Gr Grac ce e Co Corp po or ra atiion n Fin nancial Sta atem ments for the t ye ear end ded Decem D mber r 31, 2011 2
Grace Corporation Statement of Management Responsibility for Financial Statement
The management for Grace Corporation is responsible for all information and representations contained in the statements of financial position as at December 31, 2011 and 2010, and the statements of income, statements of comprehensive income, statements of changes in equity and statements of cash flows for each of the two years in the period ended December 31, 2011, and the summary of significant accounting policies and other explanatory notes. The consolidated financial statements have been prepared in accordance with Philippine Financial Reporting Standards and reflect amounts that are based on the best estimates and informed judgment of management with an appropriate consideration to materiality. In this regard, management maintains a system of accounting and reporting which provides the necessary internal controls to ensure that transactions are properly authorized and recorded, assets are safeguarded against unauthorized use or disposition and liabilities are recognized. The management likewise discloses to the Company’s Audit Committee and to its external auditor: (i) all significant deficiencies in the design or operation of internal controls that could adversely affect its ability to record, process, and report financial data; (ii) material weaknesses in the internal controls, and (iii) any fraud that involves management or other employees who exercise significant roles in internal controls. The Board of Directors reviews the financial statements before such statements are approved and submitted to the stockholders of the Company. Guevarra & Co., the independent auditors appointed by the Board of Directors and stockholders, had audited the financial statements of the Company in accordance with Philippine Standards on Auditing and has expressed their opinion on the fairness of presentation upon completion of such audit, in their report to the stockholders and Board of Directors dated March 14, 2011.
Alfredo Cacho Chairman
Joselito T. Peron Corporate Secretary
PENDENT T AUDITOR RS’ REPOR RT INDEP The Sto ockholders and a the Boa ard of Directtors Grace Corporation C n 12 Nino oy Aquino Avenue A Parañaq que City, Ph hilippines We havve audited the t accompanying finaancial statem ments of Grrace Corporration whicch comprisee the stattements of financial position as aat Decembeer 31, 2011 and 2010, and the sta atements off compreehensive inccome, statem ments of ch hanges in eq quity and sta atements off cash flowss for each off the two o years in th he period en nded Decem mber 31, 20 011, and a su ummary of significant accounting g policiess and other explanatoryy informatio on. Manag gement’s Responsib R bility for the t Consollidated Fin nancial Sttatements s a fair presentation of these co onsolidated d Manageement is reesponsible for the preeparation and financia al statemen nts in accord dance with Philippine Financial Reporting R Sttandards, and a for such h internall control as manageement deteermines is necessaryy to enablee the prep paration off consolid dated finan ncial statem ments that are free fro om materia al misstatem ment, whetther due to o fraud orr error. Audito ors’ Respo onsibility al statemen nts based on n Our ressponsibility is to express an opinion on thesee consolidatted financia our aud dits. We co onducted ou ur audits in accordan nce with Ph hilippine Sttandards on n Auditing. Those standards s r require thatt we complyy with ethical requirem ments and plan and perform p thee audit to o obtain rea asonable asssurance ab bout whetheer the conssolidated fin nancial stattements aree free from material misstatemeent. dit involvess performin ng procedurres to obta ain audit evvidence ab bout the am mounts and d An aud disclosu ures in the consolidatted financiaal statemen nts. The pro ocedures seelected dep pend on thee auditor’s judgmen nt, includin ng the asseessment of the risks of o materiall misstatem ment of thee al statemen nts, whetheer due to frraud or errror. In mak king those risk assesssments, thee financia auditor considers internal co ontrol releva ant to the entity’s e prep paration an nd fair pressentation off order to dessign audit procedures p t that are app propriate in n the consolidated fiinancial stattements in o or the purpo ose of expreessing an op pinion on the t effectiveeness of thee the circcumstances,, but not fo entity’s internal co ontrol. An audit also includes evvaluating th he appropriiateness of accounting g t reasona ableness of accounting g estimates made by management m t, as well ass policiess used and the evaluatiing the overrall presenttation of thee consolidatted financia al statementts.
