COVER SHEET 1 4 7 2 1 2 SEC Registration Number

I N T E R N A T I O N A L S E R V I C E S ,

C O N T A I N E R

I N C .

A N D

T E RM I N A L

S U B S I D I A R I E S

(Company’s Full Name)

I C T S I C T

A d m i n i s t r a t i o n

S o u t h

A c c e s s

B u i l d i n g ,

R o a d ,

M I

M a n i l a

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

Jose Joel M. Sebastian

245-4101

(Contact Person)

(Company Telephone Number)

1 2

3 1

S E C 17 Q

0 4

Month

Day

(Form Type)

Month

(Fiscal Year)

Every 3rd Thursday Day

(Annual Meeting)

N/A (Secondary License Type, If Applicable)

None Dept. Requiring this Doc.

Amended Articles Number/Section Total Amount of Borrowings

1,536 as of June 30, 2013 Total No. of Stockholders

US$75.4M

US$919.0M

Domestic

Foreign

To be accomplished by SEC Personnel concerned

File Number

LCU

Document ID

Cashier

STAMPS Remarks: Please use BLACK ink for scanning purposes.

ICTSI Form 17-Q Q2 2013

SECURITIES AND EXCHANGE COMMISSION SEC FORM 17-Q QUARTERLY REPORT PURSUANT TO SECTION 17 OF THE SECURITIES REGULATION CODE AND SRC RULE 17(2)(b) THEREUNDER 1.

For the quarterly period ended June 30, 2013

2.

Commission identification number: 147212

3.

BIR Tax Identification No. 000-323-228

1.

Exact name of issuer as specified in its charter:

5.

Province, Country or other jurisdiction of incorporation or organization: Philippines

6.

Industry Classification Code: ___________________ (SEC Use Only)

7.

Address of issuer’s principal office: ICTSI Administration Building, MICT South Access Road, Manila Postal Code: 1012

8.

Registrant's telephone number, including area code: (632) 245-4101

9.

Former name, former address, and former fiscal year: Not applicable

INTERNATIONAL CONTAINER TERMINAL SERVICES, INC.

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

Number of shares outstanding as of June 30, 2013

Title of Each Class

2,034,055,360 Shares

Common

11. Are any or all of the Securities listed on a Stock Exchange? Yes [x] No [ ] If yes, state the name of such Stock Exchange and the class/es of securities listed therein:

Philippine Stock Exchange

Common shares

12. Indicate by check mark whether the issuer: a)

has filed all reports required to be filed by Section 17 of the Code and SRC Rule 17 thereunder or Sections 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 12 months (or for such shorter period that the registrant was required to file such reports).

Yes [x]

No [ ]

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

ICTSI Form 17-Q Q2 2013

Yes [x]

No [ ]

TABLE OF CONTENTS PART 1 – FINANCIAL INFORMATION........................................................................................ 1 Item 1.

Financial Statements.................................................................................................... 1

Audited Consolidated Balance Sheet as at December 31, 2012 and Interim Consolidated Balance Sheet as at June 30, 2013 ................................ 3 Interim Consolidated Statements of Income for the Three and Six Months Ended June 30, 2012 and 2013 ................................... 4 Interim Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2012 and 2013 ................................... 5 Interim Consolidated Statements of Changes in Equity for the Six Months Ended June 30, 2012 and 2013 .................................................... 6 Interim Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2012 and 2013 .................................................... 7 Notes to Unaudited Interim Condensed Consolidated Financial Statements ............... 8 Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations........................................................................................... 35

PART II – OTHER INFORMATION ............................................................................................. 59 ANNEX 1 – Schedule of Aging of Receivables.............................................................................. 60 ANNEX 2 – Financial Soundness Indicators .................................................................................. 61 ANNEX 3 – List of Effective PFRS Standards and Interpretations ................................................ 62 ANNEX 4 – Map of Subsidiaries .................................................................................................... 66 SIGNATURES ................................................................................................................................ 67

ICTSI Form 17-Q Q2 2013

PART 1 – FINANCIAL INFORMATION

Item 1.

Financial Statements

The audited consolidated balance sheet as of December 31, 2012 and the unaudited interim condensed consolidated financial statements as of June 30, 2013 and for the three and six months ended June 30, 2012 and 2013 and the related notes to unaudited interim condensed consolidated financial statements of International Container Terminal Services, Inc. and Subsidiaries (collectively referred to as “the Group”) are filed as part of this Form 17-Q on pages 2 to 34. Operating segments are also reported in the notes to unaudited interim condensed consolidated financial statements. There are no other material events subsequent to the end of this interim period that have not been reflected in the unaudited interim condensed consolidated financial statements filed as part of this report.

ICTSI Form 17-Q Q2 2013

1

International Container Terminal Services, Inc. and Subsidiaries Unaudited Interim Condensed Consolidated Financial Statements As of June 30, 2013 (with Comparative Audited Figures as of December 31, 2012) and for the Three and Six Months Ended June 30, 2012 and 2013

ICTSI Form 17-Q Q2 2013

2

INTERNATIONAL CONTAINER TERMINAL SERVICES, INC. AND SUBSIDIARIES INTERIM CONSOLIDATED BALANCE SHEET

As of June 30, 2013 (With Comparative Audited Figures as of December 31, 2012) (In Thousands)

ASSETS Noncurrent Assets Intangibles (Notes 1 and 6) Property and equipment (Note 7) Investment properties Deferred tax assets (Notes 3 and 16) Other noncurrent assets (Notes 3 and 8) Total Noncurrent Assets Current Assets Cash and cash equivalents (Notes 9 and 10) Receivables (Notes 6 and 7) Spare parts and supplies Prepaid expenses and other current assets (Note 11) Derivative assets (Note 9) Total Current Assets

December 31, 2012 (RestatedNote 3)

June 30, 2013 (Unaudited)

US$1,313,540 574,467 31,244 14,133 118,213 2,051,597

US$1,746,046 698,789 29,924 21,791 97,625 2,594,175

186,845 74,899 18,531 63,602 9,894 353,771 US$2,405,368

358,322 67,874 19,244 76,637 3,848 525,925 US$3,120,100

EQUITY AND LIABILITIES Equity Attributable to Equity Holders of the Parent Capital stock: Preferred stock Common stock (Note 14) Additional paid-in capital (Note 14) Cost of shares held by subsidiaries (Note 14) Treasury shares (Note 14) Excess of acquisition cost over the carrying value of minority interests (Note 14) Retained earnings (Notes 3 and 14) Subordinated perpetual capital securities (Note 14) Other comprehensive loss (Notes 3 and 14) Total equity attributable to equity holders of the parent

US$236 66,037 331,319 (72,492) (4,599)

US$236 67,330 524,972 (72,492) (1,081)

(84,322) 539,151 337,032 (86,386) 1,025,976

(92,943) 575,198 337,032 (115,128) 1,223,124

Equity Attributable to Minority Interests (Notes 3 and 14) Total Equity

164,622 1,190,598

157,016 1,380,140

530,341 165,274 55,293 4,127 755,035

906,592 504,107 50,912 3,006 1,464,617

10,226 183,203 240,776 4,488 20,955 87 459,735 US$2,405,368

15,275 157,201 72,526 6,720 23,272 349 275,343 US$3,120,100

Noncurrent Liabilities Long-term debt - net of current portion (Note 12) Concession rights payable - net of current portion (Notes 1 and 6) Deferred tax liabilities (Notes 3 and 16) Pension liabilities (Note 3) Total Noncurrent Liabilities Current Liabilities Loans payable (Note 12) Accounts payable and other current liabilities (Notes 13 and 17) Current portion of long-term debt (Note 12) Current portion of concession rights payable (Notes 1 and 6) Income tax payable Derivative liabilities (Note 9) Total Current Liabilities

See accompanying Notes to Unaudited Interim Condensed Consolidated Financial Statements.

ICTSI Form 17-Q Q2 2013

3

INTERNATIONAL CONTAINER TERMINAL SERVICES, INC. AND SUBSIDIARIES INTERIM UNAUDITED CONSOLIDATED STATEMENTS OF INCOME (In Thousands, Except Per Share Data)

For the Three Months Ended June 30

2012 (Restated - Note 3) INCOME Gross revenues from port operations Foreign exchange gain (Note 3) Interest income (Note 15) Other income (Notes 12 and 17) EXPENSES Port authorities’ share in gross revenues Manpower costs (Notes 3 and 17) Equipment and facilities-related expenses (Note 17) Depreciation and amortization (Notes 1 and 7) Administrative and other operating expenses (Note 17) Interest expense and financing charges on borrowings (Notes 6, 7 and 12) Interest expense on concession rights payable (Notes 1 and 6) Foreign exchange loss (Note 3) Other expenses CONSTRUCTION REVENUE (EXPENSE) Construction revenue Construction expense INCOME BEFORE INCOME TAX PROVISION FOR (BENEFIT FROM) INCOME TAX Current Deferred (Notes 3 and 16) NET INCOME ATTRIBUTABLE TO: Equity holders of the parent Minority interests Earnings Per Share (Note 18) Basic Diluted

2013

For the Six Months Ended June 30

2012 (Restated - Note 3)

2013

US$171,168 2,429 2,045 886 176,528

US$204,396 1,085 3,131 1,004 209,616

US$345,012 6,119 5,239 1,521 357,891

US$413,712 2,308 5,494 1,790 423,304

23,546 33,236

26,420 38,761

46,904 66,966

53,649 77,238

22,535

23,321

46,078

47,917

19,467

25,079

38,356

47,380

19,468

25,288

35,907

46,768

4,762

11,351

13,537

23,377

3,886 1,049 2,015 129,964

6,056 9,556 871 166,703

7,799 1,502 2,709 259,758

9,609 12,773 1,458 320,169

36,765 (36,765) –

53,111 (53,111) –

111,164 (111,164) –

72,189 (72,189) –

46,564

42,913

98,133

103,135

9,870 1,651 11,521

11,048 (12,305) (1,257)

20,243 6,795 27,038

24,647 (8,888) 15,759

US$35,043

US$44,170

US$71,095

US$87,376

US$34,911 132 US$35,043

US$42,229 1,941 US$44,170

US$70,282 813 US$71,095

US$82,901 4,475 US$87,376

US$0.015 0.015

US$0.018 0.018

US$0.031 0.031

US$0.035 0.035

See accompanying Notes to Unaudited Interim Condensed Consolidated Financial Statements.

ICTSI Form 17-Q Q2 2013

4

INTERNATIONAL CONTAINER TERMINAL SERVICES, INC. AND SUBSIDIARIES INTERIM UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands)

Three Months Ended June 30 Six Months Ended June 30 2012 2012 (Restated - Note 3) 2013 (Restated - Note 3) 2013 NET INCOME FOR THE PERIOD OTHER COMPREHENSIVE INCOME (LOSS) Other Comprehensive Income to be reclassified to profit or loss in subsequent periods Exchange differences on translation of foreign operations (Note 3) Net change in unrealized mark-to-market values of derivatives (Note 9) Net unrealized gain (loss) removed from equity and recognized in profit or loss Net unrealized loss removed from equity and capitalized as construction in-progress Net unrealized mark-to-market gain (loss) on available-for-sale investments Income tax relating to components of other comprehensive income Items not to be reclassified to profit or loss in subsequent periods Actuarial losses on defined benefit plans

TOTAL COMPREHENSIVE INCOME FOR THE PERIOD ATTRIBUTABLE TO: Equity holders of the parent Minority interests

US$35,043

US$44,170

US$71,095

US$87,376

(16,195)

(37,871)

2,439

(34,769)

(1,402)

(4,166)

4,563

(2,767)

(1,213)

2,837

(2,272)

3,177

– 200 785 (17,825)

4,913 (288) 1,206 (33,369) – –

(180) (180)

–

4,913

200

213

(687) 4,243 (360) (360)

1,731 (27,502) – –

US$17,038

US$10,801

US$74,978

US$59,874

US$18,474 (1,436) US$17,038

US$8,366 2,435 US$10,801

US$74,862 116 US$74,978

US$54,159 5,715 US$59,874

See accompanying Notes to Unaudited Interim Condensed Consolidated Financial Statements.

ICTSI Form 17-Q Q2 2013

5

INTERNATIONAL CONTAINER TERMINAL SERVICES, INC. AND SUBSIDIARIES INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 2012 and 2013 (In Thousands)

Attributable to Equity Holders of the Parent

Preferred Additional Shares Held Common Paid-in by a Shares Held Capital Subsidiary by (Note 14) (Note 14) Subsidiaries

Treasury Shares (Note 14)

Excess of Acquisition Cost over the Carrying Value of Minority Interests (Note 14)

Subordinated Perpetual Retained Capital Earnings Securities (Note 14) (Note 14)

Other Comprehensive Loss (Note 14)

Minority Interests (Note 14)

Preferred Stock

Common Stock

Balance at December 31, 2011 (Audited) Effect of PAS 19R (Note 3) Balance at December 31, 2011 (Restated) Total comprehensive income for the period (Restated) Issuance of subordinated perpetual capital securities (Note 14) Share-based payments (Note 14) Sale of common shares held by a subsidiary Issuance of treasury shares (Note 14) Cash dividends Distributions on subordinated perpetual securities (Note 14) Effect of business combination Collection of subscription receivable Balance at June 30, 2012 (Unaudited)

US$236 – 236

US$66,036 – 66,036

US$320,823 – 320,823

–

–

–

–

–

– – –

– – –

– 1,359 7,962

– – –

– – 21,018

– –

– –

– –

– –

– – – US$236

– – 1 US$66,037

– – 8 US$329,225

– – – (US$72,492)

– – – US$–

– – – (US$4,345)

Balance at December 31, 2012 (Audited) Effect of PAS 19R (Note 3) Balance at December 31, 2012 (Restated) Total comprehensive income for the period Distributions on subordinated perpetual capital securities (Note 14) Issuances of shares (Note 14) Cash dividends (Note 14) Changes in minority interests (Note 14) Share-based payments (Note 14) Issuances of treasury shares (Note 14) Purchase of treasury shares (Note 14) Balance at June 30, 2013 (Unaudited)

US$236 – 236 –

US$66,037 – 66,037 –

US$331,319 – 331,319 –

(US$72,492) – (72,492) –

(US$–) – – –

(US$4,599) – (4,599) –

(US$84,322) US$539,108 – 43 (84,322) 539,151 – 82,901

– – – – – – – US$236

– 1,293 – – – – – US$67,330

– 114,571 – – 3,054 76,028 – US$524,972

– – – – – – – (US$72,492)

– – – – – – – US$–

– – – – (426) 3,998 (54) (US$1,081)

– (14,656) – – (14,656) – (14,656) – – – – 115,864 – 115,864 – (32,198) – – (32,198) (5,955) (38,153) (8,621) – – – (8,621) (7,366) (15,987) – – – – 2,628 – 2,628 – – – – 80,026 – 80,026 – – – – (54) – (54) (US$92,943) US$575,198 US$337,032 (US$115,128) US$1,223,124 US$157,016 US$1,380,140

(US$72,492) – (72,492)

(927) –

(US$21,018) – (21,018)

(US$4,671) – (4,671) –

(US$6,148) US$452,326 – – (6,148) 452,326

US$193,448 – 193,448

Total

(US$90,928) US$837,612 452 452 (90,476) 838,064

Total Equity

US$102,888 34 102,922

US$940,500 486 940,986

–

70,282

–

4,580

74,862

116

74,978

– (601) –

– – –

– – –

142,410 – –

– – 662

142,410 758 29,642

– – –

142,410 758 29,642

927 –

– –

– –

– –

– (29,629)

– (12,144) – – – – – – – (US$6,148) US$480,835 US$335,858 US$337,032 – 337,032 –

– (29,629)

– (1,008)

– (30,637)

– (12,144) – (12,144) – – (23) (23) – 9 – 9 (US$85,234) US$1,043,972 US$102,007 US$1,145,979 (US$85,666) US$1,026,653 US$164,501 US$1,191,154 (720) (677) 121 (556) (86,386) 1,025,976 164,622 1,190,598 (28,742) 54,159 5,715 59,874

See accompanying Notes to Unaudited Interim Condensed Consolidated Financial Statements.

SEC Form 17-Q Q2 2013

6

INTERNATIONAL CONTAINER TERMINAL SERVICES, INC. AND SUBSIDIARIES INTERIM UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands)

CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax Adjustments for: Depreciation and amortization Interest expense on: Borrowings (Note 12) Concession rights payable (Note 6) Interest income Unrealized foreign exchange loss (gain) Loss on settlement of cross-currency swap and pretermination of prepayment option Share-based payments Gain on sale of property and equipment Unrealized mark-to-market loss on derivatives Operating income before changes in working capital Decrease (increase) in: Receivables Spare parts and supplies Prepaid expenses and other current assets Decrease in: Accounts payable and other current liabilities (Note 13) Pension liabilities Cash generated from operations Income taxes paid Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions of: Intangible assets (Notes 1 and 6) Property and equipment (Note 7) Subsidiary, net of cash acquired Payments for concession rights (Note 6) Decrease (increase) in other noncurrent assets (Note 8) Interest received Proceeds from sale of property and equipment Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Net proceeds from: Issuance of subordinated perpetual capital securities (Note 14) Long-term borrowings (Note 12) Short-term borrowings (Note 12) Issuances of common shares (Note 14) Issuances of treasury shares (Note 14) Sale of common shares held by a subsidiary Payments of: Long-term borrowings (Note 12) Short-term borrowings (Note 12) Interest on borrowings and concession rights payable (Notes 6 and 12) Dividends (Note 14) Purchase of treasury shares (Note 14) Distributions on subordinated perpetual capital securities (Note 14) Settlement of cross-currency swap Changes in minority interests Net cash provided by financing activities EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD CASH AND CASH EQUIVALENTS AT END OF PERIOD

For the Six Months Ended June 30 2012 (Restated – Note 3) 2013 US$98,133

US$103,135

38,356

47,380

13,537 7,799 (5,239) (2,580)

23,377 9,609 (5,494) 6,758

1,271 988 (632) 58 151,691

– 1,789 (249) 220 186,525

(4,489) (430) (10,287)

6,096 (1,150) (14,456)

(625) (334) 135,526 (19,808) 115,718

(28,603) (1,084) 147,328 (21,689) 125,639

(121,412) (69,556) (3,786) (12,512) (120,832) 5,830 1,065 (321,203)

(124,832) (155,303) – (6,596) 15,983 5,427 216 (265,105)

142,411 12,451 – – – 29,642

– 401,877 6,500 115,864 80,026 –

(50,848) (2,275)

(192,020) (1,472)

(20,752) (30,468) – (12,144) 1,375 – 69,392

(24,161) (40,860) (54) (14,656) – (15,987) 315,057

9,002 (127,091) 457,636 US$330,545

(4,114) 171,477 186,845 US$358,322

See accompanying Notes to Unaudited Interim Condensed Consolidated Financial Statements.

ICTSI Form 17-Q Q2 2013

7

INTERNATIONAL CONTAINER TERMINAL SERVICES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Corporate Information 1.1 General International Container Terminal Services, Inc. (ICTSI or the Parent Company) was incorporated in the Philippines and registered with the Philippine Securities and Exchange Commission (SEC) on December 24, 1987. The registered office address of the Company is ICTSI Administration Building, MICT South Access Road, Manila. ICTSI’s common shares were listed with the Philippine Stock Exchange (PSE) on March 23, 1992 at an offer price of P =6.70. ICTSI has 2,034,055,360 common shares outstanding held by 1,536 shareholders on record as of June 30, 2013. 1.2 Port Operations ICTSI and subsidiaries (collectively referred to as “the Group”) entered into various concessions of port operations which include development, management, and operation of container terminals and related facilities around the world. Currently, the Group is involved in 27 terminal concessions and port development projects in 19 countries worldwide. There are 21 operating terminals in seven key ports in the Philippines, two in Indonesia and one each in Brunei, Japan, China, the United States of America (U.S.A.), Ecuador, Brazil, Poland, Georgia, Madagascar, Croatia, Pakistan and India; three ongoing port development projects in Mexico, Colombia and Argentina; and three recently concluded negotiations to manage and operate ports in Nigeria and Honduras and develop and manage another port in Davao, Philippines. The projects in Mexico, Honduras and Argentina are expected to commence commercial operations in August 2013, November 2013 and January 2014, respectively. ICTSI’s concession for the Manila International Container Terminal or MICT (MICT Contract) was extended for another 25 years up to May 18, 2038, upon completion of agreed additional investments in port equipment and infrastructures, payment of upfront fees amounting to =670.0 million (US$16.4 million), and turnover and execution of Deed of Transfer of port P facilities and equipment currently being used at MICT and part of committed investment under the original concession agreement, among others. Under the renewal agreement and for the extended term of the MICT Contract, ICTSI shall be liable and committed to: (i) pay the Philippine Ports Authority (PPA) a fixed fee of US$600.0 million payable in 100 advanced quarterly installments; (ii) pay annual fixed fee on storage and berthside operations of =55.8 million (approximately US$1.3 million); (iii) pay variable fee of 20 percent of the gross P revenue earned at MICT; (iv) upgrade, expand and develop the MICT, particularly the construction and development of Berth 7; (v) continuously align its Management Information System (MIS) with the MIS of the PPA with the objective towards paperless transaction and reporting system; and (vi) pay certain other fees based on the attainment of agreed volume levels. Following the Group’s accounting policy on Intangibles, ICTSI recognized the new concession rights when the renewal agreement became effective on May 19, 2013 to the extent that ICTSI received a license or right to charge users for the public service it provides. Concession rights consisted of: (i) upfront fee of US$16.4 million (P =670.0 million); and (ii) the present value of fixed fee consideration computed using the discount rate at the effectivity date of the renewal agreement of US$348.5 million. Amortization of concession rights comprising of upfront fees and the present value of fixed fee consideration amounted to US$1.7 million for the three and six months ended June 30, 2013 and is expected to be US$9.0 million by December 31, 2013 and

