ALCO 17Q June 2011 081211 5 - arthaland.com.ph 2011 2n… · 3 securities and exchange commission sec form 17-q quarterly report pursuant to section 11 of the revised securities act

9 4 0 0 7 1 6 0 SEC Registration Number

A R T H A L A N D C O R P O R A T I O N

(Company’s Full Name)

8 F P I C A D I L L Y S T A R B U I L D I N G

4 T H A V E N U E C O R N E R 2 7 T H S T R E E T

B O N I F A C I O G L O B A L C I T Y

T A G U I G C I T Y (Business Address: No. Street City/Town/Province)

Froilan Q. Tejada 403-6910 (Contact Person) (Company Telephone Number)

0 6 3 0 1 7 - Q 0 6 2 4

Month Day (Form Type) Month Day (Fiscal Year) (Annual Meeting)

(Secondary License Type, If Applicable)

Dept. Requiring this Doc. Amended Articles Number/Section

Total Amount of Borrowings

Total No. of Stockholders Domestic Foreign

To be accomplished by SEC Personnel concerned

File Number LCU

Document ID Cashier

COVER SHEET

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ARTHALAND CORPORATION (Company’s Full Name)

8/F Picadilly Star Building, 4th Avenue corner 27th Street Bonifacio Global City, Taguig City

(Company’s Address)

403-6910 (Telephone Number)

June 30 June 24

(Fiscal year ending) (Annual Meeting) (month & day)

SEC FORM 17 – Q QUARTERLY REPORT (Form Type)

Amendment Designation (If applicable)

JUNE 30, 2011 (Period Ended Date)

____________________________________ (Secondary License Type & File Number)

__________________ LCU ____________________ ___________________ (Cashier) DTU ASO-94-007160 (SEC Number) _____________________ ____________________ Central Receiving Unit File Number ____________________

Document I.D.

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SECURITIES AND EXCHANGE COMMISSION

SEC FORM 17-Q

QUARTERLY REPORT PURSUANT TO SECTION 11 OF THE REVISED SECURITIES ACT AND RSA RULE 11(a)-1 (b)(2) THEREUNDER

1. For the quarterly period ended JUNE 30, 2011 2. Commission Identification No. ASO-94-007160 3. BIR TIN 116-004-450-721 4. Exact name of registrant as specified in its character

ARTHALAND CORPORATION 5. Incorporated in Metro Manila, Philippines on August 10, 1994. 6. Industry Classification Code ___________________________. 7. Address of registrant’s principal office Postal

Code 8/F Picadilly Star Building, 4th Avenue corner 27th Street, Bonifacio Global City, Taguig City 1634

8. Registrant’s Telephone Number : 403-6910 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 common stock outstanding or amount of debt outstanding. Common Shares 5,318,095,199 common shares 11. Are any or all of the securities listed on the Philippine Stock Exchange? YES [ X ] NO [ ] 12. Indicate by check mark whether the registrant :

(a) has filed all reports required to be filed by Section 11 of the Revised Securities Act (RSA) and RSA Rule (a)-1 thereunder and Sections 26 and 141 of the Corporation Code of the Philippines, during the preceding 12 months (or for such shorter period the registrant was

required to file such reports). YES [ X ] NO [ ]

(b) has been subject to such filing requirements for the past 90 days.

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ITEM 1. Financial Statements Required under SRC RULE 68.1 1. Basic and Diluted Earnings per Share (See attached Income Statement). 2. The accompanying consolidated interim financial statements of Arthaland Corporation

(ALCO) were prepared in accordance with accounting principles generally accepted in the Philippines as set forth in Philippine Financial Reporting Standards (PFRS) and Philippine Accounting Standards (PAS).

3. Notes to Financial Statements:

a. The accompanying financial statements of ALCO and its subsidiaries Urban Property

Holdings. Inc. (UPHI), Cazneau Inc., Technopod Inc., Irmo Inc. and Manchesterland Properties, Inc. (MPI) were prepared in accordance with PFRS. The financial statements have been prepared using the historical cost basis and are presented in Philippine Pesos.

b. There is no significant seasonality or cycle of interim operations.

c. With the exception of the following, there are no material events subsequent to the end of the interim period.

