URC And Subs_17Q_Q3FY09 _3_ RTD317 Subs 17q Q3fy09 Disclosure Statement

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UNIVERSAL ROBINA

CORPORATION

110 E. RODRIGUEZ, JR. AVENUE, BAGUMBAYAN, QUEZON CITY, PHILIPPINES 1600, P.O. Box 3542 MM 2800. P.O. BOX 99.AC CUBAO, QUEZON CITY

TEL. 635.0751 TO 85; 671.2935 TO 42

14 August 2009

Securities and Exchange Commission

Attention: Corporation and Finance Department

SEC Building, EDSA

Mandaluyong City

Philippine Stock Exchange

Attention: Ms. Janet A. Encarnacion

Head, Disclosure Department

4F PSE Center, Exchange Road

Ortigas Center, Pasig City

Subject: URC POSTS NET INCOME OF PHP 2.238 BILLION FOR FIRST THREE

QUARTERS OF FISCAL YEAR 2009

Gentlemen:

Universal Robina Corporation's core earnings before tax, which is operating profit after

equity earnings, net finance costs and other income-net reached Php 2.782 billion .in the first three

quarters of fiscal year 2009, up 3% from the same period last year.

URC's unaudited consolidated net income for the first three quarters of the 2009 fiscal year

(October 2008 to June 2009) reached Php 2.238 billion, compared to the Php 1.054 billion in net

income reported in the same period last year. This 112.3% increase was caused by the strong increase

in our operating income, reversal of foreign exchange losses, and reduction of mark-to-market losses

in our bond holdings experienced over the first two quarters, as the global economy began recovering

and as bond prices normalized.

URC's consolidated net sales and services for the first three quarters of the 2009 fiscal year

amounted to Php 37.632 billion, a 16.2% growth from Php 32.392 billion in the same period last

year.

The largest contributor to the group's sales revenue, URC's branded consumer foods

segment, including the packaging division, increased sales of goods and services by Php 3.831

billion, or 15.2%, to Php 29.053 billion in the first three quarters of fiscal 2009 from the Php 25.222

billion recorded in the same period last year. This increase was attributed mainly to the stellar

performance of our International operations and the resilient growth of our Philippine business.

Net sales of URC's agro-industrial group amounted to Php 4.317 billion for the first three

quarters of fiscal 2009, or 10.4% higher than last year.

A]GSummit1m

Company..

URC's commodity foods group booked gross sales of Php 6.624 billion for the first three

quartersof fiscal 2009againstPhp 5.851billion inthe sameperiod lastyear, or an increaseof 13.2%.

Total net sales of URC's commodity foods group increased 30.7% to Php 4.262 billion in,the first

three quarters of fiscal 2009, versus Php 3.260 billion in the same period last year.

URC's operating profit improved to Php 3.140 billion, or an increase of 15.7% vs. the same

period last year. This was due to significantly better profitability for our branded consumer foods

units, with our international operations now in the black, and with the expansion of gross margins as

input prices normalized.

Our balance sheet remains healthy. As of the 3rd quarter of fiscal 2009, we have a net debt of

approximately Php 4.291 billion, with a net gearing ratio (net debt over equity) of 0.13.

Attached is the company's Form 17-Q which contains the unaudited financial statements and

management's discussion and analysis of the same.

The above disclosure is being submitted in compliance with the disclosure rules of the

Securities and Exchange Commission and the Philippine Stock Exchange.

Very Truly Yours,

B.1/Sebastian

Senior Vice President

Corporate Information Officer

- 1 -

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, 2009

2. Commission identification number 9170

3. BIR Tax Identification No. 000-400-016-000

4. Universal Robina Corporation

Exact name of issuer as specified in its charter

5. Quezon City, Philippines

Province, country or other jurisdiction of incorporation or organization

6. Industry Classification Code: __________ (SEC Use Only)

7. 110 E. Rodriguez Ave., Bagumbayan, Quezon City 1110

Address of issuer’s principal office Postal Code

8. 671-2935; 635-0751; 671-3954

Issuer’s telephone number, including area code

9. Not applicable

Former name, former address and former fiscal year, if changed since last report

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

RSA

Title of Each Class

Common stock, P1.00

Par value

Number of Shares of

Common Stock Outstanding and

Amount of Debt Outstanding

2,152,534,733 shares

11. Are any or all of the securities listed on the Philippine Stock Exchange?

Yes [ / ] No [ ]