We believe that the audit evidence we have obtained and the report of other auditors are sufficient and appropriate to provide a basis for our audit opinion.
Opinion In our opinion, based on our audits and the report of the other auditors, the financial statements present fairly, in all material respects, the financial position of Grace Corporation as at December 31, 2011 and 2010, and their financial performance and their cash flows for each of the two years in the period ended December 31, 2011 in accordance with Philippine Financial Reporting Standards. Guevarra & Co. Archie D. Guevarra, CPA, JD Partner CPA Certificate No. 88118 SEC Accreditation No. 0114-AR-2 (Group A), February 11, 2010, valid until February 10, 2013 Tax Identification No. 152-884-511 BIR Accreditation No. 08-001998-46-2009, June 1, 2009, valid until May 31, 2012 PTR No. 3174587, January 2, 2012, Makati City
Grace Corporation Statement of Financial Position
ASSETS Current Assets Cash Trade and Other Receivables - net Marketable Securities Short-term Investments Merchandise Inventory Prepaid Expenses Total Current Assets Noncurrent Assets Property and Equipment - net Total Noncurrent Assets Total Assets
LIABILITIES AND EQUITY Liabilities Trade & Other Payables Loans Payable Income Tax Payable Total Liabilities Shareholders' Equity Ordinary Share Capital Subscribed Ordinary Share Capital Subscription Receivable Premium in excess of Par Retained Earnings Total Shareholders' Equity Total Liabilities and Shareholders' Equity
2011
2010
14,232,159.00 12,973,825.33 2,545,000.00 6,500,000.00 4,137,765.91 2,500,000.00 42,888,750.24
1,100,000.00 13,750,000.00 1,150,000.00 900,000.00 500,000.00 17,400,000.00
72,690,283.67 72,690,283.67 115,579,033.92
57,063,720.00 57,063,720.00 74,463,720.00
21,192,999.09 10,000,000.00 2,783,873.65
22,450,500.00 1,053,816.00
33,976,872.74
23,504,316.00
70,000,000.00 5,000,000.00 (2,125,000.00) 5,250,000.00 3,477,161.18 81,602,161.18
45,000,000.00 3,500,000.00 2,459,404.00 50,959,404.00
115,579,033.92
74,463,720.00
Grace Corporation Statement of Comprehensive Income
Income Net Sales Other Income Expenses Costs of Sales General and Admin Expense Distribution Expense Interest Expense Other Expenses Income Before Tax Income Tax Expense Net Income Other Comprehensive Income Total Comprehensive Income EPS
2011
2010
111,210,966.40 1,951,430.33 113,162,396.74
53,439,000.00 110,000.00 53,549,000.00
56,091,844.91
34,785,500.00
37,884,905.00 2,783,520.00
11,779,500.00 1,150,000.00
114,830.00
445,500.00
1,891,438.00 98,766,537.91 14,395,858.83 4,318,757.65 10,077,101.18 10,077,101.18 13.44
70,000.00 48,230,500.00 5,318,500.00 1,595,400.00 3,723,100.00 3,723,100.00 8.27
Grace Corporation Statement of Changes in Equity
Ordinary Capital
Share
Subscribed Ordinary Share Capital
Subscription Receivable
Share Premium
Retained Earnings
Total
January 01, 2011
45,000,000.00
-
-
3,500,000.00
2,459,404.00
50,959,404.00
Net Income
-
-
-
-
10,086,216.55
10,086,216.55
OCI
-
-
-
-
-
-
Issuance of Shares
25,000,000.00
5,000,000.00
(2,125,000.00)
1,750,000.00
-
29,625,000.00
Cash Dividends
-
-
-
-
(7,500,000.00)
(7,500,000.00)
December 31, 2011
70,000,000.00
5,000,000.00
(2,125,000.00)
5,250,000.00