SEC Form 17-Q Q2 2013

8

US$14.5 million per year thereafter. Interest expense on concession rights payable amounted to US$2.1 million for the three and six months ended June 30, 2013 and is expected to be US$11.5 million by December 31, 2013, US$18.4 million in 2014 and subsequently calculated based on the diminishing balance of concession rights payable using the effective interest rate. On the other hand, variable fees are recognized as expense when incurred. Concession rights also consisted of port infrastructure, mainly for berth 6, of US$216.5 million. Amortization of port infrastructure amounted to US$1.0 million for the three and six months ended June 30, 2013 and is expected to be US$5.2 million by December 31, 2013 and US$8.3 million per year thereafter. Concessions for port operations entered into and acquired by ICTSI and subsidiaries for the last two years are summarized below: Port of Kattupalli, India. In April 2011, ICTSI, through ICTSI Ltd. and International Container Terminal Services (India) Private Limited (ICTSI India), and L&T Shipbuilding Ltd. (LTSB) signed a container port operation agreement for the management and operation of the Kattupalli International Container Terminal (KICT) in Tamil Nadu, India. KICT is ICTSI’s first venture in India. The terminal is located near Chennai in Thiruvallur District. LTSB is the developer of an integrated shipyard cum port with a 1.2 million-TEU annual capacity container terminal in Kattupalli. The terminal has started commercial operations in January 2013. NCT-2, Subic, Philippines. On July 27, 2011, Subic Bay Metropolitan Authority (SBMA) and ICTSI signed the Contract for the Operation and Management of NCT-2 (NCT-2 Contract) for a period of 25 years. ICTSI established ICTSI Subic, Inc. (ICTSI Subic) on May 31, 2011 to operate NCT-2. On September 15, 2011, SBMA notified ICTSI of its approval for the assignment of all its rights, interests and obligations in the NCT-2 Contract to ICTSI Subic through a resolution dated August 19, 2011 for the purpose of operating NCT-2. On August 2, 2012, ICTSI Subic received from SBMA the notice to proceed with the operation and management of NCT-2. ICTSI Subic started commercial operations in October 2012. Deep Water Port, Ibeju-Lekki, Federal Republic of Nigeria. On February 22, 2012, ICTSI and Lekki Port LFTZ Enterprise (Lekki Port) entered into a Memorandum of Understanding (MOU) to negotiate the terms of a Sub-concession Agreement (SCA) to develop and operate the container terminal at the Deep Water Port in the Lagos Free Trade Zone (LFTZ) at Ibeju-Lekki, Lagos State, Federal Republic of Nigeria. Under the MOU, Lekki Port negotiated exclusively with ICTSI, in connection with the Sub-concession and the works and services to be undertaken under the agreement, for an Exclusivity Fee of US$5.0 million, which is non-refundable but subject to set-off or refund under certain circumstances as provided in the MOU. On August 10, 2012, Lekki Port and ICTSI signed the SCA, which granted ICTSI the exclusive right to develop and operate the Deep Water Port in the LFTZ, and to provide certain handling equipment and container terminal services for a period of 21 years from start of commercial operation date. On September 7, 2012, ICTSI paid an additional US$7.5 million after the SCA execution, which together with the earlier paid US$5.0 million totals US$12.5 million initial fee paid. On November 7, 2012, ICTSI through ICBV, established Lekki International Container Terminal Services LFTZ Enterprise (LICTSLE) to operate the Deep Water Port in the LFTZ. On November 16, 2012, pursuant to the Deeds of Novation of the SCA and SCLA, ICTSI assigned to LICTSLE all its rights and obligations under the SCA and SCLA. The construction of the container terminal is expected to start in late 2013, and is scheduled to commence operations in late 2016 or early 2017. Port of Karachi, Pakistan. On March 30, 2012, ICTSI through ICTSI Mauritius Ltd. (ICTSI Mauritius), a wholly owned subsidiary of ICTSI Ltd., signed a Share Purchase Agreement with substantial shareholders of Pakistan International Container Terminal (PICT) for the purchase of 35 percent of the shares of PICT, involving the conduct of a minimum offer price, which was determined in accordance with the takeover laws of Pakistan. On August 10, 2012, ICTSI

SEC Form 17-Q Q2 2013

9

Mauritius commenced a public tender offer at the Karachi Stock Exchange to purchase outstanding shares of PICT. On October 18, 2012, ICTSI Mauritius completed the acquisition of 35 percent of the total issued capital of PICT and further increased its ownership in PICT to 63.59 percent as of December 31, 2012. In March and June 2013, ICTSI Mauritius purchased additional shares of PICT which further increased its ownership to 64.53 percent. PICT has a contract with Karachi Port Trust for the exclusive construction, development, operations and management of a common user container terminal at Karachi Port for a period of 21 years commencing on June 18, 2002. Port of Tanjung Priok, Jakarta, Indonesia. On July 3, 2012, ICTSI acquired PT PBM Olah Jasa Andal (OJA) through its indirect majority owned subsidiary, PT ICTSI Jasa Prima Tbk (JASA, formerly PT Karwell Indonesia Tbk). OJA is an Indonesian limited liability company engaged in the loading and unloading of general goods and/or containers at the Port of Tanjung Priok, Jakarta, Indonesia. On June 5, 2013, OJA signed a 15-year Cooperation Agreement with PT Pelabuhan Indonesia II (Persero) Tanjung Priok Branch for international container stevedoring services. Hijo International Port, Davao, Philippines. In 2012, ICTSI, through its wholly owned subsidiary, Abbotsford Holdings, Inc. (Abbotsford), together with Hijo Resources Corp., a diversified group involved in leisure and tourism, agribusiness, property development and port operations, invested in Hijo International Port Services, Inc. (HIPS) for the construction, development and operation of Hijo International Port (also referred to as “Hijo Port”). Hijo Port is a private commercial port owned by HIPS located in Barangay Madaum, Tagum, Davao del Norte in the Gulf of Davao. The existing port sits within a reclaimed land of about 10.3 hectares. It has two berths at 127 meters and 150 meters long, two cargo sheds located in the wharf area and various terminal support facilities. It currently handles approximately 300,000 metric tons of mostly banana annually. ICTSI owns 65 percent of HIPS. Under the management of ICTSI, HIPS will develop and upgrade the facilities and capacity of Hijo Port to handle containerized cargo, especially banana in refrigerated containers. Such upgrade will be implemented in phases. Initial phase of construction activities is currently ongoing at Hijo Port. The relevant contracts and agreements on the construction, operation and management of the terminal have not yet been finalized as of June 30, 2013. Puerto Cortés in Honduras. On February 1, 2013, ICTSI won and was awarded the Contract for the Design, Financing, Construction, Preservation, Operation and Exploitation of the Container and General Cargo Terminal of Puerto Cortés (“Agreement”) in the Republic of Honduras for a period of 29 years through a public hearing held in Tegucigalpa, Honduras. On March 13, 2013, ICTSI and ICTSI Brazil Ltd. established Operadora de Puerto Cortés, S.A. de C.V. (OPC) to sign the Agreement with the Republic of Honduras acting through the Commission for the PublicPrivate Alliance Promotion (COALIANZA), a decentralized legal entity of the Presidency of the Republic. The said Agreement was signed on March 21, 2013 and shall be valid until August 30, 2042. OPC shall operate the Container and General Cargo Terminal of Puerto Cortes (“Terminal”) and it shall carry out the design, financing, construction, preservation, and exploitation of the Terminal and the provision of its services according to certain service and productivity levels. Under the Agreement, OPC shall be liable for an upfront fee of US$25.0 million which is payable 70.0 percent upon the execution of the Agreement and the remaining 30.0 percent six months thereafter (September 2013). OPC is also liable for monthly payments equivalent to 4.0 percent of its gross income to the Municipality of Puerto Cortés and 0.37 percent of its annual gross income to the Trustee Bank in accordance with the provisions set forth in the Legal Executive Order Number 082-2012. Furthermore, OPC shall pay the National Port Company the following: US$100,000 annually for each hectare occupied of the existing surfaces; US$75,000 annually for each hectare occupied of the newly built surfaces; and certain variable fees based on container moved, load, and/or passenger that uses the port. Such amounts shall be updated annually based on the formula agreed by the parties to the Agreement. Upon execution of the Agreement, OPC

SEC Form 17-Q Q2 2013

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paid 2.0 percent of the total of the Referral Investment to COALIANZA in accordance with Legal Executive Order Number 143-2010 and a single payment to the Trustee Bank. Total payments in relation to this Agreement including portion of the upfront fee aggregated US$27.4 million, which are presented as part of “Intangibles” account in the unaudited interim balance sheet as of June 30, 2013. OPC is expected to formally take over the operations of the Terminal in November 2013. On the other hand, on December 28, 2012, Tartous International Container Terminal (TICT), a wholly owned subsidiary of ICTSI, filed a Notice of Termination of its 10-year Investment Agreement with Tartous Port General Company (TPGC) to manage, operate, maintain, finance, rehabilitate, develop and optimize the Tartous Container Terminal in Syria, which was entered into by TICT and TPGC in March 2007. TICT was compelled to send the said Notice of Termination of the Investment Agreement because of TPGC’s consistent refusal to recognize the occurrence of Unforeseen Change of Circumstances brought about by civil unrest and violence which has gravely affected businesses and trade in Syria. The issuance of this notice was also prompted by TPGC’s refusal to negotiate in good faith for relief from the clear imbalance of the parties’ economic relationship, which constitutes a breach of the Investment Agreement. Finally, TICT was left with no choice but to issue the Notice of Termination when Syria plunged into a state of full-fledged civil war, which exposed everyone (combatants and civilians alike) to increasing threat of death and destruction on a daily basis, which is considered as force majeure under the Investment Agreement. TICT formally ceased operating the Tartous Container Terminal on January 27, 2013. An arbitration process is currently ongoing. Consequently, TPGC took over the operations of the Tartous Container Terminal. 1.3 Subsidiaries The subsidiaries include: Asia International Container Terminal Holdings, Inc. (ICTHI) and Subsidiaries Container Terminal Systems Solutions, Inc. (CTSSI) ICTSI Ltd. ICTSI Mauritius Aeolina International Limited (AIL)(a) PICT(a) ICTSI Far East Pte. Ltd. (IFEL) New Muara Container Terminal Services Sdn Bhd ( NMCTS) JASA and Subsidiaries(a) OJA(a) PT Makassar Terminal Services, Inc. (MTS) PT Container Terminal Systems Solutions Indonesia (PT CTSSI) ICTSI (Hong Kong) Limited Yantai Rising Dragon International Container Terminal, Ltd. (YRDICTL) Pentland International Holdings, Ltd. (PIHL) ICTSI Georgia Corp. (IGC) ICTSI Poland ICTSI Brazil ICTSI Ltd. RHQ

Place of Incorporation

Nature of Business

Functional Currency

Cayman Islands

Holding Company

US Dollar

Mauritius

Software Developer US Dollar

Bermuda Mauritius British Virgin Island Pakistan Singapore Brunei

Holding Company Holding Company Holding Company

US Dollar US Dollar US Dollar

Port Management Holding Company Port Management

Pakistani Rupee US Dollar Brunei Dollar

Indonesia

Indonesian Rupiah

Indonesia Indonesia Indonesia

Maritime Infrastructure and Logistics Port Management Port Management Software Developer

Hong Kong China

Holding Company Port Management

US Dollar Renminbi

British Virgin Island Cayman Island Bermuda Bermuda Philippines

Holding Company

US Dollar

Holding Company Holding Company Holding Company Regional Headquarters Port Management Holding Company

US Dollar US Dollar US Dollar Philippine Peso

South African Rand

Australia

Business Development Office (BDO) Port Management

Philippines

Port Management

Philippine Peso

Philippines Philippines

Holding Company Port Management

Philippine Peso Philippine Peso

ICTSI India(b, c) India Container Terminal de Venezuela Conterven Venezuela CA (CTVCC) ICTSI Africa (Pty) Ltd.(c) South Africa Australian International Container Terminals Limited (AICTL)(b) Mindanao International Container Terminal Services, Inc. (MICTSI) Abbotsford HIPS(d)

Indonesian Rupiah Indonesian Rupiah US Dollar

Indian Rupee US Dollar

Australian Dollar

Percentage of Ownership 2012 2013 Direct Indirect Direct Indirect 100.00

–

100.00

–

– – –

100.00 100.00 100.00

– – –

100.00 100.00 100.00

– – –

100.00 63.59 100.00

– – –

100.00 64.53 100.00

–

100.00

–

100.00

– – –

80.16 80.16 95.00

– – –

80.16 80.16 95.00

– –

100.00 100.00

– –

100.00 100.00

–

60.00

–

60.00

– – – –

100.00 100.00 100.00 100.00

– – – –

100.00 100.00 100.00 100.00

– –

100.00 100.00

– –

100.00 100.00

–

95.00

–

95.00

–

100.00

–

100.00

–

70.00

–

70.00

100.00 100.00 –

− – 65.00

100.00 100.00 –

− – 65.00

(Forward)

SEC Form 17-Q Q2 2013

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Davao Integrated Port and Stevedoring Services Corporation (DIPSSCOR) ICTSI Warehousing, Inc. (IWI) IW Cargo Handlers, Inc. (IW Cargo) Container Terminal Systems Solutions Philippines, Inc. (CTSSI Phils.) Bauan International Ports, Inc. (BIPI) Prime Staffing and Selection Bureau, Inc. (PSSBI)(b) ICTSI Subic( c,g) Subic Bay International Terminal Holdings, Inc. (SBITHI) Subic Bay International Terminal Corporation (SBITC) Cebu International Container Terminal, Inc. (CICTI)(b) Cordilla Properties Holdings Inc. (Cordilla) South Cotabato Integrated Port Services, Inc. (SCIPSI) ICTSI (M.E.) JLT (ICTSI Dubai)

Place of Incorporation Philippines

Nature of Business Port Management

Philippines Philippines

Warehousing Philippine Peso Port Equipment US Dollar Rental Software Developer US Dollar

Philippines Philippines Philippines

Philippine Peso Philippine Peso

Philippines Philippines

Port Management Manpower Recruitment Port Management Holding Company

Philippines

Port Management

US Dollar

Philippines

Port Management

Philippine Peso

Philippines Philippines

Holding Company Port Management

Philippine Peso Philippine Peso

BDO

US Dollar

Holding Company Port Management

US Dollar Japanese Yen

Holding Company Holding Company Holding Company Holding Company Holding Company

US Dollar US Dollar US Dollar US Dollar US Dollar

Syria

Port Management

US Dollar

Madagascar

Port Management

Poland Croatia Georgia

Port Management Port Management Port Management

Euro US Dollar Croatian Kuna US Dollar

Port Management

US Dollar

Ecuador Mexico Brazil U.S.A. Panama Panama Panama Colombia

Port Management Port Management Port Management Port Management Holding Company Holding Company Holding Company Port Management

US Dollar Mexican Peso Brazilian Real US Dollar US Dollar US Dollar US Dollar Colombian Peso

Uruguay

Holding Company

US Dollar

Argentina Honduras

Port Management Port Management

US Dollar Honduran Lempira

United Arab Emirates ICTSI Capital B.V. (ICBV) The Netherlands Naha International Container Terminal, Inc. Japan (NICTI) Icon Logistiek B.V.(c) The Netherlands Royal Capital B.V. (RCBV)(c) The Netherlands (d) ICTSI Cooperatief U.A. The Netherlands (d) Global Container Capital, B.V. The Netherlands (d) ICTSI Treasury B.V. (ICTSI Treasury) The Netherlands Europe, Middle East and Africa (EMEA) Tartous International Container Terminal (TICT) Madagascar International Container Terminal Services, Ltd. (MICTSL) Baltic Container Terminal Ltd. (BCT) AGCT(e) Batumi International Container Terminal LLC (BICTL) LICTSLE(d) Americas Contecon Guayaquil, S.A. (CGSA) CMSA(b, f) Tecon Suape, S.A. (TSSA) ICTSI Oregon, Inc. (ICTSI Oregon)(f) C. Ultramar, S.A. (CUSA) Future Water, S.A. (FWSA) Kinston Enterprise Corporation (KEC) Sociedad Puerto Industrial Aguadulce SA (SPIA)(b) International Ports of South America and Logistics SA (IPSAL) Tecplata(b) OPC(b, h) (a) (b) (c) (d) (e) (f) (g) (h)

Functional Currency Philippine Peso

Nigeria

US Dollar US Dollar

Percentage of Ownership 2012 2013 Direct Indirect Direct Indirect – 100.00

96.95 –

– 100.00

96.95 –

–

100.00

–

100.00

– –

100.00 60.00

– –

100.00 60.00

100.00 100.00

– –

100.00 100.00

– –

83.33

–

83.33

–

–

83.33

–

83.33

51.00 100.00

– −

51.00 100.00

– −

35.70

14.38

35.70

14.38

100.00 –

− 100.00

100.00 –

− 100.00

60.00 – – – – –

– 100.00 75.00 100.00 100.00 75.00

60.00 – – – – –

– 100.00 75.00 100.00 100.00 75.00

100.00

–

100.00

–

– – –

100.00 100.00 51.00

– – –

100.00 100.00 51.00

– –

100.00 100.00

– –

100.00 100.00

99.99 100.00 – − – – –

0.01 − 100.00 100.00 100.00 100.00 100.00

99.99 100.00 – − – – –

0.01 − 100.00 100.00 100.00 100.00 100.00

–

91.29

–

91.29

− − −

100.00 91.68 −

− − 30.00

100.00 96.25 70.00

Acquired in 2012 Not yet started commercial operations as of June 30, 2013 Established in 2011 Established in 2012 Acquired in 2011 Established in 2010 Changed its functional currency from Philippine Peso to US dollar in 2012 Established in 2013

In March and June 2013, ICTSI Mauritius purchased additional shares of PICT which further increased its ownership to 64.53 percent (see Note 14.7). In 2013, ICTSI through its subsidiaries ICTSI Ltd. and IPSAL, purchased 54.92 percent ownership in Nuevos Puertos, minority shareholder of Tecplata, for US$14.0 million. The purchase was accounted for as an acquisition of minority interests. This transaction effectively increased ICTSI’s ownership in Tecplata to 96.25 percent (see Note 14.7).

SEC Form 17-Q Q2 2013

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2. Basis of Preparation and Statement of Compliance 2.1 Basis of Preparation The interim condensed consolidated financial statements as at June 30, 2013 and for the three and six months ended June 30, 2012 and 2013 have been prepared on a historical cost basis, except for available-for-sale (AFS) investments and derivative financial instruments which have been measured at fair value. The interim condensed consolidated financial statements are presented in United States dollar (US dollar, USD or US$), the Parent Company’s functional and presentation currency. All values are rounded to the nearest thousand US dollar unit, except when otherwise indicated. Any discrepancies in the tables between the listed amounts and the totals thereof are due to rounding. Accordingly, figures shown as totals may not be an arithmetic aggregation of the figures that precede them. 2.2 Statement of Compliance The interim condensed consolidated financial statements have been prepared in accordance with Philippine Accounting Standard (PAS) 34, Interim Financial Reporting. Accordingly, the interim condensed consolidated financial statements do not include all the information and disclosures required in the annual audited consolidated financial statements, and should be read in conjunction with the Group’s audited annual consolidated financial statements as at and for the year ended December 31, 2012. 3. Summary of Significant Accounting Policies 3.1 Basis of Consolidation Subsidiaries. Subsidiaries are entities controlled by the Parent Company. The interim condensed consolidated financial statements include the accounts of ICTSI and its subsidiaries where the Parent Company has control. In assessing control, the existence and effect of potential voting rights that are currently exercisable or convertible are considered. Subsidiaries are consolidated from the date of acquisition or incorporation, being the date on which the Group obtains control, and continue to be consolidated until the date such control ceases. Minority Interests. Minority interests represent the portion of profit or loss and net assets in MTS, AICTL, CTVCC, SBITC, SBITHI, BIPI, NICTI, CICTI, DIPSSCOR, YRDICTL, SPIA, SCIPSI, Tecplata, RCBV, AGCT, JASA, OJA, ICTSI Treasury, HIPS and PICT, not held by the Group and are presented separately in the consolidated statement of income and the consolidated statement of comprehensive income, and consolidated balance sheet separate from equity attributable to equity holders of the parent. Acquisition, transfer and sale of minority interest are accounted for as equity transactions. No gain or loss is recognized in an acquisition of a minority interest. The difference between the fair value of the consideration and book value of the share in the net assets acquired is presented under “Excess of acquisition cost over the carrying value of minority interests” account within the equity section of the interim consolidated balance sheet. If the Group loses control over a subsidiary, the Group: derecognizes the assets (including goodwill) and liabilities of the subsidiary, the carrying amount of any minority interest and the cumulative translation differences recorded in equity; recognizes the fair value of the consideration received, the fair value of any investment retained and any surplus or deficit in the consolidated statement of income; and reclassifies the Parent Company’s share of components previously recognized in other comprehensive income to the interim consolidated statement of income or retained earnings, as appropriate. Transactions Eliminated on Consolidation. All intragroup transactions and balances including income and expenses, and unrealized gains and losses are eliminated in full. SEC Form 17-Q Q2 2013

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Accounting Policies of Subsidiaries. The financial statements of subsidiaries are prepared for the same reporting period or year as the Parent Company. Functional and Presentation Currency. The unaudited consolidated financial statements are presented in US dollar, which is ICTSI’s functional and presentation currency. Each entity in the Group determines its own functional currency, which is the currency that best reflects the economic substance of the underlying events and circumstances relevant to that entity, and items included in the financial statements of each entity are measured using that functional currency. At the reporting date, the assets and liabilities of subsidiaries whose functional currency is not the US dollar are translated into the presentation currency of ICTSI using the Bloomberg closing rate at balance sheet date and, their unaudited statements of income are translated at the Bloomberg weighted average daily exchange rates for the period. The exchange differences arising from the translation are taken directly to the unaudited consolidated statement of comprehensive income. Upon disposal of the foreign entity, the deferred cumulative translation amount recognized in the unaudited consolidated statement of comprehensive income relating to that particular foreign operation is recognized in the unaudited consolidated statement of income. The following rates of exchange have been adopted by the Group in translating foreign currency income statement and balance sheet items as at and for the six months ended June 30:

Foreign currency to 1 unit of US dollar: Argentinean peso (AR$) Australian dollar (AUD) Brazilian reais (BRL or R$) Brunei dollar (BND) Chinese renminbi (RMB) Colombian peso (COP) Croatian kuna (HRK) Euro (€) Georgian lari (GEL) Honduran Lempira (HNL) Hong Kong dollar (HKD) Indian rupee (INR) Indonesian rupiah (IDR) Japanese yen (JPY) Mexican peso (MXN) Pakistani rupee (PKR or Rs.) Philippine peso (P =) Polish zloty (PLN) Singaporean dollar (SGD) South African rand (ZAR)

2012 Closing Average 4.53 0.98 2.01 1.27 6.35 1,783.76 5.94 0.79 1.64 – 7.76 55.64 9,433.00 79.79 13.36 – 42.12 3.35 1.27 8.16

4.39 0.97 1.87 1.26 6.32 1,792.30 5.82 0.77 1.65 – 7.76 52.27 9,197.00 79.73 13.26 – 42.90 3.27 1.26 7.94

2013 Closing Average 5.39 1.09 2.23 1.27 6.14 1,922.77 5.72 0.77 1.65 20.27 7.76 59.39 10,004.00 99.14 12.93 99.60 43.20 3.32 1.27 9.88

5.13 0.99 2.03 1.24 6.19 1,827.45 5.77 0.76 1.65 19.78 7.76 55.06 9,753.00 95.53 12.56 98.19 41.24 3.18 1.24 9.21

3.2 Changes in Accounting Policies 3.2.1

New and Amended Standards Adopted in 2013

The accounting policies adopted for the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group’s annual consolidated financial statements as of and for the year ended December 31, 2012 except for the adoption of new standards and interpretations effective as of January 1, 2013. The Group applies for the first time, certain standards and amendments that requires restatement of previous financial statements. These include Philippine Financial Reporting Standard (PFRS) 10, Consolidated Financial Statements; PFRS 11, Joint Arrangements¸PAS 19, Employee Benefits, PFRS 13, Fair Value Measurement and amendments to PAS 1, Presentation of Financial Statements. As required by PAS 34, the nature and the effect of these changes are disclosed below. Several other new standards and amendments apply for the first time in 2013.

SEC Form 17-Q Q2 2013

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However, they do not impact the annual consolidated financial statements of the Group or the interim condensed consolidated financial statements of the Group. The nature and impact of each new standard/amendment is described below: New Pronouncements PFRS 7, Financial instruments: Disclosures – Offsetting Financial Assets and Financial Liabilities (Amendments) The amendment requires an entity to disclose information about rights to set-off financial instruments and related arrangements (such as collateral agreements). The disclosures would provide users with information that is useful in evaluating the effect of netting arrangements on an entity’s financial position. The new disclosures are required for all recognized financial instruments that are set-off in accordance with PAS 32. PFRS 10, Consolidated Financial Statements PFRS 10 replaces the portion of PAS 27, Consolidated and Separate Financial Statements, that addresses the accounting for consolidated financial statements. It also includes the issues raised in SIC 12, Consolidation - Special Purpose Entities. PFRS 10 establishes a single control model that applies to all entities including special purpose entities. PFRS 10 changes the definition of control such that an investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. To meet the definition of control in PFRS 10, all three criteria must be met, including: (a) an investor has power over an investee; (b) the investor has exposure, or rights, to variable returns from its involvement with the investee; and (c) the investor has the ability to use its power over the investee to affect the amount of the investor’s returns. PFRS 11, Joint Arrangements PFRS 11 replaces PAS 31, Interests in Joint Ventures, and SIC 13, Jointly Controlled Entities - NonMonetary Contributions by Venturers. PFRS 11 removes the option to account for jointly controlled entities (JCEs) using proportionate consolidation. Instead, JCEs that meet the definition of a joint venture must be accounted for using the equity method. PFRS 12, Disclosure of Interests in Other Entities PFRS 12 includes all of the disclosures related to consolidated financial statements that were previously in PAS 27, as well as all the disclosures that were previously included in PAS 31 and PAS 28, Investments in Associates. These disclosures relate to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. A number of new disclosures are also required. PFRS 13, Fair Value Measurement PFRS 13 establishes a single source of guidance under

SEC Form 17-Q Q2 2013

Impact on the Interim Condensed Consolidated Financial Statements As the Group is not setting off financial instruments in accordance with PAS 32 and does not have relevant offsetting arrangements, the amendment does not have impact on the Group.