- 2 -

If yes, state the name of such Stock Exchange and the class/es of securities listed therein

Philippine Stock Exchange Common stock

12. Indicate by check mark whether the registrant:

(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 twelve

(12) months (or for such shorter period the registrant was required to file such

reports)

Yes [ / ] No [ ]

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

Yes [ / ] No [ ]

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

The unaudited consolidated financial statements are filed as part of this Form 17-Q (pages 12 to

56).

Item 2. Management's Discussion and Analysis of Financial Condition and Results of

Operations

Business Overview

Universal Robina Corporation (URC) is one of the largest branded food product companies in the

Philippines and has a growing presence in other Asian markets. It was founded in 1954 when Mr.

John Gokongwei, Jr. established Universal Corn Products, Inc., a cornstarch manufacturing plant

in Pasig. The Company is involved in a wide range of food-related businesses, including the

manufacture and distribution of branded consumer foods, production of hogs and day-old chicks,

manufacture and distribution of branded and unbranded animal and fish feeds, glucose and

veterinary compounds, flour milling, and sugar milling and refining. The Company is a dominant

player with leading market shares in savory snacks, candies and chocolates, and is a significant

player in biscuits, with leading positions in cookies and pretzels. URC is also the largest player in

the RTD tea market, and is a respectable 2nd player in the coffee business.

The Company operates its food business through operating divisions and wholly-owned or

majority-owned subsidiaries that are organized into three business segments: branded consumer

foods, agro-industrial products and commodity food products.

The branded consumer foods group (BCFG), the Company’s largest segment, consists of three

main divisions: snack foods, beverage and grocery divisions, although the Company conducts

some of its branded consumer foods operations through its wholly-owned or majority-owned

- 3 -

subsidiaries and joint venture companies (i.e. Hunt-URC and Nissin-URC). The Company has a

strong brand portfolio created and supported through continuous product innovation, extensive

marketing and experienced management. Its brands are household names in the Philippines and a

growing number of consumers across Asia are purchasing the Company’s branded consumer food

products. This segment also includes the packaging division which manufactures BOPP films

primarily used in packaging.

The Company’s agro-industrial group (AIG) operates three divisions, which is engaged in hog and

poultry farming (Robina Farms or “RF”), the manufacture and distribution of animal and fish

feeds, glucose and soya products (Unversal Corn Products or “UCP”), and the production and

distribution of animal health products (Robichem).

The Company’s commodity food group (CFG) engages in sugar-milling and refining through its

Sugar divisions: URSUMCO, CARSUMCO, SONEDCO and PASSI; and flour-milling and pasta

manufacturing and marketing through URC Flour division. The group supplies all the flour and

sugar needs of the BCFG.

The Company is a core subsidiary of JG Summit Holding, Inc. (JGSHI), one of the largest

conglomerates listed in the Philippine Stock Exchange based on total net sales. JGSHI has

substantial interests in property development, hotel management, banking and financial services,

telecommunications, petrochemicals, air transportation and business interests in other sectors,

including power generation and insurance.

The following table summarizes the sale of goods and services of URC for the nine months ended

June 30, 2009 and June 30, 2008:

Results of Operations

Nine Months Ended June 30, 2009 versus June 30, 2008

URC generated a consolidated sale of goods and services of P=37.632 billion for the nine months

ended June 30, 2009, 16.2% higher than the revenues posted in the same period last year. Sale of

goods and services performance by business segment follows:

Sale of goods and services in URC’s BCFG, excluding packaging division, increased by P=4.148

billion, or 17.2%, to P=28.240 billion for the nine months of fiscal 2009 from P=24.092 billion

registered in the same period of last year. This increase was due to a 12.6% increase in net sales

Nine months ended June 30

In millions 2009

2008

BCFG

Domestic P=19,701

P=17,489

International 8,539

6,603

28,240

24,092

Packaging 813

1,130

BCFG Total 29,053

25,222

AIG 4,317

3,911

CFG 4,262

3,259

Total P=37,632

P=32,392

- 4 -

from BCFG’s domestic operations which was largely driven by the strong performance of its

snackfoods which posted a 14.7% growth on the back of price increases implemented at the end of

last fiscal year and in the first quarter of the current period coupled by increase in volume.

