COVER SHEET - Lorenzo Shipping

COVER SHEET

0 0 0 0 0 4 8 9 0 9

S.E.C. Registration Number

L O R E N Z O S H I P P I N G

C O R P O R A T I O N

(Company's Full Name)

2 0 T H F L O O R , T I M E S P L A Z A B L D G . ,

U N I T E D N A T I O N S A V E N U E ,

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

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

ROMUALDO L. BEA 567-2180

Contact Person Company Telephone Number

1 2 3 1 2 0 1 7 1 7 A 0 6 2 2 2 0 1 7

Month Day Year FORM TYPE Month Day Year

Fiscal Year Annual Meeting

Secondary License Type, If Applicable

Dept. Requiring this Doc. Amended Articles Number/Section

Total Amount of Borrowings

Php 1,243 million

Total no. of Stockholders Domestic Foreign

To be accomplished by SEC Personnel concerned

File Number LCU

Document I.D. Cashier

S T A M P S

Remarks = please use black ink for scanning purposes

1

SECURITIES AND EXCHANGE COMMISSION

SEC FORM 17-A

ANNUAL REPORT PURSUANT TO SECTION 17

OF THE SECURITIES REGULATION CODE AND SECTION 141

OF THE CORPORATION CODE OF THE PHILIPPINES

1. For the year ended : December 31, 2017

2. SEC Identification Number : 48909

3. BIR Tax Identification No. : 000-628-958-000

4. Exact name of issuer as specified in its charter : LORENZO SHIPPING CORPORATION

5. Province/Country of Incorporation/Organization : Philippines

6. Industry Classification Code : ____________

7. Address of Principal Office : 20th Floor, Times Plaza Building, United Nations Avenue, Ermita,

Manila

Postal Code: 1000

8. Registrant’s telephone number, including area code : (632) 567 2171 to 80

9. Former name, former address and former fiscal year, if changed since last report : N/A

10. Securities registered pursuant to Sections 4 and 8 of the RSA

Title of Each Class Number of Shares of Common Stock

Outstanding and Amount of Debt

Outstanding

Authorized Capital Stock (Common Shares) 991,183,999

No. of shares of common stock outstanding

(Class U), net of treasury shares 554,642,251

Amount of total liabilities as of December 31,

2017

P2,400 Million

11. Are any or all of these securities listed on a Stock Exchange? Yes (x) No ( )

If yes, state the name of such stock exchange and the classes of securities listed therein:

Philippine Stock Exchange Common Stock – Class U

12. Check whether the issuer:

a) Has filed all reports required to be filed by Section 17 of the SRC and SRC Rule 17 hereunder or

Section 11 of the RSA and RSA Rule 11(a)-1 thereunder, and Sections 26 and 141 of The

Corporation Code of the Philippines during the preceding twelve (12) months (or for such shorter

period that the registrant was required to file such reports):

2

Yes (x) No ( )

b) Has been subject to such filing requirements for the past ninety (90) days:

Yes (x) No ( )

13. The aggregate market value of the voting stock held by non-affiliates of the registrant is P45.884M as

of December 31, 2009.

DOCUMENTS INCORPORATED BY REFERENCE

14. If any of the following documents are incorporated by reference, briefly describe them and identify

the part of SEC Form 17-A into which the document is incorporated.

N/A

3

PART 1 – BUSINESS AND GENERAL INFORMATION

ITEM 1 - BUSINESS

Description of Business

A. Business Development

1. Form and year of organization

Lorenzo Shipping Corporation (LSC) was incorporated on 17 October 1972 by the Go Family

headed by Jose D. Go, Sr., primarily to engage in domestic inter-island cargo handling business.

The Company has been an active participant in containerized cargo business and has played a

significant role in the domestic shipping industry.

2. The Company has no record of any bankruptcy, receivership or similar proceedings during the

past three years.

3. Material reclassification, merger or purchase or sale of significant amount of assets.

The Company reclassified its land assets with a book value as of December 31, 2016 of Ninety

Six Million One Hundred Sixty Three Thousand One Hundred Three Pesos (P96,137,103.00). The

revalued amount of the land assets as of December 31, 2017 is Three Hundred Sixty Nine Million

Four Hundred Eighty Five Thousand Pesos (P369,485,000.00). A revaluation surplus under the

Stockholder’s Equity Section of the Balance Sheet amounting to Two Hundred Seven Three

Million, Three Hundred Twenty One Thousand Eight Hundred Ninety Seven Pesos

(P273,321,897.00) is recognized in 2017.

B. Business of Issuer

1. Description of Registrant

i. Lorenzo Shipping Corporation was founded and incorporated in 1972. The Company owns

and operates vessels with which it provides domestic inter-island cargo liner services to the

general public. The Company’s business focus has evolved from that of being a break-bulk

cargo carrier to a fully containerized cargo shipping company.

Lorenzo Shipping Corporation owns and operates a fleet of five (5) vessels deployed to the

key ports in Manila, Visayas and Mindanao. The Company’s vessels have a capacity

ranging from 300 TEUs to 797 TEUs with speed of 11 knots to 15 knots. LSC owns

various equipment and facilities to efficiently handle customer’s cargoes including a) land-

based equipment such as forklifts, top lifts and trucks and b) container yards and

warehouses in its branches and agencies.

ii. The Company is engaged solely in domestic inter-island cargo liner services, thus, the

foreign sales requirement is inapplicable.

iii. Lorenzo Shipping Corporation markets its services through a network of branches and

agencies nationwide. The network is comprised of six branches: Cebu, Davao, General

Santos, Cotabato, Iloilo, Cagayan de Oro and three agencies: Zamboanga, Dumaguete and

4

Bacolod. Manila operations, under the Corporate Office, handles all inbound and outbound

volume in Manila.

LSC provides 20-foot and 40-foot dry containers to its customers in which they can load

their cargoes to various ports. LSC also carries rolling cargoes such as heavy equipment,

trucks and vehicles as well as uncontainerized cargoes such as steel products and bridging

materials.

iv. Competitive business conditions and the registrant’s competitive position in the industry

and methods of competition:

LSC is one of the key players in the domestic containerized cargo shipping industry. It

operates in the major ports in the country and maintains a fleet of five (5) vessels. LSC

prides itself as a reliable transport provider and through its various affiliate companies, able

to offer end-to-end logistics services.

LSC considers other containerized cargo shipping companies as its competitors such as

2GO Group, Inc. (2GO), Philippine Span Asia Carrier Corp. (PSACC), Solid Shipping

Lines, Inc. and Oceanic Container Lines, Inc. among others. 2GO caters to both passenger

and cargo market while the rest are cargo carriers.

Competition among domestic lines is intense, given the overcapacity of vessels aggravated

by new entrants in the industry. The industry is also governed by the rules and regulations

of the Maritime Industry Authority (MARINA).

LSC is a member of the Philippine Liner Shipping Association (PLSA) whose members

account to about 80% of the total containerized volumes nationwide.

v. Sources and availability of raw materials and the names of principal suppliers:

Major suppliers of fuel, spare parts, container vans and others.

Name of Supplier Items Supplied

Marine Fuels Philippines Fuel and lubricants

NMC Container Lines, Inc. Vessel slot provider

Manila North Harbour Port Inc Terminal operator/ cargo handler

Mindanao International Container

Terminal

Cargo handler

Sacortoza Enterprises Hauling Services

Seacube Container Leasing Container van services

DKL Shipping Agency Agency commission and hauling services

Pioneer Insurance & Surety Corp. Insurance

Roadlink Solutions, Inc. Hauling services

Lubri-Chem Philippines Distributors Inc. Lubricants

National Marine Corporation Service fees

A.M. Cruz Trucking Hauling services

VNS Logistics Services Phils. Corp. Hauling services

Central Inter-Transport Logistics Corp. Cargo handler

Bredco Cargo handler

Seven Start Logistics Solution Corp. Hauling services

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Asiaport Equipment and Logistics Corp. Container Yard Operator

Waterfront Container Leasing Co. Inc. Container van lessor

One Stop Warehousing Solutions, Inc. Warehousing services

TAO Commodity Trader Inc. Fuel

vi. Major customers/clients of LSC

Top 20 Customers

Coca-Cola Femsa Philippines, Inc. San Miguel Foods, Inc.

Pepsi Cola Products, Inc. SMC Shipping & Lighterage Corporation

Universal Robina Corporation ES Trucking and Forwarder

NMC Container Lines, Inc. Danny Julian

One Stop Logistics Solutions, Inc. Mega Fishing Corp.

Nutri-Asia Inc. Del Monte Philippines, Inc.

Tanduay Distillers, Inc. Robinson’s Group

Icebox Logistics Services, Inc. Asset Marketing Corp.

Jonathan D. Sy Excelogistics, Inc.

Asia Brewery Inc. Benby Enterprises Inc.

The business is not dependent upon a single customer or a few customers, the loss of any or

more of which will not have material adverse effect on the company.

vii. The business of the company is not in any way dependent on related parties’ transactions.

viii. Licenses, Concessions, Labor contracts, including duration;

a) With Maritime Industry Authority (Marina) registration

LSC vessels are duly registered with MARINA and subjected to regular MARINA

survey and ISM audits to ascertain its adherence to vessel and manning safety

standards. The Company has been granted a company Certificate of Public

Convenience (CPC) for the six (6) vessels under RA 9295 valid for 25 years from

June 7, 2005 to June 7, 2030 by the MARINA to service domestic ports of call.

b) Labor contracts

For the sea-based employees, the Collective Bargaining Agreement shall be in full

force and effect until 31 August 2020 for licensed crewmembers, and until 15

September 2020 for unlicensed crewmembers.

For the land-based employees, the Collective Bargaining Agreement (CBA) shall be in

full force and effect until 15 February 2022.

c) Licenses and Franchises

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For licenses and franchises of vessels, while principal terms are anchored solely on

seaworthiness of vessel (of which registrant is already ISM-Certified by regulatory

authority) only the following expiration dates are disclosed:

M/V LORCON VISAYAS- sold in October 2017

Certificates and Licenses Date Issued Date

Expiry Status

Certificate of Ownership (CO) 11/08/10 Permanent

Certificate of Vessel Registry (CVR) 11/08/10 Permanent

Certificate of Public Convenience (CPC) 06/07/05 06/07/30

Cargo Ship Safety Certificate 03/20/17 09/23/17

Coastwise License (CWL) 09/02/16 09/26/17

Radio Station License (RSL) 07/05/16 08/29/17

Coastwise Loadline Certificate (CLLC) 03/21/13 03/08/18

M/V LORCON MANILA

Certificates and Licenses Date Issued Date Expiry Status



Certificate of Public Convenience (CPC) 06/07/05 06/07/30 Valid

Cargo Ship Safety Certificate 05/19/17

1/08/18

07/08/17

1/20/19

Expired

Valid

Coastwise License (CWL) 10/24/17 10/24/18 Valid

Radio Station License (RSL) 10/27/17 10/25/19 Valid

Coastwise Loadline Certificate (CLLC) 01/27/17 01/04/22 Valid

M/V LORCON GENERAL SANTOS






02/21/18

03/14/18

7/18/18

Expired

Valid




7

M/V LORCON DUMAGUETE





Cargo Ship Safety Certificate 06/10/16 07/10/18 Valid

Coastwise License (CWL) 09/02/17

03/14/18

10/24/17

05/14/19

Expired

Valid



M/V LORCON BACOLOD






03/05/18

03/09/18

03/29/18

Expired

On-Process




M/V LORCON ILOILO






04/08/18

07/20/17

07/20/18

Expired

Valid




ix. The Company has no pending request for approval from any government body.

x. There is no record of cost incurred for research and development.

xi. Costs and effects of compliance with environmental laws

The Company complies with the Anti-Pollution Act, which requires the control of smoke

emission coming from the vessels and disallows spilling or dumping of oil into the sea. The

Company complies with such regulations through the effective utilization of equipment

such as bridge sludge tank. However, the cost of such equipment is not separately

accounted for in the company’s books. The cost of compliance is not significant in amount

xii. Total number of employees and number of full time employees

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As of 31 December 2017, the total sea-based manpower is 83 and the total land-based

manpower is 113. The registrant does not anticipate increasing its manpower for the

ensuing year.

ITEM 2 - PROPERTIES

The description, ownership and limitation on ownership, of the principal properties of the company are

shown below.

A. Vessel in Operations:

VESSEL/YEAR BUILT OWNERSHIP

STATUS

GRT & DWT IN

METRIC TON

CAPACITY

IN

TEUs/LIEN

SERVICE ROUTE

LORCON MANILA 1996 COMPANY

OWNED 4,328 5,998.30

426

MORTGAGED

MNL/CGY/CEB/MNL MNL/BAC/ILO/MNL

MNL/DVO/MNL

LORCON GENERAL SANTOS

2000 COMPANY

OWNED 4,962 7,209

510 MORTGAGED

MNL/CGY/BAC/ILO/MNL

LORCON ILOILO 2003 COMPANY

OWNED 4,462 5,550

505 MORTGAGED

MNL/ILO/ZAM/CBO/GES/

CEB/MNL

MNL/GES/DVO/MNL

LORCON VISAYAS

(sold in October 2017) 1986

COMPANY

OWNED 5,954 7,233

300

MORTGAGED CEB/BAC/ILO/CGY/CEB

LORCON BACOLOD 1999 COMPANY

OWNED 4,450 5,607

431

MORTGAGED MNL/DUM/ZAM/CBO/MNL

LORCON DUMAGUETE 1999 COMPANY

OWNED 7,970 9,822

797

MORTGAGED MNL/CBU/CGY/MNL

The limitations are those which are usual to ordinary mortgage of chattel and real properties.

The Company has no intention to acquire properties not in the ordinary course of business in the next

twelve months.

B. The Company leases the following properties in its operations:

The Company leases from various entities the following properties for its operations, to wit:

1) A container yard covering an area of 2,000 square meters located at Polloc Port, Parang,

Maguindanao, Cotabato City at the rate of Php21,300.00 per month. As stipulated, the contract is

valid for a period of one (1) year commencing January 1, 2017 until December 31, 2017.

2) A warehouse/office in Salimbao, Sultan Kudarat, Maguindanao, consisting of an area of 850 square

meters for a monthly rental of Php21,000.00. The lease commenced on 09 December 2016 and is

valid as such until 08 December 2019.

3) An office located at Door No. 5, Julia Pacana St., Barangay 21, Cagayan De Oro City with a

monthly rental fee of Php12,100.00. The period covering this lease commenced on 01 April 2016

until 31 March 2017. – This lease was no longer renewed.

4) A container yard with office covering an area of 10,000 square meters located at Phividec Estate

of Misamis Oriental (PIE-MO), Municipalities of Tagaloan and Villanueva, Province of Misamis

9

Oriental. Contract is valid for a period of ten (10) years commencing September 1, 2008 and ending

on 31 August 2018.

5) A parcel of land with a building consisting of approximately 2,907 square meters, more or less,

located at P.I. Compound, Barangay Labangal, General Santos City, for a monthly rental of

Php72,675.00. Contract is valid for a period of five (5) years commencing 01 March 2016 until 28

February 2021 with escalation of 5% per annum.

6) One door commercial building – Door 119, with an area of approximately 150 square meters located

at Lapuz Sur, Iloilo City, for a monthly rental of Php27,659.50 commencing 01 April 2017 until 31

March 2018, inclusive of EVAT.

7) A container yard with an area of 3,613.00 square meters located at Iloilo Commercial Port Complex,

Block II, Lot 6, Iloilo City for a monthly rental of Php114,206.93. Contract is valid for a period of

one (1) year commencing January 1, 2016 until December 31, 2016. – This lease was no longer

renewed.

8) Another container yard covering an area of 3,679 square meters, located at Iloilo Commercial Port

Complex, Block II, Lot 4, Iloilo City. Contract is valid for six (6) months commencing 01 July

2016 until 31 December 2016 for a monthly rental of Php116,293.19. – This lease was no longer

renewed.

9) A container office with an area of 60 square meters situated at Iloilo Commercial Port Complex,

Iloilo City with a monthly rental of P4,254.60. Contract is valid for a period of one (1) year

commencing 01 January 2017 until 31 December 2017.

10) In Zamboanga, a container yard covering an area of 4,800 square meters located at Governor

Ramos, San Roque, Zamboanga City with a monthly rental of Php162,993.60. Contract is valid

for a period of one (1) year commencing 01 January 2017 until 31 December 2017.

11) An additional area in Governor Ramos, San Roque, Zambonga City, covering an area of 2,000

square meters was also utilized as container yard, with a monthly rental of Php55,125.00. Contract

is valid for a period of one (1) year commencing 01 January 2017 until 31 December 2017.

12) A container yard located at Bacong, Negros Oriental with a monthly rental of Php 60,000.00.

Contract is valid for five (5) years commencing 01 January 2013 until 31 December 2017 with

escalation every year.

13) The ground floor of a building with an area of 150 sqm. located at No. 323 Moriones Street, Tondo,

City of Manila, and a monthly rental of Php50,000.00 (Vat-inclusive). Contract is for 5 years

commencing on 01 February 2014 until 31 January 2019. Contract was pre-terminated effective

31 December 2016. This lease was no longer renewed.

14) A container yard and a container office, with an area of 6,500 square meters located at #15 Old

Airport Road, Km. 9, Sasa, Davao City, and a monthly rental of Php 218,400. Contract is for five

(5) years from 01 April 2014 until 31 March 2019 with escalation of 7% per annum. .

15) A container yard with an area of 6,500 square meters located at 571-572 Honorio Lopez Boulevard,

Tondo, City of Manila, with a monthly rental of Php226,875.00, for two (2) years, commencing

on 15 February 2014 until 31 January 2017. This lease was no longer renewed.

10

16) An area located at MNH CFS 1bay, with an area of 556.45 square meters, with a monthly rental of

Php67,665.04, commencing on 16 September 2013 to 14 January 2018; This lease was no longer

renewed.

17) A container yard with office covering an area of 9,665 square meters located at Zuellig Avenue,

Subangdaku, Mandaue City, Cebu. Open ended contract commenced 01 October 2008 with rate

of Php 50.00 per square meter with escalation of 5% per annum.

18) A container yard located at Manila Harbor Center, Tondo, Manila, with an area of 5,000 square

meters and monthly rental of Php330,000.00, with annual escalation rate of 10%. Contract is for a

period of five (5) years commencing on 01 May 2011 until 30 April 2016. This lease was no longer

renewed.

19) A container yard and a container office covering an area of 4,824 square meters located at 510

Honorio Lopez Blvd., Balut, Tondo, Manila. Contract commenced 01 August 2017 until 14

October 2020 with rate of Php 175.00 per square meter with annual escalation of 5% per annum.

20) A container yard and office covering 5,000 square meter addressed at 500 Northwestern Street,

Mandaluyong City. Contract commenced 17 April 2017 until 31 January 2022 with the initial rate

of Php 80.00 for the 4,000 square meter (open area) and Php 150.00 for 1,000 square meter

(warehouse/covered area). The annual escalation is 5% per annum.

ITEM 3 – LEGAL PROCEEDINGS

The Company is the defendant in several pending legal cases involving claims for damages arising from

the ordinary course of business and trade and those arising from its relationship with its employees as the

latter’s employer. The management opines, however, that the ultimate liability which may result from

these lawsuits and claims, if any would not impinge on the financial position and operating results of the

Company.

The Company has a pending case with the Court of Tax Appeals (CTA) involving alleged deficiency

taxes for the taxable year 2008 amounting to P2.01 billion, inclusive of penalties, interest and surcharges.

Both LSC and BIR have already filed their respective Memorandum before the CTA 3rd Division.

Pursuant to the Notice of Resolution promulgated on December 18, 2017, the case shall be deemed

submitted for Decision upon receipt of the Memorandum or the lapse of the period given.

Having appointed Dy, Soriano and Gathalian Law Offices as legal representatives for defending the

position of the Company, as of date, are still waiting for the promulgation of the court’s Decision on the

case.

ITEM 4 – SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

NONE

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PART II – OPERATIONAL AND FINANCIAL INFORMATION

ITEM 5 – MARKET FOR ISSUER’S COMMON EQUITY AND RELATED STOCKHOLDER

MATTERS

A. Market Information

The Company’s common shares are traded at the Philippine Stock Exchange. The quarterly high and

low share prices of LSC during the last three (3) calendar years and interim periods are as follows:

QUARTER ENDING IN PHP

HIGH LOW

March 2015 1.82 1.22

June 2015 1.95 1.01

September 2015 1.34 0.77

December 2015 1.33 1.08


HIGH LOW

March 2016 1.35 1.02

June 2016 1.34 1.01

September 2016 1.30 1.03

December 2016 1.10 0.87


HIGH LOW

March 2017 0.94 0.94

June 2017 1.94 1.60

September 2017 1.34 1.25

December 2017

March 2018

1.21

1.04

1.16

0.99

B. Holders

As of March 31, 2018, the Company has 917 stockholders and the top twenty (20) shareholders of the

Company as of said date are the following:

Name of Stockholders Citizenship No. of Shares

Held

% Over Total

Outstanding

1 National Marine Corporation Filipino 276,520,756 49.765%

2 PCD Nominee Corporation (Filipino) Filipino 241,937,956 43.541%

3 Professional Marketing Insights, Inc. Filipino 11,500,000 2.070%

4 Oscar Y. Go Filipino 6,637,157 1.194%

5 Jose Go, Jr. Filipino 6,208,500 1.117%

6 Julio D. Sy, Jr. Filipino 2,187,500 0.394%

7 PCD Nominee Corporation (Non-Filipino) Other Alien 1,793,501 0.323%

8 Jonathan D. Sy Filipino 312,500 0.056%

9 Emerging Market Capital Holdings Singaporean 250,000 0.045%

12

Johnny S. Lim Filipino 250,000 0.045%

Lilian So Lim Filipino 250,000 0.045%

Francisco Lim Lao Filipino 250,000 0.045%

Jose Juan Pou Filipino 250,000 0.045%

10 Willington Chua Filipino 237,500 0.043%

11 Michael Escaler Filipino 231,250 0.042%

12 RCBC Securities, Inc. Filipino 223,750 0.040%

13 Diana F. Malig Filipino 214,456 0.039%

14 Century Sports Phils., Inc. Filipino 187,500 0.034%

15 Pac Sally C. Ong Filipino 175,000 0.031%

16 Luis M. Camus Filipino 125,000 0.022%

Siewngan Philip Low Filipino 125,000 0.022%

Reginaldo A. Oben Filipino 125,000 0.022%

Walfrido R. Patawaran Filipino 125,000 0.022%

Phiek Lian Go So Filipino 125,000 0.022%

Tego Holdings, Inc. Filipino 125,000 0.022%

17 Jacinto V. Rosales, Jr. Filipino 100,000 0.018%

18 R.J. Del Pan & Co. Filipino 81,250 0.015%

19 Vicky L. Chan Filipino 75,000 0.013%

20 Carmen C. Alabada Filipino 62,500 0.011%

B. Dividends

On April 30, 2015, the Board of Directors has declared and issued in favour of common shareholders

of record as of May 25, 2015 cash dividends amounting to two centavos (P0.02) per share, or an

aggregate amount of P11,092,845.

C. Recent Sales of Unregistered Securities

Within the past three (3) years, there has been no sale of the Company’s Securities which were not

registered under the Securities Regulations Code.

D. Description of Registrant’s Securities

Capital Stock

Since 2006, the Company’s authorized capital stock consists of common stock and maintains no other

class or type of share capital. The occurrence and amount of cash dividends issued to its common

stockholders is determined by the BOD.

Common shareholders have voting rights and appraisal rights, subject to and pursuant to the

provisions of the Corporation Code.

Under the law and the Company’s Articles of Incorporation, foreign ownership is restricted to forty

percent (40%). It provides that no transfer of shares or interest, which will render the ownership of

13

the Filipino citizens to less than the required percentage of the capital stock as provided by existing

law, shall be allowed or permitted to be recorded in the books of the company.

ITEM 6 - MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

CALENDAR YEAR 2017

Results of Operations

In 2017, Lorenzo Shipping Corporation (LSC or the “Company”) continued to focus on improving vessel

reliability and operational efficiencies which resulted to an improvement of P100 Million in direct cost.

Vessel’s performance improved with the various maintenance and crew-related initiatives done in the past

year.

Efforts were made to maximize vessel’s utilization and reduce fixed costs. This was evident with the 9%

increase in volumes, despite the retirement of M/L Lorcon Visayas in October 2017.

General and administrative expenses likewise improved by P25 Million.

LSC’s total freight revenue for 2017 however went down by P71 Million due to pressure on freight base

as a result of the vessel capacity. To compensate for the losses in average freight revenue, LSC focused

on regaining old accounts and developing new ones especially for northbound cargoes.

The Company ended with a gross profit of P35 Million which is a significant improvement from 2016

which amounts to P5 Million.

Net other income were higher by 146% this year to P45million compared to P96 million net other charges

last year. “One-off” items such as settlement of certain tax delinquency assessments for prior years

amounting to P64 million and book loss of P64 million from sale of an old vessel were included. In 2017,

the company’s other income includes proceeds from insurance and service recoveries.

LSC’s net loss before tax in 2017 went down by 54% from P362 Million in 2016 to P167 Million in 2017.

This translate to a loss per share of P0.31 and P0.66 in 2017 and 2016, respectively.

Financial Condition

Total resources of the Company stands at P3.069 billion as at December 31, 2017, or P54 million higher

than P3.015 billion as at December 31, 2016. Current assets amounted to P1.382 billion and P1.290

billion in 2017 and 2016, respectively. The increase in current assets was due to the following:

The improved collection helped sustain the operating cash requirement of the Company in 2017

including principal repayment of bank loans and interest. Cash balance went down to P90 million

in 2017 from P105 million in 2016.

Increase in trade and other receivables for 2017 is P80 Million from P902 Million in 2016.

Fuel inventory increased this period due to higher fuel prices.

14

Prepayments and other current assets increased from P262 Million to P284 Million or 8% increase

due to increase of deferred input VAT and accumulated creditable withholding taxes as the

Company remained on a taxable loss position.

The Company revalued its land assets in 2017 which resulted to an increase in land value by P273

million. Total land assets is valued at P369 million in 2017 from P96 million in 2016. However, there is a

decrease in the value of vessels and vessel related assets by P136 million, substantially due to the sale of

M/V Lorcon Visayas. Other noncurrent assets went down by P12 million mainly due to decrease in

deferred input VAT. Total Noncurrent Assets, on the other hand, went down by P40 million or 2% from

P1.7 million in 2016.

Total liabilities increased to P2.381 billion this year from P2.354 billion last year. Total bank loans as at

December 31, 2017 amounted to P1.244 billion (Short term/current – P673 million; Long term – P571

million) and P1.252 billion (Short term/current – P519 million; Long term – P734 million) in December

2017. Short term loan proceeds amounting to P174 million were used in operating expenses. There was

no availment of term loan in 2017. The Company settled P182 million in principal repayment during

2017 broken down into P162 million and P20 million in long term (LT) and short term (ST) borrowings,

respectively compared to P325 million in principal repayment during 2016 broken down into P197

million and P128 million in long term (LT) and short term (ST) borrowings

Obligation under finance lease also decreased from P95 million in 2016 to P62 million in 2017 due to

payment of amortization of P32 million.

Accounts payable and accrued expenses increased to P978 million in 2017 from P920 million in 2016 due

to higher cost to operate. While, retirement benefit obligation increased in 2017.

The negative operating results of the Company in the current period resulted to a deficit of P496 million

versus retained earnings of P324 million as at December 31, 2016. LSC is adequately capitalized at

P1.016 billion, thus despite the deficit, it still shows a stockholders’ equity of P668 million in 2017.

Current ratio as at end of 2017 stood at 0.71:1.00 versus 0.79 in 2016, the reduction was due to higher

current liabilities 2017. While debt to equity ratio was posted at 3.588 and 3.55 in 2017 and 2016,

respectively on the account of operating loss incurred in the current year. The creditor bank of the

Company requiring maintenance of certain financial ratios provided a waiver on the breach of debt

covenants for the period ending December 31, 2017.

Book value per share this period decline to P0.31 versus P0.66 in prior period.

Top Five Performance Indicators

LSC’s financial performance is determined by the following key results:

1. Current ratio – this represents the ratio between current assets and current liabilities which measures

liquidity and efficiency of LSC’s ability to pay off its short term liabilities with its current assets.

2. Debt to equity ratio – measures financial leverage of LSC, how much debt is used to finance assets

relative to the amount of value represented in shareholders’ equity.

15

3. Net revenues – mainly composed of freight services recognized based on cargo loaded during the

year, taking into account all direct costs related to the cargo as well as capacity costs incurred during

the year.

4. Net income before tax – a quick indicator of the financial health of LSC.

5. Accounts receivables (A/R) turnover – measures how efficiently LSC is collecting its receivables.

The table below represents the key performance indicators of LSC over the last three (3) years:

Performance Indicators Full Year

2017 2016 2015

Current ratio 0.71 0.79 1.04

Debt-to-equity ratio 3.56 3.55 2.30

Net revenues P2.182 billion P2.253 billion P2.283 billion

Net income (loss) before tax (P167 million) (P362 million) (P222 million)

A/R turnover 2.31 2.50 2.54

i. LSC is not aware of any event that will trigger direct or contingent financial obligations that is

material to LSC, including any default or acceleration of an obligation.

ii. LSC is not aware of any material off-balance sheet transactions, arrangements, obligations

(including contingent obligations) and other relationships of LSC with unconsolidated entities or

other persons created during the reporting period.

iii. LSC is not aware of any material commitments for capital expenditures.

iv. LSC is not aware of any known trends, events or uncertainties that have had or that are

reasonably expected to have a material favourable or unfavourable impact on net sales or

revenues or income from continuing operations.

v. LSC is not aware of any significant elements of income or loss that did not arise from the

registrant’s continuing operations.

vi. LSC is not aware of any seasonal aspects that had a material effect on the financial condition or

results of operations.

Plan of Operations

The Company’s turnaround plans are already starting to reap benefits as can be noted in the significant

improvement in its EBITDA. The same plans shall be carried through in 2018.

1. Improvement in vessel and service reliability remains to be the Company’s top priority. Partnership

with selected carriers will be enhanced for utmost flexibility especially in cases when there are

excess volumes and/or service disruptions.

2. Emphasis will be given on maximizing vessel capacity especially northbound volumes through

enhanced pricing scheme.

16

3. Significant reduction of operating costs such as trucking, terminal, and cargo handling will be given

priority thru a focused and flexible organization structure and appropriate technology.

4. Implementation profit leakage management programs, focusing on claims reduction and improved

billing and collection cycle through people, process, and technology intervention.

5. Depending on the market condition, any excess capacity and non profitable routes shall be dropped.

6. Improvement in collection to be able to reduce bank loans.

CALENDAR YEAR 2016

Results of Operations

Efforts in improving vessels’ reliability and enhancing route combination coupled with operational

synergies with affiliate carrier NMC Container Lines, Inc. resulted to modest improvement in number of

voyages and volumes in 2016. This despite the retirement and sale of M/V Lorcon Cagayan de Oro in

May 2016 and major repair of M/V Lorcon Iloilo from May to October 2016 which brought total vessels

trading to only five (5) during the year.

However, Lorenzo Shipping Corporation’s (LSC or the “Company”) total freight revenue for 2016

slightly went down to P2.253 billion from P2.283 billion in 2015 as aggressive pricing in the market and

extended drought that affected agricultural products in Mindanao pulled down average freight rates. The

effect of reduced rates was mitigated by efforts in regaining old accounts and increasing the northbound

volume.

The reduction in gross profit was substantially due to higher direct costs this period amounting to P2.247

billion versus P2.125 billion in prior period or an increase of 6% as against 1% decrease in revenue. Cost

of services surged by 6%, to P2.051 billion in 2016 from P1.936 billion in 2015. Due to higher cost of

dry docking incurred last year, amortization went up by P26 million this year. Storage, craneage and

hustling costs also rose in the current year brought about by higher rates and additional charges by

providers. Co-loading cost likewise increased in 2016 due to higher volume of co-loaded cargoes

compared to 2015. The increase in cost of services was somewhat negated by the drop in fuel prices in

2016. The decrease in gross profit brought down provision for income taxes (Minimum Corporate

Income Tax or MCIT) to P3 million in the current year compared to P9 million in prior year.

General and administrative expenses went down by 12% to P209 million in 2016 from P236 million in

2015 due to drop in labor-related costs this year and lower impairment loss taken up in the current period.

Net other charges were higher by 17% this year to P96 million compared to P82 million last year. “One-

off” items such as settlement of certain tax delinquency assessments for prior years amounting to P64

million and book loss of P64 million from sale of an old vessel were included. In 2015, the Company

also paid P56 million in tax delinquency assessments for prior years and incurred also a book loss on

disposal on the sale of vessel amounting to P57 million.

LSC’s net losses for the year broadened to P365 million compared to P231 million last year as a result of

the factors described above. This translate to a loss per share of P0.66 and P0.42 in 2016 and 2015,

17

respectively. The Company posted a negative Earnings Before Interest, Taxes, Depreciation and

Amortization (EBITDA) amounting to P22 million in 2016 and an EBITDA of P108 million in 2015.

Financial Condition

Total resources of the Company stands at P3.016 billion as at December 31, 2016, or P410 million lower

than P3.426 billion as at December 31, 2015. Current assets amounted to P1.291 billion and P1.544

billion in 2016 and 2015, respectively. The decrease in current assets was due to the following:

Decline in trade and other receivables from P1.077 billion in 2015 to P902 million in 2016 mainly

due to further improvement in the collection cycle of the Company this year. Although freight

revenue slightly decreased from last year by P30 million, net cash inflow from receivables this year

amounted to P175 million versus P11 million last year.

The improved collection helped sustain the operating cash requirement of the Company in 2016

including principal repayment of bank loans and interest. Cash balance went down to P105 million

in 2016 from P213 million in 2015.

Fuel inventory decreased this period due to lower fuel prices and reduction in vessel fleet.

On the other hand, prepayments and other current assets increased from P224 million to P262 million in

2015 and 2016, respectively due to accumulation of excess creditable withholding taxes as the Company

remained on a taxable loss position.

Likewise, total noncurrent assets decreased in 2016 to P1.726 billion from P1.883 billion in 2015

substantially due to sale of an old vessel. This brought the balance of property and equipment to P1.653

billion in the current year from P1.805 billion in the prior year. Other noncurrent assets declined as well

to P36 million from P42 million as deferred input VAT went down to P28 million from P32 million and

loans receivable from an agency becomes current and fully collectible until October 2017 amounting to

P1.2 million. While deferred tax assets went up to P37 million in 2016 from P35 million in 2015, the

increase was relative to retirement benefit obligation recognized directly in equity.

Total liabilities was reduced to P2.354 billion this year from P2.390 billion last year. Total bank loans as

at December 31, 2016 amounted to P1.250 billion (Short term/current – P681 million; Long term – P569

million) and P1.381 billion (Short term/current – P652 million; Long term – P729 million) in December

2015 or a 9% reduction. Short term loan proceeds amounting to P192 million were used in the settlement

of prior years’ tax assessments and other operating expenses. There was no availment of term loan in

2016. The Company settled P325 million in principal repayment during 2016 broken down into P197

million and P128 million in long term (LT) and short term (ST) borrowings, respectively compared to

repayment of P334 million in 2015 (P143 million for LT and P191 million for ST).

Obligation under finance lease also decreased from P123 million in 2015 to P95 million in 2016 due to

payment of amortization.

Accounts payable and accrued expenses increased to P920 million in 2016 from P792 million in 2015 due

to higher cost to operate. While, retirement benefit obligation decreased due to payment of contribution

and benefit.

The negative operating results of the Company in the current period resulted to a deficit of P324 million

versus retained earnings of P41 million as at December 31, 2015. LSC is adequately capitalized at P1.016

billion, thus despite the deficit, it still shows a stockholders’ equity of P663 million in 2016.

18

Current ratio as at end of 2016 stood at 0.79:1.00 versus 1.04:1.00 in 2015, the reduction was due to

higher current liabilities and lower current assets in 2016. While debt to equity ratio was posted at 3.55

and 2.31 in 2016 and 2015, respectively on the account of operating loss incurred in the current year. The

creditor bank of the Company requiring maintenance of certain financial ratios provided a waiver on the

breach of debt covenants for the period ending December 31, 2016.

Book value per share this period decline to P1.19 versus P1.87 in prior period.




liquidity and efficiency of LSC’s ability to pay off its short term liabilities with its current assets.

7. Debt to equity ratio – measures financial leverage of LSC, how much debt is used to finance assets




the year.


10. Accounts receivables (A/R) turnover – measures how efficiently LSC is collecting its receivables.


Performance Indicators Full Year

2016 2015 2014


Debt-to-equity ratio 3.55 2.30 1.54


Net income (loss) before tax (P362 million) (P222 million) P52 million

A/R turnover 2.50 2.54 2.86

vii. LSC is not aware of any event that will trigger direct or contingent financial obligations that is


viii. LSC is not aware of any material off-balance sheet transactions, arrangements, obligations



ix. LSC is not aware of any material commitments for capital expenditures.

x. LSC is not aware of any known trends, events or uncertainties that have had or that are



19

xi. LSC is not aware of any significant elements of income or loss that did not arise from the


xii. LSC is not aware of any seasonal aspects that had a material effect on the financial condition or


Plan of Operations

LSC is in the midst of executing a major turnaround project in order to address bottom line concerns.

Major initiatives being undertaken by the Company include:

1. Constant review of vessel and service combination is being done to ensure we have the right asset for

a particular route given the changing market condition. Flexible and situational pricing scheme is

being adopted without necessary having to distort market levels. Efforts are likewise being done to

renegotiate the terms of contract of selected big volume accounts.

2. Significant reduction of operating costs like trucking, terminal, lift-on lift-off, and container van

rental through a more focused and agile organization and the use of appropriate technology.

Emphasis is likewise being given to substantially bring down repositioning costs through intensified

marketing and sales efforts northbound. Fuel and lube oil consumption management thru constant

engine performance analysis is being undertaken along with adjusting vessels’ speed as necessary.