In August 2, 2011, ALCO prepaid the balance of its obligation to Goldpath Properties Development Corporation (GPDC) for the purchase of Manchesterland Properties, Inc. (MPI) based on the Share Purchase Agreement entered into by ALCO with GPDC in May 2009. MPI is the registered owner of Lot 4-1 in Bonifacio Global City where Arya Residences is situated. In a disclosure last July 7, 2011, Mr. Jose V. Asuncion resigned as Vice President of Technical Services.

d. With the exception of the following, there are no changes in the composition of the issuer

during the interim period including business combinations, acquisition or disposal of subsidiaries and long-term investments, restructurings and discontinuing operations.

In April 25-26, 2011, ALCO’s board approved i) the subscription by CPG Holdings, Inc. of 200 million ALCO common shares for a subscription price of P50 million; and ii) the acquisition by CPG Holdings, Inc. of 1.6 billion ALCO common shares registered in the name of AO Capital Holdings 1 for a purchase price of P400 million. CPG Holdings, Inc. is the holding company of the Po Family and is wholly-owned by Century Canning Corporation.

  In addition, ALCO’s board accepted the resignation of Messrs. Dionisio E. Carpio, Jr, and Rene R. Fuentes as regular and independent directors of ALCO, respectively. They were replaced by Mr. Ricardo S. Po, Sr. as regular director and Fernan Victor P. Lukban as independent director. Ms. Pauline C. Tan also resigned as Treasurer of ALCO and Mr. Leonardo T. Po was appointed in her place.

In the Annual Stockholders’ Meeting last June 24, 2011, the stockholders of ALCO approved the increase in the number of seats in the Board from seven (7) to nine (9) seats, and elected the 9 Board members. The increase in number of Board seats was subsequently approved by the Securities and Exchange Commission on July 29, 2011.

e. There are no material changes in the contingent liabilities or contingent assets since the

last annual balance sheet date.

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f. There are no material contingencies and any other events or transactions that are material to an understanding of the current interim period.

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ACCOUNTS RECEIVABLE DESCRIPTION:

Type of Receivable Collection Period

1. Accounts Receivable Customers Receivable on booked sales Per payment schedule2.Advances to Suppliers Downpayments on contracts Per progress claim3.Non trade receivables Advances and working fund for daily & emergency expenses; Customers are billed as necessary / monthly

receivables from employees and other entities reimbursement / replenishment.

Nature / Description

ARTHALAND CORPORATIONAGING OF ACCOUNTS RECEIVABLEAS OF JUNE 30, 2011

Type of Accounts Receivable TotalWithin6 Mos.

Within6 Mos. - 1 year

1- 2 years

a) TRADE RECEIVABLE 1. Customers 1,329,490 1,329,490 2. Advances to Suppliers 35,834,516 33,237,065 2,597,451 1,918,770 Sub Total 39,082,776 33,237,065 3,926,941 1,918,770 Less: Allow. For Doubtful Accounts - - - - NET TRADE RECEIVABLE 39,082,776 33,237,065 3,926,941 1,918,770

b) NON TRADE RECEIVABLES 1. Others 10,005,247 496,561 9,508,686 Sub Total 10,005,247 496,561 9,508,686 - Less: Allow. For Doubtful Accounts - - - NET NON-TRADE RECEIVABLE 10,005,247 496,561 9,508,686 -

NET RECEIVABLES (A+B) 49,088,023 33,733,626 13,435,627 1,918,770

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ARTHALAND CORPORATION ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of

Operation Comparable Discussion of Interim Period as of 30 June 2011 Revenues increased by P2.430 million in the first half of 2011 to P3.472 million from P1.042 million for the same period in 2010 due to higher collection of parking income and gain on sale of property. Operating Expenses increased by P68.283 million mainly on account of the heightened advertising and selling activities for the Group’s Arya Residences project as well as personnel-related expenses. The Group’s net loss for the first half of 2011 is P 199.229 million versus the net loss of P 73.041million for the same period in 2010. Financial Condition: June 30, 2011 and Dec 31, 2010 The Group’s aggregate resources as of 30 June 2011 stood at P2.750 billion, P 288.198 million or 12% higher than P2.462 billion in December 31, 2010.

