal of the net investment. This interpretation did not have any impact on the Group’s financial statements. Philippine Interpretation IFRIC 18, Transfers of Assets from Customers This Interpretation is to be applied prospectively to transfers of assets from customers received on or after July 1, 2009. The Interpretation provides guidance on how to account for items of property, plant and equipment received from customers or cash that is received and used to acquire or construct assets that are used to connect the customer to a network or to provide ongoing access to a supply of goods or services or both. When the transferred item meets the definition of an asset, the asset is measured at fair value on initial recognition as part of an exchange transaction. The service(s) delivered are identified and the consideration received (the fair value of the asset) allocated to each identifiable service. Revenue is recognized as each service is delivered by the entity. This interpretation did not have any impact on the Group’s financial statements.

5

Amendments to Standards PAS 32 and PAS 1 Amendments - Puttable Financial Instruments and Obligations Arising on

Liquidation The standards have been amended to allow a limited scope exception for puttable financial instruments to be classified as equity if they fulfill a number of specified criteria. The adoption of these amendments did not have any impact on the financial position or the performance of the Group. PFRS 1 and PAS 27 Amendments - Cost of an Investment in a Subsidiary, Jointly Controlled

Entity or Associate The amendments to PFRS 1, First-time Adoption of Philippine Financial Reporting Standards, allowed an entity to determine the ‘cost’ of investments in subsidiaries, jointly controlled entities or associates in its opening PFRS financial statements in accordance with PAS 27, Consolidated and Separate Financial Statements, or using a deemed cost method. The amendment to PAS 27 required all dividends from a subsidiary, jointly controlled entity or associate to be recognized in the income statement in the separate financial statement. The revision to PAS 27 did not have an impact in the financial position or performance of the Group since the investments in subsidiaries and associates were already accounted for using the cost method. PFRS 2, Amendment - Vesting Conditions and Cancellations The amendment to PFRS 2, Share-based Payments, clarifies the definition of vesting conditions and prescribes the treatment for an award that is cancelled. It did not have an impact on the financial position or performance of the Group. PFRS 7 Amendments - Improving Disclosures about Financial Instruments The amendments to PFRS 7, Financial Instruments: Disclosures, require additional disclosures about fair value measurement and liquidity risk. Fair value measurements related to items recorded at fair value are to be disclosed by source of inputs using a three level fair value hierarchy, by class, for all financial instruments recognized at fair value. In addition, a reconciliation between the beginning and ending balance for level 3 fair value measurements is now required, as well as significant transfers between levels in the fair value hierarchy. The amendments also clarify the requirements for liquidity risk disclosures with respect to derivative transactions and financial assets used for liquidity management. The fair value measurement disclosures are presented in Note 38. The liquidity risk disclosures are not significantly impacted by the amendments and are presented in Note 37. Philippine Interpretation IFRIC 9 and PAS 39 Amendments - Embedded Derivatives This amendment to Philippine Interpretation IFRIC-9, Reassessment of Embedded Derivatives, requires an entity to assess whether an embedded derivative must be separated from a host contract when the entity reclassifies a hybrid financial asset out of the fair value through profit or loss category. This assessment is to be made based on circumstances that existed on the later of the date the entity first became a party to the contract and the date of any contract amendments that significantly change the cash flows of the contract. PAS 39, Financial Instruments: Recognition and Measurement, now states that if an embedded derivative cannot be reliably measured, the entire hybrid instrument must remain classified as at fair value through profit or loss.

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Improvements to PFRS 2008 The omnibus amendments to PFRS issued in 2008 (and 2009) were issued primarily with a view to removing inconsistencies and clarifying wording. There are separate transitional provisions for each standard. The adoption of the following amendments resulted in changes in accounting policies but did not have any impact on the financial position or performance of the Group. PAS 18, Revenue: The amendment adds guidance (which accompanies the standard) to determine whether an entity is acting as a principal or as an agent. The features to consider are whether the entity:

has primary responsibility for providing the goods or service; has inventory risk; has discretion in establishing prices; and bears the credit risk.

The Group has assessed its revenue arrangements against these criteria and concluded that it is acting as principal in all arrangements. The revenue recognition policy has been updated accordingly.

New Accounting Standards, Interpretations, and Amendments to Existing Standards Effective Subsequent to

December 31, 2009 The Group will adopt the following standards and interpretations enumerated below when these become effective. Except as otherwise indicated, the Group does not expect the adoption of these new and amended PFRS and Philippine Interpretations to have significant impact on its financial statements. PFRS 3, Business Combinations (Revised) and PAS 27, Consolidated and Separate Financial

Statements (Amended) The revised standards are effective for annual periods beginning on or after July 1, 2009. PFRS 3 (Revised) introduces significant changes in the accounting for business combinations occurring after this date. Changes affect the valuation of minority interest, the accounting for transaction costs, the initial recognition and subsequent measurement of a contingent consideration and business combinations achieved in stages. These changes will impact the amount of goodwill recognized, the reported results in the period that an acquisition occurs and future reported results. PAS 27 (Amended) requires that a change in the ownership interest of a subsidiary (without loss of control) is accounted for as a transaction with owners in their capacity as owners. Therefore, such transactions will no longer give rise to goodwill, nor will it give rise to a gain or loss. Furthermore, the amended standard changes the accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. The changes in PFRS 3 (Revised) and PAS 27 (Amended) will affect future acquisitions or loss of control of subsidiaries and transactions with minority interests. PFRS 3 (Revised) will be applied prospectively while PAS 27 (Amended) will be applied retrospectively with a few exceptions. Philippine Interpretation IFRIC 17, Distributions of Non-Cash Assets to Owners This interpretation is effective for annual periods beginning on or after July 1, 2009 with early application permitted. It provides guidance on how to account for non-cash distributions to owners. The interpretation clarifies when to recognize a liability, how to measure it and the associated assets, and when to derecognize the asset and liability. The Group does not expect the Interpretation to have an impact on the consolidated financial statements as the Group has not made non-cash distributions to shareholders in the past.

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Philippine Interpretation IFRIC 15, Agreement for Construction of Real Estate This interpretation, effective for annual periods beginning on or after January 1, 2012, covers accounting for revenue and associated expenses by entities that undertake the construction of real estate directly or through subcontractors. The Interpretation requires that revenue on construction of real estate be recognized only upon completion, except when such contract qualifies as construction contract to be accounted for under PAS 11, Construction Contracts, or involves rendering of services in which case revenue is recognized based on stage of completion. Contracts involving provision of services with the construction materials and where the risks and reward of ownership are transferred to the buyer on a continuous basis will also be accounted for based on stage of completion. Amendments to Standards PAS 39 Amendment - Eligible Hedged Items The amendment to PAS 39, Financial Instruments: Recognition and Measurement, effective for annual periods beginning on or after July 1, 2009, clarifies that an entity is permitted to designate a portion of the fair value changes or cash flow variability of a financial instrument as a hedged item. This also covers the designation of inflation as a hedged risk or portion in particular situations. The Group has concluded that the amendment will have no impact on the financial position or performance of the Group, as the Group has not entered into any such hedges. PFRS 2 Amendments - Group Cash-settled Share-based Payment Transactions The amendments to PFRS 2, Share-based Payments, effective for annual periods beginning on or after January 1, 2010, clarify the scope and the accounting for group cash-settled share-based payment transactions. The Group has concluded that the amendment will have no impact on the financial position or performance of the Group as the Group has not entered into any such share-based payment transactions. Improvement to PFRS 2009 The omnibus amendments to PFRS issued in 2009 were issued primarily with a view to removing inconsistencies and clarifying wording. The amendments are effective for annual periods financial years January 1, 2010 except otherwise stated. The Group has not yet adopted the following amendments and anticipates that these changes will have no material effect on the financial statements. PFRS 2, Share-based Payment: clarifies that the contribution of a business on formation of a joint

venture and combinations under common control are not within the scope of PFRS 2 even though they are out of scope of PFRS 3, Business Combinations (Revised). The amendment is effective for financial years on or after July 1, 2009.

PFRS 5, Non-current Assets Held for Sale and Discontinued Operations: clarifies that the disclosures required in respect of non-current assets and disposal groups classified as held for sale or discontinued operations are only those set out in PFRS 5. The disclosure requirements of other PFRSs only apply if specifically required for such non-current assets or discontinued operations.

PFRS 8, Operating Segment Information: clarifies that segment assets and liabilities need only be reported when those assets and liabilities are included in measures that are used by the chief operating decision maker.

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PAS 1, Presentation of Financial Statements: clarifies that the terms of a liability that could result, at

anytime, in its settlement by the issuance of equity instruments at the option of the counterparty do not affect its classification.

PAS 7, Statement of Cash Flows: explicitly states that only expenditure that results in a recognized asset can be classified as a cash flow from investing activities.

PAS 17, Leases: removes the specific guidance on classifying land as a lease. Prior to the amendment, leases of land were classified as operating leases. The amendment now requires that leases of land are classified as either ‘finance’ or ‘operating’ in accordance with the general principles of PAS 17. The amendments will be applied retrospectively.

PAS 36, Impairment of Assets: clarifies that the largest unit permitted for allocating goodwill, acquired in a business combination, is the operating segment as defined in PFRS 8 before aggregation for reporting purposes.

PAS 38, Intangible Assets: clarifies that if an intangible asset acquired in a business combination is identifiable only with another intangible asset, the acquirer may recognize the group of intangible assets as a single asset provided the individual assets have similar useful lives. Also clarifies that the valuation techniques presented for determining the fair value of intangible assets acquired in a business combination that are not traded in active markets are only examples and are not restrictive on the methods that can be used.

PAS 39, Financial Instruments: Recognition and Measurement: clarifies the following: that a prepayment option is considered closely related to the host contract when the exercise

price of a prepayment option reimburses the lender up to the approximate present value of lost interest for the remaining term of the host contract.

that the scope exemption for contracts between an acquirer and a vendor in a business combination to buy or sell an acquiree at a future date applies only to binding forward contracts, and not derivative contracts where further actions by either party are still to be taken.

that gains or losses on cash flow hedges of a forecast transaction that subsequently results in the recognition of a financial instrument or on cash flow hedges of recognized financial instruments should be reclassified in the period that the hedged forecast cash flows affect profit or loss.

Philippine Interpretation IFRIC 9, Reassessment of Embedded Derivatives: clarifies that it does not apply

to possible reassessment at the date of acquisition, to embedded derivatives in contracts acquired in a business combination between entities or businesses under common control or the formation of joint venture.

Philippine Interpretation IFRIC 16, Hedge of a Net Investment in a Foreign Operation: states that, in a hedge of a net investment in a foreign operation, qualifying hedging instruments may be held by any entity or entities within the group, including the foreign operation itself, as long as the designation, documentation and effectiveness requirements of PAS 39 that relate to a net investment hedge are satisfied.

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, and are subject to an insignificant risk of change in value.

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Inventories Inventories are valued at the lower of cost or net realizable value (NRV). Cost is determined using the moving average method for materials, parts and supplies, flight equipment expendable parts and supplies and the first-in, first-out method for trading goods, truck and trailer expendable parts, fuel, lubricants and spare parts. NRV is the estimated selling price in the ordinary course of business, less estimated costs necessary to make the sale. Business Combinations and Goodwill Business combinations are accounted for using the purchase method. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at fair values at the date of acquisition, irrespective of the extent of any minority interest. Goodwill is initially measured at cost being the excess of the cost of business combination over the Group’s share in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities. If the cost of the acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the consolidated statement of income. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash generating units that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Where the goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained. When the Group acquires a business, embedded derivatives separated from the host contract by the acquiree are not reassessed on acquisition unless the business combination results in a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required under the contract. Business combination of entities under common control is accounted for using a method similar to pooling of interest. Under the pooling of interest method, any excess of acquisition cost over the net asset value of the acquired entity is recorded in equity. When subsidiaries are sold, the difference between the selling and the net assets plus cumulative translation differences and unamortized goodwill is recognized in the consolidated statement of income. Investments in Associates The Group’s investments in associates are accounted for under the equity method. An associate is an entity in which the Group has significant influence and which is neither a subsidiary nor a joint venture.

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Under the equity method, the investments in associates are carried in the consolidated balance sheet at cost plus post acquisition changes in the Group’s share in the net assets of associates. Goodwill relating to an associate is included in the carrying amount of the investment and is not amortized or separately tested for impairment. The consolidated statement of income reflects the share in the results of operations of the associates. Where there has been a change recognized directly in the consolidated statement of changes in equity of the associate, the Group recognizes its share of any changes and discloses it, when applicable, in the consolidated statement of changes in equity. Unrealized gains and losses resulting from transactions between the Group and the associates are eliminated to the extent of the interest in the associate. The share of profit of associates is shown on the face of the consolidated statement of income. This is the profit attributable to equity holders of the associate and therefore is profit after tax and minority interest in the subsidiaries of the associates. The financial statements of the associate are prepared for the same reporting period as the parent company and the associates’ accounting policies conform to those used by the Group for like transactions and events in similar circumstances. After the application of the equity method, the Group determines whether it is necessary to recognize an additional impairment loss on the Group’s investment in its associates. The Group determines at each balance sheet date whether there is any objective evidence that the investment in the associate is impaired. If this is the case the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognizes the amount in the consolidated statement of income. Interest in a Joint Venture The Group has an interest in a joint venture which is a jointly controlled entity, whereby the venturers have a contractual arrangement that establishes joint control over the economic activities of the entity. The Group recognizes its interest in the joint venture using the proportionate consolidation method. The Group combines its proportionate share of each of the assets, liabilities, income and expenses of the joint venture with similar items, line by line, in its consolidated financial statements. The financial statements of the joint venture are prepared for the same reporting period as the parent company. Adjustments are made where necessary to bring the accounting policies in line with those of the Group. Adjustments are made in the Group’s consolidated financial statements to eliminate the Group’s share of intragroup balances, income and expenses and unrealized gains and losses on transactions between the Group and its jointly controlled entity. Losses on transactions are recognized immediately if the loss provides evidence of a reduction in the net realizable value of current assets or an impairment loss. The joint venture is proportionately consolidated until the date on which the Group ceases to have joint control over the joint venture. Upon loss of joint control and provided the former joint control entity does not become a subsidiary or associate, the Group measures and recognizes its remaining investment at its fair value. Any difference between the carrying amount of the former joint controlled entity upon loss of joint control and the fair value of the remaining investment and proceeds from disposal is recognized in the consolidated statement of income. When the remaining investment constitutes significant influence, it is accounted for as investment in an associate.

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Property and Equipment Property and equipment other than land are stated at cost, less accumulated depreciation and accumulated impairment losses, if any. Such cost includes the cost of replacing part of the property and equipment and borrowing costs for long-term construction projects if the recognition criteria are met. When significant parts of property and equipment are required to be replaced in intervals, the Group recognizes such parts as individual assets with specific useful lives and depreciation, respectively. Repairs and maintenance costs are recognized in the consolidated statement of income as incurred. Land is carried at cost less accumulated impairment losses. Depreciation and amortization are calculated on a straight-line basis over the estimated useful lives of the property and equipment as follows:

Number of Years Ships in operation, excluding drydocking costs and

vessel equipment and improvements 15-30 years Drydocking costs 2 ½-5 years Vessel equipment and improvements 3-5 years Containers 5-7 years Handling equipment 5-7 years Furniture and equipment 3-5 years Land improvements 5-10 years Buildings and warehouses 5-20 years Transportation equipment 5-10 years Leasehold improvements 5-12 years

Leasehold improvements are amortized over their estimated useful lives or the term of the lease, whichever is shorter. Flight equipment is depreciated based on the estimated number of flying hours. Drydocking costs, consisting mainly of replacement of steel plate of the ships’ hull and related expenditures, are capitalized as a component of “Ships in operation”. Steel components are depreciated over five (5) years or the remaining life of the vessel whichever is shorter. Other components are depreciated over two and one-half (2 ½) years. When drydocking costs occur prior to the end of this period, the remaining unamortized balance of the previous drydocking cost is derecognized in consolidated statement of income. Ships under refurbishment include the acquisition cost of the ships, the cost of ongoing refurbishments and other direct costs. Construction in progress represents structures under construction and is stated at cost. This includes cost of construction and other direct costs. Borrowing costs that are directly attributable to the refurbishment of ships and construction of property and equipment are capitalized during the refurbishment and construction period. Ships under refurbishment and construction in progress are not depreciated until such time the relevant assets are complete and available for use. An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the consolidated statement of income in the year the asset is derecognized.

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The asset’s residual values, useful lives and depreciation methods are reviewed at each financial year end, and adjusted prospectively if appropriate. Fully depreciated assets are retained in the accounts until these are no longer in use. When property and equipment are sold or retired, their cost and accumulated depreciation and any allowance for impairment in value are eliminated from the accounts and any gain or loss resulting from their disposal is included in the consolidated statement of income. Noncurrent Assets Classified as Held for Sale Noncurrent assets and disposal groups classified as held for sale are measured at the lower of carrying amount and fair value less cost to sell. Noncurrent assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Liabilities associated with these assets are presented separately in the consolidated balance sheet. In the consolidated statement of income of the reporting period and the comparable period of the previous year, income and expenses from discontinued operations are reported separate from normal income and expenses down to the level of profit after taxes, even when the Group retains a minority interest in the subsidiary after the sale. The resulting profit or loss (after taxes) is reported separately in the consolidated statement of income. Property and equipment and intangible assets once classified as held for sale are not depreciated or amortized. If there are changes to a plan of sale, and the criteria for the asset or disposal group to be classified as held for sale are no longer met, the Group ceases to classify the asset or disposal group as held for sale and it shall be measured at the lower of:

a) its carrying amount before the asset was classified as held for sale adjusted for any depreciation, amortization or revaluations that would have been recognized had the asset not been classified as held for sale, and

b) its recoverable amount at the date of the subsequent decision not to sell.

The Group includes any required adjustment to the carrying amount of a noncurrent asset or disposal group that ceases to be classified as held for sale in the consolidated statement of income from continuing operations in the period in which the criteria for the asset or disposal group to be classified as held for sale are no longer met. The Group presents that adjustment in the same caption in the consolidated statement of comprehensive income used to present a gain or loss recognized, if any. If the Group ceases to classify a component of an entity as held for sale, the results of operations of the component previously presented in discontinued operations shall be reclassified and included in income from continuing operations for all periods presented. The amounts for prior periods shall be described as having been re-presented.

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Intangible Assets Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is fair value as at the date of the acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses. Internally generated intangible assets, excluding capitalized development costs, are not capitalized and expenditure is reflected in the consolidated statement of income in the year in which the expenditure is incurred. The useful lives of intangible assets are assessed to be either finite or indefinite. Software development costs Software development costs are initially recognized at cost. Following initial recognition, the software development costs are carried at cost less accumulated amortization and any accumulated impairment in value. The software development costs is amortized on a straight-line basis over its estimated useful economic life of three to five years and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization commences when the software development costs is available for use. The amortization period and the amortization method for the software development costs are reviewed at each financial year end. Changes in the estimated useful life is accounted for by changing the amortization period or method, as appropriate, and treated as changes in accounting estimates. The amortization expense is recognized in the consolidated statement of income in the expense category consistent with the function of the software development costs. Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually either individually or at the cash generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life 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 and the carrying amount of the asset and are recognized in the consolidated statement of income when the asset is derecognized. Impairment of Nonfinancial Assets The Group assesses at each balance sheet date whether there is an indication that nonfinancial asset may be impaired. If any such indication exists, or when annual impairment testing for nonfinancial asset is required, the Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (CGU) fair value less costs to sell and its value in use (VIU) 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. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing VIU, 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 the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators. Impairment losses of continuing operations are recognized in the consolidated statement of income in those expense categories consistent with the function of the impaired asset.

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For nonfinancial 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 Group makes an estimate of the asset’s or CGU’s recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s 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, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the consolidated statement of income unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase. After such a reversal, the depreciation expense is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life. Goodwill Goodwill is tested for impairment on December 31 of each year and when circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of each cash-generating unit (or group of cash-generating units) to which the goodwill relates. Where the recoverable amount of each cash-generating unit is less than their carrying amount an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods. Treasury Shares The Group’s own equity instruments which are reacquired (treasury shares) are recognized at cost and deducted from equity. No gain or loss is recognized in the consolidated statement of income on the purchase, sale, issue or cancellation of the Group’s own equity instruments. Any difference between the carrying amount and the consideration is recognized in other capital reserves. Financial Instruments Financial assets Initial recognition Financial assets within the scope of PAS 39 are classified as financial assets at fair value through profit or loss (FVPL), loans and receivables, held-to-maturity (HTM) investments, AFS investments, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial assets at initial recognition and, where allowed and appropriate, re-evaluates such designation at every balance sheet date. Financial assets are recognized initially at fair value plus, in the case of investments not at FVPL, directly attributable transaction costs. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way purchases) are recognized on the trade date i.e., the date that the Group commits to purchase or sell the asset. Subsequent measurement The subsequent measurement of financial assets depends on their classification as follows:

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Financial assets at FVPL Financial assets at FVPL include financial assets held for trading and financial assets designated upon initial recognition as FVPL. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Derivatives, including separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Financial assets at FVPL are carried in the consolidated balance sheet at fair value with gains and losses recognized in the consolidated statement of income. Financial assets may be designated at initial recognition as at FVPL if the following criteria are met: (i) the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or recognizing the gains or losses on them on a different basis; or (ii) the assets are part of a group of financial assets which are managed and their performance evaluated on fair value basis, in accordance with a documented risk management strategy; or (iii) the financial asset contains an embedded derivative that would need to be separately recorded. As at December 31, 2009 and 2008 the Group does not have any financial asset as at FVPL. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, they are not entered into with the intention of immediate or short-term resale and are not designated as AFS financial assets or financial assets at FVPL. Loans and receivables are carried at amortized cost using the effective interest method, less allowance for impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are integral part of the effective interest rate. Gains and losses are recognized in the consolidated statement of income when the loans and receivables are derecognized or impaired, as well as through the amortization process. Loans and receivables are included in current assets if maturity is within 12 months from the balance sheet date. As at December 31, 2009 and 2008, financial assets included under this classification are the Group’s cash in bank and cash equivalents, trade and other receivables and refundable deposits (presented as part of “Other current assets” in the consolidated balance sheet).

HTM investments HTM investments are quoted non-derivative financial assets which carry fixed or determinable payments and fixed maturities and which the Group has the positive intention and ability to hold to maturity. After initial measurement, HTM investments are measured at amortized cost using the effective interest method. This method uses an effective interest rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Where the Group sells other than an insignificant amount of HTM investments, the entire category would be tainted and reclassified as AFS investments. Gains and losses are recognized in the consolidated statement of income when the investments are derecognized or impaired, as well as through the amortization process. As at December 31, 2009 and 2008, the Group has no HTM investments. AFS investments AFS investments are those non-derivative financial assets which are designated as such or do not qualify to be classified as financial assets designated at FVPL, HTM investments or loans and receivables. They are purchased and held indefinitely, and may be sold in response to liquidity requirements or changes in market conditions. After initial measurement, AFS investments are measured at fair value with unrealized gains or losses recognized in the consolidated statement of

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comprehensive income and consolidated statement of changes in equity in the “Unrealized mark-to-market gain on AFS investments” until the AFS investments is derecognized, at which time the cumulative gain or loss recorded in equity is recognized in the consolidated statement of income. Assets under this category are classified as current assets if expected to be realized within twelve months from the balance sheet date and as noncurrent assets if maturity date is more than a year from balance sheet date. The Group’s AFS investments as at December 31, 2009 and 2008 included investment in quoted and unquoted shares of stock. Financial liabilities Initial recognition Financial liabilities within the scope of PAS 39 are classified as financial liabilities at FVPL, other financial liabilities, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial liabilities at initial recognition and, where allowed and appropriate, reevaluates such designation at every balance sheet date. Financial liabilities are recognized initially at fair value plus, in the case of investments not at FVPL, directly attributable transaction costs. Other financial liabilities Financial liabilities are classified in this category if these are not held for trading or not designated as at FVPL upon the inception of the liability. These include liabilities arising from operations or borrowings. The Group’s financial liabilities include debt and other borrowings (presented as loans payable in the consolidated balance sheet), trade and other payables, obligations under finance lease, and redeemable preferred shares. Subsequent measurement The measurement of financial liabilities depends on their classification as follows: Financial liabilities at FVPL Financial liabilities at FVPL include financial liabilities held for trading and financial liabilities designated upon initial recognition at FVPL. Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. This category includes derivative financial instruments entered into by the Group that do not meet the hedge accounting criteria as defined by PAS 39. Gains and losses on liabilities held for trading are recognized in the consolidated statement of income. As at December 31, 2009 and 2008, the Group does not have a financial liability held for trading and has not designated any financial liabilities as at FVPL.