3. Implement profit leak management program which focuses on claims reduction and improving billing

and collection cycle through people, process, and technology intervention.

CALENDAR YEAR 2015

Results of Operation

Lorenzo Shipping Corporation (“LSC”) recorded P2.283 billion in total freight revenues in 2015, 5% or

P121 million lower than the P2.404 billion revenues in 2014. The decline in freight revenues is due to the

lower number of vessel trips owing to extended dry docking and unscheduled downtime of vessels. LSC

dry docked four (4) vessels in 2015.

Gross profit posted this year amounted to P157 million, P136 million or 46% lower versus last year of

P293 million as revenues dropped while cost of services surged by P22 million or 1% compared to prior

year. Craneage and arrastre rates increased as well as trucking costs. LSC had to resort to co-loading of

cargoes in order to continue serving its customers while its vessels are on dry dock. This resulted to

higher co-loading expenses.

General and administrative expenses went up to P236 million in the current year against P174 million in

prior year due to additional provision for impairment losses of trade receivables taken up this year

amounting to P55 million.

Finance cost increased by 30% or P14 million, from P47 million in 2014 to P61 million in 2015. This

was due to additional loan availments of LSC which were used to fund vessel and container yard

acquisition, and portion of vessel dry docking cost.

Net other charges net increased to P82 million in 2015 from P20 million in prior year mainly due to

settlement of certain tax assessments for prior years amounting to P56 million. LSC also incurred P57

million loss on sale of its old vessel, Lorcon Cebu.

20

As a result of the factors described above, LSC ended the period with a net loss of P231 million versus

prior year’s net income of P44 million. This is equivalent to loss per share of P0.42 in 2015 and earnings

per share of P0.08 in 2014. Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)

amounted to P108 million in 2015 and P357 million in 2014.

Financial Condition

Total assets of LSC stand at P3.426 billion in December 31, 2015, or P219 million higher than P3.207

billion in 2014 mainly due to the acquisition of a new vessel, M/V Lorcon Iloilo, and a container yard in

Bacolod City, Negros Occidental. Thus, property and equipment went up by 11% to P1.805 billion in

2015 from P1.624 billion in 2014.

Inventories decreased to P30 million this year compared to P34 million last year due to lower level of fuel

inventory on board at the end of the year.

On the other hand, prepayments and other current assets went up to P224 million in 2015 from P177

million in 2014 due to excess in input VAT and creditable withholding taxes in 2015. Relative to vessel

importation this year, deferred input VAT went up, increasing as well the other noncurrent assets account

for the noncurrent portion. Other noncurrent assets increased to P42 million this year from P33 million

last year.

Net deferred tax assets went down to P35 million from P47 million due to lower retirement liability.

Retirement benefit obligation this year amounted to P93 million from P123 million last year.

Accounts payable and accrued expenses went up to P792 million in 2015 from P570 million in 2014 as a

result of higher liability in view of the said increase in operating costs.

As mentioned above, under Results of Operations, total bank borrowings increased by 24% or P264

million from P1.117 billion in 2014 to P1.381 billion in 2015 to support operational requirements and to

fund the acquisition of M/V Lorcon Iloilo and dry docking cost of M/V Lorcon Dumaguete. Principal

repayment for 2015 amounted to P334 million broken down into P143 million and P191 million in long

term (LT) and short term (ST) borrowings, respectively compared to total repayment of P321 million in

2014 (P148 million for LT and P173 million for ST).

Total obligations under finance lease went down to P126 million in the current year from P155 million in

the previous year due to payment of amortization.

Despite the net loss of P231 million in 2015, LSC still shows retained earnings of P41 million as at

December 31, 2015.

Total equity went down to P1.036 billion in 2015 versus P1.260 billion in 2014 mainly due to the said

net loss of P231 million. Total equity also includes actuarial losses on defined benefit plan of P17

million which is lower than last year’s P35 million. The improvement is due to net actuarial gain of P18

million recognized in 2015.

LSC’s current ratio as at end of 2015 stood at 1.04 versus 1.34 in 2014 due to higher current liabilities in

2015. Debt to equity ratio went down as well to 2.30 this year from 1.54 last year due to higher liabilities

and decline in retained earnings in 2015.

21

Book value per share decreased to P1.87 in 2015 from P2.27 in 2014 due to incurred losses this year.




liquidity and efficiency of LSC’s ability to pay off its short term liabilities with its current assets. As

can be noted, LSC still shows positive current ratio of 1.04 despite the net loss in 2015.

2. Debt-to-equity ratio – measures financial leverage of LSC, how much debt is used to finance assets




the year.


5. Accounts Receivable (A/R) turnover – measures how efficiently LSC uses its assets as well as how

effective is in extending credit as well as collecting its receivables.


Performance Indicators 2015 2014 2013


Debt to equity ratio 2.30 1.54 1.39


Net income (loss) before tax (P222 million) P52 million P12 million

A/R Turnover 2.54 2.86 3.26

i. LSC is not aware of any event that will trigger direct or contingent financial obligations that is


ii. LSC is not aware of any material off-balance sheet transactions, arrangements, obligations



iii. LSC is not aware of any material commitments for capital expenditures.

iv. LSC is not aware of any known trends, events, or uncertainties that have had or that are



v. LSC is not aware of any significant elements of income or loss that did not arise from the


vi. LSC is not aware of any seasonal aspects that had a material effect on the financial condition or


22

Plan of Operations

LSC is embarking on a major Turnaround Project in order to address declining profitability and service

reliability and increasing costs. The following strategic programs shall be put in place:

1. Restore the reliability of LSC’s service by having well-maintained vessels and shore equipment and

highly motivated sea-based and land-based staff;

2. Optimize the use of vessels to routes that will allow LSC to grow with its customers and remain

profitable;

3. Have an innovative and agile organization to help our customers succeed;

4. Implementing cost reduction programs by improving operational and financial processes including

cost monitoring and accounting.

ITEM 7 – FINANCIAL STATEMENTS (FS) AND OTHER DOCUMENTS REQUIRED TO BE FILED

WITH THE FS UNDER SRC RULE 68, AS AMENDED

Please see Exhibit B

ITEM 8 – INFORMATION ON INDEPENDENT ACCOUNTANT AND OTHER RELATED

MATTERS

SGV & Co. was the Company’s independent auditor since 2006 until the present.

A. External Audit Fees and Services

Audit and Audit Related Fees – The aggregate fees billed for each of the last three calendar years for

professional services rendered by the external auditors amounted to P1.1 million per year from 2013

to 2016 plus Value Added Tax.

B. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

There was no event in the past where SGV & Co. has any disagreement with the Company with

regard to any matter relating to accounting principles or practices or financial statement disclosure or

auditing scope or procedure.

PART III – CONTROL AND COMPENSATION INFORMATION

ITEM 9 – DIRECTORS AND EXECUTIVE OFFICERS OF THE ISSUER

A. Directors, Executive Officers, Promoters and Control Persons

1) Directors and Executive Officers

23

The term of office of the Company’s director is for a period of one (1) year until the election and

qualification of their successors. The incumbent directors of the Company with their

corresponding business experience and directorship held for at least the past five (5) years are the

following:

Summary of Term of Office of Directors:

Doris Magsaysay-Ho – director since June 2005 up to present

Antony Louis Marden – director since June 2005 up to present

Julio O. Sy – director since 1996 up to present

Michael L. Escaler – director from 2002 up to present

Roberto A. Umali – director since March 6, 2008 up to 08 August 2016

Deogracias N. Vistan – independent director from 2002 up to present

Edgardo A. Bautista – independent director from 2008 up to present

BOARD OF DIRECTORS

DORIS MAGSAYSAY HO, 66 Filipino Chairperson of the Board and President (effective 08

August 2016)

Doris Magsaysay Ho is the President and CEO of A. Magsaysay, Inc. Magsaysay traces its roots as

ship owners and ship managers, but later on expanded into serving the industries of hospitality and

tourism, transport and logistics, healthcare, oil and gas and specialized engineering and trade. The

company has a network of offices strategically mapped in the Philippines, Indonesia, China, Thailand,

Croatia, Greece and Spain. Magsaysay conducts its overseas operations in Jakarta and Bali Indonesia,

Hong Kong and Shanghai China, London and Newcastle UK, Vancouver, Canada and New York.

Guided by its principle of caring for its people, the company has been awarded the Seatrade Asia

Award for Education and Training in 2010, the Lloyd’s List Global Training Award in 2011, 2013

and 2014, the ASEAN Business Advisory Council Award for CSR in 2013 and the Intel-AIM CSR

Award in 2014. In November of 2015, the Office of the President of the Philippines conferred upon

her the Order of Gawad Mabini with the rank of Commander.

A. Magsaysay, Inc. President and CEO

Lorenzo Shipping Corporation Chairman and President

Fairmont Shipping Limited Director

AFFILIATIONS

Makati Business Club Trustee

APEC Business Advisory Council Philippine Member

Philippine Interisland

Shipping Association

Chairman Emeritus

Steamship Mutual Underwriting Association Director

The National Corn Competitiveness Group Chairman

Asia Society Philippine Foundation, Inc. Chairman

Asia Society (New York) Trustee

Metropolitan Museum Manila Trustee

The Hague Process on Refugees and Migration

Trustee

First Philippine Conservation Inc. Treasurer and Trustee

24

World President’s Organization Member

AWARDS

Asia CEO’s Global Filipino Executive of the Year 2012

Lloyd’s List Asia’s Lifetime Achievement Award 2011

The Outstanding Manila Award 2005

Ernst & Young’s Social Responsible Entrepreneur

Award

2004

ANTONY LOUIS MARDEN, 68, British, Vice Chairman of the Board, Member of the Audit

Committee

Antony Louis Marden has been the Vice Chairman of the Board and Executive Committee. He is also

Chairman of the Nomination Committee since June 2006, and a member of the Audit Committee since

June 2005. He is the President of FIM Limited and a Director in the following corporations: G.E.

Marden & Co., Ltd., Fenwick Shipping Services, Ltd., Clean Oil (HK) Limited, National Marine

Corporation, and the NMC Group of Companies. Mr. Marden studied Chinese & Politics at Leeds

University and has worked in the shipping business for almost 40 years.

JULIO O. SY, SR., 85, Filipino – Director

Mr. Sy was the Chairman of the Board from 1996 to 2006 and Director of the Company since 1996 to

present. He fulfils the same role in a number of other corporations, including: Dumaguete Coconut

Oil Mill, Cebu International Finance Corporation and Dumaguete City Development Bank. He also

takes on further responsibilities as President of BUSCO Sugar Milling Co., Inc., HIDECO Sugar

Milling Co., Inc., Jurong Engineering (Phils.) Inc., New Bian Yek Commercial Inc., July

Development Corp., and July Lighterage Corp., as Director of Victorias Quality Packaging

Corporation; and as EVP of Makati Agro Trading Inc., and Bayview Park Hotel. Outside the

professional realm, he has been actively involved in various civic organizations attesting to a wide

and diverse field of interest and expertise. Attending Siliman University from elementary to college,

he was awarded Outstanding Silimanian in Business. Other honors to his name include Outstanding

National Citizen Award of the Philippines, Philippine National Red Cross Award, National YMCA

award, Negrense Awardee and Horace Silliman Awardee.

MICHAEL L. ESCALER, 67, Filipino - Director and Member of the Audit and and Corporate

Governance Committees

Michael L. Escaler is the President and CEO of All Asian Countertrade Inc. known as the largest

sugar trader in the Philippines, founded in 1994 in partnership with Louis Dreyfus and Nissho-Iwai.

He is also the Chairman, President and CEO of Pampanga Sugar Development Co. Inc.

(PASUDECO), President and CEO of San Fernando Electric Company (SFELAPCO), Chairman and

CEO of Sweet Crystals Integrated Mill Corp and Okeelanta Corporation, Chairman of Balibago

Waterworks System Inc., JSY Transport, Aldrew and Gray Transport, Silver Dragon Transport and

Metro Clark Waste Management Inc. He served as Independent Director of Lorenzo Shipping

Corporation, PowerSource Philippines Inc., Empire Insurance Co., Trinity Insurance Co., Trinity

Healthcare Services Inc., Marcventures Holdings Inc., and Leyte AgriCorp.

A sugar trader in New York and London from 1974 to 1993. He began his career at Nissho-Iwai of

America for two years and left for ACLI International, one of the largest privately held trading

25

company. Later on, he transferred to Philipp Brothers as Vice-President to head the white sugar

trading afterwards he started his own trading company in the Philippines.

A Hall of Fame Sprinter for Ateneo de Manila University, where he graduated Cum Laude in

Bachelor of Arts in Economics. He obtained his Masters in Business Administration in International

Marketing in New York University.

A Philanthropist, he supports various charities including Habitat for Humanity, Coca Cola

Foundation, PGH Medical Foundation, Mano Amiga Academy and Productive Internships in

Dynamic Enterprise (PRIDE).

DEOGRACIAS N. VISTAN, 73, Filipino - Lead Independent Director, Chairman of the Audit

Committee and Corporate Governance Committees

Mr. Vistan became a Director of the Company in 2002. He is a respected veteran banker whose last

major stint was as President and CEO of Equitable PCI Bank Corporation in 2001-2002. He

distinguished himself in the same position in Solidbank Corporation from 1992 to 2000 and as

President and Vice-Chairman of the Land Bank of the Philippines from 1986 to 1992. Before that, he

occupied various senior management positions in Citibank (Manila) where he started his banking

career.

Presently, he is an Independent Director of Philippine National Bank, PNB Capital & Investment

Corporation and U-Bix Corporation. He serves as Chairman of the U.S.-based PNB International

Investments Corporation, PinoyME Foundation and V & A Foods Corporation. He is also a member

of the Board of Trustees of the Ramon Magsaysay Award Foundation and the Executive Advisory

Council of Mitsubishi Motors Philippines Corporation.

He graduated with a double degree in Business Administration and Humanities from the De La Salle

University and finished his Master in Business Administration at the Wharton Graduate School of the

University of Pennsylvania.

EDGARDO A. BAUTISTA, 82, Filipino, Independent Director, Member of Corporate

Governance Committee

Mr. Bautista was nominated as an Independent Director of the Company on April 17, 2008. At

Present, the Vice Chairman and CEO of CEPALCO Group.

Formerly he sits Chairmanship for Acuatico Pte Ltd Singapore and Acuatico Services Vietnam. He

was also a member of the Management Board of Viwasupco Vietnam and Viwaco Vietnam, and a

former Member of the Board of Trustees of the AIM Mirant Bridging Leadership Center.

He was a Consultant to the President of San Miguel Corporation from June 2008 to June 2009. He

was a Commissioner of the PT Bakrieland Development Tbk. since April 2007 until Feb. 2009. He

was also the Chairman of the EL Paso Philippines Energy Company, Inc and Director of EPEC

Nederland Holding BV, and East Asia Utilities Corporation, up until June 2008. From July 2006 to

June 2008, Mr. Bautista served as the Executive Director, Head of Asia Infrastructure Business of

Avenue Asia Investments Management, LLC.

26

Mr. Bautista was independent director of the Philippine National Oil Company – EDC (PNOC-EDC)

in 2007. From 2006 to 2007, he served as a Director of Visayan Electric Company, San Fernando

Electric and Light Company, Vivant Corporation and Global Business Power Corporation. From

2003 to 2005, Mr. Bautista was a Director in Subic Enerzone Corporation and Philippine Electricity

Market Corporation.

From January 1997 to December 2005, Mr. Bautista was the Chief Executive Officer of Mirant

Philippines Corporation and its subsidiaries, the President of Mirant Philippine Foundation and the

President and Chief Executive Officer of Mirant Global Corporation and its four subsidiaries. Prior

to his stint with Mirant, he served as the President and Chief Executive Officer of the Hopewell

Group of Companies, a pioneer independent power company which developed into Mirant

Philippines Corporation.

Mr. Bautista graduated with honors (Cum Laude) from De La Salle College with a degree in

Mechanical Engineering. He also completed General Electric’s 2 year specialized management and

technical program for selected graduate engineers from different countries conducted at various

facilities in the United States and an Advance Management Program conducted by professors of the

Harvard Business School. In 2006, Mr. Bautista became a Certified Fellow of the Institute of

Independent Directors.

RENE BUENAVENTURA, Filipino, Independent Director and Member of Audit Committee

Mr. Rene J. Buenaventura has been the Vice Chairman of the Equicom Group of Companies since

2007. The Equicom Group includes various companies in healthcare, banking and finance and

information technology. He is Vice Chairman of Equicom Savings Bank and Algo Leasing and

Finance Inc., Director and Executive Committee Member of Maxicare Healthcare Corporation and

Director of Equicom Information Technology Inc. He is a member of the Board of Trustees of the

Equitable Foundation.

He is also an Independent Director of UBS Investment Phils Inc and of AIG Insurance Phils Inc. and

is a Director of Strategic Equities Corporation. He was the former President of Equitable PCI Bank.

He attended the Advance Management Program for Overseas Bankers in Wharton School, University

of Pennsylvania. He finished his MBA and AB-BSC in De La Salle University. He is a Certified

Public Accountant.

ARSENIO C. CABRERA, JR., 57, Filipino - Corporate Secretary and Corporate Information

Officer

Atty. Cabrera was elected as Corporate Secretary of the Company in 1996. He is a Managing Partner

of Herrera Teehankee & Cabrera Law Offices. He is currently General Counsel of STI Education

Services Group, Inc. He also serves as Corporate Secretary of Araval, Inc., BOIE Drug, Inc., BOIE,

Incorporated, BOIE Prime, Inc., Bountiful Geomines, Inc., Calatagan Bay Realty, Inc., Canlubang

Golf and Country Club, Inc., Capital Managers and Advisors, Inc., Classic Finance, Inc., Coinage,

Inc., DLS-STI Colleges, Inc., GEOGEN Corporation, GEOGRACE Resources Philippines, Inc.,

Maestro Holdings, Inc., Masbate13 Philippines, Inc., Mina Tierra Gracia, Inc., NiHAO Mineral

Resources International, Inc., Oregalore, Inc., Philippine American Drug Company, Philippine First

Condominium Corporation, Philippines First Insurance Co., Inc., Philippine Life Assurance Financial

Corporation, Philhealthcare, Inc., Philplans First, Inc., Renaissance Condominium Corporation,

Rosehills Memorial Management Philippines, Inc. Sonak Holdings, Inc., STI Education Systems

27

Holdings, Inc., STI West Negros University, Inc., Total Consolidated Asset Management, Inc., Trend

Developers, Inc., Villa Development Corporation and WVC Development Corporation.

Atty. Cabrera holds a Bachelor of Laws (Second Honors) and a Bachelor of Science in Legal

Management from the Ateneo De Manila University.

ANA CARMINA S. HERRERA, 43, Filipino - Assistant Corporate Secretary

Atty. Herrera is a Senior Associate of Herrera Teehankee and Cabrera Law Offices. She also

performs the role of Corporate Secretary of Dunes and Eagle Land Development Corporation, STI

College Batangas, Inc., STI College of Kalookan, Inc., STI Dagupan, Inc., STI Diamond College, Inc.

and STI Tuguegarao, Inc. She also serves as Assistant Corporate Secretary in a number of other

corporations: Amica Corporation, Banclife Insurance Co., Inc., Coastal Bay Chemicals, Inc.,

Palisades Condominium Corporation, Philhealthcare, Inc., Philippines First Insurance Co., Inc.,

Philippine First Condominium Corporation, Philippine Life Financial Assurance Corporation, STI

Education Systems Holdings, Inc., and Venture Securities, Inc.

Atty. Herrera received her Bachelor of Laws degree from the University of the Philippines in 2000.

KEY EXECUTIVE OFFICERS

JAY R. OLIVAREZ, 46, Filipino – Chief Operating Officer and Member of the Executive

Committee

Jay Olivarez was appointed as Director and Chief Operating Officer of the company on October 1,

2013. He also holds the same position and Director for NMC Container Lines, Roadlink Logistics

Solutions, Inc., Pacific Roadlink Logistics, Inc., Batangas Bay Carriers, Inc., Marine Fuels

Philippines, Inc., and Southeast Asian Bunkers & Terminals, Inc. He has over 20 years experience in

Shipping Operations (container, tankers and breakbulk), Chartering, Logistics Management, Planning

and Business Development.

He graduated from De La Salle University in 1993 with a BS degree of Industrial Management

Engineering with minor in Mechanical Engineering.

ROMUALDO L. BEA, 42, Filipino – Chief Finance Officer (effective 23 June 2016)

On 23 June 2016, Mr. Bea was appointed as the Chief Finance Officer of Lorenzo Shipping

Corporation. He also hold the position of Vice President and Chief Finance Officer of National Marine

Corporation and its subsidiaries starting June 2016. Prior to joining the Company, Mr. Bea served as

VP-Finance Head of Controllership of SPi Global Group; Financial Controller of Innove

Communications, Inc.; Finance Director for Globe’s Network Infrastructure Assets and Project

Accounting and Reporting. He also served as Corporate Finance Manager of Liquigaz Philippines

Corp.; Finance and Accounting Manager of Rockwell Land Corporation; Operations Risk Controls

Manager of Union Bank of the Philippines and Site Controls and High Valued Inventory Program

Manager for Intel Philippines.

Mr. Bea graduated Cum Laude, Bachelor of Science in Accountancy from San Beda College in 1996

garnering highest GPA to Summa Cum Laude rating of 1.221. He is a Certified Public Accountant and

28

placed 2nd in May 1997 Philippine CPA Licensure Board Examinations with an overall rating of 89.6%.

He is also a Certified Management Accountant.

ROLANDO J. PORTES, 48, Filipino – Vice President for Operations

Mr. Portes was appointed Vice President for Operations of LSC effective 23 June 2016. He is also the

overall in-charge of operations of Liner Shipping Cluster of Magsaysay Shipping and Logistics Group

(MSL) since January 2016. Prior to his appointment as Operations Head, he was the General Manager

of Sun Cruises, Inc. (a Magsaysay Company) from 2009 to 2015. He started his career with Magsaysay

Maritime Corporation in 1993 as a Technical Assistant until 1996 and moved to become the Head of

Operations and Chartering of Islas Tankers Shipping Corp until 2002. He became the Operations and

Marketing Manager – LCL Department of NMC Container Lines from 2002 to 2004 then held the

position of Senior Logistics Manager of One Stop Logistics Solutions, Inc. from 2004 to 2008.

He is a licensed Mechanical Engineer. Mr. Portes graduated from Technological Institute of the

Philippines, Quezon City with a degree in Bachelor of Science in Mechanical Engineering in 1991 and

a degree in Bachelor of Business Management from Pamantasan ng Lungsod ng Maynila in 1999,

where he also completed his Masteral Degree in Business Administration in 2001.

EDRALIN G. MANAPSAL, 59 Filipino - Vice President for Sales & Marketing and

Compliance Officer

Mr. Manapsal joined the Company in May 2001 as Senior Corporate Sales and Marketing Manager

and after a year was promoted to Assistant Vice President for Marketing and Sales in October

2002. He was appointed as Vice President for Marketing and Sales in 2005. His other work stints

were with Anscor Transport & Terminals, Inc., Soriamont Steamship Agencies, Inc. as Line

Manager for U.S.A./EUROPE trade, P&O Nedlloyd, Inc. as Senior Marketing and Sales Manager and

HANJIN Shipping as Sales and Japanese Accounts Senior Manager. He graduated with a degree in

Business Administration major in Management from the Philippine School of Business

Administration (PSBA).

He replaced Ms. Edna Mendiola as Compliance Officer of Lorenzo Shipping Corporation on March

1, 2017.

2) Significant Employees

No person, who is not a director or an executive officer, is expected to make a significant contribution

to the business of the Company. Neither is the business highly dependent on the services of key

personnel.

3) Family Relationships

All the other above named directors and/or executive officers of the Company are not related, either

by consanguinity or affinity up to the fourth civil degree.

4) Involvement in Certain Legal Proceedings

29

To the knowledge and/or information of the Company, the above named directors and executive

officers of the Company are not, presently or during the last five (5) years, involved or have been

involved in any material legal proceeding affecting/involving themselves and/or their property before

any court of law or administrative body in the Philippines or elsewhere. To the knowledge and/or

information of the Company, the said persons have not been convicted by final judgment of any

offense punishable by the laws of the Republic of the Philippines or of the laws of any other

nation/country.

ITEM 10 – EXECUTIVE COMPENSATION

A. Executive Compensation

The aggregate total compensation for directors, the President and the top five officers of the Company

is shown below.

Top five (5) officers

Compensation YEAR Compensation (Bonuses)

2018

2017

PhP 3.6M

(est)

Php 3.4M

PhP 0.24M

(est)

Php 0.23M

Mr. Edralin Manapsal, VP- Sales and Marketing



2016 Php 5.86M Php 0.44M

Mr. Roberto A. Umali, President




2015 Php 10.7M Php1.9M


Ms. Edna F. Mendiola, VP-Finance


Mr. Dino C. Diaz, Compliance Officer

30



2014 Php 11.9M Php -


Ms. Edna F. Mendiola, VP-Finance


Mr. Dino C. Diaz, Compliance Officer

Mr. Felicisimo H. Saldaña, VP- Operations

1) All officers and directors Year Compensation Bonuses

as a group unnamed 2017 Php 5.02M Php 0.23M

2016 Php 7.48M Php 0.44M

2015 Php 12.7M Php 0.9M

2014 Php 13.1M Php -

2) Compensation of Directors Year Compensation Bonuses

2017 Php 0.90M Php - M

2016 Php 1.6M Php - M

2015 Php 1.2M Php 0.36M

2014 Php 1.1M Php -

3) Employment Contracts and Termination of Employment and Change-in-Control Arrangements.

There are no employment contracts between the Company and a named executive officer, and

any compensatory plan or arrangement, including payments to be received from the Company,

with respect to a named executive officer, which plan or arrangement results or will result from

the resignation, retirement or any other termination of such executive officer's employment with

the Company and its subsidiaries or from a change-in-control of the Company or a change in the

named executive officer's responsibilities following a change-in-control and the amount involved,

including all periodic payments or instalments, which exceeds Php2,500,000.

ITEM 11 - SECURITY OF CERTAIN RECORD/BENEFICIAL OWNERS AND MANAGEMENT

A. Security Ownership of Certain Record/Beneficial Owners as of March 31, 2018

As of March 31, 2018, the following stockholders are the only owners of more than 5% of the Company’s

voting capital stock, whether directly or indirectly, as record owner or beneficial owner:

Title of

Class

Name, Address of

Record Owner and

Relationship with Issuer

Name of Beneficial

Owner and Relationship

with Record Owner

Citizenship No. of Shares

Held Percent

31

Common

National Marine

Corporation

7/F Times Plaza, U.N.

Ave. cor. Taft Ave.,

Ermita, Manila

Doris Magsaysay-Ho,

the President of National

Marine Corporation, and

Antony Louis Marden, a

director of National

Marine Corporation, are

authorized to vote for the

shares of National

Marine Corporation in

the Company

Filipino

Direct

276,520,756

Indirect

102,628,805

49.86%

18.50%

Title of

Class

Name, Address of

Record Owner and

Relationship with Issuer

Name of Beneficial

Owner and Relationship

with Record Owner

Citizenship No. of Shares

Held

Percent

Common

Pioneer Insurance &

Surety Corp. (“Pioneer)

108 Paseo de Roxas,

Makati City

Pioneer is the Company’s

insurer for its seven (7)

vessels

Pioneer is the beneficial

owner of the shares.

Mr. David Coyukiat, the

President of Pioneer, is

duly authorized to vote

for the shares of Pioneer

in the Company.

Filipino

Indirect

73,832,800

13.31%

Common

Julio O. Sy, Sr.

Filipino

Indirect

42,744,511

7.71%

B. Security Ownership of Management as of March 31, 2018

The following table sets forth as of March 31, 2017, the beneficial ownership of each director and

executive officer of the Company:

Title of Class Name of Beneficial Owner Amount & Nature of

Citizenship Percent of

Beneficial Ownership Class

Common Julio O. Sy, Sr. 42,744,511 Record Filipino 7.71%

Common Doris Magsaysay Ho 1 Record Filipino 0.00%

Common Antony Louis Marden 1 Record British 0.00%

Common Michael L. Escaler 241,250 Record Filipino 0.04%

Common Deogracias N. Vistan 3,750 Record Filipino 0.00%

Common Roberto A. Umali 1,188,701 Record Filipino 0.21%

Common Edgardo A. Bautista 1,000 Record Filipino 0.00%

Common Atty. Arsenio C. Cabrera, Jr. 30,000 Record Filipino 0.01%

Common Directors & Officers as a Group 44,209,214 Record 7.97%

32

C. Voting Trust Holders of 5% or More

NMC and Pioneer entered into a Voting Trust Agreement whereby Pioneer transferred and delivered

stock certificates covering 75,193,750 shares of the Company or approximately 13.53% of the Company’s

outstanding capital stock to NMC as the Trustee. The Agreement provided that NMC, as the Trustee, was

entitled to exercise all the rights and powers of an absolute owner of said shares of stock, including the

right to vote for every corporate purpose in accordance with its best judgment. Under the terms of the

Voting Trust Agreement, NMC is obliged to deliver proper certificates of the equivalent amount of shares

in the Company to Pioneer in July 2006 or in any period that may be subsequently agreed upon by the

parties.

D. Changes in Control

There is no existing arrangement which may result in a change of control in the Company.

ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Transactions between related parties are accounted for at arms’ length prices or on terms similar to those

offered to non-related entities in an economically comparable market.

The following are the list of transactions during the past two (2) years to which the Company is a party,

and in which certain persons or group have a direct or indirect material interest.

1. NMC Container Lines, Inc. (NMCCLI) – related party

A wholly owned subsidiary of NMC, NMCCLI has a Co-Loading Agreement with the Company. To

alleviate temporary service disruptions, the parties extended to each other the privilege of co-loading

their respective cargoes subject to the payment of the freight or tariff rates specified under the Co-

Loading Agreement.

2. Asiaport Equipment and Logistics Corporation – related party

On 01 September 2008, LSC signed a cargo-handling contract with Asiaport Equipment and Logistics

Corporation for the handling of its containers at LSC’s container yard at Pier 16 in Manila.

On 31 May 2016, LSC and Asiaport once more entered into a Container Handling Contract for the

yard handling operations of Asiaport in Cebu. A separate contract was made on the same date, but

this time for Asiaport’s Cagayan De Oro operations, under the same terms and conditions as the

documentation for Cebu.

Asiaport is 30 percent owned by National Marine Corporation.

3. Roadlink Solutions, Inc. (RSI) – related party

A wholly owned subsidiary of NMC, RSI provides logistical support to the Company by providing

logistics services, cargo handling, and cargo trucking, among other services.

4. Magsaysay Houlder Insurance Brokers, Inc. (MHIBI) – related party

33

MHIBI handles the marine cargo insurance requirements of the Company.

5. Magsaysay Shipmanagement Inc. (MSI) – related party

MSI is an associate company of NMC. It provides technical services to the company’s vessels,

ensuring that all vessels are in seaworthy condition and in accordance with the standards set by the

Company. MSI also handles the management of the vessel crew.

6. Julio O. Sy, Sr., Shareholder, Director

The Company is a lessee for a parcel of land situated at Harbor Center, Tondo, Manila owned by Mr.

Sy. The lease contract already expired on 30 April 2016.

7. Tao Commodity Trader Inc. - related party

Tao Commodity, a corporation majority owned by Mr. Julio Sy Jr., son of Mr. Julio Sy Sr. is a

supplier of the Company’s fuel requirements.

8. Dumaguete Coconut Mills – related party

Dumaguete Coconut Mills is a corporation substantially owned by Mr. Julio Sy Sr., shareholder,

director of the Company. The Company entered into a Contract of Lease with Dumaguete Coconut

Mills for the rental of a parcel of land located at Bacong, Negros Oriental.

9. Pioneer Insurance & Surety Corp. (Pioneer), Shareholder

Pioneer is the Company’s provider of protection and indemnity and of hull & machinery insurances

for its six (6) vessels.

10. Mr. Oscar Go, Shareholder

Owned by Mr. Oscar Go, OYG Transport Inc. has a non-exclusive hauler agreement with the

Company.

12. Marine Fuels Philippines, Inc. (MFPI) – related party

A wholly owned subsidiary of NMC, MFPI supplies LSC’s fuel requirement.

13. Pacific Roadlink, Inc. (PRLI) – related party

NMC owns 50% of PRLI, a joint venture with IHTC. PRLI provides trucking services to the

company.

The following customers are majority owned by directors or shareholders:

Customers Director/Shareholder

All Asian Countertrade Majority owned by Mr. Michael Escaler, director

Oceanic Container Lines, Inc. Majority owned by Mr. Jose Go Jr., shareholder

Discovery Haulers, Inc. Majority owned by Mr. Jose Go Jr., shareholder

Evertop Transport Majority owned by Mr. Jose Go III, son of Mr. Jose Go Jr., shareholder

34

PART IV – CORPORATE GOVERNANCE

ITEM 12 – CORPORATE GOVERNANCE

Please refer to the 2016 Annual Corporate Governance Report (SEC Form – ACGR) of LSC, which shall

be filed with the SEC and posted in the Company’s corporate website www.lorenzoshipping.com, in

compliance with SEC Memorandum Circular No. 20, Series of 2016. (see Exhibit A)

PART V – EXHIBITS AND SCHEDULES

ITEM 13 - EXHIBITS AND REPORTS ON SEC FORM 17-C

A. Exhibits

Exhibits Description

A Annual Corporate Governance Report (SEC Form – ACGR)

B Financial Statements

Statement of Management’s Responsibility for Financial

Statements

Report of Independent Accountants

Balance Sheets as of December 31, 2016 and 2015

Statements of Income for each of the three years ended

December 31, 2016, 2015 and 2014

Statements of Comprehensive Income for each of the three years

ended December 31, 2016, 2015 and 2014

Statements of Changes in Stockholders’ Equity for each of the

three years ended December 31, 2016, 2015 and 2014

Statements of Cash Flows for each of the three years ended

December 31, 2016, 2015 and 2014

Notes to Financial Statements

Index to Financial Statements and Supplementary Schedules

Schedule A – Financial Assets

Schedule B – Amounts Receivables from Directors, Officers,

Employees, Related Parties and Principal

Stockholders (Other than Related Parties)

Schedule C – Amounts Receivable from Related Parties

Which Are Eliminated During Consolidation

Schedule D – Intangible Assets – Other Assets

Schedule E – Long Term Debt

Schedule F – Indebtedness to Related Parties (Long-term

loans from Related Companies)

Schedule G – Guarantees of Securities of Other Issuers

Schedule H – Capital Stock

http://www.lorenzoshipping.com/

35

B. Reports on SEC Form 17-C

State whether any reports on SEC Form 17-C were filed during the last twelve month period covered by

this report, listing the items reported, any financial statements filed and the dates of such.

Report Date Item

26 April 2017

Notice of Annual Stockholders’ Meeting

27 April 2017 Nominations for Election of Board of Directors

The following individuals were pre-screened and determined to possess the

qualifications required and none of the disqualifications provided for by law,

relevant rules and regulations and the Company’s Manual on Corporate

Governance to become members of the Company’s Board of Directors for 2017:

1. Doris Magsaysay Ho

2. Antony Louis Marden

3. Julio O. Sy, Sr.

4. Roberto A. Umali

5. Michael L. Escaler

Independent Directors:

6. Deogracias N. Vistan

7. Edgardo A. Bautista

22 June 2017 Results of Annual Stockholders’ Meeting

a) Election of Directors

List of elected directors for the ensuing year and until the election and

qualification of their successors:

1. Doris Magsaysay Ho

2. Antony Louis Marden

3. Julio O. Sy, Sr.

4. Roberto A. Umali

5. Michael L. Escaler

Independent Directors:

6. Deogracias N. Vistan

7. Edgardo A. Bautista

b) Appointment of External Auditor

The stockholders also appointed SyCip Gorres Velayo & Company as the

Corporation’s external auditor for the year 2017.

22 June 2017 Results of 2017 Organizational Meeting of the Board of Directors

a) List of elected officers for the ensuing year and until the election and

qualification of their successors:

Doris Magsaysay Ho – Chairperson and President

Antony Louis Marden – Vice Chairman

Jay R. Olivarez- Chief Operating Officer

Romualdo L. Bea – Chief Finance Officer

Roland J. Portes – Vice President for Operations

36

Edralin G. Manapsal – Vice President for Sales and Marketing and

Compliance Officer

Deogracias N. Vistan- Lead Independent Director

Agnes N. Domingo- Chief Audit Executive

Arsenio C. Cabrera, Jr. – Corporate Secretary and Corporate Information

Officer

Anna Carmina S. Herrera – Assistant Corporate Secretary

b) List of Committees and Membership

Executive Committee

Doris Magsaysay Ho – Chairperson

Antony Louis Marden – Member

Jay R. Olivarez – Member

Audit Committee

Deogracias N. Vistan – Chairman


Michael L. Escaler – Member

Edgardo A. Bautista- Member

Corporate Governance Committee

Deogracias N. Vistan – Chairman


Michael L. Escaler – Member

Edgardo A. Bautista- Member

2 August 2017

Mr. Roberto A. Umali tendered his resignation as Director of Lorenzo Shipping

Corporation (“LSC”) effective immediately. The resignation of Mr. Umali as Director

of LSC was not due to any disagreement with the management of LSC on any matter

relating to LSC’s operations, policies or practices.

11 August 2017

In the meeting, the Board accepted the resignation of Mr. Rolando Umali as Director

and elected Mr. Rene Buenaventura as Independent Director of LSC. Mr.

Buenaventura will serve the unexpired term of Mr. Umali.

The resignation of Mr. Umali was not due to any disagreement with LSC on any

matter relating to the Corporation’s operations, policies or practices.

The Board also elected Mr. Buenaventura as a member of the Audit Committee.

Mr. Buenaventura is on the process of acquiring LSC shares.

