atty. justina f. callangan securities and exchange commission is for pse 2008-final.pdf ·...

April 29, 2009 Atty. Justina F. Callangan Director – Corporation Finance Department Securities and Exchange Commission SEC Building, EDSA Greenhills, Mandaluyong City Dear Atty. Callangan: This is in reference to your letter dated April 20, 2009 requiring Aboitiz Transport System (ATSC) Corporation (the “Company”) to amend its Information Statement and Management Report, which were submitted to the Commission on April 14, 2009. In reply, please see attached responses of the Company to the non-compliance noted by the Commission, the Company’s Definitive Information Statement and the accompanying Management Report, as well as the following additional requirements: 1. Letter of Undertaking to distribute to the Stockholders the 17Q - Interim Financial

Statements on the Annual Stockholder's Meeting on May 28, 2009 2. Certification that the accounting firm Sycip Gorres Velayo & Company (SGV) was

engaged by the Company in 1977. Kindly also note the following changes we made to the Definitive Information Statement: 1. Inclusion of Proxy Form in page 4 of the Definitive Statement. The pages affected by

this are page 3 Notice of Annual Stockholders Meeting and page 4 the Proxy form. 2. The ATS Board last April 23, 2009 regular meeting resolved 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 resolution is disclosed under Item 7. Independent Public Accountants.

We hope that you will find the foregoing in order. Should you have further clarifications, please let us know. Thank you. Very truly yours,

Ismael R. Cabonse Officer In-Charge

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ABOITIZ TRANSPORT SYSTEM (ATSC) CORPORATION

Preliminary Information Statement filed on April 14, 2009 SEC FORM 20-IS

Checklist of Requirements Page No.

SEC Remarks ATS Remarks

A. GENERAL INFORMATION Item 1. DATE, TIME AND PLACE OF MEETING Approximate date on which information statement is first sent to security holders

Page 5

Please check correctness of the date. Date of distribution to security holders changed to May 7, 2009 instead of "April 30, 2008".

B. CONTROL and COMPENSATION INFORMATION Item 4. VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF As to each class entitled to vote, state the number shares outstanding and the number of votes to which each class is entitled.

Page 6

Update Information on the number of shares outstanding as of March 31, 2009

The no. of shares outstanding as of February 28, 2009 is the same as March 31, 2009.

(1) Security Ownership of Certain Record and Beneficial Owners more than 5%:

Page 8

Disclose the name of beneficial owners in column 3, as defined under SRC Rule 3. Please note that the beneficial owner/s of the shares held by PCD Nominee Corporation are its various clients. Please check appropriateness of disclosure made.

Already changed "PCD Nominee Corporation" into "Various Clients"

(2) Security Ownership of Management

Page 8

Update information on the number of shares outstanding as of March 31, 2009.

The no. of shares outstanding and held by said security holders is the same as of March 31, 2009.

(4) Description of any arrangement which may result in a change in control of registrant

If a change of control has occurred since the beginning of the last fiscal year: a. state the name of the person who acquired such control

Page 9-10 Please be advised of the requirements of SRC rule 19 (re: Tender Offer). The possible purchase of KGLI-NM Holdings, Inc. of the 32% of the outstanding common shares of the company may trigger the requirement for a Tender Offer.

Noted, KGLI-NM will undertake to comply with the tender offer requirements of the SRC.

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





Citizenship

No. of Shares

Held

Percent of

Class

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b. amount and source of consideration used

c. basis of control

d. date and description of the transaction(s) which resulted in the change in control

e. Percentage of voting securites now beneficially owned directly/indirectly by the person who acquired control

f. Identify from whom control was assumed

Item 5. DIRECTORS & EXECUTIVE OFFICERS Page 10

If action is with respect to election of directors Information required by Part IV paragraphs (A), (D) (1) and (D) (3) of Annex C, as amended

Please be advised of the Notice of the Commission dated October 20, 2006 re: Certification of Qualification of Independent Directors

Noted.

(A)(1) Identify directors, including Independent Directors and Executive Officers

Page 14

(a) List the names, ages and citizenship of all directors, including independent directors, executive officers and all persons nominated or chosen to become such where required under Section 38 of the Code and SRC Rule 38.1 adopted thereunder; also provide the names of the incorporators in the case of an investment company.

(b) List the positions and offices that each such person held, or will hold, if known, with the registrant;

(c) Give the person's term of office as a director and the period during which the person has served;

(d)Briefly describe the person's business experience during the past five (5) years; and

(e) If a director, identify other directorships held in reporting companies, naming each company.

Incomplete. Please provide required information on Mr. Rafael L. Sanvictores, the company's SVP - Vessels and Hotel Operations

Already provided as follows: Mr. Rafael L. Sanvictores, 51 years old, Filipino, Senior Vice President – Hotel Operations since May 2006. He has been with the Aboitiz group since 1980. Previous positions in ATS include: Senior Vice President and Chief Operating Officer - SuperFerry Group; Senior Vice President and Chief Operating Officer - Passage Division and Assistant Vice President for Forwarding Operations, Sales and Aboitiz Inland Concarriers, Inc. He graduated with a degree in Bachelor of Science in Economics at San Beda College.

(5) Part IV, Paragraph (D) of "Annex C" as amended Page 18

Certain Relationships and Related transactions

(SEC MC No. 14, Series of 2004) (1) In addition to the disclosures in the financial statements which are required under SFAS/IAS No. 24 on Related Party Disclosures, registrants shall describe under this item the elements of the transactions that are necessary for an understanding of the transactions' business purpose and economic substance, their effects on the financial statements, and the special risks or contingencies arising from these transactions. The Commission considers the discussion of the following to be necessary:

Please change Note 20 to Note 21 Changed "Note 20" to "Note 21"

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(a) the business purpose of the arrangement;

(b) identification of the related parties transacting business with the registrant and nature of the relationship;

(c) how transaction prices were determined by the parties;

(d) if disclosures represent that transactions have been evaluated for fairness, a description of how the evaluation was made; and

(e) any ongoing contractual or other commitments as a result of the arrangement.

(2) The disclosure shall also include information about parties that fall outside the definition of "related parties" under SFAS/IAS No. 24, but with whom the registrants or its related parties have a relationship that enables the parties to negotiate terms of material transactions that may not be available from other, more clearly independent, parties on an arm's length basis. For example, an entity may be established and operated by individuals that were former senior management of, or have some other current or former relationship with, a registrant. The purpose of the entity may be to own assets used by the registrant or provide financing or services to the registrant. Although former management or persons with other relationships may not meet the definition of a related party pursuant to SFAS/IAS 24, the former management positions may result in negotiation of terms that are more or less favorable than those available on an arm's-length basis from clearly independent third parties that are material to the registrant's financial position or financial performance.

In some cases, investors may be unable to understand the registrant's reported results of operations without a clear explanation of these arrangements and relationships.Items of similar nature may be disclosed in aggregate except when separate disclosure is necessary for an understanding of the effects of related party transactions on the financial statements.

Item 7. Independent Public Accountants

Page 19

Please refer to SRC Rule 68, Paragraph (3)(b)(iv) (re:compliance with the 5 year rotation of external auditors)

Election, approval or ratification

Identify the Chairman and members of Audit Committee

Added name of Chairman and members as follows: The Audit Committee is composed of three Board members, namely, Washington Z. Sycip, chairperson and Jon Ramon R. Aboitiz and Bob D. Gothong, members.

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Please indicate the year the company engaged the services of SGV & Co., as its Independent Public Accountant

Indicated the year ATS engaged SGV as follows: 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. Please see attached letter of Certification.

REPORT TO BE FURNISHED TO STOCKHOLDERS SRC Rule 20 - Disclosures to Stockholders prior to Meeting

If the Information Statement shall relate to an annual (or special meeting in lieu of the annual)meeting of stockholders at which directors shall be elected, it shall be accompanied or prededed by a management report to such stockholders containing the following:

MANAGEMENT REPORT

Audited Financial Statement and Interim Financial Statements, in accordance with SRC Rule 68, as ameded on February 2003

Considering that the Annual Stockholder's Meeting will be held on May 28, 2009, the Interim Financial Statements for the period ended March 31, 2009 should also be distributed.

The Company undertakes to distribute to its stockholders a copy of 17Q - Interim Financial Statements for the Period Ended March 31, 2009 on the Annual Stockholder's Meeting on May 28, 2009. Attached is the Letter of Undertaking.

Management's Discussion and Analysis (MD & A) or Plan of Operation (2) Management's Discussion and Analysis. MD&A helps explain financial results. A reader of the MD&A should understand the financial results of the registrant’s business as discussed in the “Business” section. It shall provide information with respect to liquidity, capital resources and other information necessary to understanding the registrant’s financial condition and results of operation.

Page 26

The discussion and analysis shall focus specifically on material events and uncertainties known to management that would cause reported financial information not to be necessarily indicative of future operating results or of future financial condition. This would include descriptions and amounts of matters that would have an impact on future operations and have not had an impact in the past, and matters that have had an impact on reported operations and are not expected to have an impact upon future operations.

5

For both full fiscal years and interim periods, disclose the company's and its majority-owned subsidiaries' top five (5) key performance indicators. It shall include a discussion of the manner by which the company calculates or identifies the indicators presented on a comparable basis.

Page 26 Incomplete. Provide qualitative data and discussion on how the company identifies such performance indicators.

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 2008 is P10.3 billion compared to P8.2 billion in 2007.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 2008 is P947.1 million. c) Income before income tax (IBT) – is the earnings of the company before income tax expense. The Income Before Income Tax for 2008 is P119.3 million, 80% lower compared to P602.9 million in 2007 because mainly because vessel and other assets sales of P748.9 million in 2007. d) Debt-to-equity ratio – is determined by dividing total liabilities over stockholders’ equity. ATS’ debt-to-equity ratio in 2008 is 1.05:1:00.e) Current ratio – is measured by dividing total current assets by total current liabilities. The Company’s current ratio in 2008 is 0.89:1:00.

(a) Full fiscal years (3) Past and future financial condition and results of operation, with particular emphasis on the prospects of the future.

Page 33

Not complied with. Provide discussion as per higlighted portion.

This is provided under "Outlook" as follows: Strategies implemented in recent years have served well. Earning capacity of assets is maximized, costs are lowered, and its value-added businesses are gaining market acceptance. ATS believes its operating environment continues to be a challenging one as it faces uncertainties such as fuel prices and the purchasing power of its customers. Efforts are continuously placed on operational excellence at all levels of the organization with the aim of providing solutions to its customers at the lowest cost.

(4) Key variable and other qualitative and quatitative factors Pages 32-33, 35-36,

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If material: (i) any known trends, events or uncertainties (material impact on liquidity

Please refer to "Other Information" and "Material changes in the Financial Statements" section.

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(ii) Events that will trigger direct or contingent financial obligation thatis material to the company, including any default or acceleration of an obligation

(iii) All material off-balance sheet transactions, arrangements, obligations (including contingent obligations) and other relationships ofthe company with unconsolidated entities or other persons created during the reporting period

(iv) Description of any material commitments for capital expenditures, the general purpose of such commitments, and the expected sources of funds for such expenditures should be described;

Disclose, if any.

(v) any known trends, events or uncertainties (material impact on sales)

(vi) any significant elements of income or loss (from continuing operations)

(vii) causes for any material changes from period to period of FS which shall include vertical and horizontal analyses of any material item (5%)

Pages 31-32,35

(viii) seasonal aspects that has material effect on the FS

(b) Interim Periods: Comparable discussion to assess material changes (last fiscal year and comparable interim period in the preceding year). Disclose the required information under subpargraph (i) to (viii) above.

Update the information to March 31, 2009

Market Price of and Dividends required by Part V of Annex C, as amended Page 45-46

(1) Market Information (a) Identification of the principal market or markets where the registrant's common equity is traded.

If Principal market is stock exchange in the Philippines or a foreign exchange;

(1) State the name of the Exchange (2) Presentation of the High & Low Sales Prices for each quarter within the last two fiscal years and any subsequent interim period for which Financial Statements are required by SRC Rule 68.

(b) If the information called for by paragraph (A) of this Part is being presented, the document shall also include price information as of the latest practicable trading date, and, in the case of securities to be issued in connection with an acquisition, business combination or other reorganization, as of the trading date immediately prior to the public announcement of such transaction.

Update the price information as of the latest practicable date

Updated, market price is P 1.62.

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(2) Holders (a) (i) Approximate number of holders of each class of common security as of the latest practicable date but in no event more than ninety (90) days prior to filing of the report. (ii) names of the top twenty (20) shareholders of each class

(iii) number of shares held

(iv) percentage of total shares outstanding held by each.

Page 46

(3) Dividends (a) Discussion of any Cash Dividends declared (two most recent years) (b) Description of any restriction that limit the payment of Dividend on Common Shares

Page 47

Not complied with. Already updated details on cash dividend declaration, as follows: There was no cash dividends declared in 2006, 2008 and the first quarter of 2009. 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 last 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.

(4) Recent Sales of Unregistered or Exempt Securities, Including Recent Issuance of Securities Constituting an Exempt Transaction

(a) Date of sale and the Title and amount of Securities Sold (b) Name of the Underwriters or identity of persns to whom the Securities were sold (c) If sold for cash: Total offering price and Total underwriting discounts or commissions. Sold other than for cash: State the nature of the transaction and the type and amount of consideration received

(d) Exemption from Registration Claimed - Indicate section of the Code and state briefly the facts relied upon to make the exemption available.

Disclose, if any The Company has no exempt securities nor recent issuances of securities that constitute an exempt transaction.

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April 29, 2009

Atty. Justina F. Callangan

Director – Corporation Finance Department Securities and Exchange Commission SEC Building, EDSA Greenhills, Mandaluyong City Dear Atty. Callangan: This is in compliance with the submission of the Definitive Information Statement of Aboitiz Transport System (ATSC) Corporation (the “Company”). The Company undertakes to distribute to its stockholders a copy of SEC Form 17-Q – Interim Financial Statements for the Period Ended March 31, 2009 pursuant to Section 17 of the Securities Regulation Code (SRC) and SRC Rule 17(2)(b) there under on the Annual Stockholder’s Meeting on May 28, 2009. Thank you. Very truly yours,


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April 29, 2009 Atty. Justina F. Callangan Director – Corporation Finance Department Securities and Exchange Commission SEC Building, EDSA Greenhills, Mandaluyong City Dear Atty. Callangan: This refers to the compliance with the submission of the Definitive Information Statement of Aboitiz Transport System (ATSC) Corporation (the “Company”). This is to certify that the Company has engaged the accounting firm of Sycip, Gorres, Velayo & Company as its Independent Public Accountant since year 1977 based on the available records. Thank you. Very truly yours,


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COVER SHEET

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 1 7 - I S 0 5 2 8Month 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

2,169 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.

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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 528-7609 Registrant’s telephone numbers, including area code 8. May 28, 2009 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 7, 2009 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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8.

9.

10. 11. Adjournment

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 28, 2009 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 28, 2009 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 22, 2008 5. Annual Report for the year ended December 31, 2008 6. Election of the Board of Directors 7. Appointment of External Auditor

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. Approval and Ratification of all Acts and Resolutions of the Board of Directors and Management for the period covering 28 March 2008 to 29 March 2009 Such Other Matters as may properly come before it

Only stockholders of record in the books of the Company at the close of business on April 15, 2009 will be entitled to vote at said stockholders’ meeting. Manila, Philippines, April 14, 2009.

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 19, 2009 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 21, 2009 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”) herebyappoints __________________________ or in his absence, the Chairman of the meeting, as attorney and proxy, withpower of substitution, to present and vote all shares registered in his/her/its name as proxy of the undersignedstockholder, at the Annual Meeting of Stockholders of the Company on May 28, 2009 and at any of the adjournmentsthereof for the purpose of acting on the following matters: 1.

Election of Directors 4. Ratification of all acts and resolutions of the Board Vote for all nominees listed below of Directors and of the Executive Committee.

Jon Ramon M. Aboitiz Yes No Abstain Bob D. Gothong

Enrique M. Aboitiz, Jr. 5. Approve the delegation to the Board of the Erramon I. Aboitiz authority to appoint the Company’s external auditor Roberto I. Aboitiz . Justo A. Ortiz Yes No Abstain Sabin M. Aboitiz

Washington Z. Sycip (Independent) 6. At their discretion, the proxies named above are Emily A. Abrera (Independent) authorized to vote upon such other matters as may properly come before the meeting. Yes No Withhold authority for all nominees listed above

Withhold authority to vote for the nominees

listed below: _________________ ________________ ____________________________________ _________________ ________________ PRINTED NAME OF STOCKHOLDER _________________ ________________ _________________ ________________ ____________________________________

2. Approval of minutes of previous meetings. SIGNATURE OF STOCKHOLDER/AUTHORIZED

Yes No Abstain SIGNATORY

3. Approval of annual report. ____________________________________

Yes

No

Abstain DATE

THE PROXY SHOULD BE RECEIVED BY THE CORPORATE SECRETARY ON OR BEFORE May 19, 2009, THE DEADLINE FOR SUBMISSION OF PROXIES. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER AS DIRECTED HEREIN BY THESTOCKHOLDER(S). IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF ALL NOMINEESAND FOR THE APPROVAL OF THE MATTERS STATED ABOVE AND FOR SUCH OTHER MATTERS AS MAY PROPERLYCOME BEFORE THE MEETING IN THE MANNER DESCRIBED IN THE INFORMATION STATEMENT AND/OR ASRECOMMENDED 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 ISEXERCISED. A PROXY IS ALSO CONSIDERED REVOKED IF THE STOCKHOLDER ATTENDS THE MEETING IN PERSONAND EXPRESSED HIS INTENTION TO VOTE IN PERSON.

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 28, 2009 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 7, 2009

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

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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. 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. One of the Agenda during the stockholders’ meeting to be held on May 28, 2009 calls for the approval by stockholders representing at least two-thirds (2/3s) of the Registrant’s outstanding capital stock; more specifically, the Registrant’s authority 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. This proposed corporation action 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 15, 2009. Each common share shall be entitled 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.:

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(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.

(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 15, 2009. (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. 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, 2009:

Title of Class





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 Juan Antonio E. Bernad SVP Luis Miguel Aboitiz First Vice President

Filipino 1,889,482,107 77.10%

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Common 3. 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 15.93%

Preferred 4. PCD Nominee Corporation (Filipino) 37/f Enterprise Building Ayala Avenue, Makati City (STOCKHOLDER)

Various Clients Filipino 2,880,951 63.17%

Aboitiz Equity Ventures, Inc. (“AEV”) is a publicly listed company and as of March 31, 2009, Aboitiz and Company, Inc. (“ACO”) owns 43.48% 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. Security Ownership of Management – Record and Beneficial Owners as of March 31, 2009:

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.

0.06%

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

0.07%

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”

0.04%

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Record Owner: Amayana Mgt. & Dev.

Common Justo A. Ortiz Director


Common Sabin M. Aboitiz Director

Filipino 1,019,562 – “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 Miguel A. Camahort SVP-COO 2GO Solutions


Common Shelley U. Rapes VP-Information Technology


Common Magdalena A. Anoos VP-Materials Management Division


Common Maribeth L. Marasigan SVP & CRO-Business Support & 2GO Brand Management

Filipino 191,893– “direct” 0.01%

Common Norissa L. Ridgwell VP-Freight Operations

Filipino 162,721 – “direct” 24,517 – “indirect”

Record Owner: PCD Nominee Corporation (Filipino)

0.01%

TOTAL 4,880,934”direct”; 5,689,328“indirect” 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 10,570,262 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.

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 77.10% and 15.93 % 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.

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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 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. The 49% equity stake shall include the 7% equity stake of the public in ATS. Under the present agreement, which is expected to close on or before April 30, 2009, the purchase price will be 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 provides an option for KGLI-NM to acquire the remaining 51% equity stake of AEV and ACO anytime from 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. 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 is 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 will be determined based on the dollar exchange rate on closing date, which is expected to occur on April 30, 2009. KGLI-NM shall be entitled to such number of board seats as is proportionate to the number of shares that they will eventually acquire in ATS in accordance with the regulations of the Securities and Exchange Commission and the Philippine Stock Exchange.