Beverage sales value grew by 3.2% due to higher selling price and increased sales volume of

coffee and juice products. Sales of grocery products improved by 13.1% to P=2.186 billion due to

strong Noodles sales. Export and food service also posted a 36.3% growth in sales value.

BCFG International sales significantly increased by 29.3% to P=8.539 billion for the nine months

of fiscal 2009 from P=6.603 billion in the same period last year. In US dollar amount, sales

registered an increase of 14.8% from US$155 million posted for the nine months of fiscal 2008 to

US$178 million recorded in the same period of this year due to considerable increase in sales

volume by 33.3%. This was supported by higher revenues from Singapore, Indonesia, Hong Kong

and Vietnam.

Sale of goods and services of BCFG, excluding packaging division, accounted for 75.0% of total

URC consolidated sale of goods and services for the nine months ended June 30, 2009.

Sales in URC’s packaging division went down by 28.1% to P=813 million for the nine months of

fiscal 2009 from P=1.130 billion posted in the same period last year due to decrease in sales volume

and commodity prices worldwide.

Sale of goods and services in URC’s AIG amounted to P=4.317 billion for the nine months of fiscal

2009, a 10.4% increase from P=3.911 billion recorded in the same period last year. URC’s feed

business grew by 11.7% on the back of higher prices with slight increase in volume as hog and

poultry raisers contended with the rising feed costs in the first quarter of this year. Farm business

grew by 9.3% due to higher sales volume and prices of hogs and increase in sales of commercial

table eggs and broiler this year.

Sale of goods and services in URC’s CFG amounted to P=4.262 billion for the nine months of fiscal

2009 or up 30.8% from P=3.259 billion reported in the same period last year. This was primarily

due to increase in sales volume of sugar as a result of better performance by SONEDCO this year

against last year coupled with higher volume and average selling prices of flour.

URC’s cost of sales consists primarily of raw and packaging materials costs, manufacturing costs

and direct labor costs. Cost of sales increased by P=4.087 billion, or 16.6%, to P=28.656 billion for

the nine months of fiscal 2009 from P=24.569 billion reported in the same period last year. Cost of

sales went up due to increases in sales volume coupled with significant increases in costs of major

raw materials during the first quarter of fiscal 2009.

URC’s gross profit for the nine months of fiscal 2009 amounted to P=8.976 billion, an increase of

P=1.152 billion or 14.7% from P=7.824 billion posted in the same period last year. Gross profit

margin is still down by 30 basis points versus same period last year but has improved over the

first half of the year as the Company took advantage of lower input costs.

URC’s selling and distribution costs, and general and administrative expenses consist primarily of

compensation benefits, advertising and promotion costs, freight and other selling expenses,

depreciation, repairs and maintenance expenses and other administrative expenses. Selling and

distribution costs, and general and administrative expenses increased by P=727 million or 14.2% to

P=5.835 billion for the nine months of fiscal 2009 from P=5.108 billion registered in the same period

of fiscal 2008. This increase resulted primarily from the following factors:

• 25.8% or P=433 million increase in advertising and promotion costs to P=2.111 billion for

the nine months of fiscal 2009 from P=1.678 billion in the same period last year. This is to

- 5 -

support the new SKUs launched and boost up sales of existing products in light of

increasing market competition.

• 9.0% or P=107 million increase in freight and delivery charges to P=1.291 billion for the

nine months of fiscal 2009 from P=1.184 billion in the same period last year. This was due

to increase in trucking and shipping costs associated with higher fuel prices and increased

volume.

• 33.9% or P=85 million increase in repairs and maintenance expense to P=336 million for the

nine months of fiscal 2009 from P=251 million in the same period last year which was

substantially due to computer maintenance costs.