1

SECURITIES AND EXCHANGE COMMISSION

SEC FORM – ACGR

ANNUAL CORPORATE GOVERNANCE REPORT

1. Report is Filed for the Year 2016

2. Exact Name of Registrant as Specified in its Charter Lorenzo Shipping Corporation 3. 20/F Times Plaza Bldg. United Nations Avenue, Ermita Manila 1000 Address of Principal Office Postal Code

4. SEC Identification Number 48909 5. (SEC Use Only)

Industry Classification Code

6. BIR Tax Identification Number 000-628-958-000

7. (02) 567 2120 Issuer’s Telephone number, including area code

8. Not Applicable Former name or former address, if changed from the last report

EXHIBIT A

2

TABLE OF CONTENTS

A. BOARD MATTERS………………………………………………………………………………………………………………………….……….4 1) BOARD OF DIRECTORS

i. Composition of the Board………………………………………………………………………………….………4 ii. Corporate Governance Policy/ies……………………………………………………………………………….4

iii. Review and Approval of Vision and Vision…………………….……………………………………........5 iv. Directorship in Other Companies……………………………………………………………………………….6 v. Shareholding in the Company…………………………………………………………………………………….6

2) CHAIRMAN AND CEO…………………………………………………………………………………………………………………7 3) PLAN FOR SUCCESSION OF CEO/MANAGING DIRECTOR/PRESIDENT AND TOP KEY POSITIONS….7 4) OTHER EXECUTIVE, NON-EXECUTIVE AND INDEPENDENT DIRECTORS……………………………………….7 5) CHANGES IN THE BOARD OF DIRECTORS……………………………………………………………………………………9 6) ORIENTATION AND EDUCATION PROGRAM……………………………………………………………………………….17

B. CODE OF BUSINESS CONDUCT & ETHICS……………………………………………………………………………………………….17

1) POLICIES…………………………………………………………………………………………………………………………………….17 2) DISSEMINATION OF CODE………………………………………………………………………………………………….………18 3) COMPLIANCE WITH CODE………………………………………………………………………………………………………….18 4) RELATED PARTY TRANSACTIONS………………………………………………………………………………………………..18

i. Policies and Procedures……………………………………………………………………………………………..18 ii. Conflict of Interest……………………………………………………………………………………………………19

5) FAMILY, COMMERCIAL AND CONTRACTUAL RELATIONS…………………………………………………….……19 6) ALTERNATIVE DISPUTE RESOLUTION……………………………………………………………………………………….20

C. BOARD MEETINGS & ATTENDANCE……………………………………………………………………………………………….…….20

1) SCHEDULE OF MEETINGS…………………………………………………………………………………………………………20 2) DETAILS OF ATTENDANCE OF DIRECTORS………………………………………………………………………………..20 3) SEPARATE MEETING OF NON-EXECUTIVE DIRECTORS………………………………………………………………20 4) QUORUM REQUIREMENT ……………………………………………………………………………………………………….21 5) ACCESS TO INFORMATION……………………………………………………………………………………………………….21 6) EXTERNAL ADVICE……………………………………………………………………………………………………………………22 7) CHANGES IN EXISTING POLICIES……………………………………………………………………………………………….22

D. REMUNERATION MATTERS………………………………………………………………………………………………………………22

1) REMUNERATION PROCESS……………………………………………………………………………………………………….22 2) REMUNERATION POLICY AND STRUCTURE FOR DIRECTORS…………………………………………………….23 3) AGGREGATE REMUNERATION …………………………………………………………………………………………………23 4) STOCK RIGHTS, OPTIONS AND WARRANTS………………………………………………………………………………24 5) REMUNERATION OF MANAGEMENT…………………………………………………………………………………….….25

E. BOARD COMMITTEES……………………………………………………………………………………………………………………….25

1) NUMBER OF MEMBERS, FUNCTIONS AND RESPONSIBILITIES…………………………………………………..25 2) COMMITTEE MEMBERS……………………………………………………………………………………………………………27 3) CHANGES IN COMMITTEE MEMBERS……………………………………………………………………………………….29 4) WORK DONE AND ISSUES ADDRESSED…………………………………………………………………………………….29 5) COMMITTEE PROGRAM……………………………………………………………………………………………………………30

3

F. RISK MANAGEMENT SYSTEM……………………………………………………………………………………………………………30 1) STATEMENT ON EFFECTIVENESS OF RISK MANAGEMENT SYSTEM…………………………………………..30 2) RISK POLICY……………………………………………………………………………………………………………………………..31 3) CONTROL SYSTEM……………………………………………………………………………………………………………………31

G. INTERNAL AUDIT AND CONTROL………………………………………………………………………………………………………32

1) STATEMENT ON EFFECTIVENESS OF INTERNAL CONTROL SYSTEM…………………………………………..32 2) INTERNAL AUDIT

i. Role, Scope and Internal Audit Function…………………………………………………………………..33 ii. Appointment/Removal of Internal Auditor………………………………………………………………33

iii. Reporting Relationship with the Audit Committee…………………………………………………..33 iv. Resignation, Re-assignment and Reasons…………………………………………………………………34 v. Progress against Plans, Issues, Findings and

Examination Trends………………………………………………………..….……………………………………34 vi. Audit Control Policies and Procedures……………………………………………………………………..34

vii. Mechanisms and Safeguards…………………………………………………………………………………...35

H. ROLE OF STAKEHOLDERS….……………………………………………………………………………………………………………...35 I. DISCLOSURE AND TRANSPARENCY………………………………………………………………………………………………..…36 J. RIGHTS OF STOCKHOLDERS………………………………………………………………………………………………………………40

1) RIGHT TO PARTICIPATE EFFECTIVELY IN STOCKHOLDERS’ MEETINGS……………………………………….40 2) TREATMENT OF MINORITY STOCKHOLDERS…………………………………………………………………………….44

K. INVESTORS RELATIONS PROGRAM…………………………………………………………………………………………………..45 L. CORPORATE SOCIAL RESPONSIBILITY INITIATIVES…………………………………………………………………………….45 M. BOARD, DIRECTOR, COMMITTEE AND CEO APPRAISAL…………………………………………………………………….45 N. INTERNAL BREACHES AND SANCTIONS…………………………………………………………………………………………….46

4

A. BOARD MATTERS

1) Board of Directors

Number of Directors per Articles of Incorporation 7

Actual number of Directors for the year 7

(a) Composition of the Board

Complete the table with information on the Board of Directors: 1

Director’s Name

Type [Executive (ED), Non-

Executive (NED) or Independent

Director (ID)]

If

nominee, identify

the principal

Nominator in

the last election (if ID, state the

relationship with the nominator)

Date first elected

Date last elected (if

ID, state the number of

years served as ID) 2

Elected when (Annual /Special

Meeting)

No. of years

served as director

Doris Teresa Magsaysay Ho

ED N/A National

Marine Corp. 7 June 2005

23 June 2016

Annual Stockholders’

Meeting

Eleven (11)

Antony Louis Marden

ED N/A National

Marine Corp. 7 June 2005

23 June 2016


Meeting

Eleven (11)

Roberto A. Umali

ED until Aug. 2016 / NED

N/A National

Marine Corp. 6 March 2008

23 June 2016


Meeting

Eight (8)

Julio O. Sy, Sr. NED N/A National

Marine Corp. 30 May

1995 23 June

2016


Meeting

Eleven (11)

Michael L. Escaler

NED N/A National

Marine Corp.

2002 (ID)

11 June 2008

23 June 2016


Meeting

Six (6) (ID)

Six (6)

Deogracias N. Vistan

ID

N/A National

Marine Corp. 2002

23 June 2016


Meeting

Fourteen (14)

Edgardo A. Bautista

ID

N/A

National Marine Corp.

11 June 2008

23 June 2016


Meeting

Eight (8)

(b) Provide a brief summary of the corporate governance policy that the board of directors has adopted. Please

emphasize the policy/ies relative to the treatment of all shareholders, respect for the rights of minority shareholders and of other stakeholders, disclosure duties, and board responsibilities. Summary of Corporate Governance Policy The Board of Directors and Management believe that corporate governance is necessary for sound business management. It shall be the duty of the directors of the Corporation to promote shareholders’ rights, remove Impediment to the exercise of said rights and allow opportunities for stockholders to seek redress for any violation of their rights.

______________________________ 1 Based on Item 13.B of 2016 SEC Form 17-A 2 Reckoned from the election immediately following 23 June 2016

5

The Corporation treats all of its shareholders equally allowing them to exercise their voting rights, power of Inspection, right to information, right to dividends and appraisal rights.

Although all stockholders should be treated equally or without discrimination, the Board gives minority stockholders the right to propose the holding of meeting and items for discussion in the agenda that relate directly to the business of the corporation. The Corporation shall comply with all disclosure requirements imposed by the Securities and Exchange Commission and the Philippine Stock Exchange on listed and registered companies. Reports or disclosures required under the regulations of the SEC and PSE shall be prepared and submitted by the Corporations Compliance Officer. Material information that could potentially affect the Corporation’s share price shall be publicly disclosed. Material information includes earnings results, the acquisition or disposal of assets, off balance sheet transactions, related party transactions and direct or indirect remuneration of members of the Board and of management.3

(c) How often does the Board review and approve the vision and mission? The Board does not do a formal annual review. However, the Board certainly guides the Company based on the vision/mission as often as necessary. Directorship in Other by Companies

i. Directorship in the Company’s Group 41

Identify, as and if applicable, the members of the company’s Board of Directors who hold the office of director in other companies within its Group:

Director’s Name Corporate Name of the

Group Company

Type of Directorship (Executive, Non-Executive, Independent). Indicate if director is also the

Chairman.

Doris Teresa Magsaysay Ho

National Marine Corporation ED / Chairman

A. Magsaysay, Inc (and its subsidiaries)

ED and CEO

Antony Louis Marden

National Marine Corporation

ED

Roberto A. Umali


ED/President (until Aug 2016)

Magsaysay Transport and Logistics Corp.

ED/President (until Aug 2016)

3 Sec. 6, Corporate Governance Manual 4 The Group is composed of the parent, subsidiaries, associates and joint ventures of the company.

6

ii. Directorship in Other Listed Companies

Identify, as and if applicable, the members of the company’s Board of Directors who are also directors of publicly-listed companies outside of its Group:

Director’s Name Name of Listed Company

Type of Directorship (Executive, Non-Executive, Independent). Indicate if director is also the

Chairman.

Deogracias N. Vistan Philippine National Bank Independent Director

iii. Relationship within the Company and its Group

Provide details, as and if applicable, of any relation among the members of the Board of Directors, which links them to significant shareholders in the company and/or in its group:

Director’s Name Name of the

Significant Shareholder Description of the relationship

Doris Teresa Magsaysay Ho National Marine Corporation Chairman

Antony Louis Marden National Marine Corporation Director

Roberto A. Umali National Marine Corporation Director

iv. Has the company set a limit on the number of board seats in other companies (publicly listed, ordinary and

companies with secondary license) that an individual director or CEO may hold simultaneously? In particular, is the limit of five board seats in other publicly listed companies imposed and observed? If yes, briefly describe other guidelines:

No. / Not applicable

Guidelines

Maximum Number of Directorships in other companies

Executive Director N.A.

Non-Executive Director N.A.

CEO N.A.

(d) Shareholding in the Company

Complete the following table on the members of the company’s Board of Directors who directly and indirectly own shares in the company:

Name of Director Number of Direct

shares

Number of Indirect shares /

Through (name of record owner)

% of Capital Stock

Doris Teresa M. Ho 1 0.00%

Antony Louis Marden 1 0.00%

Julio O. Sy, Sr. 42,744,511 7.71%

Michael L. Escaler 241,250 0.04%

Robert A. Umali 1,188,701 0.21%

Deogracias N. Vistan 3,750 0.00%

Edgardo A. Bautista 1,000 0.00%

TOTAL 42,989,513 1,189,701 7.96%

7

2) Chairman and CEO

(a) Do different persons assume the role of Chairman of the Board of Directors and CEO? If no, describe the checks and balances laid down to ensure that the Board gets the benefit of independent views.

Yes x No (e)

Identify the Chair and CEO:

Chairman of the Board Doris Teresa Magsaysay Ho

CEO/President Roberto A. Umali (until Aug 2016)* *Replaced by Doris Teresa Magsaysay Ho for the remaining of the unserved term.

(b) Roles, Accountabilities and Deliverables

Define and clarify the roles, accountabilities and deliverables of the Chairman and CEO.

Chairman Chief Executive Officer

Role Leads the Board Leads and manages the business

Accountabilities Governance of the corporation and independent check on management

Bottom-line results

Deliverables Policies and decisions Operating and financial results

3) Explain how the board of directors plan for the succession of the CEO/Managing Director/President and the top key management positions? Plans are made in executive sessions.

4) Other Executive, Non-Executive and Independent Directors

Does the company have a policy of ensuring diversity of experience and background of directors in the board? Please explain. The Company does not have a formal written policy. Such a policy will be topic for future discussion. Does it ensure that at least one non-executive director has an experience in the sector or industry the company belongs to? Please explain. The Company does not have a formal written policy. Such a policy will be a topic for future discussion. Define and clarify the roles, accountabilities and deliverables of the Executive, Non-Executive and Independent Directors: No written / formal delineation.

Executive Non-Executive Independent Director

Role N.A. N.A. N.A.

Accountabilities N.A. N.A. N.A.

Deliverables N.A. N.A. N.A.

8

Provide the company’s definition of "independence" and describe the company’s compliance to the definition. 5

An “ independent director” means a person who, apart from his fees and shareholdings, is independent of management and free from any business or other relationship which could, or could reasonably be perceived to, materially interfere with his exercise of independent judgment in carrying out his responsibilities as a director of the corporation and includes, among others any person who:

a. Is not a director or officer of the corporation or of its related companies or any of its substantial shareholders

except when an independent director of any of the foregoing; b. Does not own more than two percent (2%) of the shares of the corporation and/ or its related companies or any

of its substantial shareholders; c. Is not related to any directors, officer or substantial shareholders of the corporation, any of its related companies

or any of its substantial shareholders. For this purpose, relatives includes spouse, parent, child, brother, sister, and the spouse of such child brother or sister;

d. Is not acting as a nominee or representative of any directors of any substantial shareholder of the corporation, and/or any of its related companies and/or any of its substantial shareholders, pursuant to a Deed of Trust or under any contract or arrangement;

e. Has not been employed in any executive capacity by the corporation, any of its related companies and or by any of its substantial shareholders within the last two (2) years;

f. Is not retained, either personally or through his firm or any similar entity, as professional adviser, by the corporation, any of its related companies and/ or any of its substantial shareholders, within the last two(2) years;

g. Has not engaged and does not engage in any transaction with the corporation and/or with any of its related companies and/or with any of its substantial shareholders, whether by himself and / or with other person and/or through a firm of which he is a partner and/or a company of which he is a director or substantial shareholder, other than transactions which are conducted at arms-length and are immaterial.

The Company has complied with the foregoing definition of “independence”. The Company’s independent directors are free from any business or relationship which could or could reasonably be perceived to, materially interfere with their exercise of independent judgment in carrying out their duties as independent directors.

Does the company have a term limit of five consecutive years for independent directors? If after two years, the company wishes to bring back an independent director who had served for five years, does it limit the term for no more than four additional years? Please explain. The Company shall comply with SEC Memorandum Circular No.9, Series of 2011 and impose a term limit of five (5) consecutive years for independent directors. An independent director will be eligible again for election as independent director for another 5-year term after a 2- year cooling off period, provided he has not engaged in any activity that disqualifies him from being elected as such.

______________________________ 5 Sec. 3.2.3, Corporate Governance Manual

9

5) Changes in the Board of Directors (Executive, Non-Executive and Independent Directors)

(a) Resignation/Death/Removal

Indicate any changes in the composition of the Board of Directors that happened during the period: No Change

Name Position Date of Cessation Reason

N.A.

(b) Selection/Appointment, Re-election, Disqualification, Removal, Reinstatement and Suspension

Describe the procedures for the selection/appointment, re-election, disqualification, removal, reinstatement and suspension of the members of the Board of Directors. Provide details of the processes adopted (including the frequency of election) and the criteria employed in each procedure:

Procedure Process Adopted Criteria

a. Selection/Appointment

i. Executive Directors ii. Non – Executive

Directors iii. Independent

Directors

The following rules shall apply with respect for to the nomination and election of all members of the Corporation’s Board of Directors:

a. Nomination of directors shall be conducted by the Nomination Committee (“NC”) prior to the annual stockholders’ meeting. All recommendations shall be signed by the nominating stockholders together with the acceptance and conformity of the would-be nominees and shall be submitted to the Nomination Committee and the Corporate Secretary at least forty-five (45) days before the date of the actual meeting.

b. The Nomination Committee shall pre-screen the qualifications and prepare a Final List of all Candidates for directors and put in place screening policies and parameters to enable it effectively review the qualifications of the nominees for directors.

c. After the nomination, the

Nomination Committee shall prepare a Final List of Candidates to be submitted to the Board of Directors, which shall contain all the information regarding the

The directors shall possess such qualifications for membership in the Board as prescribed by the Corporation Code, Securities Regulation Code and other relevant laws, rules and regulations.

10

background and experience of the nominees required to be ascertained and made known under the Securities Regulation Code and relevant rules and regulations of the Securities and Exchange Commission. Said Final List of Candidates shall be disclosed in the reports required by law, rules and regulations to be submitted to the Securities and Exchange Commission and to all stockholders.

d. Only nominees whose names

appear on the Final List of Candidates shall be eligible for election as directors. No other nomination shall be entertained after the Final List of Candidates shall have been prepared. No further nomination shall be entertained or allowed on the floor during the actual annual stockholder’s meeting.

e. It shall be responsibility of the

Chairman of the stockholders’ meeting to inform all stockholders in attendance of the mandatory qualifications and procedures for nominating and electing directors.

f. Specific slots for independent directors shall not be filled up by unqualified nominees.

g. Any controversy or issue arising

from the selection, nomination or election of independent directors shall be resolved by the SEC by appointing independent directors from the list of nominees submitted by the stockholders.

h. In case of failure of election,

resignation, disqualification or cessation of independent directorship, the vacancy shall be filled by the vote of at least a majority of the remaining directors, if still constituting a quorum; otherwise, said vacancy shall be filled only by candidates

11

approved by the Nomination Committee. An independent director so elected to fill a vacancy shall serve only for the unexpired term of his predecessor in office.

b. Re-appointment



Directors

The term of office of the directors of the Company is one (1) year and they are to serve as such until the election and qualification of their successors. Prior to the next Annual Stockholders’ Meeting or special meeting called for the purpose of electing/appointing the Company’s Directors, all the names of the nominee directors shall be submitted to the NC for consideration by the latter. The NC shall review the qualifications of the nominees for directors and prepare a Final List of Candidates containing all the information about the background and experience of the nominees. Only nominees whose names appear on the Final List of Candidates shall be eligible for election as directors. No other nomination shall be entertained after the Final List of Candidates shall have been prepared and during the Annual Stockholders’ Meeting.

Same as above

c. Permanent Disqualification



Directors

If the director is found be involved in any of the grounds stated for permanent disqualification, he will automatically be considered resigned/removed from the board.

Permanent Disqualification – The following shall be grounds for the permanent disqualification of a director:

(i) Any person convicted by final judgment or order by a competent judicial or administrative body of any crime that (a) involves the purchase or sale of securities as defined in the Securities Regulation Code; (b) arises out of the person’s conduct as an underwriter, broker, dealer, investment adviser, principal distributor, mutual fund dealer, futures commission merchant, commodity trading advisor, or floor broker; or (c) arises out of his judiciary relationship with a bank, quasi-bank, trust company,

12

investment house or as an affiliated person or any of them;

(ii) Any person who, by reason of misconduct, after hearing, is permanently enjoined by final judgment or order of the SEC or any court or administrative body of competent jurisdiction from: (a) acting as underwriter, broker, dealer, investment adviser, principal, distributor, mutual fund dealer, futures commission merchant, commodity trading advisor, or floor broker; (b) acting as director or officer of a bank, quasi-bank, trust company, investment house or investment company; (c) engaging in or continuing any conduct or practice in any of the capacities mentioned in sub-paragraphs (a) and (b) above, or willfully violating the laws that govern securities and banking activities. The disqualification shall also apply if such person is currently the subject of an order of the Commission or any court or administrative body denying, revoking or suspending any registration, license or permit issued to him under the Corporation Code, Securities Regulation Code or any other law administered by the Commission or Bangko Sentral ng Pilipinas (BSP), or under any rule or regulation issued by the Commission or BSP, or has otherwise restrained to engage in any activity involving securities and banking; or such person is currently the subject of an effective order of a self-regulatory organization suspending or expelling him from membership, participation or association with a member or participant of the organization;

(iii) Any person judicially convicted by final judgment by a court or competent administrative body of an offense involving moral turpitude, fraud, embezzlement, theft, estafa, counterfeiting,

13

misappropriation, forgery, bribery; false affirmation, perjury or other fraudulent acts;

(iv) Any person finally found by the SEC

or a court or other administrative body to have willfully violated, or willfully aided, abetted, counseled, induced or procured the violation of any provision of the Securities Regulation Code, or any other law administered by the SEC or Bangko Sentral ng Pilipinas;

(v) Any person judicially declared to be

insolvent;

(vi) Any person finally found guilty by a foreign court or equivalent financial regulatory authority of acts, violations or misconduct similar to any of the acts, violations or misconduct listed in the foregoing paragraphs;

(vii) Conviction by final judgment of an

offense punishable by imprisonment for a period exceeding six (6) years, or a violation of the Corporation Code, committed within five (5) years prior to the date of his election or appointment; and

(viii) Any person earlier elected as

independent director who becomes an officer, employee or consultant of the same Corporation.

d. Temporary Disqualification



Directors

A temporarily disqualified director shall, within sixty (60) business days from such disqualification, take appropriate action to remedy or correct the disqualification. If he fails or refuses to do so for unjustified reasons, the disqualification shall become permanent

Any of the following shall be a ground for temporary disqualification of a director: 1. Refusal to comply with disclosure

requirements of the Securities Regulation Code and its Implementing Rules and Regulation. This disqualification shall be in effect as long as his refusal persists;

2. Absence or non-participation for

whatever reasons for more than

14

fifty percent (50%) of all meetings, both regular and special, of the Board of Directors during his incumbency, or any twelve (12) month period during said incumbency, unless the absence is due to illness, death in the immediate family or serious accident. This disqualification applies for purposes of the succeeding election;

3. Dismissal/termination from the

directorship in another listed corporation for cause. This disqualification shall be in effect until he has cleared himself of any involvement in the cause that gave rise to his dismissal or termination;

4. Being under preventive

suspension by the Corporation; 5. Conviction that has not yet

become final referred to in the grounds for the disqualification of directors; and

6. If the beneficial equity ownership

of an independent director in the Corporation or its subsidiaries or affiliates exceeds two percent (2%) of its subscribed capital stock. The disqualification shall be lifted if the limit is later complied with.

A temporary disqualified director shall, within sixty (60) business days from such disqualification, take appropriate action to remedy or correct the disqualification. If he fails or refuses to do so for unjustified reasons, the disqualification shall become permanent.

e. Removal



Directors

A corporate director/officer shall be removed from office, in the manner provided by law, if he commits any of the following acts: i. When he willfully and knowingly

votes or assents to a patently unlawful act;

Same as the grounds for permanent disqualification

15

ii. When he is guilty of gross negligence or bad faith In the conduct of the corporate affairs;

iii. When he acquires personal or pecuniary interest which is in conflict with his duty as such officer;

iv. When he commits acts in violation of the pertinent and material provisions of the Corporation Code of the Philippines, the Securities Regulations Code, its implementing rules and regulations and corresponding amendments on the fiduciary duties of a corporate director or officer; and

v. The corporate director or officer shall be personally liable for acts committed under paragraphs (i), (ii), and (iii) above.

The penalty of removal from office imposed hereunder shall be without prejudice to the company’s right to file the appropriate civil or criminal case against the corporate director or officer involved.

f. Re-instatement



Directors

This applies only to directors who are found to be involved in any of the grounds stated for temporary disqualification. This disqualification shall be in effect as long as his refusal persists. This disqualification applies for purposes of the succeeding election. The disqualification shall be in effect until he has cleared himself of any involvement in the alleged irregularity.

Refusal to fully disclose the extent of his business interest as required under the SRC and its implementing Rules and Regulations. Absence or non-participation for whatever reason/s for more than fifty percent (50%) of all meetings, both regular and special, of the Board of Directors during his incumbency or any twelve (12) month period during said incumbency, unless the absence is due to illness, death in the immediate family or serious accident. Dismissal/termination from the directorship in another listed corporation for cause.

16

The disqualification shall be lifted if the limit is later complied with

For ID, if his beneficial equity ownership in the Corporation or its subsidiaries or affiliates exceeds two percent (2%) of its subscribed capital stock.

g. Suspension 6



Directors

This applies only to directors who are found to be involved in any of the grounds stated for temporary disqualification. The disqualification or suspension shall be in effect as long as the concerned director has not cleared himself of the said grounds.

Same as the grounds for temporary disqualification.

Voting Result of the last Annual General Meeting – 23 June 2016

Name of Director Votes Received

Doris Magsaysay Ho 89.70% or 497,505,444

Antony Louis Marden 89.70% or 497,505,444

Roberto A. Umali 89.70% or 497,505,444

Julio O. Sy, Sr. 89.70% or 497,505,444

Michael L. Escaler 89.70% or 497,505,444

Edgardo A. Bautista 89.70% or 497,505,444

Deogracias N. Vistan 89.70% or 497,505,444

_____________________________ 6 Sec. 2.8, Art. II, Corporate Governance Manual.

17

6) Orientation and Education Program

(a) Disclose details of the company’s orientation program for new directors, if any.

(b) State any in-house training and external courses attended by Directors and Senior Management7 for the past three (3) years:

(c) Continuing education programs for directors: programs and seminars and roundtables attended during the year.

Name of Director/Officer Date of Training Program Name of Training

Institution

Doris Magsaysay Ho 8 December 2016 Seminar on Corporate

Governance SGV

Antony Louis Marden 8 December 2016 Seminar on Corporate

Governance SGV

Roberto A. Umali

Julio O. Sy, Sr.

Michael L. Escaler 19 August 2016 Seminar on Corporate

Governance Center for Training and

Development, Inc.

Edgardo A. Bautista 8 December 2016 Seminar on Corporate

Governance SGV

Deogracias N. Vistan 8 December 2016 Seminar on Corporate

Governance SGV

B. CODE OF BUSINESS CONDUCT & ETHICS

1) Discuss briefly the company’s policies on the following business conduct or ethics affecting directors, senior management and employees:

Business Conduct & Ethics Directors Senior Management Employees

(a) Conflict of Interest COI Policy is implemented. All employees are required to update their COI Declaration Forms on a yearly basis; any potential and actual conflicts is addressed by the Ethics Committee

(b) Conduct of Business and Fair Dealings

Procurement policy and procedures on fair dealings with supplier

(c) Receipt of gifts from third parties

No written and approved policy on this, but Senior management and employees are advised to disclose and surrender gifts received from third parties.

(d) Compliance with & Regulations

Corporate Governance Manual

(e) Respect for Trade Secrets/Use of Non-public Information

Management/employees are encouraged to sign a statement that they will maintain confidentiality of company information

(f) Use of Company Funds, Assets and Information

HR and IT policies and procedures on prudent use of company assets and information

______________________ 7 Senior Management refers to the CEO and other persons having authority and responsibility for planning, directing and controlling the activities of the

Company.

18

(g) Employment & Labor Laws & Policies

Collective and Bargaining Agreement

HR Policies and procedure on recruitment and employment

Compliance with DOLE audit / surveys

(h) Disciplinary action Company Code of Discipline

(i) Whistle Blower

Policy on fraud and Irregularities reporting is implemented. Any form of deception against company funds, assets, or company property is reported and endorsed to right recipients as defined in the policy.

(j) Conflict Resolution

2) Has the code of ethics or conduct been disseminated to all directors, senior management and employees? Yes

3) Discuss how the company implements and monitors compliance with the code of ethics or conduct. The Ethics Committee and the HR Department are tasked with the implementation and monitoring of the Code of Ethics or Conduct

4) Related Party Transactions

(a) Policies and Procedures

Describe the company’s policies and procedures for the review, approval or ratification, monitoring and recording of related party transactions between and among the company and its parent, joint ventures, subsidiaries, associates, affiliates, substantial stockholders, officers and directors, including their spouses, children and dependent siblings and parents and of interlocking director relationships of members of the Board. No formal or written procedures.

Related Party Transactions Policies and Procedures

(1) Parent Company N/A

(2) Joint Ventures N/A

(3) Subsidiaries N/A

(4) Entities Under Common Control N/A

(5) Substantial Stockholders N/A

(6) Officers including spouse/children/siblings/parents N/A

(7) Directors including spouse/children/siblings/parents N/A

(8) Interlocking director relationship of Board of Directors N/A

19

(b) Conflict of Interest

(i) Directors/Officers and 5% or more Shareholders

Identify any actual or probable conflict of interest to which directors/officers/5% or more shareholders may be involved.

No conflict of interest.

Details of Conflict

of Interest (Actual or Probable)

Name of Director/s N/A

Name of Officer/s N/A

Name of Significant Shareholders N/A

(ii) Mechanism

Describe the mechanism laid down to detect, determine and resolve any possible conflict of interest between the company and/or its group and their directors, officers and significant shareholders.

No formal mechanism

Directors/Officers/Significant Shareholders

Company N/A

Group N/A

5) Family, Commercial and Contractual Relations

(a) Indicate, if applicable, any relation of a family,8 commercial, contractual or business nature that exists between the holders of significant equity (5% or more), to the extent that they are known to the company: Not known to the Company.

Names of Related Significant Shareholders

Type of Relationship Brief Description of the

Relationship

N/A

(b) Indicate, if applicable, any relation of a commercial, contractual or business nature that exists between the holders of significant equity (5% or more) and the company: None

Names of Related Significant Shareholders

Type of Relationship Brief Description

N/A

___________________________ 8 Family relationship up to the fourth civil degree either by consanguinity or affinity.

20

(c) Indicate any shareholder agreements that may impact on the control, ownership and strategic direction of the company: None

Name of Shareholders % of Capital Stock affected

(Parties) Brief Description of the

Transaction

N/A

6) Alternative Dispute Resolution

Describe the alternative dispute resolution system adopted by the company for the last three (3) years in amicably settling conflicts or differences between the corporation and its stockholders, and the corporation and third parties, including regulatory authorities. No formal System

Alternative Dispute Resolution System

Corporation & Stockholders Appraisal Right- Stockholders shall have appraisal right or the right to dissent and demand payment of the fair value for their share. 9

Corporation & Third Parties N/A

Corporation & Regulatory Authorities N/A

C. BOARD MEETINGS & ATTENDANCE

1) Are Board of Directors’ meetings scheduled before or at the beginning of the year?

Board meetings are scheduled before or at the beginning of the year. The meetings of the Board of Directors are held at least once every three (3) months.

2) Attendance of Directors 10

Board Name Date of Election

No. of Meetings

Held during the year

No. of Meetings Attended

%

Chairperson Doris Magsaysay Ho 7 June 2005 8 6 75%

Member Antony Louis Marden 7 June 2005 8 8 100%

Member Roberto A. Umali 6 March 2008 8 7 88%

Member Julio O. Sy, Sr. 30 May 1995 8 3 38%

Member Michael L. Escaler 29 May 2002 8 6 75%

Independent Edgardo A. Bautista 23 May 2008 8 5 63%

Independent Deogracias N. Vistan 29 May 2002 8 8 100%

3) Do non-executive directors have a separate meeting during the year without the presence of any executive? If yes, how many times? None

__________________________ 9 Sec. 7.5, Corporate Governance Manual 10 Based on Advisement Letter filed on 3 January 2017

21

4) Is the minimum quorum requirement for Board decisions set at two-thirds of board members? Please explain. The minimum quorum requirement is at least four (4) directors

5) Access to Information

(a) How many days in advance are board papers 11 for board of directors meetings provided to the board?

Two (2) days (b) Do board members have independent access to Management and the Corporate Secretary?

Yes (c) State the policy of the role of the company secretary. Does such role include assisting the Chairman in

preparing the board agenda, facilitating training of directors, keeping directors updated regarding any relevant statutory and regulatory changes, etc.? 12

The Corporate Secretary shall be responsible for the safekeeping and preservation of the integrity of the minutes of the meetings of the Board and its committees as well as the other documents, records and information essential to the conduct of his duties and responsibilities to the agenda of their meetings and ensures that members of the Board have accurate information that will enable them to arrive at intelligent decision on matters that require their approval. The Corporate Secretary sees to it all Board procedures, rules and regulations are strictly followed.

(d) Is the company secretary trained in legal, accountancy or company secretarial practices? Please explain

should the answer be in the negative.

Yes (e) Committee Procedures

Disclose whether there is a procedure that Directors can avail of to enable them to get information necessary to be able to prepare in advance for the meetings of different committees:

Yes x No

Committee Details of the procedures

Executive Advances copy of Executive Committee Meeting Agenda and materials

Audit Advance copy of Audit Committee Meeting agenda and materials.

Nomination Advance copy of Letter of Nomination and acceptance of nominees

Remuneration

Others (specify)

_____________________________ 11 Board papers consist of complete and adequate information about the matters to be taken in the board meeting. Information includes the background or explanation on matters brought before the Board, disclosures, budgets, forecasts and internal financial documents. 12 Sec. 3.2.4, Corporate Governance Manual.

22

6) External Advice

Indicate whether or not a procedure exists whereby directors can receive external advice and, if so, provide details: No formal or written procedure

Procedures Details

N/A N/A

7) Change/s in existing policies

Indicate, if applicable, any change/s introduced by the Board of Directors (during its most recent term) on existing policies that may have an effect on the business of the company and the reason/s for the change: None

Existing Policies Changes Reason

N/A N/A N/A

D. REMUNERATION MATTERS

1) Remuneration Process

Disclose the process used for determining the remuneration of the CEO and the four (4) most highly compensated management officers:

No formal or written process

Process CEO Top 4 Highest Paid

Management Officers

(1) Fixed remuneration N/A N/A

(2) Variable remuneration

(3) Per diem allowance P711,321.18

(4) Bonus None

(5) Stock Options and other financial instruments

(6) Others (specify)

23

2) Remuneration Policy and Structure for Executive and Non-Executive Directors

Disclose the company’s policy on remuneration and the structure of its compensation package. Explain how the compensation of Executive and Non-Executive Directors is calculated.

No Policy

Remuneration Policy

Structure of Compensation Packages

How Compensation is Calculated

Executive Directors N/A

Non-Executive Directors N/A

Do stockholders have the opportunity to approve the decision on total remuneration (fees, allowances, benefits-in-kind and other emoluments) of board of directors? Provide details for the last three (3) years. The Corporation’s annual reports and information statements shall contain a clear and understandable disclosure of all fixed and variable compensation that may be paid, directly or indirectly to its directors and top four (4) management officers during the preceding year.

Remuneration Scheme Date of

Stockholders’ Approval

N/A N/A

3) Aggregate Remuneration

Complete the following table on the aggregate remuneration accrued during the most recent year:

Remuneration Item Executive Directors Non-Executive

Directors (other than independent directors)

Independent Directors

(a) Fixed Remuneration N/A N/A N/A

(b) Variable Remuneration

N/A N/A N/A

(c) Per diem Allowance Shareholders Information package 2016

(d) Bonuses None

(e) Stock Options and/or other financial instruments

N/A N/A N/A

(f) Others (Specify) N/A N/A N/A

Total

24

Other Benefits

Executive Directors

Non-Executive Director (other than

independent directors) Independent Directors

1) Advances N/A N/A N/A

2) Credit granted N/A N/A N/A

3) Pension Plan/s Contributions

N/A N/A N/A

(d) Pension Plans, Obligations incurred

N/A N/A N/A

(e) Life Insurance Premium

N/A N/A N/A

(f) Hospitalization Plan N/A N/A N/A

(g) Car Plan N/A N/A N/A

(h) Others (Specify) N/A N/A N/A

Total

4) Stock Rights, Options and Warrants

(a) Board of Directors

Complete the following table, on the members of the company’s Board of Directors who own or are entitled to stock rights, options or warrants over the company’s shares: Not Applicable

Director’s Name Number of Direct

Option/Rights/ Warrants

Number of Indirect

Option/Rights/ Warrants

Number of Equivalent Shares

Total % from Capital Stock

N/A N/A N/A N/A N/A

(b) Amendments of Incentive Programs

Indicate any amendments and discontinuation of any incentive programs introduced, including the criteria used in the creation of the program. Disclose whether these are subject to approval during the Annual Stockholders’ Meeting:

Incentive Program Amendments Date of

Stockholders’ Approval

N/A N/A N/A

25

5) Remuneration of Management

Identify the five (5) members of management who are not at the same time executive directors and indicate the total remuneration received during the financial year:

Name of Officer/Position Total Remuneration

Roberto A. Umali - President (until Aug 2016) P6.3M

Edralin G. Manapsal - VP – Marketing and Sales

E. BOARD COMMITTEES

1) Number of Members, Functions and Responsibilities 13

Provide details on the number of members of each committee, its functions, key responsibilities and the power/authority delegated to it by the Board:

Committee

No. of Members

Committee Charter

Functions Key Responsibilities Power Executive Director

(ED)

Non-executive Director

(NED)

Independent

Director (ID)

Executive 3 0 0

None During the absence of the Board, the Executive Committee shall act by majority vote of all its members on such specific matters within the competence of the Board of Directors.

The Executive Committee, if the Board of Directors is not in session, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the corporation, except with respect to; (a) approval of any section for which stockholders’ approval is also required; (b) the filling of vacancies in the Board of Directors; (c) the amendment or repeal of these By-laws or the adoption of new By-laws; (d) the amendment or repeal of any resolution of the Board of Directors which by its express terms is not so amendable or repealable; (e) a distribution to the stockholders; and (f) such other matters that specifically excluded or limited by the Board of Directors

_____________________ 13 Sec. 3.2.2, Corporate Governance Manual

26

Audit 1 1 1

Yes

Assist the Board in the performance of its oversight responsibility for the financial reporting process, system of internal control, audit process, and monitoring of compliance with applicable laws, rules and regulations.