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:

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DIRECTORS

Mr. Jon Ramon M. Aboitiz, 60 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 Nominations Committee and the Remuneration and Compensation Committee and starting January 22, 2009, a member of the Company’s Audit Committee. He is also Chairman of the Board of Directors of Aboitiz Equity Ventures, Inc., Aboitiz Power Corporation and Aboitiz and Company, Inc. Other positions include: Chairman of the Board of Directors of Aboitiz Energy Solutions, Inc., Pilmico Foods Corporation, Philippine Hydropower Corporation, Aboitiz Jebsen Bulk Transport Corporation; Vice Chairman of the Board of Directors of Union Bank of the Philippines and Visayan Electric Company, Inc.; Director of Davao Light and Power Company, Inc., San Fernando Electric Light and Power Company, Inc., Cotabato Light and Power Company, Cotabato Ice Plant, Inc.; Chairman of the Board of Trustees 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, 53 years old, Filipino, has served as Vice Chairman of the Board of ATS since September 2002. Mr. Gothong is also a member of the Company’s Audit 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., 55 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 Nominations Committee and the Remuneration and Compensation Committee. He is also Director and Senior Vice President of Aboitiz and Company, Inc; Director and President of Aboitiz Jebsen Bulk Transport Corporation; Director of Aboitiz Equity Ventures, Inc. Aboitiz Power Corporation, Aboitiz One, Inc., Amanpulo Resorts, MacroAsia Corporation, E-Media Foundation, Pilmico Foods Corporation and Aboitizland, Inc. 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

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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, 59 years old, Filipino, has been a Director of ATS since September 2002. He is an Audit Committee member. He is concurrently a Director and Senior Vice President of Aboitiz and Company, Inc.; Chairman and Chief Executive Officer of Aboitiz Construction Group, Inc., FBMA Marine, Inc. and Aboitizland, Inc.; Chairman of the Board of Directors of Balamban Enerzone Corporation, Mactan Enerzone Corporation, Cebu Industrial Park Developers, Inc. and Cebu Industrial Park Services, Inc.; Director of Aboitiz Equity Ventures, Inc., City Savings Bank, Cotabato Light and Power Company, Davao Light and Power Co., Inc., Tsuneishi Heavy Industries (Cebu), Inc., and Visayan Electric Company, Inc. He graduated from Ateneo de Manila University with a Bachelor of Arts degree in Behavioral Science. Mr. Justo A. Ortiz, 51 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. Prior to his stint in UBP, he was Managing Partner for Global Finance and Country Executive for Investment Banking at Citibank N.A. He graduated Magna Cum Laude with a degree in Economics from Ateneo de Manila University and completed his Masteral units in Business Administration in the same university. Mr. Sabin M. Aboitiz, 44 years old, Filipino, has been a Director of ATS since September 2002. His other positions include: President and Chief Executive Officer of Aboitiz One, Inc.; Director of Aboitiz and Company, Inc., Aboitiz Jebsen Bulk Transport Corporation, Reefer Van Specialist, Inc., and SN Aboitiz Power. Previous positions include: Marketing Manager, Assistant Vice President for Marketing, Vice President and Executive Vice President for TS Express, Senior Vice President and Chief Operating Officer of Aboitiz Air Transport Corporation. He graduated with a degree in Bachelor of Science in Business Administration, Major in Finance at Gonzaga University, Spokane, Washington U.S.A. Mr. Washington Z. Sycip, 87 years old, American, has been an Independent Director of ATS since 1996 and Audit Committee Chairperson since 2003. 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

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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, 61 years old, Filipino, nominated as Independent Director of ATS since 2008. She is a member of the Company’s Compensation & Remuneration Committee and of the Nomination Committee. She is a Director of Bank of the Philippine Islands and Pioneer Insurance. She is 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 President of the Foundation for Communication Initiatives and is a Trustee of Museo Pambata (Children’s Museum), Children’s Hour Inc., Philippine Board on Books for Young People and Philippine Eagle Foundation. She is a founding member of the Women’s Business Council. She has been a consultant and Chairman-Emeritus at McCann Manila from 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, 48 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 University. Atty. Catherine R. Atay, 30 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 (formerly: Fil-Am Foods, Inc.), Davao Light and Power Corporation, Cotabato Light and Power Corporation, Aboitiz Construction Group and Metaphil International. 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, 49 years old, Filipino, Treasurer, Executive Vice President - Chief Finance Officer, Corporate Information Officer since June 2004. She has been with the

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Aboitiz group since 1979. Previous positions in ATS include: Director of SuperCat Fast Ferry Corporation and Senior Vice President and Chief Finance Officer of Aboitiz One, Inc. She graduated with degree in Bachelor of Science in Commerce, Major in Accounting (Summa Cum Laude) at University of San Carlos and earned her Master degree in Business Management at the University of the Philippines. Ms. Susan V. Valdez, 48 years old, Filipino, Executive Vice President - Chief Executive Officer of the Freight Division since January 2004. 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, 56 years old, Filipino, Executive Vice President – Chief Resource Officer since May 1999, and Chief Executive Officer of the Passage Division since June 2004. Her other positions include Director of Catena Services, Inc. and SQL Wizard, Inc. She graduated with B.A. in Economics at St. Paul University.

Mr. Miguel A. Camahort, 46 years old, Filipino, Senior Vice President and Chief Operating Officer of the Express Division in Aboitiz One, Inc. since October 2004. He has been with the Aboitiz group since 1995. Previous positions in ATS include: Senior Vice President for Operations of Aboitiz One, Inc., Senior Vice President and Chief Operating Officer of Supply Chain Management; Senior Vice President and Chief Operating Officer of Freight Division. He graduated with a degree in Business Management and Economics from the Notre Dame College, Belmont, California. Mr. Rafael L. Sanvictores, 51 years old, Filipino, Senior Vice President –Hotel Operations since May 2006. He has been with the Aboitiz group since 1980. Previous positions in ATS include: Senior Vice President and Chief Operating Officer - SuperFerry Group; Senior Vice President and Chief Operating Officer - Passage Division and Assistant Vice President for Forwarding Operations, Sales and Aboitiz Inland Concarriers, Inc. He graduated with a degree in Bachelor of Science in Economics at San Beda College. Mr. Ramon G. Villordon, Jr., 56 years old, Filipino, President of SuperCat Fast Ferry Corporation 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. and is one of the Commissioners of Cebu Ports Authority (private sector representative). He graduated with a degree in Bachelor of Science in Business Management at University of San Carlos.

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Mr. Wilmer Jose A. Alfonso, 56 years old, Filipino, Vice President of Ports Services since May 2006. He has been with the Aboitiz group since 1971. Other positions in 2007 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 Chairman of the Board of Attina Security 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, 52 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; Finance Vice-President of 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.

Ms. Maribeth L. Marasigan, 46 years old, Filipino, Senior Vice President and Chief Resource Officer of Business Support and 2GO Brand Management since June 2008. She has been with the Aboitiz group since 1986. Previous positions in ATS include: Vice President of Projects and 2GO Brand Management; Vice President of Revenue Management; Vice-President of Aboitiz One, Inc. She graduated with a degree in Business Administration in Communication Arts, a consortium course from Saint Scholastica's College and De La Salle University. Ms. Charity Joyce S.D. Marohombsar, 42 years old, Filipino, Vice President of Customer Interaction Center since May 2003 and VP for 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, 53 years old, Filipino, Vice President of Freight Operations since October 2005. She has been with the Aboitiz group since 1994. Previous positions include: Vice President and Human Resource Director of ATS; Chief Operating Officer, Vice President for Sales and Marketing of Hapag Lloyd Philippines; and Head of JOSS Asian Feeders. She graduated with a degree in Bachelor of Science in Commerce Major in Management at Silliman University. Ms. Shelley U. Rapes, 50 years old, Filipino, Vice President of Information Technology since July 2005. 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

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University of San Carlos, and finished the 3-month Management Development Program of the Asian Institute of Management. Ms. Annacel A. Natividad, 39 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 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, 58 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, 51 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. Nomination Committee and Nominees for Election as Members of the Board of Directors The incumbent directors will be nominated as members of the Board of Directors for the ensuing year (2009-2010).

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. The current Nomination Committee is composed of the following directors: (1) Mr. Jon Ramon M. Aboitiz as chairman, (2) Mr. Enrique M. Aboitiz, Jr. as member and (3) Ms. Emily A. Abrera, an independent director, as member. The 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 (2009-2010): (1) Mr. Washington Z. Sycip as nominated by Mr. Erramon I. Aboitiz (2) Ms. Emily A. Abrera as nominated by Mr. Enrique M. Aboitiz Jr.

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The nominating persons are not related to the nominees within the fourth degree of consanguinity. Further, the Commission approved last July 20, 2005 the Company’s Amended By-Laws incorporating the procedures for the nominations and elections of Independent Directors to be followed shall be in accordance to Rule 38 of the Securities Regulation Code. 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 considers 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 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, of 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 ship management services, charter hire, management 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 21 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.

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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.

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 CHIEF RESOURCE OFFICER

SUSAN V. VALDEZ – CHIEF EXECUTIVE OFFICER – FREIGHT

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

MIGUEL A. CAMAHORT – SVP–COO 2GO SOLUTIONS

2007 17,395 2,989 - 2008 19,728 3,288 -

All above named officers as a group

Projected 2009

22,372 3,729 -

2007 16,175 2,696 - 2008 21,648 2,214 -

All officers and directors as group unnamed

Projected 2009

23,911 2,545 -

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. All of ATS directors effective February 1, 2008 receive a monthly allowance of P 80,000.00 per month. In addition, each director receives P 30,000 per diem for every Board meeting attended. Except for benefits under 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-

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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.

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. The Audit Committee is composed of three Board members, namely, Washington Z. Sycip, chairperson and Jon Ramon R. Aboitiz and Bob D. Gothong, members.

In 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. The proposal is intended to give the Board Audit Committee sufficient time to evaluate the different auditing firms who have submitted engagement proposals to act as ATS' external auditor for 2009. 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 SEC Memorandum Circular No. 8 Series of 2003. (1) External Audit Fees and Services

Estimates for

December 31, 2009 Year ended

December 31, 2008 Year ended

December 31, 2007 Audit Fees P 1,240,000 P 1,240,000 P 1,240,000 Audit-Related Fees 300,000 300,000 300,000 All Other Fees 60,000 60,000 60,000

TOTAL P 1,600,000 P 1,600,000 P 1,600,000

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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. 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 Committee. The Audit 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.

C. OTHER MATTERS

Item 8. ACTION WITH RESPECT TO REPORTS

The minutes of the last annual stockholders’ meeting held on May 22, 2008 and the Annual Report of Management for the year ended December 31, 2008 will be submitted to the stockholders for their approval. Item 9. MATTERS NOT REQUIRED TO BE SUBMITTED All corporate actions to be taken up at the annual stockholders’ meeting this May 28, 2009 will be submitted to the stockholders of the Registrant for their approval in accordance with the requirements of the Corporation Code.

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Item 10. 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 28, 2008 through March 26, 2009 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. treasury matters related to the opening of accounts (including joint accounts),

transferring funds to employees payroll account through debit advice, and other appropriate transactions with banks and non-bank financial intermediaries;

ii. appointment and/or removal of signatories to operate accounts with banks and non bank financial institutions, and amendments thereto;

iii. approval for the availment by the Registrant of certain credit facilities, loans, bills purchase lines, foreign exchange lines, omnibus line, credit accommodations, check cutting services, products, and/or electronic facilities/systems of various banks and/or non-bank financial institutions;

iv. authority given to the Registrant’s subsidiaries and/or affiliates to avail of credit facilities extended to the Registrant;

v. authority given to the Registrant to act as a 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;

vi. authority given to the Registrant to apply with the appropriate utility companies for the Registrant’s power and water utility needs;

vii. approval for the acquisition (including to participate in related bidding process, if applicable), lease, bareboat charter, charter (including extension thereof), financing, transfer, assignment, rent, mortgage, repair and maintenance, drydock, and/or disposition of vessels, trailers and other real and/or personal properties of the Registrant (including to lease out spaces on board the Registrant’s vessels to allow the installation of antenna facilities);

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viii. authority to secure, on full settlement of the Registrant’s obligations, the release and discharge of mortgages that were constituted over the Registrant’s assets in favor of the lender;

ix. authority to enter into certain arrangements with the Development Bank of the Philippines in connection with loans extended to subcontractors of the Registrant provided the Registrant does not in any way or manner assume any obligation to act as guarantor and/or surety for the benefit of such subcontractors;

x. appointment, election, and/or removal of corporate officers and agents as well as members of the Registrant’s board committees;

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

xii. approval of the consolidated audited financial statements of the Registrant for the year ended December 31, 2008;

xiii. approval for securing temporary advances from the Registrant’s parent company and members of the Aboitiz Group of Companies to meet working capital requirements of the Registrant;

xiv. approvals related to regulatory proceedings concerning the Registrant and/or its assets that were before the relevant government offices such as the Intellectual Property Office, Board of Investments, the Bureau of Customs, the Maritime Industry Authority, the Philippine Ports Authority, the Bureau of Internal Revenue, the Philippine Stock Exchange, the Securities and Exchange Commission and/or relevant offices of city governments (e.g., Office of the Building Official, City Zoning Department);

xv. appointment of broker in connection with transactions involving shares of third party companies registered in the name of the Registrant; and

xvi. appointment of Registrant’s proxy at the stockholders’ meetings of its subsidiaries and/or affiliates.

b. Minutes of Stockholders Meeting held last May 22, 2008.

During the Annual Stockholders Meeting held last May 22, 2008, stockholders representing at least two-thirds of the outstanding capital stock of the Corporation approved the following:

1) Amendment to the Seventh Article of the Articles of Incorporation,

reclassifying 70,343,670 redeemable preferred shares into common shares so that the authorized capital stock of the Registrant remains at P4,074,908,000.00 but shall consist of 4,070,343,670 common shares with a par value of P1.00 per share and 4,564,330 redeemable preferred shares with a par value of P1.00 per share;

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2) Revocation of previous resolutions decreasing the authorized capital stock to P4,004,564,330.00 as a result of the conversion of 70,343,670 redeemable preferred shares into common shares and retiring the same.

3) 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.

Item 12. 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

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;

iv. All Acts and Resolutions of the Board of Directors and Management since March 28, 2008; and

v. Delegation to the Board of Directors of the authority to Appoint the External Auditors of the Registrant.

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

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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 14, 2009.

Lilian P. Cariaso Corporate Information Officer

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2008 MANAGEMENT REPORT

1 I. Consolidated Audited Financial Statements The Consolidated Audited Financial Statements for the year ended and as of December 31, 2008 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:

Revenues – ATS revenues are mainly composed of freight and passage revenues and they are recognized when the related services are rendered. Total Revenue in 2008 is P10.3 billion compared to P8.2 billion in 2007.

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 2008 is P947.1 million.

Income before income tax (IBT) – is the earnings of the company before income tax expense. The Income Before Income Tax for 2008 is P119.3 million, 80% lower compared to P602.9 million in 2007 mainly because of vessel and other assets sales of P748.9 million in 2007.

Debt-to-equity ratio – is determined by dividing total liabilities over stockholders’ equity. ATS’ debt-to-equity ratio in 2008 is 1.05:1:00.

Current ratio – is measured by dividing total current assets by total current liabilities. The Company’s current ratio in 2008 is 0.89:1:00. The following table shows comparative figures of the Top Five key performance indicators (KPI) for 2008, 2007 and 2006 (amounts in millions except for the financial ratios) based on the consolidated financial statements of ATS as well each of its subsidiaries:

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FY2008 FY2007 FY2006

Total Revenues 10,273 8,204 8,800 EBITDA (a) 947 947 1,235 IBT (b) 119 603 150 Debt-to-equity ratio 1.1:1.0 0.9:1.0 1.1:1.0 Current ratio 0.9:1.0 0.9:1.0 1.0:1.0 Aboitiz One, Inc. and Subsidiaries FY2008 FY2007 FY2006 Revenues 2,987 1,701 1,201 EBITDA (a) 219 142 64 IBT (b) 139 67 1 Debt-to-Equity Ratio 3.9:1.0 2.6:1.0 1.8:1.0 Current Ratio 0.9:1.0 1.1:1.0 1.1:1.0

Zoom-In-Packages, Inc.

FY2008 FY2007 FY2006 Revenues 1,208 924 754 EBITDA (a) 211 177 128 IBT (b) 189 157 114 Debt-to-Equity Ratio 1:1.0 0.8:1.0 1.1:1.0 Current Ratio 1.7:1.0 1.9:1.0 1.4:1.0 Aboitiz Jebsen Bulk Transport Corporation and Subsidiaries FY 2008 FY 2007 FY 2006 Revenues 223 186 178 EBITDA (a) 53 47 47 IBT (b) 75 38 37 Debt-to-Equity Ratio 4.7:1.0 2.4:1.0 2.9:1.0 Current Ratio 1.1:1.0 1.2:1.0 1.2:1.0 Jebsen Maritime, Inc. FY 2008 FY 2007 FY 2006 Revenues 174 154 103 EBITDA (a) 27 21 11 IBT (b) 11 12 4 Debt-to-Equity Ratio 34.9:1.0 39.6:1.0 35.9:1.0 Current Ratio 1:1.0 1.0:1.0 0.9:1.0

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Aboitiz Jebsen Manpower Solutions, Inc. FY 2008 FY 2007 FY 2006 Revenues 11 8 6 EBITDA (a) 6 5 2 IBT (b) 5 5 2 Debt-to-Equity Ratio 3.9:1.0 1.3:1.0 2.0:1.0 Current Ratio 1.1:1.0 1.5:1.0 1.0:1.0 Jebsen Management (BVI) Ltd. FY 2008 FY 2007 FY 2006 Revenues 2,236 2,556 1,547 EBITDA (a) (10) 10 (27) IBT (b) (15) 2 (33) Debt-to-Equity Ratio 88.3:1.0 76.2:1.0 26.6:1.0 Current Ratio 1:1.0 1.0:1.0 1.0:1.0

SuperCat Fast Ferry Corporation FY 2008 FY 2007 FY 2006 Revenues 377 375 357 EBITDA (a) 42 45 6 IBT (b) (19) 30 (25) Debt-to-Equity Ratio 11.7:1.0 3.9:1.0 12.6:1.0 Current Ratio 0.1:1.0 0.4:1.0 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 or losses).

b) Income before income tax

Fiscal Year 2008 versus 2007 Consolidated Income Statement Aboitiz Transport System (ATS) ended the year 2008 with consolidated revenues of P10.3 billion, a 25% increase versus P8.2 billion in 2007. Freight business contributed P5.4 billion in revenues in 2008, a 22% or P956 million increase from P4.4 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

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2008, capacity remained at the same level as last year with close to 250,000 TEUs, at 88% utilization rate. Passage business reduced by P63 million to register at P2.9 billion revenues (inclusive of auxiliary income) from P2.95 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 3.0 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 45% increase in service fees revenues to P674.6 million and 418% increase in sale of goods to P1.2 billion in 2008. Total costs and expenses jumped 23% 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 sales directly related to the supply chain business also registered an increase with the acquisition of SOI. ATS’ other income totaling P192.3 million is much lower than last year’s of P796.7 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) remained the same level as last year at P947.1 million. ATS registered P106.0 million in net income from continuing operations and P6.6 million net losses from the disposal group representing the Aboitiz Jebsen group. The Aboitiz Jebsen group is not part of the proposed buy-out by KGLI-NM Holdings, Inc. (KGLI-NM). 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 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

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per share for 2008 stood at P0.03/share, whilst earnings per share for continuing operations stood at P0.04/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 shall include the 7% equity stake of the public in ATS. Under the present agreement, which is expected to close on or before April 30, 2009, the purchase price will be 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 provides an option for KGLI-NM to acquire the remaining 51% equity stake of AEV and ACO anytime from 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. KGLI-NM shall make a tender offer for the ATS shares held by the public in accordance with the rules under the Securities Regulation Code. As of 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 is 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 will be determined based on the dollar exchange rate on closing date, which is expected to occur on April 30, 2009. KGLI-NM’s intention to proceed with the purchase of US$30 million worth of ATS shares from AEV and ACO is 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 P1.6 billion decreased by 13% as a result of lower non-trade receivables despite the increase in its trade receivables by P594 million or 21% 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.