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Other financial liabilities Other financial liabilities are initially recognized at fair value of the consideration received, less directly attributable transaction costs. After initial recognition, other financial liabilities are subsequently measured at amortized cost using the effective interest method. Amortized cost is calculated by taking into account any related issue costs, discount or premium. Gains and losses are recognized in the consolidated statement of income when the liabilities are derecognized, as well as through the amortization process. Financial guarantee contracts Financial guarantee contracts issued by the Parent Company to its Subsidiaries are those contracts that require a payment to be made to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when due in accordance with the terms of a debt instrument. Financial guarantee contracts are recognized initially as a liability at fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantee. Subsequently, the ability is measured at the higher of the best estimate of the expenditure required to settle the present obligation at the balance sheet date and the amount recognized less cumulative amortization. Embedded Derivatives Derivatives embedded in host contracts are separated from the host contract and accounted for as a derivative if all of the following conditions are met: (a) the economic characteristics and risks of the embedded derivative are not closely related to the risks and characteristics of the host contract; (b) a separate instrument with the same terms as the embedded derivatives would meet the definition of a derivative; and (c) the hybrid or combined instrument is not recognized at FVPL. These embedded derivatives are measured at fair value with gains and losses arising from changes in fair value recognized in the consolidated statement of income. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required. Offsetting of financial instruments Financial assets and financial liabilities are offset and the net amount 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 assets and settle the liabilities simultaneously. This is not generally the case with master netting agreements, and the related assets and liabilities are presented at gross amounts in the consolidated balance sheet. Fair value of financial instruments 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 market observable prices exist, options pricing models, and other relevant valuation models.

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‘Day 1’ profit and loss Where the transaction price in a non-active market is different from the fair value of other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable market, the Group recognizes the difference between the transaction price and fair value (a Day 1 profit and loss) in the consolidated statement of income 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 the consolidated statement of income when the inputs become observable or when the instrument is derecognized. For each transaction, the Group determines the appropriate method of recognizing the ‘Day 1’ profit and loss amount. Classification of financial instruments between debt and equity A financial instrument is classified as debt if it provides for a contractual obligation to:

� deliver cash or another financial asset to another entity; or � exchange financial assets or financial liabilities with another entity under conditions that are

potentially unfavorable to the Group; or � satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset

for a fixed number of own equity shares. If the Group does not have an unconditional right to avoid delivering cash or another financial asset to settle its contractual obligation, the obligation meets the definition of a financial liability. The components of issued financial instruments that contain both liability and equity elements are accounted for separately, with the equity component being assigned the residual amount after deducting from the instrument as a whole the amount separately determined as the fair value of the liability component on the date of issue. Impairment of Financial Assets The Group assesses at each balance sheet date whether a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if and only if, there is an objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. Loans and receivables For loans and receivables carried at amortized cost, the Group first assesses individually whether objective evidence of impairment exists for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a 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 continues to be recognized are not included in a collective assessment of impairment.

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If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in the consolidated statement of income. Interest income continues to be accrued on the reduced carrying amount based on the original effective interest rate of the financial asset. Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realized or has been transferred to the Group. If, in a subsequent period, the amount of the impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss increased or decreased by adjusting the allowance account. Any subsequent reversal of an impairment loss is recognized in the consolidated statement of income, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date. In relation to trade receivables, a provision for impairment loss is made when there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor) that the Group will not be able to collect all the amounts due under the original terms of the invoice. The carrying amount of the receivables is reduced through use of an allowance account. Impaired debts are derecognized when they are assessed as uncollectible. Assets carried at cost If there is objective evidence that an impairment loss on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. AFS investments For AFS investments, the Group assess at each balance sheet date whether there is objective evidence that an investment or Group of investment is impaired. In the case of equity investments classified as AFS, objective evidence of impairment would include a significant or prolonged decline in the fair value of the investments below its cost. Where there is evidence of impairment, the cumulative loss (measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in the consolidated statement of income) is removed from equity and recognized in the consolidated statement of income. Impairment losses on equity investments are not reversed through the consolidated statement of income. Increases in fair value after impairment are recognized in other comprehensive income. In the case of debt instruments classified as AFS, impairment is assessed based on the same criteria as financial assets carried at amortized cost. Future interest income is based on the reduced carrying amount and is accrued based on the rate of interest used to discount future cash flows for the purpose of measuring impairment loss. Such accrual is recorded as part of “Interest income” in the consolidated statement of income. If, in subsequent period, the fair value of a debt instrument increased and the increase can be objectively related to an event occurring after the impairment loss was recognized in the consolidated statement of income, the impairment loss is reversed through the consolidated statement of income.

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Redeemable Preferred Shares (RPS) The component of the RPS that exhibits characteristics of a liability is recognized as a liability in the consolidated balance sheet, net of transaction costs. The corresponding dividends on those shares are charged as interest expense in the consolidated statement of income. On issuance of the RPS, the fair value of the liability component is determined using a market rate for an equivalent non-convertible bond; and this amount is carried as a long term liability on the amortized cost basis until extinguished on conversion or redemption. The remainder of the proceeds is allocated to the conversion option that is recognized and included in consolidated statement of changes in equity, net of transaction costs. The carrying amount of the conversion option is not remeasured in subsequent years. Transaction costs are apportioned between the liability and equity components of the convertible preference shares based on the allocation of proceeds to the liability and equity components when the instruments are first recognized. Derecognition of Financial Assets and Liabilities Financial assets A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized when:

the rights to receive cash flows from the asset have 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 “pass-through” arrangement; or the Group has transferred its rights 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 the 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 Group’s continuing involvement in the asset. In such case, the Group also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay. Financial liabilities A financial liability is derecognized when the obligation under the liability is discharged or cancelled or has expired.

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Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the consolidated statement of income. Revenue Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received, excluding discounts, rebates, sales taxes or duty. The Group assesses its revenue arrangement against specific criteria in order to determine if it is acting as principal or agent. The Group has concluded that it is acting as a principal in all of its revenue arrangements. The following specific recognition criteria must also be met before revenue is recognized: Freight and passage Freight and passage revenues are recognized when the related services are rendered. Customer payments for services which have not yet been rendered are classified as unearned revenue under “Trade and other payables” in the consolidated balance sheet. Manning and crewing services Revenue is recognized upon embarkation of qualified ship crew based on agreed rates and when the corresponding training courses have been conducted. Management services Management fee is recognized when the related services are rendered. Sale of goods Revenue from the sale of goods is recognized when the significant risks and rewards of ownership of the goods have passed to the buyer, usually on delivery of the goods. Commissions Commissions are recognized as revenue in accordance with the terms of the agreement with the principal and when the related services have been rendered. Charter revenues Charter revenues from short-term chartering arrangements are recognized in accordance with the terms of the charter agreements. Rental income Rental income arising from operating leases is recognized on a straight-line basis over the lease term. Interest income and expense For all financial instruments measured at amortized cost and interest bearing financial assets classified as AFS, interest income or expense is recorded using the effective interest rate (EIR), which is the rate that exactly discounts the estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or liability. Dividend income Dividend income is recognized when the shareholders’ right to receive the payment is established.

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Borrowing Costs Borrowing costs, including foreign exchange difference arising from foreign currency borrowings that are regarded as an adjustment to interest costs, are capitalized if they are directly attributable to the acquisition or construction of a qualifying asset. Capitalization of borrowing costs commences when the activities to prepare the asset are in progress and expenditures and borrowing costs are being incurred. Borrowing costs are capitalized until the assets are substantially ready for their intended use. If the carrying amount of the asset exceeds its recoverable amount, an impairment loss is recorded. All other borrowing costs that the Group incurs in connection with the borrowing of funds are expensed in the period they occur. Pension Benefits The Group has thirteen (13) defined benefit pension plans, which require contributions to be made to separately administered funds. The cost of providing benefits under the defined benefit plan is determined using the projected unit credit actuarial valuation method. Actuarial gains and losses are recognized as income or expense when the net cumulative unrecognized actuarial gains and losses for each individual plan at the end of the previous reporting year exceeded 10% of the higher of the defined benefit obligation and the fair value of plan assets at that date. These gains or losses are recognized over the expected average remaining working lives of the employees participating in the plans. The past service cost is recognized as an expense on a straight-line basis over the average period until the benefits become vested. If the benefits are already vested immediately following the introduction of, or changes to, a pension plan, past service cost is recognized immediately. The defined benefit asset or liability comprises the present value of the defined benefit obligation, less past service costs and actuarial gains and losses not yet recognized and less the fair value of plan assets out of which the obligations are to be settled. 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 is based on market price information and in the case of quoted securities it is the published bid price. The value of any defined benefit asset recognized is restricted to the sum of any past service costs and actuarial gains and losses not yet recognized and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan. Leases The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date: whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset. A reassessment is made after the 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; (b) A renewal option is exercised and extension granted, unless the term of the renewal or extension was

initially included in the lease term; (c) There is a change in the determination of whether fulfillment is dependent on a specified asset; or (d) There is a substantial change to the asset.

When a reassessment is made, lease accounting shall commence or cease from the date when the change in circumstances give rise to the reassessment for scenarios (a), (c) or (d) and at the date of renewal or extension period for scenario (b).

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Group as a lessee Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, 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 finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are reflected in the consolidated statement of income. Capitalized leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term. Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognized as expense in the consolidated statement of income on a straight-line basis over the lease term. Group as a lessor Leases where the Group does not transfer substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same bases as rental income. Contingent rents are recognized as revenue in the period in which they are earned. Foreign Currency Translation The Group’s consolidated financial statements are presented in Philippine peso, which is the Parent Company’s functional and presentation currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Transactions in foreign currencies are initially recorded at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency rate of exchange ruling at the balance sheet date. All differences are taken to the consolidated statement of income with the exception of all monetary items that provide an effective hedge for a net investment in a foreign operation. These are recognized in other comprehensive income until the disposal of the net investment, at which time they are recognized in the consolidated statement of income. Tax charges and credits attributable to exchange differences on those monetary items are also recorded in equity. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The functional currency of JMBVI and Subsidiaries is the United States (US) dollars. The assets and liabilities of foreign operations are translated into Philippine peso using the Philippine Dealing System (PDS) closing rate at the balance sheet date and their statements of income are translated at the PDS weighted average exchange rates for the year. The exchange differences arising from the translation are taken directly to a separate component of equity, under the “Cumulative translation adjustments (CTA)” account. On disposal of a foreign entity, the deferred cumulative amount recognized in equity relating to that particular foreign operation is recognized in the consolidated statement of income.

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Income Taxes Current income tax Current income tax assets and liabilities for the current periods are measured at the amount expected to be recovered from or paid to the tax authority. The tax rates and tax laws used to compute the amount are those that are enacted, by the balance sheet date, in the countries where the Group operates and generates taxable income. Current income tax relating to items recognized directly in equity is recognized in equity and not in the consolidated statement of income. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate. Deferred income tax Deferred income tax is provided using the balance sheet liability method on temporary differences on 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, except:

where the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred income tax assets are recognized for all deductible temporary differences, carryforward benefits of net operating loss carryover (NOLCO) and minimum corporate income tax (MCIT), to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences and the carry forward of unused tax credits and unused tax losses can be utilized except:

where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.

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 profit will be available to allow all or part of the deferred income tax asset 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 future taxable profit will allow the deferred income tax asset to be recovered.

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Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted on the balance sheet date. Deferred income tax relating to items recognized either in other comprehensive income or directly in equity is recognized in consolidated statement of comprehensive income or consolidated statement of changes in equity and not in the consolidated statement of income. Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. Sales tax Revenues, expenses, and assets are recognized net of amount of sales tax except:

where the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the sales tax is recognized as part of the cost of acquisition of the asset or as part of the expense item as applicable; and

receivable and payables that are stated with the amount of sales tax are included. The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the consolidated balance sheet. Provisions Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the consolidated statement of income net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, 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 an interest expense. 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 are disclosed in the notes to consolidated financial statements when an inflow of economic benefits is probable. Events After Balance Sheet Date Post year events that provide evidence of conditions that existed on the balance sheet date are reflected in the consolidated financial statements. Subsequent events that are indicative of conditions that arose after balance sheet date are disclosed in the notes to consolidated financial statements when material. Earnings Per Common Share Basic earnings per common share are determined by dividing net income by the weighted average number of common shares outstanding, after retroactive adjustment for any stock dividends and stock splits declared during the year.

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Diluted earnings per common share amounts are calculated by dividing the net income for the year attributable to the ordinary equity holders of the parent by the weighted average number of common shares outstanding during the year plus the weighted average number of ordinary shares that would be issued for any outstanding common stock equivalents.

3. Significant Accounting Judgments and Estimates

The preparation of the Group’s consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities, as at December 31, 2009, 2008 and 2007. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in the future periods. Judgments In the process of applying the Group’s accounting policies, management has made the following judgments, apart from those involving estimations, which have the most significant effect on the amounts recognized in the financial statements: Operating lease commitments - Group as lessee The Group has entered into commercial property leases on its distribution warehouses, sales outlets, trucking facilities and administrative office locations. The Group has determined that it does not acquire all the significant risks and rewards of ownership of these properties which are leased on operating leases. Operating lease commitments - Group as lessor The Group has entered into short-term leases or chartering arrangements. The Group has determined that it retains all the significant risks and rewards of ownership of these equipment and so accounts for it as an operating lease. Disposal group classified as held for sale On December 19, 2008, AEV, together with ACO accepted the Term Sheet offered by KGLI-NM for the acquisition of ATSC and Subsidiaries subject to the terms and conditions that the Aboitiz Jebsen Group will be sold to AEV and ACO on or before April 30, 2009. The Management considered the investments in Aboitiz Jebsen Group met the criteria to be classified as held for sale as at December 19, 2008 for the following reasons:

Aboitiz Jebsen Group is available for immediate sale and can be sold to AEV in its current condition. The Board has plan to sell the Aboitiz Jebsen Group to AEV according to the terms of MOA. The Board expects the sale of Aboitiz Jebsen Group to be completed by April 30, 2009.

On April 30, 2009, the Parent Company was advised by AEV and ACO that KGLI-NM will no longer proceed with the purchase of the Parent Company’s shares. Consequently, AEV and ACO will no longer acquire the Aboitiz Jebsen Group from the Parent Company. As the sale of Aboitiz Jebsen Group did not materialize, the Group ceased to classify the Aboitiz Jebsen Group as held for sale in 2009.

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For more details on the disposal group refer to Notes 1 and 32. Determining functional currency Based on the economic substance of the underlying circumstances relevant to the Group, the functional currency of the companies in the Group has been determined to be the Philippine peso, except for subsidiaries whose functional currency is the US dollar. The Philippine peso is the currency of the primary economic environment in which the Group generally operates. It is the currency that mainly influences the sale of services and the costs of the rendering of services. Legal contingencies The Group is currently involved in legal and administrative proceedings. The Group’s estimate of the probable costs for the resolution of these claims has been developed in consultation with outside counsels handling defense in these matters and is based upon an analysis of potential results. The Group and its legal counsels currently do not believe these proceedings will have a material adverse effect on its financial position and results of operations. It is possible, however, that future results of operations could be materially affected by changes in the estimates or in the effectiveness of strategies relating to these proceedings (see Note 33).

Estimates and Assumptions The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Estimating allowance for impairment losses on trade and other receivables The Group maintains allowances for impairment losses on trade and other receivables at a level considered adequate to provide for potential uncollectible receivables. The level of this allowance is evaluated by the Group on the basis of factors that affect the collectibility of the accounts. These factors include, but are not limited to, the length of the Group’s relationship with debtors, their payment behavior and known market factors. The Group reviews the age and status of the receivables, and identifies accounts that are to be provided with allowance on a continuous basis. The amount and timing of recorded expenses for any period would differ if the Group made different judgment or utilized different estimates. An increase in the Group’s allowance for impairment losses would increase the Group’s recorded expenses and decrease current assets. The main considerations for impairment assessment include whether any payments are overdue or if there are any known difficulties in the cash flows of the counterparties. The Group assesses impairment into two areas: individually assessed allowances and collectively assessed allowances. The Group determines allowance for each significant receivable on an individual basis. Among the items that the Group considers in assessing impairment is the inability to collect from the counterparty based on the contractual terms of the receivables. Receivables included in the specific assessment are the accounts that have been endorsed to the legal department, non-moving account receivables, accounts of defaulted agents and accounts from closed stations. For collective assessment, allowances are assessed for receivables that are not individually significant and for individually significant receivables where there is no objective evidence of individual impairment. Impairment losses are estimated by taking into consideration the age of the receivables, past collection experience and other factors that may affect collectibility.

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As at December 31, 2009 and 2008, allowance for impairment losses on trade and other receivables amounted to P=259,359 and P=299,727, respectively. Carrying values of the Group’s trade and other receivables as at December 31, 2009 and 2008 amounted to P=2,347,627 and P=1,985,574, respectively (see Notes 8 and 37). Estimating allowance for inventory losses The Group provides an allowance for inventories whenever the value of inventories becomes lower than its cost due to damage, physical deterioration, obsolescence, changes in price levels or other causes. The allowance account is reviewed on an annual basis. Inventory items identified to be obsolete and unusable are written off and charged as expense for the period. As at December 31, 2009 and 2008, the net carrying value of inventories amounted to P=571,179 and P=376,336, respectively (see Note 9). Allowance for inventory obsolescence as at December 31, 2009 and 2008 amounted to P=34.7 million and P=61.2 million, respectively. Estimating useful lives of property and equipment The estimated useful lives used as basis for depreciating property and equipment items were determined on the basis of management’s assessment of the period within which the benefits of these asset items are expected to be realized taking into account actual historical information on the use of such assets as well as industry standards and averages applicable to the Group’s assets. In 2007, management extended the estimated useful life of Super Ferry 2, one of the ships in operation, by five (5) years. Also, the estimated useful life of the steel component of each of the vessels was revised from 2 ½ years to 7 years or the remaining useful life of the related vessel whichever is shorter. The extension is based on management’s assessment of the period within which the benefit of using these assets is expected to be realized, after the extensive improvements done to the assets. The change in estimated useful life has reduced depreciation expense by P=3.0 million in 2007. In 2009, the estimated useful life of the vessel’s steel component was changed from 7 years to 5 years mainly because of the increased utilization of vessels resulting from the rationalization of the Parent Company’s fleet. The change in estimated useful life has increased depreciation expense by P=4.2 million in 2009. The Group’s property and equipment balance amounted to P=4,817,558 and P=4,237,249 as at December 31, 2009 and 2008, respectively (see Note 14). Estimating residual value The residual value of the Group’s property and equipment asset is estimated based on the amount that would be obtained from disposal of the asset, after deducting estimated costs of disposal, if the assets are already of the age and in the condition expected at the end of its useful life. Such estimation is based on the prevailing price of scrap steel. The estimated residual value of each asset is reviewed periodically and updated if expectations differ from previous estimates due to changes in the prevailing price of scrap steel. Estimating useful life of software development costs The estimated useful life used as a basis for amortizing software development costs was determined on the basis of management’s assessment of the period within which the benefits of these costs are expected to be realized by the Group. As at December 31, 2009 and 2008, the carrying value of software development costs amounted to P=112,127 and P=188,210, respectively (see Note 15).

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Deferred income tax assets 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 profit will be available to allow all or part of the deferred income tax assets to be utilized. Significant management judgment is required to determine the amount of deferred income tax assets that can be recognized, based upon the likely timing and the level of future taxable income together with the future tax planning strategies. Management expects future operations will generate sufficient taxable profit that will allow part of the deferred income tax assets to be utilized. The Group’s gross deferred income tax assets amounted to P=270,849 and P=369,528 as at December 31, 2009 and 2008, respectively (see Note 31). Impairment of AFS investments The Group considers AFS financial assets as impaired when there has been a significant or prolonged decline in the fair value of such investments below their cost or where other objective evidence of impairment exists. The determination of what is “significant” or “prolonged” requires judgment. The Group treats “significant” generally as 20% or more and “prolonged” as greater than twelve months. In addition, the Group evaluates other factors, including normal volatility in share price for quoted equities and future cash flows and discount factors for unquoted equities in determining the amount to be impaired. The carrying value of AFS investments amounted to P=43,323 and P=37,053 as at December 31, 2009 and 2008, respectively (see Notes 13 and 37). Fair value of financial instruments Where the fair value of financial assets and liabilities recorded in the consolidated balance sheet cannot be derived from active markets, they are determined using valuation techniques including the discounted cash flows model. The inputs to the models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing the fair values. The judgments include considerations of inputs such as liquidity risk and credit risk. Changes in assumptions about these factors could affect the reported fair value of financial instruments. The carrying values and corresponding fair values of financial assets and financial liabilities and the manner in which fair values were determined are described in Note 38. Impairment of nonfinancial asset Determining the recoverable amounts of the nonfinancial assets listed below, which involves the determination of future cash flows expected to be generated from the continued use and ultimate disposition of such assets, requires the use of estimates and assumptions that can materially affect the consolidated financial statements. Future events could indicate that these nonfinancial assets are impaired. Any resulting impairment loss could have a material adverse impact on the financial condition and results of operations of the Group. The preparation of estimated future cash flows involves significant judgment and estimations. While the Group believes that its assumptions are appropriate and reasonable, significant changes in these assumptions may materially affect its assessment of recoverable values and may lead to future additional impairment changes under PFRS.

30

Assets that are subject to impairment testing when impairment indicators are present (such as obsolescence, physical damage, significant changes to the manner in which the asset is used, worse than expected economic performance, a drop in revenues or other external indicators) are as follows:

2009 2008 Other current assets - net (see Note 10) P=785,366 P=706,785 Property and equipment - net (see Note 14) 4,817,558 4,237,249 Investments in associates (see Notes 11 and 20) 74,208 17,346 Software development cost - net (see Note 15) 112,127 188,210 Other noncurrent assets - net (except refundable

deposits) (see Notes 16 and 20) 128,674 74,139 No impairment losses were recognized in 2009, 2008 and 2007. 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 requires the Group 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. The carrying amount of goodwill as at December 31, 2009 and 2008 amounted to P=256,463 (see Note 6). Pension benefit The determination of the obligation and cost for pension and other retirement benefits is dependent on the selection of certain assumptions used by actuaries in calculating such amounts. Those assumptions were described in Note 30 and include among others, discount rate, expected return on plan assets and rate of compensation increase. In accordance with PFRS, actual results that differ from the Group’s assumptions are accumulated and amortized over future periods and therefore, generally affect the recognized expense and recorded obligation in such future periods. While it is believed that the Group’s assumptions are reasonable and appropriate, significant differences in actual experience or significant changes in assumptions may materially affect the Group’s pension and other retirement obligations. The Group’s pension asset and pension liability as at December 31, 2009 amounted to P=67,589 and P=18,115, respectively and as at December 31, 2008 amounted to P=39,501 and P=32,556, respectively, (see Notes 16 and 30).

4. Operating Segment Information

For management purposes, the Group is organized into business units based on their products and services and has three reportable operating segments as follows.

The shipping and transportation segment renders passage transportation and cargo freight services.

The distribution segment provides supply chain management.

The manpower services segment renders manning and personnel, particularly crew management services.