Check all financial reports against compliance with pertinent accounting standards, including laws and regulatory requirements;

Perform oversight functions with the internal and external auditors. It should ensure that the internal and external auditors act independently from each other, and that both auditors are given all records, properties and personnel to enable them to perform their respective audit functions;

Assist the Board in the performance of its oversight responsibility for the financial reporting process, system of internal control, audit process, and monitoring of compliance with applicable laws, rules and regulations:

Nomination 1 1 1 Yes Review and evaluate qualification of all persons nominated to the Board of directors as well as those are nominated to other positions requiring appointment by the Board.

Review and evaluate qualification of all persons nominated to the Board of directors as well as those are nominated to other positions requiring appointment by the Board.

Remuneration

2 0 1 None Establish procedure for developing a policy on executive remuneration and for fixing remuneration packages of

Establish procedure for developing a policy on executive remuneration and for fixing remuneration packages of corporate officers, senior management with the company’s culture, strategy and business

27

corporate officers, senior management, and directors to ensure consistency with the company’s culture, strategy and business environment.

environment.

Others (specify)

2) Committee Members

(a) Executive Committee

Office Name Date of

Appointment

No. of Meetings

Held


%

Length of Service in

the Committee

Chairman Doris Magsaysay Ho 7 June 2005 3 3 100% Eleven (11)

Years

Member (ED) Antony Louis Marden 6 June 2006 3 3 100 % Ten (10)

Years

Member (ED – until Aug 2016)

Roberto A. Umali 11 June 2008 3 3 100% Eight (8)

Years

(b) Audit Committee

Office Name Date of

Appointment

No. of Meeting

s Held


%


the Committee

Chairman Deogracias N. Vistan 7 June 2005 2 2 100% Eleven (11) Years

Member (ED) Antony Louis Marden 7 June 2005 2 2 100 % Eleven (11) Years

Member (NED) Michael L. Escaler 7 June 2005 2 2 100 % Eleven (11) Years

Disclose the profile or qualifications of the Audit Committee members. The Audit Committee shall be composed of at least three (3) members of the Board, who shall preferably have accounting and finance backgrounds, one (1) of whom shall be and Independent Director who shall act as the Chairman. Each member shall have at least an adequate understanding or competence of the most company’s financial management systems and environment. DEOGRACIAS N. VISTAN, 72, Filipino – Independent Director, Chairman of the Audit Committee Mr. Vistan became a Director of the Company in 2002. He is a respected veteran banker whose last major stint was as President and CEO of Equitable PCI Bank Corporation in 2001-2002. He distinguished himself in the same position in Solidbank Corporation from 1992 to 2000 and as President and Vice-Chairman of the Land Bank of the Philippines from 1986 to 1992. Before that, he occupied various senior management positions in Citibank (Manila) where he started his banking career. Presently, he is an Independent Director of Philippine National

28

Bank, PNB Capital & Investment Corporation and U-Bix Corporation. He serves as Chairman of the U.S. based PNB International Investments Corporation, PinoyME Foundation and V&A Foods Corporation. He is also a member of the Board of Trustees of the Ramon Magsaysay Award Foundation and the Executive Advisory Council of Mitsubishi Motors Philippines Corporation. He graduated with a double degree in Business Administration and Humanities from the De La Salle University and finished his Master in Business Administration at the Wharton Graduate School of the University of Pennsylvania. ANTONY LOUIS MARDEN, 67, British - Vice Chairman of the Board; Member of the Audit Committee Mr. Marden has been the Vice Chairman of the Board and Executive Committee of the Company. He is also the Chairman of the Nomination Committee since June 2006, and a member of the Audit Committee since June 2005. He is the President of FIM Limited and a Director in the following corporations: G.E. Marden & Co., Ltd., Fenwick Shipping Services, Ltd., Clean Oil (HK) Limited, National Marine Corporation, and the NMC Group of Companies. Mr. Marden studied Chinese & Politics at Leeds University and has worked in the shipping business for almost 40 years. MICHAEL L ESCALER, 66, Filipino – Director; Member of the Audit Committee Mr. Escaler is the President and CEO of All Asian Countertrade, Inc. known as the largest sugar trader in the Philippines, founded in 1994 in partnership with Louis Dreyfus and Nissho-Iwai. He is also the Chairman, President and CEO of Pampanga Sugar Development Co., Inc. (PASUDECO), President and CEO of San Fernando Electric Company (SFELAPCO), Chairman and CEO of Sweet Crystals Integrated Mill Corp. and Okeelanta Corporation, Chairman of Balibago Waterworks System Inc., JSY Transport, Aldrew and Gray Transport, Silver Dragon Transport and Metro Clark Waste Management, Inc. He served as Independent Director of LSC, Power Source Philippines, Inc., Empire Insurance Co., Trinity Insurance Co., Trinity Healthcare Services, Inc. Marcventures Holdings, Inc., and Leyte AgriCorp. A sugar trader in New York and London from 1974 to 1993. He began his career at Nissho-Iwai of America for two years and left for ACLI International, one of the largest privately held trading company. Later on, he transferred to Philipp Brothers as Vice President to head the white sugar trading afterwards, he started his own trading company in the Philippines. A Hall of Fame Sprinter for Ateneo de Manila University, where he graduated Cum Laude in Bachelor of Arts in Economics. He obtained his Master’s in Business Administration in International Marketing in New York University. A philanthropist, he supports various charities including Habitat for Humanity, Coca Cola Foundation, PGH Medical Foundation, Mano Amiga Academy and Productive Internships in Dynamic Enterprise (PRIDE). Describe the Audit Committee’s responsibility relative to the external auditor. Following are the Audit Committee’s responsibility relative to the external auditors: 1. Perform oversight functions over the corporation’s internal and external auditors. It should ensure that the

internal and external auditors act independently from each other, and both auditors are given, unrestricted access to all records, property and personnel to enable them to perform their respective audit functions.

2. Prior to commencement of the audit, discuss with the external auditor the nature, scope, and expenses of the audit, and ensure proper coordination if more than one audit firm is involved in the activity to secure proper coverage and minimize duplication of efforts.

3. Evaluate and determine non-audit work, if any, of the external auditor, and review periodically the non-audit

fees paid to the external auditor in relation to the significance to the total annual income of the external auditor and to the corporation’s overall consultancy expenses. The committee shall disallow any non-audit work that will conflict with person’s duties as an external auditor or may pose a threat to his independence. The non-audit work, if allowed, should be disclosed in the corporation’s annual report

29

(c) Nomination Committee

Office Name Date of

Appointment

No. of Meetings

Held


%


the Committee

Chairman Antony Louis Marden 25 June 2015 1 1 100% Eleven (11) Years

Member (NED) Michael L. Escaler 25 June 2015 1 1 100% Eight (8) Years

Member (ID) Deogracias N. Vistan 25 June 2015 1 1 100% Eleven (11) Years

*Mr. Marden was elected as Member of the Nomination Committee on 5 June 2005 and was elected as Chairman of the Committee on 6 June 2006.

(d) Remuneration Committee

Office Name Date of

Appointment

No. of Meetings

Held


% Length of

Service in the Committee

Chairman Doris Magsaysay Ho 11 June 2008 0 0 0 Eight (8) Years

Member (ED) Antony Louis Marden 11 June 2008 0 0 0 Eight (8) Years

Member (ID) Deogracias N. Vistan 11 June 2008 0 0 0 Eight (8) Years

(e) Others (Specify)

None / Not applicable

3) Changes in Committee Members

Indicate any changes in committee membership that occurred during the year and the reason for the changes:

Name of Committee Name Reason

Executive N.A. N.A.

Audit

Nomination

Remuneration

Others (specify)

4) Work Done and Issues Addressed

Describe the work done by each committee and the significant issues addressed during the year.

Name of Committee Work Done Issues Addressed

Executive Business direction and new strategies. -Vessel reliability -Route rationalization -Client profiling

Audit Review of Storage Charges Monitoring of Unbilled Transactions (Branches & Agencies)

-Misaligned procedures of integrated functions -settlement of long overdue storage charges - collection of unbilled ARs

30

Review of PLC website compliance Review of C-van inventory

-non-compliance to SEC Memorandum of PLC website requirements -unreconciled c-van inventories (ongoing recon)

Nomination Nomination of directors at AGM

Remuneration

Others (specify)

5) Committee Program

Provide a list of programs that each committee plans to undertake to address relevant issues in the improvement or enforcement of effective governance for the coming year.

Name of Committee Planned Programs Issues to be Addressed

Executive Policy and conduct of business and fair dealings

Documentation and cascade

Audit Risk Management Policy and Procedure Gift Policy Whistle Blowing Policy Information Security Policy Review of Tax Compliance

Related Party Transactions Conflict of Interest / Bribery

Nomination None

Remuneration None

Others (specify) N/A

F. RISK MANAGEMENT SYSTEM

1) Disclose the following:

(a) Overall risk management philosophy of the company; (b) A statement that the directors have reviewed the effectiveness of the risk management system and

commenting on the adequacy thereof; (c) Period covered by the review; (d) How often the risk management system is reviewed and the directors’ criteria for assessing its effectiveness;

and (e) Where no review was conducted during the year, an explanation why not.

The Company is yet to formalize its Risk Management System, There is, however, a Risk Assessment performed by the company (Corporate level) to ensure that risks identified are managed well. The plan is to do a more structured Risk Management System.

31

2) Risk Policy

(a) Company Give a general description of the company’s risk management policy, setting out and assessing the risk/s covered by the system (ranked according to priority), along with the objective behind the policy for each kind of risk: No formal Risk Management Policy as of the moment. For future discussion with Management

Risk Exposure Risk Management Policy Objective

N/A N/A N/A

(b) Group Give a general description of the Group’s risk management policy, setting out and assessing the risk/s covered by the system (ranked according to priority), along with the objective behind the policy for each kind of risk:

Risk Exposure Risk Management Policy Objective

N/A N/A N/A

(c) Minority Shareholders

Indicate the principal risk of the exercise of controlling shareholders’ voting power.

Risk to Minority Shareholders

N/A

3) Control System Set Up

(a) Company

Briefly describe the control systems set up to assess, manage and control the main issue/s faced by the company:

Risk Exposure Risk Assessment (Monitoring and Measurement Process)

Risk Management and Control (Structures, Procedures, Actions Taken)

N/A N/A N/A

(b) Group

Briefly describe the control systems set up to assess, manage and control the main issue/s faced by the company:

Risk Exposure Risk Assessment (Monitoring and Measurement Process)

Risk Management and Control (Structures, Procedures, Actions Taken)

N/A N/A N/A

(c) Committee

Identify the committee or any other body of corporate governance in charge of laying down and supervising these control mechanisms, and give details of its functions:

Committee/Unit Control Mechanism Details of its Functions

N/A N/A N/A

32

G. INTERNAL AUDIT AND CONTROL

1) Internal Control System

Disclose the following information pertaining to the internal control system of the company:

(a) Explain how the internal control system is defined for the company; 14 The Corporation shall have in place an independent internal audit function which shall be performed by an Internal Auditor, through which its Board, Senior Management and Stockholders shall be provided with reasonable assurance that its key organization and procedural control are effective, appropriate and complied with. The Internal Auditor shall report to the Audit Committee. The minimum internal control mechanisms for management’s operation responsibility shall center on the President, being ultimately accountable for the Corporation’s organizational and procedural controls. The scope and particulars of a system of effective organizational and procedural controls shall be based on the following factors: (1) the nature and complexity of the business and business culture; (2) the volume, size and effectiveness of information technology; and (6) the extent of regulatory compliance. (b) A statement that the directors have reviewed the effectiveness of the internal control system and whether

they consider them effective and adequate;

None. Part of internal audit plan for 2017. (c) Period covered by the review; Not applicable (d) How often internal controls are reviewed and the directors’ criteria for assessing the effectiveness of the

internal control system; and (e) Where no review was conducted during the year, an explanation why not. Internal controls are reviewed annually. (In current practice, financial statement which showed the results of the operations are approved by the Board of Directors. Similarly, policies and procedures are reviewed and approved by the) Management prior to implementation. Internal Audit Department, based on the IA plan, conducts assessment and evaluation of the existing internal control system of the company. Results of the assessment are reported to the Board Audit Committee, and for high risk areas to the Board.

________________________ 14 Sec. 3.2.8, Corporate Governance Manual

33

2) Internal Audit

(a) Role, Scope and Internal Audit Function

Give a general description of the role, scope of internal audit work and other details of the internal audit function.

Role Scope

Indicate whether In-house or Outsource

Internal Audit Function

Name of Chief Internal

Auditor/Auditing Firm

Reporting process

1. Helps the organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes

2. Reviews of the accuracy and reliability of LSC accounting records and financial reports

3. Evaluates adherence to legal and regulatory requirements and approved policies and procedures.

4. Identifies opportunities for cost savings and making recommendations for improving cost efficiencies.

5. Verifies whether risks are appropriately identified and managed.

6. Conducts special investigation as requested by the Board Audit Committee (BAC), LSC President, or Management.

Outsourced Katherine M. Dela Cruz, Internal Audit Manager A. Magsaysay Inc.

A.

Reports functionally to the Board Audit Committee.

(b) Do the appointment and/or removal of the Internal Auditor or the accounting /auditing firm or corporation to which the internal audit function is outsourced require the approval of the audit committee?

Yes

(c) Discuss the internal auditor’s reporting relationship with the audit committee. Does the internal auditor have

direct and unfettered access to the board of directors and the audit committee and to all records, properties and personnel?

The Internal Auditor reports to the Audit Committee (AC). She shall submit to the AC and Management quarterly reports on the internal audit department’s activities, responsibilities and performance relative to the audit plans and strategies by the AC. The Internal Auditor has direct access to the Board of Directors and Audit Committee. She also has direct, free

34

and full access to all the Corporation’s records. Properties and personnel relevant to and require by her functions.

(d) Resignation, Re-assignment and Reasons

Disclose any resignation/s or re-assignment of the internal audit staff (including those employed by the third-party auditing firm) and the reason/s for them.

Name of Audit Staff Reason

Dixon James B. Lorico Company redundancy program / Outsourcing of the IA function

Progress against Plans, Issues, Findings and Examination Trends

State the internal audit’s progress against plans, significant issues, significant findings and examination trends.

Progress Against Plans 10 completed engagements out of 15 engagements per plan

Issues 15 N/A

Findings 16 As contained in the 2016 quarterly internal audit report to the Board Audit Committee

Examination Trends Generally adequate and effective internal control

[The relationship among progress, plans, issues and findings should be viewed as an internal control review cycle which involves the following step-by-step activities: 1) Preparation of an audit plan inclusive of a timeline and milestones; 2) Conduct of examination based on the plan; 3) Evaluation of the progress in the implementation of the plan; 4) Documentation of issues and findings as a result of the examination; 5) Determination of the pervasive issues and findings (“examination trends”) based on single year result

and/or year-to-year results; 6) Conduct of the foregoing procedures on a regular basis.]

Internal Audit activities are carried out based on approved Internal Audit Plan, unless there is a need to do a Special Audit. All audits are carried out with work program. For 2016, not all activities indicated in the plan were carried out due to (1) special audits conducted during the year, and (2) extended audit procedures on some areas of operations that were subjected to audit.

(e) Audit Control Policies and Procedures

Disclose all internal audit controls, policies and procedures that have been established by the company and the result of an assessment as to whether the established controls, policies and procedures have been implemented under the column “Implementation.”

Policies & Procedures Implementation

Petty Cash and Cash Advances – policy revisions Implemented

Disposal Policy alignment and revisions Implemented

Storage Policy alignment an revisions Implemented

Freight Planning Procedures Implemented ___________________________________ 15 “Issues” are compliance matters that arise from adopting different interpretations. 16 “Findings” are those with concrete basis under the company’s policies and rules.

35

(f) Mechanisms and Safeguards

State the mechanism established by the company to safeguard the independence of the auditors, financial analysts, investment banks and rating agencies (example, restrictions on trading in the company’s shares and imposition of internal approval procedures for these transactions, limitation on the non-audit services that an external auditor may provide to the company):

Auditors (Internal and External)

Financial Analysts

Investment Banks

Rating Agencies

Internal Auditors are directly reporting to the Board Audit Committee

N/A N/A N/A

Responsibilities and Scope of Work of LSC’s internal audit function are established through the Internal Audit Charter.

(g) State the officers (preferably the Chairman and the CEO) who will have to attest to the company’s full

compliance with the SEC Code of Corporate Governance. Such confirmation must state that all directors, officers and employees of the company have been given proper instruction on their respective duties as mandated by the Code and that internal mechanisms are in place to ensure that compliance.

Doris Teresa Magsaysay Ho – Chairperson / President (starting Aug 2016) Roberto A. Umali - President / CEO (until Aug 2016)

H. ROLE OF STAKEHOLDERS

1) Disclose the company’s policy and activities relative to the following:

Policy Activities

Customers' welfare Cargo Insurance and Claims Prevention

Supplier/contractor selection practice

Accreditation Procedure

Environmentally friendly value-chain

HSES Policy

Community interaction

CSR Activities

Anti-corruption programs and procedures?

Conflicts of Interest Policy Fraud Reporting Mechanism

Safeguarding creditors' rights

Vessel Insurance

2) Does the company have a separate corporate responsibility (CR) report/section or sustainability report/section?

No.

3) Performance-enhancing mechanisms for employee participation.

(a) What are the company’s policy for its employees’ safety, health, and welfare?

Additional Policy made from 2011- 2012

Job Safety Policy and Procedure – aims to identify hazard and measure of their controls, or eliminate potential or actual dangers in a job and task to ensure safety.

36

Permit to work and hot works Permit - to provide control and ensure that hazardous task done within the facility performed and adequate health, safety, security and environment safeguards.

Business Continuity Plan - For review and approval of the policy and procedure; reorganization of emergency response team.

(b) Show data relating to health, safety and welfare of its employees.

Significant Programs:

Anti-Flu Vaccination Program Total of 451 compose of employees and their dependent and still on going

Health awareness campaign: Health Alerts- email blast Health awareness seminars to employees

Disaster Preparedness campaign – email blast

Dissemination of Safety Policy on Cargo Transportation to all our truckers, a joint project with the MTLG Claims and Insurance Department.

Personal Protective Equipment Provision to all identified employees based on the nature of their job and hazards exposure.

(c) State the company’s training and development programs for its employees. Show the data.

(d) State the company’s reward/compensation policy that accounts for the performance of the company

beyond short-term financial measures

Yearly performance based increase.

4) What are the company’s procedures for handling complaints by employees concerning illegal (including corruption) and unethical behavior? Explain how employees are protected from retaliation.

The company implements the Fraud Reporting Policy, where all employees are allowed to disclosed or report irregularities, unethical behavior, etc. Concerns are evaluated and if necessary, investigations are conducted by Internal Audit. Results of the Investigation are reported to HR for further action. The complaint is treated with utmost confidentiality.

I. DISCLOSURE AND TRANSPARENCY

1) Ownership Structure

(a) Holding 5% shareholding or more (as of 31 March 2017)

Shareholder Number of Shares Percent Beneficial Owner

National Marine Corporation (NMC)

379,149,651 68.36%

Doris Magsaysay- Ho the President of NMC,

and Antony Louis Marden, a director of

NMC

Pioneer Insurance & Surety Corp.

73,832,800 13.31% Mr. David Coyukiat

Julio O. Sy, Sr. 42,744,511 7.71% Mr. Julio O. Sy, Sr.

37

Name of Senior Management Number of Direct

shares

Number of Indirect shares / Through (name of record owner)

% of Capital Stock

Julio O. Sy, Sr. 42,744,511 7.71%

Roberto A. Umali 1,188,701 0.21%

Doris Magsaysay Ho 1 0.00%

Antony Louis Marden 1 0.00%

Michael L. Escaler 241,250 0.04%

Deogracias N. Vistan 3,750 0.00%

Edgardo A. Bautista 1,000 0.00%

Atty. Arsenio C. Cabrera Jr. 30,000 0.01%

Directors & Officers as Group 44,209,214 7.97%

2) Does the Annual Report disclose the following:

Key risks Yes

Corporate objectives Yes

Financial performance indicators Yes

Non-financial performance indicators Yes

Dividend policy No

Details of whistle-blowing policy No

Biographical details (at least age, qualifications, date of first appointment, relevant experience, and any other directorships of listed companies) of directors/commissioners

Yes

Training and/or continuing education program attended by each director/commissioner No

Number of board of directors/commissioners meetings held during the year Yes

Attendance details of each director/commissioner in respect of meetings held Yes

Details of remuneration of the CEO and each member of the board of directors/commissioners

No

Should the Annual Report not disclose any of the above, please indicate the reason for the non-disclosure.

3) External Auditor’s fee 17

Name of auditor Audit Fee Non-audit Fee

SGV & Co. P1,235,000.00 NA

4) Medium of Communication

List down the mode/s of communication that the company is using for disseminating information.

Company disclosures

Email

Telephone/Cellphone

Fax

Courier _________________________ 17 2016 SEC Form 17-A

38

5) Date of release of audited financial report:

The Board of Directors approved the release of the 2016 audited financial statements on 27 March 2017.

6) Company Website

Does the company have a website disclosing up-to-date information about the following?

Business operations Yes

Financial statements/reports (current and prior years) Yes

Materials provided in briefings to analysts and media No

Shareholding structure No

Group corporate structure No

Downloadable annual report Yes

Notice of AGM and/or EGM Yes

Company's constitution (company's by-laws, memorandum and articles of association)

Yes

Should any of the foregoing information be not disclosed, please indicate the reason thereto.

7) Disclosure of RPT18

RPT Relationship Nature Value

See below

a) NMC Container Lines, Inc. (NMCCLI) – related party

A wholly owned subsidiary of NMC, NMCCLI has a Co-Loading Agreement with the Company. To alleviate temporary service disruptions, the parties extended to each other the privilege of co-loading their respective cargoes subject to the payment of the freight or tariff rates specified under the Co-Loading Agreement.

b) Asiaport Equipment and Logistics Corporation – related party On 01 September 2008, LSC signed a cargo-handling contract with Asiaport Equipment and Logistics Corporation for the handling of its containers at LSC’s container yard at Pier 16 in Manila. On 31 May 2016, LSC and Asiaport once more entered into a Container Handling Contract for the yard handling operations of Asiaport in Cebu. A separate contract was made on the same date, but this time for Asiaport’s Cagayan De Oro operations, under the same terms and conditions as the documentation for Cebu. Asiaport is 30 percent owned by National Marine Corporation.

c) Roadlink Solutions, Inc. (RSI) – related party A wholly owned subsidiary of NMC, RSI provides logistical support to the Company by providing logistics services, cargo handling, and cargo trucking, among other services.

_______________________ 18 See 2016 SEC Form 17-A

39

d) Magsaysay Houlder Insurance Brokers, Inc. (MHIBI) – related party

MHIBI handles the marine cargo insurance requirements of the Company.

e) Magsaysay Shipmanagement Inc. (MSI) – related party

MSI is an associate company of NMC. It provides technical services to the company’s vessels, ensuring that all vessels are in seaworthy condition and in accordance with the standards set by the Company. MSI also handles the management of the vessel crew.

f) Julio O. Sy, Sr., Shareholder, Director

The Company is a lessee for a parcel of land situated at Harbor Center, Tondo, Manila owned by Mr. Sy. The lease contract already expired on 30 April 2016.

g) Tao Commodity Trader Inc. - related party

Tao Commodity, a corporation majority owned by Mr. Julio Sy Jr., son of Mr. Julio Sy Sr. is a supplier of the Company’s fuel requirements.

h) Dumaguete Coconut Mills – related party

Dumaguete Coconut Mills is a corporation substantially owned by Mr. Julio Sy Sr., shareholder, director of the Company. The Company entered into a Contract of Lease with Dumaguete Coconut Mills for the rental of a parcel of land located at Bacong, Negros Oriental.

i) Pioneer Insurance & Surety Corp. (Pioneer), Shareholder

Pioneer is the Company’s provider of protection and indemnity and of hull & machinery insurances for its six (6) vessels.

j) Mr. Oscar Go, Shareholder

Owned by Mr. Oscar Go, OYG Transport Inc. has a non-exclusive hauler agreement with the Company.

k) Marine Fuels Philippines, Inc. (MFPI) – related party

A wholly owned subsidiary of NMC, MFPI supplies LSC’s fuel requirement.

l) Pacific Roadlink, Inc. (PRLI) – related party

NMC owns 50% of PRLI, a joint venture with IHTC. PRLI provides trucking services to the company.

m) The following customers are majority owned by directors or shareholders:

Customers Director/Shareholder All Asian Countertrade Majority owned by Mr. Michael Escaler, director Oceanic Container Lines, Inc. Majority owned by Mr. Jose Go Jr., shareholder Discovery Haulers, Inc. Majority owned by Mr. Jose Go Jr., shareholder Evertop Transport Majority owned by Mr. Jose Go III, son of Mr. Jose Go Jr.,

shareholder When RPTs are involved, what processes are in place to address them in the manner that will safeguard the interest of the company and in particular of its minority shareholders and other stakeholders?

40

Related party transactions are account at arm’s length prices on terms similar to those offered to non-related entities in an economically comparable market.

J. RIGHTS OF STOCKHOLDERS

1) Right to participate effectively in and vote in Annual/Special Stockholders’ Meetings

(a) Quorum

Give details on the quorum required to convene the Annual/Special Stockholders’ Meeting as set forth in its By-laws.

Quorum Required Majority of outstanding capital stock is represented.

(b) System Used to Approve Corporate Acts

Explain the system used to approve corporate acts.

System Used Cumulative Voting

Description Each Share of Common Stock is entitled to One (1) Vote on all matters. Acts require affirmative Vote of Majority of Stockholders.

(c) Stockholders’ Rights

List any Stockholders’ Rights concerning Annual/Special Stockholders’ Meeting that differ from those laid down in the Corporation Code.

Stockholders’ Rights under The Corporation Code

Stockholders’ Rights not in The Corporation Code

Shareholders shall have the right to elect, remove and replace directors and vote on certain corporate acts in accordance with the Corporation Code and the by-laws of the Corporation.

There is no other stockholders’ right not in the Corporation Code

All shareholders shall be allowed to inspect corporate books and records including minutes of Board meetings and stock registries in accordance with the Corporation Code.

The shareholders shall be provided, upon request, with periodic reports which disclose personal and professional information about the directors and officers and certain matters such as their holdings of the Company’s shares, dealings with the Company, relationships among directors and key officers, and the aggregate compensation of directors and officers.

Shareholders shall have the right to receive dividends subject to the discretion of the Board and in accordance with law.

The shareholders shall have an appraisal right or the right to dissent and demand payment of the fair value of their shares. All rights granted by law to shareholders shall be observed by the Corporation.

41

Dividends

Declaration Date Record Date Payment Date

NIL

(d) Stockholders’ Participation

1. State, if any, the measures adopted to promote stockholder participation in the Annual/Special Stockholders’ Meeting, including the procedure on how stockholders and other parties interested may communicate directly with the Chairman of the Board, individual directors or board committees. Include in the discussion the steps the Board has taken to solicit and understand the views of the stockholders as well as procedures for putting forward proposals at stockholders’ meetings.

Measures Adopted Communication Procedure

Each common share entities the holder to one vote. At each meeting of the stockholders, each stockholder entitled to vote on an particular question or matter shall be entitled to vote for each share of stock standing

Definitive Information Statement sent to the Stockholders. Question and Answer forum at AGM.

2. State the company policy of asking shareholders to actively participate in corporate decisions regarding: a. Amendments to the company's constitution The Board of Directors, by a majority vote, may amend or repeal any By-Laws or adopt new By-laws at any regular meeting or special meeting called for the purpose. Provided, that the power of the Board to amend or repeal any By-Laws shall be considered as revokes whenever stockholders owning or representing a majority of the outstanding capital stock shall so vote at regular or special Meeting. b. Authorization of additional shares

c. Transfer of all or substantially all assets, which in effect results in the sale of the company

3. Does the company observe a minimum of 21 business days for giving out of notices to the AGM where items to be resolved by shareholders are taken up?

a. Date of sending out notices: 21 Business days

b. Date of the Annual/Special Stockholders’ Meeting: : 23 June 2016 (last Meeting)

4. State, if any, questions and answers during the Annual/Special Stockholders’ Meeting.

None

42

5. Result of Annual/Special Stockholders’ Meeting’s Resolutions

Resolution Approving Dissenting Abstaining

Approval, ratification and Confirmation of Corporate Acts from 25 June 2015 to 23 June 2016

89.70% N/A N/A

Approval of 2015 Audited Financial Statements 89.70% N/A N/A

Appointment of External Auditor 89.70% N/A N/A

6. Date of publishing of the result of the votes taken during the most recent AGM for all resolutions: The results of the Annual Stockholders’ meeting in a current report (SEC Form 17-C) shall be disclosed to the Securities and Exchange Commission within five (5) days after said meeting and to the Philippine Stock Exchange right after the Organizational meeting of the Board of Directors.

(e) Modifications

State, if any, the modifications made in the Annual/Special Stockholders’ Meeting regulations during the most recent year and the reason for such modification:

Modifications Reason for Modification

N/A N/A

(f) Stockholders’ Attendance

(i) Details of Attendance in the Annual/Special Stockholders’ Meeting Held:

Type of Meeting

Names of Board members / Officers

present

Date of Meeting

Voting Procedure

(by poll, show of

hands, etc.)

% of SH Attending in Person

% of SH in Proxy

Total % of SH attendance

Annual Doris Teresa Magsaysay Ho

Antony Louis Marden

Roberto A. Umali

Deogracias N. Vistan

Michael L. Escaler

Edgardo A. Bautista

Arsenio C. Cabrera

Jay R. Olivarez

Edna F. Mendiola

Edralin G. Manapsal

Roland J. Portes

23 June 2016

Show of Hands

89.70%

Special None

43

(ii) Does the company appoint an independent party (inspectors) to count and/or validate the votes at the ASM/SSMs?

The Secretary of the meeting, upon motion duly made and seconded, is instructed to count all votes represented at the meeting with the assistance of SGV, the external auditor of the Company (iii) Do the company’s common shares carry one vote for one share? If not, disclose and give reasons for any

divergence to this standard. Where the company has more than one class of shares, describe the voting rights attached to each class of shares.

Yes, one vote per share

(g) Proxy Voting Policies

State the policies followed by the company regarding proxy voting in the Annual/Special Stockholders’ Meeting.

Company’s Policies

Execution and acceptance of proxies Proxy shall be executed in writing by the shareholders or his duly authorized attorney- in- fact.

Notary N/A

Submission of Proxy

All proxies must be in the hands of the Corporate Secretary not later than 10 days before the time set for the meeting. Such proxies filed with the Corporate Secretary may be revoked by the shareholders either in an instrument in writing duly presented and recorded with the corporate secretary at least three days prior to a schedule meeting or by their personal presence at the meeting. The decision on of the Corporate Secretary on the validity of proxies shall be final and binding until set aside by a court of competent jurisdiction.

Several Proxies N/A

Validity of Proxy Unless otherwise provided in the proxy, it shall be valid only for the meeting at which it has been presented to the Corporate Secretary

Proxies executed abroad Should be authenticated by Philippine Embassy

Invalidated Proxy N/A

Validation of Proxy At least three day before the annual stockholders’ meeting

Violation of Proxy N/A

(h) Sending of Notices

State the company’s policies and procedure on the sending of notices of Annual/Special Stockholders’ Meeting.

Policies Procedure

Notice to Annual Meeting At least fifteen (15) working day prior to meeting date

44

(i) Definitive Information Statements and Management Report

Number of Stockholders entitled to receive Definitive Information Statements and Management Report and Other Materials

All stockholders on Record Date (985)

Date of Actual Distribution of Definitive Information Statement and Management Report and Other Materials held by market participants/certain beneficial owners

At least fifteen (15) working day prior to meeting date

Date of Actual Distribution of Definitive Information Statement and Management Report and Other Materials held by stockholders

At least fifteen (15) working day prior to meeting date

State whether CD format or hard copies were distributed

CD Format

If yes, indicate whether requesting stockholders were provided hard copies

Yes, to those who requested hard copies

(j) Does the Notice of Annual/Special Stockholders’ Meeting include the following:

Each resolution to be taken up deals with only one item. Yes

Profiles of directors (at least age, qualification, date of first appointment, experience, and directorships in other listed companies) nominated for election/re-election.

Yes

The auditors to be appointed or re-appointed. Yes

An explanation of the dividend policy, if any dividend is to be declared. None, No formal dividend

policy yet

The amount payable for final dividends. Yes

Documents required for proxy vote. Yes

Should any of the foregoing information be not disclosed, please indicate the reason thereto.

2) Treatment of Minority Stockholders

(a) State the company’s policies with respect to the treatment of minority stockholders.

Policies Implementation

Although all stockholders should be treated equally or without discrimination the Board should give the minority stockholders the right to propose the holding of meeting and the items for discussion in the agenda that relate directly to the business and the corporation

Contained in Company Manual on Corporate Governance

(b) Do minority stockholders have a right to nominate candidates for board of directors?

No policy

45

K. INVESTORS RELATIONS PROGRAM

1) Discuss the company’s external and internal communications policies and how frequently they are reviewed. Disclose who reviews and approves major company announcements. Identify the committee with this responsibility, if it has been assigned to a committee. No policy

2) Describe the company’s investor relations program including its communications strategy to promote effective

communication with its stockholders, other stakeholders and the public in general. Disclose the contact details (e.g. telephone, fax and email) of the officer responsible for investor relations. No Formal Program

Details

(1) Objectives N/A

(2) Principles

(3) Modes of Communications

(4) Investors Relations Officer

3) What are the company’s rules and procedures governing the acquisition of corporate control in the capital markets,

and extraordinary transactions such as mergers, and sales of substantial portions of corporate assets? None Name of the independent party the board of directors of the company appointed to evaluate the fairness of the transaction price. Not Applicable

L. CORPORATE SOCIAL RESPONSIBILITY INITIATIVES

Discuss any initiative undertaken or proposed to be undertaken by the company.

Initiative Beneficiary

N/A

M. BOARD, DIRECTOR, COMMITTEE AND CEO APPRAISAL

Disclose the process followed and criteria used in assessing the annual performance of the board and its committees, individual director, and the CEO/President. No formal process

Process Criteria

Board of Directors N/A N/A

Board Committees

Individual Directors

CEO/President

46

N. INTERNAL BREACHES AND SANCTIONS

Discuss the internal policies on sanctions imposed for any violation or breach of the corporate governance manual involving directors, officers, management and employees

Violations Sanctions

Corporate Governance Manual provisions Reprimand for 1st offense

Suspension for 2nd offense

Removal from office or directorship for 3rd offense

47

Pursuant to the requirement of the Securities and Exchange Commission, this Annual Corporate Governance Report is signed on behalf of the registrant by the undersigned, thereunto duly authorized, in the City of _______________________ on_________________, 20___.

SIGNATURES

(Signature over Printed Name) (Signature over Printed Name)

Chairman of the Board Chief Executive Officer

(Signature over Printed Name)


Independent Director Independent Director


Compliance Officer SUBSCRIBED AND SWORN to before me this ________ day of __________________20__ , affiant(s) exhibiting to me their ___________________, as follows:

NAME/NO. DATE OF ISSUE PLACE OF ISSUE NOTARY PUBLIC Doc No._______________ Page No.______________ Book No.______________ Series of ______________

A. Magsaysay, Inc.

Magsaysay Resources & Support Services, Inc.

(100% AMI)

Fairex Trading (Asia) Corp.

(100% MRSSI)

Magsaysay Learning Resources, Inc.

(100% AMI)

Star of Asia Human Resources training and Dev't Inc.

(51% MLRI, 49% Daniel Lacson)

Magsaysay Maritime Corporation

(100% AMI)

Magsaysay Houlder Insurance Brokers, Inc.

(60% MMC; 40% Houlders Insurance Brokers)

Kaligayahan Realty Company, Inc.

(100% MMC)

Boracay Beach & Yacht Club, Inc.

(100% KRCI)

Magsaysay Agencies, Inc.

(67% MMC; 33% Mitsui OSK Lines, Ltd.)

Magsaysay MOL Marine, Inc.

(75% MAI; 25% Mitsui OSK Lines, Inc.)

Magsaysay MOL Shipmanagement, Inc.

(100% MMMI)

Magsaysay People Resources Corp.

(100% AMI)

Magsaysay Center for Hospitality and Culinary Arts

(100% MPRC)

Magsaysay Global Services, Inc.

(55% MPRC; 45% AMI)

Magsaysay Trade & Shipping, Inc.

(100% AMI)

Transocean Transport Corp.

(100% MTSI)

Magsaysay Shipping Corporation

(100% MTSI)

Transbulk Shipping Corp.

(100% MTSI)

Trilines Shipping, Inc.

(100% TSC)

Trytrans Shipping Corp.

(100% TSC)

Transportes Navieros, Inc.

(100% TSC)

Magsaysay Lines, Inc.

(100% AMI)


(60% MLI; 40% FIM Ltd.)

Subsidiaries

(see Exhibit A.1)

MBM Maritime Holdings, Inc.

(40% MLI; 20% Crest Holdings, Inc.; 20% FIM Ltd.)

Batangas Bay Carriers, Inc.

(100% MBM)

Laguna Lake Carriers, Inc.

(100% BBCI)

Paros Maritime, Inc.

(100% BBCI)

Islas Maritime Holdings, Inc.

(40% MLI; 30% Crest Holdings, Inc.; 30% FIM)

Islas Gas Carriers, Inc.

(40% MLI; 26% ILEX; 10% DHO; 7% RAU; 10% EUM; 7% AL

Marden)

Islas Tankers Shipping Corp.