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Total liabilities reached P4.8 billion, 17% higher compared to 2007. The increase was a result of higher Interest bearing debt which 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 was 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 P860.3 million. Material Changes (+/- 5% or more) in the Financial Statements Income Statement

22% 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.

45% higher service fees revenues from logistics, warehousing and sales merchandise.

20% increase in other revenues is due to overall higher passage auxiliary revenues. 25% increase in total revenues largely from the increase in freight revenues 12% 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. 23% higher overhead expenses brought about by the 12% increase in personnel cost

which comprises the bulk of the company’s overhead 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. 652% 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. 19% lower net finance costs due to lower interest bearing debt for the year. 145% lower net foreign exchange gain is due to the weakening of the peso against the

dollar throughout the year.

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1104% higher equity in net losses of associates is due to the Company’s share in MCC Philippines’ net loss.

34% higher other income is largely attributable to management fee income rendered to third party entities.

92% 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

13% lower net receivables due to lower non-trade receivables 28% higher inventories because of higher materials, parts and supplies and higher

fuel inventory. 113% increase in loans payable mainly to finance the expansion of its supply-chain

business 6% lower accounts payable and other current liabilities largely due to P128 million

decrease in trade payables 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. Given this, 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 2009, ATS estimates over P1 billion in capital expenditures. The bulk of these expenditures are earmarked for the maintenance of vessels. It is a policy of the company for vessels to be drydocked every 30 months. ATS will continue to right-size and replace old tonnage and has planned to purchase a vessel for its Cebu Ferries brand. It has made a 10% down payment equivalent to JPY 14.0 million for the purchase. 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

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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) 2008 was a challenging year with declining global financial and equity markets. Until the economy begins to improve, ATS will likely continue to experience declining volumes. As markets contract, the business climate will become more competitive. These factors may have an unfavorable impact on our financial performance. Outlook Strategies implemented in recent years have served the Company well. Earning capacity of assets is maximized, costs are lowered, and its value-added businesses are gaining market acceptance. ATS believes its operating environment continues to be a challenging one as it faces uncertainties such as fuel prices and the purchasing power of its customers. Efforts are continuously placed on operational excellence at all levels of the organization with the aim of providing solutions to its customers ATS believes its operating environment continues to be a challenging one as it faces uncertainties such at the lowest cost.

Fiscal Year 2007 versus 2006

Consolidated Income Statement ATS registered total consolidated revenues of P8.2 billion lower versus P8.8 billion in 2006. Earnings before interest, taxes, depreciation and amortization (EBITDA) stood at P946.6 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, freight and passage revenues each decreased 11% and other revenues decreased 34%. 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.

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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 100% and generated revenues from sale of goods P224.5 million. ATS continued to collaborate with customers to provide value added services through integrated logistics 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 82%, from P334.7 million to just P61.5 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 P440.8 million and a net loss P2.1 million was registered from the disposal group representing the Aboitiz Jebsen group. 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 with earnings per share for continuing operations at P0.18/share. This is higher versus 2006 because of higher net income. Consolidated Balance Sheet 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

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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. 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. Consolidated Cash Flow 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

11% decrease in freight revenues is due to lower capacity from the sale of three SuperFerry vessels

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.

100% increase in service fees generated primarily from the increase in Aboitiz One Distribution, a new company that started operating in January of 2007.

9% decrease in operating expenses due to 24% lower fuel cost 82% 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 71% higher income tax primarily because of higher taxable income.

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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.

20% decrease in inventories is due to the reduction of fuel and lubricants by 53% 30% decrease in property and equipment is due to the sale of three vessels

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. Given this, ATS is constantly looking for ways to reduce fuel consumption to lessen the impact of the increasing fuel prices on the bottom line. (ii) 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) There are no known trends, events or uncertainties that have had or that are reasonably expected to have a material favorable or unfavorable impact on the company’s financial performance.

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Fiscal Year 2006 versus 2005 Consolidated Income Statement ATS posted total consolidated Revenues of P8.8 billion in 2006. Its freight business constituted the bulk of the revenues at 57% or P5.0 billion. It reflected a slight 2% drop versus 2005 due to reduction in fleet capacity. Likewise, ATS’ passage business reflected an 18% decline against last year to register at P3.02 billion in 2006. Aggressive promotions from the airlines have contributed to lower passage volumes and rates. Total costs and expenses decreased by approximately P245 million to P8.8 billion from P9.1 billion in 2005 as a result of various cost cutting initiatives established as early as 2 years ago. Fuel and lubricants expenses, its single largest expense, remained almost unchanged from P3.3 billion in 2005 to P3.4 billion in 2006, despite a 14% rise in fuel prices. Terminal and Overhead Expenses each reduced by 12% versus last year. Among the major contributors to the decrease in these expenses, were the 30% decline in the cost of outside services and 12% decline in personnel costs. ATS’ overall lower costs resulted in increased operating efficiencies across the organization. ATS continued to focus on enhancing shareholder value and was committed to having positive cash flows and strengthening its financial position. During the period under review, various assets were sold, including three vessels, which generated gains of P226.4 million. Also, in line with its strategy of focusing on its core business, ATS also sold its entire shareholdings in Davao Integrated Port and Stevedoring Services Corporation (DIPPSCOR), generated gains of P262.3 million. Proceeds of these sales were utilized to pay down debt, thus resulting in a 10% lower Finance Costs from P369.9 million in 2005 to P334.7 million in 2006. ATS registered P197.3 million in net income attributable to holders of parent in 2006. Income Before Income Tax of P150.1 million was 30% higher compared to 2005, mainly from overall lower costs, expenses and higher other income. ATS also recognized a net benefit from income tax of P109 million. Net income from continuing operation for the year stood at P259.0 million whilst net loss from the disposal group representing the Abojeb Jebsen group stood at P67.2 million. Net Income directly attributable to the equity holders of the parent company registered P197.3 million. This was 370% higher versus P42 million in 2005 because of vessel sales. 2006 earnings per share stood at P0.08/share. Earnings per share for continuing operations stood at P0.11/share.

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Consolidated Balance Sheet Consolidated assets of the Company reached P10.3 billion, a 9% decrease from its asset level in 2005 of P11.3 billion. Total current assets reflected a 26% increase, from P3.6 billion in 2005 to P4.6 billion in 2006. One of the major contributors to the rise in current assets was the Company’s non-trade receivable of P186.0 million from Abbotsford Holdings, Inc. in relation to the sale of DIPPSCOR. ATS registered P659.5 million in Noncurrent Asset Classified as Held For Sale. This represents the Company’s SuperFerry 17 vessel, which the Company sold as per Memorandum of Agreement (MOA) dated November 13, 2006. The expected delivery date to the buyers was in the second quarter of 2007. The Company’s net Property and Equipment reduced by P2.1 billion largely due to the sale of four vessels. The Company reduced its total liabilities by P1.4 billion from P6.9 billion in 2005 to P5.5 billion in 2006. Total interest bearing debt stood at P2.3 billion, a P1.2 billion or 34% reduction over last year. This reduction enabled the Company to lower interest expense by 9% versus last year. Accounts payable & other current liabilities slightly decreased by 4% primarily due to the decrease in trade payables. Liabilities directly associated with the asset classified as held for sale of P455.0 million pertains to the bank loans directly related to SuperFerry17 asset classified as held for sale until its delivery to its buyers in the second quarter of 2007. The Company also reduced its Redeemable Preferred Shares (RPS) from P200.3 million to P13.8 million. In July 27, 2006, the Board of Directors of the Company approved the call to all preferred shareholders to convert at their option preferred shares into common shares at a conversion price of 2 common shares for every 1 RPS held. Consequently 70,343,670 million RPS or 94% of the outstanding RPS of the Parent Company were converted to common shares. As a result of the conversion, the capital stock of the company increased P140.7 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 stock issued was credited to “Capital in excess of par value’ amounting to P67.2 million.

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Total Stockholders Equity stood at P4.8 billion, a 9% increase from last year of P4.4 billion. Similarly, retained earnings also registered a 16% increase due to higher net income of the company. Consolidated Cash Flow Total net cash generated from operations amounted to P854.7 million. The Company internally funded all of its capital expenditures totaling P538.5 million. The Company also received proceeds from the disposal of assets and from the sale of DIPPSCOR of P1.2 billion. The proceeds were mostly utilized to liquidate debt. For the year-end December 31, 2006, total loan payments (inclusive of financial leases) amounted to P1.5 billion. Likewise, interest amounting to P335.2 million was also paid out. Cash and Cash equivalents at fiscal year ending December 31, 2006 stood at P992.6 million. 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. Given this, ATS is constantly looking for ways to reduce fuel consumption to lessen the impact of the increasing fuel prices on the bottom line. (ii) 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.

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(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) There are no known trends, events or uncertainties that have had or that are reasonably expected to have a material favorable or unfavorable impact on the company’s financial performance. 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 (ATS) 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

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Aboitiz-Jebsen group of companies. As of December 31, 2008, ATS has a total fleet of 20 operating vessels calling on 22 ports throughout the country. It is majority-owned by Aboitiz Equity Ventures (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. Brand Structure

Corporate Structure ATS has 8 operating subsidiaries and affiliates, Aboitiz One, Inc. (A-One), 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).

http://www.aboitizequityventures.com/

S

Jebsens Maritime, Inc .

Aboitiz Jebsen Manpower Solutions, Inc.

Jebsen Managem(BVI) Ltd

62.5%

62.5% 62.5%

Many companies work together to brinon our brand promises. There are instprovide the products and service offerhas evolved into a total supply chain so 1. Aboitiz One, Inc. and Subsidiaries (A A-One was incorporated on July 20, 197 It is in the business of offering supply A-One’s operation is supported by a l140 delivery vans, 45 motorcycles, 176prime movers and trailers. The compvarious strategic locations nationwideSupply chain solutions include warehmerchandising and trade marketing.

A-One Subsidiaries

Hapag-Lloyd Philippines, Inc. (H HLP was incorporated on April 2 It is in the business of acting asshipping container line engageLloyd Container Line AG provid

Aboitiz Transport ystem Corporation

Aboitiz One Inc.

The SuperCat Fast Ferry Corp

100% 100%

Aboitiz JebsenBulk Transport Corp

39

ent

Zoom In Packages, Inc.

100% 50% 33%

MCC Transport Philippines, Inc

g the brands of ATS to life. They enable us to deliver ances when two or more companies work together to ed by a single brand, such as the case of 2GO, which lutions provider.

-One)

8. It is 100% owned by ATS.

chain solutions in accordance with customers’ needs. ogistical backbone which comprises 3 YS-11 aircraft,

trucks and vans, 176 refrigerated trucks and vans, any has more than 237 retail outlets and agents at

, providing customers easy access and convenience. ousing services, transport and logistics, sales and

LP)

3, 1992. It is 85% owned by A-One.

an agent of Hapag-Lloyd Container Line AG, a global d in global door-to-door container transport. Hapag-es global shipping services to major trade lanes such

40

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 A-One. 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 A-ONE and Hansameyer Freight Forwarders 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. It is 100% owned by A-One. 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 on January 10, 2007. It is 100% owned by A-One. It is in the business of trading, distribution, logistics and warehousing services. Scanasia Overseas, Inc. (SOI) SOI was incorporated on June 13, 1985. It is 100% owned by A-One. 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.

2. Aboitiz Jebsen Bulk Transport Corp. (Abojeb) Abojeb was incorporated on May 13, 1966. It is 62.5% owned by ATS.

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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. 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.

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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. Zoom-In-Packages, Inc. (ZIP) ZIP was incorporated on June 6, 2002. It is 100% owned by ATS. It is in the business of supply chain management, specifically in the movement of loose cargoes (less container load). 8. 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. Vessel Fleet As of December 31, 2008, ATS has a total fleet of 20 operating vessels, 17 of which are company-owned ships. The fleet consists of 6 fast crafts under the brand name ‘SuperCat’, 11 RoRo/Pax vessels including 6 under the ‘SuperFerry’ brand, 5 vessels under ‘Cebu Ferries’ brand, 1 chartered freighter and 2 vessels operating under its subsidary, MCC Philippines, Inc. ATS vessel fleet has a combined Gross Registered Tonnage of approximately 106,350 metric tons, total passenger capacity of approximately 16,152 passengers and aggregate cargo capacity of approximately 3,011 twenty-foot equivalent units (TEUs). 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, Cagayan de Oro, Calapan, Cebu, Coron, Cotabato, Davao, Dipolog, Dumaguete, General Santos, Iligan, Iloilo, Jagna, Manila, Nasipit, Ormoc, Ozamis, Puerto Princesa, Surigao, Tagbilaran, and. Zamboanga,

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Market Share As of December 2008, ATS continues to dominate the Philippine Sea Travel with 62% market share in the passenger ferry service and 32% market share in the passenger fast craft service specifically in ports that they serve. Freight market share is estimated at 27%. 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. 10-16.

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, March 31, 2009, the market price of the Company’s common stock is P1.62 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

2009 First Quarter 2008 First Quarter Second Quarter Third Quarter Fourth Quarter 2007 First Quarter Second Quarter Third Quarter Fourth Quarter

1.62

1.30 1.16 1.90 1.66

1.88 1.92 2.14 1.50

1.36

1.14 1.00 1.00 1.42

1.24 1.52 1.30 1.18

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B. Stockholders The number of common shareholders of record as of March 31, 2009 was 2,169. The top 20 common stockholders as of March 31, 2009, 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) 74,150,320 3.03 4. PCD Nominee Corporation (Non-Filipino) 24,924,358 1.02 5. Francis C. Zosa, Jr. 9,451,000 0.39 6. China Banking Corporation 4,882,130 0.19 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 2006, 2008 and the first quarter of 2009. 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 last 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. VII. Corporate Governance Our board of directors, officers and team members are collectively committed to raise the bar of our corporate governance by focusing on doing what is right, the best way we can. Our attitude is to make a difference in the service we deliver to the nation.

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We uphold and abide by the corporate governance principles of: 1) transparency of operational decisions; 2) sustainability through a long-term approach to strategic decision making; 3) robust and effective risk management practices; and 4) efficiency and effectiveness of internal control systems. Structure and Programs ATS sees corporate governance as a way to increase shareholder value and ensure long term sustainability. Its model is designed to ensure that operative results correspond to decisions made, and is structured to encourage all team members to strive, within set boundaries, towards the same goals, with a common clear understanding of direction, shared values, roles, responsibilities and authority to act. Manual As part of the corporate governance mandate and in compliance with the Philippine Securities and Exchange Commission’s Resolution No. 135, the Board created a Manual on Corporate Governance in November 2002 with effectivity date of January 2003. The aim of the manual is to encourage transparency while ensuring that appropriate checks and balances are in place. It also established a Code of Business Conduct (Code) which includes a conflict of interest policy to ensure the transparent and fair dealings of ATS, its management and employees, with all its stakeholders, including suppliers and outsource providers. It does an annual review and audit of our compliance and implementation program. Improvement Program In 2008, we launched our corporate governance improvement program with the objective of embedding a culture of transparency, fairness and accountability into our day-to-day operations. We started this by enhancing our gender parity principles. Our senior management team of 16 people currently includes 10 women. For the very first time, a woman also joins its board of directors. To further increase transparency, we redesigned the investor relations section of the website so investors and other stakeholders have better access to important news and information about the condition and programs of ATS. Corporate governance training is a continuous process thru the internal audit activity. Corporate governance and risk management activities are also regular agenda in the board audit committee meetings. Board at Work The board is a highly synergistic team and according to ATS independent director, Mr. Washington Z. Sycip, “one of the most active boards I’ve seen.” It is fully aware of the risks and issues affecting its operations, and takes pro-active steps to mitigate the risks it faces. This helped ATS rise above the difficulties the industry met in 2008 and bring the company on higher ground with better profits.

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The Board is responsible for (1) charting the strategic direction of ATS; (2) ensuring success within a framework of acceptable risks and effective control, and in compliance with its articles of incorporation and by-laws, relevant laws, regulations, guidelines and directives; (3) reviewing management performance; (4) ensuring that the necessary financial and human resources are available to meet the objectives of ATS; (5) succession planning, including appointing and fixing the remuneration of and, where appropriate, replacing senior management; (6) creating an environment of transparency, openness and fairness in all its transactions and dealings both internally and externally; and (7) ensuring that the corporate image and brand supports and aligns with the ATS governance principles. It is comprised of seven non-executive directors that include the Chairman, and two executive directors. The non-executive directors ensure that matters and issues brought up to the Board are fully discussed and examined taking into account the interest of all ATS stakeholders. The appointment of a non-executive chairman and the clear division of the roles and responsibilities between the Chairman and the Chief Executive Officer further ensure that there is a balance of power and authority. The Board also includes two independent directors namely, Washington Z. Sycip and Emily A. Abrera, who are both highly competent and reputable. The company defines Independent Directors as free from any business or relationship that could affect their judgment in carrying out their functions as directors of ATS. The board meets monthly or as often as necessary to fulfill its role. In 2008, the board met a total of twelve (12). Board Committee.In order to ensure the effective discharge of its fiduciary duties, the Board has delegated specific responsibilities to the Board Committees below. Audit Committee. The Audit Committee is composed of three Board members, namely, Washington Z. Sycip, chairperson and an independent director, Jon Ramon R. Aboitiz and Bob D. Gothong. It has been the guardian of the responsible and transparent financial and operational reporting of ATS. It is responsible for inculcating in the minds of the Board members the importance of management responsibilities in maintaining a sound system of internal control and the Board’s oversight responsibility over controls and risk management. Some of its functions as stated in the Code include providing oversight over the business risk management process, overseeing the execution of internal and external audits, reviewing and approving the audit scope with the external auditor before the audit commences, and elevating to international standards the accounting and auditing processes, practices and methodologies. A more detailed discussion of its activities is found in the Audit Committee report. Nomination Committee. The Nomination Committee is composed of at least three Board members, namely, Jon Ramon M. Aboitiz, Chairman, Enrique M. Aboitiz, and Emily A. Abrera,

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an independent director. It pre-screens and shortlists all candidates nominated to become a member of the Board in accordance with a list of qualifications and disqualifications as stated in the Code. In consultation with the executive or management committees, it re-defines the role, duties and responsibilities of the Chief Executive Officer by integrating the dynamic requirements of the business as a going concern and future expansionary prospects within the realm of good governance at all times. Remuneration and Compensation Committee. The Remuneration and Compensation Committee ensures the existence of a transparent procedure and policy on executive remuneration, and fixes the remuneration packages of corporate officers and directors, provides oversight to the remuneration of senior management and other key personnel ensuring that compensation is consistent with the corporation’s culture, strategy and control environment. It is composed of three board members, chaired by Jon Ramon M. Aboitiz, with Emily A. Abrera, an independent director as member, and Mr. Enrique M. Aboitiz to complete the team. Pro-active Management The management has been tasked and is accountable to the board for the establishment and the execution of the company’s strategy within the purview of sound internal controls and risk management practices. It is also responsible for establishing the mechanisms and processes for an effective governance within the organization that will permeate within and across its officers, team members, suppliers, providers and customers. ATS today is managed by tested and proven professionals who thrive in the face of difficult challenges and changes in our business landscape. Compensation of Directors and Executive Officers The total compensation paid to non-executive directors and officers is disclosed under Section “Compensation of Directors and Executive Officers. The annual compensation includes the basic salary and performance bonus (13th and 14th month pay). ATS has no significant or special arrangements of any kind as regards to the compensation of all officers and directors other than the funded, noncontributory tax-qualified retirement plans covering all regular employees. Effective February 1, 2008, the monthly allowance of ATS Board of Directors increased to P80,000. In addition, each director also receives P30,000 per diem for every Board meeting attended. Disclosure and Transparency ATS is committed to the highest levels of transparency to allow the investing public to understand the operations and financial condition of the company. Any strategic, operational and financial event and changes in the organization that would affect the investing public is announced through postings in its corporate website and disclosures sent to the Securities and Exchange Commission and the Philippine Stock Exchange.