The adoption of PFRS 10 has no impact on the interim condensed consolidated financial statements because ICTSI has assessed that all subsidiaries that were consolidated in accordance with the old PAS 27 will continue to be consolidated in accordance with PFRS 10.

The adoption of PFRS 11 has no impact on the interim condensed consolidated financial statements because the Group has not entered into any joint arrangements as of June 30, 2013.

None of these disclosure requirements are applicable for interim condensed consolidated financial statements, unless significant events and transactions in the interim period require that they are provided. Accordingly, the Group has not made such disclosures.

The adoption of PFRS 13 may result to more disclosures in the annual consolidated financial statements in relation to the provision of PAS 40, Investment Property which

15

New Pronouncements PFRSs for all fair value measurements. PFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under PFRSs when fair value is required or permitted. PAS 1, Presentation of Financial Statements Presentation of Items of Other Comprehensive Income (OCI) (Amendments) The amendments to PAS 1 changed the grouping of items presented in OCI. Items that could be reclassified (or “recycled”) to profit or loss at a future point in time (for example, upon derecognition or settlement) will be presented separately from items that will never be reclassified. PAS 19, Employee Benefits (Revised) For defined benefit plans, the Revised PAS 19 requires all actuarial gains and losses to be recognized in other comprehensive income and unvested past service costs previously recognized over the average vesting period to be recognized immediately in profit or loss when incurred. Prior to adoption of the Revised PAS 19, the Group recognized actuarial gains and losses as income or expense when the net cumulative unrecognized gains and losses for each individual plan at the end of the previous period exceeded 10 percent of the higher of the defined benefit obligation and the fair value of the plan assets. Upon adoption of the Revised PAS 19, the Group changed its accounting policy to recognize all actuarial gains and losses in other comprehensive income and past service costs, if any, in profit or loss in the period they occur. The Revised PAS 19 replaced the interest cost and expected return on plan assets with the concept of net interest on defined benefit liability or asset which is calculated by multiplying the net balance sheet defined benefit liability or asset by the discount rate used to measure the employee benefit obligation, each as at the beginning of the annual period. The Revised PAS 19 also amended the definition of short-term employee benefits and requires employee benefits to be classified as short-term based on expected timing of settlement rather than the employee’s entitlement to the benefits. In addition, the Revised PAS 19 modifies the timing of recognition for termination benefits. The modification requires the termination benefits to be recognized at the earlier of when the offer cannot be withdrawn or when the related restructuring costs are recognized. PAS 27, Separate Financial Statements (as revised in 2011) As a consequence of the issuance of the new PFRS 10 and PFRS 12, what remains of PAS 27 is limited to accounting for subsidiaries, jointly controlled entities, and associates in separate financial statements.

SEC Form 17-Q Q2 2013

Impact on the Interim Condensed Consolidated Financial Statements requires the disclosure of fair value on investment properties measured using the cost model. The Group discloses the fair value of its investment properties in the annual consolidated financial statements. The new standard has no significant impact on the Group’s financial position or performance. The Group has modified the presentation of items of other comprehensive income in the interim consolidated statements of comprehensive income as a result of the amendments. The amendments have no impact on the Group’s financial condition or performance.

The Group has applied the amendments to PAS 19 retrospectively. The effects of adoption of Revised PAS 19 are detailed below:

Increase (decrease) in: Consolidated Balance Sheet Net pension assets Net pension liabilities Deferred tax asset Deferred tax liability Other comprehensive income Retained earnings Minority interests Consolidated Statement of Income Net pension expense Income tax expense Net income Attributable To Equity holders of the parent Minority interests

January 1, 2012

December 31, 2012

1,592 1,214 68 (40)

383 804 (33) 102

452 – 34

(720) 43 121 June 30, 2012 (99) (4) 103 22 81

The effect on basic and diluted earnings per share related to the restatement was immaterial. Changes to definition of short-term employee benefits and timing of recognition for termination benefits do not have any impact to the Group’s financial position and financial performance.

The adoption of the amended PAS 27 has no significant impact on the separate financial statements of the entities in the Group.

16

New Pronouncements PAS 28, Investments in Associates and Joint Ventures (as revised in 2011) As a consequence of the issuance of the new PFRS 11 and PFRS 12, PAS 28 has been renamed as Investments in Associates and Joint Ventures, and describes the application of the equity method to investments in joint ventures in addition to associates. IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine

Impact on the Interim Condensed Consolidated Financial Statements The adoption of the amended PAS 28 has no significant impact on the interim condensed consolidated financial statements of the Group.

This new interpretation is not relevant to the Group.

This interpretation applies to waste removal costs incurred in surface mining activity during the production phase of the mine. The interpretation addresses the accounting for the benefit from the stripping activity.

3.2.2

Annual Improvements to PFRSs (2009-2011 Cycle)



PFRS 1, First-time Adoption of PFRSs - Borrowing costs The amendment clarifies that, upon adoption of PFRSs, an entity that capitalized borrowing costs in accordance with its previous generally accepted accounting principles, may carry forward, without any adjustment, the amount previously capitalized in its opening statement of financial position at the date of transition. Subsequent to the adoption of PFRSs, borrowing costs are recognized in accordance with PAS 23, Borrowing Costs. The amendment does not apply to the Group as it is not a first-time adopter of PFRSs.



PAS 1, Presentation of Financial Statements - Clarification of the requirements for comparative information The amendments clarify the requirements for comparative information that are disclosed voluntarily and those that are mandatory due to retrospective application of an accounting policy, or retrospective restatement or reclassification of items in the financial statements. An entity must include comparative information in the related notes to the financial statements when it voluntarily provides comparative information beyond the minimum required comparative period. The additional comparative period does not need to contain a complete set of financial statements. On the other hand, supporting notes for the third balance sheet (mandatory when there is a retrospective application of an accounting policy, or retrospective restatement or reclassification of items in the financial statements) are not required. The amendments affect disclosures only and have no impact on the Group’s financial position or performance.



PAS 16, Property, Plant and Equipment - Classification of servicing equipment The amendment clarifies that spare parts, stand-by equipment and servicing equipment should be recognized as property, plant and equipment when they meet the definition of property, plant and equipment and should be recognized as inventory if otherwise. The amendment does not have any significant impact on the Group’s financial position or performance.



PAS 32, Financial Instruments: Presentation - Tax effect of distribution to holders of equity instruments The amendment clarifies that income taxes relating to distributions to equity holders and to transaction costs of an equity transaction are accounted for in accordance with PAS 12, Income Taxes. The amendment has no impact on the Group’s financial position or performance.

SEC Form 17-Q Q2 2013

17



PAS 34, Interim Financial Reporting - Interim financial reporting and segment information for total assets and liabilities The amendment clarifies that the total assets and liabilities for a particular reportable segment need to be disclosed only when the amounts are regularly provided to the chief operating decision maker and there has been a material change from the amount disclosed in the entity’s previous annual financial statements for that reportable segment. The amendment has no impact on the Group’s financial position or performance.

3.3 Future Adoption of PFRS 9, Financial Instruments: Classification and Measurement PFRS 9, as issued, reflects the first phase of work on the replacement of PAS 39, Financial Instruments: Recognition and Measurement and applies to classification and measurement of financial assets and financial liabilities as defined in PAS 39. The standard is effective for annual periods beginning on or after January 1, 2015. The adoption of the first phase of PFRS 9 will have an effect on the classification and measurement of the Group’s financial assets, but will potentially have no impact on the classification and measurement of financial liabilities. The Group, however, has yet to conduct a quantification of the full impact of this standard. The Group will quantify the effect of this standard in conjunction with the other phases, when issued, to present a more comprehensive picture. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective. 4. Business Combinations and Acquisition PT Karwell Indonesia Tbk (Karwell) and PT PBM Olah Jasa Andal (OJA), Jakarta, Indonesia. On May 3, 2012, IFEL acquired 53.23 percent of equity interest in Karwell from PT Karya Estetikamulia through the Indonesian Stock Exchange at IDR74 per share. On the same date, IFEL purchased Karwell shares aggregating 26.77 percent in equity interest from several parties from the public at a price ranging from IDR75 to IDR77 per share. Total purchase consideration amounted to US$3.8 million. Karwell is a listed company in Indonesia engaged in garment and textile industry which has stopped commercial operations. IFEL has acquired and purchased an aggregate of 80 percent of the outstanding and issued shares of Karwell, thereby, effectively becoming the new controlling shareholder. The purpose of the business combination is to save and preserve the going concern of Karwell so that Karwell can engage in the development, construction and operation of terminals and maritime logistic infrastructure and will be able to generate satisfactory returns to all shareholders and other related stakeholders of Karwell. On July 25, 2012, the Minister of Law and Human Rights approved the change in business name of Karwell to PT ICTSI Jasa Prima Tbk (JASA). Karwell includes PT Karya Investama Indonesia and PT Karinwashindo Centralgraha (collectively referred to as “JASA and Subsidiaries”). On May 18, 2012, JASA signed a Conditional Sale Purchase Agreement with PT Temas Lestari for the purchase of 100 percent equity interest in OJA, a limited liability company operating in loading and unloading of general cargo and/or container at Tanjung Priok, Jakarta, Indonesia. On July 3, 2012, ICTSI, through JASA, completed the acquisition of 100 percent of the equity interest in OJA for a purchase price of US$41.9 million. The Group has elected to measure the minority interest in the acquiree at the proportionate share in fair value of the net identifiable assets acquired.

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The fair values of the identifiable assets and liabilities of JASA and subsidiaries at the date of acquisition were (amount in thousands):

Assets Property and equipment Deferred tax asset Cash and cash equivalents Receivables Prepaid expenses and other current assets Liabilities Long-term debt* Deferred tax liabilities Other noncurrent liabilities Short-term debt* Accounts payables and other current liabilities Total identifiable net assets at fair value Minority interest measured at proportionate fair value Goodwill arising on acquisition Purchase consideration *

Fair Value Recognized on Acquisition

US$18,342 114 1,937 17,992 574 38,959 7,075 58 427 20,180 3,839 31,579 7,380 426 37,908 US$45,714

Fully paid in July 2012.

The total cost of the combination or purchase consideration of US$45.7 million was satisfied by cash amounting to US$29.7 million and the assumption of liability of the previous owner of OJA by JASA amounting to US$16.0 million. However, the liability of JASA is eliminated against the receivable of OJA at the consolidated balance sheet. The goodwill of US$37.9 million comprises the value of expected synergies arising from the acquisition, which is not separately recognized. For the consolidated statement of cash flow purposes, the net cash outflow on the acquisitions aggregating US$27.8 million was derived as follows (amount in thousands): Cash paid at acquisition date Less cash in banks of JASA and subsidiaries Net cash outflow

Amount US$29,722 1,937 US$27,785

From the date of acquisition, JASA and subsidiaries increased consolidated revenues by US$2.0 million (IDR19.2 billion) and reduced net income attributable to equity holders of the parent by US$2.1 million (IDR19.3 billion) for the year ended December 31, 2012. If the acquisition had taken place at the beginning of the year, consolidated revenues and net income attributable to equity holders of the parent would have been higher by US$5.0 million (IDR46.9 billion) and US$1.2 million (IDR10.2 billion), respectively, for the year ended December 31, 2012. Pakistan International Container Terminal. ICTSI Mauritius completed the acquisition of 35 percent of the total issued capital of PICT for a purchase price of US$60.3 million (Rs.5.7 billion) on October 18, 2012 to become the single biggest shareholder of PICT. With the acquisition of 35 percent equity interest in PICT, ICTSI, through ICTSI Mauritius, gained control over PICT effective October 19, 2012 resulting in the majority board representation and the power to appoint the General Manager and Chief Financial Officer of PICT. The Group has elected to measure the minority interest in the acquiree at the fair value of its shares prevailing at the date when the Group obtained control over PICT. The fair value represents the prevailing share price of PICT at the Karachi Stock Exchange on October 18, 2012.

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The provisional fair values of the identifiable assets and liabilities of PICT at the date of acquisition were:

Assets Property and equipment Intangibles Deferred tax assets Other noncurrent assets Cash and cash equivalents Receivables Spare parts and supplies Prepaid expenses and other current assets Liabilities Long-term debt Concession rights payable Deferred tax liabilities Trade payables and other current liabilities Current portion of long-term debt Income tax payable Total identifiable net assets at fair value Minority interest measured at fair value Goodwill arising on acquisition Purchase consideration transferred and satisfied by cash

Provisional Fair Value Recognized on Acquisition US$20,489 41,554 2,953 8,181 11,157 2,732 1,260 22,467 110,793 15,564 13,588 11,920 9,124 5,222 18,835 74,253 36,540 (111,112) 134,862 US$60,290

For the consolidated statements of cash flow purposes, the net cash outflow on the acquisition amounting to US$49.1 million was derived as follows: Cash paid at acquisition date Less cash in banks of acquired subsidiary Net cash outflow

Amount US$60,290 11,157 US$49,133

From the date of acquisition, PICT increased consolidated revenues by US$14.0 million (Rs.1.3 billion) and net income attributable to equity holders of the parent by US$0.8 million (Rs.72.7 million) for the year ended December 31, 2012. If the acquisition had taken place at the beginning of the year, consolidated revenues and net income attributable to equity holders of the parent would have been higher by US$67.5 million (Rs.6.4 billion) and US$3.8 million (Rs.358.6 million) for the year ended December 31, 2012, respectively. The fair values of identifiable assets and liabilities of PICT recognized in the 2012 (audited) and 2013 (unaudited) consolidated financial statements was based on provisional assessment as the Group had sought independent valuations for the net assets acquired. The valuations have not been completed as of June 30, 2013. Fair value adjustments will be made as soon as the Group completes the valuations as at the date of acquisitions. 5. Segment Information A segment is a distinguishable component of the Group that is engaged either in providing types of services (business segment) or in providing the services within a particular economic environment (geographic segment).

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The Group operates principally in one industry segment, which is cargo handling and related services. ICTSI has organized its business into three geographical segments: 

Asia - includes MICT, BIPI, DIPSSCOR, SCIPSI, SBITC, ICTSI Subic and MICTSI in the Philippines, YRDICTL in China, MTS in Indonesia, NICTI in Japan, NMCTS in Brunei, ICTSI India in India, PICT in Pakistan, OJA, JASA, HIPS, AICTSL and ICTHI, ICTSI Ltd and holding companies with regional area headquarters in the Philippines and those incorporated in The Netherlands for the purpose of supporting the funding requirements of the Group;



EMEA - includes BCT in Poland, TICT in Syria, BICTL in Georgia, AGCT in Croatia, MICTSL in Madagascar and LICTSLE in Nigeria; and



Americas - includes TSSA in Brazil, CGSA in Ecuador, SPIA in Colombia, Tecplata in Argentina, CMSA in Mexico, ICTSI Oregon in Oregon, U.S.A and OPC in Honduras.

Management monitors the operating results of its operating unit separately for making decisions about resource allocation and performance assessment. The Group evaluates segment performance based on contributions to gross revenues, which is measured consistently with gross revenues from port operations in the interim consolidated statement of income. Financing is managed on a group basis and centralized at the Parent Company level or at the entities created solely for the purpose of obtaining funds for the Group. Funding requirements that are secured through debt are recognized as liabilities of the Parent Company or of the entity issuing the debt instrument, classified under the geographical region of Asia and are not allocated to other geographical segments where funds are eventually transferred and used. The table below presents financial information on geographical segments as of December 31, 2012 (restated) and as of June 30, 2013 (unaudited) and for the three and six months ended June 30, 2012 and 2013 (unaudited): As of and for the Three Months Ended June 30 Asia EMEA Americas Consolidated Volume(a) Gross revenues Capital expenditures(b)

2012

As of and for the Six Months Ended June 30 Asia EMEA Americas Consolidated

755,574

206,364

397,481

1,359,419

1,483,585

409,040

805,110

2,697,735

US$81,123

US$21,983

US$68,062

US$171,168

US$159,152

US$43,510

US$142,350

US$345,012

12,883

2,410

79,015

94,308

19,982

4,025

166,961

190,968

1,067,211

176,609

1,147,415

2,391,235

1,067,211

176,609

1,147,415

2,391,235

873,729

55,876

208,917

1,138,522

873,729

55,876

208,917

1,138,522

Other information: Segment assets(c) Segment liabilities(d)

As of and for the Three Months Ended June 30 Asia EMEA Americas Consolidated Volume(a)

2013

As of and for the Six Months Ended June 30 Asia EMEA Americas Consolidated

932,276

208,015

390,252

1,530,543

1,834,569

392,615

799,821

3,027,005

US$112,694

US$22,713

US$68,989

US$204,396

US$222,744

US$45,317

US$145,651

US$413,712

8,210

36,251

142,692

187,153

30,388

40,550

209,197

280,135

Segment assets(c)

1,594,353

195,835

1,308,121

3,098,309

1,594,353

195,835

1,308,121

3,098,309

Segment liabilities(d)

1,412,084

73,460

180,231

1,665,775

1,412,084

73,460

180,231

1,665,775

Gross revenues Capital expenditures(b) Other information:

(a)

Measured in TEUs.

(b)

Capital expenditures include amount spent for the acquisition of port facilities and equipment classified as intangibles under IFRIC 12 and property and equipment as shown in the unaudited statement of cash flows

(c)

Segment assets do not include deferred tax assets amounting to US$14.1 million and US$21.8 million as of December 31, 2012 (restated) and June 30, 2013 (unaudited), respectively.

(d)

Segment liabilities do not include income tax payable amounting to US$21.0 million and US$23.3 million and deferred tax liabilities amounting to US$55.3 million and US$50.9 million as of December 31, 2012 (restated) and June 30, 2013 (unaudited), respectively.

Moreover, management monitors the Group’s earnings before interest, taxes, depreciation and amortization (EBITDA) on a consolidated basis for decision-making purposes. The following

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table shows the computation of EBITDA as derived from the unaudited consolidated net income attributable to equity holders of the parent for the three and six months ended June 30:

Net income attributable to equity holders of the parent Minority interests Provision for income tax Income before income tax Add (deduct): Depreciation and amortization Interest and other expenses(a) Interest and other income(b) EBITDA(c) (a)

(b)

(c)

For the Three Months Ended June 30 2012 (Restated – see Note 3) 2013

For the Six Months Ended June 30 2012 (Restated – see Note 3) 2013

US$34,911 132 11,521 46,564

US$42,229 1,941 (1,257) 42,913

US$70,282 813 27,038 98,133

US$82,901 4,475 15,759 103,135

19,467 11,712 (5,360) US$72,383

25,079 27,834 (5,220) US$90,606

38,356 25,547 (12,879) US$149,157

47,380 47,217 (9,592) US$188,140

Interest and other expenses include the following as shown in the unaudited interim consolidated statement of income: foreign exchange loss; interest on concession rights payable; interest expense and financing charges on borrowings; and other expenses. Interest and other income include the following as shown in the unaudited interim consolidated statement of income: foreign exchange gain; interest income; and other income. EBITDA is not a uniform or legally defined financial measure. EBITDA is presented because the Group believes it is an important measure of its performance and liquidity. EBITDA is also frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the industry. The Group EBITDA figures are not; however, readily comparable with other companies’ EBITDA figures as they are calculated differently thus, must be read in conjunction with related additional explanations. EBITDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of the Group’s results as reported under PFRS. Some of the limitations concerning EBITDA are:  EBITDA does not reflect cash expenditures or future requirements for capital expenditures or contractual commitments;  EBITDA does not reflect changes in, or cash requirements for working capital needs;  EBITDA does not reflect the interest expense, or cash requirements necessary to service interest or principal debt payments;  Although depreciation and amortization are non-cash charges, the assets being depreciated or amortized will often have to be replaced in the future, and EBITDA does not reflect any cash requirements for such replacements; and  Other companies in the industry may calculate EBITDA differently, which may limit its usefulness as a comparative measure. Because of these limitations, EBITDA should not be considered as a measure of discretionary cash available to the Group to invest in the growth of the business. The Group compensates for these limitations by relying primarily on PFRS results and uses EBITDA only as supplementary information.