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No operating segments have been aggregated to form the above reportable operating segments. Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss and is measured consistently with operating profit or loss in the consolidated financial statements. However, Group financing (including finance costs and finance income) and income taxes are managed on a group basis and are not allocated to operating segments. Transfer prices between operating segments are on an arm’s length basis in a manner similar to transactions with third parties. Financial information about business segments follow: 2009

Shipping and

Transportation Distribution Manpower

Services Eliminations Consolidated Revenue External customer P=9,684,838 P=1,735,155 P=404,438 P=– P=11,824,431 Inter-segment 1,073,377 – 53,759 (1,127,136) – Total revenue 10,758,215 1,735,155 458,197 (1,127,136) 11,824,431

Income (Expense) Fuel (2,228,950) (470) – 6,164 (2,223,256) Cost of sales – (1,460,875) – – (1,460,875) Depreciation and amortization (998,553) (18,900) (16,092) – (1,033,545) Charter hire (680,979) – – – (680,979) Food and subsistence (147,973) – – – (147,973) Share in equity in net earnings 57,128 – (3,694) – 53,434 Segment income before

income tax 991,314 34,964 110,650 (313,155) 823,773 Segment income (loss) 833,677 25,265 76,930 (313,155) 622,717 Segment assets 10,389,714 1,093,833 714,714 (1,576,265) 10,621,996 Segment liabilities 4,942,934 965,472 622,639 (1,068,621) 5,462,424

Other information: Capital expenditures 1,862,703 56,212 28,804 – 1,947,719 Investment in associate 44,874 24,440 4,894 – 74,208

2008

Shipping and


Services Elimination Consolidated Revenue External customer P=11,344,936 P=1,163,859 P=359,723 P=– P=12,868,518 Inter-segment 936,624 16,705 48,182 (1,001,511) – Total revenue 12,281,560 1,180,564 407,905 (1,001,511) 12,868,518

Results Fuel (3,384,509) (336) – – (3,384,845) Cost of sales – (966,463) – – (966,463) Depreciation and amortization (1,017,463) (5,757) (12,511) – (1,035,731) Charter hire (2,020,059) – – – (2,020,059) Food and subsistence (182,226) – – – (182,226) Share in equity in net earnings (6,362) – (1,277) – (7,639)

(Forward)

32

2008

Shipping and


Services Elimination Consolidated Segment income (loss) before

income tax P=226,627 P=31,522 P=90,884 (P=201,938) P=147,095 Segment income (loss) 226,565 18,275 56,522 (201,938) 99,424 Segment assets 9,604,086 754,637 742,829 (1,692,532) 9,409,020 Segment liabilities 4,681,675 651,198 664,367 (1,179,006) 4,818,234

Other information: Capital expenditures 1,016,793 97,133 30,710 – 1,144,636 Investment in associate 12,358 – 4,988 – 17,346

2007

Shipping and

Transportation Manpower

Services Elimination Consolidated Revenue External customer P=10,760,420 P=295,548 P=– P=11,055,968 Inter-segment 872,621 53,292 (925,913) – Total revenue 11,633,041 348,840 (925,913) 11,055,968

Results Fuel (2,647,599) – – (2,647,599) Depreciation and amortization (1,167,087) (11,256) – (1,178,343) Charter hire (2,315,748) – – (2,315,748) Food and subsistence (187,041) – – (187,041) Share in equity in net earnings (34) 444 – 410 Segment income (loss) before

income tax 682,306 57,968 (119,350) 620,924 Segment income (loss) 520,265 37,866 (119,350) 438,781 Segment assets 9,196,989 587,228 (1,145,210) 8,639,007 Segment liabilities 4,257,088 509,762 (631,483) 4,135,367

Other information: Capital expenditures 1,565,647 15,984 – 1,581,631 Investment in associate 18,035 6,666 – 24,701

5. Business Combinations and Goodwill

On June 3, 2008, AOI acquired 100% ownership in SOI, a company engaged in the business of sales, marketing, warehousing and transportation of temperature-controlled and ambient food products to its customers in the Philippines.

33

The fair value of the identifiable assets and liabilities of SOI as at the date of acquisition and the corresponding carrying amounts immediately before the acquisition were:

Fair value recognized

on acquisition Previous

carrying value Cash and cash equivalents P=148,246 P=148,246 Trade and other receivables 119,070 119,070 Merchandise inventory 68,651 68,651 Prepayments and other current assets 64,822 64,822 Property and equipment 11,009 11,009 411,798 411,798 Trade and other payables 223,096 223,096 Other liabilities 65,282 65,282 Net assets 123,420 P=123,420 Goodwill arising from acquisition 250,450 Total consideration satisfied by cash P=373,870

Cashflow on acquisition: Net cash acquired with the subsidiary P=148,246 Cash paid (373,870) Net cash outflow (P=225,624)

SOI has contributed P=10.5 million and P=18.9 million to the net income of the Group in 2009 and 2008, respectively. The following table shows the movement of goodwill:

2009 2008 Balances at beginning of year P=256,463 P=10,323 Addition – 250,450 Disposal – (4,310) Balances at end of year P=256,463 P=256,463

On January 22, 2009, AOI entered into an Investor’s Agreement (the Agreement) with Kerry Logistics Network Limited (KLN), a Hong-Kong based logistics company. In accordance with the Agreement, AOI invested P=4.8 million in a wholly-owned subsidiary, KLN Investment Holdings Philippines, Inc. (KLN Investment) on February 26, 2009. On August 1, 2009, AOI subsequently sold its investment in KLN Investment to Kerry Freight Services (Far East) Pte. Ltd, a subsidiary of KLN, which resulted in a gain of P=52.5 million.

6. Impairment Testing of Goodwill

Goodwill acquired through business combinations have been attributed to each cash-generating unit. The recoverable amount of the investments has been determined based on a value in use calculation using cash flow projections based on financial budgets approved by senior management covering a five-year period. The discount rate applied to cash flow projections is 11.40% in 2009, and cash flows beyond the five-year period are extrapolated using a zero percent growth rate.

34

Key assumptions used in value in use calculation for December 31, 2009 The following describes each key assumption on which management has based its cash flow projections to undertake impairment testing of goodwill. Foreign exchange rates In 2008, the assumption used to determine foreign exchange rate is a fluctuating Philippine peso which starts at a rate of P=40 to a dollar starting 2008 until the fifth year. In 2009, the rate used in the assumption is P=48.50 to a dollar starting 2009 until the fifth year. Materials price inflation In 2008, the assumption used to determine the value assigned to the materials price inflation is a 2% basis point increase in inflation in 2009, which then decreased by 1% basis points on the second year and remains steady on the third until the fifth year. The starting point of 2009 is consistent with external information sources. In 2009, the assumption used to determine the value assigned to the materials price inflation is a 4.74% basis point increase in inflation in 2010. As at December 31, 2009, the Group has not recognized any impairment in goodwill.

7. Cash and Cash Equivalents

2009 2008 Cash on hand and in banks P=927,648 P=991,932 Cash equivalents 168,063 100,911 1,095,711 1,092,843 Cash and cash equivalents included in the disposal group

classified as held for sale (see Note 32) – 232,589 P=1,095,711 P=860,254

Cash in banks earns interest at the respective bank deposit rates. Cash equivalents are made for varying periods of up to three months depending on the immediate cash requirements of the Group, and earn interest at the respective short-term investment rates. Total interest income earned by the Group from cash in banks and cash equivalents amounted to P=25,098, P=14,824 and P=25,557 in 2009, 2008 and 2007, respectively.

8. Trade and Other Receivables

2009 2008 Trade (see Note 22) Service fees P=751,912 P=832,621 Freight 694,874 794,438 Passage 27,955 12,080 Others 588,148 321,555 Nontrade (see Note 22) 269,805 242,667 Insurance and other claims (see Note 33) 223,656 41,524 Advances to officers and employees 50,636 40,416 2,606,986 2,285,301

(Forward)

35

2009 2008 Less allowance for impairment losses P=259,359 P=299,727 2,347,627 1,985,574 Trade and other receivables included in the disposal

group classified as held for sale (see Note 32) – 364,899 P=2,347,627 P=1,620,675

Trade receivables are non-interest bearing and are generally on 30 days’ terms. Insurance claims receivables pertain to the Group’s claims for reimbursement of losses against insurance coverages for hull and machinery, cargo and personal accidents.

Nontrade receivables are non-interest bearing and include advances to affiliates and suppliers. The following table sets out the rollforward of the allowance for impairment losses: As at December 31, 2009

Trade Service fees Freight Others Nontrade

Insurance and claims Total

Balances at beginning of year P=62,378 P=202,737 P=2,721 P=7,962 P=23,929 P=299,727 Provisions (see Note 25) 6,453 23,676 – – – 30,129 Reversals (see Note 29) – (60,884) – – – (60,884) Changes through the statement of income 6,453 (37,208) – – – (30,755) Allowances used to cover write-offs (1,779) (1,194) – (3,335) (3,305) (9,613)

Balances at end of year P=67,052 P=164,335 P=2,721 P=4,627 P=20,624 P=259,359

As at December 31, 2008

Trade Service fees Freight Others Nontrade

Insurance and other

claims

Advances to officers and employees Total

Balances at beginning of year P=58,718 P=202,737 P=2,721 P=9,214 P=24,506 P=5 P=297,901 Allowance from acquired subsidiaries 2,042 – – – – – 2,042 Provisions (see Note 25) 9,292 – – 964 – – 10,256 Reversals (12,011) – – (2,216) (348) (5) (14,580) Changes through the statement of income (2,719) – – (1,252) (348) (5) (4,324) Allowances used to cover write-offs 4,337 – – – (229) – 4,108

Balances at end of year P=62,378 P=202,737 P=2,721 P=7,962 P=23,929 P=– P=299,727

The following table sets out the analysis of collective and individual impairment of trade and other receivables: As at December 31, 2009

Collectively

impaired Individually

impaired Total Trade P=37,066 P=197,042 P=234,108 Nontrade receivable – 4,627 4,627 Insurance and other claims 1,501 19,123 20,624 P=38,567 P=220,792 P=259,359

36


Collectively

impaired Individually

impaired Total Trade P=81,199 P=186,637 P=267,836 Nontrade receivable – 7,962 7,962 Insurance and other claims 1,501 22,428 23,929 P=82,700 P=217,027 P=299,727

Trade and other receivables that are individually determined to be impaired at the balance sheet date relate to debtors that are in significant financial difficulties and have defaulted on payments and accounts under dispute and legal proceedings. These receivables are not secured by any collateral or credit enhancements.

9. Inventories

2009 2008 Materials, parts and supplies - at NRV P=451,683 P=286,794 Fuel and lubricants - at cost 119,496 89,542 Total inventories at lower of cost and NRV 571,179 376,336 Inventories included in the disposal group classified as

held for sale (see Note 32) – 31,671 P=571,179 P=344,665

The allowance for inventory obsolescence as at December 31, 2009 and 2008 amounted to P=34.7 million and P=61.2 million, respectively. The cost of inventories recognized as “Cost of sales” in the consolidated statements of income amounted to P=1,460,875, P=966,463 and nil in 2009, 2008 and 2007, respectively.

10. Other Current Assets

2009 2008 Prepaid expenses P=683,043 P=601,865 Input value-added tax (VAT) 94,099 89,898 Others 8,224 15,022 785,366 706,785 Prepaid expenses and other current assets included in the

disposal group classified as held for sale (see Note 32) – 78,836

P=785,366 P=627,949

37

11. Investments in Associates

2009 2008 Acquisition cost:

Balances at beginning of year P=18,849 P=19,249 Additions during the year 3,600 – Disposals during the year – (400) Balances at end of year 22,449 18,849

Accumulated equity in net earnings: Balances at beginning of year (2,188) 5,451 Equity in net earnings (losses) during the year 53,434 (7,639) Balances at end of year 51,246 (2,188)

P=73,695 P=16,661 Share in CTA of associates 513 685 74,208 17,346 Investments in associates included in the disposal

group classified as held for sale (see Note 32) – 4,988 P=74,208 P=12,358

The Group’s investments in associates which are accounted for under the equity method follow:

Percentage of Ownership 2009 2008

Associates Country of Incorporation Nature of Business Direct Indirect Direct Indirect

MCCP Philippines (MCCP) Philippines Container transportation 33% – 33% – Aboitiz Project/T.S.

Corporation (APTSC) Philippines Project logistics and consultancy – 50% – 50%

JPS Norway Manpower services – 50% – –

In February 2009, AJBTC purchased 50 shares of Jebsen People Solutions AS (JPS) at Norwegian Krone (NOK)1,000 per share. As at December 31, 2009, JPS’s operations resulted to a loss of NOK2.1 million (P=17.0 million). The share in equity loss was recognized by AJBTC to the extent of its initial investment. Summarized financial information of the associates follows: As at December 31, 2009

APTSC MCCP JPS Total Current assets P=195,665 P=437,425 P=7,245 P=640,335 Noncurrent assets 4,809 436,983 – 441,792 Current liabilities 163,540 372,118 16,933 552,591 Noncurrent liabilities – – 6,480 6,480 Revenue 444,886 965,976 266 1,411,128 Net income (loss) 24,165 136,501 (17,016) 143,650

38


APTSC MCCP Total Current assets P=32,221 P=148,125 P=180,346 Noncurrent assets 1,750 – 1,750 Current liabilities 21,507 169,871 191,378 Noncurrent liabilities 78 – 78 Revenue 67,176 284,922 352,098 Net income (loss) 8,510 (89,653) (25,333)


APTSC MCCP WJMSI Total Current assets P=14,873 P=79,894 P=457 P=95,224 Noncurrent assets 1,448 – – 1,448 Current liabilities 8,151 71,274 – 79,425 Noncurrent liabilities 68 – – 68 Revenue 12,783 54,274 – 67,057 Net income (loss) 7,881 (19,902) 177 (11,844)

12. Interest in Joint Ventures

On March 18, 2009, AOI and KLN Investments formed KLN Holdings, a jointly controlled entity. In accordance with the Agreement, AOI and KLN Investments (the venturers) will hold ownership interests of 78.4% and 21.6%, respectively, in KLN Holdings. However, the venturers have the power to govern the financial and operating policies of KLN Holdings unanimously. As at December 31, 2009, AOI’s investment in KLN Holdings amounted to P=7.5 million. In March 30, 2009, KLN Holdings and KLN Investments formed another jointly controlled entity, Kerry-Aboitiz Logistics, Inc. (KALI), to engage in the business of international freight and cargo forwarding. In accordance with the Agreement, KLN Holdings and KLN Investments will hold 62.5% and 37.5% interest in KALI, respectively. However, the venturers have the power to govern the financial and operating policies of KALI unanimously. As of December 31, 2009, KLN Holdings’ investment in KALI amounted to P=9.6 million. In accordance with the Agreement, AOI indirectly holds a 49% interest in KALI. To account for this, KALI is proportionately consolidated by KLN Holdings using the latter’s 62.5% share. The consolidated balances of KLN Holdings are then proportionately consolidated by AOI using the latter’s 78.4% share.

39

The Group’s share of the assets and liabilities of KALI and KLN Holdings as at December 31, 2009 and the income and expenses in the jointly controlled entities for the year ended December 31, 2009, which are proportionately consolidated in the consolidated financial statements, are as follows:

Current assets P=48,912 Noncurrent assets 932 Current liabilities 41,475 Noncurrent liabilities 236 Equity P=8,133 Revenue P=55,532 Cost and expenses 54,843 Other income (charges) 170 Income before income tax 859 Income tax expense 252 Net income for the year P=607

13. AFS Investments

2009 2008 Quoted equity investments Listed shares of stocks P=26,789 P=17,225 Club shares 5,500 4,000 Unquoted equity investments - at cost 11,034 15,828 43,323 37,053 AFS investments included in the disposal group classified

as held for sale (see Note 32) – 9,419 P=43,323 P=27,634

Listed shares of stocks and club shares are carried at market value. Unrealized mark-to-market gains or losses on AFS investments are recognized in the statement of comprehensive income and included in the “Equity” section of the consolidated balance sheet. Unquoted shares of stocks pertain to preferred shares which has a fixed number of shares that can be redeemed every year. The following table shows the movement of “Unrealized mark-to-market gain on AFS investments” account:

2009 2008 At beginning of year P=5,621 P=12,563 Increase (decrease) in value of AFS investments during the year 10,376 (6,942) Re-presentation of comprehensive income

(see Note 32) 2,315 – At end of year P=18,312 P=5,621

40

14. Property and Equipment

The Parent Company’s ships in operation, land and improvements, and buildings and warehouses, were appraised for the purpose of determining their market values. Based on the latest appraisal dated September 2008 made by Eagle Marine Consultants Inc, the related ships in operation have an aggregate market value of P=4,445 million against net book value of P=2,607 million.

Containers include units acquired under finance lease arrangements (see Note 19). The related depreciation of the leased containers amounting to P=29.0 million in 2009, P=62.1 million in 2008 and P=128.8 million in 2007 were computed on the basis of the Company’s depreciation policy for owned assets. To ensure the maintenance of the ships in operation in accordance with international standards, the Parent Company has availed of the services of its subsidiary and ship management company, AJBTC, to oversee the regular upgrading and maintenance of the ships. The Parent Company disposed three ships in operation in 2007 resulting in a gain of P=623.1 million. In 2008, the Parent Company disposed Tagbilaran properties, leasehold improvements related to the vessel, MV2Go1, and containers that resulted to a net gain of P=117.8 million. In 2008 and 2007, the Group recorded an impairment loss amounting to P=15.2 million and P=19.6 million, respectively, to write down flight and handling equipment to the recoverable amount. This has been recognized in the consolidated statements of income in the line item “Overhead Expenses”. In 2009, the Parent Company’s disposal of Our Lady of Medjugorje and containers resulted in a net gain of P=19.7 million. The retirement of Super Ferry 9 due to the incident that happened in September 2009 resulted in a net gain from insurance proceeds on marine hull of P=79.5 million which was presented as “Other income” in the consolidated statements of income. The net book value of Super Ferry 9 that was retired amounted to P=255.5 million. In 2009 and 2008, the Group recognized a reversal of impairment loss and an impairment loss of P=0.2 million and P=15.2 million, respectively, on its flight equipment due to irreparable damage on its aircraft engines.

41


Ships in

Operation ContainersHandling

EquipmentFlight

Equipment Furniture and

EquipmentLand and

ImprovementsBuildings and

Warehouses Leasehold

ImprovementsTransportation

Equipment

Ships UnderRefurbishment

andConstruction

in Progress Total COST: At January 1 P=5,098,939 P=1,537,335 P=1,190,142 P=62,980 P=732,073 P=417,775 P=248,680 P=306,467 P=318,706 P=81,046 P=9,994,143 Additions 1,639,082 – 85,988 564 90,932 30,763 23,128 29,205 41,794 – 1,941,456 Disposals (465,921) (63,812) (29,867) (12,913) (81,243) – (23,288) (2,763) (92,668) – (772,475) Retirements/Reclassifications (460,786) 214 (13,307) (8) (673) – (36,647) 36,629 406 (8,856) (483,028) At December 31 5,811,314 1,473,737 1,232,956 50,623 741,089 448,538 211,873 369,538 268,238 72,190 10,680,096 ACCUMULATED DEPRECIATION

AND AMORTIZATION: At January 1 2,099,918 1,362,742 1,092,545 57,770 584,108 65,114 174,195 163,810 156,692 – 5,756,894 Depreciation and amortization for

the year 679,946 28,525 63,795 1,038 76,267 11,813 15,262 30,824 43,740 – 951,210 Disposals (362,548) (59,265) (22,838) (8,170) (81,453) – (21,401) (4,728) (81,197) – (641,600) Retirements/

Reclassifications (196,403) (389) (6,193) (15) (78) – (22,276) 22,078 (690) – (203,966) At December 31 2,220,913 1,331,613 1,127,309 50,623 578,844 76,927 145,780 211,984 118,545 – 5,862,538 Net Book Value P=3,590,401 P=142,124 P=105,647 P=– P=162,245 P=371,611 P=66,093 P=157,554 P=149,693 P=72,190 P=4,817,558

42


Ships in

Operation ContainersHandling

EquipmentFlight

Equipment Furniture and

EquipmentLand and

ImprovementsBuildings and

Warehouses Leasehold

ImprovementsTransportation

Equipment

Ships UnderRefurbishment

andConstruction

in Progress Total COST: At January 1 P=4,638,474 P=1,710,581 P=1,210,726 P=156,232 P=659,633 P=392,207 P=189,290 P=277,558 P=303,370 P=64,822 P=9,602,893 Acquisition of subsidiary – – – – 23,111 – 4,581 – 7,712 – 35,404 Additions 735,660 12 16,879 280 99,407 42,685 51,637 25,593 119,886 9,182 1,101,221 Disposals (170,910) (172,330) (37,445) (93,447) (72,999) (17,117) (4,246) (201) (114,185) – (682,880) Retirements/Reclassifications (104,285) (928) (18) (85) 22,921 – 7,418 3,517 1,923 7,042 (62,495) At December 31 5,098,939 1,537,335 1,190,142 62,980 732,073 417,775 248,680 306,467 318,706 81,046 9,994,143 ACCUMULATED DEPRECIATION,

AMORTIZATION AND IMPAIRMENT LOSS:

At January 1 1,703,776 1,458,885 1,055,811 122,620 548,602 60,070 134,049 145,348 198,353 – 5,427,514 Acquisition of subsidiary – – – – 14,086 – 1,650 – 7,712 – 23,448 Depreciation and amortization

for the year 629,660 67,949 81,464 1,533 74,690 8,383 29,754 17,310 40,747 – 951,490 Disposals (132,697) (162,200) (37,239) (81,487) (72,225) (3,258) (1,966) (87) (91,806) – (582,965) Retirements/Reclassifications (100,821) (1,892) 7,795 (84) 18,955 (81) 10,708 1,239 1,686 – (62,495) Impairment for the year – – – 15,188 – – – – – – 15,188 Cumulative translation adjustment – – (15,286) – – – – – – – (15,286) At December 31 2,099,918 1,362,742 1,092,545 57,770 584,108 65,114 174,195 163,810 156,692 – 5,756,894 2,999,021 174,593 97,597 5,210 147,965 352,661 74,485 142,657 162,014 81,046 4,237,249 Property and equipment included

in the disposal group held for sale (see Note 32) – – 9,063 – 17,825 – – 2,473 13,391 – 42,752

Net Book Value P=2,999,021 P=174,593 P=88,534 P=5,210 P=130,140 P=352,661 P=74,485 P=140,184 P=148,623 P=81,046 P=4,194,497

2

15. Software Development Costs Movement of the Group’s software development costs follows:

2008

2009 In Use Under

Development Total Cost: At January 1 P=577,309 P=499,176 P=48,423 P=547,599 Additions 6,264 29,710 – 29,710 Disposal (5,017) – – – Reclassifications – 48,423 (48,423) – At December 31 578,556 577,309 – 577,309

Accumulated amortization: At January 1 389,099 300,816 – 300,816 Amortization for the year 82,335 84,241 – 84,241 Disposal (5,005) – – – Adjustments – 4,042 – 4,042 At December 31 466,429 389,099 – 389,099 Net book values P=112,127 P=188,210 P=– P=188,210

16. Other Noncurrent Asset

2009 2008 Pension assets (see Note 30) P=67,589 P=39,501 Refundable deposits and others 195,314 114,940 262,903 154,441 Other noncurrent assets included in the disposal group

classified as held for sale (see Note 32) – 1,503 P=262,903 P=152,938

17. Loans Payable

2009 2008 Peso loans P=1,279,200 P=551,000 US dollar loans 113,190 235,224 US dollar overdraft facility – 43,655 1,392,390 829,879 Loans payable included in the disposal group classified as

held for sale (see Note 32) – 278,879 P=1,392,390 P=551,000

The peso loans pertain to unsecured short-term notes payable obtained by the Parent Company and AOI from local banks with annual interest rates ranging from 5.35% to 8.75% in 2009 and 6.00% to 11.00% in 2008. These loans will mature on various dates up to November 2010.

3

The US dollar loans represent unsecured short-term notes payable obtained by AJBTC and JMI from local banks and have outstanding balances amounting to US$2.5 million and US$4.5 million as at December 31, 2009 and 2008, respectively. These loans bear interest rates of 4.0% to 6.5% in 2009 and 5.45% to 5.99% in 2008. These loans will mature on various dates up to July 2010. The US dollar overdraft facility pertains to a loan obtained from a foreign bank by Jebsens Orient Shipping AS, a wholly owned subsidiary of JMBVI based in Norway, with interest at the aggregate of London Inter-bank Offered Rate (LIBOR) plus a margin of 1.50% per year. This loan is secured by an assignment of the borrower’s earnings and a guarantee of JMBVI shareholder. Total interest expense incurred by the Group for the loans amounted to P=63.7 million, P=24.3 million and P=65.0 million in 2009, 2008 and 2007, respectively.

18. Trade and Other Payables

2009 2008 Trade (see Note 22) P=1,623,585 P=1,460,437 Accrued expenses 1,474,183 1,176,008 Nontrade (see Note 22) 766,449 1,050,131 Unearned revenue - net of deferred discounts 88,460 118,671 Dividends payable 30,030 – 3,982,707 3,805,247 Trade and other payables included in the disposal group

classified as held for sale (see Note 32) – 399,054 P=3,982,707 P=3,406,193

Trade and other payables are non-interest bearing and are normally on 30 days’ term. The dividend payable pertains to dividend declared by JMBVI to its minority shareholders on December 31, 2009 to be paid on or before February 28, 2010.

19. Finance Lease

The Group has certain containers and transportation equipment under finance lease arrangements denominated in US dollars. Assets under finance lease as at December 31, 2009 and 2008, shown under “Property and equipment” account in the consolidated balance sheets, include the following amounts:

2009 2008 Cost P=44,526 P=1,037,370 Less accumulated depreciation 37,847 876,769 Net book value P=6,679 P=160,601

In 2009, the lease term on the containers has already ended and the Parent Company has exercised its bargain purchase option. The net book value of the containers previously under finance lease amounted to P=130.4 million as at December 31, 2009.