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Results Presentations and Analysts Meetings The quarterly and annual financial results of ATS are released and posted on the website. Analysts meetings are organized and lead by ATS principal shareholder, Aboitiz Equity Ventures, Inc. In 2008, there were four analysts meetings held and were attended by the Chief Finance Officer as well as the investor relations officer. Discussions in such meetings are always limited to information already in the public domain. This is in line with the requirement to ensure that all shareholders and other parties in the financial market have equal and simultaneous access to information that may influence the share price of ATS. Whistle-Blowing To encourage transparency and openness, employees may raise ethics, compliance and bureaucracy concerns through the ATS internal portal. A committee composed of the executive management receives the concerns automatically. A response is prepared by the respective leader which is then posted together with the concern. This is available for viewing by all employees. In addition, the Security, Safety and Compliance Office (SSCO) has a report system, complete with a prescribed report format, which can be downloaded from the ATS internal portal. The report may be used for observations on, but not limited to, anomalous situations, knowledge of anomalous acts, unsafe conditions and security risk situations, and criminal acts. The report is submitted directly to the SSCO leader for investigation and action. The SSCO leader together with the Executive Management monitors its progress ensures all concerns are properly addressed. Code of Conduct Employees are required to comply with the ATS Code of Business Conduct which is intended to guide team members in putting the ATS business principles into practice. The ATS Code of Conduct is available online at www.atsc.com.ph. The Future of Corporate Governance in ATS Corporate governance encompasses the very core of all the guiding principles of a company as it affects its stakeholders—the shareholders, board of directors, management, employees, service providers, creditors, customers and the community at large. It is not just limited to the business principles of making money and winning contracts but more so on the operating philosophies that guide the organization’s internal conduct, attitudes and beliefs, as well as its relationship to the external world. Our core values in ATS are the hallmarks that define who we are, how we behave and what we stand for—integrity, accountability, transparency, commitment, innovation, competence, excellence, teamwork and social responsibility. They are shared values that influence our organizational culture and —espoused by management and accepted by employees.

http://www.atsc.com.ph/

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Sound corporate governance requires an overriding commitment and a board culture that permeates all aspects of management conduct that upholds the company’s core values. Tone at the top and setting examples are already embedded in the organization’s culture which augurs how well plans and compliance strategies will be monitored, evaluated and managed. Moving forward, ATS plans to enhance the enabling environment for corporate governance and use it to gain competitive advantage with the end-goals of ensuring the long-term interest of our shareholders and other stakeholders, creating economic value, and protecting our environment. Another way to enable the environment of corporate governance is to continue to transform the ATS culture into one that focuses on ethics where leaders model ethical behaviour in the conduct of business and in their own personal lives. Specific activities lined up for 2009 include the improvement of the board assessment procedures by developing a more formal 3-tier assessment of the individual board member, committee, and the board as a whole. ATS will continue to adapt international principles applied to local conditions in a manner that captures the true essence of corporate governance—one that is not done merely to comply superficially with the requisite rules and good practice standards of corporate governance but one that is geared towards genuine commitment to its principles. For more information, visit www.atsc.com.ph INFORMATION TECHNOLOGY GOVERNANCE The Information Technology (IT) Governance Roadmap spans four phases, to be implemented over several years. Phase 1 covers awareness and prioritizing the IT processes for improvement. Phase 2 defines the current maturity level of ATS IT processes and where we want to be. Phase 3 identifies the projects necessary to increase the maturity level of the prioritized IT processes. Phase 4 is the monitoring phase. The IT Governance program and all its related projects are based on the COBIT framework. We completed Phases 1 and 2 in 2005 and are currently working on Phases 3 and 4. One completed project is the Information System Risk Assessment Project. The output included recommendations on treatment plans for possible IT risks. The treatment plans are ongoing and monitored by the Information Security Team. Other improvement projects include Strategic IT Planning Process, Standard Project Management Framework, and Standard Development Methodology. All 3 projects are in their final stages of completion & will be cascaded to the team.

http://www.atsc.com.ph/

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ATS IT has also started automating its Key Performance Indicator (KPI) and Project Summary reporting as well as Document Management, all of them using open-source technologies. The systems are currently being tested and will be implemented in the second quarter of the year. These are requirements to increase the maturity level of our IT processes.

ENTERPRISE WIDE RISK MANAGEMENT PROGRAM

ATS has an Enterprise Wide Risk Management Program (EWRM) in place to optimize efficiency, minimize and contain the costs and consequences in the event of harmful or damaging incidents, and provide for adequate and timely compensation, restoration and recovery. The goal is to drive risk management group-wide so it will be an integral part of the corporate processes and culture, and ensure business success. EWRM imposed a structure, discipline, process and conformance to the organization to ensure risks are approached systematically and reviewed periodically. The ability to control and calculate risks in all areas of the organization has been an essential component of business strategy. ATS believes that a well-executed and broad-based risk management program enables a company to achieve its objectives. In 2008, the Senior Management Committee crafted a Risk Management Policy Statement that states the corporate approach to risk management and its attitude to and appetite for risk. The policy was written with the following objectives:

1. To integrate risk management into the culture of ATS 2. To manage risk in accordance with best practices 3. To fully document major risks, identify risk exposures and implement cost

effective actions to mitigate and avoid risks 4. To ensure conscious and properly evaluated risk decisions especially on project

risk management The Management has extended the challenge of managing and mitigating the identified risks throughout the entire organization. In 2008, the Risk Management Team cascaded EWRM to all team members nationwide and included it as part of the corporate orientation curriculum for new team members to promote risk management as a “shared responsibility”. The Team also launched a Risk Management Portal in the company’s Intranet site. The portal serves as an enabler of communication, education, and training on EWRM as well as the central repository of the ‘Risk Register’ of all business units. The Risk Register contains the summary of risks identified based on the EWRM framework and the corresponding plans and programs to mitigate the said risks.

51

The plan for 2009 is to get to the Established Phase of the EWRM Maturity Model, which is aligned to EWRM best practices. For ATS to progress to this maturity level, all policies, processes and practices have to be defined and formalized across the organization. Risk management undertakings such as the Annual Vessel Officers Conference and the Vessel Performance System will continue to be developed and implemented. The Company sees EWRM as an enabler of continuous improvement and believes that the ability to overcome risks and manage the uncertainties linked with evaluating future outcomes is a key to sustainable competitive advantage. AUDIT COMMITTEE REPORT The Board of Aboitiz Transport System is pleased to present the Report of the Audit Committee for the year ended 31 December 2008. During the financial year, the Committee conducted three (3) meetings on 21 February 2008, 22 May 2008, 07 November 2008. The Group’s internal auditors and the CFO were always in attendance. The external auditors presented and discussed with the committee their findings and management concerns. Internal Audit discussed the results of their internal audit activity, governance and risk management concerns. Certain members of management, as needed, also attended the meetings. Summary Activities of the Committee The Committee carried out the following activities in discharging their duties and responsibilities: Risks and Controls Top and emerging risks affecting the company’s operations have been reviewed as presented by the risk management group. Management’s intervention and mitigations of these risks were also discussed; Overall effectiveness of the system of internal controls were validated through a review of the results of work performed by internal and external auditors and discussions with key senior management. Financial Results and External Audit The Committee reviewed the annual audited financial statements with the CFO and the external auditors before recommending to the Board for approval; it approved and reviewed the external auditor’s plan to ensure that their scope of work adequately covers the activities of the company; results and issues arising from the external auditor’s review and the resolution of issues were given attention. The accounting and audit firm of Sycip, Gorres and Velayo was appointed as external auditors. Ladislao Z. Avila has been designated as the Partner-in-charge since 2006. In 2008, a total of P1,600,000.00 has been paid to SGV in audit fees and other related services.

52

Internal Audit

Having an oversight function over the internal audit activity, the committee ensured that key risks and processes were adequately covered in the internal audit plan; that its recommendations are given attention and corrective actions are taken by management to address and resolve issues; that the internal audit’s resources are adequate, its competency requirements are met and it complies with the International Standards for the Professional Practice of Internal Auditing. Internal control Systems Internal control systems are measured using the COSO standard. After a consolidated review of the financials, operational, organizational and procedural controls and, of the risk management practices of the company, as reported by the external and the internal auditors, and the risk management group, the committee is of the opinion that in 2008, sound and reasonable internal control systems are in place, to wit: Control Environment. The organization upholds to the highest standards of integrity and ethical values, as manifested in its Code of Business Conduct; it provides for continuous growth and learning for its people; the attitude and concern of the board and top management for effective internal control permeate the organization ‘Tone at the Top’ is manifested thru the involvement and scrutiny of the Board of the management plans and actions. Risk Management. ATS Enterprise Wide Risk Management Program is between the formalized and established level of maturity, where procedures have been standardized, documented and communicated, however, competency needs to be brought down to the lowest level of personnel in the organization. The process has significantly improved and is embedded in major company initiatives thus enabling ATS to maximize its opportunities and cover its major risks. Communication and Information. Infrastructure and resources for processing information obtained externally and internally is in place; Channels are established to ensure that information is communicated down, across and up the organization; Personnel are provided with the right amount of information obtained externally and internally in the timeframe that they need in order for them to carry out their responsibilities; The Company faced its challenge on fast turn-over of IT personnel by establishing programs designed for retention, and attracting better talents. Financial Reporting Controls. Controls are generally operating effectively. Following factors contributed to the effectiveness of the financial reporting controls in the organization: o A financial budget diligently reviewed, approved and monitored by management and the

Board;

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o Availability and utilization of certain system generated report that facilitates review of accounts

o Revisions of policies and procedures to meet the changing needs of the organization o Regular balance sheet reviews conducted by finance leaders o Senior management and Board awareness and familiarity on the financial condition of

the Company through the financial highlights regularly reported to them o Coordination and assistance by external auditors thru their regular tax updates and the

annual audit, with assistance on tax matters o A tax group that continually monitors the Company’s tax compliance and equips finance

people with knowledge on tax matters and Generally Accepted Accounting Principles. Compliance to the Audit Committee Charter The committee ensured that the charter continues to effectively capture the roles and responsibilities of the committee. And as a result of its work during the year, the Audit Committee has concluded that it has acted in accordance with its charter and has ensured the independence and objectivity of the external and internal auditors. The Chairman of the Audit Committee will be available at the Annual General Meeting to answer any questions about the work of the Committee. Approval This report was approved by the Audit Committee and signed on its behalf by:

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

54

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

http://www.wgasuperferry.com/

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-1

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, 2008 and 2007, and the consolidated statements of 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, 2008, and a summary of significant accounting policies and other explanatory notes. We did not audit the 2008 and 2007 financial statements of Jebsens International (Australia) PTY Ltd, Jebsens International (Singapore) Pte. Ltd and Jebsens Logistics Services Pty. Ltd, which statements reflect total assets and total revenues of 0.36% and 2.89% in 2008 and 0.56% and 2.76% in 2007, of the related consolidated totals. We did not audit the 2006 financial statements of Jebsen Management (JMBVI) Limited and Subsidiaries which statements reflect total assets and total revenues of 5% and 15%, respectively, of the related consolidated totals. Those statements were audited by other auditors whose reports thereon have been furnished to us, and our opinion, insofar as it relates to the amounts included for those entities, is based solely on the reports of the other auditors. 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 and the reports of the other auditors. 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.

56A member firm of Ernst & Young Global Limited

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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 and the reports of the other auditors are sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, based on our audits and the reports of the other auditors, the consolidated financial statements present fairly, in all material respects, the financial position of Aboitiz Transport System (ATSC) Corporation and Subsidiaries as of December 31, 2008 and 2007, and their financial performance and their cash flows for each of the three years in the period ended December 31, 2008 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-1 Tax Identification No. 109-247-891 PTR No. 1566404, January 5, 2009, Makati City February 26, 2009

57

58

ABOITIZ TRANSPORT SYSTEM (ATSC) CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts in Thousands) December 31 2008 2007

ASSETS

Current Assets Cash and cash equivalents (Notes 7 and 36) P=860,254 P=820,861Trade and other receivables - net (Notes 8, 21 and 36) 1,620,675 1,871,999Inventories - net (Note 9) 344,665 269,826Other current assets - net (Note 10) 627,949 758,854 3,453,543 3,721,540Assets of disposal group classified as held for sale (Note 31) 778,635 –Total Current Assets 4,232,178 3,721,540

Noncurrent Assets Property and equipment - net (Notes 13, 17 and 18) 4,194,497 4,175,379Available-for-sale (AFS) investments (Notes 12 and 36) 27,634 44,432Investments in associates (Notes 11 and 20) 12,358 24,701Deferred income tax assets - net (Note 30) 344,742 284,767Goodwill (Notes 5 and 6) 256,463 –Other noncurrent assets - net (Note 14) 341,148 388,188Total Noncurrent Assets 5,176,842 4,917,467

TOTAL ASSETS P=9,409,020 P=8,639,007

LIABILITIES AND EQUITY

Current Liabilities Loans payable (Notes 15 and 36) P=551,000 P=259,080Trade and other payables (Notes 16, 21 and 36) 3,406,193 3,618,641Current portion of: Obligations under finance lease (Notes 13, 18 and 36) 81,692 90,732 Long-term debt (Notes 13, 17 and 36) – 46,320Income tax payable 6,249 157 4,045,134 4,014,930Liabilities directly associated with disposal group classified as held for sale (Note 31) 697,172 –Total Current Liabilities 4,742,306 4,014,930 (Forward)

59

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December 31 2008 2007

Noncurrent Liabilities Long-term debt - net of current portion (Notes 13, 17 and 36) P=– P=8,763Obligations under finance lease - net of

current portion (Notes 13 and 18) 30,832 72,095Pension liability (Note 29) 23,570 22,342Redeemable preferred shares (Notes 19, 20 and 36) 17,790 15,687Other noncurrent liabilities 3,736 1,550Total Noncurrent Liabilities 75,928 120,437

Equity Attributable to Equity Holders of the Parent Common shares (Note 20) 2,484,653 2,484,653Capital in excess of par value (Note 19) 910,901 910,901Unrealized mark-to-market gain on AFS

investments (Note 12) 5,621 12,563Cumulative translation adjustments (Note 11) 685 (10,169)Excess of cost over net asset value of an investment (Note 35) (11,700) (11,700)Acquisitions of minority interests (Note 35) 5,940 5,940Reserves of disposal group classified as held for sale (Note 31) 4,185 –Retained earnings (Note 20) 1,214,711 1,120,608Treasury shares (Note 20) (58,715) (58,715) 4,556,281 4,454,081

Minority Interests 34,505 49,559

Total Equity 4,590,786 4,503,640

TOTAL LIABILITIES AND EQUITY P=9,409,020 P=8,639,007 See accompanying Notes to Consolidated Financial Statements.

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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 2006

REVENUES Freight - net (Note 21) P=5,403,920 P=4,447,627 P=4,982,703Passage - net 2,580,572 2,690,677 3,020,013 Sale of goods 1,163,859 224,526 – Service fees (Notes 21 and 35) 674,642 466,151 233,371 Others 449,899 374,711 564,252 10,272,892 8,203,692 8,800,339

COSTS AND EXPENSES Operating (Note 22) 6,774,206 6,067,131 6,673,940 Overhead (Note 24) 1,308,570 1,065,581 1,096,868 Terminal (Note 23) 1,296,623 1,076,792 1,078,672 Cost of sales (Note 9) 966,463 187,961 – 10,345,862 8,397,465 8,849,480

OTHER INCOME (CHARGES) Gain (loss) on disposal of: Property and equipment (Note 13) 87,732 748,858 226,436 Investment in AFS, subsidiary and

associates (Note 35) (15,076) 2,732 262,264 Interest income 12,826 30,835 11,566Foreign exchange gain (loss) - net 8,144 (17,975) 20,454 Equity in net earnings (loss) of associates (Note 11) (6,362) (528) 2,796 Finance costs (Note 27) (62,785) (92,309) (346,272)Others - net (Note 28) 167,797 125,050 21,970 192,276 796,663 199,214

INCOME BEFORE INCOME TAX 119,306 602,890 150,073

PROVISION FOR (BENEFIT FROM) INCOME TAX (Notes 30 and 34)

Current 70,697 46,606 24,172 Deferred (57,387) 115,435 (133,142) 13,310 162,041 (108,970)

NET INCOME FROM CONTINUING OPERATIONS 105,996 440,849 259,043

DISCONTINUED OPERATIONS Net loss from disposal group (Note 31) (6,572) (2,068) (67,167)

NET INCOME P=99,424 P=438,781 P=191,876 (Forward)

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Years Ended December 31 2008 2007 2006

ATTRIBUTABLE TO: Equity holders of the parent P=82,815 P=419,970 P=197,301Minority interests 16,609 18,811 (5,425) P=99,424 P=438,781 P=191,876

EARNINGS PER COMMON SHARE (Note 33) Basic and diluted, for net income attributable to ordinary equity holders of the parent P=0.03 P=0.17 P=0.08

EARNINGS PER COMMON SHARE FOR CONTINUING OPERATIONS (Note 33)

Basic and diluted, net income from continuing operations attributable to ordinary equity

holders of the parent P=0.04 P=0.18 P=0.11

See accompanying Notes to Consolidated Financial Statements.

ABOITIZ TRANSPORT SYSTEM (ATSC) CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006 (Amounts in Thousands) Attributable to Equity Holders of the Parent

Common Shares

(Note 20)

Capital inExcess

of Par Value

UnrealizedMark-to-

Market Gainon AFS

Investments(Note 12)

CumulativeTranslation

Adjustments

Acquisition of Minority Interests

RetainedEarnings(Note 20)

TreasuryShares

(Note 20) Total Minority Interests

Total Equity

Balances at January 1, 2006 P=2,343,966 P=843,698 P=2,776 (P=2,756) P=– P=1,238,546 (P=58,715) P=4,367,515 P=64,088 P=4,431,603

Unrealized gains on AFS investments for the year – – 16,824 – – – – 16,824 146 16,970

Changes in cumulative translation adjustments – – – (2,667) – – – (2,667) (3,484) (6,151)

Total recognized income (expense) directly in equity – – 16,824 (2,667) – – – 14,157 (3,338) 10,819

Net income for the year – – – –

–

197,301 – 197,301 (5,425) 191,876

Total recognized income (expense) for the year – – 16,824 (2,667) – 197,301 – 211,458 (8,763) 202,695

Conversion of redeemable preferred shares (Note 19) 140,687 67,203 – – – – – 207,890 – 207,890

Acquisition of minority interest (Note 35) –

– – – 5,000 – – 5,000 (5,000) –

Net adjustments in minority interest – – – – – – – – (26,536) (26,536)

Subtotal 140,687 67,203 – – 5,000 – – 212,890 (31,536) 181,354

Balances at December 31, 2006 P=2,484,653 P=910,901 P=19,600 (P=5,423) P=5,000 P=1,435,847 (P=58,715) P=4,791,863 P=23,789 P=4,815,652

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Attributable to Equity Holders of the Parent

Common Shares

(Note 20)

Capital inExcess

of Par Value

Unrealized Mark-to-

Market Gain on AFS

Investments (Note 12)

Cumulative Translation Adjustments

Excess of CostOver Net Asset

Value of anInvestment

Acquisition ofMinorityInterests(Note 35)


TreasuryShares

(Note 20) Total MinorityInterests

Total Equity

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

Unrealized losses on AFS investments for the year – – (3,572) – – – – – (3,572) (1,802) (5,374)

Realized gain on AFS investments for the year – – (3,465) – – – – – (3,465) – (3,465)

Changes in cumulative translation adjustments –

– – (4,746) – – – – (4,746) (10,169) (14,915)

Total recognized expense directly in equity – – (7,037) (4,746) – – – – (11,783) (11,971) (23,754)

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

Total recognized income (expense) 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 – – – – (11,700) – – – (11,700) – (11,700)

Acquisition of minority interest (Note 35) – – – – – 940 – – 940 (940) –

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

Net adjustments 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

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Attributable to Equity Holders of the Parent

Common Shares

(Note 20)

Capital inExcess

of Par Value

UnrealizedMark-to-

Market Gainon AFS

Investments(Note 12)

Cumulative Translation Adjustments

Excess of CostOver Net Asset

Value of anInvestment

Acquisition of Minority

Interests (Note 35)

DisposalGroup

(Note 31)


TreasuryShares

(Note 20) TotalMinorityInterests

Total Equity

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

Unrealized losses (gains) on AFS investments for the year – – (6,942) – – – 2,315 – – (4,627) (413) (5,040)

Changes in cumulative translation adjustments –

– – 10,854 – – 1,870 – – 12,724 12,028 24,752

Total recognized expense directly in equity – – (6,942) 10,854 – – 4,185 – – 8,097 11,615 19,712

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

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

Total recognized income (expense) for the year – – (6,942) 10,854 – – 4,185 82,815 – 90,912 20,654 111,566

Net adjustments 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 See accompanying Notes to Consolidated Financial Statements.