All segment revenues are from external customers. Gross revenues from port operations of ICTSI and other Philippine-based subsidiaries comprised 43.1% and 42.0% of the unaudited consolidated gross revenues from port operations for the three months ended June 30, 2012 and 2013, respectively, and 42.1% and 40.6% of the unaudited consolidated gross revenues from port operations for the six months ended June 30, 2012 and 2013, respectively. 6. Concession Rights and Concession Rights Payable 6.1 Concession Rights Concession rights are presented as part of intangibles in the consolidated balance sheet. Concession rights include upfront fee payments recognized on the concession contracts, cost of port infrastructure constructed and port equipment purchased, and present value of future fixed fee considerations in exchange for the license or right to operate ports. Concession rights are amortized over the term of the concession agreements. Additions to concession rights under fixed fees pertain to present value of fixed fee consideration under the renewal agreement of MICT contract for another 25 years (see Note 1.2). Additions under port infrastructure mainly pertain to acquisitions of port facilities and equipment and construction of various civil works and capitalization of borrowing costs in Tecplata. On the

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other hand, additions to concession rights under upfront fees pertain mainly to initial payments in relation to the execution of the Agreement in Honduras and upfront fee paid for the renewal of MICT contract (see Note 1.2). In April 2010, a vessel hit one of the quay cranes of CGSA causing damage to the crane, affecting portion of one of the berths, related infrastructure and third party containers and cargo. These properties were capitalized as intangible assets in the consolidated balance sheet. CGSA and ICTSI took appropriate steps to replace the equipment, repair the berth and minimize business interruption. The damaged crane has been replaced and the berth has been repaired. The repaired berth and crane replacement have been operational since October 2010 and June 2011, respectively. Security in respect of CGSA’s claims against the vessel has been obtained in relation to the damage caused to CGSA’s equipment, facilities, operations and third parties’ equipment and goods. Investigations into the circumstances of the incident, which are continuing, strongly support management’s view that the incident was caused by vessel negligence. Furthermore, CGSA and the vessel owners have agreed to subject the case to English Law and the jurisdiction of the English High Court for England is the leading center for the resolution of maritime disputes and the English courts operate under a clearly defined and speedy litigation procedure with specialist maritime judges. As of June 30 2013, CGSA has commenced proceedings against vessel owners in the English High Court and have exchanged formal pleadings with owners where the basis of CGSA’s claim, owners’ defence to that claim, owners’ counter-claim and CGSA’s defence to that counter-claim have been set out. CGSA’s claim against owners and the owners’counter-claim will now follow the English High Court’s prescribed litigation timetable. Management is confident of making a substantial recovery from the vessel owners for the damage and losses caused. As of June 30, 2013, the Group received a total of US$3.8 milllion for the recovery of the cost of the damaged crane from its local insurer. Related claims receivable presented under “Receivables” account in the unaudited interim consolidated balance sheet amounted to US$3.6 million as of December 31, 2012 and June 30, 2013. Management and the Group’s legal counsels believe that recovery of this receivable from vessel owners is assured. Borrowing costs capitalized amounted to US$11.1 million as at June 30, 2012 with capitalization rate of 8.85 percent and US$8.9 million as at June 30, 2013 with capitalization rate of 7.65 percent (see Note 12.6). 6.2 Concession Rights Payable Upon recognition of the fair value of fixed fee on concession contracts, the Group also recognized the corresponding concession rights payable. Maturities of concession rights payable arising from the capitalization of fixed portion of port fees and upfront fees as at June 30, 2013 are as follows (amount in thousands): 2013 2014 2015 2016 2017 onwards Total

Amount US$4,831 8,199 11,864 13,502 472,431 US$510,827

Total fixed portion of port fees and upfront fees paid by the Group for the three and six months ended June 30, 2012 and 2013 amounted to US$10.1 million and US$8.8 million and US$20.3 million and US$16.4 million, respectively. These port fees are allocated to payments of interest and reduction to or payments of concession rights payable. Interest expense on concession rights payable amounted to US$3.9 million and US$6.1 million and US$7.8 million and US$9.6 million for the three and six months ended June 30, 2012 and SEC Form 17-Q Q2 2013

23

2013, respectively. The annualized weighted average interest rate was 9.39% and 3.96% as of June 30, 2012 and 2013, respectively. Reduction to concession rights payable, shown as payments to concession rights in the unaudited consolidated statement of cash flows for the six months ended June 30, 2012 and 2013 amounted to US$12.5 million and US$6.6 million, respectively. 7. Property and Equipment Property and equipment increased mainly due to acquisition of terminal equipment and ongoing construction at CMSA and AGCT. There were no major disposals or write-downs of property and equipment for the six months ended June 30, 2013. On May 17, 2012, a vessel hit one gantry crane of BCT causing damage to the crane and another gantry crane, some empty dry container vans, portions of the quay and related infrastructure in the area, and physical injuries to three employees of BCT. The net book value of the gantry crane as of the date of the incident amounted to US$2.5 million, which is fully recoverable from the insurance company and the vessel owner. The incident did not result in any significant effect on the operations and profitability of the terminal as the majority of the terminal, including berthing areas, remained fully operational after the incident. BCT has recognized claims receivable from the insurance company corresponding to the net book value of damaged gantry crane and costs of restoring the damaged quay and related infrastructure. On February 14, 2013, BCT recovered US$2.6 million from the local insurer as initial recovery of the cost of the damaged gantry crane. As of June 30, 2013, BCT recognized claims receivable amounting to US$2.4 million, which is presented as part of “Receivables” account in the unaudited interim consolidated balance sheet. BCT expects to collect from the insurance company the remaining balance of the claims receivable in August 2013 as the payment authority has already been approved on July 31, 2013. Borrowing costs capitalized amounted to US$2.9 million as at June 30, 2012 with capitalization rate of 8.85% and US$8.1 million as at June 30, 2013 with capitalization rate of 7.65% (see Note 12.6). 8. Other Noncurrent Assets This account includes advances to suppliers and contractors, input tax, advanced rent and deposits, restricted cash, available-for-sale investments, pension assets and others. Advances to suppliers and contractors mainly pertain to advance payments for the acquisition of transportation equipment and construction of port facilities. This account decreased in 2013 mainly because of reduction in advances to suppliers and contractors of CMSA and AGCT associated with the purchase and construction of terminal facilities and equipment. 9. Financial Instruments Derivative Instruments Accounted for as Cash Flow Hedges Cross-Currency Swaps. The movements in derivative assets and liabilities include the change in fair values of floating-to-fixed and fixed-to-fixed cross-currency swaps entered into by ICTSI in 2009 to hedge both the foreign currency and interest rate exposures on the Group’s foreign currency-denominated term loan facilities. As of June 30, 2013, the net market valuation loss on the outstanding cross-currency swaps amounting to US$4.1 million (net of US$1.7 million tax) was taken directly to equity under other comprehensive income. Derivative assets as a result of the valuation amounted to US$2.9 million as of June 30, 2013.

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Translation Hedging. As of June 30, 2013 an aggregate of US$40.5 million (P =1.75 billion) equivalent of Philippine peso-denominated short-term investments have been designated by the Parent Company as cash flow hedges of the variability of Philippine peso cash flows that is required to settle Philippine peso-denominated payables that would arise from forecasted payments to the Philippine Port Authority due from January to October 2014 (see Note 10). Foreign currency translation loss on Philippine peso-denominated short-term investments designated as cash flow hedges aggregating to US$2.0 million has been recognized under equity. No ineffectiveness was recognized in the unaudited interim consolidated statement of income for the six-month period ended June 30, 2013. No amount has been recycled from equity to foreign exchange gain or loss in the unaudited interim consolidated statement of income for the six-month period ended June 30, 2013. Non-deliverable Forwards. As of June 30, 2013, the Company has a total of US$19.9 million non-deliverable sell US$ buy Colombian Pesos forward outstanding maturing in October to December 2013. The derivatives have been designated by the Parent Company as cash flow hedges of the variability of Colombian peso cash flows that is required to settle Colombian peso denominated payables that would arise from forecasted payments to contractors and/or suppliers. As of June 30, 2013, the net market valuation loss on the outstanding non-deliverable Colombian Peso forwards amounting to US$0.2 million (net of US$0.1 million tax) was taken directly to equity under other comprehensive income. Derivative liabilities as a result of the valuation amounted to US$0.3 million as of June 30, 2013. Except as discussed above, the Group has not entered into other material hedging transactions that significantly affect its financial position and results of operations as at and for the three and six months ended June 30, 2013. Embedded Prepayment Option. As of June 30, 2013, the fair value of the embedded prepayment option identified in the Parent Company’s loan contract with HSBC or the FXCN Note amounted to US$1.0 million. Net change in fair value recognized in the unaudited interim consolidated statement of income for the three and six months ended June 30, 2013 amounted to US$0.3 million loss and US$0.1 million loss, respectively. 10. Cash and Cash Equivalents For the purpose of unaudited interim consolidated statements of cash flows, balances of cash and cash equivalents as of June 30 were as follows:

Cash on hand and in banks Cash equivalents

2012 (Unaudited) US$93,320 237,225 US$330,545

2013 (Unaudited) US$108,561 249,761 US$358,322

Cash in banks earns interest at the prevailing bank deposit rates. Cash equivalents are short-term investments, which are made for varying periods of up to three months depending on the immediate cash requirements of the Group and earn interest at the prevailing short-term investment rates. As of June 30, 2013 an aggregate of US$40.5 million (P =1.75 billion) equivalent of Philippine peso-denominated short-term investments have been designated by the Parent Company as cash flow hedges of the variability of Philippine peso cash flows that is required to settle Philippine peso-denominated payables that would arise from forecasted payments to the Philippine Port Authority (see Note 9).

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11. Prepaid Expenses and Other Current Assets This account includes input tax, tax credit certificates, creditable withholding taxes and prepaid port fees, insurance, bonds and other expenses. This account increased in 2013 mainly because of higher input tax in CMSA associated with the purchase of terminal equipment and payments of civil works in relation to the ongoing construction at the terminal. 12. Long-term Debt and Loans Payable 12.1

Maturities of Long-term Debt

Maturities of long-term debt, net of unamortized debt issue costs of US$8.6 million, as at June 30, 2013 are as follows (amount in thousand): 2013 2014 2015 2016 2017 and onwards Total 12.2

Amount US$63,432 18,060 29,193 19,621 848,812 US$979,118

US Dollar-denominated Securities

In February 2012, CGSA placed the balance of the US$60.0 million securities, through a special purpose trust approved in 2011, amounting to US$4.2 million. The securities were issued in three series to mature within five years from date of issue with principal and interest payable quarterly. Series A bears variable interest at the rate of 2.5 percent p.a. plus the reference interest rate for savings posted by Central Bank of Ecuador subject to a readjustment every quarter, while Series B and Series C bear interest at fixed rate of 7.5% p.a. For the three and six months ended June 30, 2013, CGSA paid US$2.7 million and US$5.4 million of the outstanding securities, respectively. As of June 30, 2013, outstanding balance of securities amounted to US$43.7 million. 12.3

US Dollar-denominated Term Loans

BCT. On March 29, 2012, BCT and The State Treasury – Centre for European Union (EU) Transport Projects (CETP) signed a Co-Financing Agreement (“EU grant”) whereby CEPT will grant BCT a subsidy amounting to US$17.3 million (PLN53.9 million). The EU grant is a condition precedent to any borrowing under the facility agreement with Bank Polska Kasa Opieki S.A. (“Bank Polska”) that was signed on October 27, 2011 to provide (i) term loan facility up to US$9.2 million, (ii) capital expenditures (capex) facility up to US$36.3 million to finance or refinance project costs and fees, and (iii) overdraft facility up to US$1.0 million to finance working capital requirements. The purpose of the term loan facility is to refinance all existing financial indebtedness under BCT’s loan agreement in November 2004. As of June 30, 2013, BCT has availed a total of US$0.7 million of the grant. The grant is treated as deferred income and is amortized over the useful life of the related asset. Unsecured Medium-Term Loans. In 2012, ICTSI availed of unsecured medium-term loans from Australia and New Zealand Banking Group Limited, Manila Branch, The Hong Kong Shanghai Banking Corporation Limited, Manila Branch and Metropolitan Bank and Trust Company aggregating US$160.0 million for general corporate requirements. These loans will mature starting from October 2013 up to January 2014 with interest at prevailing market rates. In January and February 2013, US$140.0 million of the medium-term loans were prepaid.

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US Dollar-denominated Medium-Term Note Programme (the “MTN Programme”). On January 9, 2013, ICTSI Treasury B.V. (ICTSI Treasury), a majority owned subsidiary through ICTSI Ltd., established the MTN Programme that would allow ICTSI Treasury from time to time to issue medium term notes (MTN), unconditionally and irrevocably guaranteed by ICTSI. The aggregate nominal amount of the MTN outstanding will not at any time exceed US$750.0 million (or its equivalent in other currencies), subject to increase as described in the terms and conditions of the Programme Agreement. Also, on January 9, 2013, ICTSI Treasury and ICTSI signed a Subscription Agreement with HSBC and UBS AG, Hong Kong Branch, for the issuance of 10-year US$300.0 million guaranteed MTN (the “Original MTN”) under the MTN Programme. The Original MTN were issued on January 16, 2013 to mature on January 16, 2023 at a fixed interest rate of 4.625 percent p.a., net of applicable taxes, set at a price of 99.014 and payable semi-annually in arrears. Moreover, on January 28, 2013, ICTSI Treasury and ICTSI signed a Subscription Agreement with UBS AG, Hong Kong Branch, for the issuance of an additional 10-year US$100.0 million guaranteed MTN under the MTN Programme (the “MTN Tap”) to form a single series with the Original MTN discussed in the preceding paragraph. The MTN Tap were issued on February 4, 2013 to mature on January 16, 2023 at a fixed interest rate of 4.625 percent p.a., net of applicable taxes, set at a price of 101.25 and payable semi-annually in arrears. The aggregate net proceeds of the MTN amounting to US$393.7 million were used to refinance some of ICTSI’s existing debt and for other general corporate purposes. In June 2013, ICTSI purchased a total of US$6.0 million of ICTSI Treasury’s US$400.0 million MTN at US$5.7 million. This resulted in the recognition of US$0.3 million gain in the 2013 interim consolidated statement of income. The MTN were not registered with the SEC. The MTN were offered in offshore transactions outside the United States in reliance on Regulation S under the Securities Act of 1933, as amended, and, subject to certain exceptions, may not be offered or sold within the United States. The MTN are traded and listed in the Singapore Stock Exchange. 12.4

Foreign Currency-denominated Loans

AGCT. In March 2013, AGCT signed the first part of a 10-year loan agreement for EUR6.2 million (US$8.1 million) with Raiffeisenbank Austria d.d. to partly finance the purchase of port equipment intended for the Brajdica Container Terminal. Principal shall be repayable in 112 monthly installments starting January 31, 2014 until April 30, 2023. Interest shall be payable monthly based on floating interest rate computed at 1-month EURIBOR plus a spread of 4.2 percent p.a. AGCT’s port equipment will be used to secure the loan. As of June 30, 2013, drawdown under the first part of the loan agreement amounted to EUR6.2 million (US$8.1 million). On July 22, 2013, AGCT signed the second part of the same loan agreement for EUR4.4 million (US$5.6 milion). 12.5

Loans Payable

In March 2013, CGSA obtained a one year unsecured loan with Banco Bolivariano amounting to US$3.0 million at the fixed interest rate of 8.0% p.a. In April 2013, CGSA obtained one year unsecured loans with Banco del Pacifico and Citibank Ecuador amounting to US$2.0 million and US$1.5 million at the fixed interest rate of 8.0% p.a. to 8.1% p.a., respectively. Outstanding balance of the three loans as of June 30, 2013 was US$5.3 million.

SEC Form 17-Q Q2 2013

27

12.6

Loan Covenants and Capitalized Borrowing Costs

The loans from local and foreign banks impose certain restrictions with respect to corporate reorganization, disposition of all or a substantial portion of ICTSI’s and subsidiaries’ assets, acquisitions of futures or stocks, and extending loans to others, except in the ordinary course of business. ICTSI is also required to maintain specified financial ratios relating to their debt to equity and cash flow and earnings level relative to current debt service obligations. As of June 30, 2013, ICTSI and subsidiaries are in compliance with their loan covenants. Interest expense, net of amount capitalized as intangible assets and property and equipment amounted to US$4.8 million and US$11.4 million, and US$13.5 million and US$23.4 million for the three and six months ended June 30, 2012 and 2013, respectively (see Notes 6 and 7). Interest expense includes amortization of debt issue costs amounting to US$0.4 million and US$0.3 million, and US$0.6 million and US$1.3 million for the three and six months ended June 30, 2012 and 2013, respectively. There was no material change in the covenants related to the Group’s long-term debts. As at June 30, 2013, the Group has complied with its loan covenants. There were no other significant transactions pertaining to the Group’s long-term debt as of June 30, 2013, except as discussed above. 13. Accounts Payable and Other Current Liabilities This account includes trade payables, accrued expenses, provisions for claims and losses, customer’s deposits and other liabilities. This account decreased in 2013 mainly because of payments made by CMSA to contractors and suppliers associated with the purchase of terminal equipment and ongoing construction at the terminal. 14. Equity 14.1

Stock Incentive Plan

On March 11, 2013, the Stock Incentive Committee granted another 2,375,000 shares of stock awards to officers and employees of ICTSI and ICTSI Ltd., 50% of which will vest on March 11, 2014 while another 50% will vest on March 11, 2015. The fair value of the shares was US$2.21 (P =89.70) at the date of grant. The fair value per share was determined based on the market price of stock at the date of grant. Total number of shares granted under the Stock Incentive Plan (SIP) aggregated 32,401,000 shares as at June 30, 2013. Also, on March 9, 2013, 1,712,500 shares vested under the SIP. Total compensation expense recognized on the vesting of the fair value of stock awards amounted to US$0.6 million and US$1.2 million, and US$1.0 million and US$1.8 million for the three and six months ended June 30, 2012 and 2013, respectively. 14.2

Dividends Declared

On April 18, 2013, the Board of Directors (the Board) of ICTSI declared a US$0.017 (P =0.70) cash dividend per share to stockholders of record dated May 6, 2013, paid on May 21, 2013. 14.3

Cost of Shares Held by Subsidiares

As of December 31, 2012 and June 30, 2013, cost of shares held by held subsidiaries pertain to preference B shares held by ICTHI.

SEC Form 17-Q Q2 2013

28

14.4

Capital Stock and Treasury Shares

The details and movements of ICTSI’s capital stock and treasury shares as of June 30, 2013 and 2012 are as follows: Issued and Subscribed Shares

Authorized Shares Common Stock US$0.048 (P =1.00) par value Balance at December 31 Issuance of shares Balance at June 30

2012

2013

4,227,397,381 1,992,066,860 1,992,066,860 53,110,811 – 53,110,811 4,280,508,192 1,992,066,860 2,045,177,671

Treasury Shares Balance at December 31 Sale of treasury shares Issuances for share-based payment Acquisitions during the period Balance at June 30

(52,186,500) (49,694,000) – 36,889,189 2,417,500 1,712,500 – (30,000) (49,769,000) (11,122,311)

In May 2013, the Company sold its 36,889,189 treasury shares together with the 53,110,811 common shares of ICTSI held by the Chairman, Mr. Enrique K. Razon, Jr., at P =91.0 per share. Subsequently, ICTSI issued new common shares to Mr. Razon on May 15, 2013 which resulted in the increase in the outstanding common shares of ICTSI. The net proceeds of the said share transactions totaled US$196.0 million and resulted in the increases of US$1.3 million in common stock and US$191.3 million in APIC and reduction of treasury shares of US$3.4 million. 14.5

Other Comprehensive Income (Loss)

This account consists of:

Cumulative Translation Adjustments Balance at January 1, 2012 (Audited) Effect of PAS 19R Balance at January 1, 2012 (As Restated) Translation differences arising from translation of foreign operations’ financial statements Net change in actuarial gains (losses) on defined benefit plans Net change in unrealized markto-market values of derivatives Income tax relating to components of other comprehensive income Balance at June 30, 2012

SEC Form 17-Q Q2 2013

Unrealized Mark-toMarket Gain on Available-forSale Investments

Revaluation Increment

Actuarial Gains (Losses) on Defined Benefit Plans

Total Comprehensive Income (Loss)

(US$92,009) –

US$610 –

US$471 –

US$– 452

(US$90,928) 452

(92,009)

610

471

452

(90,476)

3,708

–

–

–

3,708

–

–

–

(270)

(270)

2,291

–

200

–

2,491

(687) (US$86,697)

– US$610

– US$671

– US$182

(687) (US$85,234)

29

Cumulative Translation Adjustments Balance at January 1, 2013 (Audited) Effect of PAS 19 Balance at January 1, 2013 (As Restated) Translation differences arising from translation of foreign operations’ financial statements Net change in unrealized markto-market values of derivatives Net change in unrealized markto-market values of AFS investments Income tax relating to components of other comprehensive income Balance at June 30, 2013

14.6

Unrealized Mark-toMarket Gain on Available-forSale Investments

Revaluation Increment

Actuarial Gains (Losses) on Defined Benefit Plans

Total Comprehensive Income (Loss)

(US$87,139) –

US$610 –

US$863 –

US$– (720)

(US$85,666) (720)

(87,139)

610

863

(720)

(86,386)

(36,009)

–

–

–

(36,009)

5,323

–

–

–

5,323

–

–

213

–

213

1,731 (US$116,094)

– US$610

– US$1,076

– (US$720)

1,731 (US$115,128)

Subordinated Perpetual Capital Securities

On April 20, 2011, the Board of ICTSI approved the investment by its wholly owned subsidiary, ICTSI Ltd., in RCBV common shares. The Board also approved for ICTSI to guarantee under such terms and conditions, as the Board may reasonably determine, the issuance, offer and sale by RCBV of subordinated perpetual capital securities in such amount, with interest rate and under such other terms and conditions as the Board and/or RCBV may subsequently approve or ratify. RCBV was incorporated with limited liability in the Netherlands on April 19, 2011 whose primary purpose, among others, is to act as a financing subsidiary of ICTSI. RCBV is 75%-owned by ICTSI Ltd. and its ultimate parent company is ICTSI. On April 28, 2011, RCBV (the “Issuer”) and ICTSI (the “Guarantor”) signed a Subscription Agreement with The Hongkong and Shanghai Banking Corporation Limited (HSBC) and Citigroup Global Markets Limited (Citi) for the issuance of US$200,000,000 8.375% subordinated guaranteed perpetual capital securities (the “Original Securities”). The Original Securities confer a right to receive a return on the Original Securities (the “Distribution”) every Distribution Payment Date as described in the terms and conditions of the Original Securities. These distributions are payable semi-annually in arrears on the Distribution Payment Dates of each year. However, the Issuer may, at its sole and absolute discretion, prior to any Distribution Payment Date, resolve to defer payment of all or some of the Distribution which would otherwise be payable on that Distribution Payment Date subject to exceptions enumerated in the terms and conditions of the Original Securities. The Original Securities are perpetual securities in respect of which there is no fixed redemption date but the Issuer may, at its option change the status of the Securities or redeem the same on instances defined under its terms and conditions. On January 9, 2012, ICTSI tapped a further US$150.0 million (the “Further Securities”) of the Original Securities discussed in the preceding paragraphs, increasing the size to US$350.0 million. The Further Securities were issued on January 17, 2012. The Original and Further Securities are collectively referred to as the “Securities.” The Further Securities were issued at a price of 98.375% (plus interest accrued on the Securities from and including November 5, 2011 to but excluding January 17, 2012). The net proceeds from the issue of the Further Securities amounting to US$142.4 million, after deducting commissions, will be used for the same purpose as the Original Securities. The Securities were not registered with the Philippine SEC. The Securities were offered in offshore transactions outside the United States in reliance on Regulation S under the U.S. SEC Form 17-Q Q2 2013

30

Securities Act of 1933, as amended, and, subject to certain exceptions, may not be offered or sold within the United States. The Securities are traded and listed in the Singapore Stock Exchange. The Securities shall be treated as a liability in the financial statements of the Issuer or RCBV since it has the obligation to pay the accumulated distributions should the Guarantor declare dividends to its common stockholders. On the other hand, the Securities shall be treated as part of equity attributable to equity holders of the parent in the consolidated financial statements of the Group because nothing in the terms and conditions of the Securities gives rise to an obligation of the Group to deliver cash or another financial asset in the future as defined by PAS 32, Financial Instruments: Presentation. However, should the Issuer decide to exercise its option to redeem the Securities, the Securities shall be treated as a financial liability from the date the redemption option is exercised. Should the Issuer also opt to not defer payment of distributions on a Distribution Payment Date, all distributions in arrears as of that date will be recognized as a financial liability until payment is made. Related interest expense accrued by the Issuer or RCBV amounting to US$5.9 million and US$7.3 million, and US$10.1 million and US$14.7 million for the three and six months ended June 30, 2012 and 2013, respectively, was not recognized in the unaudited interim consolidated statement of income since the Securities are presented as equity attributable to equity holders of the parent. 14.7

Minority Interest

In 2013, ICTSI Mauritius purchased 0.9 percent additional equity interest in PICT for US$2.0 million resulting in an excess of cost over carrying value of minority interest amounting to US$0.4 million. Also, in February 2013, PICT declared dividends amounting to US$0.13 per share (PKR12.50 per share) totaling US$13.9 million (PKR1.4 billion). Dividends distributed to ICTSI Mauritius and minority shareholders totaled US$8.9 million (PKR0.9 billion) and US$5.1 million (PKR0.5 billion), respectively. In 2013, ICTSI through its subsidiaries ICTSI Ltd. and IPSAL, purchased 54.92 percent ownership in Nuevos Puertos, minority shareholder of Tecplata, for US$14.0 million. The purchase was accounted for as an acquisition of minority interests. This transaction effectively increased ICTSI’s ownership in Tecplata to 96.25 percent, thereby resulting in the recognition of an excess of cost over carrying value of minority interest amounting to US$8.2 million. 15. Interest income This account mainly arises from short-term investments, which earn interest at prevailing market rates (see Note 10). Interest income amounted to US$2.0 million and US$3.0 million, and US$5.2 million and US$5.5 million for the three and six months ended June 30, 2012 and 2013, respectively. Interest income earned for the three and six months ended June 30, 2013 increased from the same period a year ago due to the higher average cash balance during the first half of 2013 compared with the same period in 2012. 16. Income Tax The Parent Company is subjected to income tax based on its Philippine peso books while its functional currency is US dollars. The Philippine peso depreciated from 41.05 closing rate as of December 31, 2012 to 43.20 as of June 30, 2013. As a result, the Parent Company’s US dollardenominated net monetary liabilities were translated to Philippine peso giving rise to the recognition of deferred tax asset on unrealized foreign exchange loss in 2013 compared to deferred tax liability on unrealized foreign exchange gain in 2012. This is the main reason for the increase in deferred tax assets and benefit from deferred income tax accounts and decrease in deferred tax liabilities as of and for the three and six months ended June 30, 2013.