• 5.5% or P=70 million increase in compensation and benefits to P=1.339 billion for the nine

months of fiscal 2009 from P=1.269 billion in the same period last year due to annual

salary adjustments.

As a result of the above factors, operating income increased by P=425 million, or 15.7% to

P=3.140 billion for the nine months of fiscal 2009 from P=2.715 billion reported in the same period

of fiscal 2008. The increase specifically came from BCFG’s stellar performance with

International operations remaining in the black which covered up the decline in operating income

of AIG and CFG due to contraction in margins.

URC’s finance revenue consists of interest income from investments in financial instruments,

money market placements, savings and dollar deposits and dividend income from investment in

equity securities. Finance revenue decreased by P=50 million or 5.5% to P=864 million for the nine

months of fiscal 2009 from P=914 million in the same period of fiscal 2008 due to lower level of

financial assets during the period.

Market valuation loss on financial instruments at FVPL decreased by P=854 million or 66.6% to

P=428 million for the nine months of fiscal 2009 from P=1.282 billion in the same period of fiscal

2008 due to recovery in the market values of investments in bonds and equity securities in the third

quarter of fiscal 2009 which reduced the significant losses reported in the 1st half of this year.

Equity in net income of a joint venture amounted to P=23 million for the nine months of fiscal 2009

and 2008 due to stable net income of Hunt-Universal Robina Corporation.

URC’s finance costs consist mainly of interest expense which increased by P=335 million or 34.6%,

to P=1.304 billion for the nine months of fiscal 2009 from P=969 million recorded in the same period

of fiscal 2008 due to increase in financial debt and interest accretion of available-for-sale

investments.

Foreign exchange gain - net amounted to P=146 million for the nine months of fiscal 2009, 223.7%

increase from P=118 million foreign exchange loss reported in the same period last year due to

effects of realized foreign exchange and currency translation gains.

Other income - net consists of gain (loss) on sale of fixed assets and investments, amortization of

bond issue costs, rental income, and miscellaneous income and expenses. Other income - net

doubled from P=29 million for the nine months of 2008 to P=58 million in the same period this year

due to gain on bond re-acquisition this year.

The Company recognized provision for income tax of P=170 million for the nine months of fiscal

2009, 34.1% decrease from P=258 million in the same period last year due to lower taxable income

of domestic companies.

- 6 -

URC's unaudited net income for the nine months of fiscal 2009 amounted to P=2.238 billion, higher

by P=1.184 billion or 112.3% from P=1.054 billion of the same period last year, due to higher

operating income, decrease in mark-to-market loss in bond and equity holdings as a result of

recovery of market prices during the third quarter of this year, foreign exchange gains and lower

taxable income.

URC’s unaudited core earnings before tax (operating profit after equity earnings, net finance costs

and other income - net) for the nine months of fiscal 2009 amounted to P=2.782 billion, an increase

of 2.6% from P=2.712 billion reported in the same period last year.

Net income attributable to equity holders of the parent increased by P=1.027 billion or 97.9% to

P=2.075 billion for the nine months of fiscal 2009 from P=1.048 billion in the same period last year

as a result of the factors discussed above.

Minority interest represents primarily the share in the net income (loss) attributable to minority

shareholders of the following subsidiaries of URC: URC International, URC’s direct subsidiary in

which it holds approximately 77.0% economic interest and Nissin- URC, URC’s 65.0%-owned

subsidiary. Minority interest in net income of subsidiaries increased from P=6 million for the nine

months of fiscal 2008 to P=163 million for the same period this year due to net income reported by

URC International on the back of surging profits in Thailand, Vietnam, Malaysia, Singapore and

Hong Kong.

URC reported an EBITDA (operating income plus depreciation and amortization) of P=5.360

billion for the nine months of fiscal 2009, 13.4% higher than P=4.725 billion recorded in the same

period of fiscal 2008.

The Company is not aware of any material off-balance sheet transactions, arrangements and

obligations (including contingent obligations), and other relationship of the Company with

unconsolidated entities or other persons created during the reporting period that would have a

significant impact on the Company’s operations and/or financial condition.