Adoption of New Interpretations, Revisions and Amendments to PFRS

(a) Effective in 2010 that are Relevant to the Group

In 2010, the Group adopted the following new revisions and amendments to PFRS that are relevant to the Group and effective for financial statements for the annual period beginning on or after January 1, 2010:

PAS 27 (Revised 2008) : Consolidated and Separate Financial Statements

PFRS 3 (Revised 2008) : Business Combinations Philippine Interpretation International Financial Reporting Interpretations Committee (IFRIC) 17 : Distribution of Non-cash Assets to Owners Various Standards : 2009 Annual Improvements to PFRS

Discussed below are the effects on the financial statements of the revised and amended standards. (i) PAS 27 (Revised 2008), Consolidated and Separate Financial Statements (effective

from July 1, 2009). The revised standard requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains and losses. The standard also specifies the accounting when control is lost. Any remaining interest in the entity is re-measured to fair value and a gain or loss is recognized in profit or loss. The adoption of the standard did not result in any adjustment to the financial statements as there were no transactions with non-controlling interests during the year.

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(ii) PFRS 3 (Revised 2008), Business Combinations (effective from July 1, 2009). The revised standard continues to apply the acquisition method to business combination with significant changes. For example, all payments to purchase a business are to be recorded at fair value at the acquisition date, with contingent payments classified as debt subsequently re-measured through the profit or loss. There is a choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share in the acquiree’s identifiable net assets. All acquisition-related costs should be expensed. The Group has acquired a business during the year and the new standard was applied in its 2010 financial statements (see Note 8.3).

 (iii) Philippine Interpretation IFRIC 17, Distribution of Non-cash Assets to Owners.

IFRIC 17 clarifies that dividend payable should be recognized when the dividend is appropriately authorized and is no longer at the discretion of the entity. Also, an entity should measure the dividend payable at the fair value of the net assets to be distributed and the difference between the dividend paid and the carrying amount of the net assets distributed should be recognized in profit or loss. The Group’s adoption of this interpretation did not have a material impact on the Group’s financial statements because the Group did not distribute non-cash assets to stockholders during the year.

 (iv) 2009 Annual Improvements to PFRS. The FRSC has adopted the Improvements to

PFRS 2009. Most of these amendments became effective for the annual periods beginning on or after July 1, 2009, or January 1, 2010. Among those improvements, only the following amendments were identified to be relevant to the Group’s financial statements but which did not have any material impact on the financial statements:   PAS 1 (Amendment), Presentation of Financial Statements. The amendment

clarifies the current and non-current classification of a liability that can, at the option of the counterparty, be settled by the issue of the entity’s equity instruments.

PAS 7 (Amendment), Statement of Cash Flows. The amendment clarifies that only an expenditure that results in a recognized asset can be classified as a cash flow from investing activities. Under its current policies, only recognized assets are classified by the Group as cash flow from investing activities.

PAS 17 (Amendment), Leases. The amendment clarifies that when a lease

includes both land and building elements, an entity assesses the classification of each element as finance or an operating lease separately in accordance with the general guidance on lease classification set out in PAS 17.

PAS 18 (Amendment), Revenue. The amendment provides guidance on

determining whether an entity is acting as a principal or as an agent. Presently, the Group is the principal in all of its business undertakings.

(v) PFRS 9, Financial Instruments. This standard introduces new and simplified

requirements for the classification and measurement of financial assets and is effective from 1 January 2013 with early adoption permitted. PFRS 9 will be a complete replacement for PAS 39 Financial Instruments: Recognition and Measurement. Under PFRS 9, financial instruments may be classified and measured subsequently using either the Amortized Cost or Fair Value. The

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Company is evaluating the impact of the adoption of the standard to the Group’s financial statements.

(b) Effective in 2010 but not Relevant to the Group

The following amendments, interpretations and improvements to published standards are mandatory for accounting periods beginning on or after January 1, 2010 but not relevant to the Group’s financial statements: 

PFRS 3 (Revised) : Business Combinations PFRS 1 (Amendment) : First-time Adoption of International Financial Reporting Standards (Revised 2008) PFRS 1 (Amendment) : Additional Exemptions for First-time Adopters PFRS 2 (Amendment) : Group Cash-settled Share Based Payment

(c) Effective Subsequent to 2010

There are new PFRS, revisions, amendments, annual improvements and interpretations to existing standards that are effective for period subsequent to 2010. Management has initially determined the following pronouncements, which the Group will apply in accordance with its transitional provisions, to be relevant to its financial statements.

(i) Philippine Interpretation IFRIC 15, Agreements for Construction of Real Estate,

(effective from January 1, 2012). This Interpretation provides guidance on how to determine whether an agreement for the construction of real estate is within the scope of PAS 11, Construction Contracts, or PAS 18, Revenue, and accordingly, when revenue from the construction should be recognized.