3,486,276.55
81,611,276.55
Grace Corporation Statement of Cash Flows CASH FLOWS FROM OPERATING ACTIVITIES Income Before Tax Adjustments Depreciation Interest Expense Gain on Sale of Securities Interest Income Dividend Income Accrued Expenses Operating income before working capital changes Changes in operating assets and liabilities Decrease/(Increase) in: Receivables Inventories Prepaid Assets Increase/(Decrease) in: Trade and Other Payables Cash generated from operations Income Tax Paid Cash provided by operating activities
14,408,880.79 4,373,436.33 114,830.00 (1,026,000.00) (894,873.33) (40,000.00) 665,500.00 17,601,773.79
765,027.67 (3,237,765.91) (1,990,000.00) (1,259,375.88) 11,879,659.67 (1,053,816.00) 10,825,843.67
CASH FLOWS FROM INVESTING ACTIVITIES Additions to Property and Equipment Short-term Investments Proceeds for the sale of securities Cash used by investing activities
(20,000,000.00) (12,080,000.00) 1,976,000.00 (30,104,000.00)
CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from borrowings Issuance of Shares Cash provided by financing activities Net Increase in Cash Adjustments Cash, January 1, 2011 Cash, December 31, 2011
7,900,000.00 29,625,000.00 37,525,000.00 18,246,843.67 (5,114,684.67) 1,100,000.00 14,232,159.00
Grace Corporation Notes to Financial Statements
Note 1 – Corporate Information Grace Corporation was incorporated in the Philippines and registered with the Securities and Exchange Commission (SEC) on May 10, 2009 under Registration No. 1007000. Its primary purpose is to engage in, operate, conduct, carry on and maintain the business of importing, exporting, buying, selling, handling and otherwise dealing in, all kinds of office, school and printing supplies and all kinds of office machinery and equipment as well as general commission business on the said products. The company’s principal place of business is located at 12 Ninoy Aquino Avenue., Parañaque City, Philippines.
Note 2 – Summary of Significant Accounting Policies Basis of Preparation The accompanying consolidated financial statements of the Group have been prepared on a historical cost basis, except for financial assets at fair value through profit or loss (FVPL). The financial statements are presented in Philippine Peso (P=). Statement of Compliance The consolidated financial statements of the Grace Corporation have been prepared in compliance with Philippine Financial Reporting Standards (PFRS). Future Changes in Accounting Policies The company will adopt the following new and amended Standards and Philippine Interpretations enumerated below when these become effective. Except as otherwise indicated, the company does not expect the adoption of these new and amended PFRS and Philippine Interpretations to have significant impact on the financial statements. Effective 2012 PAS 12 (Amendment), Income Taxes - Deferred Tax: Recovery of Underlying Assets The Amendment to PAS 12 is effective for annual periods beginning on or after January 1, 2012. It provides a practical solution to the problem of assessing whether recovery of an asset will be through use or sale. It introduces a presumption that recovery of the carrying amount of an asset will normally be through sale.