SEC Form 17-Q Q2 2013

31

17. Related Party Transactions 17.1

Transactions with the Shareholders and Affiliates 2013

2012

Related Party YRDICTL YPH

Relationship

Nature of Transaction

Minority Port fees(i) shareholder

Tecplata Nuevos Puertos Minority Purchase of minority interest S.A. shareholder (see Note 14.7) SCIPSI Asian Terminals, Minority Management fees Inc. shareholder AGCT Luka Rijeka Minority Provision of services(ii) shareholder Consulting services and rental income(iii) PICT Premier Common Stevedoring and storage Mercantile Shareholder charges Services (Private) Limited Pakistan Common Sale of vehicles International Shareholder Bulk Limited Marine Services Common Container handling revenue (Private) shareholder Limited, Portlink International (Private) Limited, and AMI Pakistan (Private) Limited

Outstanding Transaction Transaction Receivable Transaction Amount for Amount for (Payable) Amount for the Three the Six Balance theThree Months Months Amount Months Ended Ended as of Ended June 30 June 30 December 31 June 30 (In Millions)

Outstanding Receivable (Payable) Balance Amount as of June 30

Transaction Amount for the Six Months Ended June 30

US$0.24

US$0.48

US$–

US$0.30

US$0.57

US$–

–

–

–

16.00

16.00

–

0.03

0.06

–

0.04

0.07

0.01

0.14

0.43

(0.01)

0.08

0.13

0.01

0.03

0.01

–

0.01

–

–

–

(0.20)

0.95

1.63

(0.34)

–

–

0.20

–

–

–

–

–

–

0.09

0.14

0.03

(0.10)

(i) YRDICTL is authorized under the Joint Venture Agreement to collect port charges levied on cargoes; port construction fees and facility security fee in accordance with government regulations. Port fees remitted by YRDICTL for YPG are presented as part of “Port authorities’ share in gross revenues” in the consolidated statements of income. Outstanding payable to YPG related to these port charges presented under “Accounts payable and other current liabilities” account in the consolidated balance sheets. (ii) AGCT has entered into agreements with Luka Rijeka, a minority shareholder, for the latter’s provision of services such as equipment maintenance, power and fuel and supply of manpower, among others. Total expenses incurred by AGCT in relation to these agreements and recognized and presented in the consolidated income statement as part of Manpower costs, Equipment and facilities - related expenses and Administrative and other operating expenses amounted to US$10 thousand (HRK0.1 million), US$67 thousand (HRK0.4 million) and US$63 thousand (HRK0.4 million) and US$47 thousand (HRK0.3 million), US$26 thousand (HRK0.2 million) and US$7 thousand (HRK43 thousand), respectively, for the three months ended June 30, 2012 and 2013; and US$22 thousand (HRK0.1 million), US$0.3 million (HRK1.6 million) and US$0.1 million (HRK0.8 million) and US$53 thousand (HRK0.3 million), US$59 thousand (HRK0.3 million) and US$15 thousand (HRK0.1 million), respectively, fo the six months ended June 30, 2012 and 2013. Outstanding payable presented as part of Accounts payable and other current liabilities in the consolidated balance sheet as of December 31, 2012 and June 30, 2013 amounted to US$8 thousand (HRK47 thousand) and US$0.1 million (HRK0.6 million), respectively. (iii)AGCT has earned revenues from consulting services and rental income for providing space for general cargo to Luka Rijeka in 2011. Related revenues, recognized under “Other income” account in the consolidated statements of income amounted to US$12 thousand (HRK0.1 million) and US$5 thousand (HRK27 thousand) and US$29 thousand (HRK 0.2 million) and US$11 thousand (HRK 0.1 million) for the three and six months ended June 30, 2012 and 2013, respectively, and related receivables recognized in the consolidated balance sheets amounted to US$6 thousand (HRK34 thousand) and US$1 thousand (HRK7 thousand) as of December 31, 2012 and June 30, 2013, respectively.

The outstanding balance arising from these related party transactions are current and payable without the need for demand.

SEC Form 17-Q Q2 2013

32

Compensation of Key Management Personnel Compensation of key management personnel consists of the following for the six months ended June 30 (amount in thousands): 2012 US$2,095 7 1,169 US$3,271

Short-term employee benefits Post-employment pension Share-based payments Total compensation to key management personnel

2013 US$2,413 42 1,923 US$4,378

18. Earnings Per Share Computation The table below shows the computation of basic and diluted earnings per share for the three and six months ended June 30 (amounts are in thousands, except number of shares and per share data): Net income attributable to equity holders of the parent, as previously reported Effect of PAS 19R (see Note 3) Net income attributable to equity holders of the parent, as restated Adjustment for the effect of cumulative distributions on subordinated perpetual capital securities (see Note 14.6) Net income attributable to equity holders of the parent, as adjusted (a)

For the Three Months Ended June 30 2012 (Restated – see Note 3) 2013

For the Six Months Ended June 30 2012 (Restated – see Note 3) 2013

US$34,900 11

US$42,229 –

US$70,260 22

US$82,901

34,911

42,229

70,282

82,901

(5,938)

(7,328)

(10,125)

(14,656)

US$28,973

US$34,900

US$60,157

US$68,245

1,992,066,860 (50,977,750) (16,710,627)

1,992,066,860 (42,689,552) (3,800,000)

1,992,066,860 (50,977,750) (16,710,627)

1,992,066,860 (42,689,552) (3,800,000)

1,924,378,483 47,306,500

–

8,851,802 1,954,429,110 11,122,311

1,924,378,483 47,306,500

–

8,851,802 1,954,429,110 11,122,311

1,971,684,983

1,965,551,421

1,971,684,983

1,965,551,421

Basic earnings per share (a/b)

US$0.015

US$0.018

US$0.031

US$0.035

Diluted earnings per share (a/c)

US$0.015

US$0.018

US$0.031

US$0.035

Common shares outstanding at beginning of year Weighted average treasury shares Weighted average shares held by subsidiaries Weighted average common shares issued during the period Weighted average shares outstanding (b) Effect of dilutive stock awards Weighted average shares outstanding adjusted for potential common shares (c)

–

19. Contingencies Due to the nature of the Group’s business, it is involved in various legal proceedings, both as plaintiff and defendant, from time to time. The majority of outstanding litigation involves subrogation claims under which insurance companies have brought claims against the operator, shipping lines and/or brokerage firms for reimbursement of their payment of insurance claims for damaged equipment, facilities and cargoes. In July 2013, BICTL has initiated arbitration proceedings to settle a dispute with its lessor Batumi Sea Port Ltd. (BSP). BICTL has been operating the multipurpose container terminal and the dry cargo and ferry terminal in the Black Sea Port of Batumi, Georgia, under a Lease Agreement entered into with BSP way back September 20, 2007. The Lease was issued by virtue of a Concession Agreement that ICTSI Group entered into with Batumi Port Holdings Limited (BPHL) which had the management rights over BSP. However, BPHL was bought out by the group of JSC KazTransOil in 2011. So BSP is now controlled by JSC KazTransOil which also controls the nearby oil terminals in the Port of Batumi. BSP has sent a notice of alleged violation of the terms and conditions of the Lease Agreement by BICTL. BICTL has formally responded disputing the alleged violations. BICTL filed the SEC Form 17-Q Q2 2013

33

Request for Arbitration with the London Court of International Arbitration to settle the dispute in accordance with the dispute resolution mechanism under the Lease Agreement. On July 10, 2013, BICTL obtained an interim injunction from a Georgian Court preventing BSP from terminating the lease pending the outcome of the arbitration proceedings before the London Court of International Arbitration. As of June 30, 2013, BICTL contributed 1.3% and 1.0% to the consolidated volume and revenues, respectively, of the Group. Management and its legal counsels believe that the Group has substantial legal and factual bases for its position and is of the opinion that losses arising from the existing legal actions and proceedings, if any, will not have a material adverse impact on the Group’s unaudited interim condensed consolidated financial position and results of operations. 20. Seasonality The container terminal industry has historically experienced seasonal variations. This seasonality may result in quarter-to-quarter or period-to-period volatility in operating results. Trade volumes in the jurisdictions in which the Group operates tend to be stronger in the third and fourth quarters and weaker in the first quarter. Management believes that such seasonal variations have no material effect on the results of operations of the Group.

SEC Form 17-Q Q2 2013

34

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis relate to the consolidated financial condition and results of operations of ICTSI and its wholly and majority-owned subsidiaries (collectively known as “ICTSI Group”) and should be read in conjunction with the accompanying unaudited interim condensed consolidated financial statements and related notes. References to “ICTSI”, “the Company”, and “Parent Company” pertain to ICTSI Parent Company, while references to “the Group” pertain to ICTSI and its subsidiaries. 2.1 Overview The Group is an international operator of common user container terminals serving the global container shipping industry. Its business is the acquisition, development, operation and management of container terminals focusing on facilities with total annual throughputs ranging from 50,000 to 2,500,000 twenty-foot equivalent units (TEUs). It also handles break bulk cargoes (BBC) and provides a number of ancillary services such as storage, container packing and unpacking, inspection, weighing, and services for refrigerated containers or reefers. Currently, the Group is involved in 27 terminal concessions and port development projects in 19 countries worldwide. These are 21 operating terminals in seven key ports in the Philippines, two in Indonesia and one each in Brunei, Japan, China, the United States of America (U.S.A.), Ecuador, Brazil, Poland, Georgia, Madagascar, Croatia, Pakistan and India; three ongoing port development projects in Mexico, Colombia and Argentina; and three recently concluded negotiations to manage and operate ports in Nigeria and Honduras and develop and manage another port in Davao, Philippines. The project in Mexico is expected to commence operations in August 2013, while Honduras and Argentina are expected to commence commercial operations in the last quarter of 2013 and early 2014, respectively. ICTSI was established in 1987 in connection with the privatization of Manila International Container Terminal (MICT) in the Port of Manila, and has built upon the experience gained in rehabilitating, developing and operating MICT to establish an extensive international network concentrated in emerging market economies. International acquisitions principally in Brazil, Poland, Madagascar, Ecuador, China, and recently, Pakistan, substantially contributed to the growth in volume, revenues and net income. ICTSI’s business strategy is to continue to develop its existing portfolio of terminals and proactively seek acquisition opportunities that meet its investment criteria. The Group operates principally in one industry segment which is cargo handling and related services. ICTSI has organized its business into three geographical segments: 

Asia o Manila - Manila International Container Terminal, Port of Manila, Philippines (MICT) o Zambales - New Container Terminal (NCT) 1 and 2, Subic Bay Freeport Zone, Olongapo City, Philippines (SBITC/ICTSI Subic) o Batangas - Bauan Terminal, Bauan, Philippines (BIPI) o Davao - Sasa Wharf, Port of Davao (DIPSSCOR) and Hijo International Port (HIPS) o General Santos - Makar Wharf, Port of General Santos, Philippines (SCIPSI) o Misamis Oriental - Phividec Industrial Estate, Tagaloan (MICTSI) o Japan - Naha Port Public International Container Terminal, Okinawa, Japan (NICTI) o Indonesia - Makassar Port Container Terminal, Makassar, South Sulawesi, Indonesia (MTS) and Port of Tanjung Priok, Jakarta Indonesia (OJA) o China - Yantai Gangtong Terminal, Shandong Province, China (YRDICTL) o Brunei - Muara Container Terminal, Brunei Darussalam (NMCTS) o India - Kattupalli International Container Terminal, Tamil Nadu, India (ICTSI India) o Pakistan - Pakistan International Container Terminal, Karachi, Pakistan (PICT)

SEC Form 17-Q Q2 2013

35



Europe, Middle East and Africa (EMEA) o Poland - Baltic Container Terminal, Gdynia, Poland (BCT) o Georgia - Port of Batumi, Batumi, Georgia (BICT) o Croatia - Brajdica Container Terminal, Rijeka, Croatia (AGCT) o Madagascar - Port of Toamasina, Toamasina, Madagascar (MICTSL) o Nigeria - Deep Water Port, Ibeju-Lekki, Lagos State, Federal Republic of Nigeria (LICTSLE)



Americas o Brazil - Suape Container Terminal, Suape, Brazil (TSSA) o Ecuador - Port of Guayaquil, Guayaquil, Ecuador (CGSA) o Argentina - Port of La Plata, Buenos Aires Province, Argentina (Tecplata) o Oregon, USA - Port of Portland, Oregon, USA (ICTSI Oregon) o Mexico - Port of Manzanillo, Manzanillo, Mexico (CMSA) o Colombia - Port of Buenaventura, Buenaventura, Colombia (SPIA) o Honduras - Port of Puerto Cortés, Republic of Honduras (OPC)

ICTSI’s concession for MICT was extended for another 25 years up to May 18, 2038, upon completion of agreed additional investments in port equipment and infrastructures, payment of upfront fees amounting to P =670.0 million (US$16.4 million), and turnover and execution of Deed of Transfer of port facilities and equipment currently being used at MICT and part of committed investment under the original concession agreement, among others. ICTSI recognized new concession rights when the renewal agreement became effective on May 19, 2013 to the extent that ICTSI received a license or right to charge users for the public service it provides. Concession rights consisted of: (i) upfront fee of US$16.4 million (P =670.0 million); and (ii) the present value of fixed fee consideration computed using the discount rate at the effectivity date of the renewal agreement of US$348.5 million. Amortization of concession rights comprising of upfront fees and the present value of fixed fee consideration amounted to US$1.7 million for the three and six months ended June 30, 2013 and is expected to be US$9.0 million by December 31, 2013 and US$14.5 million per year thereafter. Interest expense on concession rights payable amounted to US$2.1 million for the three and six months ended June 30, 2013 and is expected to be US$11.5 million by December 31, 2013, US$18.4 million in 2014 and subsequently calculated based on the diminishing balance of concession rights payable using the effective interest rate. On the other hand, variable fees are recognized as expense when incurred. Concession rights also consisted of port infrastructure, mainly for berth 6, of US$216.5 million. Amortization of port infrastructure amounted to US$1.0 million for the three and six months ended June 30, 2013 and is expected to be US$5.2 million by December 31, 2013 and US$8.3 million per year thereafter. Concessions for port operations entered into by ICTSI and subsidiaries for the last two years are summarized below: Port of Kattupalli, India. In April 2011, ICTSI, through ICTSI Ltd. and International Container Terminal Services (India) Private Limited (ICTSI India), and L&T Shipbuilding Ltd. (LTSB) signed a container port operation agreement for the management and operation of the Kattupalli International Container Terminal (KICT) in Tamil Nadu, India. KICT is ICTSI’s first venture in India. The terminal is located near Chennai in Thiruvallur District. LTSB is the developer of an integrated shipyard cum port with a 1.2 million-TEU annual capacity container terminal in Kattupalli. The terminal has started commercial operations in January 2013. NCT-2, Subic, Philippines. On July 27, 2011, Subic Bay Metropolitan Authority (SBMA) and ICTSI signed the concession agreement for the operation and management of NCT-2 at Cubi Point in Subic, Philippines for 25 years. On August 19, 2011, SBMA approved the assignment of ICTSI’s rights, interests and obligations in the NCT-2 contract to ICTSI Subic, Inc. (ICTSI Subic), which was incorporated on May 31, 2011. NCT-2 was constructed by SBMA in accordance with the SBMA Port Master Plan and the Subic Bay Port Development Project. On August 2, 2012, SBMA has provided SEC Form 17-Q Q2 2013

36

ICTSI Subic the notice to proceed with the operation and management of NCT-2. ICTSI Subic started commercial operations in October 2012. Deep Water Port, Ibeju-Lekki, Federal Republic of Nigeria. On February 22, 2012, ICTSI and Lekki Port LFTZ Enterprise (Lekki Port) entered into a Memorandum of Understanding (MOU) to negotiate the terms of a Sub-concession Agreement to develop and operate the container terminal at the Deep Water Port in the Lagos Free Trade Zone at Ibeju-Lekki, Lagos State, Federal Republic of Nigeria. On August 10, 2012, Lekki Port and ICTSI signed the Sub-concession Agreement, which grants ICTSI the exclusive right to develop and operate, and to provide certain handling equipment and container terminal services for a period of 21 years from start of commercial operations date. The construction of the container terminal is expected to start in late 2013, and is scheduled to commence operations in late 2016 or early 2017. Port of Karachi, Pakistan. On March 30, 2012, ICTSI Mauritius Limited (ICTSI Mauritius) signed a Share Purchase Agreement with substantial shareholders of Pakistan International Container Terminal (PICT), a company listed in the Karachi Stock Exchange, for the purchase of 35% of the shares of stock of PICT, which involved the conduct of a minimum offer price and was determined in accordance with the Takeover Laws of Pakistan. On October 18, 2012, ICTSI Mauritius completed the acquisition of 35% of the total issued capital stock of PICT for a purchase price of US$60.3 million (PKR5.7 billion) to become the single biggest shareholder of PICT. With the acquisition of 35% equity interest in PICT, ICTSI Mauritius gained control over PICT effective October 19, 2012 resulting in the majority board representation and the power to appoint the General Manager and Chief Financial Officer of PICT. ICTSI Mauritius further increased its ownership in PICT to 63.59 % as of December 31, 2012. In March 2013 and June 2013, ICTSI Mauritius purchased additional shares of PICT which further increased its ownership to 64.53%. PICT has a contract with Karachi Port Trust for the exclusive construction, development, operations and management of a common user container terminal at Karachi Port for a period of 21 years commencing on June 18, 2002. Port of Tanjung Priok, Jakarta, Indonesia. On July 3, 2012, ICTSI acquired a 100% equity interest in PT Perusahaan Bongkar Muat (PBM) Olah Jasa Andal (OJA) through its indirect majority-owned subsidiary, PT ICTSI Jasa Prima Tbk (JASA) (formerly PT Karwell Indonesia Tbk) for a purchase price of US$41.9 million. OJA is an Indonesian limited liability company engaged in the loading and unloading of general goods and/or containers at the Port of Tanjung Priok, Jakarta, Indonesia. OJA has existing cooperation agreements which have terms of two years that can be extended pursuant to applicable provision in each agreement. JASA was acquired on May 3, 2012 by ICTSI Far East Pte. Ltd. (IFEL). The acquisition by IFEL of an aggregate of 80% of the outstanding and issued shares of stock of JASA resulted to IFEL becoming the new controlling shareholder of JASA. JASA is a listed company in Indonesia originally engaged in garment and textile industry which stopped commercial operations. The purpose of the acquisition was to save and preserve the going concern of JASA so that JASA can engage in the development, construction and operation of terminals and maritime logistic infrastructure. On June 5, 2013, OJA signed a 15-year Cooperation Agreement with PT Pelabuhan Indonesia II (Persero) Tanjung Priok Branch for international container stevedoring services. Hijo International Port, Davao, Philippines. In 2012, ICTSI, through its wholly-owned subsidiary, Abbotsford Holdings, Inc., together with Hijo Resources Corp., a diversified group involved in leisure and tourism, agribusiness, property development and port operations, invested in Hijo International Port Services, Inc. (HIPS) for the construction, development and operation of Hijo International Port (also referred to as “Hijo Port”). Hijo Port is a private commercial port owned by HIPS located in Barangay Madaum, Tagum, Davao del Norte in the Gulf of Davao. ICTSI owns 65% of HIPS. The relevant contracts and agreements on the construction, operation and management of the terminal have not yet been finalized as of June 30, 2013. Puerto Cortés in Honduras. On February 1, 2013, ICTSI won and was awarded the Contract for the Design, Financing, Construction, Preservation, Operation and Exploitation of the Container and General Cargo Terminal of Puerto Cortés (“Agreement”) in the Republic of Honduras for a period of SEC Form 17-Q Q2 2013

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29 years through a public hearing held in Tegucigalpa, Honduras. On March 13, 2013, ICTSI and ICTSI Brazil Ltd. established Operadora de Puerto Cortés, S.A. de C.V. (OPC) to sign the Agreement with the Republic of Honduras acting through the Commission for the Public-Private Alliance Promotion (COALIANZA), a decentralized legal entity of the of the Presidency of the Republic. The said Agreement was signed on March 21, 2013 and shall be valid until August 30, 2042. OPC shall operate the Container and General Cargo Terminal of Puerto Cortes (“Terminal”) and it shall carry out the design, financing, construction, preservation, and exploitation of the Terminal and the provision of its Services according to certain service and productivity levels. OPC is expected to formally take over the operations of the Terminal in November 2013. On the other hand, on December 28, 2012, TICT, a wholly-owned subsidiary of ICTSI, filed a Notice of Termination of its 10-year Investment Agreement with Tartous Port General Company (TPGC) to manage, operate, maintain, finance, rehabilitate, develop and optimize the Tartous Container Terminal in Syria, which was entered into by TICT and TPGC in March 2007. TICT was compelled to send the said Notice of Termination of the Investment Agreement because of TPGC’s consistent refusal to recognize the occurrence of Unforeseen Change of Circumstances brought about by civil unrest and violence which has gravely affected businesses and trade in Syria. The issuance of this notice was also prompted by TPGC’s refusal to negotiate in good faith for relief from the clear imbalance of the parties’ economic relationship, which constitutes a breach of the Investment Agreement. Finally, TICT was left with no choice but to issue the Notice of Termination when Syria plunged into a state of full-fledged civil war, which exposed everyone (combatants and civilians alike) to increasing threat of death and destruction on a daily basis, which is considered as force majeure under the Investment Agreement. On January 27, 2013, TICT formally ceased operating the Tartous Container Terminal. An arbitration process is currently ongoing. Consequently, TPGC took over the operations of the Tartous Container Terminal. 2.2 Results of Operations and Key Performance Indicators The following table shows a summary of the results of operations for the second quarter and six months ended June 30, 2013 as compared with the same period in 2012 derived from the accompanying unaudited consolidated financial statements. Table 2.1

Unaudited Consolidated Statements of Income

(In thousands, except % change data) Gross revenues from port operations Revenues from port operations, net of port authorities’ share Total income (net revenues, interest and other income) Total expenses (operating, financing and other expenses) EBITDA1 EBIT2 Net income attributable to equity holders of the parent Earnings per share Basic Diluted

__________________ 1

For the Three Months Ended June 30 2012 % Change 2013 US$171,168 19.4 US$204,396

For the Six Months Ended June 30 2012 % Change 2013 US$345,012 19.9 US$413,712

147,622

177,976

20.6

298,108

360,063

20.8

152,982

183,196

19.8

310,987

369,655

18.9

106,418 72,383 52,916

140,283 90,606 65,527

31.8 25.2 23.8

212,854 149,157 110,801

266,520 188,140 140,760

25.2 26.1 27.0

34,911

42,229

21.0

70,282

82,901

18.0

US$0.015 0.015

US$0.018 0.018

18.7 20.9

US$0.031 0.031

US$0.035 0.035

11.7 13.8

EBITDA is not a uniform or legally defined financial measure. It generally represents earnings before interest, taxes, depreciation and amortization. EBITDA is presented because the Group believes it is an important measure of its performance and liquidity. EBITDA is also frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the industry. The Group’s EBITDA figures are not, however, readily comparable with other companies’ EBITDA figures as they are calculated differently and thus, must be read in conjunction with related additional explanations. EBITDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of the Group’s results as reported under PFRS. Some of the limitations concerning EBITDA are: ➣ ➣

EBITDA does not reflect cash expenditures or future requirements for capital expenditures or contractual commitments; EBITDA does not reflect changes in, or cash requirements for working capital needs;

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➣ ➣ ➣

EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal debt payments; Although depreciation and amortization are non-cash charges, the assets being depreciated or amortized will often have to be replaced in the future, and EBITDA does not reflect any cash requirements for such replacements; and Other companies in the industry may calculate EBITDA differently, which may limit its usefulness as a comparative measure.

Because of these limitations, EBITDA should not be considered as a measure of discretionary cash available to the Group to invest in the growth of the business. The Group compensates for these limitations by relying primarily on the PFRS results and uses EBITDA only as supplementary information. 2

EBIT, or Earnings Before Interest and Taxes, is calculated by taking net revenues from port operations and deducting cash operating expenses and depreciation and amortization.