4

Future minimum lease payments under finance lease, together with the present value of the minimum lease payments, are as follows:

2009 2008 Minimum lease payments due within one year P=8,466 P=81,692 Beyond one year but not later than five years 27,069 32,846 More than five years 3,308 – Total minimum lease payments 38,843 114,538 Less amount representing interest 7,275 2,014 Present value of minimum lease payments 31,568 112,524 Less current portion 6,222 81,692 P=25,346 P=30,832

The outstanding balance of the US dollar-denominated finance lease obligation of US$0.7 million and US$2.4 million as at December 31, 2009 and 2008, respectively, have been restated at the rate prevailing as of those dates of P=46.20 and P=47.52 to US$1, respectively.

20. Redeemable Preferred Shares (RPS)

On January 7, 2003, the Parent Company issued 374,520,487 RPS in the form of stock dividends out of capital in excess of par value at the rate of one share for every four common shares held by the shareholders. The RPS has the following features:

non-voting; preference on dividends at the same rate as common share; redeemable at any time, in whole or in part, as may be determined by the BOD within a period not

exceeding 10 years from the date of issuance at a price of not lower than P=6 per share as may be determined by the BOD. The shares must be redeemed in the amount of at least P=250,000 per calendar year;

if not redeemed in accordance with the foregoing, the RPS may be converted to a bond bearing interest at 4% over prevailing treasury bill rate to be issued by the Parent Company; and,

preference over assets in the event of liquidation.

On May 25, 2006, the Parent Company’s shareholders approved the Amendment of Article 7 of the Articles of Incorporation to add a convertibility feature to the RPS so as to allow holders of RPS, at their option, to convert every RPS into two (2) common shares of the Parent Company, which conversion must be exercised on or before December 29, 2006 or within 120 days from the approval by the SEC of such amendment, whichever occurs earlier. On June 15, 2006, the SEC approved the Parent Company’s application for the amendment of its Articles of Incorporation for the addition of this convertibility feature on the RPS.

5

On July 27, 2006, the BOD approved the call to all preferred shareholders to convert at their option preferred shares into common shares at the stipulated conversion price of P=3.20 for one (1) preferred share or two common shares for every one (1) RPS held. During the Conversion Period from September 1 to October 13, 2006, a total of 70,343,670 preferred shares or 93.91% were converted to common shares. Consequently, the Parent Company issued a total of 140,687,340 new common shares to those RPS holders who opted to convert their preferred shares. The capital stock was increased by P=140.7 million representing the issuance of new common shares. The excess between the carrying value of the preferred shares converted over the par value of the common shares issued was credited to “Capital in excess of par value” amounting to P=67.2 million. The remaining carrying value of the RPS shown under “Noncurrent Liabilities” section of the consolidated balance sheets is presented at amortized cost. Increase in carrying value represents accretion of interest expense amounting to P=2.4 million, P=2.1 million and P=1.9 million in 2009, 2008 and 2007, respectively (see Note 37). There are 4,560,417 outstanding preferred shares as at December 31, 2009.

21. Equity

a. Capital stock

On August 7, 2008, the SEC approved the Parent Company’s application for the amendment of its Articles of Incorporation for the reclassification of 70,343,670 converted preferred shares to common shares resulting to an increase in common shares’ authorized capital stock of 70,343,670 and a decrease of the redeemable preferred shares’ authorized capital stock of the same amount. The Company has authorized capital stock of 4,070,343,670 shares with P=1 par value. Outstanding capital stock are as follows:

Number of

Shares Peso

Values Common shares issued: Balance at beginning of year 2,484,653 P=2,484,653 Less treasury shares 38,517 58,715 2,446,136 P=2,425,938

b. Retained earnings

Retained earnings include undistributed earnings amounting to P=168.6 million in 2009 and P=157.7 million in 2008 representing accumulated equity in net earnings of subsidiaries and associates, which are not available for dividend declaration until received in the form of dividends from such subsidiaries and associates. Retained earnings are further restricted for the payment of dividends to the extent of the cost of the shares held in treasury. On December 31, 2009, AJBTC, AJMSI and JMI paid dividends to minority interests amounting to P=18.8 million, P=0.4 million and P=3.8 million, respectively.

22. Related Party Transactions

6

Transaction with associates and other related parties In the normal course of business, transactions with associates and other related companies consist of shipping services, charter hire, management services, ship management services, purchases of steward supplies, availment of stevedoring, arrastre, trucking, and repair services and rental. Those transactions were entered into at terms no less favorable than could have been obtained if the transactions were entered into with unrelated parties. The amounts included in the consolidated financial statements with respect to these transactions are as follows:

2009 2008 2007

Revenue Purchases/

Expenses Revenue Purchases/

Expenses Revenue Purchases/

Expenses Ultimate Parent ACO P=– P=1,024 P=– P=30,977 P=– P=18,377 Parent AEV – 25,478 – 40,044 – 30,465 Associate APTSC 3,920 – 2,893 – 6,730 222 Joint Venture KALI 11,335 – – – – – Affiliates

Pilmico Foods Corporation (PFC) 96,407 – 93,161 – 49,871 –

Pilmico Animal Nutrition Corporation (PANC) 441 – 15,786 42 37,838 19

Aboitiz Construction Group, Inc. (ACGI) 286 – 85 37 655 37

Pilmico-Mauri Foods Corporation 66 – – – – –

Total Distribution Logistics Systems, Inc. (TDLSI) – 49,774 – 107,614 – 54,900 Cox Trucking Corporation

(CTC) – 8,953 – – – – Davao Lights & Power

Corporation – 515 – – – – Others – 8 36,900 28,833 347 24,172 P=112,455 P=85,752 P=148,825 P=207,547 P=95,441 P=128,192 The consolidated balance sheets include the following amounts with respect to the transactions with the above related parties: 2009 2008

Related Parties Trade/Nontrade

Receivables Trade and

Other Payables Trade/Nontrade


Other Payables Ultimate Parent ACO P=– P=– P=1,500 P=– Parent AEV 21 4,374 2 331,888 Associate APTSC 554 – 937 – Joint Venture KALI 1,348 141 – – Affiliates STI 2,523 – – – PFC 362 – – –

(Forward)

7

2009 2008

Related Parties Trade/Nontrade


Other Payables Trade/Nontrade


Other Payables Aboitiz Jebsen Far East

Shipping SA P=– P=5,859 P=– P=– Brinkness SA – 2,182 – – TDLSI – 1,382 5 325 Philippine Fast Ferry Corp. – 756 – – CTC – 251 – – PANC – – 224 – AJ Shipman LTD – – 7,800 – Jebsen Transpacific – – 3,400 – Sioux International – – 8,200 – Jebsen Maritime Crewing – – – 37,000 Harbor Training – – – 9,000 Tschudi & Eitzens Philippines – – – 41,000 Others 2,059 7 4,393 10,751 P=6,867 P=14,952 P=26,461 P=429,964

As at December 31, 2009, AEV owns 77.24% of the common shares of the Parent Company. ACO is the ultimate parent of the Group and owns 15.96% of the common shares of the Parent Company. In the normal course of business, the Group enters into transactions with related parties, principally consisting of the following: a. The Parent Company provided management services to SFFC, ZIP, AOI, RVSI, AODI, HLP, APTSC, Cox

and TDLSI at fees based on agreed rates. Management and other services provided by the Parent Company amounted to P=59.3 million, P=63.1 million and P=63.9 million in 2009, 2008 and 2007, respectively.

b. AJBTC provided ship management services to the Parent Company that amounted to P=47.6 million, P=48.2 million and P=75.4 million in 2009, 2008 and 2007, respectively.

c. AOI provided management services to ZIP at fees based on the agreed rates. Management service fee to AOI amounted to P=10.9 million, P=11.52 million and P=11.6 million in 2009, 2008 and 2007, respectively.

d. AOI, ZIP, WSI and AJBTC place temporary cash advances to Parent Company that amounted to P=139.5 million and P=125.5 million as at December 31, 2009 and 2008, respectively. The advances are non-interest bearing.

e. SFFC obtained long-term cash advances from the Parent Company for working capital requirements.

The advances are interest bearing at an average rate of 9% per annum. As at December 31, 2009 and 2008, the outstanding balance of long term cash advances amounted to P=428.5 million and P=308.9 million, respectively.

f. Interest income earned by the Parent Company from SFFC advances amounted to

P=27.1 million, P=21.6 million and P=3.9 million in 2009, 2008 and 2007, respectively.

8

Compensation of the Group’s key management personnel

2009 2008 2007 Short term employee benefits P=104,990 P=82,991 P=81,780 Post-employment benefits 6,219 3,852 3,507 P=111,209 P=86,843 P=85,287

23. Operating Expenses

2009


see Note 32)


see Note 32) Fuel and lubricants P=2,193,654 P=3,341,247 P=2,612,190 Outside services 1,270,797 1,046,222 626,094 Depreciation and amortization

(see Note 26) 715,267 662,075 726,914 Charter hire (see Note 36c) 680,979 2,020,059 2,315,748 Repairs and maintenance 499,933 397,094 445,031 Personnel costs

(see Notes 27 and 30) 398,791 384,332 412,875 Rentals (see Note 36d) 201,540 150,290 100,156 Food and subsistence 147,973 182,226 187,041 Insurance 127,373 133,878 177,496 Steward supplies 73,852 76,311 88,978 Communication, light and water 71,584 67,296 46,247 Sales concessions 46,960 79,453 73,504 Commissions 30,045 43,943 82,930 Others 305,923 169,474 417,258

P=6,764,671 P=8,753,900 P=8,312,462

24. Terminal Expenses

2009 2008 2007 Transportation and delivery P=302,351 P=548,494 P=244,203 Outside services

(see Notes 22 and 36) 241,587 257,496 277,710 Depreciation and amortization

(see Note 26) 123,737 173,969 241,976 Personnel costs

(see Notes 27 and 30) 112,425 101,572 97,841 Repairs and maintenance 80,214 73,593 59,782 Rent (see Note 36) 43,426 45,246 48,785 Fuel and lubricants 29,602 43,598 35,409 Others 72,425 52,655 71,086

P=1,005,767 P=1,296,623 P=1,076,792

9

25. Overhead Expenses

2009


see Note 32)


see Note 32) Personnel costs

(see Notes 27 and 30) P=967,309 P=873,812 P=776,774 Depreciation and amortization

(see Note 26) 194,541 199,687 209,453 Outside services 188,570 151,739 134,072 Advertising 120,693 103,395 108,015 Communication, light and water 98,187 94,246 96,137 Rent (see Note 36) 93,054 85,490 106,577 Entertainment, amusement and

recreation 34,790 38,478 34,904 Provision for impairment loss on

receivables 30,129 8,504 11,906 Transportation and travel 48,358 51,104 13,397 Taxes and licenses 36,922 26,623 19,397 Repairs and maintenance 21,230 15,593 15,281 Office supplies 20,766 18,492 4,855 Computer charges 24,662 24,364 3,876 Others 216,526 203,282 353,995 P=2,095,737 P=1,894,809 P=1,888,639

26. Depreciation and Amortization Expenses

2009


see Note 32)


see Note 32) Ships in operation (see Note 14) P=679,946 P=611,258 P=665,810 Other property and equipment

(see Note 14) 271,264 340,232 414,142 Software development costs

(see Note 15) 82,335 84,241 98,391 P=1,033,545 P=1,035,731 P=1,178,343

27. Personnel Costs

2009


see Note 32)


see Note 32) Salaries and wages P=1,024,867 P=938,868 P=871,081 Crewing cost 217,796 215,318 219,309 Pension benefits (see Note 30) 50,937 36,864 22,540 Other employee benefits 184,925 168,666 174,560 P=1,478,525 P=1,359,716 P=1,287,490

10

28. Finance Costs

2009


see Note 32)


see Note 32) Interest expense

(see Notes 17 and 19) P=90,685 P=75,507 P=100,568 Other financing costs 8,425 1,478 2,018 P=99,110 P=76,985 P=102,586

29. Other Income

2009


see Note 32)


see Note 32) Gain on insurance claims

(see Note 14) P=79,484 P=22,853 P=– Reversal of impairment on

receivables 60,884 14,580 5,852 Recovery of inventory

obsolescence 2,783 5,003 32,081 Commission income 546 37,226 11,848 Management income 208 45,126 14,377 Others 132,520 68,338 71,593 P=276,425 P=193,126 P=135,751

30. Pension Benefits

The Group has funded defined benefit pension plans covering all regular and permanent employees. The benefits are based on employees’ projected salaries and number of years of service. The following tables summarize the components of benefit expense recognized in the consolidated statements of income and the funded status and amounts recognized in the consolidated balance sheets for the plan. Certain subsidiaries have defined benefit liability as at December 31, 2009 and 2008. The following tables summarize the components of net benefit expense recognized by AOI, ZIP, JMI, AJBTC, AJMAN and SFFC as included in the consolidated statements of income and the funded status and amounts as included in the consolidated balance sheets.

11

Net Benefit Expense

2009


see Note 32)


see Note 32) Current service cost P=34,021 P=29,227 P=24,268 Interest cost on benefit obligation 37,399 18,638 16,277 Net actuarial loss 2,456 429 1,848 Expected return on plan assets (19,084) (17,553) (23,792) Past service cost: Vested benefits – – 2,679 Nonvested benefits 2,001 764 763 Expense recognized due to asset

limit (5,856) 5,360 497 Net benefit expense P=50,937 P=36,865 P=22,540 Actual return on plan assets (P=11,603) P=23,634 P=23,280

Pension Liability

2009 2008 Defined benefit obligation P=145,581 P=82,994 Fair value of plan assets (105,742) (58,345) Unfunded obligation 39,839 24,649 Unrecognized net actuarial gains (losses) (14,605) 13,580 Unrecognized past service cost (7,119) (5,673) 18,115 32,556 Benefit liability included in the disposal group held

for sale (see Note 32) – 8,986 P=18,115 P=23,570

Changes in the present value of the defined benefit obligation are as follows:

2009 2008 Defined benefit obligation at January 1 P=91,303 P=70,786 Defined benefit obligation of disposed subsidiary – (6,825) Defined benefit obligation of an acquired subsidiary – 14,458 Interest cost 19,615 6,490 Current service cost 17,141 10,980 Actuarial loss (gain) on obligations 18,576 (1,540) Benefits paid (1,054) (11,355) Defined benefit obligation at December 31 P=145,581 P=82,994

12

Change in the fair value of plan assets are as follows:

2009 2008 Fair value of plan assets at January 1 P=66,928 P=55,810 Fair value of plan assets of disposed subsidiary – (5,716) Expected return 7,362 3,506 Actual contributions 30,936 16,833 Benefits paid (1,054) (11,355) Actuarial loss (gain) on plan assets 1,570 (733) Fair value of plan assets at December 31 P=105,742 P=58,345

Unrecognized actuarial loss (gain) are as follows:

2009 2008 2007 Net cumulative unrecognized actuarial

loss at January 1 (P=769) (P=15,536) P=49,115 Net cumulative unrecognized loss of disposed

subsidiary 2,107 – Net cumulative unrecognized actuarial

gain of an acquired subsidiary – (12,091) Actuarial loss (gain) on plan assets (1,570) 733 (196) Actuarial loss (gain) on obligations 18,576 (1,540) (50,517) Actuarial loss (gain) recognized (1,632) 656 (1,847) Net cumulative unrecognized actuarial

loss (gain) at December 31 P=14,605 (P=13,580) (P=15,536)

The Parent Company and AOI have defined benefit asset as at December 31, 2009 and 2008. As at December 31, 2008, ZIP has a defined benefit asset.

The following tables summarize the components of net benefit expense recognized by them as included in the consolidated statements of income and the funded status and amounts as included in the consolidated balance sheets. Pension Asset

2009 2008 Fair value of plan assets P=118,557 P=135,895 Defined benefit obligation (266,623) (159,517) Deficit (148,066) (23,622) Unrecognized net actuarial gain 215,655 70,246 Asset not recognize due to asset limit – (7,123) P=67,589 P=39,501

13


2009 2008 Defined benefit obligation at January 1 P=151,206 P=150,151 Defined benefit obligation of disposed subsidiary – (3,398) Interest cost 17,784 12,148 Current service cost 16,880 18,247 Actuarial loss on obligations 117,826 23,224 Benefits paid (37,073) (40,855) Defined benefit obligation at December 31 P=266,623 P=159,517

Change in the fair value of plan assets are as follows:

2009 2008 Fair value of plan assets at January 1 P=127,310 P=160,973 Fair value of plan assets of disposed subsidiary – (9,852) Expected return 11,722 14,047 Actual contributions 41,128 19,233 Benefits paid (29,345) (40,855) Actuarial loss on plan assets (32,258) (7,651) Fair value of plan assets at December 31 P=118,557 P=135,895

Unrecognized actuarial gain (loss) are as follows:

2009 2008 2007 Net cumulative unrecognized actuarial

gain at January 1 P=66,395 (P=40,456) P=12,760 Net cumulative unrecognized actuarial loss of

an acquired subsidiary – (935) Actuarial loss (gain) on obligations 117,826 (23,224) (63,525) Actuarial loss (gain) on plan assets 32,258 (7,651) 11,245 Actuarial loss (gain) recognized (824) 1,085 (1) Net cumulative unrecognized actuarial

gain (loss) at December 31 P=215,655 (P=70,246) (P=40,456) The principal assumptions as of January 1 used in determining pension benefit obligations for the Group’s plans are shown below:

2009 2008 2007 Discount rate 8.25 to 11.0% 7.60% to 9.27%% 7.00% to 8.08% Expected rate of return on assets 8.53 to 11.0% 7.00% to 9.43% 8.19% to 15.00% Future salary increases 6.00 to 9.00% 5.00 to 8.00% 5.00% to 8.00%

As of December 31, 2009, the discount rate, expected rate of return on assets and future salary increases are 8.25% to 11.00%, 9% to10.00% and 5.00% to 8.00%, respectively.

14

The major categories of plan assets as a percentage of the fair value of total plan assets are as follows:

2009 2008 2007 Investments in: Common trust fund 60% 52% 5% Notes receivable 24% 11 4 Shares of stock 4% 6 20 Government securities and other

debt securities 11% 24 63 Others 1% 7 8 100% 100% 100%

Experience gain (loss) adjustments on plan liabilities as at December 31, 2009, 2008, 2007 and 2006 amounted to P=18.3 million, (P=69.8 million), (P=64.1 million) and P=7.4 million, respectively. Experience gain (loss) adjustments on plan assets as at December 31, 2009, 2008 and 2007 amounted to (P=30.1 million), (P=0.5 million), P=12.7 million andP=2.7 million, respectively.

Defined benefit obligation as at December 31, 2009, 2008, 2007 and 2006 amounted to P=412.2 million, P=242.5 million, P=220.9 million, and P=201.6 million, respectively. The Group expects to contribute approximately P=64.4 million to the defined benefit pension plan in 2010.

31. Income Tax

The reconciliation of provision for income tax computed at the statutory tax rate to provision for income tax as shown in the consolidated statements of income is summarized as follows:

2009


see Note 32)


see Note 32) Provision for income tax at statutory tax

rate of 30% in 2009 and 35% in 2008 and 2007 P=247,132 P=51,483 P=217,323

Income tax effects of: NOLCO derecognized 13,473 – 7,284 MCIT derecognized 9,161 – 10,094 Changes in enacted tax rates 2,025 44,907 6,987 Changes in unrecognized MCIT – 1,155 – Gain on sale of building already

subjected to final tax – (5,038) (13,884) Gain on sale of investment

already subjected to final tax – – (1,460)

Nondeductible interest expense and others 5,709 17,425 12,317

(Forward)

15

2009


Note 32)


Note 32) Interest income already

subjected to a lower final tax (P=18,954) (P=16,984) (P=7,355)

Income tax holiday (ITH) incentive on registered activities (see Note 35) (25,125) (45,277) (49,163)

Dividend income (37,288) – – Others 4,923 – –

P=201,056 P=47,671 P=182,143 The components of deferred income taxes are as follows:

2009 2008 Deferred income tax assets: Allowances for: Impairment of receivables P=71,185 P=86,011 Inventory obsolescence 17,645 19,386 NOLCO 74,050 170,883 MCIT 59,351 44,584 Accrued pension benefits and others 46,452 39,016 Unrealized foreign exchange gain 2,166 9,648 270,849 369,528 Deferred income tax liabilities: Prepaid pension costs 14,263 11,750 Others 1,055 1,058 15,318 12,808 255,531 356,720 Net deferred tax asset included in the disposal group

classified as held for sale (Note 32) – 11,978 P=255,531 P=344,742

In computing deferred income tax assets and liabilities as at December 31, 2009 and 2008, the rates used were 30% and 35%, respectively, which are the rates expected to apply to taxable income in the years in which the deferred income tax assets and liabilities are expected to be recovered or settled. As at December 31, 2009, details of the Parent Company’s NOLCO and MCIT which can be carried forward and claimed as tax credit against regular taxable income and regular income tax due, respectively, are as follows: NOLCO

2009 2008 Balances at beginning of year P=569,610 P=813,080 Addition – 15,890 Application (267,009) (238,550) Expiration (55,768) (20,810) Balances at end of year P=246,833 P=569,610

16

MCIT

2009 2008 Balances at beginning of year P=44,584 P=35,078 Addition 24,311 10,662 Expiration (9,544) (1,156) Balances at end of year P=59,351 P=44,584

The Parent Company did not recognize deferred income tax assets on NOLCO and portion of MCIT incurred at December 31, 2007 amounting to P=7.3 million and P=10.1 million, respectively, as management believes they will not be realizable in the future.

32. Assets and Liabilities of Disposal Group Classified as Held for Sale

Assets and liabilities of disposal group classified as held for sale as of December 31, 2008 represent those of the Aboitiz Jebsen Group. The results of operations of the disposal group previously presented as held for sale were re-presented and included in income from continuing operations for all periods presented. For further details on the disposal group held for sale refer to Notes 1 and 3. The major classes of assets and liabilities classified as held for sale as at December 31, 2008 are as follows:

Assets Cash and cash equivalents P=232,589 Receivables 364,899 Inventories 31,671 Prepaid expenses and other assets 78,836 Investment in an associate 4,988 AFS investments 9,419 Property and equipment 42,752 Deferred income tax assets 11,978 Deposits and other noncurrent assets 1,503 Assets classified as held for sale 778,635

Liabilities Bank loans 278,879 Trade and other payables 399,054 Pension liability 8,986 Income tax payable 10,253 Liabilities directly associated with assets classified as held for

sale 697,172 Net assets directly associated with disposal group P=81,463

Cumulative translation adjustment P=1,870 Net unrealized valuation gain on AFS investments 2,315 Reserve of disposal group classified as held for sale P=4,185

17

33. Contingencies

There are certain legal cases filed against the Group in the normal course of business. Management and its legal counsel believe that the Group has substantial legal and factual bases for its position and are of the opinion that losses arising from these cases, if any, will not have a material adverse impact on the consolidated financial statements. Also, the Parent Company has pending insurance claims (presented as part of Insurance and Other Claims) amounting to P=150.6 million as at December 31, 2009 which management believes is probable of collection. As at December 31, 2009, the Parent Company has provided guarantees on the bank loans of AOI, AODI and ZIP amounting to P=200.0 million.

34. Earnings Per Common Share

Basic and diluted earnings per common share were computed as follows:

2009 2008 2007 Net income attributable to equity holders of the parent (a) P=546,142 P=82,815 P=419,970 Weighted average number of common shares outstanding for the year (b) 2,446,136,400 2,446,136,400 2,446,136,400 Earnings per common share (a/b) P=0.22 P=0.03 P=0.17

There are no dilutive potential common shares as at December 31, 2009, 2008 and 2007.

35. Registration with the BOI

The Parent Company is registered with the BOI under the Omnibus Investment Code (OIC) of 1987 as a new operator of inter-island shipping through its SuperFerries 15, 16, 17 and 18 vessels on a pioneer status starting February 13, 2003, SuperFerry 19 starting December 29, 2004, and SuperFerry 12 starting May 4, 2005. Such registration entitles the Parent Company to income tax holiday for a period of three to six years from the date of registration. Upon the request of the Parent Company, the BOI cancelled the registrations of SuperFerry 19 and SuperFerries 15, 16, 17 and 18 last October 18, 2006 and January 12, 2007 including all incentives granted thereunder. The Parent Company requested the cancellation of the said registrations due to the change in activity of SuperFerry 19 and the sale of SuperFerries 15, 16, 17 and 18 leaving only SuperFerry 12 as the remaining vessel entitled to ITH incentives up to May 3, 2008. ZIP is registered with BOI under OIC of 1987 as a non-pioneer operator of logistics service facilities. Such registration entitles ZIP to income tax holiday (ITH) for a period of four (4) years from May 2005 or actual start of commercial operations, whichever is earlier. On October 30, 2007, the BOI approved ZIP’s application under Executed Order 226 as an expanding operator of logistics service facilities, the new registration entitles ZIP to ITH for a period of three (3) years from the date of registration. Incentives availed amounted to P=23.7 million in 2009, P=68.6 million in 2008 and P=55.8 million in 2007.