(50% MLI; 25% ILEX; 25% SWM Int'l Holdings, Corp)

Travel People Ltd, Inc.

(20% MLI; 80% AMI)

Travel Services, Inc.

(70% TPLI; 30% PVDC)

Masaya Realty Co., Inc.

(100% AMI)

Magsaysay Global BPO, Inc.

(100% AMI)

Global Process Manager, Inc.

(100% AMI)

Creative Asia Company, Inc.

(100% AMI)

Pakyaw.Com, Inc.

(100% AMI)

PeopleLink, Inc.

(100% AMI)

Magsaysay Transport & Logistics Corp.

(100% AMI)

Filipinas Maritime Transport Corp.

(60% MTLC; 20% Mitsui; 20% Exeno)

Magtech Solutions & Maritime Consultancy Services, Inc.

(100% MTLC)

Magsaysay Shipmanagement, Inc.

(100% MTLC)

Maliwanag Realty Co., Inc.

(100% MSI)

Magsaysay Maritime Services, Inc.

(100% MTLC)

SC Shipservice

(100% MMSI)

Sun Cruises, Inc.

(97% MTLC; 0.64% Ma Cristina Cortez; 0.64% DHO; 0.64% EUM; 0.64%RHO; 0.64% HHo

Sole Cruises, Inc.

(100% MTLC)

Storage Phils., Inc.

(100% MTLC)

NMC Holdings, inc.

(60% MTLC; 40% FIM)

MOL Logistics Phils, Inc.

(20% MTLC)

Exhibit A

A. Magsaysay, Inc.

Magsaysay Lines, Inc.

(100% owned by AMI)


(60% MLI; 40% FIM Ltd.)

Shiplink Terminal Resources, Inc.

(60% NMC; 40% ICAN Japan)

NMC

Container Lines, Inc.

(100% NMC)

One Team Services, Inc.

(50% NMCCLI; 50% LSC)

Lorenzo Shipping

Corporation

One Stop Logistics Solutions, Inc.

(100% NMC)

Fast Cranes, Inc.

(40% NMC; 40% ICAN Japan; 20% CIA)

RoadLink Solutions, Inc.

(100% NMC)

APEX Equipment Corp. (100% RSI)

Asiaport

(30% NMC; 27.5% Franklin Siao; 25% Benjamin Akol; 15% PPL; 2.5% Leonardo

Odono)

NMC Ship Agency and Brokerage, Inc.

(100% NMC)

DIPCI

(40% DDH; 22% Zamboanga Dev't; 2% Asian Insights, Inc.;

34% NMC)

Clean Oil Resources, Inc.

(100% NMC)

Icebox Logistics Solutions, Inc.

(60% NMC)

Marine Fuels Phils.,

Inc.

(100% NMC)

One Stop Distribution, Inc.

(100% NMC)

Southeast Asian Bunkers and

Terminals, Inc.

(100% NMC)

One Stop Warehousing Solutions, Inc.

(100% NMC)

Magsaysay-Seacor, Inc.

(60% NMC; 40% Seacor Capital (Asia) Ltd.)

NMC Chartering Company, Inc.

(100% NMC)

Pacific Roadlink Logistics, Inc.

(60% NMC; 40% IHTC)

Best Energy Resources, Inc.

(60% NMC; 40% ICAN Japan

Exhibit A.1

EXHIBIT B

Lorenzo ShippingCorporation

Financial StatementsDecember 31, 2017 and 2016and For Each of the Three Years in the PeriodEnded December 31, 2017

and

Independent Auditor’s Report

*SGVFS029501*

INDEPENDENT AUDITOR’S REPORT

The Board of Directors and StockholdersLorenzo Shipping Corporation

Report on the Audit of the Financial Statements

Opinion

We have audited the financial statements of Lorenzo Shipping Corporation (the Company), whichcomprise the statements of financial position as at December 31, 2017 and 2016, and the statements ofincome, statements of comprehensive income, statements of changes in equity and statements of cashflows for each of the three years in the period ended December 31, 2017, and notes to the financialstatements, including a summary of significant accounting policies.

In our opinion, the accompanying financial statements present fairly, in all material respects, the financialposition of the Company as at December 31, 2017 and 2016, and its financial performance and its cashflows for each of the three years in the period ended December 31, 2017 in accordance with PhilippineFinancial Reporting Standards (PFRSs).

Basis for Opinion

We conducted our audits in accordance with Philippine Standards on Auditing (PSAs). Ourresponsibilities under those standards are further described in the Auditor’s Responsibilities for the Auditof the Financial Statements section of our report. We are independent of the Company in accordance withthe Code of Ethics for Professional Accountants in the Philippines (Code of Ethics) together with theethical requirements that are relevant to our audit of the financial statements in the Philippines, and wehave fulfilled our other ethical responsibilities in accordance with these requirements and the Code ofEthics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide abasis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in ouraudit of the financial statements of the current period. These matters were addressed in the context of ouraudit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide aseparate opinion on these matters. For each matter below, our description of how our audit addressed thematter is provided in that context.

We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of theFinancial Statements section of our report, including in relation to these matters. Accordingly, our auditincluded the performance of procedures designed to respond to our assessment of the risks of materialmisstatement of the financial statements. The results of our audit procedures, including the proceduresperformed to address the matters below, provide the basis for our audit opinion on the accompanyingfinancial statements.

SyCip Gorres Velayo & Co.6760 Ayala Avenue1226 Makati CityPhilippines

Tel: (632) 891 0307Fax: (632) 819 0872ey.com/ph

BOA/PRC Reg. No. 0001, December 14, 2015, valid until December 31, 2018SEC Accreditation No. 0012-FR-4 (Group A), November 10, 2015, valid until November 9, 2018

A member firm of Ernst & Young Global Limited

*SGVFS029501*

- 2 -

Recoverability of Trade ReceivablesThe Company’s trade receivables consist mainly of receivables from customers, which accounts for 32%of the total assets. The appropriateness of the provision for impairment loss on these trade receivables is akey area requiring judgment and estimates from the management. The Company determines theallowance for impairment loss based on impairment assessments of customer balances. Impairmentassessment is an inherently uncertain process involving various assumptions and factors such as the lengthof the Company’s relationship with debtors, their payment behavior and known market factors.

Refer to Notes 3 and 4 to the financial statements for the relevant accounting policies and a discussion ofsignificant accounting estimates, and Note 6 to the financial statements for details about the Company’strade receivables and allowance for impairment loss.

Audit Response

We obtained an understanding of the Company’s process of assessing the recoverability of receivablesand calculating the allowance for impairment loss, which includes understanding the relevant controlsover such process and analyzing management’s assumption and judgment of the qualitative factors,including the sources of underlying data. For provisions for doubtful accounts that are calculated on anindividual basis, we selected samples of impaired trade receivables and inquired about management’sbasis for impairment. We tested the assumptions in the determination of impairment by checking thespecific customer’s payment history and any subsequent collections. For provisions for doubtful accountsthat are calculated on a collective basis, we tested management’s estimate and the inputs to the estimatessuch as aging profile and credit loss rates by agreeing the details of the receivable information used in thecalculation of the loss rates to the Company’s records, checking the age buckets of the past duereceivables and performing a recalculation of the provision and the allowance for impairment losses.

Valuation of Land Properties at Fair ValueStarting December 2017, the Company accounts for its land properties at fair value. Previously, the landproperties are carried at cost. The determination of the fair values of these properties involves significantmanagement judgment and estimations. The valuation also requires the assistance of external appraiserswhose calculations also depend on certain assumptions such as size, characteristics of the lot, location andquality as well as listings of comparable properties. Thus, we considered the valuation of land propertiesas a key audit matter.

Refer to Note 3 to the financial statements for the relevant accounting policies and Note 9 to the financialstatements for the details of land carried at revalued amount.

Audit Response

We evaluated the competence, capabilities and qualification of the external appraisers by consideringtheir qualifications, experience and reporting responsibilities. We involved our internal specialist in thereview of the methodology and assumptions used in the valuation of the land properties. We assessed themethodology adopted by referencing common valuation models and reviewed the relevant informationsupporting the sales and listings of comparable properties.


*SGVFS029501*

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Provisions and ContingenciesThe Company is involved in legal proceedings and assessment for national taxes. This matter issignificant to our audit because the determination of whether tax provision should be recognized and theestimation of the potential liability resulting from these tax assessments requires significant judgment bymanagement. The inherent uncertainty over the outcome of these tax matters is brought about by thedifferences in the interpretation and application of the laws and tax rulings.

Refer to Notes 3 and 4 to the financial statements for the relevant accounting policies and a discussion ofsignificant accounting estimates, and Note 27 for the disclosure on provision and contingencies.

Audit Response

We discussed with management the status of the tax assessment and obtained correspondences withrelevant tax authorities and opinions of the external legal/tax counsels. We involved our internalspecialist in the evaluation of management’s assessment on whether any provision for tax contingenciesshould be recognized and the estimation of such amount. We evaluated the tax position of the Companyby considering the tax laws, rulings and jurisprudence.

Other Information

Management is responsible for the other information. The other information comprises the informationincluded in the SEC Form 20-IS (Definitive Information Statement), SEC Form 17-A and Annual Reportfor the year ended December 31, 2017, but does not include the financial statements and our auditor’sreport thereon. The SEC Form 20-IS (Definitive Information Statement), SEC Form 17-A and AnnualReport for the year ended December 31, 2017 are expected to be made available to us after the date of thisauditor’s report.

Our opinion on the financial statements does not cover the other information and we will not express anyform of assurance conclusion thereon.

In connection with our audits of the financial statements, our responsibility is to read the otherinformation identified above when it becomes available and, in doing so, consider whether the otherinformation is materially inconsistent with the financial statements or our knowledge obtained in theaudits, or otherwise appears to be materially misstated.

Responsibilities of Management and Those Charged with Governance for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements inaccordance with PFRSs, and for such internal control as management determines is necessary to enablethe preparation of financial statements that are free from material misstatement, whether due to fraud orerror.

In preparing the financial statements, management is responsible for assessing the Company’s ability tocontinue as a going concern, disclosing, as applicable, matters related to going concern and using thegoing concern basis of accounting unless management either intends to liquidate the Company or to ceaseoperations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process.


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Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole arefree from material misstatement, whether due to fraud or error, and to issue an auditor’s report thatincludes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that anaudit conducted in accordance with PSAs will always detect a material misstatement when it exists.Misstatements can arise from fraud or error and are considered material if, individually or in theaggregate, they could reasonably be expected to influence the economic decisions of users taken on thebasis of these financial statements.

As part of an audit in accordance with PSAs, we exercise professional judgment and maintainprofessional skepticism throughout the audit. We also:

· Identify and assess the risks of material misstatement of the financial statements, whether due to fraudor error, design and perform audit procedures responsive to those risks, and obtain audit evidence thatis sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a materialmisstatement resulting from fraud is higher than for one resulting from error, as fraud may involvecollusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

· Obtain an understanding of internal control relevant to the audit in order to design audit proceduresthat are appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the Company’s internal control.

· Evaluate the appropriateness of accounting policies used and the reasonableness of accountingestimates and related disclosures made by management.

· Conclude on the appropriateness of management’s use of the going concern basis of accounting and,based on the audit evidence obtained, whether a material uncertainty exists related to events orconditions that may cast significant doubt on the Company’s ability to continue as a going concern.If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’sreport to the related disclosures in the financial statements or, if such disclosures are inadequate, tomodify our opinion. Our conclusions are based on the audit evidence obtained up to the date of ourauditor’s report. However, future events or conditions may cause the Company to cease to continueas a going concern.

· Evaluate the overall presentation, structure and content of the financial statements, including thedisclosures, and whether the financial statements represent the underlying transactions and events in amanner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scopeand timing of the audit and significant audit findings, including any significant deficiencies in internalcontrol that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevantethical requirements regarding independence, and to communicate with them all relationships and othermatters that may reasonably be thought to bear on our independence, and where applicable, relatedsafeguards.


*SGVFS029501*

- 5 -

From the matters communicated with those charged with governance, we determine those matters thatwere of most significance in the audit of the financial statements of the current period and are thereforethe key audit matters. We describe these matters in our auditor’s report unless law or regulation precludespublic disclosure about the matter or when, in extremely rare circumstances, we determine that a mattershould not be communicated in our report because the adverse consequences of doing so wouldreasonably be expected to outweigh the public interest benefits of such communication.

Report on the Supplementary Information Required Under Revenue Regulations 15-2010

Our audits were conducted for the purpose of forming an opinion on the basic financial statements takenas a whole. The supplementary information required under Revenue Regulations 15-2010 in Note 30 tothe financial statements is presented for purposes of filing with the Bureau of Internal Revenue and is nota required part of the basic financial statements. Such information is the responsibility of themanagement of Lorenzo Shipping Corporation. The information has been subjected to the auditingprocedures applied in our audit of the basic financial statements. In our opinion, the information is fairlystated, in all material respects, in relation to the basic financial statements taken as a whole.

The engagement partner on the audit resulting in this independent auditor’s report is Leovina Mae V. Chu.

SYCIP GORRES VELAYO & CO.

Leovina Mae V. ChuPartnerCPA Certificate No. 99910SEC Accreditation No. 1199-AR-1 (Group A), June 22, 2015, valid until June 21, 2018Tax Identification No. 209-316-911BIR Accreditation No. 08-001998-96-2018, February 2, 2018, valid until February 1, 2021PTR No. 6621343, January 9, 2018, Makati City

March 23, 2018


*SGVFS029501*

LORENZO SHIPPING CORPORATIONSTATEMENTS OF FINANCIAL POSITION

December 312017 2016

ASSETS

Current AssetsCash (Note 5) P=89,628,772 P=104,831,056Trade and other receivables (Note 6) 982,832,464 902,097,878Inventories (Note 7) 25,434,984 21,095,855Prepayments and other current assets (Note 8) 287,273,722 262,094,528Total Current Assets 1,385,169,942 1,290,119,317

Noncurrent AssetsProperty and equipment (Note 9)

At cost 1,292,554,654 1,652,654,409At revalued amount 369,485,000 –

Deferred tax assets (Note 20) – 36,773,619Other noncurrent assets (Note 10) 21,795,795 36,352,498Total Noncurrent Assets 1,683,835,449 1,725,780,526

TOTAL ASSETS P=3,069,005,391 P=3,015,899,843

LIABILITIES AND EQUITY

Current LiabilitiesAccounts payable and accrued expenses (Note 11) P=956,259,729 P=920,407,197Short-term borrowings (Note 12) 673,420,400 519,420,400Current portion of:

Long-term borrowings (Note 12) 287,355,760 161,558,373Obligations under finance lease (Note 24) 29,549,103 32,664,533

Total Current Liabilities 1,946,584,992 1,634,050,503

Noncurrent LiabilitiesNoncurrent portion of:

Long-term borrowings (Note 12) 282,181,432 568,689,614Obligations under finance lease (Note 24) 32,541,947 61,919,542

Retirement benefit obligation (Note 16) 97,629,223 89,108,703Deferred tax liabilities (Note 20) 41,241,777 –Total Noncurrent Liabilities 453,594,379 719,717,859Total Liabilities 2,400,179,371 2,353,768,362

EquityCommon stock - P=1 par value (Note 21)

Authorized - 991,183,999 sharesIssued and outstanding - 554,642,251 shares 555,652,251 555,652,251

Additional paid-in capital 459,791,492 459,791,492Revaluation increment on land (Note 9) 191,325,328 –Actuarial losses on defined benefit plan (Note 16) (39,001,764) (26,166,812)Deficit (Note 21) (495,815,437) (324,019,600)Treasury shares at cost (Note 21) (3,125,850) (3,125,850)Total Equity 668,826,020 662,131,481

TOTAL LIABILITIES AND EQUITY P=3,069,005,391 P=3,015,899,843

See accompanying Notes to Financial Statements.

*SGVFS029501*

LORENZO SHIPPING CORPORATIONSTATEMENTS OF INCOME

Years Ended December 312017 2016 2015

FREIGHT REVENUE (Note 23) P=2,182,060,149 P=2,252,859,939 P=2,282,616,664

DIRECT COSTSCost of services (Note 13) 1,964,372,173 2,050,865,588 1,936,228,766Terminal expenses (Note 14) 183,130,103 196,834,965 188,911,224

2,147,502,276 2,247,700,553 2,125,139,990

GROSS PROFIT 34,557,873 5,159,386 157,476,674

GENERAL AND ADMINISTRATIVEEXPENSES (Note 15) (184,204,825) (208,956,537) (236,168,656)

FINANCE COSTS AND OTHERCHARGES - net (Note 18) (61,967,081) (62,657,400) (61,081,915)

OTHER INCOME (CHARGES) - net(Note 19) 44,610,002 (95,592,205) (82,297,931)

LOSS BEFORE INCOME TAX (167,004,031) (362,046,756) (222,071,828)

PROVISION FOR INCOME TAX(Note 20)

Current 3,272,285 1,176,260 4,216,065Deferred 1,519,521 2,078,439 4,616,992

4,791,806 3,254,699 8,833,057

NET LOSS (P=171,795,837) (P=365,301,455) (P=230,904,885)

LOSS PER SHARE (Note 22)Basic and diluted (P=0.31) (P=0.66) (P=0.42)

See accompanying Notes to Financial Statements

*SGVFS029501*

LORENZO SHIPPING CORPORATIONSTATEMENTS OF COMPREHENSIVE INCOME


NET LOSS (P=171,795,837) (P=365,301,455) (P=230,904,885)

OTHER COMPREHENSIVE INCOME(LOSS)

Items that will not be reclassified tostatements of income:Revaluation increment on land (Note 9) 273,321,897 – –Income tax effect (81,996,569) – –Revaluation increment on land, net of tax 191,325,328 – –Actuarial gains (losses) on defined benefit plan (Note 16) (18,335,646) (13,078,578) 26,031,698Income tax effect 5,500,694 3,923,573 (7,809,509)Actuarial gains (losses) on defined benefit

plan, net of tax (12,834,952) (9,155,005) 18,222,189Net other comprehensive income (loss) for

the year, net of tax 178,490,376 (9,155,005) 18,222,189

TOTAL COMPREHENSIVE INCOME(LOSS) P=6,694,539 (P=374,456,460) (P=212,682,696)


*SGVFS029501*

LORENZO SHIPPING CORPORATIONSTATEMENTS OF CHANGES IN EQUITYFOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015

Common Stock(Note 21)

AdditionalPaid-in Capital

(Note 21)

Revaluationincrement

on land(Note 9)

Actuarial Losseson Defined

Benefit Plan(Note 16)

RetainedEarnings(Deficit)

(Note 21)Treasury Shares

(Note 21) Total

Balances at January 1, 2015 P=555,652,251 P=459,791,492 P=– (P=35,233,996) P=283,279,585 (P=3,125,850) P=1,260,363,482Cash dividends - P=0.020 per share (Note 21) – – – – (11,092,845) – (11,092,845)Net loss for the year – – – – (230,904,885) – (230,904,885)Movement of actuarial losses on defined

benefit plan - net – – – 18,222,189 – – 18,222,189Total comprehensive income (loss) – – – 18,222,189 (241,997,730) – (223,775,541)BALANCES AT DECEMBER 31, 2015 P=555,652,251 P=459,791,492 P=– (P=17,011,807) P=41,281,855 (P=3,125,850) P=1,036,587,941

Balances at January 1, 2016 P=555,652,251 P=459,791,492 P=– (P=17,011,807) P=41,281,855 (P=3,125,850) P=1,036,587,941Net loss for the year − − – − (365,301,455) − (365,301,455)Movement of actuarial losses on defined

benefit plan - net − − – (9,155,005) − − (9,155,005)Total comprehensive loss − − – (9,155,005) (365,301,455) – (374,456,460)BALANCES AT DECEMBER 31, 2016 P=555,652,251 P=459,791,492 P=– (P=26,166,812) (P=324,019,600) (P=3,125,850) P=662,131,481

Balances at January 1, 2017 P=555,652,251 P=459,791,492 P=– (P=26,166,812) (P=324,019,600) (P=3,125,850) P=662,131,481Net loss for the year − − – – (171,795,837) – (171,795,837)Revaluation increment on land - net − − 191,325,328 – – – 191,325,328Movement of actuarial losses on defined

benefit plan - net − − – (12,834,952) – – (12,834,952)Total comprehensive income (loss) − − 191,325,328 (12,834,952) (171,795,837) – 6,694,539BALANCES AT DECEMBER 31, 2017 P=555,652,251 P=459,791,492 P=191,325,328 (P=39,001,764) (P=495,815,437) (P=3,125,850) P=668,826,020


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LORENZO SHIPPING CORPORATIONSTATEMENTS OF CASH FLOWS


CASH FLOWS FROM OPERATINGACTIVITIES

Loss before income tax (P=167,004,031) (P=362,046,756) (P=222,071,828)Adjustments for:

Depreciation (Note 9) 267,571,789 277,841,951 268,968,228Interest expense (Note 18) 56,393,755 52,591,385 50,572,930Loss on disposal of property and

equipment - net (Note 19) 47,155,705 72,514,468 56,288,297Net change in retirement benefit

obligation (9,815,126) (17,322,630) (4,075,417)Equity in net loss (income) of an associate

(Note 10) (922,734) 90,996 (489,153)Amortization of deferred financing costs

(Note 12) 847,578 1,071,420 890,443Net unrealized foreign exchange

loss (gain) - net (Note 18) (664,022) 6,125,845 4,406,321Rent levelization (Note 13 and 24) (128,371) 72,867 492,005Interest income from:

Banks (Note 5 and 18) (122,631) (212,479) (338,986)Accretion of deposit (Note 18) (24,365) (1,801) (39,032)

Amortization of prepaid rent(Note 13 and 24) − 17,588 41,627

Operating income before working capitalchanges 193,287,547 30,742,854 154,645,435

Decrease (increase) in:Trade and other receivables (80,710,221) 174,883,865 11,446,730Inventories (4,339,129) 8,932,211 4,247,913Prepayments and other current assets (28,451,479) (39,327,894) (51,716,318)

Increase in accounts payable and accruedexpenses 34,718,147 130,693,474 218,622,519

Net cash flows provided by operatingactivities 114,504,865 305,924,510 337,246,279

CASH FLOWS FROM INVESTINGACTIVITIES

Additions to property and equipment (Note 9) (87,804,313) (253,701,421) (515,656,900)Proceeds from disposal of property and

equipment (Note 9) 37,013,471 56,110,391 26,826,210Decrease (increase) in other noncurrent assets 15,197,132 5,728,795 (8,889,585)Dividends received 282,305 − −Interest received 122,631 378,938 338,986Net cash flows used in investing activities (35,188,774) (191,483,297) (497,381,289)

(Forward)

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CASH FLOWS FROM FINANCINGACTIVITIES

Proceeds from:Short-term borrowings P=174,000,000 P=191,871,178 P=266,650,000Long-term borrowings – – 330,340,000

Payments of:Long-term borrowings (161,558,373) (197,079,206) (142,901,428)Interest (55,130,999) (54,940,469) (50,580,292)Finance lease amortization (31,647,781) (34,770,460) (32,284,416)Short-term borrowings (20,000,000) (127,550,000) (190,869,600)Dividends – – (10,741,012)

Net cash flows from (used in) financingactivities (94,337,153) (222,468,957) 169,613,252

NET INCREASE (DECREASE) IN CASH (15,021,062) (108,027,744) 9,478,242

EFFECT OF EXCHANGE RATECHANGES ON CASH (181,222) 282,432 (306,856)

CASH AT BEGINNING OF YEAR 104,831,056 212,576,368 203,404,982

CASH AT END OF YEAR P=89,628,772 P=104,831,056 P=212,576,368


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LORENZO SHIPPING CORPORATIONNOTES TO FINANCIAL STATEMENTS

1. Corporate Information

Lorenzo Shipping Corporation (the Company) was incorporated in the Philippines and registered withthe Securities and Exchange Commission (SEC) on October 17, 1972 primarily to engage in domesticinter-island cargo shipping activities.

Since 2006, the Company is majority-owned by National Marine Corporation (NMC), a domesticshipping company (see Note 23). A. Magsaysay, Inc. (AMI) is the ultimate parent company of NMC.

The Company’s common shares of stock are traded in the Philippine Stock Exchange (PSE)(see Note 21).

The Company is a holder of several Certificates of Convenience and special permits issued by theMaritime Industry Authority to service certain domestic ports of call.

The Company’s registered and principal business address is 20th Floor Times Plaza Building, UnitedNations Avenue, Ermita, Manila.

The financial statements of the Company as of December 31, 2017 and 2016 and for each of the threeyears in the period ended December 31, 2017 were approved and authorized for issue by the Board ofDirectors on March 23, 2018.

2. Basis of Preparation, Statements of Compliance and Changes in Accounting Policies andDisclosures

Basis of PreparationThe accompanying financial statements have been prepared under the historical cost basis except forland which is carried at revalued amounts. The financial statements are presented in Philippine peso,which is the Company’s functional and presentation currency, and rounded to the nearest peso, exceptwhen otherwise indicated.

Statement of ComplianceThe financial statements of the Company have been prepared in accordance with Philippine FinancialReporting Standards (PFRSs).

Changes in Accounting Policies and DisclosuresThe accounting policies adopted are consistent with those of the previous financial year, except for thenew and revised standards and Philippine Interpretation which were applied startingJanuary 1, 2017 and the change in accounting for the Company’s land properties from the cost modelto the revaluation model, discussed as follows:

New and Revised Standards and Philippine Interpretation Effective January 1, 2017

· Amendments to PFRS 12, Disclosure of Interests in Other Entities, Clarification of the Scope ofthe Standard (Part of Annual Improvements to PFRSs 2014–2016 Cycle)

The amendments clarify that the disclosure requirements in PFRS 12, other than those relating tosummarized financial information, apply to an entity’s interest in a subsidiary, a joint venture or an

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associate (or a portion of its interest in a joint venture or an associate) that is classified (or includedin a disposal group that is classified) as held for sale.

Adoption of these amendments did not have any impact on the Company’s financial statements.

· Amendments to Philippine Accounting Standard (PAS) 7, Statement of Cash Flows, DisclosureInitiative

The amendments require entities to provide disclosure of changes in their liabilities arising fromfinancing activities, including both changes arising from cash flows and non-cash changes (such asforeign exchange gains or losses).

The Company has provided the required information in Note 29 to the financial statements. Asallowed under the transition provisions of the standard, the Company did not present comparativeinformation for the year ended December 31, 2016.

· Amendments to PAS 12, Income Taxes, Recognition of Deferred Tax Assets for UnrealizedLosses

The amendments clarify that an entity needs to consider whether tax law restricts the sources oftaxable profits against which it may make deductions upon the reversal of the deductible temporarydifference related to unrealized losses. Furthermore, the amendments provide guidance on how anentity should determine future taxable profits and explain the circumstances in which taxable profitmay include the recovery of some assets for more than their carrying amount.

The Company applied amendments retrospectively. However, application of the amendments hasno effect on the Company’s financial position and performance as the Company has no deductibletemporary differences or assets that are in the scope of the amendments.

Revaluation of Land PropertiesIn 2017, the Company elected to change the method of accounting for its land properties classified asproperty and equipment. The Company had previously measured all land properties using the costmodel whereby, after initial recognition of the asset classified as property and equipment, the asset wascarried at cost less any accumulated impairment losses.

The Company believes that the revaluation model provides more relevant information to the users ofits financial statements. In addition, available valuation techniques provide reliable estimates of theland properties’ fair value. The Company applied the revaluation model prospectively. After initialrecognition, land properties are measured at fair value at the date of the revaluation less any subsequentaccumulated impairment losses. For details, refer to Notes 3 and 9.

New Standards and Interpretation Issued and Effective after December 31, 2017Pronouncements issued but not yet effective are listed below. Unless otherwise indicated, the Companydoes not expect that the future adoption of the said pronouncements will have a significant impact onthe financial statements. The Company intends to adopt the following pronouncements when theybecome effective.

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Effective beginning on or after January 1, 2018

· Amendments to PFRS 2, Share-based Payment, Classification and Measurement of Share-basedPayment Transactions

The amendments to PFRS 2 address three main areas: the effects of vesting conditions on themeasurement of a cash-settled share-based payment transaction; the classification of a share-basedpayment transaction with net settlement features for withholding tax obligations; and theaccounting where a modification to the terms and conditions of a share-based payment transactionchanges its classification from cash-settled to equity-settled.

On adoption, entities are required to apply the amendments without restating prior periods, butretrospective application is permitted if elected for all three amendments and if other criteria aremet. Early application of the amendments is permitted.

The Company has assessed that the adoption of these amendments will not have any impact on the2018 financial statements.

· PFRS 9, Financial Instruments

PFRS 9 reflects all phases of the financial instruments project and replaces PAS 39, FinancialInstruments: Recognition and Measurement, and all previous versions of PFRS 9. The standardintroduces new requirements for classification and measurement, impairment, and hedgeaccounting. Retrospective application is required but providing comparative information is notcompulsory. For hedge accounting, the requirements are generally applied prospectively, withsome limited exceptions.

The Company plans to adopt the new standard on the mandatory effective date and will not restatecomparative information.

· Amendments to PFRS 4, Insurance Contracts, Applying PFRS 9, Financial Instruments, withPFRS 4

The amendments address concerns arising from implementing PFRS 9, the new financialinstruments standard before implementing the new insurance contracts standard. The amendmentsintroduce two options for entities issuing insurance contracts: a temporary exemption from applyingPFRS 9 and an overlay approach. The temporary exemption is first applied for reporting periodsbeginning on or after January 1, 2018. An entity may elect the overlay approach when it firstapplies PFRS 9 and apply that approach retrospectively to financial assets designated on transitionto PFRS 9. The entity restates comparative information reflecting the overlay approach if, and onlyif, the entity restates comparative information when applying PFRS 9.

The amendments are not applicable to the Company since it has no activities that are predominantlyconnected with insurance or issue insurance contracts.

· PFRS 15, Revenue from Contracts with Customers

PFRS 15 establishes a new five-step model that will apply to revenue arising from contracts withcustomers. Under PFRS 15, revenue is recognized at an amount that reflects the consideration towhich an entity expects to be entitled in exchange for transferring goods or services to a customer.

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The principles in PFRS 15 provide a more structured approach to measuring and recognizingrevenue.

The new revenue standard is applicable to all entities and will supersede all current revenuerecognition requirements under PFRSs. Either a full or modified retrospective application isrequired for annual periods beginning on or after January 1, 2018. Early adoption is permitted.The Company plans to adopt the new standard on the required effective date using modifiedretrospective method.

The Company is currently assessing the impact of adopting this standard in 2018.

· Amendments to PAS 28, Measuring an Associate or Joint Venture at Fair Value (Part of AnnualImprovements to PFRSs 2014–2016 Cycle)

The amendments clarify that an entity that is a venture capital organization, or other qualifyingentity, may elect, at initial recognition on an investment-by-investment basis, to measure itsinvestments in associates and joint ventures at fair value through profit or loss. They also clarifythat if an entity that is not itself an investment entity has an interest in an associate or joint venturethat is an investment entity, the entity may, when applying the equity method, elect to retain thefair value measurement applied by that investment entity associate or joint venture to the investmententity associate’s or joint venture’s interests in subsidiaries. This election is made separately foreach investment entity associate or joint venture, at the later of the date on which (a) the investmententity associate or joint venture is initially recognized; (b) the associate or joint venture becomesan investment entity; and (c) the investment entity associate or joint venture first becomes a parent.

The amendments should be applied retrospectively, with earlier application permitted.

These amendments are not expected to have any impact on the Company.

· Amendments to PAS 40, Investment Property, Transfers of Investment Property

The amendments clarify when an entity should transfer property, including property underconstruction or development into, or out of investment property. The amendments state that achange in use occurs when the property meets, or ceases to meet, the definition of investmentproperty and there is evidence of the change in use. A mere change in management’s intentions forthe use of a property does not provide evidence of a change in use. The amendments should beapplied prospectively to changes in use that occur on or after the beginning of the annual reportingperiod in which the entity first applies the amendments. Retrospective application is only permittedif this is possible without the use of hindsight.

These amendments do not have any impact on the Company since it does not have any investmentproperty.

· Philippine Interpretation IFRIC 22, Foreign Currency Transactions and Advance Consideration

The interpretation clarifies that, in determining the spot exchange rate to use on initial recognitionof the related asset, expense or income (or part of it) on the derecognition of a nonmonetary assetor nonmonetary liability relating to advance consideration, the date of the transaction is the date onwhich an entity initially recognizes the nonmonetary asset or nonmonetary liability arising from theadvance consideration. If there are multiple payments or receipts in advance, then the entity mustdetermine a date of the transactions for each payment or receipt of advance consideration. Entities

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may apply the amendments on a fully retrospective basis. Alternatively, an entity may apply theinterpretation prospectively to all assets, expenses and income in its scope that are initiallyrecognized on or after the beginning of the reporting period in which the entity first applies theinterpretation or the beginning of a prior reporting period presented as comparative information inthe financial statements of the reporting period in which the entity first applies the interpretation.

Since the Company’s current practice is in line with the clarifications issued, the Company doesnot expect any effect on its financial statements upon adoption of this interpretation.

Effective Beginning on or After January 1, 2019

· Amendments to PFRS 9, Prepayment Features with Negative Compensation

The amendments to PFRS 9 allow debt instruments with negative compensation prepaymentfeatures to be measured at amortized cost or fair value through other comprehensive income. Anentity shall apply these amendments for annual reporting periods beginning on or after January 1,2019. Earlier application is permitted.

The amendments are not applicable to the Company since it does not have any debt instrumentswith negative compensation prepayment features.

· PFRS 16, Leases

PFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure ofleases and requires lessees to account for all leases under a single on-balance sheet model similarto the accounting for finance leases under PAS 17, Leases. The standard includes two recognitionexemptions for lessees - leases of ’low-value’ assets (e.g., personal computers) and short-termleases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, alessee will recognize a liability to make lease payments (i.e., the lease liability) and an assetrepresenting the right to use the underlying asset during the lease term (i.e., the right-of-use asset).Lessees will be required to separately recognize the interest expense on the lease liability and thedepreciation expense on the right-of-use asset.

Lessees will be also required to remeasure the lease liability upon the occurrence of certain events(e.g., a change in the lease term, a change in future lease payments resulting from a change in anindex or rate used to determine those payments). The lessee will generally recognize the amountof the remeasurement of the lease liability as an adjustment to the right-of-use asset.

Lessor accounting under PFRS 16 is substantially unchanged from today’s accounting underPAS 17. Lessors will continue to classify all leases using the same classification principle as inPAS 17 and distinguish between two types of leases: operating and finance leases.

PFRS 16 also requires lessees and lessors to make more extensive disclosures than under PAS 17.

Early application is permitted, but not before an entity applies PFRS 15. A lessee can choose toapply the standard using either a full retrospective or a modified retrospective approach. Thestandard’s transition provisions permit certain reliefs.

The Company is currently assessing the impact of adopting PFRS 16 and plans to adopt the newstandard on the required effective date, once adopted locally.

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· Amendments to PAS 28, Long-term Interests in Associates and Joint Ventures

The amendments to PAS 28 clarify that entities should account for long-term interests in anassociate or joint venture to which the equity method is not applied using PFRS 9. An entity shallapply these amendments for annual reporting periods beginning on or after January 1, 2019. Earlierapplication is permitted.

· Philippine Interpretation IFRIC 23, Uncertainty over Income Tax Treatments

The interpretation addresses the accounting for income taxes when tax treatments involveuncertainty that affects the application of PAS 12 and does not apply to taxes or levies outside thescope of PAS 12, nor does it specifically include requirements relating to interest and penaltiesassociated with uncertain tax treatments.

The interpretation specifically addresses the following:

· Whether an entity considers uncertain tax treatments separately· The assumptions an entity makes about the examination of tax treatments by taxation

authorities· How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax

credits and tax rates· How an entity considers changes in facts and circumstances

An entity must determine whether to consider each uncertain tax treatment separately or togetherwith one or more other uncertain tax treatments. The approach that better predicts the resolutionof the uncertainty should be followed.

The Company is currently assessing the impact of adopting this interpretation.

Deferred Effectivity

· Amendments to PFRS 10 and PAS 28, Sale or Contribution of Assets between an Investor and itsAssociate or Joint Venture

The amendments address the conflict between PFRS 10 and PAS 28 in dealing with the loss ofcontrol of a subsidiary that is sold or contributed to an associate or joint venture. The amendmentsclarify that a full gain or loss is recognized when a transfer to an associate or joint venture involvesa business as defined in PFRS 3, Business Combinations. Any gain or loss resulting from the saleor contribution of assets that does not constitute a business, however, is recognized only to theextent of unrelated investors’ interests in the associate or joint venture.

On January 13, 2016, the Financial Reporting Standards Council postponed the original effectivedate of January 1, 2016 of the said amendments until the International Accounting Standards Boardhas completed its broader review of the research project on equity accounting that may result in thesimplification of accounting for such transactions and of other aspects of accounting for associatesand joint ventures.

The Company is currently assessing the impact of adopting this interpretation.

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3. Summary of Significant Accounting Policies

Presentation of Financial StatementsThe Company has elected to present all items of recognized income and expenses in two statements: astatement displaying components of income or loss (statements of income) and a second statementbeginning with income or loss and displaying components of OCI (statements of comprehensiveincome).

Current versus Non-current ClassificationThe Company presents assets and liabilities in the statement of financial position based on current/non-current classification. An asset as current when it is:

· Expected to be realized or intended to be sold or consumed in normal operating cycle;· Held primarily for the purpose of trading;· Expected to be realized within twelve months after the reporting period; or· Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at

least twelve months after the reporting period

All other assets are classified as non-current.

A liability is current when:

· It is expected to be settled in normal operating cycle;· It is held primarily for the purpose of trading;· It is due to be settled within twelve months after the reporting period; or· There is no unconditional right to defer the settlement of the liability for at least twelve months

after the reporting period

The Company classifies all other liabilities as non-current.