ABOITIZ TRANSPORT SYSTEM (ATSC) CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in Thousands) Years Ended December 31 2008 2007 2006 CASH FLOWS FROM OPERATING

ACTIVITIES Income before income tax from continuing

operations P=119,306 P=602,890 P=150,073 Income (loss) before income tax from

discontinued operation (Note 31) 27,789 18,034 (53,306)Adjustments for: Depreciation and amortization (Note 25) 1,035,731 1,178,343 1,275,290 Interest expense (Note 27) 76,985 102,586 353,049 Unrealized foreign exchange loss (gain) 18,347 (25,560) (17,362) Provisions for: Inventory losses 23,062 1,215 1,594 Probable cargo losses and damages 15,104 1,698 6,496 Impairment loss on receivables 8,504 11,906 76,927 Impairment loss on AFS

investments – – 268 Equity in net loss (earnings) of associates

(Note 11) 7,639 (410) (5,308) Recovery of provision for probable losses (5,002) – (7,862) Interest income (19,405) (32,705) (18,298) Dividend income (11,272) (460) (33,594) Loss (gain) on disposal of:

Investment in subsidiary and associates 15,051 – (262,264) Impairment of assets 15,188 6,171 13,590 AFS investments 74 (2,732) –

Property and equipment (87,732) (748,858) (226,436)Operating income before working capital changes 1,239,369 1,112,118 1,252,857 Decrease (increase) in: Trade and other receivables (112,762) 220,279 (130,716) Inventories (124,570) (15,442) 53,047 Pension asset 11,280 (12,926) (13,129) Other current assets 52,069 (261,982) (28,679)Increase (decrease) in: Trade and other payables 55,570 387,879 (274,478) Pension liability 10,214 12,453 – Other noncurrent liabilities 2,186 1,550 – Net cash generated from operations 1,133,356 1,443,929 858,902 Interest received 10,088 33,353 19,924 Income taxes paid (78,483) (38,505) (37,263)Net cash flows from operating activities P=1,064,961 P=1,438,777 P=841,563

(Forward)

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Years Ended December 31 2008 2007 2006 CASH FLOWS FROM INVESTING

ACTIVITIES Additions to property and equipment (Note 13) (P=1,113,177) (P=1,543,101) (P=538,475)Acquisition of a subsidiary net of cash acquired

(Note 5) (225,624) 3,901 – Proceeds from: Disposal of property and equipment 187,647 2,529,660 935,003

Disposal of investments in subsidiaries 46,274 – 14,868 Sale of AFS investments 1,462 6,588 –

Sale of investment in associate 400 – 303,374 Decrease (increase) in:

Other noncurrent assets (74,780) 49,354 (6,180)Investments in associates – (12,514) –

AFS investments – 4,106 (42,336)Dividends received 11,272 460 33,594 Net cash flows from (used in) investing activities (1,166,526) 1,038,454 699,848 CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from availments of loans payable 623,168 149,268 437,115Payments of:

Interest (76,812) (117,486) (335,183)Loans payable (52,369) (254,908) (549,448)Long-term debt and obligations under

finance lease (105,386) (1,683,676) (992,764)Dividends paid – (735,209) – Increase (decrease) in minority interests (15,054) (6,959) 18,621Net cash flows from (used in) financing activities 373,547 (2,648,970) (1,421,659)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 271,982 (171,739) 119,752

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 820,861 992,600 872,848

CASH AND CASH EQUIVALENTS AT END OF YEAR (Note 7) P=1,092,843 P=820,861 P=992,600

See accompanying Notes to Consolidated Financial Statements.

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 Group on a per share purchase price to be computed based on an 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 1,889,489,607 common shares of the Parent Company while ACO owns 390,322,384 common shares of the Parent Company, representing 77.10% and 15.93 % 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 will 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 signed by the parties on September 23, 2008. The 49% equity stake shall include the 7% equity stake of the public in the Parent Company. Under the present agreement, which is 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

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remaining 51% 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. The consolidated financial statements as at December 31, 2008 and 2007 and for each of the three years in the period ended December 31, 2008, were authorized for issue by the Board of Directors (BOD) on February 26, 2009.

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 compliance 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:

Effective Percentage of Ownership

Subsidiaries Country of Incorporation Nature of Business 2008 2007 2006

Cebu Ferries Corporation7 Philippines Shipping 100 100 100 W G & A Supercommerce, Inc. (WSI)2

Philippines

Ships’ hotel management

100

100

100

Zoom In Packages, Inc. (ZIP)3

Philippines

Transportation/ logistics

100

100

100

Aboitiz One, Inc. (AOI) and Subsidiaries:

Philippines

Transportation/ logistics

100

100

100

Reefer Van Specialist Inc. (RVSI) Philippines Transportation 100 100 50 Aboitiz One Distribution, Inc. (AODI)

Philippines

Distribution

100

100

–

Scanasia Overseas Inc. (SOI)6 Philippines Distribution 100 – – Hapag-Lloyd Philippines, Inc. (HLP)

Philippines

Transportation/ logistics 94 85 85

Reefer Truck Specialists Inc. (RTSI)6

Philippines

Transportation

– 100

50

Cox Trucking Corporation (COX)6 Philippines Transportation – 80 80 Aboitiz Logistics, Inc. (ALI)1 Philippines Logistics – – 100

Supercat Fast Ferry Corp. (SFFC)4 Philippines Shipping 100 100 – Aboitiz Jebsen Bulk Transport Corporation (AJBTC) and Subsidiaries: 8

Philippines

Ship management

62.50

62.50

62.50

Filscan Shipping, Inc. (FILSCAN) Philippines

Manning and crew management services

62.50

62.50

62.50

General Charterer, Inc (GCI) Philippines

Manning and crew management services

62.50

62.50

62.50

(Forward)

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Effective Percentage Country of Incorporation Nature of Business 2008 2007 2006

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

Philippines Manning and crew management services

of Ownership Subsidiaries

62.50 62.50 62.50

Overseas Bulk Transport, Inc. (OVERSEAS)


62.50 62.50 62.50

Viking International Carriers, Inc. (VIKING)


62.50 62.50 62.50

Joss Asian Feeders, Inc. (JOSSAF) Philippines Shipping 62.50 62.50 62.50 Harbor Training Center, Inc. (HTC) Philippines Training 62.50 62.50 62.50 EMS Crew Management Philippines, Philippines Manning and crew

management services 46.88

Inc. (EMS) 46.88 46.88

Aboitiz Jebsen Manpower Solutions, Inc. (AJMSI) 8

Philippines Manpower services 62.50 62.50 62.50

Jebsen Maritime, Inc. (JMI) 8 Philippines Manpower services 62.50 62.50 62.50 Jebsen Management (JMBVI) Limited and Subsidiaries:5 and 8

British Virgin Islands

Shipping 50.00 50.00 50.00

Australia Chartering and Shipping

50.00 50.00 50.00

Jebsen Orient Shipping Services AS Norway Chartering and Shipping

50.00 50.00 50.00

Jebsens International (Singapore) Pte. Ltd

Singapore Chartering and Shipping

50.00 50.00 50.00

Jebsens Logistics Services Australia Fertilizer Bagging 50.00 50.00 50.00

Jebsens International (Australia) Pty. Ltd.

1AOI and ALI merged in July 2007 with AOI as the surviving entity 2Ceased operations in February 2006. 3Started commercial operations on January 1, 2006. 4Acquired from Accuria, Inc., an affiliate under common control, on August 30, 2007. 5Parent Company exercises power to govern the financial and operating policies. 6Acquired SOI in July 2008, and disposed COX and RTSI in August and September 2008, respectively. 7Liquidated in May 2008. 8Classified 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.

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Based on the final ruling from the Bureau of Internal Revenue, the merger between ALI and the Company, with the latter as the surviving entity, is a merger within the contemplation of Section 40 (C) (6) (b) of the Tax Code of 1997, considering that the statutory merger is undertaken for a bona fide business purpose and not for the purpose of escaping the burden of taxation. The merger was accounted for using the principles similar to a pooling-of-interest accounting and accordingly, all financial data for the periods prior to the merger have been restated as if ALI has always been part of the Company throughout the two-year period ended December 31, 2007. 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 Philippine Interpretations which became effective on January 1, 2008, and an amendment to an existing standard that became effective on July 1, 2008. Adoption of these changes in PFRS did not have any significant effect to the Group:

• Philippine Interpretation International Financial Reporting Interpretations Committee

(IFRIC) 11, PFRS 2 - Group and Treasury Share Transactions • Philippine Interpretation IFRIC 12, Service Concession Arrangements • Philippine Interpretation IFRIC 14, PAS 19, The Limit on a Defined Benefit Asset, Minimum

Funding Requirement and their Interaction • Amendments to PAS 39, Financial Instruments: Recognition and Measurement and

PFRS 7, Financial Instruments: Disclosures - Reclassification of Financial Assets

New Accounting Standards, Interpretations, and Amendments to Existing Standards Effective Subsequent to December 31, 2008 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. Effective in 2009

PFRS 1, First-time Adoption of Philippine Financial Reporting Standards - Cost of an Investment in a

Subsidiary, Jointly Controlled Entity or Associate The amended PFRS 1 allows an entity, in its separate financial statements, to determine the cost of investments in subsidiaries, jointly controlled entities or associates (in its opening PFRS financial statements) as one of the following amounts: a) cost determined in accordance with PAS 27; b) at the fair value of the investment at the date of transition to PFRS, determined in accordance with PAS 39; or c) previous carrying amount (as determined under generally accepted accounting principles) of the investment at the date of transition to PFRS. PFRS 2, Share-based Payment - Vesting Condition and Cancellations The standard has been revised to clarify the definition of a vesting condition and prescribes the treatment for an award that is effectively cancelled. It defines a vesting condition as a condition that includes an explicit or implicit requirement to provide services. It further requires non-vesting conditions to be treated in a similar fashion to market conditions. Failure to satisfy a non-vesting condition that is within the control of either the entity or the counterparty is accounted for as cancellation. However, failure to satisfy a non-vesting condition that is beyond the control of either party does not give rise to a cancellation.

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PFRS 8, Operating Segments PFRS 8 will replace PAS 14, Segment Reporting, and adopts a full management approach to identifying, measuring and disclosing the results of an entity’s operating segments. The information reported would be that which management uses internally for evaluating the performance of operating segments and allocating resources to those segments. Such information may be different from that reported in the consolidated balance sheet and consolidated statement of income and the Group will provide explanations and reconciliations of the differences. This standard is only applicable to an entity that has debt or equity instruments that are traded in a public market or that files (or is in the process of filing) its financial statements with a securities commission or similar party. The Group will assess the impact of this standard to its current manner of reporting segment information. Amendments to PAS 1, Presentation of Financial Statements This Amendment introduces a new consolidated statement of comprehensive income that combines all items of income and expenses recognized in the consolidated statement of income together with ‘other comprehensive income’. Entities may choose to present all items in one statement, or to present two linked statements, a separate consolidated statement of income and a consolidated statement of comprehensive income. This Amendment also requires additional requirements in the presentation of the consolidated balance sheet and owner’s equity as well as additional disclosures to be included in the financial statements. PAS 23, Borrowing Costs The standard has been revised to require capitalization of borrowing costs when such costs relate to a qualifying asset. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. In accordance with the transitional requirements in the standard, the Group will adopt this as a prospective change. Accordingly, borrowing costs will be capitalized on qualifying assets with a commencement date after January 1, 2009. The Group expects that this revision will have no impact on the Group’s financial statements since the Group is already capitalizing borrowing costs relating to qualifying assets. Amendments to PAS 27, Consolidated and Separate Financial Statements - Cost of an

Investments in a Subsidiary, Jointly Controlled Entity or Associate Amendments to PAS 27 will be effective on January 1, 2009 which has changes in respect of the holding companies separate financial statements including (a) the deletion of ‘cost method’, making the distinction between pre- and post-acquisition profits no longer required; and (b) in cases of reorganizations where a new parent is inserted above an existing parent of the group (subject to meeting specific requirements), the cost of the subsidiary is the previous carrying amount of its share of equity items in the subsidiary rather than its fair value. All dividends will be recognized in consolidated statement of income. However, the payment of such dividends requires the entity to consider whether there is an indicator of impairment. The Group expects significant changes in its accounting policies when it adopts the foregoing accounting changes effective January 1, 2009. Amendment to PAS 32, Financial Instruments: Presentation and PAS 1, Presentation of Financial

Statements - Puttable Financial Instruments and Obligations Arising on Liquidation These amendments specify, among others, that puttable financial instruments will be classified as equity if they have all of the following specified features: (a) the instrument entitles the holder to require the entity to repurchase or redeem the instrument (either on an ongoing basis or on liquidation) for a pro rata share of the entity’s net assets, (b) the instrument is in the most subordinate class of instruments, with no priority over other claims to the assets of the entity on liquidation, (c) all instruments in the subordinate class have identical features, (d) the instrument does not include any contractual obligation to pay cash or

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financial assets other than the holder’s right to a pro rata share of the entity’s net assets, and (e) the total expected cash flows attributable to the instrument over its life are based substantially on the profit or loss, a change in recognized net assets, or a change in the fair value of the recognized and unrecognized net assets of the entity over the life of the instrument. Philippine Interpretation IFRIC 13, Customer Loyalty Programmes This Interpretation requires customer loyalty award credits to be accounted for as a separate component of the sales transaction in which they are granted and therefore part of the fair value of the consideration received is allocated to the award credits and realized in income over the period that the award credits are redeemed or expire. Philippine Interpretation IFRIC 16, Hedges of a Net Investment in a Foreign Operation This Interpretation provides guidance on identifying foreign currency risks that qualify for hedge accounting in the hedge of net investment; where within the group the hedging instrument can be held in the hedge of a net investment; and how an entity should determine the amount of foreign currency gains or losses, relating to both the net investment and the hedging instrument, to be recycled on disposal of the net investment.

Improvements to PFRS In May 2008, the International Accounting Standards Board issued its first omnibus of amendments to certain standards, primarily with a view to removing inconsistencies and clarifying wording. There are the separate transitional provisions for each standard: PFRS 5, Noncurrent Assets Held for Sale and Discontinued Operations

When a subsidiary is held for sale, all of its assets and liabilities will be classified as held for sale under PFRS 5, even when the entity retains a non-controlling interest in the subsidiary after the sale.

PAS 1, Presentation of Financial Statements

Assets and liabilities classified as held for trading are not automatically classified as current in the consolidated balance sheet.

PAS 16, Property, Plant and Equipment

The amendment replaces the term ‘net selling price’ with ‘fair value less costs to sell’, to be consistent with PFRS 5, Noncurrent Assets Held for Sale and Discontinued Operations and PAS 36, Impairment of Asset. Items of property, plant and equipment held for rental that are routinely sold in the ordinary course of business after rental, are transferred to inventory when rental ceases and they are held for sale. Proceeds of such sales are subsequently shown as revenue. Cash payments on initial recognition of such items, the cash receipts from rents and subsequent sales are all shown as cash flows from operating activities.

PAS 19, Employee Benefits

Revises the definition of ‘past service costs’ to include reductions in benefits related to past services (‘negative past service costs’) and to exclude reductions in benefits related to future services that arise from plan amendments. Amendments to plans that result in a reduction in benefits related to future services are accounted for as a curtailment.

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Revises the definition of ‘return on plan assets’ to exclude plan administration costs if they have already been included in the actuarial assumptions used to measure the defined benefit obligation. Revises the definition of ‘short-term’ and ‘other long-term’ employee benefits to focus on the point in time at which the liability is due to be settled. Deletes the reference to the recognition of contingent liabilities to ensure consistency with PAS 37, Provisions, Contingent Liabilities and Contingent Assets.

PAS 20, Accounting for Government Grants and Disclosures of Government Assistance

Loans granted with no or low interest rates will not be exempt from the requirement to impute interest. The difference between the amount received and the discounted amount is accounted for as a government grant.

PAS 23, Borrowing Costs Revises the definition of borrowing costs to consolidate the types of items that are considered components of ‘borrowing costs’, i.e., components of the interest expense calculated using the effective interest rate method.

PAS 28, Investment in Associates If an associate is accounted for at fair value in accordance with PAS 39, only the requirement of PAS 28 to disclose the nature and extent of any significant restrictions on the ability of the associate to transfer funds to the entity in the form of cash or repayment of loans applies. An investment in an associate is a single asset for the purpose of conducting the impairment test. Therefore, any impairment test is not separately allocated to the goodwill included in the investment balance.

PAS 29, Financial Reporting in Hyperinflationary Economies Revises the reference to the exception that assets and liabilities should be measured at historical cost, such that it notes property, plant and equipment as being an example, rather than implying that it is a definitive list.

PAS 31, Interest in Joint Ventures If a joint venture is accounted for at fair value, in accordance with PAS 39, only the requirements of PAS 31 to disclose the commitments of the venturer and the joint venture, as well as summary financial information about the assets, liabilities, income and expense will apply.

PAS 36, Impairment of Assets When discounted cash flows are used to estimate ‘fair value less cost to sell’ additional disclosure is required about the discount rate, consistent with disclosures required when the discounted cash flows are used to estimate ‘value in use’.

PAS 38, Intangible Assets

Expenditure on advertising and promotional activities is recognized as an expense when the Group either has the right to access the goods or has received the services. Advertising and promotional activities now specifically include mail order catalogues. Deletes references to there being rarely, if ever, persuasive evidence to support an amortization method for finite life intangible assets that results in a lower amount of accumulated

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amortization than under the straight-line method, thereby effectively allowing the use of the unit of production method.

PAS 39, Financial Instruments: Recognition and Measurement Changes in circumstances relating to derivatives - specifically derivatives designated or de-designated as hedging instruments after initial recognition - are not reclassifications. When financial assets are reclassified as a result of an insurance company changing its accounting policy in accordance with paragraph 45 of PFRS 4, Insurance Contracts, this is a change in circumstance, not a reclassification. Removes the reference to a ‘segment’ when determining whether an instrument qualifies as a hedge. Requires use of the revised effective interest rate (rather than the original effective interest rate) when re-measuring a debt instrument on the cessation of fair value hedge accounting.