PFRS 7 (Amendments), Financial Instruments: Disclosures - Disclosures - Transfers of Financial Assets The Amendments to PFRS 7 are effective for annual periods beginning on or after July 1, 2011. The amendments will allow users of financial statements to improve their understanding of transfer transactions of financial assets (for example, securitizations), including understanding the possible effects of any risks that may remain with the entity that transferred the assets. The amendments also require additional disclosures if a disproportionate amount of transfer transactions are undertaken around the end of a reporting period. Effective 2015
PFRS 9, Financial Instruments: Classification and Measurement PFRS 9, as issued in 2010, reflects the first phase of the work on the replacement of PAS 39 and applies to classification and measurement of financial assets and financial liabilities as defined in PAS 39. The Standard is effective for annual periods beginning on or after January 1, 2013. In subsequent phases, hedge accounting and derecognition will be addressed. The completion of this project is expected in 2011. The adoption of the first phase of PFRS 9 will have an effect on the classification and measurement of the Group’s financial assets. The Group will quantify the effect in conjunction with the other phases, when issued, to present a more comprehensive picture. Cash and Cash Equivalents Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less from dates of acquisition and which are subject to an insignificant risk of change in value. Short-term Investments Short-term investments are short-term placements with maturities of more than three months but less than one year from the date of acquisition. These earn interest at the respective short-term investment rates. Financial Instruments Date of recognition The Group recognizes a financial asset or a financial liability in the consolidated statement of financial position when it becomes a party to the contractual provisions of the instrument. Purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace are recognized on the settlement date. Initial recognition of financial instruments All financial assets and financial liabilities are recognized initially at fair value. Except for securities at FVPL, the initial measurement of financial assets includes transaction costs. The Group classifies its financial assets in the following categories: financial assets at FVPL, loans and receivables, held-to-maturity (HTM) investments, and AFS financial assets. The Group also classifies its financial liabilities into financial liabilities at FVPL and other financial liabilities. The classification depends on the purpose for which the investments were acquired and whether they are quoted in an active market. The Group determines the classification of its financial instruments at initial recognition and, where allowed and appropriate, re-evaluates such designation at every reporting date. Financial instruments are classified as liability or equity in accordance with the substance of the contractual arrangement. Interest, dividends, gains and losses relating to a financial instrument or a component that is a financial liability, are reported as expense or income. Distributions to holders of financial instruments classified as equity are charged directly to equity, net of any related income tax benefits. Determination of fair value The fair value for financial instruments traded in active markets at the reporting date is based on their quoted market price or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs. When current bid and ask prices are not available, the price of the most recent transaction provides evidence of the current fair value as long as there has not been a significant change in economic circumstances since the time of the transaction. For all other financial instruments not listed in an active market, the fair value is determined by using appropriate valuation methodologies. Valuation methodologies include net present value techniques, comparison to similar instruments for which market observable prices exist, option pricing models, and other relevant valuation models. Inventories Inventories are carried at the lower of cost and net realizable value (NRV). Prepaid Expenses Prepaid expenses are carried at cost less the amortized portion. These typically comprise prepayments for commissions, marketing fees, advertising and promotions, taxes and licenses, rentals and insurance.
Property and Equipment Property and equipment, except for land, are carried at cost less accumulated depreciation and amortization and any impairment in value. Land is carried at cost less any impairment in value. The initial cost of property and equipment consists of its construction cost or purchase price and any directly attributable costs of bringing the property and equipment to its working condition and location for its intended use. Equity When the shares are sold at premium, the difference between the proceeds at the par value is credited to “Additional paid-in capital” account. Direct costs incurred related to equity issuance are chargeable to “Additional paid-in capital” account. If additional paid-in capital is not sufficient, the excess is charged against retained earnings. When the Group issues more than one class of stock, a separate account is maintained for each class of stock and the number of shares issued. Subscriptions receivable pertains to the uncollected portion of the subscribed shares. Retained earnings represent accumulated earnings of the Group less dividends declared. Own equity instruments which are reacquired (treasury shares) are recognized at cost and deducted from equity. No gain or loss is recognized in the consolidated statement of income on the purchase, sale, issue or cancellation of the Group’s own equity instruments. Any difference between the carrying amount and the consideration, if reissued, is recognized in additional paid-in capital. Voting rights related to treasury shares are nullified for the Group and no dividends are allocated to them respectively. When the shares are retired, the capital stock account is reduced by its par value and the excess of cost over par value upon retirement is debited to additional paid-in capital to the extent of the specific or average additional paid-in capital when the shares were issued and to retained earnings for the remaining balance. Revenue Revenue is recognized to the extent that it is probable that the economic benefits will flow to the company and the revenue can be reliably measured. Gain/loss on sale of investments Prior to January 1, 2010, gain or loss is recognized in the consolidated statement of income if the Group disposes some of its investment in a subsidiary or associate. Gain or loss is computed as the difference between the proceeds of the disposal and its carrying amount, including the carrying amount of goodwill, if any. Expenses Direct operating expenses and general and administrative expenses, except for lease agreements, are recognized as they are incurred. Earnings Per Share Basic earnings per share (EPS) is computed by dividing net income attributable to common equity holders by the weighted average number of common shares issued and outstanding during the year and adjusted to give retroactive effect to any stock dividends declared during the period. Diluted EPS is computed by dividing net income attributable to common equity holders by the weighted average number of common shares issued and outstanding during the year plus the weighted average number of common shares that would be issued on conversion of all the dilutive potential common shares. The calculation of diluted EPS does not assume conversion, exercise or other issue of potential common shares that would have an antidilutive effect on earnings per share. Contingencies Contingent liabilities are not recognized in the consolidated financial statements. These are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized in the consolidated financial statements but disclosed when an inflow of economic benefits is probable. Events after the Reporting Period Post year-end events that provide additional information about the Group’s position at the reporting date (adjusting
events) are reflected in the consolidated financial statements. Post year-end events that are not adjusting events are disclosed in the consolidated financial statements when material.