(ii) Philippine Interpretation IFRIC 19, Extinguishing Financial Liabilities with Equity

Instruments (effective from July 1, 2010). It addresses accounting by an entity when the terms of a financial liability are renegotiated and result in the entity issuing equity instruments to a creditor to extinguish all or part of the financial liability. These transactions are sometimes referred to as “debt for equity” exchanges or swaps. The interpretation requires the debtor to account for a financial liability which is extinguished by equity instruments as follows: the issue of equity instruments to a creditor to extinguish all or part of a

financial liability is consideration paid in accordance with PAS 39, Financial Instruments: Recognition and Measurement;

the entity measures the equity instruments issued at fair value, unless this cannot be reliably measured;

if the fair value of the equity instruments cannot be reliably measured, then the fair value of the financial liability extinguished is used; and,

the difference between the carrying amount of the financial liability extinguished and the consideration paid is recognized in profit or loss.

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Management has determined that the adoption of the interpretation will not have a material effect on its financial statements as management does not anticipate to extinguish financial liabilities through equity swap in the subsequent periods.

(iii) PAS 12 (Amendment), Income Taxes (effective from January 1, 2012). An entity is

required to measure the deferred tax relating to an asset depending on whether the entity expects to recover the carrying amount of the asset through use or sale. However, when the asset is measured using the fair value model under PAS 40, Investment Property, it can be difficult and subjective to assess whether recovery will be through use or through sale; accordingly, an amendment to PAS 12 was made. The amendment introduces a presumption that recovery of the carrying amount will be or normally be through sale. Consequently, Philippine Interpretation Standard Interpretation Committee (SIC) - 21 Income Taxes – Recovery of Revalued Non-Depreciable Assets would no longer apply to investment properties carried at fair value. The amendments also incorporate into PAS 12 the remaining guidance previously contained in Philippine Interpretation SIC-21, which is accordingly withdrawn. Management is still evaluating the effect of this amendment to the Group’s financial statements.

(iv) 2010 Annual Improvements to PFRS. The FRSC has adopted the Improvements to Philippine Financial Reporting Standards 2010. These amendments become effective for annual periods beginning on or after July 1, 2010 and January 1, 2011. The Company expects the amendments to the following standards to be relevant to the Company’s accounting policies but does not expect any material effect on the Company’s financial statements. PFRS 3, Business Combinations (effective from July 1, 2010). This clarifies

that contingent consideration balances arising from business combinations that occurred before an entity’s date of adoption of PFRS 3 (Revised 2008) shall not be adjusted on the adoption date. It also provides guidance on the subsequent accounting for such balances.

PAS 1, Presentation of Financial Statements – Clarification of Statement of Changes in Equity (effective from July 1, 2010). This clarifies that entities may present the required reconciliations for each component of other comprehensive income either in the statement of changes in equity or in the notes to the financial statements.

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RISK MANAGEMENT OBJECTIVES AND POLICIES The Group is exposed to a variety of financial risks which result from both its operating and investing activities. The Group’s risk management is coordinated with its Parent, in close cooperation with the Board of Directors, and focuses on actively securing the Group’s short- to medium-term cash flows by minimizing the exposure to financial markets. Long-term financial investments are managed to generate lasting returns. The Group does not actively engage in the trading of financial assets for speculative purposes nor does it write options. The most significant financial risks to which the Group is exposed to are described below. Credit Risk Analysis The Group and the Parent’s exposure to credit risk is limited to the carrying amount of financial assets recognized as of 30 June 2011. Generally, the maximum credit risk exposure of financial assets is the carrying amount of the financial assets as shown on the face of the balance sheet. Credit risk, therefore, is only disclosed in circumstances where the maximum potential loss differs significantly from the financial asset’s carrying amount. For advances to subsidiaries and associate, the Group is not exposed to significant risk more than the carrying amount of the advances since such net assets of the subsidiary and associate are sufficient to cover the Group’s investments and advances. Liquidity Risk Liquidity risk is the risk that there are insufficient funds available to adequately meet the credit demands of the Group’s customers and repay liabilities on maturity. The Group closely monitors the current and prospective maturity structure of its resources and liabilities and the market condition to guide pricing and asset/liability allocation strategies to manage its liquidity risks.