18

On February 19, 2008, the BOI approved SFFC’s application for registration as a New Operator of Domestic Shipping (Passenger Vessel) on a Non-Pioneer status. The Company is entitled to four (4) years ITH from date of registration. Incentives availed amounted to P=63.6 million in 2009 and nil in 2008 due to net taxable loss position in non-registered activities.

36. Commitments and Other Matters

a. In 2002, the Parent Company entered into a Memorandum of Agreement (Agreement) with Asian

Terminals, Inc. (ATI) for the use of the ATI’s facilities and services at the South Harbor for the embarkation and disembarkation of the Parent Company’s domestic passengers, as well as loading, unloading and storage of cargoes. The Agreement shall be for a period of five years, which shall commence from the first scheduled service of the Parent Company at the South Harbor. The Agreement is renewable for another five years under such terms as may be agreed by the parties in writing. If the total term of the Agreement is less than ten years, then the Parent Company shall pay the penalty equivalent to the unamortized reimbursement of capital expenditures and other related costs incurred by ATI in the development of South Harbor. The Agreement became effective on January 14, 2003.

Under the terms and conditions of the Agreement, the Parent Company shall avail of the terminal services of ATI, which include, among others, stevedoring, arrastre, storage, warehousing and passenger terminal. Domestic tariff for such services (at various rates per type of service as enumerated in the Agreement) shall be subject to an escalation of 5% every year. Total service fees charged to operations amounted to P=128.8 million, P=159.4 million and P=160.1 million in 2009, 2008 and 2007, respectively (see Note 24).

b. AJBTC, JMI and AJMSI (Agents) have outstanding agreements with foreign shipping principals, wherein

the Agents render manning and crew management services consisting primarily of the employment of crew for the principals’ vessels. As such, the principals have authorized the Agents to act on their behalf with respect to all matters relating to the manning of the vessels. Total service fees revenues recognized in the consolidated statements of income from these agreements amounted to P=400.0 million in 2009, P=387.8 million in 2008 and P=326.0 million in 2007.

c. JMBVI and Subsidiaries have outstanding Charter Party Agreements with vessels’ owners for the use of

the vessels or for sublease to third parties within the specified periods of one (1) to three (3) years under the terms and conditions covered in the agreements. In consideration thereof, JMBVI recognized charter hire expense amounted to P=529.4 million, P=1,962 million and P=2,245 million in 2009, 2008 and 2007, respectively (see Note 23).

d. The Group has entered into various operating lease agreements for its office spaces. The future

minimum rentals payable under the noncancellable operating leases are as follows:

2009 2008 Within one year P=162,177 P=141,648 After one year but not more than five years 286,360 319,499 More than five years 10,934 15,545 P=459,471 P=476,692

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e. In 2009, the Parent Company entered into various agreements to charter the following vessels:

Charter Period

From To Rate per day 15-Aug-08 20-Dec-09 MV MYRIAD $4,250 05-Dec-09 18-Jul-10 MV MYRIAD 4,050 02-Feb-09 23-Apr-09 MV INGENUITY 3,400 11-May-09 31-Oct-09 MV MARKELLA 4,100 02-Dec-09 03-Mar-10 MV MARKELLA 3,125 10-Aug-09 27-Nov-09 MV EPONYMA 3,200

f. The Parent Company acquired SFFC from its affiliate, Accuria, Inc. on August 30, 2007 for a total

consideration of P=13,700. The pooling of interest method was applied to account for the acquisition since the Parent Company and Accuria, Inc. are entities under common control. The excess of cost over SFFC’s net assets during the time of acquisition, amounting to P=11,700 is recorded in equity as “Excess of cost over net asset value of an investment”.

37. Financial Risk Management Objectives and Policies

The Group’s principal financial instruments comprise of cash and cash equivalents, trade and other receivables, trade and other payables, redeemable preferred shares, and interest-bearing loans. Trade and other receivables and trade and other payables arise from the Group’s operations. Redeemable preferred shares and interest-bearing loans are used by the Group to finance its operations. The main risks arising from the Group’s financial instruments are cash flow interest rate risk resulting from movements in interest rates that may have an impact on interest bearing financial instruments; credit risk involving possible exposure to counter-party default, primarily, on its cash investments and receivables; liquidity risk in terms of the proper matching of the type of financing required for specific investments and maturing obligations; and foreign exchange risk in terms of foreign exchange fluctuations that may significantly affect its foreign currency denominated placements and borrowings. Risk Management Structure BOD The BOD is mainly responsible for the overall risk management approach and for the approval of risk strategies and policies of the Group. Financial Risk Committee The Financial Risk Committee has the overall responsibility for the development of risk strategies, principles, frameworks, policies and limits. It establishes a forum of discussion of the Group’s approach to risk issues in order to make relevant decisions. Treasury Risk Office The Treasury Risk Office is responsible for the comprehensive monitoring, evaluating and analyzing of the Group’s risks in line with the policies and limits set by the Treasury Risk Committee.

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Interest rate risk The Group’s exposure to market risk for changes in interest rates relates primarily to its long-term debt and obligations under finance lease. To manage this risk, the Group determines the mix of its debt portfolio as a function of the level of current interest rates, the required tenor of the loan, and the general use of the proceeds of its various fund raising activities. In 2009, interest rates of obligations under finance lease range from 7.0% to 9.0% (see Note 19). Shown below are the carrying amounts, by maturity, of the Group’s interest bearing financial instruments: As at December 31, 2009

<1 year 1-5 years Total Cash in banks P=889,265 P=– P=889,265 Cash equivalents 168,063 – 168,063 Refundable deposits – 15,000 15,000 P=1,057,328 P=15,000 P=1,072,328

Loans payable P=1,392,390 P=– P=1,392,390 Obligations under finance lease 6,222 25,346 31,568 Redeemable preferred shares – 20,176 20,176 P=1,398,612 P=45,522 P=1,444,134


<1 year 1-5 years Total Cash in banks P=927,063 P=– P=927,063 Cash equivalents 100,911 – 100,911 Refundable deposits – 15,000 15,000 P=1,027,974 P=15,000 P=1,043,974

Loans payable P=829,879 P=– P=829,879 Obligations under finance lease 81,692 30,832 112,524 Redeemable preferred shares – 17,790 17,790 P=911,571 P=48,622 P=960,193

In 2008, the Group paid in full its Banco De Oro bilateral loan and Vereins Bank clean loan amounting to P=46.3 million and P=8.7 million, respectively. As a result of the repayment of the loans in 2008, the Group is no longer subject to cash flow interest rate risk. The Group’s remaining financial liabilities have fixed interest rates and are not subject to cash flow interest rate risk. Equity price risk Equity price risk is the risk that the fair value of traded equity instruments decrease as the result of the changes in the levels of equity indices and the value of the individual stocks. As at December 31, 2009 and 2008, the Group’s exposure to equity price risk is minimal.

21

Credit risk The Group trades only with recognized, creditworthy third parties and the exposure to credit risk is monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant. Since the Group trades only with the recognized third parties, collateral is not required in respect of financial assets. For its cash investments, the Group’s credit risk is generally concentrated on possible default of the counter-party, with a maximum exposure equal to the carrying amount of these investments (see Note 38). The risk is mitigated by the short-term and/or liquid nature of its cash investments mainly in bank deposits and placements, which are placed with financial institutions of high credit standing. The credit quality per class of financial assets that were neither past due nor impaired is as follows: As at December 31, 2009

Neither past due nor impaired High Medium Low

Past due or individually

impaired Total Cash in banks P=889,265 P=– P=– P=– P=889,265 Cash equivalents 168,063 – – – 168,063 Trade receivables Service fees 233,997 155,126 233,580 129,208 751,911 Freight 347,851 7,968 149,026 190,029 694,874 Passage 27,953 – – 2 27,955 Others 392,302 – – 195,846 588,148 Nontrade receivables 28,319 – 5,455 236,031 269,805 Insurance and other claims 18,525 12,026 – 193,105 223,656 Advances to officers and employees

49,245 – – 1,391 50,636

Quoted equity investments Listed shares of stocks 26,789 – – – 26,789 Club shares 5,500 – – – 5,500 Unquoted equity investments 11,034 – – – 11,034 Refundable deposits 66,640 – – – 66,640 Total P=2,265,483 P=175,120 P=388,061 P=945,612 P=3,774,276


Neither past due nor impaired High Medium Low


impaired Total Cash in banks P=927,063 P=– P=– P=– P=927,063 Cash equivalents 100,911 – – – 100,911 Trade receivables Service fees 708,806 18,154 30,764 74,897 832,621 Freight 35,961 226,985 27,473 504,019 794,438 Passage 10,347 – – 1,733 12,080 Others 158,393 31,152 5,853 126,157 321,555 Nontrade receivables 172,345 – 2,096 68,226 242,667 Insurance and other claims 6,115 – – 35,409 41,524 Advances to officers and employees 35,995 – 3,496 925 40,416 Quoted equity investments Listed shares of stocks 17,225 – – – 17,225 Club shares 4,000 – – – 4,000 Unquoted equity investments 15,828 – – – 15,828 Refundable deposits 40,801 – – – 40,801 Total P=2,233,790 P=276,291 P=69,682 P=811,366 P=3,391,129

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High quality receivables pertain to receivables from related parties and customers with good favorable credit standing. Medium quality receivables pertain to receivables from customers that slide beyond the credit terms but pay a week after being past due are classified under medium quality. Low quality receivables are accounts from new customers and forwarders. For new customers, the Group has no basis yet as far payment habit is concerned. With regards to the forwarders, most of them are either under legal or suspended. In addition, their payment habits extend beyond the approved credit terms because their funds are not sufficient to conduct their operations.

The Group evaluated its cash in bank and cash equivalents as high quality financial assets since these are placed in financial institutions of high credit standing. With respect to AFS investments and refundable deposits, the Group evaluates the counterparty’s external credit rating in establishing credit quality. The aging analysis per class of financial assets that were past due but not impaired is as follows: As at December 31, 2009

Past due but not impaired

Neither past due nor

impaired Less than 30

days 31 to 60

days 61 to 90

days Over 90

days

Impaired financial

assets Total Cash in banks P=889,265 P=– P=– P=– P=– P=– P=889,265 Cash equivalents 168,063 – – – – – 168,063 Trade receivables Service fees 622,704 33,814 9,278 4,916 14,148 67,052 751,912 Freight 504,845 19,635 2,995 2,585 479 164,335 694,874 Passage 27,953 – 2 – – – 27,955 Others 392,302 154,775 4,391 6,741 27,218 2,721 588,148 Nontrade receivables 33,774 25,492 41,253 122,955 41,704 4,627 269,805 Insurance and other claims 30,551 – – 172,481 20,624 223,656 Advances to officers and employees 49,245 730 121 81 459 – 50,636 Quoted equity investments Listed shares of stocks 26,789 – – – – – 26,789 Club shares 5,500 – – – – – 5,500 Unquoted equity investments 11,034 – – – – – 11,034 Refundable deposits 66,640 – – – – – 66,640 Total P=2,828,665 P=234,446 P=58,040 P=309,759 P=84,008 P=259,359 3,774,277

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impaired Less than 30

days 31 to 60

days 61 to 90

days Over 90

days

Impaired financial

assets Total Cash in banks P=927,063 P=– P=– P=– P=– P=– P=927,063 Cash equivalents 100,911 – – – – – 100,911 Trade receivables Service fees 757,724 – – 6,718 5,801 62,378 832,621 Freight 290,419 87,617 78,336 102,062 33,267 202,737 794,438 Passage 10,347 1,575 119 – 39 – 12,080 Others 195,398 81,976 16,662 2,835 21,963 2,721 321,555 Nontrade receivables 174,441 28,183 464 14,916 16,701 7,962 242,667 Insurance and other claims 6,115 34 345 10,990 111 23,929 41,524 Advances to officers and employees 39,491 172 88 215 450 – 40,416 Quoted equity investments Listed shares of stocks 17,225 – – – – – 17,225 Club shares 4,000 – – – – – 4,000 Unquoted equity investments 15,828 – – – – – 15,828 Refundable deposits 40,801 – – – – – 40,801 Total P=2,579,763 P=199,557 P=96,014 P=137,736 P=78,332 P=299,727 P=3,391,129

Liquidity risk The Group maintains sufficient cash and cash equivalents to finance its operations. Any excess cash is invested in short-term money market placements. These placements are maintained to meet maturing obligations and pay dividend declarations. The Group’s policy is that not more than 35% of borrowings should mature in any 12-month period. As at December 31, 2009 and 2008, the Company has no long-term debt. The Group’s existing credit facilities with various banks are covered by the Continuing Suretyship for the accounts of the Group. The liability of the Surety is primary and solidary and is not contingent upon the pursuit by the bank of whatever remedies it may have against the debtor or collaterals/liens it may possess. If any of the secured obligations is not paid or performed on due date (at stated maturity or by acceleration), the Surety shall, without need for any notice, demand or any other account or deed, immediately be liable therefore and the Surety shall pay and perform the same. The table below summarizes the maturity profile of the Group’s financial assets and liabilities at the balance sheet date based on contractual undiscounted repayment obligations:

2009 2008

Less than

1 year 1 to 5 years Total Less than

1 year 1 to 5 years Total Financial assets: Cash P=1,095,711 P= – P=1,095,711 P=1,092,843 P=– P=1,092,843 Trade and other receivables 2,606,986 – 2,606,986 2,285,301 – 2,285,301 AFS investments – 43,323 43,323 – 37,053 37,053 Refundable deposits – 66,640 66,640 – 40,801 40,801 Total undiscounted financial

assets 3,702,697 109,963 3,812,660 3,378,144 77,854 3,455,998

(Forward)

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2009 2008

Less than

1 year 1 to 5 years Total Less than

1 year 1 to 5 years Total Financial liabilities: Trade and other payables P=3,894,247 P= – P=3,894,247 P=3,826,507 P=– P=3,826,507 Loans payable 1,399,833 – 1,399,833 855,258 – 855,258 Redeemable preferred shares – 27,363 27,363 – 27,363 27,363 Obligation under capital lease 8,466 30,377 38,843 87,401 38,025 125,426 Other noncurrent liabilities – 257 257 – 3,736 3,736 Total undiscounted financial

liabilities 5,302,546 57,997 5,360,543 4,769,166 69,124 4,838,290 Total net undiscounted

financial liabilities (P=1,599,849) (P=51,966) (P=1,547,883) (P=1,391,022) (P=8,730) (P=1,382,292)

Foreign exchange risk The foreign exchange risk of the Group relates primarily to its foreign currency-denominated bank loans, obligation under finance lease, revenues and crew salaries. Management closely monitors the fluctuations in exchange rates so as to anticipate the impact of foreign currency risks associated with the financial instruments. To mitigate the risk of incurring foreign exchange losses, the Group maintains cash in banks in foreign currency to match its financial liabilities. The following table sets forth the financial assets and financial liabilities denominated in foreign currency: As at December 31, 2009

AUD1 CAD2 DKK3 EUR4 NZD5 USD6 Total Peso Equivalent

Financial Assets Cash $– $– kr – €– $2 $4,273 P=197,478 Trade receivables – – – – – 3,910 180,642 Amounts owed by related

parties – – – – – 1,234 57,011 Total Financial Assets $– $– kr – €– $2 $9,417 P=435,131

Financial Liabilities Loans payable $– $– kr – €– $– $2,450 P=113,190 Trade payables 173 9 850 137 25 11,775 569,090 Advances from shipping

principals – – – – – 212 9,794 Amounts owed to a related

party – – – – – 607 28,043 Obligations under finance

lease – – – – – 683 31,568 Total Financial Liabilities $173 $9 kr850 €137 $25 $15,727 P=751,685

Net foreign currency

denominated liabilities ($173) ($9) (kr850) (€137) ($23) ($6,310) (P=316,554)

1$1 = P=41.1395 4€1 = P=66.6646 2$1 = P=44.4747 5$1 = P=32.8207 3kr 1 =P=8.9572 6$1 = P=46.2000

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AUD1 CAD2 DKK3 EUR4 NZD5 USD6 Total Peso Equivalent

Financial Assets Cash $7 $– kr – €– $6 $4,781 P=227,580 Trade receivables – – – – – 9,516 452,200 Amounts owed by related

parties – – – – – 1,313 62,394 Total Financial Assets $7 $– kr – €– $6 $15,610 P=742,174

Financial Liabilities Loans payable $– $– kr – €– $– $5,869 P=278,895 Trade payables 364 9 1,550 186 180 7,568 402,655 Advances from shipping

principals – – – – – 1,334 63,392 Amounts owed to a related

party – – – – – 536 25,471 Obligations under finance

lease – – – – – 2,368 112,524 Total Financial Liabilities $364 $9 kr 1,550 €186 $180 $17,675 P=882,937

Net foreign currency

denominated liabilities ($357) ($9) (kr 1,550) (€186) ($174) ($2,065) (P=140,763)

1$1 = P=32.2194 4€1 = P=66.2463 2$1 = P=39.0566 5$1 = P=26.8717 3kr 1 = P=8.8940 6$1 = P=47.5200

The following table demonstrates the sensitivity to a reasonably possible change in the foreign currency exchange rates, with all other variables held constant, of the Group’s profit before tax as at December 31, 2009 and 2008.

Effect on Income Before Tax

Appreciation/ (Depreciation) of

Foreign Currency 2009 2008

Australian Dollar (AUD) +5% (P=356) (P=575) (5%) 356 575 Canadian Dollar (CAD) +5% (20) (18) (5%) 20 18 Danish Krone (DKK) +5% (381) (689) (5%) 381 689 Euro (EUR) +5% (457) (616) (5%) 457 616 New Zealand Dollar (NZD) +5% (38) (234) (5%) 38 234 US Dollar (USD) +5% (14,576) (4,906) (5%) 14,576 4,906

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There is no other impact on the Group’s equity other than those already affecting the consolidated statement of income. The table below demonstrates the income, expense, gains or losses of the Group’s financial instruments for the years ended December 31, 2009, 2008 and 2007.

Effect in Profit or Loss

Increase (Decrease) Effect in Equity

Increase (Decrease) 2009 2008 2007 2009 2008 2007 Loans and receivables:

Interest income on: Cash in banks P=23,995 P=12,646 P=23,592 P=– P=– P=– Cash equivalents 1,103 2,178 1,965 – – – Advances to a

subsidiary 3,432 4,581 7,147 – – – Impairment loss on

receivables 30,129 8,504 11,906 – – – Reversal of allowance

for impairment losses 60,884 – – – – –

AFS investments: Gain (loss) on sale – (74) 2,732 – – – Unrealized mark-to-

market gains (losses) – – – 11,219 (5,040) (5,374)

Realized mark-to-market loss – – – – – (3,465)

Financial liabilities at

amortized cost: Interest expense on:

Loans payable (63,705) (24,270) (64,953) – – – Advances from

affiliate (21,961) (31,899) (20,473) – – – Obligations under

finance lease (11,058) (18,712) (15,305) – – – Interest accretion on

redeemable preferred shares (2,386) (2,104) (1,855) – – –

Capital Management Capital includes equity attributable to the equity holders of the parent. The Group adopts a prudent approach on capital management to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximize shareholder value. The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders, or issue new shares. The Group is not subject to any externally imposed capital requirements. No changes were made in the objectives, policies or processes during the years ending December 31, 2009 and 2008. The Group monitors capital using a gearing ratio, which is net debt divided by equity attributable to equity holders of parent plus net debt. The Group includes within net debt are loans payable, obligation under capital lease, long-term debt, redeemable preferred shares, less cash and cash equivalents.

27

The table below summarized the Group’s net debt and capital:

2009 2008 Loans payable P=1,392,390 P=829,879 Obligation under capital lease 31,568 112,524 Redeemable preferred shares 20,176 17,790 Cash and cash equivalents (1,095,711) (1,092,843) Net debt 348,423 (132,650) Equity attributable to equity holders of the Parent 5,108,730 4,556,281 Capital and net debt P=5,457,153 P=4,423,631

Gearing ratio 6.38% (3.00%)

38. Fair Value of Financial Instruments

Set out below is a comparison by category of carrying amounts and fair values of all the Group’s financial instruments as at December 31, 2009 and 2008: 2009 2008

Carrying Amount Fair Value


FINANCIAL ASSETS Loans and receivables Cash on hand and in banks P=927,648 P=927,648 P=991,932 P=991,932 Cash equivalents 168,063 168,063 100,911 100,911 Trade and other receivables Trade receivables Service fees 684,860 684,860 770,243 770,243 Freight 530,539 530,539 591,701 591,701 Passage 27,955 27,955 12,080 12,080 Others 585,427 585,427 318,833 318,833 Nontrade 265,178 265,178 221,601 221,601 Insurance and other claims 203,032 203,032 30,700 30,700 Advances to officers and

employees 50,636 50,636 40,416 40,416 Refundable deposits 66,640 66,640 40,801 40,801 3,509,978 3,509,978 3,119,218 3,119,218 AFS investments Quoted shares of stocks Listed shares of stocks 26,789 26,789 17,225 17,225 Club shares 5,500 5,500 4,000 4,000 Unquoted shares of stocks 11,034 11,034 15,828 15,828 43,323 43,323 37,053 37,053 P=3,553,301 P=3,553,301 P=3,156,271 P=3,156,271

(Forward)

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2009 2008



FINANCIAL LIABILITIES Other financial liabilities Trade and other payables Trade P=1,623,585 P=1,623,585 P=1,460,437 P=1,460,437 Accrued expenses 1,474,183 1,474,183 1,176,008 1,176,008 Nontrade 766,449 766,449 1,050,130 1,050,130 Loans payable 1,392,390 1,392,390 829,879 829,879 Obligations under finance

lease 31,568 23,208 112,524 100,357 Redeemable preferred shares 20,176 24,096 17,790 21,935 P=5,308,351 P=5,303,911 P=4,646,768 P=4,638,746

Fair value is defined as the amount at which the financial instrument could be exchanged in a current transaction between knowledgeable willing parties in an arm’s-length transaction, other than in a forced liquidation or sale. Fair values are obtained from quoted market prices, discounted cash flow models and option pricing models, as appropriate. The following methods and assumptions are used to estimate the fair value of each class of financial instruments: Cash and cash equivalents and trade and other receivable, trade and other payables and

loans payable The carrying amounts of cash and cash equivalents, trade and other receivables and trade and other payables approximate fair value due to the relatively short-term maturity of these financial instruments. Loans payable Loans payable that reprice every three (3) months, the carrying value approximates the fair value because of recent and regular repricing based on current market rate. For fixed rate loans, the carrying value approximates fair value due to its short term maturities, ranging from three months to twelve months. Redeemable preferred shares The fair values of the redeemable preferred shares are based on the discounted value of future cash flows using the applicable market interest rates. Discount rates ranging from 4.8% to 5.6% in 2009 and 6.2% to 6.7% in 2008 were used in calculating the fair value of the Group’s redeemable preferred shares. Refundable deposits As at December 31, 2009, the carrying value of refundable deposits approximates fair value due to the relatively short-term maturity of this financial instrument. As at December 31, 2008, the fair values of refundable deposits are based on the discounted value of future cash flows using the applicable market interest rates. Discount rates ranging from 6.4% to 6.5% in 2008 were used in calculating the fair value of the Company’s refundable deposits. AFS investments The fair values of AFS investments are based on quoted market prices, except for unquoted equity shares which are carried at cost since fair values are not readily determinable.

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Obligations under finance lease The fair values of obligation under finance lease are based on the discounted net present value of cash flows using discount rates of 6.79% to 9.03% as at December 31, 2009 and 8.21% to 9.13% as at December 31, 2008. Fair Value Hierarchy The Company 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: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data. Only the Group’s AFS investments, which are classified under Level 1, are measured at fair value. During the reporting period ending December 31, 2009, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements.

30

31

INDEPENDENT AUDITORS’ REPORT The Board of Directors Zoom In Packages, Inc. 12th Floor, Times Plaza Building United Nations Avenue corner Taft Avenue Ermita, Manila We have audited the accompanying financial statements of Zoom In Packages, Inc. [a wholly owned subsidiary of Aboitiz Transport System (ATSC) Corporation], which comprise the statements of financial position as at December 31, 2009 and 2008, and the statements of comprehensive income, statements of changes in equity and statements of cash flows for the years then ended, and a summary of significant accounting policies and other explanatory notes. Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with Philippine Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Philippine Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.