PAS 40, Investment Properties Revises the scope (and the scope of PAS 16, Property, Plant and Equipment) to include property that is being constructed or developed for future use as an investment property. Where an entity is unable to determine the fair value of an investment property under construction, but expects to be able to determine its fair value on completion, the investment under construction will be measured at cost until such time as fair value can be determined or construction is complete.

PAS 41, Agriculture Removes the reference to the use of a pre-tax discount rate to determine fair value, thereby allowing use of either a pre-tax or post-tax discount rate depending on the valuation methodology used. Removes the prohibition to take into account cash flows resulting from any additional transformations when estimating fair value. Instead, cash flows that are expected to be generated in the ‘most relevant market’ are taken into account.

Effective in 2010 Revised PFRS 3, Business Combinations and PAS 27, Consolidated and Separate Financial Statements The revised PFRS 3 introduces a number of changes in the accounting for business combinations that will impact the amount of goodwill recognized, the reported results in the period that an acquisition occurs, and future reported results. The revised PAS 27 requires, among others, that (a) change in ownership interests of a subsidiary (that do not result in loss of control) will be accounted for as an equity transaction and will have no impact on goodwill nor will it give rise to a gain or loss; (b) losses incurred by the subsidiary will be allocated between the controlling and non-controlling interests (previously referred to as ‘minority interests’); even if the losses exceed the non-controlling equity investment in the subsidiary; and (c) on loss of control of a subsidiary, any retained interest will be remeasured to fair value and this will impact the gain or loss recognized on disposal. The changes introduced by the revised PFRS 3 and PAS 27 must be applied prospectively and will affect future acquisitions and transactions with non-controlling interests.

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Amendment to PAS 39, Financial Instruments: Recognition and Measurement - Eligible

Hedged Items Amendment to PAS 39 will be effective on July 1, 2009, which addresses only the designation of a one-sided risk in a hedged item, and the designation of inflation as a hedged risk or portion in particular situations. The amendment 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. Effective in 2012 Philippine Interpretation IFRIC 15, Agreement for Construction of Real Estate This Interpretation covers accounting for revenue and associated expenses by entities that undertake the construction of real estate directly or through subcontractors. This 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. 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. 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.

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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 of accounting. An associate is an entity in which the Group has significant influence and which is neither a subsidiary nor a joint venture. 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 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.

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Property and Equipment Property and equipment other than land are stated at cost, less accumulated depreciation and accumulated impairment losses. 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 is met. 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 ½-7 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. 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 seven (7) 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. Flight equipment is depreciated based on the estimated number of flying hours. 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. The asset’s residual values, useful lives and depreciation methods are reviewed at each financial year end, and adjusted prospectively if appropriate.

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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 non-controlling 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. 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.

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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 reporting 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. For nonfinancial assets excluding goodwill, an assessment is made at each reporting 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 annually 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 can not 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 considerations is recognized in other capital reserves.

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Financial Instruments Financial assets Initial recognition Financial assets at 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 reporting 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. The Group’s financial assets include loans and receivables and AFS investments. Subsequent measurement The subsequent measurement of financial assets depends on their classification as follows: 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. This category includes derivatives financial instruments entered into by the Group that do not meet the hedge accounting criteria as defined by PAS 39. 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, 2008 and 2007 the Group has not classified any financial assets at FVPL. Derivatives embedded in host contracts are accounted for as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and the host contracts are not carried at fair value. 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.

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Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables are carried at amortized cost using the effective interest method. 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 consolidated balance sheet date. As at December 31, 2008 and 2007, financial assets included in 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, 2008 and 2007, 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 directly in 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. The Group’s AFS investments as at December 31, 2008 and 2007 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, loans and borrowings, 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 reporting 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.

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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. The Group’s financial liabilities include debt and other borrowings (presented as loans payable and long-term debt 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, 2008 and 2007, the Group has not designated any financial liabilities as at FVPL. Loans and borrowings After initial recognition, interest bearing loans and borrowings are subsequently measured at amortized cost using the effective interest rate method. 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 consolidated balance sheet date and the amount recognized less cumulative amortization. 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.

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Fair value of financial instruments The fair value for financial instruments traded in active markets at the consolidated 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.

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. Amortized cost of financial instruments Amortized cost is computed using the effective interest method less any allowance for impairment loss and principal repayment or reduction. The calculation takes into account any premium or discount on acquisition and includes transaction costs and fees that are an integral part of the effective interest rate.

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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. 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.

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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 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 directly in equity. In the case of debt instruments classified as AFS, impairment is assessed based on the same criteria as financial assets carried at amortized cost. Interest continues to be accrued at the original effective interest rate on the reduced carrying amount of the asset and 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. 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.

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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. 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. When continuing involvement takes the form of a written and/or purchased option (including cash settled option or similar provision) on the transferred asset, the extent of the Group’s continuing involvement is the amount of the transferred asset that the Group may repurchase, except that in the case of a written put option (including cash settled option or similar provision) on an asset measured at fair value, the extent of the Group’s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price. 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 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 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. Rental income Rental income arising from operating leases is recognized on a straight-line basis over the lease term.

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Interest income Interest income is recognized as the interest accrues (using effective interest method). Dividend income Dividend income is recognized when the shareholders’ right to receive the payment is established. 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 defined 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 liability is the aggregate of the present value of the defined benefit obligation and actuarial gains and losses not recognized reduced by past service cost not yet recognized and the fair value of plan assets out of which the obligations are to be settled directly. If such aggregate is negative, the asset is measured at the lower of such aggregate or 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 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 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

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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 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). 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.

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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 retranslated at the functional currency rate of exchange ruling at the balance sheet date. All differences are taken to the consolidated statement of income. 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” 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. 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 or substantively enacted at the consolidated balance sheet date. Current income tax relating to items recognized directly in equity is recognized in equity and not in the consolidated statement of income. Deferred income tax Deferred income tax is provided using the balance sheet liability method on temporary differences on the consolidated 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 of unused tax credits and unused tax losses, to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences and the carryforward 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

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• 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 consolidated 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 consolidated 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. 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 directly in equity is recognized in 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.

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Business Segments The Group’s operating business are organized and managed separately according to the nature of the products and services provided, with each segment representing a strategic business unit that offers different products. Segment assets and liabilities Segment assets include all operating assets used by a segment and consist principally of operating cash, receivables, inventories and property and equipment, net of allowances and provisions. Segment liabilities include all operating liabilities and consist principally of accounts payable and other current liabilities. Segment assets and liabilities do not include deferred income taxes. Inter-segment transactions Segment revenue, segment expenses and segment performance include transfers among business segments. The transfers are accounted for at competitive market prices charged to unaffiliated customers for similar products. Such transfers are eliminated in consolidation. 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 consolidated 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. 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, 2008, 2007 and 2006. 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

26

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 on its flight equipment. 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. 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 generally 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 32). Assets 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. 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.

For more details on the disposal group refer to Note 31. 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

27

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. As at December 31, 2008 and 2007, allowance for impairment losses on trade and other receivables amounted to P=299,727 and P=297,901, respectively. Carrying values of the Group’s trade and other receivables as at December 31, 2008 and 2007 amounted to P=1,985,574 and P=1,871,999, respectively (see Note 8). 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, 2008 and 2007, the net carrying value of inventories amounted to P=376,336 and P=269,826, respectively (see Note 9). Allowance for inventory obsolescence as of December 31, 2008 and 2007 amounted to P=61.2 million and P=70.6 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 million in 2007.

28

The Group’s property and equipment balance amounted to P=4,237,249 and P=4,175,379 as at December 31, 2008 and 2007, respectively (see Note 13). 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, 2008 and 2007, the carrying value of software development costs amounted to P=188,210 and P=246,783, respectively (see Note 14). 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=359,880 and P=292,369 as at December 31, 2008 and 2007, respectively (see Note 30). Impairment of AFS investments The Group follows the guidance of PAS 39 in determining when an investment is other-than-temporarily impaired. This determination requires significant judgment. In making this judgment, the Group evaluates, among other factors, the duration and extent to which the fair value of an investment is less than its cost; and the financial health and near-term business outlook of the investee, including factors such as industry and sector performance, changes in technology and operational and financing cash flow.

The carrying value of AFS investments amounted to P=37,053 and P=44,432 as of December 31, 2008 and 2007, respectively (see Notes 12 and 36). 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 there 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.

29

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 37. Impairment of nonfinancial asset PFRS requires that an impairment review be performed when certain impairment indicators are present. Determining the value of property and equipment, investments in associates and software development costs, which require the determination of future cash flows expected to be generated from the continued use and ultimate disposition of such assets, requires the Group to make estimates and assumptions that can materially affect its consolidated financial statements. Future events could cause the Group to conclude that the property and equipment, investments in associates, software development costs and other noncurrent assets are impaired. Any resulting impairment loss could have a material adverse impact on the Group’s financial condition and results of operations. In 2008, the Group recognized an additional impairment loss of P=15.2 million on its flight equipment. The aggregate carrying values of property and equipment, investments in associates, and software development costs amounted to P=5,120,132 and P=5,279,685 as at December 31, 2008 and 2007, respectively (see Notes 10, 11, 13 and 14). 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, 2008 and 2007 amounted to P=256,463 and nil, respectively (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 29 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, 2008 amounted to P=39,501and P=23,570, respectively and as at December 31, 2007 amounted to P=50,781 and P=22,342, respectively, (see Notes 14 and 29).

4. Segment Information The segment reporting format is determined to be business segments as the Group’s risks and rates of return are affected predominantly by differences in the products and services provided. The operating businesses are organized and managed separately according to the nature of the products and services provided, with each segment representing a strategic business unit that offers different products and serves different markets.

30

The Group is in the business of transporting of cargoes and passengers and providing manpower services to foreign shipping principals and distribution, among others.

The Parent Company and subsidiaries under the shipping and transportation segment render passage transportation and cargo freight services.

Subsidiaries under the distribution business provide supply chain management.

Subsidiaries under the manpower services render manning and personnel, particularly crew management services. Financial information about business segments follow: 2008

Shipping and

Transportation Distribution

ManpowerServices

(DisposalGroup) Elimination Consolidated

Net revenue P=9,798,192 P=1,428,028 P=2,643,808 (P=1,001,509) P=12,868,519 Segment results/net income 87,721 18,275 (6,573) – 99,424 Other information Segment assets 9,337,261 754,385 1,009,906 (1,692,532) 9,409,020 Segment liabilities 4,417,853 650,946 928,442 (1,179,006) 4,818,235 Other information: Capital expenditures 1,016,793 97,133 30,710 – 1,144,636 Depreciation and amortization 998,794 19,544 17,393 – 1,035,731

2007

Shipping and

Transportation

ManpowerServices

(Disposal Group) Elimination Consolidated Net revenue P=9,076,389 P=2,905,492 (P=925,913) P=11,055,968 Segment results/net income 440,849 (2,068) – 438,781 Other information Segment assets 8,734,235 1,049,982 (1,145,210) 8,639,007 Segment liabilities 3,789,124 977,726 (631,483) 4,135,367 Other information: Capital expenditures 1,565,647 15,984 – 1,581,631 Depreciation and amortization 1,158,897 19,446 – 1,178,343

31

2006

Shipping and

Transportation

ManpowerServices

(Disposal Group) Elimination Consolidated Net revenue P=9,421,167 P=1,835,347 (P=685,329) P=10,571,185 Segment results/net income 259,043 (67,167) – 191,876 Other information Segment assets 10,004,285 982,808 (685,127) Segment liabilities 920,860 5,486,314 Other information:

10,301,966 4,806,532 (241,078)

Capital expenditures 578,856 4,676 – 583,532 Depreciation and amortization 1,263,565 11,725 – 1,275,290 Disposal group’s operations are shown separately in the consolidated statement of income as a one line item ‘Net loss from disposal group’. See also Note 31.

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.

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 valuerecognized

on acquisition Previous

carrying value Cash and cash equivalents 148,246 148,246

Merchandise inventory 68,651Prepayments and other current assets 64,822Property, plant and equipment 11,009 11,009 411,798 Trade and other payables 223,096 223,096 Other liabilities 65,282 65,282 Net assets 123,420 123,420 Goodwill arising from acquisition 250,450 Total consideration satisfied by cash 373,870 Cashflow on acquisition:

Net cash acquired with the subsidiary 148,246Cash paid (373,870)Net cash outflow (225,624)

Trade and other receivables 119,070 119,070 68,651 64,822

411,798

From the date of acquisition, SOI has contributed P=18.9 million to the net income of the Group.

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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 2008, and cash flows beyond the five-year period are extrapolated using a zero percent growth rate. Key assumptions used in value in use calculation for December 31, 2008 The following describes each key assumption on which management has based its cash flow projections to undertake impairment testing of goodwill. Foreign exchange rates

Materials price inflation 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 decreases 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.

The assumption used to determine foreign exchange rate is a fluctuating Philippine peso which starts at a rate of P=40 to a dollar in 2008 until the fifth year.

As at December 31, 2008, the Group has not recognized any impairment in goodwill.

7. Cash and Cash Equivalents

2008Cash on hand and in banks P=1,020,602

2007 P=598,707

Cash equivalents 72,2411,092,843

222,154 820,861 Cash and cash equivalents included in the disposal

group classified as held for sale (see Note 31) 232,589 – P=860,254 P=820,861

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=14,825 and P=25,557 in 2008 and 2007, respectively.

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8. Trade and Other Receivables

2007

2008Trade (see Note 21) Freight P=794,438 P=650,903 Service fees 832,621 639,193

19,200 310,282

50,836 24,602

2,169,900

Passage 12,080 Others 321,555Nontrade (see Note 21) 242,667 474,884 Insurance and other claims 41,524Advances to officers and employees 40,416 2,285,301

1,985,574Trade and other receivables included in the disposal

group classified as held for sale (see Note 31) 364,899 – P=1,871,999 P=1,620,675

Less allowance for impairment losses 299,727 297,901 1,871,999

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.

The following table sets out the rollforward of the allowance for impairment losses:

As at December 31, 2008

Trade

Freight Nontrade Service fees Others

Insuranceand other

claims

Advances to officers and

employees Total Balances at beginning of year P=202,737 P=58,718 P=2,722 P=22,318 P=11,401 P=5 P=297,901

Allowance from acquired subsidiaries – 2,042 Provisions – –

– – – – 2,042 9,292 964 – – 10,256

Reversals – (12,011) – (2,216) (348) (5) (14,580)Changes through the income statement – (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=202,737 P=62,378 P=2,722 P=21,066 P=10,824 P=– P=299,727


Trade

Freight Service fees Others Nontrade

Insuranceand other

claims

Advances to officers and

employees Total Balances at beginning of year P=215,572 P=6,575 P=– P=321,283 P=47,845 P=2,722 P=48,569

Allowance from acquired subsidiaries – 7,084 – 1,884 Provisions

348 5 9,321 6,510 7,391 – – 4,478 – 18,379

Reversals (2,250) (3,602) – – – – (5,852)Changes through the income statement 4,260 3,789 – – 4,478 – 12,527 Allowances used to cover write-offs (17,095) – – (28,135) – – (45,230)

Balances at end of year P=202,737 P=58,718 P=2,722 P=22,318 P=11,401 P=5 P=297,901

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The following table sets out the analysis of collective and individual impairment of trade and other receivables:


Collectively

impairedIndividually

impaired Total Trade P=87,331 P=180,506 P=267,837

–1,501 9,323 10,824

P=88,832 P=210,895 P=299,727

Nontrade receivable 21,066 21,066 Insurance and other claims As at December 31, 2007

Individually impaired

Collectively impaired Total

Trade 116,695 147,482 P=264,177 Nontrade receivable 2,216 20,102 22,318 Receivable from insurance and other claims 348 11,053 11,401 Advances to officers and employees 5 – 5 P=119,264 P=178,637 P=297,901 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

2008 2007 Fuel and lubricants - at cost P=89,542 P=113,506 Materials, parts and supplies - at NRV 286,794 156,320 Total inventories at lower of cost and NRV 376,336

31,671 –

269,826 Inventories included in the disposal group classified

as held for sale (see Note 31) P=344,665 P=269,826

The allowance for inventory obsolescence as at December 31, 2008 and 2007 amounted to P=61.2 million and P=70.6 million, respectively. The cost of inventories recognized as “Cost of sales” in the consolidated statements of income amounted to P=966,463, P=187,961 and nil in 2008, 2007 and 2006, respectively.

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10. Other Current Assets

2008 2007 Prepaid expenses P=601,865 P=675,160 Input value-added tax (VAT) 89,898 81,441 Others 15,022 32,191 706,785 788,792 Less allowance for impairment losses – 29,938 706,785 758,854 Prepaid expenses and other current assets included

in the disposal group classified as held for sale (see Note 31) 78,836 –

P=627,949 P=758,854 11. Investments in Associates

2008 2007 Acquisition cost: Balances at beginning of year P=19,249 P=18,486

(400)

Additions during the year – 16,500 Acquisition of subsidiaries previously accounted for as associates – (11,750) Disposals during the year (3,986) Balances at end of year 18,849 19,250 Accumulated equity in net earnings: Balances at beginning of year 5,451 18,869 Equity in net earnings (losses) during the year (7,639) 410 Reversal of equity in net earnings of acquired subsidiaries previously accounted for as associates – (13,828) Balances at end of year (2,188) 5,451 16,661 24,701 Share in CTA of associates 685 – 17,346 24,071 Investments in associates included in the disposal

group classified as held for sale (see Note 31) 4,988 – P=12,358 P=24,701

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

Effective Percentage of Ownership

Associates Country of Incorporation Nature of Business 2008 2007

Aboitiz Project/T.S. Corporation (APTSC) Philippines

Project logistics and consultancy 50% 50%

MCCP Philippines (MCCP) Philippines Container transportation 33% 33% WG & A Jebsen Ship

Management, Inc. (WJSMI) Philippines Ship management 0% 40%

36

On June 5, 2007, the BOD of AOI approved the acquisition from a third party additional 50% shares of stocks of RVSI and RTSI. In connection with the acquisition, AOI paid P=41,000 in cash. The acquisition resulted in the recognition of goodwill amounting to P=15,063. Summarized financial information of the associates follows:


APTSC MCCP Total Current assets P=32,221 P=148,125

1,750 – 1,750 21,507 169,871 191,378

Noncurrent liabilities 78 – 78 Revenue 67,176 284,922 352,098 Net income (loss) 4,252 (25,333)

P=180,346 Noncurrent assets Current liabilities

(29,585)


APTSC MCCP WJMSI TotalCurrent assets P=14,873 P=79,894 P=457 P=95,224Noncurrent assets 1,448 – – 1,448Current liabilities 8,151 71,274 – 79,425Noncurrent liabilities 68 – – 68Revenue 12,783 54,274 – 67,057Net income (loss) 3,906 (6,568) – (2,662)


APTSC WJMSI RTSI RVSI TotalCurrent assets P=15,845 P=457 P=18,448 P=42,799 P=77,549Noncurrent assets 1,138 – 5,184 8,035 14,357Current liabilities 12,263 – 12,654 37,065 61,982Noncurrent liabilities 60 – – 2,296 2,356Revenue 10,903 – 34,199

12. AFS Investments

54,877 99,979Net income (loss) 1,900 22 870 26 2,818

2008 2007 Quoted equity investments Listed shares of stocks P=17,225 P=22,137 Club shares 4,000 4,700 Unquoted equity investments - at cost 15,828 17,595 37,053 44,432 AFS investments included in the disposal group

classified as held for sale (see Note 31) 9,419 – P=27,634 P=44,432

37

Listed shares of stocks and club shares are carried at market value. Unrealized gains or losses on AFS investments are included in the “Equity” section of the consolidated balance sheets.