Financial Position

June 30, 2009 vs. September 30, 2008

URC’s financial position remained to be strong with a current ratio of 2.2:1 as of June 30, 2009.

Financial debt to equity ratio of 0.62:1 for the period is within comfortable level. Book value per

share increased to P=15.46 as at June 30, 2009 from P=14.65 as at September 30, 2008. Total

outstanding common shares as of June 30, 2009 increased by 3 million shares to 2.153 billion

shares from 2.150 billion shares as at September 30, 2008.

The Company’s cash requirements have been sourced through cash flow from operations. Net

cash provided by operating activities for the nine months ended June 30, 2009 was P=4.666 billion.

Net cash used in investing activities for the period amounted to P=3.479 billion mainly due to

acquisition of property, plant and equipment. Net cash provided by financing activities amounted

to P=1.076 billion mainly from the issuance in March 2009 of fixed term Peso notes for working

capital requirement of the company, net of payment of short-term borrowings and cash dividends.

As of June 30, 2009, the Company is not aware of any events that will trigger direct or contingent

financial obligation that is material to the Company, including any default or acceleration of an

obligation.

- 7 -

Material Changes in Fiscal 2009 Financial Statements

(Increase/Decrease of 5% or more versus FY 2008)

Income Statements - Nine months ended June 30, 2009 versus same period in fiscal 2008

16.2% increase in sale of goods and services was due to the following:

Sale of goods and services in URC’s BCFG, excluding packaging division, increased by P=4.148

billion, or 17.2%, to P=28.240 billion for the nine months of fiscal 2009 from P=24.092 billion

registered in the same period of last year. This increase was due to a 12.6% increase in net sales

from BCFG’s domestic operations which was largely driven by the strong performance of its

snackfoods which posted a 14.7% growth on the back of price increases implemented at the end of

last fiscal year and in the first quarter of the current period coupled by increase in volume.

Beverage sales value grew by 3.2% due to higher selling price and increased sales volume of

coffee and juice products. Sales of grocery products improved by 13.1% to P=2.186 billion due to

strong Noodles sales. Export and food service also posted a 36.3% growth in sales value.

BCFG International sales significantly increased by 29.3% to P=8.539 billion for the nine months

of fiscal 2009 from P=6.603 billion in the same period last year. In US dollar amount, sales

registered an increase of 14.8% from US$155 million posted for the nine months of fiscal 2008 to

US$178 million recorded in the same period of this year due to considerable increase in sales

volume by 33.3%. This was supported by higher revenues from Singapore, Indonesia, Hong Kong

and Vietnam.

Sale of goods and services of BCFG, excluding packaging division, accounted for 75.0% of total

URC consolidated sale of goods and services for the nine months ended June 30, 2009.

Sales in URC’s packaging division went down by 28.1% to P=813 million for the nine months of

fiscal 2009 from P=1.130 billion posted in the same period last year due to decrease in sales volume

and commodity prices worldwide.

Sale of goods and services in URC’s AIG amounted to P=4.317 billion for the nine months of fiscal

2009, a 10.4% increase from P=3.911 billion recorded in the same period last year. URC’s feed

business grew by 11.7% on the back of higher prices with slight increase in volume as hog and

poultry raisers contended with the rising feed costs in the first quarter of this year. Farm business

grew by 9.3% due to higher sales volume and prices of hogs and increase in sales of commercial

table eggs and broiler this year.

Sale of goods and services in URC’s CFG amounted to P=4.262 billion for the nine months of fiscal

2009 or up 30.8% from P=3.259 billion reported in the same period last year. This was primarily

due to increase in sales volume of sugar as a result of better performance by SONEDCO this year

against last year coupled with higher volume and average selling prices of flour.

16.6% increase in cost of sales

Due to increase in sales volume and cost of major raw materials in the first quarter of fiscal 2009.

17.0% increase in selling and distribution costs

Due to increase in advertising and promotions costs, freight and delivery charges and personnel-

related expenses.

5.4% increase in general and administrative expenses

Due to increase in computer maintenance costs and technical expenses.

- 8 -

5.5% decrease in finance revenue

Due to lower level of financial assets during the period.