Deferred tax assets and liabilities are classified as non-current assets and liabilities.

CashCash includes cash on hand and in banks, which are carried at face value.

Financial Instruments

Date of recognitionThe Company recognizes a financial asset or financial liability in the statement of financial positionwhen it becomes a party to contractual provisions of the instrument.

All regular way purchases and sales of financial assets are recognized on the trade date, which is thedate the Company commits to purchase or sell the asset. Regular way purchases or sales are purchasesor sales of financial assets that require delivery of assets within the period generally established byregulation or convention in the marketplace.

Initial recognition of financial instrumentsAll financial instruments, including investment securities and loans and receivables, are initiallymeasured at fair value. Except for financial assets at fair value through profit or loss (FVPL),the initial measurement of financial assets includes transaction costs. The Company classifies its

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financial instruments in the following categories: financial assets at FVPL, held-to-maturity (HTM)investments, available-for-sale (AFS) investments, loans and receivables, financial liabilities at FVPL,and other financial liabilities. The classification depends on the purpose for which the financialinstruments were acquired and whether they are quoted in an active market. Management determinesthe classification of its financial instruments at initial recognition and, where allowed and appropriate,re-evaluates such designation at every reporting period.

As of December 31, 2017 and 2016, the Company does not have outstanding financial assets at FVPL,HTM investments, AFS investments, and financial liabilities at FVPL.

Fair value measurementFair value is the price that would be received to sell an asset or paid to transfer a liability in an orderlytransaction between market participants at the measurement date. The fair value measurement is basedon the presumption that the transaction to sell the asset or transfer the liability takes place either:

· In the principal market for the asset or liability, or· In the absence of a principal market, in the most advantageous market for the asset or liability.

The principal or the most advantageous market must be accessible by the Company.

The fair value of an asset or a liability is measured using the assumptions that market participants woulduse when pricing the asset or liability, assuming that market participants act in their economic bestinterest.

A fair value measurement of a non-financial asset takes into account market participants’ ability togenerate economic benefits by using the asset in its highest and best use or by selling it to anothermarket participant that would use the asset in its highest and best use.

The Company uses valuation techniques that are appropriate in the circumstances and for whichsufficient data are available to measure fair value, maximizing the use of relevant observable inputs andminimizing the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements arecategorized within the fair value hierarchy, described as follows, based on the lowest level input that issignificant to the fair value measurement as a whole:

· Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities· Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value

measurement is directly or indirectly observable· Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value

measurement is unobservable

For assets and liabilities that are recognized in the financial statements on a recurring basis, theCompany determines whether transfers have occurred between levels in the hierarchy byre-assessing categorization (based on the lowest level input that is significant to the fair valuemeasurement as a whole) at the end of each reporting period.

For the purpose of fair value disclosures, the Company has determined classes of assets and liabilitieson the basis of the nature, characteristics and risks of the asset or liability and the level of the fair valuehierarchy as explained above.

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Day 1 differenceWhere the transaction price in a non-active market is different from the fair value based on otherobservable current market transactions in the same instrument or based on a valuation technique whosevariables include only data from observable market, the Company recognizes the difference betweenthe transaction price and fair value (a Day 1 difference) in the statement of income unless it qualifiesfor 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 statement ofincome when the inputs become observable or when the instrument is derecognized. For eachtransaction, the Company determines the appropriate method of recognizing the “Day 1” differenceamount.

Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments that arenot quoted in an active market. After initial measurement, such financial assets are carried at amortizedcost using the effective interest method less accumulated allowance for impairment, if any. Amortizedcost is calculated taking into account any discount or premium on acquisition and includes fees that arean integral part of the effective interest rate and transaction costs.

The Company’s cash, trade and other receivables, loan receivable and security deposits included underother noncurrent assets are classified under this category (see Note 25).

Other financial liabilitiesIssued financial liabilities or their components, which are not designated at FVPL, are classified asother financial liabilities, where the substance of the contractual arrangement results in the Companyhaving an obligation either to deliver cash or another financial asset to the holder, or to satisfy theobligation other than by the exchange of a fixed amount of cash or another financial asset for a fixednumber of own equity shares. The components of issued financial liabilities that contain both liabilityand equity elements are accounted for separately, with the equity component being assigned the residualamount after deducting from the instrument as a whole the amount separately determined as the fairvalue of the liability component on the date of issue. After initial measurement, other financialliabilities are subsequently measured at amortized cost using the effective interest method. Amortizedcost is calculated by taking into account any discount or premium on the issue and fees that are anintegral part of the effective interest rate. Any effects of restatement of foreign currency-denominatedliabilities are recognized in the statement of income.

The Company’s interest-bearing borrowings, accounts payable and accrued expenses, obligations underfinance lease and other obligations that meet the above definition (other than liabilities covered by otheraccounting standards, such as income tax payable) are classified under this category (see Note 25).

Derecognition of Financial Assets and Liabilities

Financial assetsA financial asset (or, where applicable, a part of a financial asset or part of a group of similar financialassets) is derecognized where:

· the rights to receive cash flows from the asset have expired;· the Company retains the right to receive cash flows from the asset, but has assumed an obligation

to pay them in full without material delay to a third party under a ‘pass-through’ arrangement; or· the Company has transferred its rights to receive cash flows from the asset and either (a) has

transferred substantially all the risks and rewards of the asset, or (b) has neither transferred norretained substantially all the risks and rewards of the asset, but has transferred control of the asset.

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Where the Company has transferred its rights to receive cash flows from an asset and has neithertransferred nor retained substantially all the risks and rewards of the asset nor transferred control of theasset, the asset is recognized to the extent of the Company’s continuing involvement in the asset.Continuing involvement that takes the form of a guarantee over the transferred asset is measured at thelower of the original carrying amount of the asset and the maximum amount of consideration that theCompany could be required to repay.

Financial liabilitiesA financial liability is derecognized when the obligation under the liability is discharged, cancelled orhas expired.

Where an existing financial liability is replaced by another from the same lender on substantiallydifferent terms, or the terms of an existing liability are substantially modified, such an exchange ormodification is treated as a derecognition of the original liability and the recognition of a new liability,and the difference in the respective carrying amounts is recognized in the statement of income.

Impairment of Financial AssetsThe Company assesses at each statement of financial position date whether a financial asset or groupof financial assets is impaired.

Assets carried at amortized costIf there is objective evidence that an impairment loss on loans and receivables carried at amortized costhas been incurred, the amount of the loss is measured as the difference between the asset’s carryingamount and the present value of estimated future cash flows (excluding future credit losses that havenot been incurred) discounted at the financial asset’s original effective interest rate (i.e., the effectiveinterest rate computed at initial recognition). The carrying amount of the asset shall be reduced eitherdirectly or through the use of an allowance account. The amount of the loss shall be recognized in thestatement of income.

The Company first assesses whether objective evidence of impairment exists individually for financialassets that are individually significant, and individually or collectively for financial assets that are notindividually significant. If it is determined that no objective evidence of impairment exists for anindividually assessed financial asset, whether significant or not, the asset is included in a group offinancial assets with similar credit risk characteristics and that group of financial assets is collectivelyassessed for impairment.

Assets that are individually assessed for impairment and for which an impairment loss is or continuesto be recognized are not included in the collective assessment of impairment.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be relatedobjectively to an event occurring after the impairment was recognized, the previously recognizedimpairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in thestatement of income, to the extent that the carrying value of the asset does not exceed its amortized costat 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 theCompany will not able to collect all the amounts due under the original terms of the invoice. Thecarrying amount of the receivables is reduced through the use of an allowance account.

Assets carried at costIf there is objective evidence that an impairment loss on an unquoted equity instrument, that is not

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carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that islinked to and must be settled by delivery of such an unquoted equity instrument has been incurred, theamount of the loss is measured as the difference between the asset’s carrying amount and the presentvalue of estimated future cash flows discounted at the current market rate of return for a similar financialasset.

Offsetting Financial InstrumentsFinancial assets and financial liabilities are offset and the net amount reported in the statement offinancial position if there is a currently enforceable legal right to set off the recognized amounts andthere is intention to settle on a net basis, or to realize the asset and settle the liabilitysimultaneously. The Company assesses that it has a currently enforceable right of offset if the right isnot contingent on a future event, and is legally enforceable in the normal course of business, event ofdefault, and event of insolvency or bankruptcy of the Company and all of the counterparties.

InventoriesInventories are valued at the lower of cost and net realizable value (NRV). Costs incurred in bringingeach product to its present location and condition are accounted for as follows:

Materials and spare parts - purchase cost using first-in, first-out methodFuel, diesel and lubricants - purchase cost using first-in, first-out method

Net realizable value is the estimated replacement cost.

An allowance for losses and obsolescence is determined based on a regular review and managementevaluation of movement and condition of spare parts and supplies.

Property and EquipmentProperty and equipment, except for land, are stated at cost, excluding the costs of day-to-day servicing,less accumulated depreciation and any accumulated impairment in value. Such cost includes the costof replacing part of the property and equipment when that cost is incurred, if the recognition criteriaare met.

Effective 2017, land is measured at fair value less any accumulated impairment in value. Valuationsare performed with sufficient frequency to ensure that the fair value of a revalued asset does not differmaterially from its carrying amount. During the year, all of the Company’s land properties had beenrevalued as determined by an independent firm of appraisers. Subsequent additions are stated at cost.The appraisal increment, net of the related tax effect, is credited to the “Revaluation increment on land”account included as other comprehensive income in the statement of comprehensive income and asother component of equity in the equity section of the statement of financial position, except to theextent that it reverses a revaluation decrease of the same asset previously recognized in the statementof income, in which case the increase is recognized in the statement of income. A revaluation deficitis recognized in the statement of income, except that a deficit directly offsetting a previous surplus onthe same asset is directly offset against the surplus in the asset revaluation reserve.

Upon disposal, any revaluation increment relating to the particular asset being sold is transferred toretained earnings.

The initial cost of property and equipment consists of its purchase price, including import duties, taxesand any directly attributable costs of bringing the asset to the location and condition necessary for it tobe capable of operating in the manner intended by the Company. Expenditures incurred after theproperty and equipment have been put into operation, such as repairs and maintenance and overhaulcosts, are normally charged in the statement of income in the period in which the costs are incurred.

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Each part of an item of property and equipment with a cost that is significant in relation to the total costof the item shall be depreciated separately.

Depreciation is computed on a straight-line basis less its residual value over the estimated useful life(EUL) as follows:

Category Number of YearsLand improvements 3Vessels, excluding drydocking costs and vessel tools and equipment 35*Drydocking costs 3Container vans and improvements 5-10Buildings, warehouses, terminal premises and equipment

and leasehold improvements 3-10Office furniture and equipment 5Transportation equipment 5Vessel tools and equipment 5*From the time the ship was built

The property and equipment’s residual value, useful lives and depreciation method are reviewed andadjusted, if appropriate, at each statement of financial position date.

Major overhaul costs incurred during drydocking of vessels are capitalized and depreciated over a3-year period or the next drydocking, whichever comes first. When significant drydocking costs areincurred prior to the expiry of the 3-year depreciation period, the remaining costs of the previousdrydocking are written off in the period of the subsequent drydocking. Drydocking costs are recordedas part of “Vessels” under property and equipment.

Leasehold improvements are depreciated over their estimated useful lives or the term of the lease,whichever is shorter.

Fully depreciated property and equipment are retained in the accounts until these are no longer in use.An item of property and equipment is derecognized upon disposal or when no future economic benefitsare expected from the continued use of the item. Any gain or loss arising on derecognition of theproperty and equipment (calculated as the difference between the net disposal proceeds and the carryingamount of the item) is included in the statement of income in the year the asset is derecognized.The carrying amounts of property and equipment are reviewed for impairment when events or changesin circumstances indicate that the carrying amount may not be recoverable.

Investment in an AssociateAn associate is an entity over which the Company has significant influence. Significant influence isthe power to participate in the financial and operating policy decisions of the investee, but is not controlor joint control over those policies. The Company applies significant judgment in assessing whether itholds significant influence over an investee and considers the following: (a) representation on the boardof directors or equivalent governing body of the investee; (b) participation in policy-making process,including participation in decisions about dividends or other distributions; (c) material transactionsbetween the investor and the investee; or (d) interchange of managerial personnel.

The Company’s investment in its associate is accounted for using the equity method. Under the equitymethod, the investment in an associate is initially recognized at cost. The carrying amount of theinvestment is adjusted to recognize changes in the Company’s share of net assets of the associate sincethe acquisition date. Goodwill relating to the associate is included in the carrying amount of theinvestment and is not tested for impairment separately.

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The statement of income reflects the Company’s share of the results of operations of the associate. Anychange in OCI of the investee is presented as part of the Company’s OCI. In addition, when there hasbeen a change recognized directly in the equity of the associate, the Company recognizes its share ofany changes, when applicable, in the statement of changes in equity. Unrealized gains and lossesresulting from transactions between the Company and the associate are eliminated to the extent of theinterest in the associate.

The financial statements of the associate are prepared for the same reporting period as the Company.When necessary, adjustments are made to bring the accounting policies in line with those of theCompany.

After application of the equity method, the Company determines whether it is necessary to recognizean impairment loss on its investment in its associate. At each reporting date, the Company determineswhether there is objective evidence that the investment in the associate is impaired. If there is suchevidence, the Company calculates the amount of impairment as the difference between the recoverableamount of the associate and its carrying value, and then recognizes the loss as ‘Equity in net income(loss) of an associate’ in the statement of income.

Upon loss of significant influence over the associate, the Company measures and recognizes anyretained investment at its fair value. Any difference between the carrying amount of the associate uponloss of significant influence and the fair value of the retained investment and proceeds from disposal isrecognized in profit or loss.

Impairment of Non-financial AssetsThe Company assesses at each statement of financial position date whether there is an indication that anon-financial asset may be impaired. If any such indication exists, or when annual impairment testingfor a non-financial asset is required, the Company makes an estimate of the non-financial asset’srecoverable amount. A non-financial asset’s recoverable amount is the higher of a non-financial asset’sor cash-generating unit’s fair value less costs to sell and its value in use and is determined for anindividual non-financial asset, unless the non-financial asset does not generate cash inflows that arelargely independent of those from other non-financial assets or groups of non-financial assets. Wherethe carrying amount of a non-financial asset exceeds its recoverable amount, the non-financial asset isconsidered impaired and is written down to its recoverable amount. In assessing value in use, theestimated future cash flows are discounted to their present value using a pre-tax discount rate thatreflects current market assessments of the time value of money and the risks specific to the non-financial 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 tradedsubsidiaries or other available fair value indicators. Impairment losses of continuing operations arerecognized in the statement of income in those expense categories consistent with the function of theimpaired non-financial asset.

An assessment is made at each statement of financial position date as to whether there is any indicationthat previously recognized impairment losses may no longer exist or may have decreased. If suchindication exists, the recoverable amount is estimated. A previously recognized impairment loss isreversed only if there has been a change in the estimates used to determine the non-financial asset’srecoverable amount since the last impairment loss was recognized. If that is the case, the carryingamount of the non-financial asset is increased to its recoverable amount. That increased amount cannotexceed the carrying amount that would have been determined, net of depreciation, had no impairmentloss been recognized for the non-financial asset in prior years. Such reversal is recognized in thestatement of income unless the asset is carried at revalued amount, in which case the reversal is treatedas a revaluation increase. After such a reversal, the depreciation charge is adjusted in future periods to

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allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over itsremaining useful life.

Revenue RecognitionRevenue is recognized to the extent that it is probable that the economic benefits will flow to theCompany and the revenue can be reliably measured, regardless of when payment is being made.Revenue is measured at the fair value of the consideration received or receivable, taking into accountcontractually defined terms of payment and excluding taxes or duty. The Company assesses its revenuearrangements against specific criteria in order to determine if it is acting as principal or agent. Thefollowing specific recognition criteria must also be met before revenue is recognized:

Freight revenuesRevenues derived from freight services are recognized on the basis of cargo loaded during the yeartaking into account all direct costs related to the cargo as well as capacity costs incurred.

Interest incomeInterest income is recognized as the interest accrues using the effective interest method.

Rental incomeRevenue is recognized on a straight-line basis over the lease term.

Income from insurance claimsIncome from insurance claims is recognized when the amount can be measured and the flow of theeconomic benefit to the Company is virtually certain.

Cost and ExpensesCosts and expenses are decreases in economic benefits during the accounting period in the form ofoutflows or depletions of assets or incurrence of liabilities that result in decreases in equity, other thanthose relating to distributions to equity participants. Costs and expenses are generally recognized whenthe services are used or the expense arises while interest expenses are accrued in the appropriate period.

Direct costsDirect costs include cost of services and terminal expenses, and include material, supplies and facilitiescosts, depreciation of vessels and terminal, personnel expenses, vessel insurance and other freight andterminal related costs. This is recognized when the cost is incurred or the expense arises.

General and administrative expensesGeneral and administrative expenses are incurred in the direction and general administration of day-to-day operations of the Company. General and administrative expenses are generally recognized whenthe services are used or the expenses arise.

ProvisionsProvisions are recognized only when the Company has a present obligation (legal or constructive) as aresult of a past event, it is probable that an outflow of resources embodying economic benefits will berequired to settle the obligation and a reliable estimate can be made of the amount of the obligation.Where the Company expects 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 virtuallycertain. The expense relating to any provision is presented in the statement of income and expenses,net of any reimbursements. If the effect of the time value of money is material, provisions aredetermined by discounting the expected future cash flows at a pre-tax rate that reflects current marketassessments of the time value of money and, where appropriate, the risks specific to the liability. Wherediscounting is used, the increase in the provision due to the passage of time is recognized as interest

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expense.

Related Party TransactionsTransactions with related parties are accounted for based on the nature and substance of the agreement,and financial effects are included in the appropriate asset, liabilities, income and expense accounts.

Taxes

Current income taxCurrent tax assets and liabilities for the current and prior periods are measured at the amount expectedto be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute theamount are those that are enacted or substantively enacted by the end of reporting period.

Deferred income taxDeferred tax is provided using the liability method on temporary differences at the statement offinancial position date between the tax bases of assets and liabilities and their carrying amounts forfinancial 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 assetor liability in a transaction that is not a business combination and, at the time of the transaction,affects neither the accounting income nor taxable income or loss; and

· in respect of taxable temporary differences associated with investments in foreign subsidiaries andinterests in joint ventures, where the timing of the reversal of the temporary differences can becontrolled 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, carryforwardbenefits of unused tax credits and unused tax losses, to the extent that it is probable that taxable incomewill be available against which the deductible temporary differences, and the carryforward benefits ofunused tax credits and unused tax losses can be utilized except:

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

· in respect of deductible temporary differences associated with investments in foreign subsidiariesand interests in joint ventures, deferred tax income assets are recognized only to the extent that itis probable that the temporary differences will reverse in the foreseeable future and taxable incomewill be available against which the temporary differences can be utilized.

The carrying amount of deferred income tax assets is reviewed at the end of each reporting date andreduced to the extent that it is no longer probable that sufficient taxable income will be available toallow all or part of the deferred income tax asset to be utilized. Unrecognized deferred income taxassets are reassessed at each statement of financial position date and are recognized to the extent that ithas become probable that future taxable income will allow the deferred tax asset to be recovered.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to theyear when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have beenenacted or substantively enacted by the end of reporting period.

Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable rightexists to offset current tax assets against current tax liabilities and the deferred taxes relate to the same

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taxable entity and the same taxation authority.

Deferred income tax relating to items recognized directly in equity is recognized in equity and not inthe statement of income.

Value-added Tax (VAT)Revenues, expenses, and assets are recognized net of the amount of VAT, if applicable.

For its VAT-registered activities, when VAT from sales of goods and/or services (output VAT) exceedsVAT passed on from purchases of goods or services (input VAT), the excess is recognized as payablein the statement of financial position. When VAT passed on from purchases of goods or services (inputVAT) exceeds VAT from sales of goods and/or services (output VAT), the excess is recognized as anasset in the statement of financial position up to the extent of the recoverable amount.

For its non-VAT registered activities, the amount of VAT passed on from its purchases of goods orservice is recognized as part of the cost of goods/asset acquired or as part of the expense item, asapplicable.

Creditable Withholding Taxes (CWTs)CWTs are amounts withheld from income subject to expanded withholding taxes. CWTs can beutilized as payment for income taxes provided that these are properly supported by certificates ofcreditable tax withheld at source, subject to the rules on Philippine income taxation.

Capital StockCapital stock is determined using the par value shares that have been issued. When the Company issuesmore than one class of stock, a separate account is maintained for each class of stock and number ofshares issued. The Company’s capital stock pertains to common stock. Direct costs incurred relatedto the issuance of new common stock such as accounting and legal fees, printing costs and taxes areshown in equity as deduction, net of tax, from proceeds.

When the shares are sold at a premium, the difference between the proceeds and the par value is creditedto the “Additional paid-in capital” account. When the shares are issued for a consideration other thancash, the proceeds are measured by the fair value of the consideration received. In case the shares areissued to extinguish or settle the liability of the Company, the shares shall be measured either at fairvalue of the share issued or fair value of the liability settled, whichever is more reliably determinable.

Treasury StockTreasury stock consists of the Company’s own equity instruments which are reacquired, recognized atcost and deducted from equity. No gain or loss is recognized in the statement of income on thepurchase, sale, issue or cancellation of the Company’s own equity instruments.

Retained Earnings (Deficit)The amount included in retained earnings includes profit or loss attributable to the Company’s equityholders and reduced by dividends on common stock. Retained earnings may also include effect ofchanges in accounting policies as may be required by the standards’ transitional provisions.

Retirement Benefit ObligationThe retirement benefit obligation is the aggregate of the present value of the defined benefit obligationat the end of the reporting period reduced by the fair value of plan assets(if any), adjusted for any effect of limiting a net defined benefit asset to the asset ceiling. The assetceiling is the present value of any economic benefits available in the form of refunds from the plan orreductions in future contributions to the plan.

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The cost of providing benefits under the defined benefit plans is actuarially determined using theprojected unit credit method.

Defined benefit costs comprise the following:· Service cost· Net interest on the net defined benefit liability or asset· Remeasurements of net defined benefit liability or asset

Service costs which include current service costs, past service costs and gains or losses onnon-routine settlements are recognized as expense in profit or loss. Past service costs are recognizedwhen plan amendment or curtailment occurs. These amounts are calculated periodically by independentqualified actuaries.

Net interest on the net defined benefit liability or asset is the change during the period in the net definedbenefit liability or asset that arises from the passage of time which is determined by applying thediscount rate based on government bonds to the net defined benefit liability or asset. Net interest on thenet defined benefit liability or asset is recognized as expense or income in profit or loss.

Remeasurements comprising actuarial gains and losses, return on plan assets and any change in theeffect of the asset ceiling (excluding net interest on defined benefit liability) are recognized immediatelyin other comprehensive income in the period in which they arise. Remeasurements are not reclassifiedto profit or loss in subsequent periods.

Plan assets are assets that are held by a long-term employee benefit fund or qualifying insurancepolicies. Plan assets are not available to the creditors of the Company, nor can they be paid directly tothe Company. Fair value of plan assets is based on market price information. When no market price isavailable, the fair value of plan assets is estimated by discounting expected future cash flows using adiscount rate that reflects both the risk associated with the plan assets and the maturity or expecteddisposal date of those assets (or, if they have no maturity, the expected period until the settlement ofthe related obligations). If the fair value of the plan assets is higher than the present value of the definedbenefit obligation, the measurement of the resulting defined benefit asset is limited to the present valueof economic benefits available in the form of refunds from the plan or reductions in future contributionsto the plan.

Loss Per Share (LPS)Basic LPS is calculated by dividing net income for the year attributable to common shareholders by thenumber of shares issued and outstanding at the end of the year after giving retroactive effect to regularstock dividends declared and stock rights exercised during the year, if any. Diluted LPS is computedby dividing net income by the weighted average number of common shares outstanding during theperiod, after giving retroactive effect for any stock dividends, stock splits or reverse stock splits duringthe period, and adjusted for the effect of dilutive convertible preferred shares. If the required dividendsto be declared on convertible preferred shares divided by the number of equivalent common shares,assuming such shares are converted would decrease the basic LPS, then such convertible preferredshares would be deemed dilutive. Where the effect of the assumed conversion of the preferred sharesand the exercise of all outstanding options have anti-dilutive effect, basic and diluted LPS are stated atthe same amount.

LeasesThe determination of whether an arrangement is, or contains, a lease is based on the substance of thearrangement at inception date of whether the fulfillment of the arrangement is dependent on the use ofa specific asset or assets or the arrangement conveys a right to use the asset.

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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 or 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; ord. there is a substantial change to the asset.

Where a reassessment is made, lease accounting shall commence or cease from the date when thechange in circumstances gave rise to the reassessment for scenario a, c or d and at the date of renewalor extension period for scenario b.

Operating lease commitments - the Company as lesseeLeases of office premises and container yards where the lessor retains substantially all the risks andrewards of ownership are classified as operating leases. Payments made under operating leases (net ofany incentives received from the lessor) are charged to the statement of income on a straight-line basisover the period of lease.

Operating lease commitments - the Company as lessorLease of land where the Company retains substantially all the risks and rewards of ownership areclassified as operating leases. Receipts under operating leases (net of any incentives granted to thelessee) are charged to the statement of income on a straight-line basis over the period of lease.

Finance lease commitments - the Company as lesseeLeases of container vans, where the Company has substantially obtained the risks and rewards ofownership, are classified as finance leases. Finance leases are capitalized at the lease’s inception at thelower of the fair value of the leased property and the present value of the minimum lease payments.Each lease payment is allocated between the liability and finance charges so as to achieve a constantrate on the finance balance outstanding. The corresponding rental obligations, net of finance charges,are included in “Obligations under finance lease” account in the statement of financial position. Theinterest element of the finance cost is charged to the statement of income over the lease period so as toproduce a constant periodic rate of interest on the remaining balance of the liability for each period.Property and equipment acquired under finance leases is depreciated over the shorter of the asset’suseful life and the lease term, if there is no reasonable certainty that the Company will obtain ownershipby the end of the lease term, otherwise it is depreciated over the useful life of the property andequipment.

Foreign Currency TransactionsThe financial statements are presented in Philippine peso, which is the Company’s functional andpresentation currency. Transactions in foreign currencies are initially recorded in Philippine peso basedon the exchange rates prevailing at the dates of the transactions. At year-end, monetary assets andliabilities denominated in foreign currencies are restated at closing rate and any exchange differentialsare credited to or charged against the statement of income.

ContingenciesContingent liabilities are not recognized in the financial statements. These are disclosed unless thepossibility of an outflow of resources embodying economic benefits is remote. Contingent assets arenot recognized in the financial statements but are disclosed when an inflow of economic benefits isprobable.

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Segment ReportingThe Company and its branches and agencies are operating as one reportable segment engaged indomestic inter-island cargo shipping activities within the Philippines. Therefore, neither business norgeographical segment information is presented.

Events After the Reporting PeriodPost year-end events that provide additional information about the Company’s financial position at thestatement of financial position date (adjusting events) are reflected in the financial statements. Postyear-end events that are not adjusting events are disclosed in the notes to financial statements whenmaterial.

4. Significant Accounting Judgments and Estimates

The preparation of the accompanying financial statements requires management to make judgmentsand estimates that affect the amounts reported in the financial statements and the accompanying notes.The judgments and estimates used in the accompanying financial statements are based uponmanagement’s evaluation of relevant facts and circumstances as of date of the financial statements.Actual results could differ from such estimates.

JudgmentsIn the process of applying the Company’s accounting policies, management has made judgments, apartfrom those involving estimation, which have the most significant effect on the amounts recognized inthe financial statements.

Assessing of control or significant influence of investeeThe Company applies significant judgment in assessing whether it holds significant influence over aninvestee and considers the following: (a) representation on the board of directors or equivalentgoverning body of the investee; (b) participation in policy-making process, including participation indecisions about dividends or other distributions; (c) material transactions between the investor and theinvestee; or (d) interchange of managerial personnel. On the other hand, joint control is presumed toexist when the investors contractually agreed sharing of control of an arrangement, which exists onlywhen decisions about the relevant activities require the unanimous consent of the parties sharingcontrol. Management has determined that it has significant influence over One Team Services,Inc.(OTSI) by virtue of the power to participate in the financial and operating policy decisions of theinvestee.

Finance lease commitments - the Company as lesseeThe Company has entered into leases of dry van containers. Based on the evaluation of the terms andconditions of the lease agreements, the ownership of lease assets will be transferred to the Companydue to a bargain purchase option. The Company has determined that these leases are finance leasessince the significant risks and rewards of ownership related to these properties are transferred to theCompany from the date of the lease agreement.

EstimationsThe key assumptions concerning the future and other key sources of estimation uncertainty at thestatement of financial position date that have a significant risk causing material adjustments to thecarrying amounts of the assets and liabilities within the next financial years are discussed below:

Impairment losses on trade receivablesThe Company maintains allowances for doubtful accounts on trade receivables at a level consideredadequate to provide for potential uncollectible receivables. The level of this allowance is evaluated by

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the Company on the basis of factors that affect the collectability of the accounts. These factors include,but are not limited to, the length of the Company’s relationship with debtors, their payment behaviorand known market factors. The Company reviews the age and status of the receivables, and identifiesaccounts that are to be provided with allowance on a continuous basis. The amount and timing ofrecorded expenses for any period would differ if the Company made different judgment or utilizeddifferent estimates. An increase in the Company’s allowance for impairment losses would increase theCompany’s recorded expenses and decrease current assets.

The Company assess impairment into two areas: individually assessed allowances and collectivelyassessed allowances.

Among the items that the Company considers in assessing impairment is the inability to collect formthe counterparty based on the contractual terms of the receivables. Receivables included in the specificassessment are the accounts that have been endorsed to the legal department and receivables frominactive customers, among others.

For collective assessment, impairment losses are estimated by taking into consideration the agingprofile of the receivables, credit loss rates and other factors that may affect collectability.

Trade and other receivables amounted to P=982.8 million and P=902.1 million as of December 31, 2017and 2016, respectively (see Note 6). The Company recognized provision for impairment lossesamounting to P=41.2 million in 2017 and 2016. Allowance for impairment losses amounted toP=64.4 million and P=98.8 million as of December 31, 2017 and 2016, respectively (see Note 6).

EUL of property and equipmentThe EUL used as a basis for depreciating the Company’s vessels and other property and equipmentwere determined on the basis of management’s assessment of the period within which the benefits ofthese assets are expected to be realized taking into account actual historical information on the use ofsuch assets as well as industry standards and averages applicable to the Company’s assets. TheCompany reviews annually the EUL of property and equipment.

A reduction in EUL of property and equipment would increase the recorded depreciation expense anddecrease noncurrent assets.

The net book value of property and equipment amounted to P=1,662.0 million and P=1,652.7 million asof December 31, 2017 and 2016, respectively (see Note 9).

Fair value of land propertiesEffective in 2017, the Company carries its land properties at revalued amount with changes in fair valuerecognized in OCI. The fair value of the Company’s land measured using the fair value model is basedon the valuation carried out by independent appraisers. The valuation was arrived by reference tomarket evidence of transaction prices of similar properties.

External appraisers used market approach to value the land properties by using sales comparisonmethod in particular. The valuation analysis involved key assumptions such as listing prices ofreasonably comparable properties and adjustments related to the characteristics of the land propertiessuch as size, location, utility, and other relevant conditions.

Revaluation increment on land properties recognized under OCI amounted to P=191.3 million, net of theapplicable tax. Net book value of revalued land properties amounted to P=369.5 million as atDecember 31, 2017.

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Impairment of property and equipment and other non-financial assetsInternal and external sources of information are reviewed at each statement of financial position dateto identify indications that the property and equipment may be impaired or an impairment losspreviously recognized no longer exists or may be decreased. If any such indication exists, therecoverable amount of the asset is estimated. An impairment loss is recognized whenever the carryingamount of an asset exceeds its recoverable amount.

The Company assesses the impairment of assets whenever events or changes in circumstances indicatethat the carrying amount of an asset may not be recoverable. The factors that the Company considersimportant which could trigger an impairment review include the following:

· significant underperformance relative to expected historical or projected future operating results;· significant changes in the manner of use of the assets or the strategy for the overall business; and· significant negative industry or economic trends.

The Company has not identified any events or changes in circumstances that would indicate impairmentof property and equipment and other non-financial assets.

The carrying value of property and equipment amounted to P=1,662.0 million and P=1,652.7 million asof December 31, 2017 and 2016, respectively (see Note 9). The carrying value of other non-financialassets amounted to P=329.9 million and P=311.6 million as of December 31, 2017 and 2016, respectively(see Notes 7, 8, and 10).

Realizability of deferred tax assetsThe Company reviews the carrying amounts of deferred tax assets at each statement of financialposition date and reduces it to the extent that it is no longer probable that sufficient taxable income willbe available to allow all or part of the deferred tax assets to be utilized.

Deferred income tax assets amounted to P=45.9 million and P=39.1 million as of December 31, 2017 and2016, respectively. Details of temporary differences in which no deferred tax assets were recognizedare provided in Note 20.

Retirement benefit obligationThe determination of retirement benefit obligation is dependent on the selection of certain assumptionsused by actuaries in calculating such amounts. Those assumptions are described in Note 16, and includeamong others, discount rates and salary increase rates. In accordance with PFRSs, actual results thatdiffer from the Company’s assumptions are accumulated and amortized over future periods andtherefore, generally affect the recognized expense and recorded obligation in such future periods.While the Company believes that the assumptions are reasonable and appropriate, significantdifferences in the actual experience or significant changes in the assumptions may materially affect thepension and other retirement obligation.

The carrying amount of the Company’s retirement benefit obligation amounted to P=97.6 million andP=89.1 million as of December 31, 2017 and 2016, respectively (see Note 16).

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ContingenciesIn the ordinary course of business, the Company is a defendant in various litigations and claims. TheCompany has an ongoing case with the Court of Tax Appeals. The estimate of the probable costs forthe resolution of these claims and cases has been developed in consultation with internal and externallegal counsels handling the Company’s defense in these matters and is based upon an analysis ofpotential results. Although there can be no assurances, management and its legal counsels believe thatthe ultimate resolution of these legal proceedings would not likely have a material, adverse effect onthe results of its operations, financial position or liquidity of the Company. It is possible, however, thatthe future results of operations could be materially affected by changes in estimates or effectiveness ofthe strategies relating to these litigations and claims (see Note 27).

5. Cash

2017 2016Cash on hand P=415,000 P=410,000Cash in banks 89,213,772 104,421,056

P=89,628,772 P=104,831,056

Cash in banks earn interest at the respective bank deposit rates.

Interest income, net of final tax, amounted to P=122,631, P=212,479 and P=338,986 in 2017, 2016 and2015, respectively (see Note 18).

6. Trade and Other Receivables

2017 2016Trade:

Third parties P=691,193,906 P=770,266,693Related parties (see Note 23) 295,557,986 173,784,223

986,751,892 944,050,916Less allowance for impairment losses on receivables 62,638,282 97,076,304

924,113,610 846,974,612

Non-trade - related parties (see Note 23) 39,869,736 34,863,575

Others (see Note 23) 20,575,183 21,985,756Less allowance for impairment losses 1,726,065 1,726,065

18,849,118 20,259,691P=982,832,464 P=902,097,878

Trade receivables are noninterest-bearing and have varying credit terms.

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Rollforward of allowance for impairment losses on receivables follows:

December 31, 2017Trade Others Total

Balances at beginning of year P=97,076,304 P=1,726,065 P=98,802,369Provisions (see Note 15) 41,241,503 − 41,241,503Write-off (75,679,525) − (75,679,525)

P=62,638,282 P=1,726,065 P=64,364,347

December 31, 2016Trade Others Total

Balances at beginning of year P=55,882,312 P=10,965,599 P=66,847,911Provisions (see Note 15) 41,193,992 − 41,193,992Write-off − (9,239,534) (9,239,534)

P=97,076,304 P=1,726,065 P=98,802,369

Individually impaired trade receivables amounted to P=29.0 million and P=58.1 million as of December31, 2017 and 2016, respectively. Collectively impaired trade receivables amounted to P=33.6 millionand P=39.0 million as of December 31, 2017 and 2016, respectively.

7. Inventories

2017 2016Fuel, diesel and lubricants (at cost) P=24,574,627 P=20,186,124Materials and spare parts (at NRV) 860,357 909,731

P=25,434,984 P=21,095,855

Fuel and supplies inventories recorded under “Cost of services”, “Terminal expenses”, and “Generaland administrative expenses” amounted to P=375.2 million, P=40.7 million and P=1.3 million, respectively,in 2017, P=329.6 million, P=32.9 million and P=4.0 million, respectively, in 2016 andP=388.8 million, P=39.1 million and P=2.0 million, respectively, in 2015 (see Notes 13, 14 and 15).

8. Prepayments and Other Current Assets

2017 2016CWTs P=267,883,380 P=231,336,017Input VAT 16,546,615 26,058,503Prepaid expenses 2,229,396 3,494,897Loan receivable 614,331 1,205,111

P=287,273,722 P=262,094,528

CWTs represent the amount withheld by the Company’s customers in relation to its sale of services.These are recognized upon collection of the related sales and are utilized as tax credits against incometax due as allowed by the Philippine taxation laws and regulations.

Prepaid expenses include prepaid insurance, prepaid software maintenance and prepaid rent.