Unquoted shares of stocks that do not have market values and there are no other reliable sources of their fair values are stated at cost. The Group intends to dispose these investments by redemption and through sale. The following table shows the movement of “Unrealized mark-to-market gain on AFS investments” account:

2008 2007 At beginning of year P=12,563 P=19,600 Decrease in value of AFS investments during the year (6,942) (3,572) Realization of increase in value of AFS investments through sale – (3,465) At end of year P=5,621 P=12,563

13. 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 18). The related depreciation of the leased containers amounting to P=62.14 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 one ship in operation in 2006 resulting in a gain of P=222.4 million and another three ships in operation in 2007 resulting in a net 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. This has been recognized in the consolidated statements of income in the line item “Cost and Expenses”.

38


Ships in

Operation ContainersHandling

EquipmentFlight

EquipmentFurniture and

EquipmentLand and

Improvements Buildings and

WarehousesLeasehold

ImprovementsTransportation

Equipment

Ships UnderRefurbishment

andConstruction

in Progress TotalCOST 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 1,697,262 1,458,885 1,055,811 122,620 548,602 60,070 134,049 145,348 198,353 6,514 5,427,514 Acquisition of subsidiary – – – – 14,086 – 1,650 – 7,712 – 23,448 Depreciation and amortization for

the year Disposals

611,258 67,949 81,464 1,533 74,690 8,383 29,754 17,310 40,747 18,402 951,490

(132,697) (162,200) (37,239) (81,487) (72,225) (3,258) (1,966) (87) (91,806) – (582,965)Retirements/

Reclassifications (84) 10,708 1,686 (62,495)

(15,286)

(128,756) (1,892) 7,795 18,955

(81) 1,239 27,935 Impairment for the year –

–– – 15,188 –

–– – – – – 15,188

(15,286)Cumulative translation adjustment – – – – – – –At December 31 2,047,067 1,362,742 1,092,545 57,770 584,108 65,114 174,195 163,810 156,692 52,851 5,756,894

28,1953,051,872 174,593 97,597 5,210 147,965 352,661 74,485 142,657 162,014 4,237,249Property and equipment included in

the disposal group held for sale (see Note 31) – – 9,063 – 17,825 – – 13,391 42,752

P=5,210 P=148,623

2,473 –

Net Book Value P=3,051,872 P=174,593 P=88,534 P=130,140 P=352,661 P=74,485 P=140,184 P=28,195 P=4,194,497

As of December 31, 2007

Furniture and

EquipmentCOST

Ships inOperation Containers

HandlingEquipment

FlightEquipment

Land and Improvements

Buildings andWarehouses

LeaseholdImprovements

TransportationEquipment

Ships UnderRefurbishment

andConstruction

in Progress Total

At January 1 P=5,305,373 P=1,767,485 P=1,240,955 P=156,332 P=622,301 P=257,606 P=10,270,452 cations

4,638,474

P=373,150 37,878

P=238,842 P=306,339 P=2,069Additions 1,139,753 146,592 18,470 3,606 56,881 11,996 19,139 71,174 37,612 1,543,101DisposalsReclassifi

(1,806,652) (201,723) (44,128) (513) (14,605) (21,003) (67,131) (39,782) (25,410) – (2,220,947)– (1,773)

1,710,581(4,571) (3,193) (4,944) 2,182 5,583 (8,138) – 25,141

64,82210,287

At December 31 1,210,726 156,232 659,633 392,207 189,290 277,558 303,370 9,602,893

ACCUMULATED DEPRECIATION, AMORTIZATION AND IMPAIRMENT LOSS

At January 1 1,739,126 1,515,784 110,231

9,511 Dis

6,047 – – – –145,348 6,514

1,009,626 493,725 57,628 166,743 158,040 179,856 – 5,430,759Depreciation and amortization for

the year posals

665,810 137,384 88,711 9,624 73,395 17,766 30,909 40,328 6,514 1,079,952(707,268) (193,594) (43,352) (3,282) (18,485) (9,250) (53,327) (39,636) (21,826) – (1,090,020)

Reclassifications (406) (689) 702 – (33) 2,181 –

2,867 (3,965) (5) – 652Impairment for the year – – 124 – 6,171At December 31 1,697,262 1,458,885 1,055,811 122,620 548,602 60,070 134,049 198,353 5,427,514

Net Book Value P=2,941,212 P=251,696 P=154,915 P=33,612 P=111,031 P=332,137 P=55,241 P=132,210 P=105,017 P=58,308 P=4,175,379

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14. Other Noncurrent Asset

2008 2007Software development costs - net P=188,210 P=246,783 Pension assets (see Note 29) 39,501 50,781Refundable deposits and others 114,940 90,624 342,651 388,188Other noncurrent assets included in the disposal

group classified as held for sale (see Note 31) 1,503 P=388,188

– P=341,148

Movement of the Group’s software development costs follows:


In Use Under

Development Total Cost: At January 1 P=499,176 P=48,423 P=547,599 Additions 29,710 – 29,710 Reclassifications 48,423 (48,423) – At December 31 577,309 – 577,309

Accumulated amortization: At January 1

389,099

300,816 – 300,816 Amortization for the year 84,241 – 84,241 Adjustment 4,042 – 4,042 At December 31 – 389,099 Net book values P=188,210 P=– P=188,210


In UseUnder

Development Total Cost: At January 1 P=394,334 P=119,955 P=514,289 Additions 38,530 – 38,530 Reclassifications 71,532 (71,532) – Disposals/retirements (5,220) – (5,220)At December 31 499,176 48,423 547,599

Accumulated amortization: At January 1 202,425 – 202,425 Amortization for the year 98,391 – 98,391 At December 31 300,816 – 300,816 Net book values P=198,360 P=48,423 P=246,783

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15. Loans Payable

2008 2007US dollar loans P=235,224 P=163,056US dollar overdraft facility 43,655 96,024Peso loans 551,000 – 829,879 259,080Loans payable included in the disposal group

classified as held for sale (see Note 31) 278,879 – P=551,000 P=259,080

The bank loans pertain to US dollar unsecured short-term notes payable obtained by AJBTC and JMI from local banks and have outstanding balances amounting to US$4.95 million and US$3.95 million as at December 31, 2008 and 2007, respectively. These loans bear interest rates of 5.45% to 5.99% in 2008 and 2007. These loans will mature in various dates until November 2009. 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 borrower’s earnings and a guarantee of JMBVI shareholder. 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 6.00% to 11.00% in 2008. These loans will mature in various dates until October 2009.

16. Trade and Other Payables

2008 2007Trade (see Note 20) P=1,460,437 P=1,588,605Accrued expenses 1,176,008 1,062,650Nontrade (see Note 20) 1,050,131 861,853Unearned revenue - net of deferred discounts 118,671 105,533 3,805,247 3,618,641Trade and other payables included in the disposal

group classified as held for sale (see Note 31) 399,054 – P=3,406,193 P=3,618,641

Trade and other payables are non-interest bearing and are normally on 30 days’ term.

17. Long-term Debt

Current portion of long-term debt as at December 31, 2007 represents secured peso-denominated loans obtained from Banco De Oro with effective interest ranging from 9.9% to 10.7% and fixed interest rate of 10.04%. The bank loans are collateralized by a certain vessel of the Company with carrying amount of P=82.2 million and an aggregate appraised value of P=350.0 million.

41

The AU dollar-denominated loan from Vereins Bank pertains to unsecured 5-year term loan obtained by International Marketing and Logistics PTY Ltd (IML), a subsidiary of JMBVI based in Australia. The loan bears a floating interest rate of 7.38% in 2007. This loan requires IML to ensure that during the term of the loan, dividend payments will be restricted to ensure that cash and cash equivalents reduced by the dividend payments exceed the debt service of the following half year. 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.

18. Finance Lease The Parent Company acquired certain containers under finance lease arrangements denominated in US dollars. Containers as at December 31, 2008 and 2007, shown under “Property and equipment” account in the consolidated balance sheets, include the following amounts under finance lease:

P=1,073,289 2008 2007Cost P=1,037,370 Less accumulated depreciation 876,769 838,507Net book value P=160,601 P=234,782

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

2008 2007Minimum lease payments due within one year P=81,692 P=90,732Beyond one year 32,846 79,683Total minimum lease payments 114,538 170,415Less amount representing interest 2,014 7,588Present value of minimum lease payments 112,524 162,827Less current portion 81,692 90,732 P=30,832 P=72,095

The outstanding balance of the US dollar-denominated finance lease obligation of US$2.4 million and US$3.6 million as at December 31, 2008 and 2007, respectively, have been restated at the rate prevailing as of those dates of P=47.52 and P=41.41 to US$1, respectively.

19. 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.

42

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. 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 sheet is presented at amortized cost. Increase in carrying value represents accretion of interest expense amounting to P=2.1 million and P=1.9 million in 2008 and 2007, respectively. As at December 31, 2008, the remaining authorized preferred shares are 4,565,330 and the outstanding preferred shares totaled 4,560,417.

20. 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. Thus, resulting to an increase in common shares’ authorized capital

43

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

SharesPeso

Values Common shares issued: Balance at beginning of year 2,484,652,900 P=2,484,653 Less treasury shares

2,446,136,40038,516,500 58,715

P=2,425,938

b. Retained earnings

Retained earnings include undistributed earnings amounting to P=157.7 million in 2008 and P=155.7 million in 2007 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, 2008, AJBTC, AJMSI and JMI paid dividends to minority interests amounting to P=15,000, P=938 and P=2,625, respectively.

21. Related Party Transactions 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:

2008 2007 2006

Revenue Purchases/

Expenses Revenue Purchases/Expenses Revenue

Purchases/Expenses

Pilmico Foods Corporation (PFC) P=93,161 P=– P=49,871 P=– P=90,138 P=–

Pilmico Animal Nutrition Corporation (formerly Fil-am Foods, Inc.) (PANC) 15,786 42 37,838 19 63,347 13

APTSC 2,893 – 6,730 222 8,298 553 Aboitiz Construction

Group, Inc. (ACGI) 85

54,900 75,426

37 655 37 2,594 28 Total Distribution

Logistics Systems, Inc. (TDLSI) – 107,614 –

RVSI – – – – 150,806 263

(Forward)

44

2008 2007 2006

Revenue Purchases/

Expenses Revenue Purchases/Expenses Revenue

Purchases/Expenses

Abotrans Brokerage Corporation (ABC) P=– P=– P=– P=– P=8,282 P=–

AEV – 40,044 – 30,465 421 13,628 J&A Services – 39,279 – 22,956 – 33,770 ACO 18,377

–

P=151,148 P=174,852

– 30,977 – 51 5,222 RTSI – – – 418 – Others 36,900 28,833 347 24,172 77,721 45,949 P=148,825 P=246,826 P=95,441 P=402,076 The consolidated balance sheets include the following amounts with respect to the transactions with the above related parties: 2008 2007

Trade/Nontrade

Receivables

TradePayable and

Other CurrentLiabilities

Trade/Nontrade Receivables

TradePayable and

Other CurrentLiabilities

ACO P=1,500 P=– P=1,500 P=2,829 APTSC 937 – 1,690 – PANC 224 – 5,625 – TDLSI 5 325 738 712 AEV 2 331,888 – 77,862 PFC – – 4,532 – J&A Services – – 71 907

– –

P=26,461

ACGI – – Others 23,793 97,751 1,770 44,063 P=429,964 P=15,926 P=126,373

AEV owns 71% of the common shares of the Group. ACO is the ultimate parent of the Group and owns 17% of the common shares of the Group. PFC FFI, ACGI, TDLSI and ABC are under common ultimate ownership with the 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=63.1 million, P=63.9 million and P=55.6 million in 2008, 2007 and 2006, respectively.

b. 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.

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

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

d. AOI, ZIP, WSI and AJBTC places temporary cash advances to Parent Company that amounted to P=125.5 million and P=43.3 million as of December 31, 2008 and 2007, respectively. The advances are non-interest bearing.

45

e. AJBTC provided ship management services to the Parent Company that amounted to P=48.2 million, P=75.4 million and P=64.5 million in 2008, 2007 and 2006, respectively.

f. AOI provided management services to ZIP at fess based on the agreed rates. Management

service fee to AOI amounted to P=11.52 million, P=11.6 million and nil in 2008, 2007 and 2006, respectively.

Compensation of the Group’s key management personnel

2008 2007 2006Short term employee benefits P=82,991 P=81,780 P=57,703Post-employment benefits 3,852 3,507 4,604 P=86,843 P=85,287 P=62,307

22. Operating Expenses

2008 2007 2006Fuel and lubricants P=3,341,247 P=2,612,190 P=3,367,745Charter hire (see Note 35)

Insurance

Others

2,020,059 2,315,748 1,331,950Outside services 1,046,222 626,094 604,343Depreciation and amortization

(see Note 25) 662,075 726,914 863,766Repairs and maintenance 397,094 445,031 375,671Personnel (see Notes 26 and 29) 384,332 412,875 404,280Food and subsistence 182,226 187,041 229,222

133,878 177,496 239,566Steward supplies 76,311 88,978 89,087Commissions 43,943 82,930 134,381

448,634 637,165 377,530 8,736,021 8,312,462 8,017,541Operating expenses attributable to

the discontinued operations (see Note 31) 1,961,815 2,245,331 1,343,601

P=6,774,206 P=6,067,131 P=6,673,940

46

23. Terminal Expenses

2008 2007 2006Transportation and delivery P=548,494 P=244,203 P=170,527Outside services (see Notes 21

and 35)

256,191

P=1,076,792

257,496 277,710 320,974Depreciation and amortization

(see Note 25) 173,969 241,976 Personnel (see Notes 26 and 29) 101,572 97,841 97,014Repairs and maintenance 73,593 59,782 89,654Rent (Note 35) 45,246 48,785 42,402Fuel and lubricants 43,598 35,409 41,097Others 52,655 71,086 60,813 P=1,296,623 P=1,078,672

24. Overhead Expenses

2008 2007 2006Personnel (see Notes 26 and 29) P=873,812 P=776,774 P=564,872Depreciation and amortization

(see Note 24)

91,952

34,904 8,504

1,604,673

199,686 209,453 155,333Outside services 151,739 134,072 133,365Advertising 103,395 108,015 Communication, light and water 94,246 96,137 76,074Rent (Note 35) 85,490 106,577 77,667Entertainment, amusement and

recreation 38,478 22,473Provision for probable losses 11,906 51,338Others 339,459 222,840 431,599 1,894,809 1,700,678 Overhead expenses attributable

to the discontinued operations (see Note 31) 586,239 635,097 507,805

P=1,308,570 P=1,065,581 P=1,096,868

47

25. Depreciation and Amortization Expenses

2008 2007 2006Ships in operation and

improvements (see Note 13) P=628,043 P=725,073 P=813,280Other property and equipment

(see Note 13) 323,447 354,879 400,883

1,178,343

Software development costs (see Note 14) 84,241 98,391 61,127

1,035,731 1,275,290Depreciation and amortization

expenses attributable to the discontinued operations (see Note 31) 17,393 19,446 11,725

P=1,018,338 P=1,158,897 P=1,263,565

26. Personnel Expenses

2008 2007 2006Salaries and wages P=938,868 P=871,081 P=706,874Crewing cost 215,318 219,309 243,094Retirement benefits (see Note 29) 36,864 22,540 10,779Other employee benefits 168,666 174,560 105,419 1,359,716 1,287,490 1,066,166Personnel expenses attributable

to the discontinued operation (see Note 31) 279,295 278,543 122,305

P=1,080,421 P= 1,008,947 P= 943,861

27. Finance Cost

2008 2007 2006Interest expense

(see Notes 15, 17 and 18) P=75,507 P=100,568 P=353,049Other financing costs 1,478 2,018 3,012 76,985 102,586 356,061Finance costs attributable to the

discontinued operation (see Note 31) 14,200 10,277 9,789

P=62,785 P=92,309 P=346,272

48

28. Other Income

2007 2008 2006Management income P=45,126 P=14,377 P=2,752Commission income 37,226 11,848 Insurance gain

82,918

–22,853 – –

Recovery of inventory obsolescence 5,003 32,081 –Others 77,444 26,301 193,126 135,750 29,053Other income attributable to

the discontinued operation (see Note 31) 25,329 10,700 7,083

P=167,797 P=125,050 P=21,970 29. 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 of December 31, 2008 and 2007. The following tables summarize the components of net benefit expense recognized by AOI, JMI, AJBTC and SFFC as included in the consolidated statements of income and the funded status and amounts as included in the consolidated balance sheets.

Net Benefit Expense

2008 2007 2006Current service cost P=10,980 P=8,754 P=5,025Interest cost on benefit obligation 6,490 7,708 5,743Net actuarial loss (gain) (656) 1,847

(3,506)165

Expected return on plan assets (4,112) (2,686)Past service cost: Vested benefits – 2,679 – Nonvested benefits 764 763 – 14,072 17,639 8,247Net benefit expense attributable

to the discontinued operation (see Note 31) 9,250 – –

Net benefit expense (P=4,822) P=17,639 P=8,247 Actual return on plan assets P=2,773 P=4,495 P=8,321

49

Benefit Liability

2008 2007Defined benefit obligation P=82,994 P=70,786Fair value of plan assets (58,345) (55,810)Unfunded obligation 24,649 14,976Unrecognized net actuarial gains

(8,170)13,580 15,536

Unrecognized past service cost (5,673) 32,556 22,342Benefit liability included in the disposal group held

for sale (see Note 31) 8,986 – P=23,570 P=22,342

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

2008 2007Defined benefit obligation at January 1 P=70,786 P=97,909Defined benefit obligation of disposed subsidiary –

14,458

763Actuarial gains on obligations

(11,355) Defined benefit obligation at December 31 P=70,786

(6,825) Defined benefit obligation of an acquired subsidiary 6,629Interest cost 6,490 7,708Current service cost 10,980 8,754Past service cost: Vested benefits – 2,679 Nonvested benefits –

(1,540) (50,517)Benefits paid (3,139)

P=82,994 Change in the fair value of plan assets are as follows:

2008 2007

Fair value of plan assets at January 1 P=55,810 P=38,904Fair value of plan assets of disposed subsidiary (5,716) –Fair value of plan assets of an acquired subsidiary – 481Expected return 3,506 4,299Actual contributions 16,833 Benefits paid

P=58,345 P=55,810

15,069(11,355) (3,139)

Actuarial loss (gain) on plan assets (733) 196Fair value of plan assets at December 31

50

Unrecognized actuarial loss are as follows:

2008 2007 2006Net cumulative unrecognized actuarial

loss at January 1 (P=15,536) P=49,115 P=8,406Net cumulative unrecognized loss of

disposed subsidiary 2,107

(196)Actuarial loss (gain) on obligations (1,540)

P=49,115

– –Net cumulative unrecognized actuarial

gain of an acquired subsidiary – (12,091) –Actuarial loss (gain) on plan assets 733 (5,635)

(50,517) 46,509Actuarial loss (gain) recognized 656 (1,847) (165)Net cumulative unrecognized actuarial

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

The Parent Company, AOI and ZIP have defined benefit asset as of December 31, 2008 and 2007.