66.6% decrease in mark-to-market loss on financial instruments at FVPL

Due to recovery in market values of investments in bonds and equity securities during the third

quarter of fiscal 2009.

34.6% increase in finance costs

Due to increase in level of financial debt during the period.

100.0% increase in impairment loss

Due to impairment of net assets of the disposal group held for sale.

223.7% increase in foreign exchange gain - net

Due to realized gain on settled foreign currency denominated short-term liabilities.

100.0% increase in other income - net

Due to gain in bond re-acquisition this year.

34.1% decrease in provision for income tax

Due to lower taxable income during the period.

2,598.4% increase in minority interest

Due to net income reported by URC International this period against net loss posted in the same

period last year.

Balance sheets – June 30, 2009 versus September 30, 2008

102.1 % increase in cash and cash equivalents

Due to proceeds from notes issuance.

7.8% decrease in inventories

Due to decrease in raw materials, both on hand and in-transit.

14.9% decrease in other current assets

Due to decrease in current portion of input tax and prepaid advertising costs.

42.4% decrease in assets of disposal group held for sale

Due to impairment of certain portion of assets, net of effect of foreign currency translation.

5.8% increase in property, plant and equipment

Due to acquisition of machineries and equipment as a result of business expansion.

7.4% decrease in investment in a joint venture

Due to dividends received during the period from HURC.

8.9% increase in other noncurrent assets

Due to increase in noncurrent portion of input tax and miscellaneous deposits.

14.6% decrease in short-term debt

Due to maturity and payment of loans, net of availments.

- 9 -

8.5% increase in accounts payable and accrued expenses

Due to increase in accrued advertising and promotion expenses, contracted services and interest

expense.

37.4% decrease in trust receipts and acceptances payable

Due to payment during the period.

33.0% increase in income tax payable

Due to provision for income tax during the period, net of applicable creditable withholding taxes.

90.2 % decrease in liabilities associated with assets held for sale

Due to adjustment of certain portion of liabilities associated with impairment of the assets held for

sale, net of effect of foreign currency translation.

30.9% increase in long-term debt, including current portion

Due to issuance of fixed term peso notes for working capital requirements, net of amortization

payment.

33.3% increase in deferred income tax - net

Due to reversal of deferred income tax for realized forex loss.

8.0% increase in retained earnings

Due to net income, net of cash dividends paid.

100.0% decrease in deposits for stock subscriptions

Due to application of deposit for the issuance of shares as approved by the SEC.

32.0% decrease in unrealized loss on AFS

Due to increase in market values of available-for-sale investments.

24.7% increase in equity attributable to minority interests

Due to net income reported by URC International this year against net loss last year and higher net

income of NURC this year.

The Company’s key performance indicators are employed across all businesses. Comparisons are

then made against internal target and previous period’s performance. The Company and its

significant subsidiaries’ top five (5) key performance indicators are as follows: (in Million Pesos)

Universal Robina Corporation (Consolidated)

YTD June 2009 YTD June 2008

Index

Revenue P=37,632 P=32,392

116

EBIT 3,140 2,715

116

EBITDA 5.360 4,725

113

Net Income 2,238 1,054

212

Total assets 61,005 61,167

100

- 10 -

URC International

YTD June 2009 YTD June 2008 Index

Revenue P=8,420

P=

6,423

131

EBIT 717 (78)

1,119

EBITDA 1,320 443 298

Net Income (Loss) 587 (55) 1,267

Total assets 13,925 11,368 122

Nissin - URC

YTD June 2009 YTD June 2008 Index

Revenue P=936

P=

855

109

EBIT 90 72 125

EBITDA 115 97

119

Net Income 71 59 120

Total assets 697 693 101

URC Philippines, Limited

YTD June 2009 YTD June 2008 Index

Revenue P=– P=–

–

EBIT –

–

–

EBITDA – –

–

Net Loss (77)

(919)

8

Total assets 14,157

16,854 84

Universal Robina (Cayman), Ltd.