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Key Performance Indicators

The Group’s Capital Adequacy Ratio (CAR) stood at 26.84% higher by 4.87% than last

year’s level of 21.97%. The Group’s liquidity ratio for the period is 5.93% compared to 2.09% in December 31,

2010. The ratio of the Group’s return on average equity (ROE) decreased from 23.84% in

December 2010 to negative 26.99% in June 2011.

KPI June 30, 2011 December 31, 2010

Earnings Per ShareNet Earnings (loss) attributable to equity holdings of the Parent to W eighted A verage Number of Outstanding Common Shares

(P 0.0704) P 0.0622

Capital A dequacy RatioTotal Equity to Total A ssets Ratio

26.84% 21.97%

LiquidityLiquid to Total A ssets Ratio

5.93% 2.09%

ProfitabilityReturn on A verage Equity

-26.99% 23.84%

June 2011 December 2010

Total Average Stockholder’s Equity (P) P 738.272M 540.901MTotal Assets P 2,750.403M 2,462.205MRatio 26.84% 21.97%

June 2011 December 2010

Total Liquid Assets (P) P 163.025M 51.360MTotal Assets P 2,750.403M 2,462.205MRatio 5.93% 2.09%

June 2011 December 2010

Total Income/(Loss) (P) P -199.229M 128.972MTotal Average Stockholder’s Equity (P) P 738.272M 540.901MRatio -26.99% 23.84%

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Discussion and Analysis of Material Events (1) There are no other known trends, commitments, events or uncertainties that will have a

material impact on ALCO’s liquidity within the next twelve (12) months except for those mentioned above.

(2) The present capital expenditure commitments are the planning and development works on

Arya Residences. There are no events that will trigger any direct or contingent financial obligation that is material to the Group or any default or acceleration of an obligation for the period.

(3) There is nothing to disclose regarding any material off-balance sheet transactions,

arrangements, obligations (including contingent obligations) and other relationships of ALCO with unconsolidated entities or other persons created during the reporting period.

(4) There are no other significant elements of income or loss that did not arise from ALCO’s

operations or borrowings for its projects. (5) The causes of the material changes of 5% or more from period to period of the following

accounts are as follows: Balance Sheet Accounts – June 30, 2011 versus December 31, 2010 (Audited)

(i) 122 % increase in Cash and Cash Equivalent – largely due to collection on stock subscriptions

(ii) 159% increase in Receivables – primarily due to advances to suppliers/contractors

(iii) 8% increase in Real Estate Assets – mainly due to continuing construction of

Arya Residences

(iv) 49% increase in Other Current Assets – mainly due to creditable withholding taxes

(v) 23% decrease in Property, Plant and Equipment – due to depreciation of

Sales Pavilion and other assets, and sale of transportation equipment

(vi) 45% increase in Other Non-Current Assets – due to financing-related fees

(vii) 5% increase in Current Loans Payable – largely due to proceeds from short term notes payable

(viii) 29% increase in Accounts Payable and Accrued Expenses – primarily due to

increase in customers’ deposits

(ix) 33% decrease in Other Current Liability – due to payment of liability to Goldpath Properties Development Corporation (GPDC)

(x) Capital Stock – increase due to collection of share subscriptions receivable

(xi) Retained Earnings – The Group registered net loss of P199.229 million for the

first half of 2011

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Income Statement – 2nd Quarter 2011 versus 2nd Quarter 2010

(i) 149 % increase in Gross Income – primarily due to collection of parking fees.

(ii) Increase in various expenses consisting of 9% in Employee Benefits, 169% in Transportation, 226% in Insurance, and increase in Representation is due to recruitment of additional personnel

(iii) The operation of the Sales Pavilion for the Group’s Arya Residences Project

accounts for the 37% increase in Rental Expense.

(iv) Decrease in Depreciation Expense by 17% is due to decrease in amount of depreciable assets while the 31% drop in Security Expense is due to less requirement compared to previous year.

(v) Decrease in Utilities, Supplies and Communications Expenses by 66%, 18%,

and 19% respectively is due to lower billings and consumption this year both for the Sales Pavilion and the Head Office.

(vi) 361% increase in Management and Professional Fees is due to engagement of

consultants related to operations.

(vii) 463% increase in Taxes and Licenses is primarily due to local government taxes and those related to taxes for loans and notes.

(viii) Increase in Advertising is mainly due to advertising and promotional efforts

related to Arya Residences.

(ix) 46% decrease in Other Services is primarily due to lower financing related fees.

(x) 337% increase in finance costs is because of higher interest and other financial expenses due mainly to new borrowings.

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