Note 3 – Significant Accounting Judgments and Estimates The preparation of the accompanying consolidated financial statements in conformity with PFRS requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The estimates and assumptions used in the accompanying consolidated financial statements are based upon management’s evaluation of relevant facts and circumstances as of the date of the consolidated financial statements. Actual results could differ from such estimates. 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: Classification of financial assets The company had classified its equity investments in different companies as Fair Value Through Profit or Loss in accordance with the classification criteria that was set by the PFRS 9. Depreciation of Property and Equipment The method that was used by the company in depreciating its property and equipment is straightline method which is one of the allowed depreciation methods under PAS16. Estimation of allowance for bad debts In estimating the amount of irrecoverable receivables the company find it prudent to make use of the estimation of bad debts based on the 5% of the total outstanding receivables of the company.
Note 4 – Cash Cash in Bank Petty Cash
14,230,755.00 1,404.00
1,090,000.00 10,000.00
Cash
14,232,159.00
1,100,000.00
Note 5 – Trade and Other Receivables
Accounts Receivable Accounts Receivable - Others Allowance for Bad debts Dividend Receivable Notes Receivable Accrued Interest Receivable Trade & Other Receivable
2011 10,302,420.00 2,800.00 (515,121.00) 40,000.00 2,470,000.00 684,873.33 12,984,972.33
Note 6 – Marketable Securities
2010 5,850,000.00 6,400,000.00
1,500,000.00 13,750,000.00
Name of Company PLDT San Miguel Philex Mining Omico
No. of Shares 2,400.00
Closing Price 340.00
Market Value 816,000.00
4,000.00 500,000.00 10,000,000.00
200.00 1.82 0.0019
800,000.00 910,000.00 19,000.00 2,545,000.00
Total
Note 7 – Prepaid Expenses
Prepaid Expenses
2011
2010
Advertising
50,000.00
120,000.00
Insurance
50,000.00
80,000.00
Prepaid Interest Expense
2,100,000.00
Unused Supplies
300,000.00 2,500,000.00
Total
300,000.00 500,000.00
Note 8 – Property and Equipment
Land
Building
Furniture and Fixtures
Cost 01 January, 2011
16,500,000.00
33,000,000.00
3,550,000.00
6,000,000.00
2,130,000.00
61,180,000.00
Additions
-
20,000,000.00
-
-
-
20,000,000.00
-
-
-
-
-
Transportation Equipment
Office Equipment
Total
Disposals 31 December, 2011 16,500,000.00 Accumulated Depreciation 01 January, 2011 -
53,000,000.00
3,550,000.00
6,000,000.00
2,130,000.00
81,180,000.00
1,914,000.00
1,004,460.00
600,000.00
597,820.00
4,116,280.00
Depreciation
-
2,712,436.33
640,000.00
600,000.00
421,000.00
4,373,436.33
Disposals 31 December, 2011 Net Book Value
-
-
-
-
-
-
-
4,626,436.33
1,644,460.00
1,200,000.00
1,018,820.00
8,489,716.33
16,500,000.00