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9. Property and Equipment

a. At Cost

2017

LandImprovements

Vessels andDrydocking

Costs

ContainerVans and

Improvements

Buildings,Warehouses,

TerminalPremises and

Equipmentand LeaseholdImprovements

OfficeFurniture and

EquipmentTransportation

Equipment

VesselTools and

Equipment TotalCostBalances at beginning of year P=15,272,566 P=2,015,782,610 P=742,332,641 P=346,916,464 P=71,393,644 P=33,898,432 P=264,322,733 P=3,489,919,090Additions – 63,951,667 527,520 312,616 447,723 – 22,564,787 87,804,313Disposals/write-off – (303,055,205) (46,059,548) – (445,635) (3,734,385) (43,263,585) (396,558,358)Balances at end of year 15,272,566 1,776,679,072 696,800,613 347,229,080 71,395,732 30,164,047 243,623,935 3,181,165,045Accumulated depreciationBalances at beginning of year 15,272,566 740,618,770 575,165,826 314,313,204 66,960,105 29,325,211 191,772,102 1,933,427,784Depreciation for the year

(see Notes 13, 14 and 15) – 197,095,086 39,706,626 3,010,542 2,717,424 1,565,497 23,476,614 267,571,789Disposals/write-off – (227,593,493) (41,481,839) – (404,785) (3,734,385) (39,174,680) (312,389,182)Balances at end of year 15,272,566 710,120,363 573,390,613 317,323,746 69,272,744 27,156,323 176,074,036 1,888,610,391Net book values P=– P=1,066,558,709 P=123,410,000 P=29,905,334 P=2,122,988 P=3,007,724 P=67,549,899 P=1,292,554,654

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2016

LandLand

Improvements

Vessels andDrydocking

Costs

ContainerVans and

Improvements

Buildings,Warehouses,

TerminalPremises and

Equipmentand LeaseholdImprovements

OfficeFurniture and

EquipmentTransportation

Equipment

VesselTools and

Equipment TotalCostBalances at beginning of year P=96,163,103 P=15,272,566 P=2,170,713,739 P=751,496,087 P=336,590,084 P=70,616,424 P=35,450,144 P=232,156,539 P=3,708,458,686Additions – – 133,302,278 – 51,503,682 1,198,479 2,654,464 65,042,518 253,701,421Disposals/write-off – – (288,233,407) (9,163,446) (41,177,302) (421,259) (4,206,176) (32,876,324) (376,077,914)Balances at end of year 96,163,103 15,272,566 2,015,782,610 742,332,641 346,916,464 71,393,644 33,898,432 264,322,733 3,586,082,193Accumulated depreciationBalances at beginning of year – 15,272,566 742,419,436 539,442,551 312,536,111 64,264,618 30,743,528 198,360,078 1,903,038,888Depreciation for the year

(see Note 13, 14 and 15) – – 201,736,576 43,970,109 3,631,435 2,952,991 2,582,799 22,968,041 277,841,951Disposals/write-off – – (203,537,242) (8,246,834) (1,854,342) (257,504) (4,001,116) (29,556,017) (247,453,055)Balances at end of year – 15,272,566 740,618,770 575,165,826 314,313,204 66,960,105 29,325,211 191,772,102 1,933,427,784Net book values P=96,163,103 P=– P=1,275,163,840 P=167,166,815 P=32,603,260 P=4,433,539 P=4,573,221 P=72,550,631 P=1,652,654,409

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b. At Revalued Amount

In December 2017, the Company has changed its accounting policy for the measurement of itsBacolod, Davao and Cagayan De Oro land properties to the revaluation model (see Note 4).

Reconciliation of carrying amountCarrying amount as at December 2017* P=96,163,103Level 3 revaluation increment recognized due to change in

accounting policy to revaluation model as at December 2017 273,321,897Carrying amount as at December 31, 2017 P=369,485,000

* The Company changed the accounting policy with respect to the measurement of land properties as at December2017 on a prospective basis. Therefore, the fair value of the land properties was not measured at January 1, 2017.

Revaluation increment on land as at December 31, 2017 amounted to P=191.3 million, net of theapplicable tax, which is presented under the “Revaluation increment on land” account in thestatement of financial position.

The Company engaged independent appraisers to determine the fair value of the followingproperties:

LocationArea in Square

Meters Appraisal Values Highest and Best UseCagayan De Oro 10,933 P=163,995,000 Commercial land developmentDavao

Site I 1,689 91,206,000 Industrial land developmentSite II 456 19,608,000 Commercial land development

BacolodLot 1 3,782 56,998,509 Industrial land developmentLot 2 2,500 37,677,491 Industrial land development

P=369,485,000

The fair values were estimated through the market approach by using sales comparison method inparticular. The valuation analysis involved key assumptions such as listing prices of reasonablycomparable properties and adjustments related to the characteristics of the land properties such assize, location, utility, and other relevant conditions.

Key unobservable inputs (Level 3) used to measure the fair value of the land is the price per squaremeter ranging from P=15,000 to P=54,000, depending on the property.

Significant increases (decreases) in estimated price per square meter in isolation would result in asignificantly higher (lower) fair value on a linear basis.

If the land properties were measured using the cost model, the carrying value as of December 31,2017 amounted to P=96.2 million.

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a. Sale of vessel

On July 11, 2017, the Company entered into a Memorandum of Agreement with a third party forthe sale of one of the Company’s vessels and vessel-related equipment for a consideration ofP=29.5 million, which has a net book value amounting to P=83.7 million at the time of the sale. Lossrecognized on the sale amounted to P=54.2 million (see Note 19).

On May 6, 2016, the Company entered into a Memorandum of Agreement with a third party for thesale of one of the Company’s vessels and related vessel-related for a consideration ofP=20.4 million, which has a net book value amounting to P=84.1 million at the time of the sale. Lossrecognized on the sale amounted to P=63.7 million (see Note 19).

b. Purchase of equipment

In September 2016, the Company acquired equipment for a total purchase price ofP=26.7 million. It was disposed in the same year under a sale and leaseback arrangement with athird party for a total consideration of P=26.1 million. At the time of the sale, the asset’s net bookvalue amounted to P=25.8 million. Gain recognized on the sale amounted to P=0.3 million(see Note 19).

c. In 2016, some parts of a vessel with a net book value of P=12.8 million were damaged andsubsequently derecognized which resulted to a loss on disposal of P=12.8 million (see Note 19).

d. To ensure the maintenance of the vessels in accordance with international standards, the Companyhas availed of the services of a related party to oversee the regular upgrading and maintenance ofthe vessels (see Note 23).

e. The balance of property and equipment as of December 31, 2017 and 2016 includesfully-depreciated assets still in use amounting to P=817.9 million and P=861.0 million, respectively.

f. Certain vessels with carrying values of P=978.9 million and P=983.3 million as ofDecember 31, 2017 and 2016, respectively, are used as chattel mortgage securities for long-termborrowings (see Note 12).

g. Property and equipment include the following amounts where the Company is a lessee under afinance lease (see Note 24):

2017 2016Cost P=219,984,732 P=219,984,732Less accumulated depreciation 146,009,537 117,091,830Net book value P=73,975,195 P=102,892,902

10. Other Noncurrent Assets

2017 2016Deferred input VAT P=15,324,075 P=27,771,233Deposits - net (see Note 24) 3,949,063 6,713,951Investment in and advances to an associate 1,788,586 1,148,157Others 734,071 719,157

P=21,795,795 P=36,352,498

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Deferred input VAT relates primarily to the major capital expenditures and dry docking of vessels.

Deposits consist of amounts paid for rental deposits which are refundable at the end of the lease term.

Rollforward of allowance for impairment losses in deposits follows:

2017 2016Balances at beginning of year P=2,663,591 P=1,593,091Provisions (Note 15) − 1,585,900Write-off − (65,400)Reversal − (450,000)

P=2,663,591 P=2,663,591

On April 20, 2011, the Company and its related party NMC Container Lines Inc. (NMCCLI)incorporated OTSI, in the Philippines owning 50% each, primarily to engage in the business ofoperating and maintaining cargo handling services including the operation, ownership, acquisition,and/or lease of the proper and necessary transport and cargo handling equipment.

Selected financial information of the associate as of December 31, 2017 and 2016 and for the yearsthen ended follows:

2017 2016Current assets P=12,924,199 P=10,919,750Noncurrent assets 172,849 223,858Current liabilities (9,926,220) (9,425,448)Noncurrent liabilities (689,634) (653,551)Equity P=2,481,194 P=1,064,609

2017 2016 2015Revenue P=26,699,017 P=19,474,269 P=18,175,345Cost and expenses (23,985,617) (19,483,048) (16,187,289)Finance costs − − (694)Income (loss) before income tax 2,713,400 (8,779) 1,987,362Income tax expense (867,932) (173,213) (479,571)Net income (loss) P=1,845,468 (P=181,992) P=1,507,791

Total comprehensive income (loss) P=1,981,194 (P=10,153) P=1,604,247

Equity in net income (loss) (Note 19) P=922,734 (P=90,996) P=489,153

2017 2016 2015Acquisition cost P=250,000 P=250,000 P=250,000Accumulated equity in net income (loss):

Balance at beginning of the year 282,306 287,382 (250,000)Equity in net income (loss) (Note 19) 922,734 (90,996) 489,153Dividends received (282,305) − −

Balance at end of the year 922,735 196,386 239,153

(Forward)

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2017 2016 2015Share in remeasurement of the net

defined benefit plan of an associate P=67,863 P=85,920 P=48,228Carrying value of investment 1,240,598 532,306 537,381Advances 547,988 615,851 701,772

P=1,788,586 P=1,148,157 P=1,239,153

11. Accounts Payable and Accrued Expenses

2017 2016Trade:

Third parties P=30,129,482 P=86,194,690Related parties (see Note 23) 523,611,483 448,671,925

Output VAT 95,601,832 76,625,691Accrued expenses:

Outside services 140,260,121 132,119,311Repairs, maintenance and supplies for vessels 73,173,378 67,355,819Hustling, trucking and labor services 30,646,242 30,581,490General and administrative 29,120,012 34,433,950Other accrued expenses 4,143,762 5,925,288

Dividends payable (see Note 21) 10,216,513 10,216,513Other taxes payable 8,630,736 8,924,229Customer deposits 3,264,130 4,164,935Customer claims 1,352,637 1,352,637Others 6,109,401 13,840,719

P=956,259,729 P=920,407,197

Outside services includes cargo and port expenses incurred in relation to the Company’s normalshipping operations.

Others include payroll-related expenses incurred but not yet paid and accruals for payment to retiredemployees outside of the retirement fund.

12. Borrowings

Short-term borrowings consist of:

2017 2016Bank of the Philippine Islands (BPI) P=165,690,000 P=165,690,000Philippine National Bank (PNB) 194,750,000 194,750,000Rizal Commercial Banking Corporation (RCBC) 139,000,000 65,000,000Banco de Oro (BDO) 93,980,400 93,980,400Metropolitan Bank and Trust Company (MBTC) 80,000,000 −

P=673,420,400 P=519,420,400

Short-term borrowings from local banks bear annual interest at 3.50% to 5.00% and 2.65% to 3.25%in 2017 and 2016, respectively. Short-term borrowings are not secured.

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Long-term borrowings consist of:

2017 2016

Balance of loan obtained from China Banking Corporation (CBC) ofP=200.0 million, maturing on October 22, 2024 and payable quarterly in36 equal quarterly installments starting January 22, 2016. Annualinterest rate is equal to PDST-R2 plus 1.25% inclusive of Gross ReceiptsTax rate (GRT) and Bangko Sentral ng Pilipinas (BSP) overnightborrowing rate plus spread of 0.125% inclusive of GRT whichever ishigher, subject to quarterly repricing. Interest rates range from 3.125%to 4.041% in 2017, 3.125% to 4.125% in 2016 and at 4.125% in 2015. P=155,555,556 P=177,777,778

Balance of loan obtained from CBC of P=200.0 million, availed of lastSeptember 9, 2015 and will mature on September 9, 2025. The loan ispayable quarterly in 36 equal quarterly installments startingDecember 9, 2016. Annual interest rate is equal to 90-day PDST-R2plus 1.25% inclusive of GRT and BSP overnight borrowing rate plusspread of 0.125% inclusive of GRT whichever is higher, subject toquarterly repricing. Interest rate range from 2.96% to 4.04% in 2017,2.95% to 3.95% in 2016 and 3.95% in 2015. 172,222,222 194,444,444

Balance of loan obtained and refinanced from BDO of P=450.0 million,maturing on July 7, 2021. Annual interest rate is equal to the PDST-R2plus 1.20% spread plus 1.00% GRT or BSP overnight borrowing rateplus 0.25% and 1.00% GRT whichever is higher, subject to quarterlyrepricing. Interest rates range from 3.421% to 4.594% in 2017, 4.4211%to 4.4737% in 2016 and 4.29% to 4.47% in 2015. 107,142,857 135,714,286

Balance of loan obtained from BDO of P=132.0 million, availed of lastDecember 10, 2015 and will mature on December 8, 2020. The loan ispayable quarterly in 20 equal installments starting March 9, 2016.Annual interest rate is equal to 3-month PDST R-2 Plus 120 basis points(bps) (inclusive of GRT) with floor rate of BSP overnight rate. Interestrates range from 3.007% to 4.166% in 2017, 3.00% to 4.00% in 2016and no interest has been paid by the Company on the loan in 2015. 79,200,000 105,600,000

Balance of loan obtained from MBTC of P=238.0 million, P=50.0 millionwas availed last April 20, 2012 and will mature on April 20, 2019,P=138.0 million was availed last May 15, 2012 and will mature onMay 15, 2019. The loan is payable in quarterly installments ofP=2.0 million for the first drawdown and P=7.5 million for the seconddrawdown with one year grace period. Interest is paid and repricedquarterly. Annual interest rate is based on 3 month PDST-R2 plus 1.25%spread inclusive of adjustment spread and GRT, or the BSP OvernightBorrowing Rate less .50% inclusive of GRT, whichever is higher at thetime of interest setting and repricing. Interest rates range from 2.50% to4.059% in 2017, 2.621% to 3.9367% in 2016 and at 3.50% to 4.135% in2015. 57,120,000 95,200,000

Balance of loan obtained from BDO of P=225.0 million, maturing onMarch 16, 2017 and payable quarterly in 16 equal quarterly installmentsstarting June 16, 2013. Annual interest rate is equal to PDST-F plusapplicable spread and tax. Interest rate is at 3% in 2017, ranges at 3.00%to 4.0468% in 2016 and at 4.00% in 2015. − 14,062,500

(Forward)

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2017 2016

On July 28, 2014, the Company and MBTC amended the loanagreement to extend the maturity dates of the loans. As a result of theamendment, balance amounting to P=36.0 million will become due onJune 2, 2017; P=24.0 million will become due on July 29, 2017 [originalinterest and payment terms still apply]. The loan is payable in quarterlyinstallments of P=5.0 million. Interest is paid monthly and repricedquarterly. Annual interest rate is equal to PDST-F plus 0.20% and 1.25%spread inclusive of GRT, or the BSP overnight lending rate plus GRT,whichever is higher at the time of the repricing. Interest rates rangefrom 3.125% to 3.582% in 2017, range from 3.125% to 4.125% in 2016and at 4.125% in 2015. P=− P=10,000,000

571,240,635 732,799,008Less deferred financing costs (1,703,443) (2,551,021)

569,537,192 730,247,987Less current portion (287,355,760) (161,558,373)

P=282,181,432 P=568,689,614

Under the loan agreement with BDO, the Company shall maintain a current ratio of at least 1:1 and adebt-to-equity ratio not greater than 2.5 times. Under MBTC’s Loan Agreement, the Company shallmaintain at all times a current ratio of 1:1 and debt-to-equity ratio not greater than 4.5 times. As ofDecember 31, 2017, the Company has breached certain ratios. Accordingly, noncurrent portion oflong-term borrowings amounting to P=150.4 million have been reclassified to current portion.Subsequent to year-end, the Company’s lenders issued a waiver of default action against the breach ofthe loan covenants as of December 31, 2017.

The long-term borrowings are secured by chattel mortgages on certain vessels with carrying values ofP=978.9 million and P=983.3 million as of December 31, 2017 and 2016, respectively (see Note 9).

Deferred financing costs were incurred in connection with the financing arrangement. These costs areamortized using the effective interest method over the term of the related loans.

Rollforward analysis of deferred financing costs follow:

2017 2016Cost:

Balances at beginning of year P=7,018,046 P=7,018,046Accumulated amortization:

Balances at beginning of year 4,467,025 3,395,605Amortization for the year 847,578 1,071,420

5,314,603 4,467,025Balances at end of year P=1,703,443 P=2,551,021

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13. Cost of Services

2017 2016 2015Outside services

Trucking P=333,897,449 P=432,859,667 P=464,841,235Co-loading 285,395,151 275,668,687 132,720,964Arrastre 167,042,912 146,486,860 149,867,051Cargo charges 150,779,323 181,376,511 123,790,659Craneage 121,197,577 111,762,187 86,958,106Stevedoring charges 59,309,224 56,853,549 59,156,986Vessel related charges 54,395,168 75,894,272 86,276,686Container rental (see Note 24) 23,327,621 20,451,211 22,834,929

Materials, supplies and facilities(see Note 7) 375,150,734 329,618,462 388,768,996

Depreciation (see Note 9) 220,571,699 224,704,617 216,399,711Personnel cost (see Note 17) 74,300,218 80,867,574 92,708,841Voyage 57,896,969 67,386,445 61,412,405Vessel insurance (see Note 23) 36,879,938 35,402,442 44,479,464Taxes and licenses 880,554 8,561,813 2,047,028Others 3,347,636 2,971,291 3,965,705

P=1,964,372,173 P=2,050,865,588 P=1,936,228,766

14. Terminal Expenses

2017 2016 2015Depreciation (see Note 9) P=41,840,977 P=47,292,581 44,289,832Materials, supplies and facilities

(see Note 7) 40,712,552 32,941,697 39,126,222Rental (see Note 24) 36,944,739 44,372,482 42,184,045Personnel cost (see Note 17) 20,849,324 25,624,488 26,839,565Lift-on/lift-off (LOLO) charges 19,219,127 23,732,894 17,010,483Outside services 14,071,918 11,342,872 9,625,395Others

Utilities 3,326,534 3,377,492 2,976,595Office supplies 2,447,862 2,780,591 2,829,614Taxes and licenses 2,136,229 1,908,313 523,239Container van insurance 1,035,015 1,112,191 1,175,608Other terminal charges 545,826 2,349,364 2,330,626

P=183,130,103 P=196,834,965 P=188,911,224

Outside services includes expenses for security and temporary services amounting to, P=8.7 million andP=5.4 million, respectively, in 2017, P=7.6 million and P=3.7 million, respectively, in 2016 and P=6.5million and P=3.1 million, respectively, in 2015.

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15. General and Administrative Expenses

2017 2016 2015Personnel cost (see Note 17) P=56,489,695 P=70,109,358 P=88,067,813Service fees 51,425,294 22,613,418 10,824,846Impairment losses on:

Trade and other receivables (see Note 6) 41,241,503 41,193,992 54,940,853Inventories (see Note 7) − − 336,233Deposit (see Note 10) − 1,585,900 −

Outside services 14,828,162 28,791,827 34,696,393Depreciation (see Note 9) 5,159,113 5,844,754 8,278,685Taxes and licenses 3,435,829 5,128,417 13,774,810Communication, light and water 3,408,660 9,749,060 7,996,636Transportation and travel 2,478,395 4,266,805 3,068,950Rental (see Note 24) 1,538,522 9,300,291 7,224,805Supplies (see Note 7) 1,250,613 3,979,672 2,034,793Entertainment, amusement and recreation 857,942 517,826 772,780Repairs and maintenance 563,062 2,571,413 1,578,939Employees’ training and staff meeting 444,533 1,031,714 853,793Membership fees 44,500 70,900 84,600Advertising 35,493 137,096 175,375Others 1,003,509 2,064,094 1,458,352

P=184,204,825 P=208,956,537 P=236,168,656

16. Retirement Benefit Obligation

Under the existing regulatory framework, Republic Act 7641, Retirement Pay Law, requires a provisionfor retirement pay to qualified private sector employees in the absence of any retirement plan in theentity, provided however that the employee’s retirement benefits under any collective bargaining andother agreements shall not be less than those provided under the law. The law does not requireminimum funding of the plan.

The Company maintains a funded, tax qualified, non-contributory retirement plan (the Plan) coveringall its eligible employees. Under the provisions of the plan, the normal retirement age is 60 for bothshore-based and sea-based employees, with completion of at least 5 years of service for sea-basedemployees. Shore-based employees at age 50 with at least 10 years of credited services can avail of anearly retirement. The retirement plan is intended to provide lump-sum benefit payments to employeesequal to 150% and 115% of plan salary for every year of credited service for shore-based and sea-basedemployees, respectively.

The Company’s retirement benefit fund (“Fund”) is in form of a trust being maintained and managedby BPI Asset Management.

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The following tables summarize the components of net benefit expense recognized in the statements ofincome and the funded status and amounts recognized in the statements of financial position for thePlan.

2017 2016 2015Retirement expense to be recognized in

the statements of income:Current service cost P=7,321,827 P=7,556,219 P=11,936,200Net interest cost 3,519,791 4,186,625 5,541,947

P=10,841,618 P=11,742,844 P=17,478,147

2017 2016 2015Remeasurement effects to be recognized

in other comprehensive income:Actuarial loss (gain) on defined

benefit obligation P=17,164,245 P=13,007,929 (P=26,687,878)Return on assets excluding

amount included in netinterest cost 1,171,401 70,649 656,180

P=18,335,646 P=13,078,578 (P=26,031,698)

Movements in the retirement benefit obligation are as follows:

2017 2016Balances at beginning of year P=89,108,703 P=93,352,755Net benefit costs in statements of income:Current service cost 7,321,827 7,556,219Net interest cost 3,519,791 4,186,625

10,841,618 11,742,844Net benefit costs in statements of comprehensive

income:Actuarial loss (gain) due to:

Experience adjustments 33,854,077 8,423,519Changes in financial assumptions (17,390,034) 4,584,410Changes in demographic assumptions 700,202 –Actual return excluding amount included in net interest cost 1,171,401 70,649

18,335,646 13,078,578Actual contributions (5,000,000) (2,500,000)Benefits paid (15,656,744) (26,565,474)

P=97,629,223 P=89,108,703

Retirement benefit obligation

2017 2016Present value of defined benefit obligation P=115,982,286 P=111,129,734Fair value of plan assets (18,353,063) (22,021,031)Retirement benefit obligation P=97,629,223 P=89,108,703

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

2017 2016Balances at beginning of year P=111,129,734 P=112,618,895Net benefit costs in statements of income:Current service costs 7,321,827 7,556,219Interest cost 4,903,217 4,512,165

12,225,044 12,068,384Remeasurements in other comprehensive income:Actuarial loss due to:

Experience adjustments 33,854,077 8,423,519Changes in financial assumptions (17,390,034) 4,584,410Changes in demographic assumptions 700,202 –

17,164,245 13,007,929Benefits paid for voluntary separation (24,536,737) (26,565,474)Balances at end of year P=115,982,286 P=111,129,734

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

2017 2016Balances at beginning of year P=22,021,031 P=19,266,140Interest income included in net interest cost 1,383,426 325,540Actual return excluding amount included in net

interest cost (1,171,401) (70,649)Benefits paid (8,879,993) –Actual contributions 5,000,000 2,500,000Balances at end of year P=18,353,063 P=22,021,031

The fair value of plan assets by each class as at the end of the reporting period are as follows:

2017 2016Cash and fixed-income investments P=18,382,351 P=22,054,848Less other liabilities 29,288 33,817Fair value of plan assets P=18,353,063 P=22,021,031

All equity instruments held have quoted prices in active market. The remaining plan assets do not havequoted market prices in active market. The plan assets have diverse investments and do not have anyconcentration risk.

The principal assumptions used as of December 31, 2017 and 2016 in determining pension benefitobligations for the Company’s Plan are shown below:

2017 2016Discount rate 5.62% 4.82%Salary increase rate:

Land-based 5.00% 6.00%Sea-based 5.00% 6.00%

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The sensitivity analysis below has been determined based on reasonably possible changes of eachsignificant assumption on the defined benefit obligation as of December 31, 2017, assuming all otherassumptions were held constant:

Increase (decrease)Effect on definedbenefit obligation

Discount rate +100 basis points (P=7,482,163)–100 basis points 8,517,049

Salary increase rate +100 basis points P=9,378,453–100 basis points (8,382,287)

The Company’s defined benefit pension plan is funded by the Company.

The Company does not expect to contribute to the retirement fund in 2018.

The average duration of the defined benefit obligation is 12.52 years and 7.90 years as ofDecember 31, 2017 and 2016, respectively.

17. Personnel Cost

2017 2016 2015Salaries and wages P=113,952,522 P=130,574,380 P=145,435,183Other employee benefits 26,845,097 34,284,196 44,702,889Retirement expense (see Note 16) 10,841,618 11,742,844 17,478,147

P=151,639,237 P=176,601,420 P=207,616,219

18. Finance Costs and Other Charges - Net

2017 2016 2015Interest expense on:

Borrowings (see Note 12):Long-term borrowings P=24,247,323 P=30,453,296 P=29,844,966Short-term borrowings 21,404,451 13,894,298 15,632,548

Obligations under finance lease(see Note 24) 10,741,981 8,243,791 5,095,416

Banks and other financing charges 3,833,904 3,936,123 4,270,006Net foreign exchange losses 1,886,418 6,344,172 6,616,997Interest income from:

Banks (see Note 5) (122,631) (212,479) (338,986)Accretion of deposit (24,365) (1,801) (39,032)

P=61,967,081 P=62,657,400 P=61,081,915

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19. Other Income (Charges) - Net

2017 2016 2015Income from insurance claims P=72,591,999 P=24,244,515 P=18,245,085Loss on disposal of property and

equipment - net (see Note 9) (47,155,705) (72,514,446) (56,288,297)Write-off of a liability to a related

party (see Note 23) 13,420,900 – –Rental income and others 4,830,074 16,635,142 11,460,873Equity in net income (loss) of an

associate (see Note 10) 922,734 (90,996) 489,153Deficiency tax assessments – (63,866,420) (56,204,745)

P=44,610,002 (P=95,592,205) (P=82,297,931)

Income from insurance claims refers to shipping, container LOLO and other claims, which are part ofthe normal operating cycle of the Company, collected during the year.

In 2017, the Company wrote-off its payable to MMSI, a dormant company and an affiliate of theCompany (see Note 23).

20. Income Taxes

The Company’s current provision for income tax represents minimum corporate income tax (MCIT) in2017, 2016 and 2015.

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

2017 2016 2015Income tax at statutory income tax rate

of 30% (P=50,101,209) (P=108,614,027) (P=66,621,549)Additions to (reductions in) income tax

resulting from:Unrecognized deferred tax assets 30,949,482 80,773,930 27,857,191Income subject to income tax holiday (see Note 28) 21,233,851 14,673,760 27,800,181Nondeductible expenses 2,788,398 16,170,728 19,875,351Equity in net loss (income) of an associate (276,820) 27,299 (146,746)Amortization of deferred financing costs 220,015 260,691 128,443Interest income subjected to final tax (36,789) (63,744) (101,696)Interest expense limitation 14,878 26,062 41,882

P=4,791,806 P=3,254,699 P=8,833,057

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The components of the net deferred income tax assets (liabilities) are as follows:

2017 2016Deferred income taxes recognized in the statement of

income:Deferred income tax assets:

Retirement benefit obligation P=19,317,670 P=18,003,408Allowance for impairment losses on trade and other receivables 9,862,175 9,862,175

29,179,845 27,865,583Deferred income tax liabilities:

Unrealized foreign exchange gain (3,829,813) (996,030)Depreciation (812,282) (812,282)Deferred financing costs (498,000) (498,000)

(5,140,095) (2,306,312)Deferred income taxes recognized directly in equity:Deferred tax asset:

Actuarial losses on defined benefit plan 16,715,042 11,214,348

Deferred income tax liability:Revaluation increment on land (81,996,569) –

(P=41,241,777) P=36,773,619

Movement in NOLCO and MCIT follows:

Year Incurred Availment Period Amount Applied/Expired Balance

NOLCO

2017 2018-2020 P=56,897,697 P=– P=56,897,6972016 2017-2019 225,344,378 – 225,344,3782015 2016-2018 65,346,911 – 65,346,911

P=347,588,986 P=– P=347,588,986

MCIT

2017 2018-2020 P=3,272,285 P=– P=3,272,2852016 2017-2019 1,176,260 – 1,176,2602015 2016-2018 4,216,065 – 4,216,065

P=8,664,610 P=– P=8,664,610

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No deferred income tax assets were recognized on the following deductible temporary differencesbecause management believes that it is not probable that sufficient taxable income will be available toallow all or part of the deferred tax asset to be utilized:

2017 2016NOLCO P=347,588,986 P=290,691,288Allowance for impairment losses on:

Trade and other receivables 77,328,386 41,643,553Deposit 1,286,231 1,286,231Inventories 336,233 336,233

Unrealized foreign exchange loss 8,781,923 9,445,945MCIT 8,664,610 5,392,325Rent levelization 759,056 420,243

P=444,745,425 P=349,215,818

Tax Reform for Acceleration and Inclusion ActRepublic Act (RA) No.10963 or the TRAIN was signed into law on December 19, 2017 and tookeffect on January 1, 2018, making the new tax law enacted as of the reporting date. Although theTRAIN changes existing tax law and includes several provisions that will generally affect businesseson a prospective basis, the management assessed that the same will not have any significant impacton the financial statement balances as of the reporting date.

21. Equity

Capital StockOn July 22, 1996, the Company listed its common stock with the PSE, wherein it offered 300,751,880shares to the public at the issue price of P=5.96 per share.

On September 4, 2006, the SEC approved the increase in the Company’s authorized capital stock fromP=700.0 million divided into 400.0 million common shares, and 300.0 million preferred shares, bothwith a par value of P=1.0 per share, to P=1.0 billion divided into 895,058,756 common shares and104,941,244 preferred shares, both with a par value of P=1.00 per share. In separate meetings, the BODand the shareholders resolved that the increase of the authorized capital stock shall be funded by thedeclaration of stock dividends equivalent to 75,187,967 common shares with a par value of P=1.00 pershare. On October 3, 2006, the PSE approved the application of the Company to list additional sharesrelating to the issuance of stock dividends.

On December 29, 2006, certain shareholders owning 96,125,243 preferred shares opted to convert theirshares into 1 common share per 1 preferred share, plus stock dividends equivalent to 86.96% commonshare for every preferred share (equivalent to 83,587,161 shares). The Company filed Form 10.1 withSEC for the exemption from registration requirements of the converted 96,125,243 preferred sharesinto 179,712,404 common shares.

On September 21, 2007, the SEC approved the amendment of Article VII of the Company’s Articlesof Incorporation through the retirement of 8,816,001 preferred shares and conversion of 96,125,243preferred shares into common shares resulting in the reduction of the Company’s authorized capitalstock to 991,183,999 with par value of P=1.00 per share.

On November 28, 2007, the PSE has approved the Company’s application to list additional 96,125,243common shares to cover the underlying common shares for the conversion of a total of 96,125,243

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preferred shares at a conversion rate of one (1) common share for every one (1) convertible preferredshare. In addition, the PSE has approved the application of the Company to list additional 83,587,161common shares, with a par value of P=1.00 per share, to cover the 86.96% stock dividend declaration tothe stockholders who opted to convert their preferred shares to common shares in 2007.

The Company has 918 shareholders as of December 31, 2017 and 942 shareholders as of December 31,2016.

Retained EarningsOn April 30, 2015, the BOD has declared and issued in favor of common shareholders of record as ofMay 25, 2015 cash dividends amounting to two centavos (P=0.020) per share, or an aggregate amountof P=11.1 million.

Treasury SharesOn March 11, 2011, the BOD approved the acquisition of 1,010,000 shares of stock of the Company.On June 23, 2011, the Company acquired 1,010,000 shares of its own outstanding shares for a totalconsideration of P=3.1 million.

22. Loss Per Share (LPS)

Following are the bases for the computation of earnings (loss) per share as of December 31:

2017 2016 2015Net loss available to common

shareholders P=171,795,837 P=365,301,455 P=230,904,885Weighted average number of

outstanding common shares 555,652,251 555,652,251 555,652,251Basic and diluted loss per share P=0.31 P=0.66 P=0.42

For the years ended December 31, 2017, 2016 and 2015, there were no shares of stock that have apotentially dilutive effect on the basic LPS of the Company.

23. Related Party Transactions

Parties are considered to be related if one party has the ability to control, directly or indirectly, the otherparty or exercise significant influence over the other party in making financial and operating decisions.Parties are also considered to be related if they are subject to common control or common significantinfluence. Related parties may be individuals or corporate entities.

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The following are the more significant related party transactions and balances as of and for the years ended December 31, 2017, 2016 and 2015 not separately shownelsewhere in the financial statements.

Related Parties Year Freight Revenue Purchases

ManagementFees

(Note 13)Reimbursable

Expenses

Insurance,Rental,

GuaranteeFee, and

Other ServicesAmounts Owed by Related Parties (Note 6)

AmountsOwed to

Related Parties(Note 11) Terms ConditionsTrade Non Trade Others

Parent:NMC 2017 P=− P=− P=− P=− P=36,338,842 P=− P=− P=− P=19,191,211 Brokerage Fee -

Payable within thefollowing month

Unsecured;No Impairment2016 − − − − 13,086,619 − 3,166,530 165,877 –

2015 – – – – 4,976,767 – 165,877 190,032 3,614,365Affiliates:One Stop Logistics

Solutions, Inc. (OSLI)2017 54,808,504 − − − 181,608 75,391,480 14,120,501 − 24,767 Trucking - Payable

within the monthUnsecured;No Impairment2016 16,233,540 − − – 988,878 47,057,276 14,384,206 3,248,369 4,662,695

2015 18,376,836 – – – 50,762 65,022,644 17,368,509 – 3,183,211One Stop Warehousing

Solutions, Inc. (OWLI)2017 − − − 11,255 19,611,998 21,793 19,131,771 − 48,028,921 Various Unsecured;

No Impairment2016 – – – 178,098 62,338,384 1,470,046 754,000 48,449,9582015 – – – 186,988 23,868,034 – 12,951,384 – 7,092,872

NMC Container Lines, Inc.(NMCCLI)

2017 404,330,859 − − 493,421 309,480,298 161,979,838 6,617,464 − 158,251,573 Co-loading/Reimbursables -Payable within thefollowing month

Unsecured;No Impairment2016 171,365,419 − − 1,148,212 327,930,376 81,377,361 15,832,173 2,164,090 198,826,766

2015 125,859,985 – – 811,596 150,079,046 50,378,427 21,185,234 – 33,632,766

All Asian Countertrade 2017 15,141,678 3,337,500 − − 97,216 27,894,088 − − 1,061,269 Freight - Collectiblein 30 days afterreceipt of Bill

Unsecured;No Impairment2016 18,177,939 10,928,571 − – – 24,271,432 − – 1,019,605

2015 26,222,955 3,535,714 – – – 26,455,891 18,974,319 – 5,498,365Magsaysay

Shipmanagement, Inc.(MSI)

2017 − − − − 26,103,597 − − 3,151,000 53,149,025 Revolving FundReplenishment -Payable 5 days afterreceipt

Unsecured;No Impairment2016 – – − 3,882 34,603,411 – 724,314 3,151,500 39,703,232

2015 – – 8,234,453 – 26,811,650 – 725,814 3,654,328 39,401,470

Magsaysay Marine Services,Inc. (MMSI)

2017 − − − − − − − − − Container Repair -Payable within thefollowing month

Unsecured;No Impairment2016 – – – – 6,648,990 – − 19,000 14,484,069

2015 – – – – 11,275,386 – 332,472 510,743 9,753,139Oceanic Container Lines,

Inc.2017 − − − − 5,248,873 − − − 2,593,868 Co-loading - Payable

in 30 daysUnsecured;No Impairment2016 – – – – 4,021,911 – – – –

2015 – – – – 7,759,873 – – – 191,518Asiaport Equipment and

Logistics Corp. (AELC)2017 − − − − 15,599,939 − − − 12,032,666 Lift on/lift off -

Payable in 30 daysUnsecured;No Impairment2016 – – – – 16,684,797 – – 816,125 2,830,400

2015 – – – – 13,246,455 – – – 3,776,872Magsaysay Houlder

Insurance Brokers, Inc.(MHIBI)

2017 – – – – 11,768,405 − − − 36,347 Insurance - Payable in30 days

Unsecured;No Impairment2016 – – – – 10,203,473 – – – 113,683

2015 – – – – 11,599,485 – – – 36,857Roadlink Solution Inc. (RLSI)

2017 – – – – 19,098,089 − − − 6,019,512 Various Unsecured;No Impairment2016 – – – 1,823,651 48,722,599 435,937 – – 15,617,856

2015 – – – 8,898,331 54,116,338 – 3,876,016 – 16,603,528

(Forward)

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Related Parties Year Freight Revenue Purchases

ManagementFees

(Note 13)Reimbursable

Expenses

Insurance,Rental,

GuaranteeFee, and

Other ServicesAmounts Owed by Related Parties (Note 6)

AmountsOwed to

Related Parties(Note 11) Terms ConditionsTrade Non Trade Others

Marine Fuels Philippines,Inc. (MFPI)

2017 P=– P=355,975,341 P=– P=– P=– P=− P=− P=− P=191,466,815 Fuel - Payable in 30days

Unsecured;No Impairment2016 – 286,820,702 − – – – – – 116,619,149

2015 – 271,070,411 – – – – – – 52,495,696NMC Ship Agency and

Brokearge Inc2017 – – – – 1,403,345 − − − 711,810 Shipping Agent -

Payable in 30 daysUnsecured;No Impairment2016 – – – – 1,950,640 – – – 3,844,913

2015 – – – – 520,234 – – 128,570 1,276,015Other shareholders:Dumaguete Coconut Mills,

Inc. (DCM)2017 3,541,450 – – – 1,072,090 2,436,959 − − 343,929 Rental - first 5 days of

the monthUnsecured;No Impairment2016 7,820,057 − − – 1,262,762 – – – 357,694

2015 14,034,230 – – – 1,004,484 5,309,883 – – 104,619Tao Commodity Trader, Inc.