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Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Zoom In Packages, Inc. as of December 31, 2009 and 2008, and its financial performance and its cash flows for the years then ended in accordance with Philippine Financial Reporting Standards. SYCIP GORRES VELAYO & CO.

Alvin M. Pinpin Partner CPA Certificate No. 94303 SEC Accreditation No. 0781-A Tax Identification No. 198-819-157 PTR No. 2087563, January 4, 2010, Makati City February 19, 2010

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INDEPENDENT AUDITORS’ REPORT The Board of Directors Zoom In Packages, Inc. We have audited the accompanying financial statements of Zoom In Packages, Inc. [a wholly owned subsidiary of Aboitiz Transport System (ATSC) Corporation], which comprise the statements of financial position as at December 31, 2009 and 2008, and the statements of comprehensive income, statements of changes in equity and statements of cash flows for the years then ended, and a summary of significant accounting policies and other explanatory notes. Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with Philippine Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Philippine Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

34

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Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Zoom In Packages, Inc. as of December 31, 2009 and 2008, and its financial performance and its cash flows for the years then ended in accordance with Philippine Financial Reporting Standards. SYCIP GORRES VELAYO & CO.


35

INDEPENDENT AUDITORS’ REPORT The Board of Directors Zoom In Packages, Inc. 12th Floor, Times Plaza Building, United Nations Avenue corner Taft Avenue Ermita, Manila We have audited the accompanying financial statements of Zoom In Packages, Inc. [a wholly owned subsidiary of Aboitiz Transport System (ATSC) Corporation] as of and for the year ended December 31, 2009, on which we have rendered the attached report dated February 19, 2010. In compliance with Securities Regulation Code Rule 68, we are stating that the above Company has only one (1) stockholder owning one hundred (100) or more shares. SYCIP GORRES VELAYO & CO.





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INDEPENDENT AUDITORS’ REPORT ON SUPPLEMENTARY SCHEDULES The Board of Directors Zoom In Packages, Inc. 12th Floor, Times Plaza Building United Nations Avenue corner Taft Avenue Ermita, Manila We have audited in accordance with Philippine Standards on Auditing, the accompanying financial statements of Zoom In Packages, Inc. as of and for the years ended December 31, 2009 and 2008 and have issued our report thereon dated February 19, 2010. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying schedule of retained earnings available for dividend declaration as of December 31, 2009 is the responsibility of the Company’s management. This schedule is presented for the purpose of complying with Philippine Securities and Exchange Commission Memorandum Circular No. 11, Series of 2008 and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. SYCIP GORRES VELAYO & CO.





37

ZOOM IN PACKAGES, INC. [A Wholly Owned Subsidiary of Aboitiz Transport System (ATSC) Corporation] SUPPLEMENTARY SCHEDULE OF RETAINED EARNINGS AVAILABLE FOR DIVIDEND DECLARATION The SEC issued Memorandum Circular No. 11 series of 2008 on December 5, 2008, which provides guidance on the determination of retained earnings available for dividend declaration. The table below presents the reconciliation of retained earnings available for dividend declaration as of December 31, 2009: Unappropriated retained earnings at December 31, 2008 P=684,477 Net income for the year closed to retained earnings 17,030,330 Deferred tax assets recognized in 2009 130,290 Net income actually earned during the year 17,160,620 Reversal of retained earnings appropriated 50,000,000 67,160,620 Total retained earnings available for dividend at December 31, 2009 P=67,845,097 * Figures based on functional currency audited financial statements

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ZOOM IN PACKAGES, INC. [A Wholly Owned Subsidiary of Aboitiz Transport System (ATSC) Corporation] STATEMENTS OF FINANCIAL POSITION

December 31 2009 2008

ASSETS

Current Assets Cash and cash equivalents (Notes 4 and 19) P=31,542,594 P=54,519,621 Trade and other receivables - net (Note 5) 286,805,754 349,430,726 Other current assets 644,488 350,522

Total Current Assets 318,992,836 404,300,869

Noncurrent Assets Property and equipment (Note 6) 54,839,893 57,092,995 Software development costs - net (Note 7) 1,397,454 3,056,856 Deferred tax assets (Note 17) 130,290 – Pension asset (Note 11) – 333,030 Other noncurrent assets (Note 8) 19,615,432 18,088,781

Total Noncurrent Assets 75,983,069 78,571,662

TOTAL ASSETS P=394,975,905 P=482,872,531

LIABILITIES AND EQUITY

Current Liabilities Trade and other payables (Notes 9 and 19) P=242,247,843 P=221,504,898 Provision for cargo losses and damages (Note 10) 16,578,955 12,583,247

Total Current Liabilities 258,826,798 234,088,145

Noncurrent Liabilities Pension liability (Note 11) 434,300 – Deferred income tax liability (Note 17) – 99,909

Total Noncurrent Liabilities 434,300 99,909 Equity (Note 18)

Common stock - P=1 par value Authorized - 100,000,000 shares Issued and outstanding - 60,000,000 shares 60,000,000 60,000,000

Retained earnings Appropriated 23,800,000 188,000,000 Unappropriated 51,914,807 684,477 Total Equity 135,714,807 248,684,477

TOTAL LIABILITIES AND EQUITY P=394,975,905 P=482,872,531 See accompanying Notes to Financial Statements.

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ZOOM IN PACKAGES, INC. [A Wholly Owned Subsidiary of Aboitiz Transport System (ATSC) Corporation] STATEMENTS OF COMPREHENSIVE INCOME Years Ended December 31 2009 2008

SERVICE REVENUES (Note 16) P=1,088,722,218 P=1,208,173,353 COST OF SERVICES (Note 12) 889,995,522 861,403,249

GROSS PROFIT 198,726,696 346,770,104 GENERAL AND ADMINISTRATIVE EXPENSES (Note 13) (184,728,547) (159,532,693)

OTHER INCOME (CHARGES) Interest income 2,094,784 1,298,061 Recovery from damaged cargoes 1,237,705 – Interest expense (159,196) (7,305)

INCOME BEFORE INCOME TAX 17,171,442 188,528,167

PROVISION FOR (BENEFIT FROM) DEFERRED INCOME TAX (Note 17)

Current 371,311 – Deferred (230,199) (121,441) 141,112 (121,441)

NET INCOME P=17,030,330 P=188,649,608

OTHER COMPREHENSIVE INCOME – –

TOTAL COMPREHENSIVE INCOME P=17,030,330 P=188,649,608 See accompanying Notes to Financial Statements.

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ZOOM IN PACKAGES, INC. [A Wholly Owned Subsidiary of Aboitiz Transport System (ATSC) Corporation] STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 Deposit for Common Future Stock Retained Earnings Stock Subscription Appropriated Unappropriated Total

Balances at December 31, 2007 P=17,500,000 P=42,500,000 P=– P=171,034,869 P=231,034,869 Conversion of deposit for future tock subscriptions

to common stock (Note 18b) 42,500,000 (42,500,000) – – – Cash dividends at P=4.57 per share (Note 18c) – – – (80,000,000) (80,000,000) Cash dividends at P=1.52 per share (Note 18c) – – – (91,000,000) (91,000,000) Retained earnings appropriated (Note 18d) – – 188,000,000 (188,000,000) – Total comprehensive income for the year – – – 188,649,608 188,649,608 Balances at December 31, 2008 60,000,000 – 188,000,000 684,477 248,684,477 Cash dividends at P=2.17 per share(Note 18c) – – (130,000,000) – (130,000,000) Reversal of retained earnings appropriated

(Note 18d) – – (50,000,000) 50,000,000 – Retained earnings appropriated (Note 18d) – – 15,800,000 (15,800,000) – Total comprehensive income for the year – – – 17,030,330 17,030,330 Balances at December 31, 2009 P=60,000,000 P=– P=23,800,000 P=51,914,807 P=135,714,807 See accompanying Notes to Financial Statements.

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ZOOM IN PACKAGES, INC. [A Wholly Owned Subsidiary of Aboitiz Transport System (ATSC) Corporation] STATEMENTS OF CASH FLOWS Years Ended December 31 2009 2008

CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax P=17,171,442 P=188,528,167 Adjustments for:

Depreciation and amortization (Notes 6 and 7) 17,672,648 23,850,327 Cargo losses and damages (Notes 10 and 12) 9,747,930 9,712,986 Provision for impairment losses on receivables (Notes 5 and 13) 6,453,065 – Pension expense (Note 11) 1,763,600 1,325,449 Interest expense 159,196 – Interest income (2,094,784) (1,298,061)

Operating income before working capital changes 50,873,097 222,118,868 Decrase (increase) in:

Trade and other receivables 38,958,198 (143,274,067) Other current assets 78,044 92,203 Increase (decrease) in:

Trade and other payables (1,815,247) 18,792,919 Provision for cargo losses and damages (Note 10) (5,752,222) (2,283,273)

Net cash flows from operations 82,341,870 95,446,650 Interest received 2,094,784 1,298,061 Income tax paid (371,311) – Net cash flows generated from operating activities 84,065,343 96,744,711

CASH FLOWS FROM INVESTING ACTIVITIES Decrease in amounts owed by related parties (Note 5) 17,213,709 36,318,315 Decrease in other noncurrent assets 2,681,628 766,607 Proceeds from disposals of property and equipment (Note 6) 999,575 – Additions to property and equipment (Note 6) (14,759,719) (33,623,156) Net cash flows from investing activities 6,135,193 3,461,766

CASH FLOWS FROM FINANCING ACTIVITIES Increase in amounts owed to related parties (Note 9) 17,818,707 19,509,848 Pension expense paid (996,270) (920,647) Dividends paid (Note 18c) (130,000,000) (171,000,000) Net cash flows used in financing activities (113,177,563) (152,410,799)

NET DECREASE IN CASH AND CASH EQUIVALENTS (22,977,027) (52,204,322)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 54,519,621 106,723,943

CASH AND CASH EQUIVALENTS AT END OF YEAR(Note 4) P=31,542,594 P=54,519,621 See accompanying Notes to Financial Statements.

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ZOOM IN PACKAGES, INC. [A Wholly Owned Subsidiary of Aboitiz Transport System (ATSC) Corporation] NOTES TO FINANCIAL STATEMENTS 1. Corporate Information

Zoom In Packages, Inc. (the Company) was registered with the Philippine Securities and Exchange Commission (SEC) on June 6, 2002 primarily to engage in, conduct and carry on the business of providing personalized point-to-point logistics, including inventory and cost management solutions by customizing, streamlining and interfacing processes through an e-commerce ready system, with information technology support to domestic, import, and export-oriented enterprises, based on the just-in-time concept. The Company started commercial operations on January 1, 2006. The Company provides integrated logistics services which include all cost-effective activities from point of origin to point of destination for the purpose of meeting customer requirements, including but not limited to door-to-door pick-up and delivery of goods, warehousing and storage, distribution, supply chain management to loading and re-loading into any carrier either by air, land and sea, whereby the location and status of goods may be tracked electronically at any given time. The Company is 100% owned by Aboitiz Transport System (ATSC) Corporation, a Company listed in the Philippine Stock Exchange. Its ultimate parent is Aboitiz & Company, Inc. (ACO). The registered office address of the Company is 12th Floor, Times Plaza Building, United Nations Avenue corner Taft Avenue, Ermita, Manila. The financial statements of the Company as of December 31, 2009 and 2008 were authorized for issue by the Board of Directors (BOD) on February 19, 2010.

2. Summary of Significant Accounting Policies

Basis of Preparation The financial statements of the Company have been prepared on a historical cost basis. The financial statements are presented in Philippine peso, which is the Company’s functional currency. Statement of Compliance The financial statements of the Company have been prepared in compliance with Philippine Financial Reporting Standards (PFRS). Changes in Accounting Policies and Disclosures The accounting policies adopted are consistent with those of the previous financial year, except for the adoption of the following new and revised PFRS amendments and Philippine Interpretation from International Financial Reporting Interpretations Committee (IFRIC) which the Company has adopted starting January 1, 2009: Philippine Accounting Standard (PAS) 1, Presentation of Financial Statements The revised standard separates owner and non-owner changes in equity. The statement of changes in equity includes only details of transactions with owners, with non-owner changes in equity presented in a reconciliation of each component of equity. In addition, the standard introduces the

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statement of comprehensive income: it presents all items of recognized income and expense, either in one single statement, or in two linked statements. The Company has elected to present a single statement of comprehensive income and to change the title of the balance sheet to statement of financial position.

Amendments to PFRS 7, Financial Instruments: Disclosures The amendments to PFRS 7 require additional disclosures about fair value measurement and liquidity risk. Fair value measurements related to items recorded at fair value are to be disclosed by source of inputs using a three-level fair value hierarchy, presented by class, for all financial instruments remeasured at fair value. In addition, a reconciliation between the beginning and ending balance for level 3 fair value measurements is now required, as well as significant transfers between levels in the fair value hierarchy. The amendments also clarify the requirements for liquidity risk disclosures with respect to derivative transactions and financial assets used for liquidity management. The fair value measurement and the liquidity risk disclosures are not significantly impacted by the amendments and are presented in Note 19 to the financial statements.

Adoption of the following new, revised and amended PFRS and Philippine Interpretations from IFRIC and improvements to PFRS did not have any significant impact to the Company. New and Revised Standards and Interpretations PAS 23, Borrowing Costs (Revised) PFRS 8, Operating Segments Philippine Interpretation IFRIC 13, Customer Loyalty Programmes Philippine Interpretation IFRIC 16, Hedges of a Net Investment in a Foreign Operation Philippine Interpretation IFRIC 18, Transfers of Assets from Customers

Amendments to Standards and Interpretations PAS 32, Financial Instruments: Presentation, and PAS 1, Presentation of Financial Statements -

Puttable Financial Instruments and Obligations Arising on Liquidation PFRS 1, First-time Adoption of PFRS, and PAS 27, Consolidated and Separate Financial Statements

- Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate PFRS 2, Share-based Payment - Vesting Conditions and Cancellations Philippine Interpretation IFRIC 9, Reassessment of Embedded Derivatives, and PAS 39, Financial

Instruments: Recognition and Measurement - Embedded Derivatives Improvements to PFRS issued in 2008 PFRS 5, Noncurrent Assets Held for Sale and Discontinued Operations PAS 1, Presentation of Financial Statements PAS 16, Property, Plant and Equipment PAS 19, Employee Benefits PAS 20, Accounting for Government Grants and Disclosures of Government Assistance PAS 23, Borrowing Costs PAS 28, Investments in Associates PAS 29, Financial Reporting in Hyperinflationary Economies PAS 31, Interests in Joint Ventures PAS 36, Impairment of Assets

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PAS 38, Intangible Assets PAS 39, Financial Instruments: Recognition and Measurement PAS 40, Investment Property PAS 41, Agriculture

Improvement to PFRS issued in 2009

PAS 18 Revenue: adds guidance (which accompanies the standard) to determine whether an entity is acting as a principal or as an agent. The factors to consider are whether the entity: Has primary responsibility for providing the goods or service Has investment risk Has discretion in establishing prices Bears the credit risk

New Accounting Standards, Interpretations and Amendments to Existing Standards Effective Subsequent

to December 31, 2009 The Company will adopt the standards, amendments and interpretations enumerated below when these become effective. Except as otherwise indicated, the Company does not expect the adoption of these new and amended PFRS and Philippine Interpretations from IFRIC to have significant impact on its financial statements. The relevant disclosures will be included in the notes to the financial statements when these become effective. Effective in 2010 Revised PFRS 3, Business Combinations, and Amendments to PAS 27, Consolidated and Separate

Financial Statements The revised standards are effective for annual periods beginning on or after July 1, 2009. PFRS 3 (Revised) introduces significant changes in the accounting for business combinations occurring after this date. Changes affect the valuation of non-controlling interest, the accounting for transaction costs, the initial recognition and subsequent measurement of a contingent consideration and business combinations achieved in stages. These changes will impact the amount of goodwill recognized, the reported results in the period that an acquisition occurs and future reported results. PAS 27 (Amended) requires that a change in the ownership interest of a subsidiary (without loss of control) is accounted for as a transaction with owners in their capacity as owners. Therefore, such transactions will no longer give rise to goodwill, nor will it give rise to a gain or loss. Furthermore, the amended standard changes the accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. The changes in PFRS 3 (Revised) and PAS 27 (Amended) will affect future acquisitions or loss of control of subsidiaries and transactions with non-controlling interests. PFRS 3 (Revised) will be applied prospectively while PAS 27 (Amended) will be applied retrospectively with a few exceptions. Amendments to PFRS 2, Share-based Payments - Group Cash-settled Share-based Payment

Transactions The amendments to PFRS 2, Share-based Payments, effective for annual periods beginning on or after January 1, 2010, clarify the scope and the accounting for group cash-settled share-based payment transactions. The Company has concluded that the amendment will have no impact on the financial position or performance of the Company as the Company has not entered into any such share-based payment transactions.

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Amendment to PAS 39, Financial Instruments: Recognition and Measurement - Eligible Hedged Items The amendment to PAS 39, Financial Instruments: Recognition and Measurement, effective for annual periods beginning on or after July 1, 2009, clarifies that an entity is permitted to designate a portion of the fair value changes or cash flow variability of a financial instrument as a hedged item. This also covers the designation of inflation as a hedged risk or portion in particular situations. The Company has concluded that the amendment will have no impact on the financial position or performance of the Company, as the Company has not entered into any such hedges. Philippine Interpretations IFRIC 17, Distributions to Non-Cash Assets to Owners This Interpretation is effective for annual periods beginning on or after July 1, 2009 with early application permitted. It provides guidance on how to account for non-cash distributions to owners. The Interpretation clarifies when to recognize a liability, how to measure it and the associated assets, and when to derecognize the asset and liability. The Company does not expect the Interpretation to have an impact on the financial statements as the Company has not made non-cash distributions to shareholders in the past. Improvements to PFRS Effective 2010 The omnibus amendments to PFRSs issued in 2009 were issued primarily with a view to removing inconsistencies and clarifying wording. The amendments are effective for annual periods beginning on or after January 1, 2010 except otherwise stated. The Company has not yet adopted the following amendments and anticipates that these changes will have no material effect on the financial statements. PFRS 2, Share-based Payments

Clarifies that the contribution of a business on formation of a joint venture and combinations under common control are not within the scope of PFRS 2 even though they are out of scope of PFRS 3, Business Combinations (Revised). The amendment is effective for financial years on or after July 1, 2009.

PFRS 5, Noncurrent Assets Held for Sale and Discontinued Operations Clarifies that the disclosures required with respect to noncurrent assets and disposal

groups classified as held for sale or discontinued operations are only those set out in PFRS 5. The disclosure requirements of other PFRS only apply if specifically required for such noncurrent assets or discontinued operations.

PFRS 8, Operating Segments Clarifies that segment assets and liabilities need only be reported when those assets and

liabilities are included in measures that are used by the chief operating decision maker.

PAS 1, Presentation of Financial Statements Clarifies that the terms of a liability that could result, at anytime, in its settlement by the

issuance of equity instruments at the option of the counterparty do not affect its classification.

PAS 7, Cash Flow Statements Explicitly states that only expenditure that results in a recognized asset can be classified

as a cash flow from investing activities.

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PAS 17, Leases Removes the specific guidance on classifying land as a lease. Prior to the amendment,

leases of land were classified as operating leases. The amendment now requires that leases of land are classified as either “finance” or “operating” in accordance with the general principles of PAS 17. The amendments will be applied retrospectively.

PAS 36, Impairment of Assets Clarifies that the largest unit permitted for allocating goodwill, acquired in a business

combination, is the operating segment as defined in PFRS 8 before aggregation for reporting purposes.

PAS 38, Intangible Assets Clarifies that if an intangible asset acquired in a business combination is identifiable

only with another intangible asset, the acquirer may recognize the group of intangible assets as a single asset provided the individual assets have similar useful lives. Also clarifies that the valuation techniques presented for determining the fair value of intangible assets acquired in a business combination that are not traded in active markets are only examples and are not restrictive on the methods that can be used.

PAS 39, Financial Instruments: Recognition and Measurement Clarifies that a prepayment option is considered closely related to the host contract when

the exercise price of a prepayment option reimburses the lender up to the approximate present value of lost interest for the remaining term of the host contract;

The scope exemption for contracts between an acquirer and a vendor in a business combination to buy or sell an acquiree at a future date applies only to binding forward contracts, and not derivative contracts where further actions by either party are still to be taken; and

Gains or losses on cash flow hedges of a forecast transaction that subsequently results in the recognition of a financial instrument or on cash flow hedges of recognized financial instruments should be reclassified in the period that the hedged forecast cash flows affect comprehensive income.

Philippine Interpretation IFRIC 9, Reassessment of Embedded Derivatives Clarifies that it does not apply to possible reassessment at the date of acquisition, to

embedded derivatives in contracts acquired in a business combination between entities or businesses under common control or the formation of joint venture.

Philippine Interpretation IFRIC 16, Hedges of a Net Investment in a Foreign Operation States that, in a hedge of a net investment in a foreign operation, qualifying hedging

instruments may be held by any entity or entities within the group, including the foreign operation itself, as long as the designation, documentation and effectiveness requirements of PAS 39 that relate to a net investment hedge are satisfied.

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Effective in 2012

Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate This Interpretation, effective for annual periods beginning on or after January 1, 2012, covers accounting for revenue and associated expenses by entities that undertake the construction of real estate directly or through subcontractors. The Interpretation requires that revenue on construction of real estate be recognized only upon completion, except when such contract qualifies as construction contract to be accounted for under PAS 11, Construction Contracts, or involves rendering of services in which case revenue is recognized based on stage of completion. Contracts involving provision of services with the construction materials and where the risks and reward of ownership are transferred to the buyer on a continuous basis will also be accounted for based on stage of completion. The Company does not expect that this interpretation to have significant impact on the financial statements.

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 date of placement and that are subject to an insignificant risk of changes in value. Financial Instruments Financial instruments are recognized in the statement of financial position when the Company becomes a party to the contractual provisions of the instrument. The Company determines the classification of its financial assets on initial recognition and, where allowed and appropriate, re-evaluates this designation at each reporting date. All regular way purchases and sales of financial assets are recognized on the settlement date. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace. Financial instruments are recognized initially at fair value of the consideration given (in the case of an asset) or received (in the case of a liability). Except for financial assets at fair value through profit or loss (FVPL), the initial measurement of financial assets includes transaction costs. Financial assets under PAS 39, Financial Instruments: Recognition and Measurement, are classified as either financial assets at FVPL, loans and receivables, held-to-maturity (HTM) investments or available for sale (AFS) financial assets. The Company’s financial assets are of the nature of loans and receivables. As of December 31, 2009 and 2008, the Company has no outstanding financial assets at FVPL, AFS financial assets and HTM investments. Also under PAS 39, financial liabilities are classified as FVPL or other financial liabilities. The Company’s financial liabilities are of the nature of other financial liabilities. As if December 31, 2009 and 2008, the Company has no outstanding financial liabilities at FVPL.

Also under PAS 39, all financial liabilities are recognized initially at fair value and in the case of loans and borrowings, plus directly attributable transaction costs. Financial liabilities are classified as FVPL or other financial liabilities. The Company’s financial liabilities are of the nature of other financial liabilities and FVPL (derivative liabilities).

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Financial instruments are classified as liabilities or equity in accordance with the substance of the contractual arrangement. Interest, dividends, gains and losses relating to a financial instrument or a component that is a financial liability, are reported as expense or income. Distributions to holders of financial instruments classified as equity are charged directly to equity net of any related income tax benefits.

a. Loans and receivables

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. These are not entered into with the intention of immediate or short-term resale and are not classified as financial assets held for trading, designated as AFS financial assets or designated at FVPL. This accounting policy relates to the Company’s “Cash and cash equivalents”, “Trade and other receivables” and “Other noncurrent assets” specifically “Bond deposits” and “Refundable deposits” accounts in the statement of financial position. Loans and receivables are recognized initially at fair value, which normally pertains to the billable amount. After initial measurement, loans and receivables are measured at amortized cost using the effective interest rate (EIR) method, less allowance for probable losses. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the effective interest rate. The amortization, if any, is included in “Interest income” account in the statement of comprehensive income. The losses arising from impairment of receivables are recognized in the statement of comprehensive income. The level of allowance for impairment losses is evaluated by management on the basis of factors that affect the collectibility of accounts (see accounting policy on Impairment of Financial Assets Carried at Amortized Cost). Loans and receivables are classified as current when they are expected to be realized within twelve months from the reporting date or within the normal operating cycle, whichever is longer.

b. Other financial liabilities Issued financial instruments or their components, which are not designated at FVPL are classified as other financial liabilities, where the substance of the contractual arrangement results in the Company having an obligation either to deliver cash or another financial asset to the holder, or to satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares. The components of issued financial instruments that contain both liability and equity elements are accounted for separately, with the equity component being assigned the residual amount after deducting from the instrument as a whole the amount separately determined as the fair value of the liability component on the date of issue. After initial measurement, other financial liabilities are measured at amortized cost using the EIR method. Amortized cost is calculated by taking into account any discount or premium on the issue and fees that are an integral part of the EIR. This accounting policy applies primarily to the Company’s “Trade and other payables” and other obligations that meet the above definition (other than liabilities covered by other accounting standards, such as income tax payable).