__________________

The following table shows the computation of EBITDA as derived from the Group’s unaudited consolidated net income attributable to equity holders of the parent for the period: Table 2.2

EBITDA Computation

(In thousands, except % change data) Net income attributable to equity holders of the parent Minority interests Provision for (benefit from) income tax Income before income tax Add (deduct): Depreciation and amortization Interest and other expenses Interest and other income EBITDA

For the Three Months Ended June 30 2012 % Change 2013 US$34,911 132 11,521 46,564

US$42,229 1,941 (1,257) 42,913

21.0 1370.5 (110.9) ( 7.8)

19,467 11,712 (5,360) US$72,383

25,079 27,834 (5,220) US$90,606

28.8 137.7 ( 2.6) 25.2

For the Six Months Ended June 30 2012 % Change 2013 US$70,282 813 27,038 98,133

US$82,901 4,475 15,759 103,135

18.0 450.4 (41.7) 5.1

38,356 25,547 (12,879) US$149,157

47,380 47,217 (9,592) US$188,140

23.5 84.8 (25.5) 26.1

KEY PERFORMANCE INDICATORS Certain key performance indicators include gross moves per hour per crane, crane availability and berth utilization, which indirectly affect the operations of the Group, and TEU volume growth and gross revenue growth, which are both financial in nature. These KPIs are discussed in detail in the succeeding paragraphs. 2013 Compared with 2012 Gross moves per hour per crane at key terminals which consist of MICT, CGSA, PICT, TSSA, BCT, YRDICTL and MICTSL, ranged from 17.1 to 30.3 moves per hour for the second quarter of 2012 to 17.5 to 32.4 moves per hour for the same period in 2013. Crane availability ranged from 90.7 percent to 99.9 percent during the second quarter of 2012 to 90.1 percent to 97.0 percent for the same period in 2013. Berth utilization was at 19.5 percent to 81.6 percent and 27.3 percent to 68.2 percent for second quarters of 2012 and 2013, respectively. 2012 Compared with 2011 Gross moves per hour per crane at key terminals ranged from 19.9 to 28.3 moves per hour during the second quarter of 2011 to 17.1 to 30.3 moves per hour for the same period in 2012. Crane availability ranged from 96.6 percent to 99.0 percent for the second quarter of 2011 to 90.7 percent to 99.9 percent for the same period in 2012. Berth utilization was at 21.6 percent to 80.2 percent and 19.5 percent to 81.6 percent for the second quarters of 2011 and 2012, respectively.

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2.3 Comparison of Operating Results for the Second Quarters Ended June 30, 2013 and 2012 2.3.1

TEU Volume

Consolidated volume increased by 12.6 percent from 1,359,419 TEUs for the second quarter of 2012 to 1,530,543 TEUs for the same period in 2013 mainly due to the continuous growth in international and domestic trade in most of the Group’s terminals, and the contribution of new terminals, OJA and PICT, which were consolidated in August 2012 and October 2012, respectively. Excluding PICT and OJA, and the 2012 throughput of TICT, which ceased operating in January 2013, consolidated volume would have been relatively flat at 1,349,459 TEUs for the second quarter of 2013 from 1,351,412 TEUs for the same period in 2012 arising mainly from the decline in volume of DIPSSCOR, CGSA, ICTSI Oregon, and YRDICTL. Key terminals, consisting of MICT, CGSA, TSSA, BCT, YRDICTL and MICTSL, reported a combined growth of 2.6 percent quarter-on-quarter. Effective January 2013, PICT is considered a key terminal. Throughput handled by the Asia segment, comprised of container terminals in the Philippines, China, Indonesia and Pakistan, increased by 23.4 percent to 932,276 TEUs for the second quarter of 2013 from 755,574 TEUs for the same period in 2012, mainly due to the volume contribution of new terminals, PICT and OJA, and the continuous growth in international and domestic trade, particularly at MICT and MICTSI. However, excluding PICT and OJA, organic volume for the segment would have been relatively flat at 751,192 TEUs. The segment’s relatively flat volume was mainly attributed to the slowdown in banana production and exportation at DIPSSCOR caused by a typhoon in 2012 which destroyed a vast area of Davao’s banana plantations, and the slowdown in the economic activities and drop in Japan trade at YRDICTL. The Group’s terminal operations in Asia stood at 60.9 percent and 55.6 percent of the consolidated volume for the second quarters of 2013 and 2012, respectively. The Group’s EMEA operations, comprised of container terminals in Poland, Syria, Georgia, Madagascar, and Croatia, handled 208,015 TEUs for the second quarter of 2013, a 0.8 percent increase from 206,364 TEUs handled for the same period in 2012. The marginal growth in 2013 was brought about by higher transshipment volume at MICTSL, and surge in imports at AGCT in anticipation of Croatia’s entry to the European Union in July 2013 but tapered by the drop in vessel calls at BICT, weaker short sea trade at BCT, and the cessation of operations at TICT. Excluding TICT’s contribution in 2012, which ceased operating in January 2013, the segment would have reported a 4.9 percent increase in volume in 2013. The EMEA operations accounted for 13.6 percent and 15.2 percent of the consolidated volume for the second quarters of 2013 and 2012, respectively. The Americas segment, comprised of container terminal in Brazil, Ecuador and The United States of America, reported a 1.8 percent decline from 397,481 TEUs for the second quarter of 2012 to 390,252 for the same period in 2013, mainly due to slower banana production season and exportation at CGSA and lower vessel calls at ICTSI Oregon as the work slowdown continues to impact its operations. TSSA, on the other hand, reported a 10.0 percent growth due to higher exports and imports resuting from the deployment of new companies in the State of Pernambuco. The Americas segment captured 25.5 percent and 29.2 percent of the consolidated volume for the second quarters of 2013 and 2012, respectively.

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2.3.2

Total Income

The table below illustrates the consolidated total income for the second quarters ended June 30, 2012 and 2013: Table 2.3

Total Income

(In thousands, except % change data) Gross revenues from port operations Port authorities’ share in gross revenues Net revenues Interest income Foreign exchange gain Other income Total income

For the Three Months Ended June 30

2012 US$171,168 23,546 147,622 2,045 2,429 886 US$152,982

2013 US$204,396 26,420 177,976 3,131 1,085 1,004 US$183,196

% Change 19.4 12.2 20.6 53.1 (55.3) 13.3 19.8

For the second quarter of 2013, net revenues accounted for 97.2 percent of the total consolidated income while interest income and foreign exchange gain represented 1.7 percent and 0.6 percent, respectively. For the same period in 2012, net revenues were 96.5 percent, while interest income and foreign exchange gain stood at 1.3 percent and 1.6 percent of the total consolidated income, respectively. 2.3.2.1 Gross Revenues from Port Operations Gross revenues from port operations include fees received for cargo handling, wharfage, berthing, storage, and special services. Consolidated gross revenues from port operations increased by 19.4 percent from US$171.2 million for the second quarter of 2012 to US$204.4 million for the same period in 2013 mainly due to volume growth, tariff rate adjustments in certain terminals, favorable volume mix, new and renegotiated contracts with shipping lines and forwarders, higher revenues from BBC, general cargo, storage and other services, and the contribution of new terminals, PICT and OJA. Excluding PICT and OJA and the 2012 revenues of TICT, consolidated gross revenues would have increased by 8.4 percent in 2013. Meanwhile, the growth in gross revenues was reduced by the 9.0 percent depreciation of the Brazilian reais (BRL) against the US dollar. The Asia segment reported the highest growth at 38.9 percent, followed by EMEA and Americas at 3.3 percent and 1.4 percent, respectively. Key terminals, on the other hand, posted a combined growth of 6.9 percent quarter-on-quarter. Gross revenues from the Asia operations grew by 38.9 percent from US$81.1 million for the second quarter of 2012 to US$112.7 million for the same period in 2013 due to volume growth, tariff rate adjustments at MICT and YRDICTL, favorable volume mix, stronger revenues from ancillary services, higher revenues from storage, and the contribution of new terminals, PICT and OJA. Excluding PICT and OJA, gross revenues for the Asia segment would have increased by 14.8 percent in 2013. The segment accounted for 55.1 percent and 47.4 percent of the consolidated gross revenues for the second quarters of 2013 and 2012, respectively. Gross revenues from the EMEA operations increased by 3.3 percent to US$22.7 million for the second quarter of 2013 from US$22.0 million for the same period in 2012 primarily due to volume growth and tariff rate adjustments at MICTSL, favorable volume mix, higher BBC and storage revenues, new contracts with forwarders and shipping lines at AGCT, and higher noncontainerized revenues arising from project cargoes and cars at BCT. Meanwhile, the cessation of TICT’s operations effective January 2013, and the decline in volume and noncontainerized revenues at BICT tapered the increase in the segment’s gross revenues. Excluding TICT in 2012, the segment’s gross revenues would have increased by 6.2 percent in 2013. EMEA segment stood at 11.1 percent and 12.8 percent of the total consolidated gross revenues for the second quarters of 2013 and 2012, respectively.

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The Americas segment reported a 1.4 percent increase in gross revenues from US$68.1 million for the second quarter of 2012 to US$69.0 million for the same period in 2013 brought about by improved tariff rates negotiated with certain shipping lines at ICTSI Oregon, and stronger revenues from BBC and storage at TSSA, but tapered by lower volume and revenues from storage and reefer services at CGSA and the effect of weaker BRL against US dollar. Americas accounted for 33.8 percent and 39.8 percent of the total consolidated gross revenues for the second quarters of 2013 and 2012, respectively. 2.3.2.2 Interest Income, Foreign Exchange Gain and Other Income Consolidated interest income surged by 53.1 percent to US$3.1 million for the second quarter of 2013 from US$2.0 million for the same period in 2012 mainly due to interest income earned from Tecplata’s cash deposits and placements amounting to US$2.1 million. Foreign exchange gain dropped by 55.3 percent to US$1.1 million for the second quarter of 2013 from US$2.4 million for the same period in 2012 primarily due to a weaker Colombian Peso (COP) against the US dollar (2013: -5.4%; 2012: +0.3%). Foreign exchange gain mainly results from translation or restatement as well as from the settlement of foreign currency-denominated monetary assets and liabilities. Other income increased by 13.3 percent to US$1.0 million for the second quarter of 2013 from US$0.1 million for the same period in 2012. Other income is composed of rentals, gain on sale of fixed assets to third parties, and other sundry income accounts of ICTSI and subsidiaries. 2.3.3

Total Expenses

The table below shows the breakdown of total expenses for the second quarters ended June 30, 2012 and 2013. Table 2.4

Total Expenses

(In thousands, except % change data) Manpower costs Equipment and facilities-related expenses Administrative and other operating expenses Total cash operating expenses Depreciation and amortization Interest expense and financing charges on borrowings Interest expense on concession rights payable Foreign exchange loss and others Total expenses

For the Three Months Ended June 30 2012 % Change 2013 US$33,236 22,535 19,468 75,239 19,467

US$38,761 23,321 25,288 87,370 25,079

16.6 3.5 29.9 16.1 28.8

4,762 3,886 3,064 US$106,418

11,351 6,056 10,427 US$140,283

138.4 55.8 240.3 31.8

Total cash operating expenses of the Group went up by 16.1 percent to US$87.4 million for the second quarter of 2013 from US$75.2 million for the same period in 2012 due to higher volumerelated expenses such as on-call labor and contracted services, fuel consumption, and repairs and maintenance. In addition, government-mandated and contracted salary rate increases in certain terminals, higher professional fees and travel expenses related to increased business development activities, and the addition of new terminals, PICT and OJA, contributed to the increase in cash operating expenses. Excluding the contribution of PICT and OJA, and the 2012 cash operating expenses of TICT, cash operating expenses would have increased by 6.8 percent in 2013. 2.3.3.1 Manpower Costs Manpower costs increased by 16.6 percent from US$33.2 million for the second quarter of 2012 to US$38.8 million for the same period in 2013 due to higher headcount and increased on-call labor costs related to volume growth, government-mandated and contracted salary rate increases in certain

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terminals such as MICT, YRDICTL, DIPSSCOR, BCT, MICTSL, CGSA and TSSA, and the inclusion of new terminals, PICT and OJA. Excluding PICT and OJA, and TICT in 2012, manpower costs would have increased by 6.3 percent in 2013. Manpower costs stood at 44.4 percent and 44.2 percent of cash operating expenses for the second quarters of 2013 and 2012, respectively. 2.3.3.2 Equipment and Facilities-related Expenses Equipment and facilities-related expenses consist mainly of repairs and maintenance costs of port equipment and facilities, fixed fees, power and light, technical and systems development and maintenance expenses, tools expenses, equipment rentals and fuel, oil and lubricants. Equipment and facilities-related expenses increased by 3.5 percent to US$23.3 million for the second quarter of 2013 from US$22.5 million for the same period in 2012 due to higher volume-related expenses such as fuel and repairs and maintenance, and the contribution of new terminals, PICT and OJA. Excluding PICT and OJA, and TICT in 2012, equipment and facilities-related expenses would have declined by 7.8 percent mainly due to the rent rebate at ICTSI Oregon totaling US$1.0 million for the second quarter of 2013. This expense account represented 26.7 percent and 29.9 percent of cash operating expenses for the second quarters of 2013 and 2012, respectively. 2.3.3.3 Administrative and Other Operating Expenses Administrative and other operating expenses increased by 29.9 percent from US$19.5 million for the second quarter of 2012 to US$25.3 million for the same period in 2013 mainly associated to gross revenue-related administrative expenses such as insurance and taxes and licenses, higher travel and transportation expenses and professional fees related to increased business development activities, and the inclusion of new terminals, PICT and OJA. Excluding PICT and OJA, and TICT in 2012, administrative and other operating expenses would have increased by 24.6 percent in 2013. This expense account stood at 28.9 percent and 25.9 percent of the total cash operating expenses for the second quarters ended June 30, 2013 and 2012, respectively. 2.3.3.4 Depreciation and Amortization Depreciation and amortization expense increased by 28.8 percent to US$25.1 million for the second quarter of 2013 from US$19.5 million for the same period in 2012 mainly due to the increase in the amortization of concession rights arising from the renewal of contract at MICT by US$0.5 million, acquisition of port equipment and completion of yard facilities improvements at certain key terminals, and the inclusion of new terminals, PICT and OJA. Excluding PICT and OJA and the 2012 depreciation expense of TICT, depreciation and amortization expense would have increased by 21.1 percent in 2013. 2.3.3.5 Interest and Financing Charges on Borrowings Financing charges increased by 138.4 percent from US$4.8 million for the second quarter of 2012 to US$11.4 million for the same period in 2013 primarily due to higher outstanding interest-bearing debt as of June 30, 2013 (US$994.4 million) compared to the same period in 2012 (US$615.5 million) arising from the issuance of the US$400.0 million MTN which were used to refinance some of ICTSI’s existing debt and for other general corporate purposes, as well as the availment of term loans by CGSA and AGCT during the first quarter of 2013. Financing charges are net of capitalized borrowing costs on qualifying assets principally at MICT, CMSA, CGSA, SPIA and Tecplata amounting to US$8.8 million and US$7.6 million for the second quarters of 2013 and 2012, respectively.

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2.3.3.6 Interest Expense on Concession Rights Payable Interest expense on concession rights payable increased by 55.8 percent to US$6.1 million for the second quarter of 2013 from US$3.9 million for the same period in 2012 due principally to the increase in the interest on the concession rights payable at MICT arising from the renewal of the concession contract effective May 19, 2013 by US$1.7 million. Concession rights payable recognized on renewal amounted to US$348.5 million. 2.3.3.7 Foreign Exchange Loss and Others Foreign exchange loss and others increased to US$10.4 million for the second quarter of 2013 from US$3.1 million for the same period in 2012 mainly due to a weaker Philippine peso against US dollar (2013:-5.2%; 2012: +3.9%) and the unfavorable restatement of SPIA’s US dollar-denominated concession rights payable due to weaker COP against US dollar (2013: -5.4%; 2012: +0.3%). Foreign exchange loss mainly results from translation or restatement as well as from the settlement of foreign currency-denominated monetary assets and liabilities. 2.3.4

EBITDA and EBIT

Consolidated EBITDA grew by 25.2 percent to US$90.6 million for the second quarter of 2013 from US$72.4 million for the same period in 2012 primarily due to the growth in volume, stronger revenues arising from favorable volume mix, tariff rate adjustments, higher revenues from BBC, general cargo, storage and ancillary services, and the contribution of new terminals, PICT and OJA. Excluding PICT and OJA, and TICT in 2012, consolidated EBITDA would have increased by 11.1 percent in 2013. Consequently, EBITDA margin increased from 42.3 percent in 2012 to 44.3 percent in 2013. Despite higher depreciation and amortization expense, consolidated EBIT increased by 23.9 percent to US$65.5 million for the second quarter of 2013 from US$52.9 million reported for the same period in 2012 arising from stronger revenues. Consequently, EBIT margin increased to 32.1 percent for the second quarter of 2013 from 30.9 percent for the same period in 2012. 2.3.5

Income before Income Tax and Provision for Income Tax

Consolidated income before income tax declined by 7.8 percent to US$42.9 million for the second quarter of 2013 from US$46.6 million for the same period in 2012 primarily due to higher depreciation and amortization expense and other non-operating income items such as interest expense and financing charges on borrowings, interest on concession rights payable, and net foreign exchange loss. The ratio of income before income tax to total gross revenues stood at 21.0 percent and 27.2 percent for the second quarters of 2013 and 2012, respectively. Consolidated provision for current and deferred income taxes for the second quarter of 2013 dropped by 110.9 percent due mainly to the recognition of deferred income tax benefit on unrealized foreign exchange loss and lower provision for current income tax arising from the income tax holiday incentive of MICT’s Berth 6 amounting to US$1.2 million. Provision for current and deferred income tax for the same period in 2012 amounted to US$11.5 million. 2.3.6

Net Income

Consolidated net income increased by 26.0 percent to US$44.2 million for the second quarter of 2013 from US$35.0 million for the same period in 2012 mainly due to higher operating income, tapered by higher depreciation and amortization expenses and other non-operating income items such as interest expense and financing charges on borrowings, interest on concession rights payable, and net foreign exchange loss. The ratio of consolidated net income to gross revenues stood at 21.6 percent and 20.5 percent for the second quarters of 2013 and 2012, respectively.

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Net income attributable to equity holders or net profit excluding minority interests surged by 21.0 percent to US$42.2 million for the second quarter of 2013 from US$34.9 million for the same period in 2012. Basic and diluted earnings per share increased to US$0.018 during the second quarter of 2013 from US$0.015 for the same period in 2012, due to higher net income attributable to equity holders. There were no significant elements of income or expense outside the Group’s continuing operations in the second quarter of 2013. 2.4 Comparison of Operating Results for the Six Months Ended June 30, 2013 and 2012 2.4.1

TEU Volume

The Group handled 3,027,005 TEUs for the first half of 2013, a 12.2 percent increase from the 2,697,735 TEUs handled for the same period 2012 primarily due to the addition of PICT and OJA, and the continuous growth in international and domestic trade in most of the Group’s terminals. Excluding PICT and OJA, and the 2012 contribution of TICT, volume would have been relatively flat at 2,668,001 mainly due to the decline in volume of DIPSSCOR, YRDICTL, BCT, CGSA and ICTSI Oregon. Key terminals posted a combined growth of 2.5 percent year-on-year. Among the three geographical segments, the Asia operations reported a 23.7 percent growth while Americas and EMEA dropped by 4.0 percent and 0.7 percent, respectively. The Asia segment reported a double-digit growth of 23.7 percent from 1,483,585 TEUs for the first half of 2012 to 1,834,569 TEUs for the same period in 2013 mainly due to volume contribution of new terminals, PICT and OJA, the continuous improvement in international and domestic trade, particularly at MICT, and higher exports of agricultural, industrial and lumber products at MICTSI. Excluding PICT and OJA, volume would have decreased by 0.5 percent in 2013. The growth in volume was mainly tapered by the downturn in banana production and exportation at DIPSSCOR and the slowdown in the economic activities and drop in Japan trade at YRDICTL. The Asia segment accounted for 60.6 percent and 55.0 percent of the consolidated volume for the six months ended June 30, 2013 and 2012, respectively. Throughput at the EMEA segment decreased by 4.0 percent from 409,040 TEUs for the first half of 2012 to 392,615 TEUs for the same period in 2013 primarily due to a weaker short sea trade at BCT and the cessation of terminal operations at TICT beginning January 2013. Excluding the 2012 contribution of TICT, volume for the segment would have increased marginally by 0.7 percent due to higher transshipment volume at MICTSL and rise in imports at AGCT triggered by Croatia’s forthcoming entry to the European Union in July 2013. The EMEA segment captured 13.0 percent and 15.2 percent of the consolidated volume for the six months ended June 30, 2013 and 2012, respectively. The Americas segment posted a 0.7 percent decline from 805,110 TEUs for the first half of 2012 to 799,821 for the same period in 2013 mainly due to the slower banana production season and exportation in the second quarter of 2013 at CGSA, and fewer vessel calls at ICTSI Oregon as the work slowdown continues to impact terminal operations. Meanwhile, TSSA reported a 4.0 percent improvement in volume due to higher exports and imports brought about by the deployment of new companies in the State of Pernambuco. The Americas segment stood at 26.4 percent and 29.8 percent of the consolidated volume for the six months ended June 30, 2013 and 2012, respectively.

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2.4.2 Table 2.5

Total Income Total Income

(In thousands, except % change data) Gross revenues from port operations Port authorities’ share in gross revenues Net revenues Foreign exchange gain Interest income Other income Total income

For the Six Months Ended June 30 2012 % Change 2013 US$345,012 19.9 US$413,712 46,904 14.4 53,649 298,108 20.8 360,063 6,119 (62.3) 2,308 5,239 4.9 5,494 1,521 17.7 1,790 US$310,987 18.9 US$369,655

For the six months ended June 30, 2013, net revenues accounted for 97.4 percent of the total consolidated income while interest income and foreign exchange gain represented 1.5 percent and 0.6 percent, respectively. For the same period in 2012, net revenues were 95.9 percent while interest income and foreign exchange gain accounted for 1.7 percent and 2.0 percent, respectively. 2.4.2.1 Gross Revenues from Port Operations Gross revenues from port operations include fees received for cargo handling, wharfage, berthing, storage, and special services. Consolidated gross revenues from port operations increased by 19.9 percent to US$413.7 million for the first half of 2013 from US$345.0 million for the same period in 2012 mainly due to volume growth, tariff rate adjustments in certain terminals, new and renegotiated contracts with shipping lines and forwarders, higher revenues from noncontainerized cargoes, storage and other ancillary services, and the addition of new terminals, PICT and OJA. Excluding the contribution of PICT and OJA, and the 2012 contribution of TICT, consolidated gross revenues would have increased by 8.5 percent in 2013. The growth in revenue, however, was slightly tapered by the depreciation of BRL against US dollar. All geographical segments showed improvements in gross revenues with Asia posting a remarkable growth of 40.0 percent, followed by EMEA at 4.2 percent and Americas at 2.3 percent. Key terminals reported a combined growth of 7.4 percent year-on-year. Gross revenues from the Asia operations increased by 40.0 percent to US$222.7 million for the first half of 2013 from US$159.2 million for the same period in 2012 mainly due to volume growth, tariff rate adjustments at MICT and YRDICTL, favorable volume mix, higher revenues from ancillary services and storage, and the contribution of new terminals, PICT and OJA. Excluding PICT and OJA, gross revenues of the segment would have increased by 14.3 percent in 2013. The Asia segment accounted for 53.8 percent and 46.1 percent of the consolidated gross revenues for the six months ended June 30, 2013 and 2012, respectively. On the other hand, gross revenues from the EMEA operations grew by 4.2 percent to US$45.3 million for the first half of 2013 from US$43.5 million for the same period in 2012 due to volume growth and tariff rate adjustments at MICTSL, and higher imports and new contracts with forwarders and shipping lines at AGCT. The growth was, however, tapered by a weaker short sea trade at BCT, drop in noncontainerized revenues at BICT, and the cessation of terminal operations at TICT beginning January 2013. Excluding the 2012 contribution of TICT, gross revenues of the segment would have increased by 7.8 percent in 2013. The EMEA segment captured 11.0 percent and 12.6 percent of the consolidated gross revenues for the six months ended June 30, 2013 and 2012, respectively. Meanwhile, the Americas segment reported a 2.3 percent increase in gross revenues from US$142.4 million for the first half of 2012 to US$145.7 million for the same period in 2013 resulting mainly from ICTSI Oregon’s tariff rate adjustments negotiated with certain shipping lines, tapered by lower volume and revenues from storage and reefer services at CGSA, and lower revenues from storage and a weaker BRL at TSSA. The Americas segment stood at 35.2 percent and 41.3 percent for the six months ended June 30, 2013 and 2012, respectively.