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. Net Benefit Expense

2008 2007 2006Current service cost P=18,247 P=15,514 P=8,936Interest cost on benefit obligation 12,148 8,569 Expected return on plan assets (14,047) (18,219)Recognized actuarial loss 1 2,276

P=4,901

9,539(19,680)

1,085Expense recognized due to asset limit 5,360 497 –Net benefit expense P=22,793 P=2,532 Actual return on plan assets P=6,396 P=30,674 P=21,799

Pension Asset

2007 2008

Fair value of plan assets P=135,895 P=160,973Defined benefit obligation (159,517) (150,151)Surplus (deficit) (23,622) 10,822Unrecognized net actuarial gain

P=39,501 P=50,781

70,246 40,456Asset not recognize due to asset limit (7,123) (497)Pension asset at year-end

51

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

2008 2007Defined benefit obligation at January 1 P=150,151 P=103,684Defined benefit obligation of disposed subsidiary (3,398) –

2,4628,787

Current service cost 18,247 15,16863,525

(43,475)P=150,151

Defined benefit obligation of an acquired subsidiary – Interest cost 12,148

Actuarial loss on obligations 23,224 Benefits paid (40,855) Defined benefit obligation at December 31 P=159,517

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

Fair value of plan assets at January 1

2008 2007P=160,973 P=154,299

Fair value of plan assets of disposed subsidiary Fair value of plan assets of an acquired subsidiary Expected return 14,047 Actual contributions Benefits paid Actuarial loss (gain) on plan assets

P=135,895

(9,852) –– 1,522

19,42919,233 18,308

(40,855) (43,830)(7,651) 11,245

Fair value of plan assets at December 31 P=160,973

Unrecognized actuarial gain (loss) are as follows:

2008 2007 2006Net cumulative unrecognized actuarial

gain at January 1 P=12,760 (P=40,456) P=39,798Net cumulative unrecognized actuarial

loss of an acquired subsidiary – (935)

11,245

–Actuarial loss on obligations (23,224) (63,525) (32,894)Actuarial loss (gain) on plan assets (7,651) 3,580Actuarial loss (gain) recognized 1,085 (1) 2,276Net cumulative unrecognized actuarial

gain (loss) at December 31 P=70,246 (P=40,456) P=12,760 The principal assumptions as of January 1 used in determining pension benefit obligations for the Group’s plans are shown below:

2008 2007 2006 Discount rate 8% 8% 14% Expected rate of return on assets 9% 15% 9% Future salary increases 5% 5% 5%

As at December 31, 2008, the discount rate, expected rate of return on assets and future salary increases are 36%, 10% and 6%, respectively.

52

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

2008 2007 2006 Investments in: Common trust fund

4 1 6 20 19

52% 5% 3% Notes receivable 11 Shares of stock Government securities and

other debt securities 24 63 74 Others 7 8 3 100% 100% 100%

Experience loss adjustments on plan liabilities as at December 31, 2008 and 2007 amounted to P=69.83 million and P=64.09 million, respectively. While experience adjustments on plan assets as at December 31, 2008 and 2007 amounted to P=0.5 million loss and P=12.7 million gain, respectively. The Group expects to contribute approximately P=56.2 million to the defined benefit pension plan in 2009.

30. Income Tax

The components of deferred income taxes are as follows:

2008 2007Deferred income tax assets: NOLCO P=170,883 P=107,848 Allowances for: Impairment of receivables 86,011 91,515 Inventory obsolescence 19,386 26,243

39,016 MCIT 44,584 35,265 Accrued pension benefits and others 31,498 359,880 292,369Deferred income tax liabilties: Unrealized foreign exchange gain (loss) 9,648 (1,964) Prepaid pension costs (3,720) Others (1,058)

(7,602)

(11,750) (1,918)

(3,160) 356,720 284,767Net deferred tax asset included in the disposal group

classified as held for sale (Note 31) 11,978 – P=344,742 P=284,767

53

2008 2007

In computing deferred income tax assets and liabilities as at December 31, 2008 and 2007, 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. 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:

2006Provision for income tax at statutory

tax rate of 35% P=167,548 P=265,595 P=75,845Income tax effects of: Changes in enacted tax rates 44,907 6,987 – Nondeductible interest expense

and others 17,425 12,317 1,155 – 30,109

(5,038) (13,884) –

(65,785) (49,826) (62,482)(95,556) –

– 7,284 – Gain on sale of investment

already subjected to final tax

(1,756) Expired MCIT Gain on sale of building already

subjected to final tax Interest income already

subjected to a lower final tax (16,984) (7,355) (45,032)

Income tax holiday (ITH) incentive on registered activities (see Note 34)

Dividend income (47,609) MCIT derecognized – 10,094 – NOLCO derecognized

– (1,460) (91,793) 47,672 182,143 (95,109)Benefit from income tax attributable

to the discontinued operation (see Note 31) (34,362) (20,102) (13,861)

P=13,310 P=162,041 (P=108,970)

Deferred income tax assets on NOLCO amounting to P=7,284 and MCIT of P=10,094 were not recognized in 2007 since management believes that the benefit will not be realized in the future.

54

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

P=2,852,276

Assets and liabilities of disposal group classified as held for sale as of December 31, 2008 represents those of the Aboitiz Jebsen Group. The results of operation of Aboitiz Jebsen Group are presented below:

2008 2007 2006Revenue P=2,595,627 P=1,770,846Cost and expenses (2,565,933) (2,880,428) (1,851,406)Other income(expense) (1,905) 46,186 27,254Income before income tax from a

disposal group 27,789 18,034 (53,306)Provision for income tax Current 24,131

13,861

20,102 13,861 Deferred 10,230 – – 34,361 20,102 Net loss for the year from a disposal

group (P=6,572) (P=2,068) (P=67,167) 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

697,172

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 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 4,185

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2008 2007 2006The net cash flows incurred by

Aboitiz Jebsen Group are as follows:

Operating P=206,835 (P=33,549) (P=20,534) Investing (21,176) (8,428) (11,846) Financing (59,301) (15,963) 305Net cash inflow (outflow) P=126,358 (P=57,940) (P=32,075) Earnings per share: Basic and diluted earnings per share from discontinued

operation (P=0.0027) (P=0.0009) (P=0.0275)

32. 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 amounting to P=39.2 million as of December 31, 2007 which management believes is probable of collection. In 2008, the insurance claims were received amounting to P=22.9 million and was recognized as “Other income” in the consolidated statement of income.

As at December 31, 2008, the Parent Company has provided guarantees on the bank loans of AOI, AODI and ZIP amounting to P=200 million.

33. Earnings Per Common Share

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

2008 2007 2006 Net income attributable to equity

holders of the parent (a) P=82,815 P=419,970 P=197,301 Weighted average number of common

shares outstanding for the year (b): 2,446,136,400 2,446,136,400 2,340,626,847 Earnings per common share (a/b) P=0.03 P=0.17 P=0.08

There are no dilutive potential common shares as at December 31, 2008, 2007 and 2006.

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34. 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. Incentives availed amounted to P=22.8 million in 2006 and nil in 2007 and 2008 since SuperFerry 12 resulted in a net taxable loss of P=17.1 million and P=2.8 million, respectively. 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 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=68.6 million in 2008 and P=55.8 million in 2007.

35. 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=159.4 million, P=160.1 million and P=247.2 million in 2008, 2007 and 2006, respectively.

57

P=141,648

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=387.8 million in 2008, P=326.0 million in 2007 and P=274.5 million in 2006.

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=1,962 million, P=2,245 million and P=1,332 million in 2008, 2007 and 2006, respectively.

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:

2008 2007Within one year P=75,566After one year but not more than five years 319,499 196,375More than five years 15,545 36,218 P=476,692 P=308,159

e. On July 2008, the Parent Company entered into an agreement to charter the vessel,

MV Myriad, for three months at the rate of US$7 per day. On September 25, 2008, the board approved to extend the charter of the vessel by another six months with an option to renew for another three months.

f. The Parent Company disposed of its investment in a cargo-handling unit, Davao Integrated

Port and Stevedoring Services Corporation in 2006. The disposal resulted in a net gain of P=262,264.

g. On September 15, 2006, the Group acquired an additional 5.71% of the ALI’s voting shares of

minority interest, taking its ownership to 100%. ALI’s minority interest as of the acquisition date was 874,940. Cash consideration of P=869,000 was paid and the excess of 5,940 was recorded as “Acquisition of Minority Interest” under equity. The acquisition was accounted for as an equity transaction under the entity concept method.

h. 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.”

58

36. 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 interest rate risk resulting from movements in interest rates that may have an impact on outstanding long-term loans; credit risk involving possible exposure to counter-party default on its cash investments and receivables; liquidity risk in terms of the proper matching of the type of financing required for specific investments; 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. 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. As of December 31, 2008 and 2007, 10% and 7% of the Group’s long-term debt had floating interest rates based on LIBOR rates ranging from 6.47% to 7.73% and 10.1% to 12.1%, respectively, and 90% and 93% are with fixed rates both ranging from 9.9% to 10.7%, respectively (see Note 16). Interest rates of obligations under finance lease range from 8.2% to 13.7% (see Note 17). The carrying amounts, by maturity, of the financial instruments that are exposed to interest rate risk are as follows:


<1 year 1-5 years Total Obligations under finance lease P=81,692 P=30,832 P=112,524 Redeemable preferred shares – 17,790 17,790 P=81,692 P=48,622 P=130,314

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<1 year 1-5 years Total Long-term debt Fixed rate P=46,154 P=– P=46,154 Floating rate 166 8,763 8,929Obligations under finance lease 90,732 72,095 162,827Redeemable preferred shares – 15,687 15,687 P=137,052 P=96,545 P=233,597

The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Group’s profit before tax (through the impact on floating rate borrowings as at December 31, 2007:

Increase (decrease)

in basis points

Effect onprofit before tax

for the year Long-term debt 100 (P=5,844) (100) 4,742

There is no other impact on the Group’s equity other than those already affecting the consolidated statement of income. 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 of December 31, 2008 and 2007, the Group’s exposure to equity price risk is minimal. 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 37). 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.

60

The credit quality per class of financial assets that were neither past due nor impaired is as follows:


Neither past due nor impaired High Medium Low

Past due or individually

impaired Total Cash in banks P=1,020,601 P=– P=– P=– P=1,020,601 Cash equivalents 72,241 – – – 72,241 Trade receivables

P=3,511,853

Service fees 241,501 18,154 30,764 74,897 832,621 Freight 503,266 226,985 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 159,241 – 2,096 81,329 242,666 Insurance and other claims 19,220 – – 22,304 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 96,658 – – – 96,658 Total P=2,354,516 P=276,291 P=69,682 P=811,364


Neither past due nor impaired High Medium Low

Past due or individually

impaired Total Cash in banks P=551,694 P=– P=– P=– P=551,694 Cash equivalents – –

157,104 17,052 –

176

23,449

– 16,283

Total P=169,012

222,154 – 222,154 Trade receivables Service fees 441,596 50,917 10,257 136,423 639,193 Freight 106,235 370,512 650,903 Passage 18,151 – 1,049 19,200 Others 307,561 – – 2,722 310,283 Nontrade receivables 439,001 11,836 23,870 474,883 Insurance and other claims 17,804 – – 33,033 50,837 Advances to officers and employees 20,959 24 40 3,579 24,602 Quoted equity investments Listed shares of stocks 23,449 – – – Club shares 4,700 – – 4,700 Unquoted equity investments – – – 16,283 Refundable deposits 16,656 – – – 16,656

P=2,237,112 P=27,525 P=571,188 P=3,004,837

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.

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The aging analysis per class of financial assets that were past due but not impaired is as follows:


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=1,020,601 P=– P=– P=– P=– P=– P=1,020,601 Cash equivalents 72,241 – – – – – 72,241 Trade receivables

Freight 290,419 Passage 39

Nontrade receivables 28,183

–

Service fees 757,724 – – 6,718 5,801 62,378 832,621 87,617 78,336 102,062 33,267 202,737 794,438

10,347 1,575 119 – – 12,080 Others 195,398 81,976 16,662 2,835 21,962 2,722 321,555

161,337 464 14,916 16,700 21,066 242,666 Insurance and other claims 19,220 34 345 10,990 111 10,824 41,524 Advances to officers and employees 39,491 172 88 215 450 40,416 Quoted equity investments

Unquoted equity investments – – –

P=2,700,489

Listed shares of stocks 17,225 – – – – – 17,225 Club shares 4,000 – – – – – 4,000

15,828 – – 15,828 Refundable deposits 96,658 – – – – – 96,658 Total P=199,557 P=96,014 P=137,736 P=78,330 P=299,727 P=3,511,853


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=551,694 P=– P=– P=– P=– P=– P=551,694 Cash equivalents 222,154 – –

502,770 4,108

3 21 Others – – Nontrade receivables 880

410

969

– – – 222,154 Trade receivables Service fees 52,415 14,180 7,002 58,718 639,193 Freight 280,391 100,251 47,285 16,359 3,880 202,737 650,903 Passage 18,151 934 91 – 19,200

307,561 – – 2,722 310,283 451,013 405 154 113 22,318 474,883

Insurance and other claims 17,803 176 21,047 11,401 50,837 Advances to officers and employees 21,023 541 799 1,265 5 24,602 Quoted equity investments Listed shares of stocks 23,449 – – – – – 23,449 Club shares 4,700 – – – – – 4,700 Unquoted equity investments 16,283 – – –

– – 16,283

Refundable deposits 16,656 – – – – – 16,656 Total P=2,433,648 P=154,974 P=62,661 P=24,452 P=31,201 P=297,901 P=3,004,837

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, in general, matches the appropriate long-term funding instruments with the general nature of its equity investments. The Group’s policy is that not more than 35% of borrowings should mature in any 12-month period. As at December 31, 2006, 28% of its long-term debt will mature in less than one year.

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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 Group’s long-term debt and redeemable preferred shares are both subject to fixed interest rates. The following table sets forth details of the remaining contractual maturities of liabilities:


Contractual undiscounted payments

Carrying

value On demand Less

than 1 year 1 to 5 years Total Trade and other payables Trade P=1,460,437 P=376,724 P=1,083,713 P=– P=1,460,437 Accrued expenses 1,176,008 106,515 1,069,493 – 1,176,008

116,254 739,004

P=4,650,504

Nontrade 694,292 95,622 598,670 – 694,292 Amounts owed to

related parties 355,838 240,349 255,421 – 495,770 Loans payable 829,879 – 855,258 Redeemable preferred

stocks 17,790 – – 27,363 27,363 Obligation under capital

lease 112,524 – 87,401 38,025 125,426 Other noncurrent liabilities 3,736 – – 3,736 3,736 P=935,464 P=3,833,702 P=69,124 P=4,838,290 As at December 31, 2007

Contractual undiscounted payments

Carrying

value On demand Less

than 1 year 1 to 5 years Total Trade and other payables Trade P=1,588,605 P=1,445,287 P=143,318 P=– P=1,588,605 Accrued expenses 1,062,650 1,062,650 – – 1,062,650 Nontrade 861,853 869,600 – – 869,600

267,642 Loans payable 259,080 – 267,642 – Redeemable preferred

shares 15,687 – – 29,431 29,431 Obligation under finance

lease 162,827 – 96,567 73,850 170,417 Long-term debt 55,083 – 49,035 9,140 58,175 P=4,005,785 P=3,377,537 P=556,562 P=112,421 P=4,046,520

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Foreign exchange risk The foreign exchange risk of the Group is mainly with respect to its foreign currency-denominated bank loans, obligation under capital lease, revenues, crew salaries. To mitigate the risk of incurring foreign exchange losses, foreign currency holdings are matched against the potential need for foreign currency in financing equity investments and new projects. The following table sets forth the financial assets and financial liabilities denominated in foreign currency:

Peso

Equivalent

2008 2007

US Dollar Peso

Equivalent1 US Dollar 2 Financial Assets Cash $4,781 P=227,358 $1,846 P=76,137 Trade receivables 9,516 452,270 7,703 317,500 Amounts owed by related parties 1,313 62,370 3,259 134,315 Unquoted AFS investments – – 168 6,926 Total Financial Assets $15,610 P=741,998 $12,976 P=534,878

2008 2007

US Dollar Peso

Equivalent1 US Dollar Peso

Equivalent2 Financial Liabilities Loans payable

266,059

1,334 63,404

$19,042

$5,869 P=278,879 $3,956 P=163,056 Trade payables 7,568 359,708 6,455 Advances from shipping

principals 396 16,302 Amounts owed to a related party 536 25,467 4,291 176,884 Obligations under capital lease 1,730 82,195 3,944 162,828 Total Financial Liabilities 17,037 809,653 P=785,129 Net foreign currency

denominated liabilities ($1,427) (P=67,655) ($6,066) (P=250,251)1USD1= P=47.52 2USD1= P=41.28

The following table demonstrates the sensitivity to a reasonably possible change in the US dollar exchange rates, with all other variables held constant, of the Group’s profit before tax as at December 31, 2008.

Increase (Decrease)

in US dollar rate

Effect onIncome Before

Income Tax US dollar denominated accounts 5% (P=12,520)US dollar denominated accounts (5%) 12,520 The increase in US dollar rate represents depreciation of Philippine peso while the decrease in US dollar rate represent appreciation of Philippine peso. There is no other impact on the Group’s equity other than those already affecting the consolidated statement of income.

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Capital Management 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. No changes were made in the objectives, policies or processes during the years ending December 31, 2008 and 2007.

P=829,879

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. The table below summarized the Group’s net debt and capital:

2008 2007Loans payable P=259,080Long-term debt – 55,083Obligation under capital lease 112,524 162,827Redeemable preferred shares 17,790 15,687Cash and cash equivalents (1,092,843) (820,861)Net debt (P=132,650) (P=328,184)Equity attributable to equity holders of the

Parent P=4,556,281 P=4,454,081 Capital and net debt P=4,423,631 P=4,125,897 Gearing ratio (3.00%) (7.95%)

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37. 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, 2008 and 2007: 2008 2007

CarryingAmount Fair Value

Carrying Amount Fair Value

FINANCIAL ASSETS Loans and receivables Cash P=1,020,601 P=1,020,601 P=551,694 P=551,694

72,241 222,154

3,175,074

Cash equivalents 72,241 222,154 Trade and other receivables Trade receivables Service fees 770,243 770,243 580,475 580,475 Freight 591,701 591,701 448,166 448,166 Passage 12,080 12,080 19,200 19,200 Others 318,833 318,833 307,560 307,560 Nontrade 221,601 221,601 452,565 452,565 Insurance and other claims 30,700 30,700 39,436 39,436 Advances to officers and

employees 40,416 40,416 24,597 24,597 Refundable deposits 96,658 95,995 16,656 13,411 3,174,411 2,662,503 2,659,258AFS investments Quoted shares of stocks Listed shares of stocks 17,225 17,225 23,449 23,449 Club shares 4,000 4,000 4,700 4,700 Unquoted shares of stocks

15,828 15,828 16,283 16,28337,053 37,053 44,432 44,432

P=3,212,127 P=3,211,464 P=2,706,935 P=2,703,690 FINANCIAL LIABILITIES

1,176,008 1,176,008 1,050,130 1,050,130

259,080

–

14,557

Other financial liabilities Trade and other payables Trade P=1,460,437 P=1,460,437 P=1,588,605 P=1,588,605 Accrued expenses 1,062,650 1,062,650 Nontrade 861,853 861,853 Loans payable 829,879 829,879 259,080 Long-term debt Fixed – – 46,154 46,154 Floating – 8,929 8,929 Obligations under finance lease 112,524 112,524 162,827 159,695 Redeemable preferred stocks 17,790 15,687 19,977 P=4,646,768 P=4,643,535 P=4,005,785 P=4,006,943 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.

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AFS investments

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.

Long-term debt The fair value of fixed-rate interest-bearing debt is based on the discounted value of future cash flows using the applicable rates for similar types of loans. Interest-bearing loans were discounted in 2006 using discount rates ranging from 5.1% to 6.4%. As at December 31, 2007, the carrying amount of long term fixed-rate interest-bearing debt approximates fair value. Loans payable For loans payable that reprice at least every three (3) months, the carrying value approximates the fair value because of recent and regular repricing based on current market rate. The Group’s loans payable are variable rate borrowings. 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 6.2% to 6.7% in 2008 and 7.2% to 7.31% in 2007 were used in calculating the fair value of the Group’s redeemable preferred shares. Refundable deposits 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 and 7.3% to 7.4% in 2007 were used in calculating the fair value of the Group’s refundable deposits.

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. Obligations under finance lease The fair values of obligation under finance lease are based on the discounted net present value of cash flows using an effective discount rate of 12.6% as at December 31, 2007. As at December 31, 2008, the obligation under finance lease approximates fair value due to the relative short-term maturity of this financial instrument.

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