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Determination of Fair Value. The fair value of financial instruments traded in active markets at the reporting date is based on their quoted market price or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs. When current bid and 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.

Derivative Financial Instruments Derivative instruments are initially recognized at fair value on the date in which a derivative transaction is entered into or bifurcated, and are subsequently re-measured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. An embedded derivative is separated from the host contract and accounted for as derivative if all the following conditions are met: 1. The economic characteristics and risks of the embedded derivative are not closely related to the

economic characteristic of the host contract; 2. A separate instrument with the same terms as the embedded derivative would meet the definition of

the derivative; and

3. The hybrid or combined instrument is not recognized at FVPL. The Company assesses whether embedded derivatives are required to be separated from host contracts when the Company first becomes party to the contract. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required. As of December 31, 2009 and 2008, the Company has no bifurcated embedded derivatives. Determination of Fair Value The fair value of financial instruments traded in active markets at the reporting date is based on their quoted market price or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs. When current bid and 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 market observable prices exist, options pricing models, and other relevant valuation models. Day 1 Difference Where the transaction price in a non-active market is different from the fair value of other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable market, the Company recognizes the difference between the transaction price and fair value (a Day 1 difference) in the statement of comprehensive income. 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 the statement of comprehensive income when the inputs become observable or when the instrument is derecognized. For each transaction, the Company determines the appropriate method of recognizing the ‘Day 1’ difference amount.

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Offsetting Financial Instruments Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. This is not generally the case with master netting agreements, and the related assets and liabilities are presented gross in the statement of financial position.

Impairment of Financial Assets Carried at Amortized Cost Assets Carried at Amortized Cost The Company assesses at each reporting date whether there is objective evidence that a financial or group of financial assets is impaired. If there is objective evidence that an impairment loss on financial assets carried at amortized cost (e.g., receivables) has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the asset’s original effective interest rate. Time value is generally not considered when the effect of discounting is not material. The carrying amount of the asset shall be reduced either directly or through use of an allowance account. The amount of the loss shall be recognized in the statement of comprehensive income. The Company first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment. If, in a subsequent period, the amount of the estimated impairment loss decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is reduced by adjusting the allowance account. Any subsequent reversal of an impairment loss is recognized in the statement of comprehensive income, 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 part of a group of similar financial assets) is derecognized where: 1. the rights to receive cash flows from the asset have expired; 2. the Company retains the right to receive cash flows from the asset, but has assumed an obligation to

pay them in full without material delay to a third party under a ‘pass-through’ arrangement; or 3. the Company has transferred its rights 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 the risks and rewards of the asset but has transferred control of the asset.

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Where the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Company’s 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 Company could be required to repay. Financial Liabilities A financial liability is derecognized when the obligation under the liability is discharged or 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 the statement of comprehensive income. Revenue Recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received, excluding discounts, rebates, and other sales taxes or duties. The following specific recognition criteria must also be met before revenue is recognized: Service revenues Service revenues are recognized when the related services have been rendered. Interest income Interest income from banks is recognized as it accrues.

Expenses Expenses are decreases in economic benefits during the accounting period in the form of outflows or decrease of assets or incurrence of liabilities that result in decreases in equity, other than those relating to distributions to equity participants. Expenses are generally recognized when the services are used or the expenses arise. Cost of services Cost of services are recognized when related services have been rendered.

General and administrative expenses

Expenses incurred in the direction and general administration of day-to-day operation of the Company are generally recognized when the service is used or the expense arises. Input Value-Added (Tax) Input VAT represents VAT imposed on the Company by its suppliers for the acquisition of goods and services as required by Philippine taxation laws and regulations. Input VAT is recognized as an asset and will be used to offset against the Company’s current output VAT liabilities and any excess will be claimed as tax credits. Input VAT is stated at its estimated NRV.

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Property and Equipment Property and equipment are stated at cost less accumulated depreciation and amortization and any allowance for impairment loss The initial cost of property and equipment consists of its purchase price, including import duties and nonrefundable taxes and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditures incurred after the property and equipment have been put into operation, such as repairs and maintenance and overhaul costs, are normally charged to the statement of income in the year in which the costs are incurred. Each part of an item of property and equipment with a cost that is significant in relation to the total cost of the item shall be depreciated separately. Depreciation and amortization are calculated on a straight-line basis over the estimated useful lives of the property and equipment, except for leasehold improvements, which is amortized over the term of the lease or life of the improvement, whichever is shorter. The property and equipment and their related estimated useful lives are as follows:

Number of years Leasehold improvements 5 Transportation and delivery equipment 5 Furniture, fixtures and equipment 3 Computer equipment 3

An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of comprehensive income in the year the asset is derecognized. The assets’ residual values, useful lives and depreciation method are reviewed periodically to ensure that the values, periods and method of depreciation are consistent with the expected pattern of economic benefits from items of property and equipment at each reporting date. Software development costs Software development costs are initially recognized at cost. Following initial recognition, the software development costs are carried at cost less accumulated amortization and any accumulated impairment in value. Software development costs is amortized on a straight-line basis over its estimated useful economic life of five years and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization commences when the software development costs is available for use. The amortization period and the amortization method for the software development costs are reviewed at each financial year end. Changes in the estimated useful life is accounted for by changing the amortization period or method, as appropriate, and treated as changes in accounting estimates. The amortization expense is recognized in the statement of comprehensive income in the expense category consistent with the function of the software development costs.

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Impairment of Nonfinancial Assets Property and equipment, software development costs and other nonfinancial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If any such indication exists and where the carrying amount of an asset exceeds its estimated recoverable amount, the asset or cash-generating unit is written down to its estimated recoverable amount. The estimated recoverable amount is the higher of fair value less cost to sell and value in use. The fair value less cost to sell is the amount obtainable from the sale of an asset in an arm’s length transaction less the costs of disposal while value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. For an asset that does not generate largely independent cash inflows, the estimated recoverable amount is determined for the cash-generating unit to which the asset belongs. Impairment losses are recognized in the statement of comprehensive income. Recovery of impairment losses recognized in prior years is recorded when there is an indication that the impairment losses recognized for the asset no longer exist or have decreased. The recovery is recorded in the statement of income. However, the increased carrying amount of an asset due to a recovery of an impairment loss is recognized to the extent it does not exceed the carrying amount that would have been determined (net of depreciation) had no impairment loss been recognized for that asset in prior years. Pension Benefits The Company has a defined benefit pension plan which requires contributions to be made to a separately administered fund. The cost of providing benefits under the defined benefit plan is determined using the projected unit credit actuarial valuation method. Actuarial gains and losses are recognized as income or expense when the net cumulative unrecognized actuarial gains and losses for each individual plan at the end of the previous reporting period exceeded 10% of the higher of the defined benefit obligation and the fair value of plan assets at that date. These gains or losses are recognized over the expected average remaining working lives of the employees participating in the plan. The past service cost is recognized as an expense on a straight-line basis over the average period until the benefits become vested. If the benefits are already vested immediately following the introduction of, or changes to, a pension plan, past service cost is recognized immediately. The defined benefit asset or liability comprises the present value of the defined benefit obligation and actuarial gains and losses not recognized less past service cost not yet recognized and less the fair value of plan assets out of which the obligations are to be settled directly. The value of any asset is restricted to the sum of any cumulative net actuarial losses and past service cost not yet recognized and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan. If the asset is measured at the aggregate of cumulative unrecognized net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan, net actuarial losses of the current period and past service cost of the current period are recognized immediately to the extent that they exceed any reduction in the present value of those economic benefits. If there is no change or there is an increase in the present value of the economic benefits, the entire net actuarial losses of the current period and past service cost of the current period are recognized immediately. Similarly, net actuarial gains of the current period after the deduction of past service cost of the current period exceeding any increase in the present value of the economic benefits stated above

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are recognized immediately if the asset is measured at the aggregate of cumulative unrecognized net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan. If there is no change or there is a decrease in the present value of the economic benefits, the entire net actuarial gains of the current period after the deduction of past service cost of the current period are recognized immediately. Leases Determination of Whether an Arrangement Contains a Lease The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at the inception date and requires an assessment of whether the fulfillment of the arrangements is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset. A reassessment is made after the inception of the lease only if one of the following applies:

(e) There is a change in contractual terms, other than a renewal or extension of the arrangement; (f) A renewal option is exercised and extension granted, unless the term of the renewal or extension was

initially included in the lease term; (g) There is a change in the determination of whether fulfillment is dependent on a specified

asset; or (h) There is a substantial change to the asset.

When a reassessment is made, lease accounting shall commence or cease from the date when the change in circumstances gave rise to the reassessment for scenarios (a), (c) or (d) and at the date of renewal or extension period for scenario (b).

Operating Leases Operating leases represent those leases under which substantially all risks and rewards of ownership of the leases assets remain with the lessor. Lease payments under operating leases are credited to or charged in the Company’s statement of comprehensive income on a straight line basis over the term of the lease. Foreign Currency Transactions Transactions in foreign currencies are initially recorded in Philippine peso using the exchange rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are restated at the functional currency using the rate of exchange prevailing at the balance sheet date. Foreign exchange differences between rate at transaction date and settlement date or reporting date are credited to or charged against current operations. Capital Stock The Company has issued capital stock that is classified as equity. Incremental costs directly attributable to the issue of new capital stock are shown in equity as a deduction, net of tax, from the proceeds, if any.

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Where the Company purchases its own capital stock (treasury shares), the consideration paid, including any directly attributable incremental costs (net of applicable taxes) is deducted from equity attributable to the Company’s equity holders until the shares are cancelled or reissued. Where such shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related tax effects, is included in equity attributable to the Company’s equity holders. Retained Earnings The amount included in retained earnings includes profit attributable to the Company’s equity holders and reduced by dividend on common stock. Dividends on common stock are recognized as a liability and deducted from equity when they are approved by the Company’s stockholders and BOD. Dividends for the year that are approved after the reporting date are dealt with as an event after the reporting date.

Retained earnings are appropriated for any plan for business expansion and dividend declaration. When the appropriation is no longer needed, it is reversed.

Income Taxes Current Income Tax Current income tax assets and liabilities for the current and prior year periods are measured at the amount expected to be paid to the tax authority. The tax rates and tax laws used to compute the amount are those that have been enacted or substantively enacted as of reporting date. Deferred Income Tax Deferred income tax is provided, using the balance sheet liability method, on all temporary differences at the reporting 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, except:

where the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

in respect of taxable temporary differences associated with investments in subsidiaries and associates, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred income tax liabilities are recognized for all taxable temporary differences. The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Unrecognized deferred income tax assets are reassessed at each reporting date and are recognized to the extent that it has become probable that future taxable profit 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 reporting date.

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Value-added tax (VAT) Revenues, expenses and assets are recognized, net of the amount of VAT, except: when the VAT incurred on a purchase of assets or services is not recoverable from the taxation

authority, in which case the VAT is recognized as part of the cost of acquisition of the asset or as part of the expense item as applicable; and

when receivables and payables that are stated with the amount of VAT are included. The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of trade and other receivables or trade and other payables on the statement of financial position. Provisions Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and 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 but classified as additional provision. Where the Company expects a provision to be reimbursed, the reimbursement is recognized as a separate asset but only when the receipt of the reimbursement is virtually certain. The expense relating to any provision is presented in the statement of comprehensive income, net of any reimbursement. Contingencies Contingent liabilities are not recognized in the financial statements. These are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized in the financial statements but are disclosed when an inflow of economic benefits is probable. Events After the Reporting Date Post year-end events that provide additional information about the Company’s position at reporting date (adjusting events) are reflected in the financial statements. Post year-end events that are not adjusting events are disclosed when material.

3. Significant Accounting Judgments and Estimates The Company’s financial statements prepared in accordance with PFRS require management to make judgments and estimates that affect amounts reported in the financial statements and related notes. The judgments and estimates used in the financial statements are based upon management’s evaluation of relevant facts and circumstances as of the date of the Company’s financial statements. Actual results could differ from such estimates.

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Judgments Determining Functional Currency Based on the economic substance of the underlying circumstances relevant to the Company, the functional currency of the Company has been determined to be the Philippine peso. It is the currency of the primary economic environment in which the Company operates. Determination of Whether an Arrangement Contains a Lease The Company uses its judgments in determining whether an arrangement is, or contains a lease, based on the substance of the arrangement and makes assessment of whether the arrangement is dependent on the use of a specific asset or assets, the arrangement conveys a right to use the asset and the arrangement transfers substantially all the risks and rewards incidental to ownership to the Company. Operating Lease Commitments - Company as lessee The Company has entered into commercial property leases on its commercial outlets and administrative office locations. The Company has determined that it does not acquire all the significant risks and rewards of ownership of these properties which are leased on operating leases.

Classification of Financial Instruments The Company exercises judgments in classifying a financial instrument, or its component parts, on initial recognition either as a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual arrangement and the definitions of a financial asset, a financial liability or an equity instrument. The substance of a financial instrument, rather than its legal form, governs its classification in the statement of financial position. In addition, the Company classifies financial assets by evaluating, among others, whether the asset is quoted or not in an active market. Included in the evaluation on whether a financial asset is quoted in an active market is the determination on whether the quoted prices are readily and regularly available, and whether those prices represent actual and regularly occurring market transactions on an arm’s-length basis (see Note 19). Estimates Estimating Allowance for Impairment of Trade and Other Receivables The Company reviews trade and other receivables at each reporting date to assess whether an allowance for impairment losses should be recorded. 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. Provisions are made for accounts specifically identified to be doubtful of collection. Full allowance is generally provided for trade and other receivables with billing disputes and remains uncollected for over a year. Allowance for impairment losses on trade and other receivables of the Company amounted to P=16.39 million and P=11.72 million as of December 31, 2009 and 2008. The carrying amounts of trade and other receivables amounted to P=286.81 million and P=349.43 million as of December 31, 2009 and 2008, respectively (see Note 5).

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Estimating Impairment of Property and Equipment, Software Development Costs and Deferred Input VAT

The Company assesses the impairment of assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The factors that the Company considers important which could trigger an impairment review include the following: significant underperformance relative to expected historical or projected future operating results; significant changes in manner of use of the acquired assets or the strategy for overall business; and significant negative industry or economic trends. An impairment loss is recognized whenever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the higher of an asset’s net selling price and value in use. The net selling price is the amount obtainable from the sale of an asset in an arm’s length transaction while value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. Recoverable amounts are estimated for individual assets or, if it is not possible, for the cash-generating unit to which the asset belongs. For impairment loss on specific assets, the recoverable amount represents the net selling price. In determining the present value of estimated future cash flows expected to be generated from the continued use of the assets, the Company is required to make estimates and assumptions that can materially affect the financial statements. No impairment loss was recognized in 2009 and 2008. The aggregate net book values of property and equipment, software development costs and deferred input VAT as of December 31, 2009 and 2008 amounted to P=60.45 million and P=62.99 million, respectively (see Notes 6, 7 and 8). Estimating Useful Lives of Property and Equipment The Company estimates the useful lives of the significant parts of property and equipment based on the period over which the assets are expected to be available for use. The estimated useful lives of property and equipment are reviewed periodically and are updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of the assets. In addition, estimation of the useful lives of property and equipment is based on collective assessment of industry practice, internal technical evaluation and experience with similar assets. It is possible, however, that future results of operations could be materially affected by changes in estimates brought about by changes in factors mentioned above. The amounts and timing of recorded expenses for any period would be affected by changes in these factors and circumstances. As of December 31, 2009 and 2008, the net book values of property and equipment amounted to P=54.84 million and P=57.09 million, respectively (see Note 6). Estimating Useful Life of Software Development Costs The estimated useful life used as a basis for amortizing software development costs was determined on the basis of management’s assessment of the period within which the benefits of these costs are expected to be realized by the Company. As of December 31, 2009 and 2008, the net book values of software development costs amounted to P=1.40 million and P=3.06 million, respectively (see Note 7).

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Estimating Provision for Cargo Losses and Damages The Company has provision for cargo losses and damages maintained at a level considered adequate to provide for potential claims. The level of this provision is evaluated by management on the basis of history of actual cargo claims of customers from the Company. An increase in the Company’s provision for probable cargo losses and damages would increase both the Company’s recorded expenses and current liabilities. The Company’s provision for cargo losses and damages amounted to P=16.58 million and P=12.58 million in 2009 and 2008, respectively (see Note 10). Determining Pension Costs The determination of the Company’s obligation and cost for retirement and other post-employment benefits is dependent on the selection of certain assumptions used by actuaries in calculating such amounts. The assumptions described in Note 11 include among others, discount rates, expected returns on plan assets and rates of compensation increase. Actual results that differ from the assumptions are accumulated and amortized over future periods and therefore, generally affect the recognized expense and recorded obligation in such future periods. While management believes that the assumptions are reasonable and appropriate, significant differences in actual experience or significant changes in assumptions may materially affect pension and other retirement obligations. The Company has a funded defined retirement benefit plan covering substantially all regular employees. Pension costs amounted to P=1.76 million and P=1.33 million in 2009 and 2008, respectively (see Note 15). As of December 31, 2009 and 2008, pension liability and pension asset amounted to P=0.43 million and P=0.33 million, respectively (see Note 11). Determination of Fair Value of Financial Instruments The parent company carries certain financial assets and liabilities at fair value, which requires extensive use of accounting estimates and judgment. While significant components of fair value measurement were determined using verifiable objective evidence, (i.e. foreign exchange rates, interest rates, volatility rates), the amount of changes in fair value would differ if the parent company utilized different valuation methodologies and assumptions. Any changes in fair value of these financial assets and liabilities would affect profit and loss and equity. Where the fair value of certain financial assets and financial liabilities recorded in the statement of financial position cannot be derived from active markets, they are determined using internal valuation techniques using generally accepted market valuation models. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. The judgments include considerations of liquidity and model inputs such as correlation and volatility for longer dated derivatives. The fair values of the Company’s financial instruments are presented in Note 19 to the financial statements.

4. Cash and Cash Equivalents

2009 2008 Cash on hand and in banks P=23,132,797 P=25,987,802 Short-term deposits 8,409,797 28,531,819 P=31,542,594 P=54,519,621

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Cash in banks earn interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying periods of between one day and three months depending on the immediate cash requirements of the Company, and earn interest at the respective short-term deposit rates.

5. Trade and Other Receivables

2009 2008 Trade P=192,726,622 P=269,851,650 Amounts owed by related parties (see Note 16) 101,740,956 84,527,247 Advances to suppliers 3,053,464 2,732,523 Due from officers 1,248,016 1,083,765 Others 4,427,623 2,952,714 303,196,681 361,147,899 Less allowance for impairment losses 16,390,927 11,717,173 P=286,805,754 P=349,430,726

Trade receivables include account balances with related parties arising from the Company’s operations. Trade receivables are non-interest bearing and are generally on 30 - 60 days’ terms. Other receivables pertain to insurance and claims receivable. The following table shows the movement in the allowance for impairment losses:

2009 2008 Balances at beginning of year P=11,717,173 P=11,717,173 Provisions for the year (see Note 13) 6,453,065 – Recoveries (1,779,311) – Balances at end of year P=16,390,927 P=11,717,173

This account relates to trade receivables which were individually assessed by the Company as impaired (see Note 19).

6. Property and Equipment

2009 Furniture, Transportation Leasehold Fixtures and and Delivery Computer Improvements Equipment Equipment Equipment Total Cost: Balances at beginning of year P=84,451,375 P=9,656,827 P=5,014,120 P=7,917,654 P=107,039,976 Additions 10,509,229 1,245,373 792,896 2,212,221 14,759,719 Disposals/retirements (4,832,185) (708,762) (944,797) (168,425) (6,654,169) Adjustments/reclassifications (2) 304,240 (18,571) (285,667) – Balances at end of year 90,128,417 10,497,678 4,843,648 9,675,783 115,145,526 Accumulated depreciation: Balances at beginning of year 37,308,282 4,920,897 2,420,384 5,297,418 49,946,981 Depreciation and amortization (see Notes 12 and 13) 11,653,393 1,998,009 615,746 1,746,098 16,013,246 Disposals/retirements (4,832,185) (70,824) (640,680) (110,905) (5,654,594) Adjustments/reclassifications (2) 384,080 (94) (383,984) – Balances at end of year 44,129,488 7,232,162 2,395,356 6,548,627 60,305,633 Net book values P=45,998,929 P=3,265,516 P=2,448,292 P=3,127,156 P=54,839,893

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2008 Furniture, Transportation Leasehold Fixtures and and Delivery Computer Improvements Equipment Equipment Equipment Total Cost: Balances at beginning of year P=47,797,353 P=15,933,580 P=4,526,183 P=5,159,704 P=73,416,820 Additions 29,359,423 1,023,875 487,937 2,751,921 33,623,156 Adjustments/reclassifications 7,294,599 (7,300,628) – 6,029 – Balances at end of year 84,451,375 9,656,827 5,014,120 7,917,654 107,039,976 Accumulated depreciation: Balances at beginning of year 15,062,481 10,066,815 1,331,279 2,779,532 29,240,107 Depreciation and amortization

(see Notes 12 and 13) 11,574,619 5,527,274 1,089,105 2,515,876 20,706,874 Adjustments/reclassifications 10,671,182 (10,673,192) – 2,010 – Balances at end of year 37,308,282 4,920,897 2,420,384 5,297,418 49,946,981 Net book values P=47,143,093 P=4,735,930 P=2,593,736 P=2,620,236 P=57,092,995

7. Software Development Costs

2009 2008 Cost: Balances at beginning of year P=10,506,154 P=10,506,154 Accumulated amortization: Balances at beginning of year 7,449,298 4,305,845 Amortization (see Note 12) 1,659,402 3,143,453 Balances at end of year 9,108,700 7,449,298

Net book value P=1,397,454 P=3,056,856

8. Other Noncurrent Assets

2009 2008 Bond deposits P=15,000,000 P=15,000,000 Refundable deposits 407,153 250,274 Deferred input value-added tax (VAT) 4,208,279 2,838,507 P=19,615,432 P=18,088,781

Bond deposits represent interest-bearing security deposits for the deposit pick up agreement with a local bank. Interest earned at prevailing market rates on such security deposits are recognized in the statements of comprehensive income.

9. Trade and Other Payables

2009 2008 Trade payables P=85,226,293 P=79,622,849 Accrued expenses 130,842,180 109,593,176 Output VAT 19,572,031 9,233,653 Amount owed to related parties (see Note 16) 1,691,141 19,509,848 Others 4,916,198 3,545,372 P=242,247,843 P=221,504,898

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Trade payables include account balances with related parties arising from the Company’s operations. Accrued expenses includes accrued management fees, accrued freight payable, accrued general and manpower services and accrued trucking costs. Other payables include expanded withholding tax payable and withholding tax on compensation.