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2.4.2.2 Interest Income, Foreign Exchange Gain, and Other Income Consolidated interest income increased by 4.9 percent to US$5.5 million for the six months ended June 30, 2013 from US$5.2 million for the same period in 2012 primarily attributed to interest income earned from Tecplata’s cash deposits and placements. Foreign exchange gain dropped by 62.3 percent to US$2.3 million for the six months ended June 30, 2013 from US$6.1 million for the same period in 2012 mainly due to a weaker COP against US dollar (2013: -8.8%; 2012: +8.0%). Foreign exchange gain mainly results from the translation or restatement as well as from the settlement of foreign currency-denominated monetary assets and liabilities. Other income increased to US$1.8 million for the first six months of 2013 from US$1.5 million for the same period in 2012. Other income is composed of Group’s rental and other sundry income accounts of ICTSI and subsidiaries. 2.4.3

Total Expenses

The table below shows the breakdown of total expenses for the six months ended June 30, 2012 and 2013. Table 2.6

Total Expenses

(In thousands, except % change data) Manpower costs Equipment and facilities-related expenses Administrative and other expenses Total cash operating expenses Depreciation and amortization Interest expense and financing charges on borrowings Interest expense on concession rights payable Foreign exchange loss and others TOTAL OPERATING EXPENSES

For the Six Months Ended June 30 2012 % Change 2013 US$66,966 15.3 US$77,238 46,078 4.0 47,917 35,907 30.2 46,768 148,951 15.4 171,923 38,356 23.5 47,380 13,537 72.7 23,377 7,799 23.2 9,609 4,211 237.9 14,231 US$212,854 25.2 US$266,520

The Group’s cash operating expenses for the six months ended June 30, 2013 increased by 15.4 percent to US$171.9 million from US$149.0 million for the same period in 2012 due to higher volume-related expenses such as on-call labor and contracted services, fuel consumption, and repairs and maintenance. The government-mandated and contracted salary rate adjustments in certain terminals, higher professional fees and travel expenses due to increased business development activities, and the contribution of new terminals, PICT and OJA, also contributed to the increase in cash operating expenses for the period. Excluding PICT and OJA, and the 2012 contribution of TICT, cash operating expenses would have increased by 6.6 percent in 2013. 2.4.3.1 Manpower Costs Manpower costs grew by 15.3 percent to US$77.2 million for the first half of 2013 from US$67.0 million for the same period in 2012 due to increased headcount as well as on-call labor costs triggered by volume growth and stuffing/stripping services, government-mandated and contracted salary rate adjustments in certain terminals such as MICT, YRDICTL, DIPSSCOR, BCT, MICTSL CGSA and TSSA, and the contribution of new terminals, PICT and OJA. Excluding PICT and OJA, and the 2012 contribution of TICT, manpower costs would have increased by 5.7 percent in 2013. Manpower costs accounted for 44.9 percent and 45.0 percent of cash operating expenses for the six months ended June 30, 2013 and 2012, respectively.

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2.4.3.2 Equipment and Facilities-related Expenses Equipment and facilities-related expenses consist mainly of repairs and maintenance costs of port equipment and facilities, fixed fees, power and light, technical and systems development and maintenance expenses, tools expenses, equipment rentals and fuel, oil and lubricants. Equipment and facilities-related expenses went up by 4.0 percent to US$47.9 million for the first half of 2013 from US$46.1 million for the same period in 2012 primarily due to higher volume-related expenses such as repairs and maintenance and fuel consumption, and the contribution of new terminals, PICT and OJA. Excluding PICT and OJA, and the 2012 contribution of TICT, equipment and facilities-related expenses would have decreased by 6.8 percent due to cost savings coming from rent rebate at ICTSI Oregon amounting to US$1.8 million, and the cancellation of MHC rental at TSSA beginning July 2012. Equipment and facilities-related expenses stood at 27.9 percent and 30.9 percent of cash operating expenses for the six months ended June 30, 2013 and 2012, respectively. 2.4.3.3 Administrative and Other Operating Expenses Administrative and other operating expenses increased by 30.2 percent from US$35.9 million for the first half of 2012 to US$46.8 million for same period in 2013 due to administrative and other operating expenses related to higher gross revenues such as insurance and taxes and licenses, higher business development expenses, and the contribution of new terminals, PICT and OJA. Excluding PICT and OJA, and the 2012 expenses of TICT, consolidated administrative expenses and other operating expenses would have increased by 25.4 percent. Administrative and other operating expenses accounted for 27.2 percent and 24.1 percent of cash operating expenses for the six months ended June 30, 2013 and 2012, respectively. 2.4.3.4 Depreciation and Amortization Depreciation and amortization expense increased by 23.5 percent to US$47.4 million for the first half of 2013 from US$38.4 million for the same period in 2012 due mainly to the increase in amortization of concession rights related to the renewal of contract at MICT by US$0.5 million, acquisition of port equipment and completion of yard facitlies at certain key terminals, and the addition of new terminals, PICT and OJA. Excluding PICT and OJA, and the 2012 contribution of TICT, depreciation and amortization expense would have increased by 15.5 percent in 2013. 2.4.3.5 Interest and Financing Charges on Borrowings Interest and financing charges grew by 72.7 percent to US$23.4 million for the first half of 2013 from US$13.5 million for the same period in 2012 due to higher outstanding interest-bearing debt level as of June 30, 2013 attributed to the issuance of the US$400.0 million MTN which were used to refinance some of ICTSI’s existing debt and other general corporate purposes, and the availment of term loans by CGSA and AGCT during the first quarter of 2013. Financing charges are net of capitalized borrowing costs on qualifying assets principally at CMSA and Tecplata amounting to US$16.9 million for the six months ended June 30, 2013 and at MICT, CMSA, CGSA, SPIA and Tecplata amounting to US$14.0 million for the same period in 2012. 2.4.3.6 Interest Expense on Concession Rights Payable Interest expense on concession rights payable increased by 23.2 percent to US$9.6 million for the first half of 2013 from US$7.8 million for the same period in 2012 mainly due to the increase in interest on the concession rights payable related to the renewal of the concession contract at MICT effective May 19, 2013 by US$1.2 million. Concession rights payable recognized from the new contract amounted to US$347.7 million as of June 30, 2013.

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2.4.3.7 Foreign Exchange Loss and Others Foreign exchange loss and others increased to US$14.2 million for the first half of 2013 from US$4.2 million for the same period in 2012 due to a weaker Philippine peso against US dollar (2013:5.2%; 2012: +3.9%), and the unfavorable restatement of SPIA’s US dollar-denominated concession rights payable caused by a weaker COP against US dollar (2013: -8.8%; 2012: +8.0%). Foreign exchange loss mainly results from the translation or restatement as well as from the settlement of foreign currency-denominated monetary assets and liabilities. 2.4.4

EBITDA and EBIT

Consolidated EBITDA increased by 26.1 percent to US$188.1 million for the first half of 2013 from US$149.2 million for the same period in 2012 mainly due to higher volume and stronger revenues arising from favorable volume mix, tariff rate adjustments at certain terminals, higher revenues from noncontainerized cargoes, storage and other ancillary services, and the addition of new terminals, PICT and OJA. Excluding PICT and OJA, and the 2012 contribution of TICT, EBITDA would have increased by 10.7 percent in 2013. Consequently, EBITDA margin increased from 43.2 percent to 45.5 percent for the six months ended June 30, 2013 and 2012, respectively. Meanwhile, despite higher depreciation and amortization expense, EBIT went up by 27.2 percent to US$140.8 million for the first half of 2013 from US$110.8 million for the same same period in 2012 due to stronger revenues. EBIT margin increased from 32.1 percent to 34.0 percent for the six months ended June 30, 2013 and 2012, respectively. 2.4.5

Income Before Income Tax and Provision for Income Tax

The Group’s consolidated income before income tax increased by 5.1 percent to US$103.1 million for the first half of 2013 from US$98.1 million for the same period in 2012 due to higher depreciation and amortization expense and other non-operating income items such as interest expense and financing charges on borrowings, interest on concession rights payable and net foreign exchange loss. The ratio of income before income tax to total gross revenues stood at 24.9 percent and 28.4 percent for the six months ended June 30, 2013 and 2012, respectively. Consolidated provision for current and deferred income taxes dropped by 41.7 percent to US$15.8 million for the first half of 2013 from US$27.0 million for the same period in 2012 mainly due to the deferred income tax benefit arising from unrealized foreign exchange loss and lower provision for current income tax arising from MICT Berth 6’s income tax holiday incentive amounting to US$3.0 million. 2.4.6

Net Income

Consolidated net income increased by 22.9 percent to US$87.4 million for the first half of 2013 from US$71.1 million for the same period in 2012 mainly due to stronger operating income, reduced by higher depreciation and amortization expense and other non-operating income items which include interest expense and financing charges on borrowings, interest on concession rights payable, and net foreign exchange loss. The ratio of consolidated net income to gross revenues stood at 21.1 percent and 20.6 percent for the six months ended June 30, 2013 and 2012, respectively. Net income attributable to equity holders went up by 18.0 percent to US$82.9 million for the first half of 2013 from US$70.3 million for the same period in 2012. Basic and diluted earnings per share increased to US$0.035 during the six months ended June 30, 2013 from US$0.031 for the same period in 2012. There were no significant elements of income or expense outside the Group’s continuing operations in the first half of 2013.  

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2.5 Financial Condition Table 2.5

Consolidated Condensed Balance Sheets

In thousands, except % change and ratio data Total assets Current assets Total equity Total equity attributable to equity holders of the parent Total interest-bearing debt Current liabilities Total liabilities Current assets/total assets Current ratio Debt equity ratio1 1

December 31, 2012 US$2,405,368 353,771 1,190,598 1,025,976 781,343 459,735 1,214,770 14.71% 0.77 0.66

June 30, 2013 US$3,120,100 525,925 1,380,140

% Change 29.7 48.7 15.9

1,223,124 994,393 275,342 1,739,959

19.2 27.3 (40.1) 43.2

16.86% 1.91 0.72

Debt includes interest-bearing debt. Equity includes total equity.

Total assets increased by 29.7 percent to US$3.1 billion as of June 30, 2013 from US$2.4 billion as of December 31, 2012 mainly attributable to investments in capital expenditures and port facilities and equipment in Tecplata, CMSA and AGCT, and concession right at OPC aggregating US$280.1 million. These investments were funded by cash generated from the Group’s operations and partly from proceeds from the equity offering of US$196.0 million in May 2013 and issuance of the US$400.0 million, 10-year medium term notes under the Medium Term Note (MTN) Programme established by ICTSI Treasury B.V. (ICTSI Treasury) in January 2013 and February 2013. ICTSI also recognized concession rights on the renewal of MICT’s concession agreement in May 2013, which contributed to a US$364.9 million increase in intangible assets. Noncurrent assets stood at 83.1 percent and 85.3 percent of the total consolidated assets as of June 30, 2013 and December 31, 2012, respectively. Current assets surged by 48.7 percent to US$525.9 million as of June 30, 2013 from US$353.8 million as of December 31, 2012 mainly attributable to net cash inflows generated from operations and the Group’s financing activities during the period. Current assets accounted for 16.81 percent and 14.7 percent of the total consolidated assets as of June 30, 2013 and December 31, 2012, respectively. Meanwhile, current ratio stood at 1.91 as of June 30, 2013 and 0.77 as of December 31, 2012. Total equity grew by 15.9 percent to US$1.4 billion as of June 30, 2013 from US$1.2 billion as of December 31, 2012 mainly due to the issuance of capital stock and treasury shares in May 2013 and net income generated for the first half of 2013. Total liabilities increased by 43.2 percent to US$1.7 billion as of June 30, 2013 from US$1.2 billion as of December 31, 2012 due to the issuance of medium term notes under ICTSI Treasury’s MTN Programme, and availment of short-term loan at CGSA and Euro term loan at AGCT, reduced by the repayments of various medium and long term loans of the Parent Company, CGSA, PICT and BCT. Concession rights payable on the renewal of MICT’s concession agreement was also recognized and contributed to a US$348.5 million increase in total liabilities. Financial leverage, the ratio of total interest-bearing debt to total assets, stood at 31.9 percent and 32.5 percent as of June 30, 2013 and December 31, 2012, respectively. Meanwhile, current liabilities dropped by 40.1 percent to US$275.3 million as of June 30, 2013 from US$459.7 million as of June 30, 2012 mainly due to the settlement of the Parent Company’s medium term loans totaling US$140.0 million, and long-term loans with DBP/LBP and HSBC totaling US$37.1 million (P =1.5 billion) during the six months ended June 30, 2013.

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2.5.2

Material Variances Affecting the Balance Sheet

Balance sheet accounts as of June 30, 2013 with variances of plus or minus 5.0 percent against December 31, 2012 balances are discussed as follows: Noncurrent Assets 1. Intangibles, net of amortization, went up by 32.9 percent to US$1.7 billion mainly due to the recognition of concession rights and upfront fee related to the renewal of MICT’s concession contract amounting to US$364.9 million, and upfront fees to OPC. 2. Property and equipment increased by 21.6 percent to US$698.8 million as of June 30, 2013 mainly due to ongoing civil works and acquisition of port equipment at CMSA and AGCT. 3. Deferred tax assets grew by 54.2 percent to US$21.8 million as of June 30, 2013 mainly due to the recognition of deferred tax asset on unrealized foreign exchange loss of the Parent Company for the six months ended June 30, 2013. 4. Other noncurrent assets decreased by 17.4 percent to US$97.6 million mainly due to lower advances to contractors at CMSA. Current Assets 5. Cash and cash equivalents surged by 91.8 percent to US$358.3 million as of June 30, 2013 from US$186.8 million as of December 31, 2012 arising mainly from cash generated from stronger operating income, and the net funding from debt and equity capital of the Group generated mainly from the issuance of common shares and treasury shares aggregating US$196.0 million; and funding obtained from the short and long term borrowings of the Parent Company, CGSA and AGCT totaling US$408.4 million. The cash inflows were reduced by capital expenditures amounting to US$280.1 million; principal and interest payments of short and long-term borrowings totaling US$219.5 million; dividend payments of US$40.9 million; and distributions to holders of perpetual capital securities amounting to US$14.7 million. 6. Receivables declined by 9.4 percent to US$67.9 million due to improved collection at CGSA and recovery of insurance claims at BCT during the second quarter of 2013. 7. Prepaid expenses increased by 20.5 percent to US$76.6 million as of June 30, 2013 primarily due to higher input VAT of the Parent Company, CMSA and Tecplata. 8. Derivative assets declined by 61.1 percent to US$3.8 million mainly due to the scheduled principal repayment of loans under cross-currency swap and unfavorable movement in fair values of cross-currency swaps. Equity 9. Additional paid-in capital surged by 58.4 percent to US$525.0 million brought about by the issuances of common and treasury shares in May 2013. 10. Treasury shares declined by 76.5 percent to US$1.1 million mainly due to the issuance of treasury shares in May 2013. 11. Retained earnings increased by 6.7 percent to US$575.2 million resulting from the stronger net income generated for the first half of 2013 amounting to US$82.9 million, reduced by dividends paid and distributions to holders of perpetual capital securities amounting to US$40.9 million and US$14.7 million, respectively. 12. Excess of acquisition cost over the net assets of minority interest acquired increased by 10.2 percent to US$92.9 million arising from the acquisition of minority interests in PICT and Tecplata. 13. Other comprehensive loss increased by 33.3 percent to US$115.1 million primarily due to the unfavorable translation of the financial statements of terminals, particularly SPIA, TSSA, CMSA and PICT arising from weaker COP, BRL, MXN and PKR against the US dollar towards the end of the first half of 2013. Noncurrent Liabilities 14. Long-term debt and debt securities, net of current portion, increased by 70.9 percent to US$906.6 million mainly due to the issuance of medium term notes under the ICTSI Treasury’s

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MTN Programme in January 2013 and February 2013 totaling US$400.0 million, and Euro term loan of AGCT amounting to US$8.1 million (€6.2 million). 15. Deferred tax liabilities decreased by 7.9 percent to US$50.9 million due to lower unrealized foreign exchange gain arising from a weaker Philippine peso against the US dollar towards the end of the first half of 2013. 16. Pension liabilities declined by 27.2 percent to US$3.0 million mainly due to pension costs adjustments, particularly at the Parent Company and CGSA. 17. Concession rights payable, net of current portion, surged by 205.0 percent to US$504.1 million arising from the recognition of the concession rights payable of US$348.5 million upon renewal of the concession contract of MICT in May 2013. Current Liabilities 18. Loans payable went up by 49.4 percent to US$15.3 million mainly due to the US$6.5 million short-term loan availed by CGSA in April 2013. 19. Accounts payable and other current liabilities declined by 14.2 percent to US$157.2 million primarily due to payments to contractors at CMSA. 20. Current portion of long-term debt and debt securities declined by 69.9 percent to US$72.5 million primarily due to the repayment of the Parent Company’s medium term notes totaling US$140.0 million and term loans with DBP/LBP and HSBC amounting to US$36.6 million (P =1.5 billion) and US$59 thousand (P =2.5 million), respectively, and repayment of loans at CGSA, PICT and BCT amounting to US$7.6 million, US$2.5 million (PKR249.0 million) and US$0.4 million, respectively. 21. Current portion of concession rights payable surged by 49.7 percent to US$6.7 million arising from the renewal of concession contract of MICT in May 2013. 22. Income tax payable increased by 11.1 percent to US$23.3 million primarily due to the higher taxable income in the second quarter of 2013. 23. Derivative liabilities went up by 301.1 percent to US$349 thousand arising from the nondeliverable COP forwards outstanding as of June 30, 2013. There were no non-deliverable COP forwards in 2012. 2.6 Liquidity and Capital Resources This section discusses the Group’s sources and uses of funds as well as its debt and equity capital profile. 2.6.2

Liquidity

The table below shows the Group’s consolidated cash flows for the six months ended June 30, 2012 and 2013: Table 2.6

Consolidated Cash Flows

(In thousands, except % change data) Net cash provided by operating activities Net cash used in investing activities Net cash provided by financing activities Effect of exchange rate changes on cash Net increase (decreased) in cash and cash equivalents Cash and cash equivalents, beginning Cash and cash equivalents, end

For the Six Months Ended June 30 2012 2013 US$115,718 US$125,639 (321,203) (265,105) 69,392 315,057 9,002 (4,114) (127,091) 457,636 US$330,545

171,477 186,845 US$358,322

% Change 8.6 (17.5) 354.0 (145.7) (234.9) (59.2) 8.4

Consolidated cash and cash equivalents increased by 8.4 percent or by US$27.8 million mainly due to the higher cash generated from operations and increased financing activities arising from the equity transactions in May 2013 and net cash inflows from MTN and other term loan facilities.

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Cash provided by operations increased by 8.6 percent mainly due to stronger operating income for the first half of 2013. Net cash used in investing activities declined by 17.5 percent as port equipment acquisitions and construction costs related to Berth 6 at MICT have been completed in 2012. Capital expenditures for the first half of 2013 amounted to US$280.1 million comprising 50.9 percent of the capital expenditure budget for 2013 projected at US$550.0 million. The established budget is mainly allocated for green field projects in SPIA, Tecplata and CMSA, civil works, systems improvements, and purchase of major cargo handling equipment. The Group expects to finance these requirements through existing cash, cash generated from operations, external borrowings and issuance of common shares. Net cash provided by financing activities surged by 354.0 percent to US$315.1 million for the first half of 2013 from US$69.4 million for the same period in 2012 mainly due to the funding obtained from the equity transactions in May 2013 amounting to US$196.0 million and issuance of US$400.0 million medium term notes under the ICTSI Treasury’s MTN Programme in January 2013 and February 2013 totaling US$393.7 million to fund capital expenditures and expansion projects. The proceeds from the financing activities were also used to settle the principal and interest of the Parent Company’s medium term notes and other long term loans totaling US$176.7 million and US$2.0 million, respectively; payment of interest on the Parent Company’s US$450.0 million senior notes amounting to US$20.7 million; repayment of CGSA’s, PICT’s, and BCT’s loans and debt securities and the corresponding interest, totaling US$10.5 million and US$3.4 million, respectively; payment of dividends amounting to US$40.9 million; and distributions to holders of the perpetual capital securities of US$14.7 million. 2.6.3

Capital Resources

The table below shows the Group’s capital resources as of December 31, 2012 and June 30, 2013: Table 2.7

Capital Resources

(In thousands, except % change data) Loans payable Current portion of long-term debt Long-term debt, net of current portion Total short and long-term debt Equity

December 31, 2012 US$10,226 240,776 530,341 781,343 1,190,598 US$1,971,941

June 30, 2013 US$15,275 72,526 906,592 994,393 1,380,140 US$2,374,533

% Change 49.4 (69.9) 70.9 27.3 15.9 20.4

Total debt and equity capital of the Group increased by 20.4 percent as of June 30, 2013 as compared to December 31, 2012 mainly due to the strong net income reported in the first half of 2013 and significant equity and debt financing transactions and activities to fund expansion projects, capital expenditures, refinance maturing loans of the Parent Company, CGSA and PICT and and other general corporate requirements.

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2.6.3.1 Debt Financing The table below provides the breakdown of the Group’s outstanding loans as of June 30, 2013: Table 2.8

Outstanding Loans

(In thousands) Short-Term Debt USD – denominated USD – denominated Long-Term Debt Unsecured Peso Term Loans Unsecured Peso Term Loan Unsecured US Dollar Term Loans Unsecured US Dollar Bond Unsecured US Dollar Bond Secured US Dollar Term Loan Unsecured US Dollar Term Loans Unsecured US Dollar Securities Secured Pakistani Rupee Term Loan Secured Euro Term Loan

Company

Maturity

Interest Rate

CGSA Parent

2014 2013

Fixed Floating

Parent Parent Parent Parent ICTSI Treasury BCT CGSA CGSA

2015 2013 2013-14 2020 2023 2021 2013 2016

Fixed Floating Floating Fixed Fixed Floating Fixed Floating/Fixed

PICT AGCT

2016 2023

Floating Floating

Total Debt Less current portion Long-term debt, net of current portion

Amount 5,302 9,973 15,275 10,841 34,660 19,947 448,195 388,129 7,814 391 43,659 17,418 8,064 979,118 994,393 87,801 US$906,592

As of June 30, 2013, 52.7 percent of the Group’s total debt capital is at the Parent level, out of which the US$450.0 million senior notes issued in 2010 and due in 2020 formed 45.1 percent of the Group’s total debt capital. The table below is a summary of debt maturities, net of unamortized debt issuance cost, of the Group as of June 30, 2013: Table 2.9

Outstanding Debt Maturities

(In thousands) 2013 2014 2015 2016 2017 and onwards Total

Amount US$63,432 18,060 29,193 19,621 848,812 US$979,118

MTN Programme On January 9, 2013, ICTSI Treasury B.V. (ICTSI Treasury), a majority-owned subsidiary through ICTSI Ltd., established the MTN Programme that would allow ICTSI Treasury from time to time to issue medium term notes, unconditionally and irrevocably guaranteed by ICTSI. The aggregate nominal amount of the MTN outstanding will not at any time exceed US$750.0 million (or its equivalent in other currencies), subject to increase as described in the terms and conditions of the Programme Agreement. Also, on January 9, 2013, ICTSI Treasury and ICTSI signed a Subscription Agreement with HSBC and UBS AG, Hong Kong Branch, for the issuance of 10-year US$300.0 million guaranteed MTN (the “Original MTN”) under the MTN Programme. The Original MTN were issued on January 16, 2013 to mature on January 16, 2023 at a fixed interest rate of 4.625 percent p.a., net of applicable taxes, set at a price of 99.014 and payable semi-annually in arrears.