48,373,563.67
1,905,540.00
4,800,000.00
1,111,180.00
72,690,283.67
Note 9 – Trade and Other Payables Trade and Other Payables Dividends Payable Accounts Payable Advances from Customers Professional Fee Payable Notes Payable Note Payable - Non Trade Notes Payable - Officer Bonus Payable SSS Medicare Premium Payable Withholding Tax Payable Light, Water, Telephone Payable Representation Expense Payable Taxes and Licenses Payable HDMF Premiums Payable Accrued Interest Payable Vat Payable
2011 7,000,000.00 4,350,170.00 50,000.00 350,000.00 3,506,500.00 1,700,000.00 2,542,743.67 144,720.00 129,600.00 148,500.00 97,000.00 70,000.00 63,200.00 69,330.00 969,360.45 21,191,124.12
2010 906,500.00
21,000,000.00
62,000.00 52,500.00 29,500.00
400,000.00 22,450,500.00
Note 10 – Shareholders’ Equity
Authorized
2010
2011
1,000,000.00
1,000,000.00
450,000.00
700,000.00
Issued Subscribed
50,000.00
Treasury
-
-
450,000.00
750,000.00
45,000,000.00
70,000,000.00
Outstanding in Pesos Ordinary Share Capital
Subscribed Ordinary Share Capital
5,000,000.00
Share Premium
5,250,000.00
Subscription Receivable Total Shareholders' Contribution
3,500,000.00
(2,125,000.00) 48,500,000.00 82,375,000.00
Note 11 – Retained Earnings Retained Earnings, Dec. 31, 2010 - restated
2,459,404.00
Net Income for the year 2011
10,077,101.18
Dividends Paid for 2011
(7,500,000.00)
Adjustments Retained Earnings, Dec. 31, 2011
(1,559,344.00) 3,477,161.18
Note 12 – Net Sales 2011
2010
113,123,050.00
54,539,000.00
(870,607.14)
(300,000.00)
Sales Returns & Allowances
(1,041,475.00)
(800,000.00)
Net Sales
111,210,967.86
53,439,000.00
Gross Sales Sales Discount
Note 13 - Other Income
Gain on Sale of Securities Interest Income Dividend Income Miscellaneous Income
2011 1,026,000.00 894,873.33 40,000.00 1,704.00 1,962,577.33
2010 110,000.00
110,000.00
Note 14 – General and Administrative Expense
Salaries Expense Bonus Expense Supplies Expense Taxes and Licenses SSS Premium Expense HDMF Premiums Expense Light, Water, Telephone Professional Fee Depreciation Expense - Bldg Depreciation Expense - F&F Depreciation Expense - OE
2011 24,022,840.00 2,542,117.73 1,411,862.00 980,000.00 1,270,500.00 1,100,000.00 1,370,700.00 350,000.00 2,712,436.33 640,000.00 421,000.00
2010 7,000,000.00 108,000.00 900,000.00 270,500.00 100,000.00 210,000.00 1,650,000.00 640,000.00 421,000.00
Bad Debts Expense Insurance Expense
515,121.00 550,000.00 37,886,577.05
280,000.00 200,000.00 11,779,500.00
2011 1,146,000.00 820,520.00 217,000.00 600,000.00 2,783,520.00
2010 100,000.00 318,000.00 132,000.00 600,000.00 1,150,000.00
2011 410,438.00 1,481,000.00 1,891,438.00
2010 70,000.00
Note 15 – Distribution Expense
Gasoline Expense Advertising Expense Representation Expense Depreciation Expense - TE
Note 16 – Other Expenses
Miscellaneous Expense Unrealized Loss on Securities
70,000.00