10. Provision for Cargo Losses and Damages

2009 2008 Balances at beginning of year P=12,583,247 P=5,153,534 Provision for the year (see Note 12) 9,747,930 9,712,986 Actual claims during the year (5,752,222) (2,283,273) Balances at end of year P=16,578,955 P=12,583,247

11. Pension Benefit Plans The Company has a defined benefit pension plan, covering substantially all of its employees, which require contributions to be made to a separately administered fund. The following tables summarize the components of net benefit expense recognized in the statements of comprehensive income and the funded status and amounts recognized in the statements of financial position for the plans. Net Benefit Expense

2009 2008 Current service cost P=49,000 P=838,552 Interest cost on defined benefit obligation 2,099,000 431,157 Expected return on plan assets (444,500) (107,140) Net actuarial losses recognized for the year 60,100 162,880 Net retirement benefit expense (see Note

15) P=1,763,600 P=1,325,449 Actual return on plan assets P=163,600 P=151,220

Pension Asset (Liability)

2009 2008 Fair value of plan assets P=5,200,400 P=4,040,602 Present value of defined benefit obligation (8,742,900) (5,588,565) Under-funded defined benefit obligation (3,542,500) (1,547,963) Unrecognized net actuarial losses 3,108,200 1,880,993 (P=434,300) P=333,030

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2009 2008 Opening defined benefit obligation P=5,588,565 P=4,649,762 Current service cost 49,000 838,552 Interest cost 2,099,000 431,157 Actuarial gain (losses) on obligation 1,006,335 (1,960,386) Transfers from affiliate – 2,017,954 Benefits paid – (388,474) Closing defined benefit obligation P=8,742,900 P=5,588,565

Changes in the fair value of plan assets are as follows:

2009 2008 Opening fair value of plan assets P=4,040,602 P=1,339,255 Expected return on plan assets 444,500 107,140 Contribution by employer 996,200 920,647 Actuarial gains on plan assets (280,902) 44,080 Transfers from affiliate – 2,017,954 Benefits paid – (388,474) Closing fair value of plan assets P=5,200,400 P=4,040,602

The Company expects to make a contribution of approximately P=1.0 million to its defined benefit pension plan in 2010. Transfers from affiliate amounting to P=2.02 million represent pension cost and pension fund transferred from Abo One to the Company for the employees transferred effective last March 1, 2008 and May 1, 2008. Majority of the Company’s plan assets are invested in time deposits. The overall expected rate of return on assets is determined based on the market prices prevailing on that date, applicable to the period over which the obligation is to be settled. The principal actuarial assumptions used in determining pension benefit obligation and fair value of plan assets for the Company’s plan as of December 31, 2009 and 2008 are shown below:

2009 2008 Discount rate 10.64% 37.56% Expected rate of return on plan assets 10% 11.00% Future salary increase 8% 6.00%

Amounts for the current and previous three periods are as follows:

2009 2008 2007 2006 Present value of defined benefit obligation P=8,742,900 P=5,588,565 P=4,649,762 P=393,921 Fair value of plan asset 5,200,400 4,040,602 1,339,255 795,088 Experience adjustments 1,006,335 303,698 3,727,928 13,642

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12. Cost of Services

2009 2008 Freight charges P=561,357,769 P=516,082,637 Handling and hauling 163,792,622 181,335,330 Outside services 42,352,682 48,115,950 Personnel (see Note 15) 27,339,526 23,214,682 Transhipment 23,989,179 20,183,871 Rentals (see Note 14) 20,903,715 20,640,202 Depreciation and amortization (see Notes 6 and 7) 15,807,904 16,407,158 Cargo losses and damages (see Note 10) 9,747,930 9,712,986 Communication and supplies 8,946,476 9,639,916 Utilities 4,610,949 4,240,481 Repairs and maintenance 2,934,021 3,524,807 Transportation and travel 2,808,297 2,217,273 Fuel and lube 2,222,957 2,834,276 Taxes and licenses 779,658 577,658 Entertainment, amusement and recreation (EAR) 610,373 883,847 Training 263,351 930,669 Insurance 211,165 85,607 Others 1,316,948 775,899 P=889,995,522 P=861,403,249

13. General and Administrative Expenses

2009 2008 Outside services P=105,045,251 P=100,243,542 Management fees (see Note 16) 28,354,609 11,516,010 Personnel (see Note 15) 9,749,365 9,704,420 Computer charges 6,202,107 8,301,651 Provision for impairment losses (see Note 5) 6,453,065 – Advertising 6,426,871 3,666,388 Special projects 5,841,284 1,806,068 Taxes and licenses 3,552,359 3,515,297 Communication supplies 3,075,450 2,761,976 Professional fees 2,312,581 2,855,860 Depreciation (see Note 6) 1,864,744 7,443,169 Transportation and travel 1,757,351 2,055,503 Insurance 1,029,499 1,051,175 EAR 658,143 1,841,280 Training 511,261 122,887 Rentals (see Note 14) 42,935 1,310,043 Others 1,851,672 1,337,425 P=184,728,547 P=159,532,693

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14. Leases The Company entered into various lease agreements for its sales outlets, warehouses, and administrative office locations. The contracts have terms ranging from 3 to 10 years and are subject to escalation clauses. Future minimum rental payments under non-cancellable operating leases as of December 31, 2009 and 2008 are as follows:

2009 2008 Within one year P=16,154,568 P=6,436,666 After one year but not less than 5 years 38,127,672 29,849,764 More than 5 years 7,625,534 5,087,569 P=61,907,774 P=41,373,999

As of December 31, 2009 and 2008, rental expense recognized in the statement of comprehensive income amounted to P=20,903,715 and P=20,640,202.

15. Personnel Costs

2009 2008 Cost of services Salaries and wages P=23,131,719 P=19,900,457 Social expenses and other employee benefits 3,460,899 2,666,368 Pension costs (see Note 11) 746,908 647,856 P=27,339,526 P=23,214,681 General and administrative expenses Salaries and wages 7,877,312 8,158,903 Social expenses and other employee benefits 855,362 867,925 Pension costs (see Note 11) 1,016,692 677,593 9,749,365 9,704,421 P=37,088,891 P=32,919,102

16. Related Party Disclosures

Parties are considered to be related if one party has the ability to control, directly or indirectly, the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Key management personnel are considered related parties.

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Significant transactions and account balances with related parties (amounts in thousand pesos) as of December 31, 2009 and 2008 are as follows:

Amounts Amounts Owed by Owed to Services to Services from Related Parties Related Parties Related Parties Related Parties Related Parties (see Note 5) (see Note 9) Aboitiz One, Inc. (Abo One) 2009 P=19,521 P=122,847 P=45,173 P=31,389 2008 P=16,432 P=107,622 P=37,993 P=20,435 Aboitiz One Distribution, Inc. 2009 3,218 – 862 –

(AODI) 2008 9,709 – 200 – Aboitiz Project TS Corporation 2009 1,061 – 824 –

(APTSC) 2008 2,026 – 298 – Refrigerated Van Specialist Inc. 2009 41 – 30 829

(RVSI) 2008 48 – – – COX Trucking Corporation 2009 – – – –

(COX) 2008 – – 1,096 – ATSC 2009 521 527,341 98,012 82,900

2008 741 463,093 51,687 110,784 Scanasia Overseas Inc (SOI) 2009 – – 4,258 –

2008 – – 3,127 – Aboitiz Logistics, Inc (ALI) 2009 – – – –

2008 – – 2,372 –

Kerry Aboitiz Logistics, Inc (KALI)

2009 2008

1,694 –

– –

896 –

– –

Total 2009 P=26,056 P=650,188 P=150,055 P=115,118 2008 P=28,956 P=570,715 P=96,773 P=131,219

In addition to those mentioned in Note 1, other related parties of the Company are (a) Abo One, a co-subsidiary; (b) AODI, RVSI, COX and SOI, subsidiaries of Abo One; and (c) APTSC is an associate of Abo One. In the normal course of business, the Company enters into transactions with related parties, principally consisting of the following: a. Management service contracts with Abo One at fees based on agreed rates. Management service fee

to Abo One amounted to P=28.35 million and P=11.52 million in 2009 and 2008, respectively (see Note 13).

b. Services to and from related parties other than those specifically described above consist mostly of cargo freight which are made at normal market prices. Outstanding balances at year-end are unsecured, interest free and settlements occur in cash. There have been no guarantees provided or received for any related party receivables or payables. For the years ended December 31, 2009 and 2008, the Company has not made any provision for impairment losses relating to amounts owed by

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related parties. This assessment is undertaken each financial year through the examination of financial positions of the related parties and the markets in which the related parties operate.

Compensation of key management personnel The compensation of key management personnel are as follows:

2009 2008 Short-term benefits P=1,405,320 P=1,182,930 Post-employment benefits 56,353 28,796 P=1,461,673 P=1,211,726

17. Income Taxes

On February 18, 2005, the Board of Investments (BOI) approved the Company’s application under Executive Order 226 as a new operator of logistics service facilities and granted the Company a non-pioneer status under the Omnibus Investments Code of 1987. The BOI issued the Certificate of Registration on the same date which entitled the Company to the following incentives:

(a) Income Tax Holiday (ITH) for four (4) years from May 2005 or actual start of commercial

operations, whichever is earlier. The ITH incentives shall be limited only to the revenues generated from the registered activity;

(b) For the first five (5) years from the date of registration, the Company shall be allowed an additional

deduction from the taxable income of fifty percent (50%) of the wages corresponding to the increment in number of direct labor for skilled and unskilled workers in the year of availment as against the previous year if the project meets the prescribed ratio of capital requirement to the number of workers set by the BOI of US$10,000 to one (1) worker and provided that this incentive shall not be availed of simultaneously with the ITH;

(c) Employment of foreign nationals for supervisory, technical or advisory positions for five (5) years

from the date of registration; and

(d) Simplification of customs procedures for importation of equipment, spare parts, raw materials and supplies.

Under its registration with the BOI, the Company has to comply with certain terms and conditions including the start of its commercial operations on January 1, 2006, a minimum paid up capital amounting to P=17.50 million prior to availment of the ITH incentive, and to invest at least US$1 million or its peso equivalent within one year from the date of registration, which is a requirement for integrated logistics projects. As of February 15, 2007, the Company has complied with the terms and conditions of BOI.

On October 30, 2007, the BOI approved the Company’s application under Executive Order 226 as an expanding operator of logistics service facilities on a non-pioneer status under the Omnibus Investments Code of 1987. The BOI issued the Certificate of Registration on the same date which entitled the Company to the following additional incentives:

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(a) ITH for three (3) years from the date of registration. For purposes of ITH availment, a base figure of

P=754.03 million, which is the highest attained revenue, will be used in the computation of the ITH for the expansion project;

(b) Tax credit equivalent to the national internal revenue taxes and duties paid on raw materials and

supplies and semi-manufactured products used in producing its export product and forming part thereof for ten (10) years from start of commercial operations;

(c) Access to Customs Bonded Manufacturing Warehouse (CBMW) subject to Custom rules and

regulations provided firm exports at least 70% of production output;

(d) Exemption from wharfage dues, any export tax, duty, imposts and fees for a ten (10) year period from date of registration;

(e) Importation of consigned equipment for a period of ten (10) years from date of registration, subject

to the posting of re-export bond; and

(f) Exemption from taxes and duties on imported spare parts and consumable supplies for export producers with CBMW exporting at least 70% of production.

Under its registration with the BOI, the Company has to comply with certain terms and conditions including the start of its commercial operations on September 2008, site acquisition through execution of deed of sale or lease contract of land, site preparation and development, and acquisition of equipment.

As of January 15, 2008, the Company has fully complied with all the terms and conditions of BOI that entitles them to the availment of the incentives set forth in the Certificate of Registration No. 2008-192 as an expanding operator of logistics service facility.

On August 19, 2009, BOI approved the Company’s application for extension of ITH incentive for one (1) year. The approved bonus year under Certificate of Registration No.2005-026 is for the period May 2009 to April 30, 2010 using the capital equipment to labor ratio criterion pursuant to Art. 39(a)(1)(i) of E.O.226 subject to the following conditions: (a) At the time of actual availment of the ITH incentive, the derived capital equipment to labor ratio

shall not exceed US$10,000 to one worker; and

(b) The Company shall undertake Corporate Social Responsibilities (CSR) activities which shall be completed on the actual availment of the bonus year. The CSR activity shall be aligned with the priority programs and projects of the National Anti-Poverty Commission and/or other special laws such as R.A. 7942 or the Mining Act and DOE Energy Regulation 1-94. Failure to complete the CSR activity shall mean forfeiture of the approved ITH bonus year.

Total donations and contributions made in relation to CSR activities amounted toP=169,000 and P=606,000 in 2009 and 2008, respectively. As of February 19, 2010, the Company has fully complied with all the terms and conditions of BOI that entitles them to the extension of ITH.

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The current provision for income tax in 2009 amounting to P=371,311 represents Regular Corporate Income Tax for activities not entitled to ITH. The reconciliation of income tax expense computed at the statutory income tax rate to provision for income tax follows:

2009 2008 Provision for income tax at statutory rate of 30% for

2009 and 35% for 2008 P=5,151,433 P=65,984,859 Additions (reductions) in income taxes

resulting from: Changes in unrecognized

deferred income tax assets 2,709,078 2,979,748 Income taxes resulting from activities

entitled to ITH (7,090,984) (68,632,061) Interest income subjected to final tax (628,415) (453,987)

P=141,112 (P=121,441) The deferred income tax asset as of December 31, 2009 amounting to P=130,290 and deferred income tax liability as of December 31, 2008 amounting to P=99,909 pertains to the Company’s pension assets. The Company has temporary differences for which no deferred income tax assets were recognized as it is not probable that sufficient taxable profit will be available against which the benefits of the deferred income tax assets can be utilized. The temporary differences were as follows:

2009 2008 Allowance for impairment on receivables P=16,390,927 P=11,717,173 Provision for cargo losses and damages 16,578,955 12,583,247 Unamortized past service cost 2,702,403 649,923 P=35,672,285 P=24,950,343

18. Equity

a. Common Stock On October 5, 2007, the BOD approved a resolution to further increase the Company’s authorized capital stock from P=20.0 million, consisting of 20.0 million shares with P=1 par value, to P=100.0 million, consisting of 100.0 million shares with P=1 par value. The increase was approved by the Philippine SEC on January 17, 2008.

b. Deposits for Future Subscription On October 2007, ATSC subscribed 42.50 million common shares out of the 80.0 million shares increased in Company’s authorized capital stock for subscription price of P=42.50 million. The subscription price was received in full from ATSC in October 2007. The deposit was converted to shares of stock after the approval of increase in authorized capital stock of the Company by Philippine SEC on January 17, 2008.

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c. Dividends On March 10, 2008, the BOD approved the declaration of cash dividend amounting to P=80 million payable to stockholders of record as of December 31, 2007. Payment of dividend was made on April 15, 2008. On September 8, 2008, the BOD approved the declaration of cash dividend amounting to P=91 million payable to stockholders of record as of September 15, 2008. Payment of dividend was made on September 30, 2008. On August 1, 2009, the BOD approved the declaration of cash dividends from appropriated retained earnings amounting to P=130.0 million payable to stockholders on record as of September 30, 2009. Payment of dividend was made on October 6, 2009.

d. Appropriation of Retained Earnings

On January 13, 2009, the BOD approved and authorized the appropriation of retained earnings amounting to P=138.0 million for cash dividends payable to stockholders of record as of September 30, 2009 and P=50.0 million for business expansion of the Company.

On August 1, 2009, the BOD authorized to reverse the appropriation of its retained earnings amounting to P=50.0 million previously apportioned for business expansion. On January 5, 2010, the BOD approved and authorized the declaration of cash dividends amounting to P=15.8 million from the Company’s unrestricted retained earnings as of the year ended December 31, 2009 to stockholders of record as of January 6, 2010.

19. Financial Instruments Financial Risk Management Objectives and Policies The main purpose of the Company’s financial instruments is to finance the Company’s operations. The Company has various financial instruments such as cash and cash equivalents, trade and other receivables, bond deposits and refundable deposits (under “Other noncurrent asset” account in the statement of financial position) and trade and other payables, which arise directly from its operations. BOD The BOD has overall responsibility for the establishment and oversight of the Company’s risk management framework. The Company’s risk management policies are established to identify and manage the Company’s exposure to financial risks, to set appropriate transaction limits and controls and to monitor and assess risks and compliance to internal control policies. Risk management policies and structure are reviewed regularly to reflect changes in market conditions and the Company’s activities. Financial Risk Committee The Financial Risk Committee has the overall responsibility for the development of risk strategies, principles, frameworks, policies and limits. It establishes a forum of discussion of the Company’s approach to risk issues in order to make relevant decisions.

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Treasury Risk Office The Treasury Risk Office is responsible for the comprehensive monitoring, evaluating and analyzing of the Company’s risks in line with the policies and limits set by the Treasury Risk Committee. The Company has exposure to credit risk and liquidity risk from the use of its financial instruments. The BOD reviews and approves the policies for managing each of these risks and they are summarized below. Credit risk Credit risk represents the loss that the Company would incur if counterparties failed to perform under its contractual obligations. The Company trades only with recognized, creditworthy parties and the exposure to credit risk is monitored on an ongoing basis with the result that the Company’s exposure to bad debts is not significant. The Company has made provisions where necessary, for potential losses on credits extended. Since the Company trades only with recognized third parties, collateral is not required in respect of financial assets. There are no significant concentrations of credit risk within the Company. The credit quality of financial assets is being managed by the Company using internal credit ratings. The table below shows the credit quality by class of financial assets based on the Company’s rating system as of December 31, 2009 and 2008. December 31, 2009

Neither past due nor impaired

High Medium Low


impaired Total Cash and cash equivalents P=31,542,594 P=– P=– P=– 31,542,594 Trade and other receivables:

Trade receivables 84,772,361 – – 107,954,261 P=192,726,622Amount owed by related

parties 101,740,956 – – – 101,740,956Advances to suppliers 3,053,464 – – – 3,053,464Due from officers 1,248,016 – – – 1,248,016Other receivables 4,427,623 – – – 4,427,623

Other noncurrent assets: Bond deposits 15,000,000 – – – 15,000,000Refundable deposits 407,153 – – – 407,153

Total P=242,192,167 P=– P=– P=107,954,261 P=350,146,428

December 31, 2008

Neither past due nor impaired

High Medium Low


impaired Total Cash and cash equivalents P=54,519,621 P=– P=– P=– P=54,519,621 Trade and other receivables:

Trade receivables 152,237,627 25,891,555 4,589,762 87,132,706 269,851,650Amount owed by related

parties 84,527,247 – – – 84,527,247Advances to suppliers 2,732,523 – – – 2,732,523Due from officers 1,083,765 – – – 1,083,765Other receivables 2,952,714 – – – 2,952,714

Other noncurrent assets: Bond deposits 15,000,000 – – – 15,000,000Refundable deposits 250,274 – – – 250,274

Total P=313,303,771 P=25,891,555 P=4,589,762 P=87,132,706 P=430,917,794

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High quality receivables pertain to the companies under the group and the customers with good paying habit. Receivables from customers that slide beyond the credit terms but pay a week after being past due are classified under medium quality. Low quality receivables are accounts from government offices, new customers, and forwarders. For new customers, the Company has no basis yet as far as payment habit is concerned. With regards to the forwarders, most of them are either under legal or suspended. In addition, their payment habits extend beyond the approved credit terms because their funds are not sufficient to conduct their operations. The table below shows the aging analysis of past due but not impaired receivables per class that the Company held as of December 31, 2009 and 2008. A financial asset is past due when a counterparty has failed to make a payment when contractually due. December 31, 2009



impaired Less than

30 days 31 to 60

days 61 to 90

days More than

91 days Impaired Total Cash and cash

equivalents P=31,542,594 P=– P=– P=– P=– P=– P=31,542,594 Trade and other

receivables Trade receivables 84,772,361 56,271,158 12,972,876 2,899,302 19,419,998 16,390,927 192,726,622 Amounts owed by

related parties 101,740,956 – – – – – 101,740,956 Advances to

suppliers 3,053,464 – – – – – 3,053,464 Due from officers 1,248,016 – – – – – 1,248,016 Other receivables 4,427,623 – – – – – 4,427,623 Other noncurrent

assets: Bond deposits 15,000,000 – – – – – 15,000,000 Refundable deposits 407,153 – – – – – 407,153 Total P=242,192,167 P=56,271,158 P=12,972,876 P=2,899,302 P=19,419,998 P=16,390,927 P=350,146,428

December 31, 2008



impaired Less than

30 days 31 to 60

days 61 to 90

days More than

91 days Impaired Total Cash and cash

equivalents P=54,519,621 P=– P=– P=– P=– P=– P=54,519,621 Trade and other

receivables Trade receivables 182,718,944 43,857,678 22,385,019 7,802,026 1,370,810 11,717,173 269,851,650 Amounts owed by

related parties 84,527,247 – – – – – 84,527,247 Advances to suppliers 2,732,523 – – – – – 2,732,523

Due from officers 1,083,765 – – – – – 1,083,765 Other receivables 2,952,714 – – – – – 2,952,714 Other noncurrent assets: Bond deposits 15,000,000 – – – – – 15,000,000 Refundable deposits 250,274 – – – – – 250,274 Total P=343,785,088 P=43,857,678 P=22,385,019 P=7,802,026 P=1,370,810 P=11,717,173 P=430,917,794

Liquidity risk The Company maintains sufficient cash and cash equivalents to finance its operations. Any excess cash is invested in short-term money market placements. These placements are maintained to meet maturing

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obligations and pay dividend declarations. The Company, in general, matches the appropriate long-term funding instruments with the general nature of its equity investments. The table below summarizes the maturity profile of the Company’s undiscounted financial liabilities as of December 31, 2009 and 2008.

December 31, 2009

On demand Within 1 year 1 to 5 years More than

5 years Total Cash and cash equivalents 31,542,594 P=– P=– P=– 31,542,594 Trade and other

receivables Trade receivables 107,954,261 84,772,361 – – 192,726,622 Amounts owed by

related parties – 101,740,956 – – 101,740,956 Advances to suppliers – 3,053,464 – – 3,053,464

Due from officers – 1,248,016 – – 1,248,016 Other receivables – 4,427,623 – – 4,427,623 P=139,496,855 P=195,242,451 P=– P=– P=334,739,275 Trade and other payables: Trade payables – 85,226,293 – – 85,226,293 Amount owed to related parties – 1,691,141 – – 1,691,141 Accrued expenses – 130,842,180 – – 130,842,180 Other payables – 4,916,198 – – 4,916,198 P=– P=222,675,812 P=– P=– P=222,675,812

December 31, 2008

On demand Within 1 year 1 to 5 years More than

5 years Total Cash and cash equivalents 54,519,621 P=– P=– P=– 54,519,621 Trade and other receivables Trade receivables 87,132,706 182,718,944 – – 269,851,650 Amounts owed by related

parties – 84,527,247 – – 84,527,247 Advances to suppliers – 2,732,523 – – 2,732,523

Due from officers – 1,083,765 – – 1,083,765 Other receivables – 2,952,714 – – 2,952,714 P=141,652,327 P=274,015,193 P=– P=– P=415,667,520 Trade and other payables: Trade payables P=– P=183,645,754 P=– P=– P=183,645,754 Amount owed to related parties – 19,509,848 – – 19,509,848 Accrued expenses – 5,570,271 – – 5,570,271 Other payables – 3,545,372 – – 3,545,372 P=– P=212,271,245 P=– P=– P=212,271,245

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Fair Value of Financial Instruments Set out below is a comparison by category of carrying amounts and fair values of all the Company’s financial instruments as of December 31, 2009 and 2008:

December 31, 2009 December 31, 2008

Carrying Amounts

Fair Values

Carrying Amounts

Fair Values

Financial assets Loans and Receivables

Cash and cash equivalents P=31,542,594 P=31,542,594 P=54,519,621 P=54,519,621

Trade and other receivables 286,805,754 286,805,754 349,430,726 349,430,726

Bond deposits 15,000,000 15,000,000 15,000,000 15,000,000 Refundable deposits 407,153 407,153 250,274 250,274

Financial liabilities Other Financial Liabilities

Trade and other payables 222,675,812 222,675,812 212,271,245 212,271,245 Fair value is defined as the amount at which the financial instrument could be exchanged in a current transaction between knowledgeable willing parties in an arm’s length transaction, other than in a forced liquidation or sale. Fair values are obtained from quoted market prices, discounted cash flow models and option pricing models, as appropriate. The following methods and assumptions are used to estimate the fair value of each class of financial instruments: Cash and cash equivalents The carrying amounts of cash and cash equivalents approximate their fair values due to the short-term maturity of these financial instruments. Trade and other receivables, Bond deposits and Refundable deposits Similarly, the carrying amounts of trade and other receivables, bond deposit and refundable deposits, which are all subject to normal trade terms, approximate their fair values. Trade and other payables The carrying values of the trade and other payables which are also subject to normal trade terms, approximate their fair values. Capital Management The Company adopts a prudent approach on capital management to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximize shareholder value. The Company manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders, return capital to shareholders, or issue new shares. No changes were made in the objectives, policies or processes during the years ended December 31, 2009 and 2008. The Company monitors capital using a gearing ratio, which is net debt divided by total equity plus net debt. The Company has no policy regarding the gearing ratio. The Company includes within

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net debt are trade and other payables less cash and cash equivalents. Equity includes capital stock and retained earnings. The table below sets out the Company’s gearing ratio as of December 31, 2009 and 2008.

2009 2008 Trade and other payables P=238,039,564 P=236,302,997 Cash and cash equivalents (31,542,594) (54,519,621) Net debt 206,496,970 181,783,376 Capital stock 60,000,000 60,000,000 Retained earnings 75,714,807 188,684,477 Total equity 135,714,807 248,684,477 Total equity and net debt P=342,211,777 P=430,467,853 Gearing ratio 60.34% 42.23%

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2010 Definitive Information Statement Final 05.04.2010 - 2GO ......2010/04/05 · the Articles of Incorporation of the Yes No Abstain Corporation to include the following trade name