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Moreover, on January 28, 2013, ICTSI Treasury and ICTSI signed a Subscription Agreement with UBS AG, Hong Kong Branch, for the issuance of an additional 10-year US$100.0 million guaranteed MTN under the MTN Programme (the “MTN Tap”) to form a single series with the Original MTN discussed in the preceding paragraph. The MTN Tap were issued on February 4, 2013 to mature on January 16, 2023 at a fixed interest rate of 4.625 percent p.a., net of applicable taxes, set at a price of 101.25 and payable semi-annually in arrears. The aggregate net proceeds of the MTN amounting to US$393.7 million would be used to refinance some of ICTSI’s existing debt and for other general corporate purposes. The MTN were not registered with the SEC. The MTN were offered in offshore transactions outside the United States in reliance on Regulation S under the Securities Act of 1933, as amended, and, subject to certain exceptions, may not be offered or sold within the United States. The MTN are traded and listed in the Singapore Stock Exchange. 2.6.3.2 Loan Covenants The loans from local and foreign banks impose certain restrictions with respect to corporate reorganization, disposition of all or a substantial portion of ICTSI’s, BCT’s, CGSA’s, AGCT’s and PICT’s assets, acquisitions of futures or stocks, and extending loans to others, except in the ordinary course of business. ICTSI and BCT are also required to maintain specified financial ratios relating to their debt to equity and cash flow and earnings level relative to current debt service obligations. As of June 30, 2013 and December 31, 2012, ICTSI, BCT, CGSA, AGCT and PICT are in compliance with these loan covenants. There were no events that will trigger a direct or contingent financial obligation that is material to the Group, including any default or acceleration of an obligation. There are no material off-balance sheet transactions, arrangements, obligations (including contingent obligations), and other relations of the Company with unconsolidated entities or other persons created during the reporting period. 2.7 Risks ICTSI and its subsidiaries’ geographically diverse operations expose the Group to various market risks, particularly foreign exchange risk, interest rate risk and liquidity risk, which movements may materially impact the financial results of the Group. The importance of managing these risks has significantly increased in light of the heightened volatility in both the Philippine and international financial markets. With a view to managing these risks, the Group has incorporated a financial risk management function in its organization, particularly in the treasury operations. 2.7.2

Foreign Exchange Risk

Fluctuations in the exchange rates between the US dollar and Philippine peso, Euro and local currencies wherein the Group’s ports operate will affect the US dollar value of the Group’s revenues and assets and liabilities that are denominated in currencies other than US dollar. The Group’s non-US dollar currency-linked revenues were 51.3 percent and 52.5 percent of gross revenues for the six months ended June 30, 2013 and 2012, respectively. Foreign currency-linked revenues include the following: (1) arrastre charges of MICT; and (2) the non-US dollar revenues of international subsidiaries. ICTSI incurs expenses in foreign currency for all the operating and start up requirements of its international subsidiaries. Concession fees payable to port authorities in certain countries are either denominated in or linked to the US dollar.

SEC Form 17-Q Q2 2013

55

The table below provides the currency breakdown of the Group’s revenue for the six months ended June 30, 2013. Table 2.10

Revenue Currency Profile

Subsidiary ICTSI SBITC DIPSSCOR SCIPSI BIPI MICTSI BCT TSSA MICTSL PTMTS YRDICTL AGCT CGSA ICTSI India ICTSI Oregon BICTL TICT PICT OJA/AJSA SPIA NICTI

USD/EUR Composition 44% USD

60% USD/2% EUR

Local Currency 56% PhP 100% PhP 100% PhP 100% PhP 100% PhP 100% PhP 38% PLN 100% BRL

100% EUR*

90% EUR 100% USD

100% IDR 100% RMB 10% HRK 100% INR

100% USD 100% USD 100% USD 72% USD 100% USD

28% PKR 100% IDR 100% JPY

*MGA pegged with the EURO

On a limited basis, the Group enters into foreign currency forwards and/or cross currency swaps agreements and applies translation hedging whenever necessary, in order to manage its exposure to foreign currency rate fluctuations. Cross-Currency Swaps. Under the floating-to-fixed cross-currency swaps, ICTSI pays fixed interest on the US dollar notional amount and receives floating rate on the Philippine peso notional amount, on a quarterly basis simultaneous with the interest payments on the term loan facilities. In addition, ICTSI pays periodic US dollar principal amortization and receives Philippine peso principal amortization based on a given swap rate, equal to and simultaneous with the principal payments on the term loan facilities. Under the fixed-to-fixed cross-currency swaps, ICTSI pays and receives fixed interest rates on the US dollar and Philippine peso notional amounts on a semi-annual basis, respectively. ICTSI also pays periodic US dollar principal payments and receives Philippine peso principal payments based on a given swap rate, equal to and simultaneous with the principal payments on the term loan facilities. As of December 31, 2012, the market valuation gain on the outstanding cross-currency swaps amounted to US$8.7 million. The effective portion of the change in fair values of the cross-currency swaps amounting to US$6.1 million (net of US$2.6 million deferred tax) was taken directly to equity under other comprehensive income. The ineffective portion of the hedge is immaterial. As of June 30, 2013, the net market valuation loss on the outstanding cross-currency swaps amounting to US$4.1 million (net of US$1.7 million deferred tax) was taken directly to equity under other comprehensive income. Derivative assets as a result of the valuation amounted to US$2.9 million as of June 30, 2013.

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56

Translation Hedging. Foreign currency translation gains or losses on the Philippine peso-denominated short-term investments that qualify as highly effective cash flow hedges are deferred in equity. Any ineffective portion is recognized directly in earnings. Foreign currency translation gains or losses deferred in equity would form part of variable fees, presented as “Port authorities’ share in gross revenues” in the consolidated statement of income, when the hedged variable PPA fee is recognized. As of June 30, 2013 an aggregate of US$40.5 million (P =1.75 billion) equivalent of Philippine pesodenominated short-term investments have been designated by the Parent Company as cash flow hedges of the variability of Philippine peso cash flows that is required to settle Philippine pesodenominated payables that would arise from forecasted payments to the Philippine Port Authority due from January to October 2014. Foreign currency translation loss on Philippine peso-denominated short-term investments designated as cash flow hedges aggregating US$2.0 million have been recognized under equity. No ineffectiveness was recognized in the unaudited interim consolidated statement of income for the six-month period ended June 30, 2013. No amount has been recycled from equity to foreign exchange gain or loss in the unaudited interim consolidated statement of income for the six-month period ended June 30, 2013. Non-deliverable Forwards. As of June 30, 2013, ICTSI has a total of US$19.9 million nondeliverable sell US$ buy Colombian Pesos forward outstanding maturing in October to December 2013. The derivatives have been designated by the Parent Company as cash flow hedges of the variability of Colombian peso cash flows that is required to settle Colombian peso denominated payables that would arise from forecasted payments to contractors and/or suppliers. As of June 30, 2013, the net market valuation loss on the outstanding non-deliverable Colombian Peso forwards amounting to US$0.2 million (net of US$0.1 million deferred tax) was taken directly to equity under other comprehensive income. Derivative liabilities as a result of the valuation amounted to US$0.3 million as of June 30, 2013. Embedded Prepayment Option. As of June 30, 2013, the fair value of the embedded prepayment option identified in the Parent Company’s loan contract with HSBC or the FXCN Note amounted to US$1.0 million. Net change in fair value recognized in the unaudited interim consolidated statement of income for the three and six months ended June 30, 2013 amounted to US$0.3 million loss and US$0.1 million loss, respectively. 2.7.3

Interest Rate Risk

The Group’s long-term liabilities have combined fixed and floating interest rates. A rise in short-term interest rates in US dollar and Philippine peso will result in a corresponding increase in the interest rates due on the floating rate US dollar and Philippine peso-denominated liabilities. On a limited basis, the Group enters into cross-currency swap and interest rate swap agreements in order to manage its exposure to fluctuations in interest rates. As of June 30, 2013, the Group has an outstanding interest rate swap agreement on BCT’s US$7.9 million floating rate loan, swapped to fixed rate.

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57

2.7.4

Liquidity Risk

The Group manages its liquidity profile to be able to finance its working capital and capital expenditure requirements through internally generated cash and proceeds from debt. As part of the liquidity risk management, the Group maintains strict control of its cash and makes sure that excess cash held by subsidiaries are up streamed timely to the Parent Company. The Group also monitors the receivables and payables to ensure that these are at optimal levels. In addition, it regularly evaluates its projected and actual cash flow information and continually assesses the conditions in the financial market to pursue fund raising initiatives. These initiatives may include accessing bank loans, project finance facilities and the debt capital markets. ICTSI monitors and maintains a level of cash and cash equivalents and bank credit facilities deemed adequate to finance the Group’s operations, ensure continuity of funding and to mitigate the effects of fluctuations in cash flows. There are no other known trends, demands, commitments, events or uncertainties that will materially affect the company’s liquidity.

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PART II – OTHER INFORMATION There are no other information not previously reported in SEC Form 17-C that need to be reported in this section.

SEC Form 17-Q Q2 2013

59

ANNEX 1 INTERNATIONAL CONTAINER TERMINAL SERVICES, INC. AND SUBSIDIARIES SCHEDULE OF AGING OF RECEIVABLES As of June 30, 2013 (Unaudited, in Thousands) Trade

Advances

Total

US$55,518

US$11,374

US$66,892

Six months to one year

522

253

775

Over one year

178

29

207

US$56,218

US$11,656

US$67,874

Under six months

SEC Form 17-Q Q2 2013

60

ANNEX 2 INTERNATIONAL CONTAINER TERMINAL SERVICES, INC. AND SUBSIDIARIES FINANCIAL SOUNDNESS INDICATORS As of and for the Six Months Ended June 30

Liquidity ratios Current ratio(a) Interest rate coverage ratio(b) Solvency ratios Debt to equity ratio(c) Asset to equity ratio(d) Profitability ratio EBITDA margin(e) (a)

Current assets over current liabilities

(b)

EBITDA over interest expense and financing charges on borowings

(c)

Interest-bearing debts over total equity

(d)

Total assets over total equity

(e)

EBITDA over gross revenues from port operations

SEC Form 17-Q Q2 2013

2012

2013

2.06 11.02

1.91 8.05

0.54 1.84

0.72 2.26

43.2%

45.5%

61

ANNEX 3 INTERNATIONAL CONTAINER TERMINAL SERVICES, INC. AND SUBSIDIARIES LIST OF EFFECTIVE PFRS STANDARDS AND INTERPRETATIONS* June 30, 2013

PHILIPPINE FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS Effective as of January 1, 2013

Adopted

Framework for the Preparation and Presentation of Financial Statements Conceptual Framework Phase A: Objectives and qualitative characteristics



PFRSs Practice Statement Management Commentary



Not Adopted

Not Applicable

Philippine Financial Reporting Standards PFRS 1 (Revised)

PFRS 2

First-time Adoption of Philippine Financial Reporting Standards



Amendments to PFRS 1 and PAS 27: Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate



Amendments to PFRS 1: Additional Exemptions for First-time Adopters



Amendment to PFRS 1: Limited Exemption from Comparative PFRS 7 Disclosures for First-time Adopters



Amendments to PFRS 1: Severe Hyperinflation and Removal of Fixed Date for First-time Adopters



Amendments to PFRS 1: Government Loans



Share-based Payment



Amendments to PFRS 2: Vesting Conditions and Cancellations



Amendments to PFRS 2: Group Cash-settled Share-based Payment Transactions



PFRS 3 (Revised)

Business Combinations

PFRS 4

Insurance Contracts



Amendments to PAS 39 and PFRS 4: Financial Guarantee Contracts





PFRS 5

Non-current Assets Held for Sale and Discontinued Operations

PFRS 6

Exploration for and Evaluation of Mineral Resources

PFRS 7

Financial Instruments: Disclosures



Amendments to PAS 39 and PFRS 7: Reclassification of Financial Assets



PHILIPPINE FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS Effective as of May 31, 2013

PFRS 8

 

Adopted

Amendments to PAS 39 and PFRS 7: Reclassification of Financial Assets - Effective Date and Transition



Amendments to PFRS 7: Improving Disclosures about Financial Instruments



Amendments to PFRS 7: Disclosures - Transfers of Financial Assets



Amendments to PFRS 7: Disclosures – Offsetting Financial Assets and Financial Liabilities



Amendments to PFRS 7: Mandatory Effective Date of PFRS 9 and Transition Disclosures



Operating Segments



SEC Form 17-Q Q2 2013

Not Adopted

Not Applicable

62

PHILIPPINE FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS Effective as of January 1, 2013 PFRS 9*

Adopted

Not Adopted

Not Applicable

Financial Instruments

Not early adopted

Amendments to PFRS 9: Mandatory Effective Date of PFRS 9 and Transition Disclosures

Not early adopted

PFRS 10*

Consolidated Financial Statements

PFRS 11*

Joint Arrangements

PFRS 12*

Disclosure of Interests in Other Entities



PFRS 13*

Fair Value Measurement



 

Philippine Accounting Standards PAS 1 (Revised)

Presentation of Financial Statements



Amendment to PAS 1: Capital Disclosures



Amendments to PAS 32 and PAS 1: Puttable Financial Instruments and Obligations Arising on Liquidation



Amendments to PAS 1: Presentation of Items of Other Comprehensive Income



PAS 2

Inventories



PAS 7

Statement of Cash Flows



PAS 8

Accounting Policies, Changes in Accounting Estimates and Errors



PAS 10

Events after the Reporting Period



PAS 11

Construction Contracts



PAS 12

Income Taxes



Amendment to PAS 12 - Deferred Tax: Recovery of Underlying Assets



PAS 16

Property, Plant and Equipment



PAS 17

Leases



PAS 18

Revenue



PAS 19 (Amended)

Employee Benefits



Amendments to PAS 19: Actuarial Gains and Losses, Group Plans and Disclosures



PAS 20

Accounting for Government Grants and Disclosure of Government Assistance



PAS 21

The Effects of Changes in Foreign Exchange Rates



Amendment: Net Investment in a Foreign Operation



PAS 23 (Revised)

Borrowing Costs



PAS 24 (Revised)

Related Party Disclosures



PAS 26

Accounting and Reporting by Retirement Benefit Plans

PAS 27

Consolidated and Separate Financial Statements



PAS 27 (Amended)*

Separate Financial Statements



PAS 28

Investments in Associates



PAS 28 (Amended)*

Investments in Associates and Joint Ventures



PAS 29

Financial Reporting in Hyperinflationary Economies



PAS 31

Interests in Joint Ventures



PAS 32

Financial Instruments: Disclosure and Presentation

SEC Form 17-Q Q2 2013





63

PHILIPPINE FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS Effective as of January 1, 2013

Adopted

Not Adopted

Not Applicable

Amendments to PAS 32 and PAS 1: Puttable Financial Instruments and Obligations Arising on Liquidation



Amendment to PAS 32: Classification of Rights Issues



Amendments to PAS 32: Offsetting Financial Assets and Financial Liabilities



PAS 33

Earnings per Share



PAS 34

Interim Financial Reporting



PAS 36

Impairment of Assets



PAS 37

Provisions, Contingent Liabilities and Contingent Assets



PAS 38

Intangible Assets



PAS 39

Financial Instruments: Recognition and Measurement



Amendments to PAS 39: Transition and Initial Recognition of Financial Assets and Financial Liabilities



Amendments to PAS 39: Cash Flow Hedge Accounting of Forecast Intragroup Transactions



Amendments to PAS 39: The Fair Value Option



Amendments to PAS 39 and PFRS 4: Financial Guarantee Contracts



Amendments to PAS 39 and PFRS 7: Reclassification of Financial Assets



Amendments to PAS 39 and PFRS 7: Reclassification of Financial Assets – Effective Date and Transition



Amendments to Philippine Interpretation IFRIC–9 and PAS 39: Embedded Derivatives



Amendment to PAS 39: Eligible Hedged Items



PAS 40

Investment Property



PAS 41

Agriculture



Philippine Interpretations IFRIC 1

Changes in Existing Decommissioning, Restoration and Similar Liabilities

IFRIC 2

Members' Share in Co-operative Entities and Similar Instruments

IFRIC 4

Determining Whether an Arrangement Contains a Lease

IFRIC 5

Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds



IFRIC 6

Liabilities arising from Participating in a Specific Market - Waste Electrical and Electronic Equipment



IFRIC 7

Applying the Restatement Approach under PAS 29 Financial Reporting in Hyperinflationary Economies



IFRIC 8

Scope of PFRS 2



IFRIC 9

Reassessment of Embedded Derivatives



Amendments to Philippine Interpretation IFRIC–9 and PAS 39: Embedded Derivatives



PHILIPPINE FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS Effective as of May 31, 2013

  

Adopted

IFRIC 10

Interim Financial Reporting and Impairment



IFRIC 11

PFRS 2- Group and Treasury Share Transactions



IFRIC 12

Service Concession Arrangements



IFRIC 13

Customer Loyalty Programmes

SEC Form 17-Q Q2 2013

Not Adopted

Not Applicable



64

PHILIPPINE FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS Effective as of January 1, 2013 IFRIC 14

Adopted

The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction



Amendments to Philippine Interpretations IFRIC- 14, Prepayments of a Minimum Funding Requirement



Not Adopted

Not Applicable

IFRIC 16

Hedges of a Net Investment in a Foreign Operation



IFRIC 17

Distributions of Non-cash Assets to Owners



IFRIC 18

Transfers of Assets from Customers



IFRIC 19

Extinguishing Financial Liabilities with Equity Instruments



IFRIC 20

Stripping Costs in the Production Phase of a Surface Mine



SIC-7

Introduction of the Euro

SIC-10

Government Assistance - No Specific Relation to Operating Activities



SIC-12

Consolidation - Special Purpose Entities



Amendment to SIC - 12: Scope of SIC 12





SIC-13

Jointly Controlled Entities - Non-Monetary Contributions by Venturers

SIC-15

Operating Leases - Incentives

SIC-25

Income Taxes - Changes in the Tax Status of an Entity or its Shareholders



SIC-27

Evaluating the Substance of Transactions Involving the Legal Form of a Lease



SIC-29

Service Concession Arrangements: Disclosures.



SIC-31

Revenue - Barter Transactions Involving Advertising Services



SIC-32

Intangible Assets - Web Site Costs



SEC Form 17-Q Q2 2013

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65

ANNEX 4 Map of Subsidiaries as of June 30, 2013

INTERNATIONAL CONTAINER TERMINAL SERVICES, INC. (ICTSI)

MICTSI Mindanao Int’l Container Terminal Services, Inc. (Phils.)

HIJO HIJO International Port Services, Inc. (Phils.)

ICTSI Brazil ICTSI Brazil Ltd. (Bermuda)

OPC Operadora Portuaria Centroamerican S.A. de C.V. (Honduras)

AHI Abbotsford Holdings, Inc. (Phils.)

SBITHI Subic Bay Int’l Terminal Holdings, Inc. (Phils.)

IWI ICTSI Warehousing, Inc. (Phils.)

CICTI Cebu Int’l Container Terminal, Inc. (Phils.)

DIPSSCOR Davao Int’d Port & Stevedoring Services Corp. (Phils.)

SBITC Subic Bay Int’l Terminal Corp. (Phils.)

IW CARGO IW Cargo Handlers, Inc. (Phils.)

BIPI Bauan Int’l Ports, Inc. (Phils.)

TSSA Tecon Suape S.A. (Brazil)

PT CTSSI PT Container Term. Sys. Solns. Inc. (Indonesia)

RCBV Royal Capital BV (Netherlands)

ICTSI Far East ICTSI Far East PTE. Ltd. (Singapore)

NMCTS New Muara Container Terminal Services SDN BHD (Brunei)

MTS PT Makassar Term. Services

ICTSI Ltd. RHQ Manila

JASA PT ICTSI Jasa Prima Tbk (Indonesia)

TICT Tartous Int’l Cont. Terminal, JSC (Syria)

PRIME STAFFERS Prime Staffers & Selection Bureau, Inc. (Phils.)

CTSSI Phils. Cont. Term. Sys. Sols., Phils., Inc. (Phils.)

ICTSI Poland ICTSI Poland Ltd. (Bermuda)

LICTSLE Lekki International Container Terminal Services LFTZ Enterprises (Nigeria)

ICTHI Int’l Cont. Terminal Holdings, Inc. (Cayman Islands)

PIHL Pentland Int’l Holdings Ltd. (British Virgin Isles)

ICTSI Africa (Pty) Ltd. (Cape Town, South Africa)

AGCT Adriatic Gate Container Terminal (Croatia)

ICTSI Ltd. ICTSI Ltd. (Bermuda)

ICBV ICTSI Capital B.V. (Netherlands)

NICTI Naha Int’l Container Terminal (Japan)

CGSA Contecon Guayaquil S.A. (Ecuador)

ICTSI (M.E.) JLT ICTSI Middle East JLT (Dubai, UAE)

YRDICTL Yantai Rising Dragon Int’l Cont. Term. Ltd.(China)

ICTSI Georgia ICTSI Georgia Corp. (Cayman Isles)

BICT Batumi Int’l Cont. Term. LLC. (Georgia)

Services, Inc. (Phils.)

ICTS – India International Container Terminal Services Private Limited (India)

CUSA C. Ultramar S.A (Panama)

FWSA Future Water S.A. (Panama)

BCT Baltic Container Terminal Ltd. (Poland)

SPIA Sociedad Portuario Industrial Aguadulce S.A. (Colombia)

KEI Kinston Enterprises, Inc. (Panama)

MICTSL Madagascar Int’l Cont. Terminal Servs, Ltd. (Madagascar)

ITBV ICTSI Treasury BV (Netherlands)

CMSA BV (Netherlands)

CTVCC Container Terminal de Venezuela Conterven C.A. (Venezuela)

IPSAL Int’l Ports of South America and Logistics S.A. (Uruguay)

TECPLATA Tecplata S.A. (Argentina)

ICTSI Mauritius ICTSI Mauritius Ltd. (Rep. of Mauritius)

Crixus Limited (British Virgin Islands)

CORDILLA Cordilla Properties Holdings (Phils.)

ICTSI SUBIC INC. New Container Terminal (NCT) 2, Subic Bay

CMSA Contecon Manzanillo S.A. Mexico

CTSSI Cont. Term. Sys. Sols., Inc. (Mauritius)

OJA PT PBM Olah Jasa Andal (Indonesia)

IHKL ICTSI (Hong Kong) Ltd. (Hong Kong)

SCIPSI South Cotabato Integrated Ports

IOI ICTSI Oregon Inc.(Portland, USA)

ICTSI Cooperatief U.A. (Netherlands)

ICON Logistiek B.V. (Netherlands)

SPIA Colombia BV (Netherlands)

SPIA Spain SL (Spain)

GCC BV Global Container Capital BV (Netherlands)

TSSA BV (Netherlands)

CGSA BV (Netherlands)

CGSA Transportadora SL (Spain)

AIL Aeolina Investments Limited (British Virgin Islands)

PICT Pakistan International Container Terminal (Pakistan)

SEC Form 17-Q Q2 2013

66