YTD June 2009 YTD June 2008 Index

Revenue P=– P=

–

–

EBIT – –

–

EBITDA –

–

–

Net Income 1,025

744

138

Total assets 8,741 7,004

125

- 11 -

- 12 -

UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In Thousand Pesos)

Unaudited

June 30 Audited

September 30

2009 2008

ASSETS

Current Assets

Cash and cash equivalents (Note 6) P=4,477,761 P=2,215,628

Financial assets at fair value through profit and loss (Note 7)

5,919,253 5,979,185

Available-for-sale investments (Note 8) 6,483,868 6,304,843

Receivables - net (Note 9) 6,334,713 6,175,874

Inventories (Note 10) 7,164,927 7,774,455

Other current assets (Note 11) 882,071 1,036,364

31,262,593 29,486,349

Assets of disposal group classified as held for sale 113,652 197,417

Total Current Assets 31,376,245 29,683,766

Noncurrent Assets

Property, plant and equipment - net (Note 12) 25,746,611 24,327,344

Biological assets 1,380,496 1,443,260

Intangible assets (Note 13) 1,644,687 1,646,763

Net pension assets 243,811 243,811

Investments in a joint venture (Note 14) 86,156 93,057

Investment properties (Note 15) 76,304 79,003

Other noncurrent assets (Note 16) 450,487 413,631

Total Noncurrent Assets 29,628,552 28,246,869

P=61,004,797 P=57,930,635

LIABILITIES AND EQUITY

Current Liabilities

Short-term debt (Note 17) P=6,890,602 P=8,069,508

Accounts payable and other accrued liabilities (Note 18) 5,387,082 4,964,942

Trust receipts and acceptances payable (Note 10) 1,879,558 3,000,776

Income tax payable 27,603 20,762

Current portion of long-term debt (Note 19) 28,176 48,032

14,213,021 16,104,020

Liabilities directly associated with assets of disposal group

classified as held for sale 856 8,727

Total Current Liabilities 14,213,877 16,112,747

(Forward)

- 13 -

Unaudited

June 30 Audited

September 30

2009 2008

Noncurrent Liabilities

Long-term debt - net of current portion (Note 19) P=12,373,636 P=9,429,770

Deferred tax liabilities - net 324,896 243,688

Total Noncurrent Liabilities 12,698,532 9,673,458

Total Liabilities 26,912,409 25,786,205

Equity

Equity attributable to equity holders of the parent

Paid-up capital (Note 20) 13,455,557 13,429,514

Retained earnings (Note 20) 20,735,391 19,198,256

Deposits for future stock subscriptions (Note 20) – 26,043

Cumulative translation adjustments 576,686 575,324

Unrealized loss on available-for-sale investments

(Note 8) (561,606)

(826,240)

Treasury shares (Note 20) (934,713)

(916,666)

33,271,315 31,486,231

Equity attributable to minority interests 821,073 658,199

Total Equity 34,092,388 32,144,430

P=61,004,797 P=57,930,635

See accompanying Notes to Unaudited Consolidated Financial Statements.

- 14 -

UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

(In Thousand Pesos, Except Per Share Amount)

Quarters ended June 30 Nine Months ended June 30

2009

2008

2009

2008

SALE OF GOODS AND SERVICES

P=11,945,493

P=11,238,429

P=37,631,809

P=32,392,483

COST OF SALES 8,919,835

8,579,410

28,656,084

24,568,822

GROSS PROFIT 3,025,658

2,659,019

8,975,725

7,823,661

SELLING AND DISTRIBUTION COSTS (1,520,945)

(1,316,563)

(4,546,736)

(3,885,572)

GENERAL AND ADMINISTRATIVE EXPENSES (426,646)

(433,410)

(1,288,611)

(1,222,988)

OPERATING INCOME 1,078,067

909,046

3,140,378

2,715,101

FINANCE REVENUE 257,262

282,146

864,302

913,775

MARKET VALUATION GAIN (LOSS) ON

FINANCIAL INSTRUMENTS AT FAIR VALUE

THROUGH PROFIT OR LOSS (Note 7) 723,900

(508,881)

(427,655)

(1,281,785)

EQUITY IN NET INCOME OF A JOINT VENTURE

4,393

2,942

23,099

23,458

FINANCE COSTS (496,163)

(281,797)

(1,304,386)

(969,041)