(TAO)2017 – 13,382,946 – – – − − − 1,473,525 Fuel - Payable in 30

daysUnsecured;No Impairment2016 – 11,426,339 − – – – – – 967,500

2015 – 3,663,782 – – – – – – 4,955Pioneer Insurance and Surety

Corp. (Pioneer)2017 – – – – 27,494,385 − − − 6,199,036 Insurance - Quarterly

payment, payable 1stday of the quarter

Unsecured;No Impairment2016 – – – – 40,680,789 – – – 1,174,406

2015 – – – – 47,525,487 – – – 1,174,406Others 2017 53,100,452 1,048,320 – – 21,077,579 27,833,828 − − 23,027,209 Various Unsecured;

No Impairment2016 38,051,138 − – – 2,048,612 19,172,171 2,352 – –2015 – – – – 6,120,144 – – 580,924 –

Total 2017 P=530,992,943 P=373,744,107 P=– P=504,676 P=494,576,264 P=295,557,986 P=39,869,736 P=3,150,000 P=523,611,483

2016 251,648,093 309,175,612 – 3,153,843 571,172,241 173,784,223 34,863,575 9,564,961 448,671,925

2015 184,494,006 278,269,907 8,234,453 9,896,915 358,954,145 147,166,845 75,579,625 5,064,597 177,840,654

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Magsaysay Group of Companies

· NMCCLI and MFPI are subsidiaries of NMC. NMCCLI has a co-loading agreement with theCompany while MFPI supplies fuel to the Company.

· MHIBI, a subsidiary of NMC’s parent, handles the marine cargo insurance requirements of theCompany.

· MSI is a subsidiary of NMC’s parent. The Company entered into a shipmanagement agreementwith MSI whereby the Company appointed MSI as the manager of its vessels. The agreement isrenewable annually.

· AELC is an associate of NMC. In 2008, the Company entered into an equipment and logisticsservices contract with AELC.

· OSLI, a wholly-owned subsidiary of NMC, is engaged in warehousing, project and rolling cargohandling and other cargo related services.

· MMSI, a subsidiary of NMC’s parent, is primarily engaged in ship repair including corrosioncontrol, container van repairs and other similar services. In 2016, MMSI’s management approvedthe cessation of its commercial operations.

· RLSI and OSWLI are wholly-owned subsidiaries of NMC.

Other Shareholders

· TAO and DCM are substantially owned by Mr. Julio Sy, or his immediate family. The Companyhas a lease agreement with DCM, while TAO is one of the Company’s suppliers of fuel for itsvessels.

· Pioneer is the Company’s provider of protection and indemnity and hull and machinery insurancefor its vessels.

· Other related parties mentioned are businesses owned by various shareholders or directors of theCompany and has transactions with the Company in the regular course of business.

Retirement Fund

The Company’s retirement fund is managed by BPI Asset Management (see Note 16).

Compensation of Key Management Personnel

2017 2016Short-term employee benefits P=5,042,640 P=7,920,789Post-employment benefits 526,141 1,101,326

P=5,568,781 P=9,022,115

24. Leases

Finance LeasesThe Company entered into separate lease-purchase agreements with Cronos Containers Limited,SeaCube Containers LLC, Textainer Equipment Management Limited and Container ApplicationsInternational (CAI) for the lease purchase of dry van containers. In August 4, 2015, a Notice of

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Assignment was given to the Company that effect on October 1, 2015 wherein Cronos ContainersLimited assigned to its affiliate, Seaco Global Limited, all its right, title, interest and benefit in and toall of the Company’s existing lease documentation. Lease charges for each container shall commenceon the first calendar day of the month following the month in which the container was delivered to theCompany and shall continue for a period of 3-8 years and shall be payable in 36 monthly installmentsin accordance with the terms and conditions of the lease-purchase agreement.

The lease-purchase agreement includes the following terms and conditions:a. the Company shall pay the lessor for any event of loss as defined in the agreement equivalent to

the stipulated loss value; andb. provided the Company is not in default, the Company has the option to purchase the containers at

the purchase price of US$1 per container at the end of the lease term.

The future minimum lease payments for the obligations under finance lease are as follows:

2017 2016Within one year P=41,539,735 P=42,820,930After one year but not more than five years 47,787,343 89,080,511Total minimum lease obligations 89,327,078 131,901,441Less: interest portion 27,236,028 37,317,366Present value of minimum lease obligations 62,091,050 94,584,075Less: current portion 29,549,103 32,664,533Noncurrent portion P=32,541,947 P=61,919,542

Operating LeasesAs of December 31, 2017, the Company’s leases pertain to the lease of container yards,warehouses/offices, equipment, and container vans under various lease agreements for a period rangingfrom 1 to 10 years until 2019. The minimum annual rental commitments on these leases are presentedbelow:

2017 2016Less than one year P=12,742,532 P=28,114,115More than one year but not more than five years 8,766,745 36,054,004

P=21,509,277 P=64,168,119

Deposits on the above agreements amounting to P=3.9 million and P=6.7 million in 2017 and 2016,respectively, are presented as part of “Other noncurrent assets” in the statements of financial position(see Note 10).

For the years ended December 31, 2017, 2016 and 2015, the Company’s operating leases were chargedto rental under “Cost of services” in the statements of income amounting to P=31.2 million, P=31.6 millionand P=35.7 million, under “Terminal expenses” in the statements of income amounting to P=36.9 million,P=44.4 million and P=42.2 million, and under “General and administrative expenses” in the statements ofincome amounting to P=1.5 million, P=9.3 million and P=7.2 million, respectively (see Notes 13, 14 and15).

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25. Financial Instruments

Financial Risk Management Objectives and PoliciesRisk management is carried out by the Management Committee (ManCom) under policies approvedby the Executive Committee (ExCom) and the BOD. Audit Committee identifies, evaluates, andhedges financial risks in close cooperation with the Company’s ManCom. ExCom and BOD approvewritten principles provided by ManCom for overall risk management, as well as written policies,covering specific ones such as internal control policies, freight policies, purchasing policies andoperational policies among others.

The Company’s principal financial instruments consist of borrowings and obligations under financeleases. The main purpose of these financial instruments is to raise funds for the Company’s operations.The Company has various financial instruments such as cash and cash equivalents, trade and otherreceivables, deposits, loan receivable and others included under other noncurrent assets, and accountspayable and accrued expenses which arise directly from its operations.

The Company’s activities expose it to a variety of financial risks. The Company’s overall riskmanagement program focuses on the unpredictability of financial markets and seeks to minimizepotential adverse effects on the Company’s financial performance. Consistent with prior year, theCompany’s policies for managing each of these risks are summarized below:

Fluctuations in freight rate and cargo volumesIn the cargo liner shipping industry, there are constant fluctuations in cargo volumes arising fromcompetition and changes in the market environment. Negative trends in cargo volumes and freightrates have an impact on the Company’s results of operations.

Fuel price fluctuationsPurchases of fuel to operate vessels are vital to the Company’s operations. The market price of fuel isdirectly influenced by the price of crude oil in the world market. Any increase in the price of crude oiland the related increase in the price of fuel will have a negative impact on the Company’s earnings.The risk involving fuel price fluctuations are borne mostly by the customers as the Company is allowedto increase freight rates under General Rate Increase and Automatic Fuel Rate Adjustment.

Interest rate riskThe Company depends on funds procured from external sources to meet substantial capital expenditurerequirements. The Company reviews its exposure to interest rate risk through quarterly monitoring ofactual figures against projections. Management believes that cash generated from operations issufficient to pay its obligations under the loan agreements as they fall due.

The following tables set out the carrying amount as of December 31 by maturity, of the Company’sfinancial instruments that are exposed to interest rate risk:

Floating Rate Within 1 Year 1-2 Years 2-5 Years Over 5 Years Total

Long-term borrowings 2017 P=287,907,302 P=88,888,889 P=133,333,333 P=61,111,111 P=571,240,635

2016 161,558,373 137,495,873 283,744,762 150,000,000 732,799,008

Short-term borrowings 2017 673,420,400 − − − 673,420,400

2016 519,420,400 − − − 519,420,400

Obligations under financelease

2017 29,549,103 19,590,364 12,951,583 − 62,091,050

2016 32,664,533 29,424,823 32,494,719 − 94,584,075

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Interest on financial instruments classified as floating rate is repriced at intervals of less than one year.Interest on financial instruments classified as fixed rate is fixed until the maturity of the instrument.The other financial instruments of the Company that are not included in the above tables are noninterest-bearing and are therefore not subject to interest rate risk.

The following table demonstrates the sensitivity to a reasonably possible change in interest rates, withall other variables held constant, of the Company’s income before tax (through the impact on floatingrate borrowings):

YearIncrease/Decrease

in Basis PointsEffect on Income

Before TaxInterest-bearing loans and borrowings 2017 +85 (P=10,579,619)

-85 10,579,619

2016 +28 (P=4,726,823)-28 4,713,773

The sensitivity of the Company’s statement of income is the effect of assumed changes in interest ratesbased on the bank’s projection of 90-day interest rates using a combination of technical analysis andtrending techniques.

There is no other impact on the Company’s equity other than those already affecting the statement ofincome.

Foreign currency riskThe Company’s foreign currency risk results primarily from the foreign exchange rate movements ofthe Philippine peso against foreign currencies. The Company resolved to mitigate this risk by takingadvantage of market trends. Such trends are used to determine the proper timing of foreign currencytransactions in order to realize a foreign currency gain.

The following table demonstrates the sensitivity to a reasonable change in the Philippine peso exchangerate in relation to foreign currencies based on the bank’s projection of foreign currency fluctuations,with all variables held constant, of the Company’s income before tax:

Effect on Income Before Tax2017 2016 2015

US DollarStrengthened (2017: 4%, 2016: 4%, 2015: 4%) (P=2,783,247) (P=3,945,568) (P=4,973,364)Weakened (2017: 4%, 2016: 4%, 2015: 4%) 2,783,247 3,945,568 4,973,364

Japanese YenStrengthened (2017: 9%, 2016: 14%, 2015: 9%) (399) (568) (1,159)Weakened (2017: 9%, 2016: 14%, 2015: 9%) 399 568 1,159

EuroStrengthened (2017: 8%, 2016: 9%, 2015: 14%) 29,463 (56,941) 1,297,002Weakened (2017: 8%, 2016: 9%, 2015: 14%) (29,463) 56,941 (1,297,002)

Singaporean DollarStrengthened (2017: 6%, 2016: 7%) 7,781 (122,595) −Weakened (2017: 6%, 2016: 7%) (7,781) 122,595 −

There is no other impact on the Company’s equity other than those already affecting the statement ofincome.

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The Company’s foreign currency denominated monetary assets and liabilities as of December 31consist of:

2017

US DollarJapanese

Yen EuroSingaporean

DollarCurrent assets US$38,702 ¥– €10,455 SG$3,475Current liabilities (780,805) (10,067) (3,337) –Noncurrent liabilities (651,751) – – –Net foreign currency denominated

assets (liabilities) (1,393,854) (10,067) 7,118 3,475Exchange rate used 49.92 0.44 51.74 37.32Peso equivalent (P=69,581,192) (P=4,429) P=368,285 P=129,687

2016

US DollarJapanese

Yen EuroSingaporean

DollarCurrent assets $106,154 ¥− €517 $−Current liabilities (844,683) (9,667) (12,745) (51,075)Noncurrent liabilities (1,245,365) − − −Net foreign currency denominated

assets (liabilities) (1,983,894) (9,667) (12,228) (51,075)Exchange rate used 49.72 0.42 51.74 34.29Peso equivalent (P=98,639,210) (P=4,060) (P=632,677) (P=1,751,362)

The Company had a net unrealized foreign exchange gain of P=0.7 million, loss of P=6.1 million andP=4.4 million in 2017, 2016 and 2015, respectively.

Credit riskCredit risk is defined as the risk of loss arising from the default of an individual, counterparty or issuernot being able to or unwilling to honor its contractual obligations. The Company’s exposure to thisrisk is primarily due to its transactions with its trading customers.

The Company counters this risk by trading only with recognized, creditworthy third parties. It employsstandard process in granting credit lines to customers. It performs thorough evaluation of its customers’operations and financial standing to ensure that its customers are able to meet its contractual obligation.

The Company monitors receivable balances and ensures that customers are able to settle their obligationwithin the agreed terms. Its Credit and Collection Department is responsible for the collection of thesereceivables and ensures that customers are able to settle their obligation.

Concentration of risk arise when a number of counterparties are engaged in similar business activities,or activities in the same geographic region, or have similar economic feature that would cause theirability to meet contractual obligations to be similarly affected by changes in economic, political orother conditions, such as fluctuations in currencies or interest rates. The Company has no significantconcentration of credit risk.

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The Company’s exposure to credit risk arises from default of the counterparty, with a maximumexposure equal to the carrying amount of its financial assets.

The following table shows the Company’s maximum exposure to credit risk:

2017 2016Cash in banks P=89,213,772 P=104,421,056Trade and other receivables:

Trade 924,113,610 846,974,612Non-trade 42,195,567 34,863,575Advances 4,302,220 5,898,343Insurance claims 986,380 1,922,053Receivables from officers and employees 2,357,534 1,155,907Other receivables 7,295,322 7,141,244

Loan receivable 614,331 1,205,111Other noncurrent assets 4,683,134 8,581,265

P=1,075,761,870 P=1,012,163,166

Credit quality per class of financial assets are as follows:

2017Neither Past Due nor Impaired

Past Due butNot Impaired Impaired TotalHigh Grade

StandardGrade

Sub-standardGrade

Cash in banks P=89,213,772 P=− P=− P=− P=− P=89,213,772Trade and other receivables: Trade 173,110,595 152,142,964 8,530,386 590,329,665 62,638,282 986,751,892 Non-trade − − 5,633,774 36,561,793 − 42,195,567 Advances − 1,152,220 − 3,150,000 − 4,302,220 Insurance claims − − − 986,380 1,726,065 2,712,445 Receivables from officers

and employees 2,357,534 − − − − 2,357,534 Other receivables − 662,837 6,632,485 − − 7,295,322Loan receivable − 614,331 − − − 614,331Other noncurrent assets − 734,071 3,949,063 − 2,663,591 7,346,725

P=264,681,901 P=155,306,423 P=24,745,708 P=631,027,838 P=67,027,938 P=1,142,789,808

2016Neither Past Due nor Impaired

Past Due butNot Impaired Impaired TotalHigh Grade

StandardGrade

Sub-standardGrade

Cash in banks P=104,421,056 P=− P=− P=− P=− P=104,421,056Trade and other receivables: Trade 228,592,158 98,828,545 14,854,879 504,699,030 97,076,304 944,050,916 Non-trade 3,345,903 285,076 1,166,131 30,066,465 − 34,863,575 Advances 275,000 274,225 2,349,118 3,000,000 − 5,898,343 Insurance claims − 1,922,053 − − 1,726,065 3,648,118 Receivables from officers

and employees 1,155,907 − − − − 1,155,907 Other receivables 7,141,244 − − − 7,141,244Loan receivable 1,205,111 − − − − 1,205,111Other noncurrent assets − 8,581,265 − − 2,663,591 11,244,856

P=338,995,135 P=117,032,048 P=18,370,128 P=537,765,495 P=101,465,960 P=1,113,629,126

High Grade. This pertains to counterparty who is not expected by the Company to default in settling itsobligation, thus, credit risk exposure is minimal. This normally includes large prime financialinstitutions, companies, government agencies and individual buyers. Credit quality was determinedbased on the credit standing of the counterparty.

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*SGVFS029501*

Standard Grade. This pertains to accounts of debtors who have historically paid their accounts on timeand who have the financial capacity to pay.

Sub-standard Grade. This pertains to accounts of debtors where the Company incurred delays incollection.

A financial asset is past due when a counterparty has failed to make payment when contractually due.Impaired financial assets are those accounts identified by the Company that need to be provided withallowance. The level of this allowance is evaluated by management on the basis of factors that affectthe collectability of the accounts such as, but not limited to, the length of the Company’s relationshipwith the customer, customer payment behavior and known market factors.

Aging analyses per class of financial assets are as follows:

2017Neither Past

Due norImpaired

Past Due but Not Impaired

Impaired TotalLess than

30 Days 31-60 Days 61-90 DaysMore than

91 DaysCash in banks P=89,213,772 P=− P=− P=− P=− P=− P=89,213,772Trade and other receivables: Trade 333,783,945 53,259,231 57,376,214 79,280,414 400,413,806 62,638,282 986,751,892 Non-trade 5,633,774 1,101,308 − 1,058,984 34,401,501 − 42,195,567 Advances 1,152,220 − − − 3,150,000 − 4,302,220 Insurance claims − − − − 986,380 1,726,065 2,712,445 Receivables from officers

and employees 2,357,534 − − − − − 2,357,534 Other receivables 7,295,322 − − − − − 7,295,322Loan receivable 614,331 − − − − − 614,331Other noncurrent assets 4,683,134 − − − − 2,663,591 7,346,725

P=444,734,032 P=54,360,539 P=57,376,214 P=80,339,398 P=438,951,687 P=67,027,938 P=1,142,789,808

2016Neither Past

Due norImpaired

Past Due but Not Impaired

Impaired TotalLess than

30 Days 31-60 Days 61-90 DaysMore than

91 DaysCash in banks P=104,421,056 P=− P=− P=− P=− P=− P=104,421,056Trade and other receivables: Trade 342,275,582 21,914,047 9,225,402 11,063,580 462,496,001 97,076,304 944,050,916 Non-trade 4,797,110 80,472 204,605 131,472 29,649,916 − 34,863,575 Advances 2,898,343 − − − 3,000,000 − 5,898,343 Insurance claims − − − − 1,922,052 1,726,066 3,648,118 Receivables from officers

and employees 1,155,907 − − − − − 1,155,907 Other receivables 7,141,244 − − − − − 7,141,244Loan receivable 1,205,111 − − − − − 1,205,111Other noncurrent assets 8,581,265 − − − − 2,663,591 11,244,856

P=472,475,618 P=21,994,519 P=9,430,007 P=11,195,052 P=497,067,969 P=101,465,961 P=1,113,629,126

Liquidity riskLiquidity risk is the risk that the Company will not be able to settle or meet its financial obligationswhen they fall due. To mitigate exposure to such risk, the Company regularly monitors its cash positionand loan due dates to ensure sufficient fund for working capital and to meet obligations as they fall due.

The tables below summarize the maturity profile of the Company’s financial liabilities as ofDecember 31, 2017 and 2016, based on contractual undiscounted cash flows. The table also analysesthe maturity profile of the Company’s financial assets in order to provide a complete view of theCompany’s contractual commitments. The analysis into relevant maturity grouping is based on theremaining period at the end of the reporting period to the contractual maturity dates.

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*SGVFS029501*

2017Less than6 Months

6 Monthsto 1 Year Over 1 Year Total

Financial liabilities:Short-term borrowings P=673,420,400 P=− P=− P=673,420,400Long-term borrowings 265,685,079 22,222,222 283,333,334 571,240,635Obligations under finance lease 15,519,134 14,029,969 32,541,947 62,091,050Future interest payable on borrowings and

finance leases 16,549,340 14,851,580 65,970,632 97,371,552Accounts payable and accrued expenses* 852,027,161 − − 852,027,161

P=1,823,201,114 P=51,103,771 P=381,845,913 P=2,256,150,798

Financial assets:Cash P=89,628,772 P=− P=− P=89,628,772Trade and other receivables: Trade 444,419,390 79,280,414 400,413,806 924,113,610 Non-trade 6,735,082 1,058,984 34,401,501 42,195,567 Advances 1,152,220 3,150,000 − 4,302,220 Insurance claims − 986,380 − 986,380 Receivables from officers and

employees 2,357,534 − − 2,357,534 Other receivables 7,295,322 − − 7,295,322Loan receivable 614,331 − − 614,331Other noncurrent assets 4,683,134 − − 4,683,134

P=556,885,785 P=84,475,778 P=434,815,307 P=1,076,176,870*Excluding statutory liabilities

2016Less than6 Months

6 Monthsto 1 Year Over 1 Year Total

Financial liabilities:Short-term borrowings P=519,420,400 P=− P=− P=519,420,400Long-term borrowings 92,810,436 68,747,936 571,240,635 732,799,007Obligations under finance lease 16,462,632 16,201,901 61,919,542 94,584,075Future interest payable on borrowings and

finance leases 12,769,217 11,205,854 50,614,446 74,589,517Accounts payable and accrued expenses* 834,857,277 − − 834,857,277

P=1,476,319,962 P=96,155,691 P=683,774,623 P=2,256,250,276

Financial assets:Cash P=104,831,056 P=− P=− P=104,831,056Trade and other receivables: Trade 618,036,227 85,822,081 143,116,304 846,974,612 Non-trade 3,571,920 743,968 30,547,687 34,863,575 Advances 275,000 − 5,623,343 5,898,343 Insurance claims − − 1,922,053 1,922,053 Receivables from officers and

employees 1,155,907 − − 1,155,907 Other receivables 7,141,244 − − 7,141,244Loan receivable 1,205,111 − − 1,205,111Other noncurrent assets 8,581,265 − − 8,581,265

P=744,797,730 P=86,566,049 P=181,209,387 P=1,012,573,166*Excluding statutory liabilities

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Classification and Fair Values of Financial InstrumentsSet out below is a comparison by category of carrying amounts and fair values of the Company’sfinancial instruments that are carried in the financial statements.

Carrying Amount Fair Value2017 2016 2017 2016

Loans and receivables:Loan receivable P=614,331 P=1,205,111 P=614,331 P=1,257,748Other noncurrent assets 4,683,134 8,585,070 4,688,034 8,581,265

P=5,297,465 P=9,790,181 P=5,302,365 P=9,839,013

Other financial liabilities:Obligations under finance lease P=62,091,050 P=94,584,075 P=82,561,056 P=131,901,441Long-term borrowings 282,181,432 730,247,987 331,781,400 730,247,987

P=344,272,482 P=824,832,062 P=414,342,456 P=862,149,428

The following methods and assumptions are used to estimate the fair value of each class of financialinstruments:

Cash and cash equivalents, trade and other receivables, accounts payable and accrued expenses, andshort-term borrowingsThe management assessed that the fair values of cash and cash equivalents, trade and other receivables,accounts payable and accrued expenses, short-term borrowings and long-term borrowings reclassifiedto current due to breach of contract terms approximate their carrying amount largely due to the relativelyshort-term maturity of these financial instruments.

Loans receivableThe fair value of loans receivable is based on the discounted net present value of cash flows using theapplicable rates for similar type of loan receivables.

Long-term borrowings and obligations under finance leaseThe fair value of loans from banks and as well as obligations under finance leases is estimated bydiscounting future cash flows using rates currently available for debt on similar terms, credit risk andremaining maturities.

Fair value hierarchyThe Company uses the following hierarchy for determining and disclosing the fair value of financialinstruments by valuation technique:

Level 1: Quoted (unadjusted) prices in active markets for identical assets or liabilities

Level 2: Those involving inputs other than quoted prices included in Level 1 that are observable forthe asset or liability, either directly (as prices) or indirectly (derived from prices)

Level 3: Those inputs for the asset or liability that are not based on observable market data(unobservable inputs)

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*SGVFS029501*

As of December 31, 2017 and 2016, the Company held the following financial instruments that arecarried at amortized cost but for which fair values are required to be disclosed:

December 31, 2017

Total Level 1 Level 2 Level 3Disclosed at fair value:

Other noncurrent assets P=4,683,134 P=− P=− P=4,683,134Long-term borrowings 282,181,432 − − 282,181,432Obligations under finance

lease 62,091,050 − − 62,091,050Loan receivable 614,331 − − 614,331

December 31, 2016

Total Level 1 Level 2 Level 3Disclosed at fair value:

Other noncurrent assets P=8,585,070 P=− P=− P=8,585,070Long-term borrowings 730,247,987 − − 730,247,987Obligations under finance

lease 94,584,075 − − 94,584,075Loan receivable 1,205,111 − − 1,205,111

There were no transfers between Level 1 and Level 2 fair value measurement, and there were notransfers into and out of Level 3 fair value measurement.

26. Capital Management

The primary objective of the Company’s capital management is to ensure that it maintains a strongcredit rating and healthy capital ratios to support its business and maximize shareholder value.

The Company monitors capital using debt-to-equity ratio (see Note 12). Capital includes equityattributable to common shareholders, share premium and accumulated earnings. Debt includes allliabilities, current and long-term interest bearing loans and borrowings and pension obligation.

2017 2016Short-term borrowings and other current liabilities P=1,629,680,129 P=1,439,827,597Long-term borrowings 569,537,192 730,247,987Obligations under finance lease 62,091,050 94,584,075Retirement benefit obligation 97,629,223 89,108,703Total debt 2,358,937,594 2,353,768,362Common stock 555,652,251 555,652,251Additional paid-in capital 459,791,492 459,791,492Actuarial losses on defined benefit plan (39,001,764) (26,166,812)Treasury shares (3,125,850) (3,125,850)Revaluation surplus 191,325,328 −Deficit (495,815,437) (324,019,600)Total equity 668,826,020 662,131,481Total debt and equity P=3,027,763,614 P=3,015,899,843

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*SGVFS029501*

The Company manages its capital structure and makes adjustments to it, in light of changes in economicconditions. To maintain or adjust the capital structure, the Company may declare dividends, reacquireoutstanding shares, or issue new shares.

On October 28, 2010, PSE issued a memorandum regarding the rule for the minimum public ownershipfor all listed companies. Based on the memorandum, listed companies shall, at all times, maintain aminimum percentage of listed securities held by the public of ten percent (10%) of the listed companies’issued and outstanding shares, exclusive of any treasury shares or as such percentage that may beprescribed by the PSE. The Company has complied with the minimum public ownership.

No changes were made in the objectives, policies or processes during the years endedDecember 31, 2017 and 2016.

27. Contingencies

The Company is involved in legal proceedings and assessment for national taxes. In the opinion ofmanagement and the Company’s legal counsel, the ultimate liability for these lawsuits and claims wouldnot be material in relation to the financial position and operating results of the Company. It is possible,however, that the future results of operations could be materially affected by changes in estimates or inthe effectiveness of the strategies relating to these litigation and claims (see Note 4).

28. Registration with Board of Investments (BOI)

The Company is registered with the BOI as a new operator of domestic shipping cargo vessel of MVLorcon Manila on a preferred pioneer status and MV Lorcon Dumaguete, MV Lorcon General Santosand MV Lorcon Bacolod on a non-pioneer status, under the provisions of Executive Order (EO) No.226, otherwise known as the Omnibus Investment Code of 1987.

Under the Company’s registration, it is entitled to certain tax and nontax incentives which include,among others, income tax holiday (ITH).

Below are the details of the Company’s ITH entitlement:

Vessel BOI Approval Date Commencement Date* ITH PeriodMV Lorcon Bacolod July 2014 July 2014 4 years*or actual start of commercial operations, whichever comes first.

The ITH incentives shall be limited only to the revenues generated from the new activity.

Under the terms of the Company’s registration, it is subject to certain requirements, principally that offollowing a specified sales volume and sales revenue schedule and securing prior permission from theBOI before performing certain acts.

Under the Company’s application with the BOI, it can avail of a bonus year in each of the followingcases but the aggregate ITH availment (basic and bonus years) shall not exceedeight (8) years:

a. The ratio of the total imported and domestic capital equipment to the number of workers for theproject does not exceed US$10,000 to one (1) worker;

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*SGVFS029501*

b. The net foreign exchange savings or earnings amount to at least US$500,000 annually during thefirst three (3) years of operation; and

c. The indigenous raw materials used in the manufacture of the registered product must at least befifty percent (50%) of the total cost of raw materials for the preceding years prior to the extensionunless the BOI prescribes a higher percentage.

29. Changes in Liabilities Arising from Financing Activities

January 1,2017 Cash flows

Accruedinterest

Foreignexchange

movement OthersDecember 31,

2017Interest payable P=3,156,975 (P=55,130,999) P=56,393,755 P=− P=− P=4,419,731Short-term borrowings 519,420,400 154,000,000 − − − 673,420,400Current portion of:

Long-term borrowings 161,558,373 (161,558,373) − − 287,355,760 287,355,760Obligations under finance lease 32,664,533 (31,647,781) − − 28,532,351 29,549,103

Noncurrent portion of:Long-term borrowings 568,689,614 − − − (286,508,182) 282,181,432Obligations under finance lease 61,919,542 − − (845,244) (28,532,351) 32,541,947

Total liabilities from financing activities P=1,347,409,437 (P=94,337,153) P=56,393,755 (P=845,244) P=847,578 P=1,309,468,373

Others include the effect of reclassification of non-current portion of long-term borrowings, effect ofaccrued but not yet paid interest and amortization of deferred transaction costs.

30. Supplementary Information Required Under Revenue Regulations (RR) 15-2010

On November 25, 2010, the BIR issued RR 15-2010 which amends certain provisions ofRR 21-2002 prescribing the manner of compliance with any documentary and/or proceduralrequirements in connection with the preparation and submission of financial statements accompanyingthe tax returns. It requires the disclosures of taxes, duties and licenses paid or accrued during the taxableyear.

In compliance with the requirements set forth by RR 15-2010 hereunder are the information on taxes,duties and licenses paid or accrued during the taxable year.

VATThe National Internal Revenue Code of 1997 provides for the imposition of VAT on sales of goods andservices. Accordingly, the Company’s sales are subject to output VAT while its importations andpurchases from other VAT-registered individuals or corporations are subject to input VAT. R.A.No. 9337 increased the VAT rate from 10.0% to 12.0%, effective February 1, 2006.

The Company is a VAT-registered company with output VAT declaration for the year endedDecember 31, 2017 as follows:

Net sales/receipts Output VAT

Taxable sales P=2,166,288,807 P=259,954,657Exempt sales 4,872,188 −

P=2,171,160,995 P=259,954,657

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*SGVFS029501*

The Company’s sales that are subjected to VAT are reported under “Freight Revenue” and “OtherIncome”.

The Company’s sales of services are based on actual collections received, hence may not be the sameas amounts accrued in the statement of income.

The movement in input VAT during the year is summarized below:

Balance at January 1 P=65,364,180Current year’s purchases:

Services lodged under direct costs 5,472,630Capital goods subject to amortization 212,896,070Capital goods not subject to amortization 317,211From importation 1,470,294

Claims for tax credit/refund and other adjustments 285,520,385Payments from previous periods 9,768,203Input tax application against output VAT (259,954,657)Balance at December 31 P=35,333,931

ImportationsThe landed cost of the Company’s importations amounted to P=12,252,450 for the year.

Documentary Stamp TaxesThe documentary stamp taxes paid/accrued during the year on the bill of lading amounted toP=740,560.

Other Taxes and License:This includes all other taxes, local and national, including real property taxes, licenses and permit feeslodged under the “Taxes and licenses” account in “Cost of services”, Terminal expenses” and “Generaland administrative expenses” in the statement of income.

Details of other taxes and licenses for the year ended December 31, 2017 follows:

License and permits fees P=2,814,541Real property tax 879,946Others 2,758,125

P=6,452,612

Withholding TaxesDetails of withholding taxes for the year ended December 31, 2017 follows:

Expanded withholding taxes P=38,145,582Tax on compensation and benefits 18,751,287Final withholding taxes 2,837,635Withholding taxes on fringe benefits 275,150

P=60,009,654

2008 Tax AssessmentThe Company has a pending case with the Court of Tax Appeals (CTA) for the deficiency taxes for theyear 2008 amounting to P=2.01 billion, inclusive of penalties, interest and surcharges. On October 17,

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*SGVFS029501*

2014, the Respondent in the said case (BIR) filed a Motion to Dismiss (MTD), which motion has beendenied by the CTA as per Resolution dated March 5, 2015.

LORENZO SHIPPING CORPORATION

SUPPLEMENTARY SCHEDULE OF STATEMENT OF INCOME OF

REGISTERED ACTIVITIES WITH THE BOARD OF INVESTMENTS

UNDER THE CERTIFICATE OF REGISTRATION NOS. 2014-106 AND

OTHER OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2017

Registered

Activity

(MV Lorcon

Bacolod)

Non-Registered

Activities

(Other

Operations) Total

FREIGHT REVENUE P=228,635,145 P=1,953,425,004 P= 2,182,060,149

DIRECT COSTS

Cost of services 241,727,679 1,722,644,494 1,964,372,173

Terminal expenses 24,757,717 158,372,386 183,130,103

266,485,396 1,881,016,881 2,147,502,276

GROSS PROFIT (37,850,252) 72,408,124 34,557,873

OTHER INCOME

(CHARGES) – net 44,610,002 44,610,002

GENERAL AND ADMINISTRATIVE

EXPENSES (24,814,776) (159,390,049) (184,204,825)

FINANCE COSTS AND OTHER

CHARGES – net (8,114,481) (53,852,600) (61,967,081)

INCOME BEFORE ROVISION FOR

INCOME TAX (70,779,509) (96,224,522) (167,004,031)

PROVISION FOR INCOME TAX

Current 3,272,285 3,272,285

Deferred 1,519,521 1,519,521

- 4,791,806 4,791,806

NET INCOME (70,779,509) (101,016,328) (171,795,837)

SCHEDULE V


SCHEDULE A

FINANCIAL ASSETS

December 31, 2017

Name of issuing entity and

association of each issue

Number of shares or

principal amount of

bonds and notes

Amount shown in the

balance sheet

Value based on market

quotation at balance

sheet date

Income received and

accrued

Cash P=– P=89,628,772 P=– P=122,631

Trade and other receivables:

Trade – 924,113,610 – –

Non-trade – 42,195,567 – –

Advances – 4,302,220 – –

Insurance claims – 986,380 – –

Receivables from officers

and employees – 2,357,534 – –

Other receivables – 7,295,322 – –

Loan receivable – 614,331 – 52,637

Others – 4,683,134 – 24,365

Total P=– P=1,076,176,870 P=– P=199,633

SCHEDULE B

AMOUNTS RECEIVABLE FROM DIRECTORS, OFFICERS, EMPLOYEES, RELATED PARTIES AND

PRINCIPAL STOCKHOLDERS (OTHER THAN RELATED PARTIES)

December 31, 2017

Deduction

Name and designation

of debtor

Balance at beginning

of period Additions Amounts collected Amounts written off Current Not current

Balance at end

of period

Virginia M. Latonero 250,000 – – – – – 250,000

Cecille L. Del Mundo 500,000 500,000

Total P=750,000 P=– P=– P=– P=– P=– P=750,000

No other receivables are above P=100,000.


SCHEDULE C

AMOUNTS RECEIVABLE FROM RELATED PARTIES WHICH ARE ELIMINATED

DURING CONSOLIDATION

December 31, 2017

(Amounts in Thousands)

Name and designation of debtor

Balance at

beginning of

period Additions

Amounts

collected

Forex

adjustment Current

Not

current

Balance at

end of period

NOT APPLICABLE


SCHEDULE D

INTANGIBLE ASSETS - OTHER ASSETS

December 31, 2017

Deduction (3) Other

Changes Additions

(Deductions)

Description (1) January 01,

2017 Additions at cost (2)

Charged to Costs and Expenses

Charged to Other

Accounts December 31,

2017

NOT APPLICABLE


SCHEDULE E

LONG TERM DEBT

December 31, 2017

Title of issue and type

of obligation

Amount authorized by

indenture

Amount shown under

caption "Current portion

of long-term debt"

Amount shown

caption "Long-term

debt" Notes

China Banking

Corporation

P=155,555,556 P=22,222,222 P=133,333,334 Annual interest rate is equal to PDST-R2 plus 1.25%

inclusive of Gross Receipts Tax rate (GRT) and BSP

overnight borrowing rate plus spread of 0.125% inclusive

of GRT whichever is higher, subject to quarterly repricing.

The loan is payable quarterly in 36 equal quarterly

installments. China Banking

Corporation

172,222,222 22,222,222 150,000,000 Annual interest rate is equal to 90-day PDST-R2 plus

1.25% inclusive of GRT and BSP overnight borrowing rate

plus spread of 0.125% inclusive of GRT whichever is

higher, subject to quarterly repricing. The loan is payable

quarterly in 36 equal quarterly installment. Banco de Oro 107,142,857 107,142,857 - Annual interest rate is equal to the PDST-R2 plus 1.20%

spread plus 1.00% GRT or BSP overnight borrowing rate

plus 0.25% and 1.00% GRT whichever is higher, subject

to quarterly repricing. Principal and interest are payable

quarterly. Banco de Oro 79,200,000 79,200,000 - Annual interest rate is equal to 3-month PDST R-2 plus 120

bps (inclusive of GRT) with floor rate of BSP overnight

rate. The loan is payable quarterly in 20 equal installments. Metropolitan Bank

and Trust Company

57,120,000 57,120,000 - Annual interest rate is based on 3 month PDST-R2 plus

1.25% spread inclusive of adjustment spread and GRT, or

the BSP Overnight Borrowing Rate less .50% inclusive of

GRT, whichever is higher at the time of interest setting and

repricing. The loan is payable in quarterly installments of

P=2.0 million for the first drawdown and P=7.5 million for the

second drawdown with one year grace period. Interest is

paid and repriced quarterly.

Total P=571,240,635 P=287,907,301 P=283,333,334


SCHEDULE F

INDEBTEDNESS TO RELATED PARTIES (LONG - TERM LOANS FROM RELATED COMPANIES)

December 31, 2017

Name of the Related Party Balance at beginning of period Balance at end of period

NOT APPLICABLE


SCHEDULE G

GUARANTEES OF SECURITIES OF OTHER ISSUERS

December 31, 2017

Name of the issuing entity of securities

guaranteed by the company for which the

statement is filed

Title of issue of each class

of securities guaranteed

Total amount

guaranteed and

outstanding

Amount owned by

person for which

statement is lifted

Nature of

guarantee

NOT APPLICABLE


SCHEDULE H

CAPITAL STOCK

December 31, 2017

Title of

Issue

Number of Shares

Authorized

Number of shares

issued and outstanding

and shown under

related balance sheet

caption

Number of shares

reserved for

options, warrants,

conversion and

other rights

Number of shares held by related parties

Treasury

shares Affiliates

Directors,

officers and

employees Others

Common 991,183,999 555,652,251 – 379,149,561 43,034,013 133,468,676 1,010,000