IMPAIRMENT LOSS –

–

(92,149)

–

FOREIGN EXCHANGE GAIN (LOSS) – NET 232,117

152,694

146,147

(118,231)

OTHER INCOME – NET 21,367

814

58,147

29,018

INCOME BEFORE INCOME TAX 1,820,943

556,964

2,407,883

1,312,295

PROVISION FOR INCOME TAX 63,723

271

169,739

258,293

NET INCOME P=1,757,220

P=556,693

P=2,238,144

P=1,054,002

ATTRIBUTABLE TO

Equity holders of the parent P=1,673,244

P=553,795

P=2,075,270

P=1,047,966

Minority interests 83,976

2,898

162,874

6,036

P=1,757,220

P=556,693

P=2,238,144

P=1,054,002

BASIC/DILUTED EARNINGS PER SHARE

ATTRIBUTABLE TO EQUITY

HOLDERS OF THE PARENT (Note 21) P=0.78

P=0.25

P=0.97

P=0.48

See accompanying Notes to Unaudited Consolidated Financial Statements.

- 15 -

UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In Thousand Pesos, except Number of Shares)

Nine Months Ended June 30

2009

2008

CAPITAL STOCK - P=1 par value (Note 20)

Preferred stock

Authorized - 2,000,000 shares

Issued - none

Common stock

Authorized - 2,998,000,000 shares in 2009 and 2008

Issued - 2,221,851,481 shares in 2009 and 2008 P=2,221,852

P=2,221,852

Additional issuance 5,787

–

Balance at end of period 2,227,639

2,221,852

ADDITIONAL PAID-IN CAPITAL

Balance at beginning of year 11,207,662

11,207,662

Additional issuance 20,256

–

Balance at end of period 11,227,918

11,207,662

PAID-UP CAPITAL 13,455,557

13,429,514

RETAINED EARNINGS (Note 20)

Appropriated

Balance at beginning of year 3,000,000

3,000,000

Balance at end of period 3,000,000

3,000,000

Unappropriated

Balance at beginning of year 16,198,256

17,300,464

Cash dividends (538,134) (1,480,499)

Net income 2,075,269 1.047,966

Balance at end of period 17,735,391

16,867,931

Balance at end of period 20,735,391

19,867,931

DEPOSITS FOR FUTURE STOCK SUBSCRIPTIONS

Balance at beginning of year 26,043

26,043

Application of deposit (26,043)

–

Balance at end of period –

26,043

CUMULATIVE TRANSLATION ADJUSTMENTS

Balance at beginning of year 575,324

544,387

Adjustments 1,362 66,673

Balance at end of period 576,686

611,060

UNREALIZED LOSS ON AVAILABLE-FOR-SALE

INVESTMENTS (Note 12)

Balance at beginning of year (826,240)

–

Changes in fair value 264,634 –

Balance at end of period (561,606) –

(Forward)

- 16 -

Nine Months Ended June 30

2009

2008

TREASURY SHARES (Note 20)

Balance at beginning of year P=(916,666)

P=–

Acquisition (18,047)

(692,552)

Balance at end of period (934,713)

(692,552)

EQUITY ATTRIBUTABLE TO MINORITY INTERESTS

Balance at beginning of year 658,199

695,295

Adjustments 162,874

6,036

Balance at end of period 821,073

701,331

P=34,092,388

P=33,943,327

See accompanying Notes to Unaudited Consolidated Financial Statements.

- 17 -

UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousand Pesos)

Nine Months Ended June 30

2009

2008

CASH FLOWS FROM OPERATING

ACTIVITIES

Income before income tax P=

2,407,883

P=1,312,295

Adjustments for:

Depreciation and amortization 2,219,630

2,010,364

Market valuation loss on financial instruments

at fair value through profit and loss 427,655

1,281,785

Finance cost 1,304,386

969,041

Finance revenue (864,302)

(913,775)

Impairment loss on asset held for disposal 92,149

–

Loss arising from changes in fair value less

estimated point-of-sale cost of swine stocks 28,924

30,761

Net unrealized foreign exchange gain (23,740)

(48,944)

Equity in net income of a joint venture (23,099)

(23,458)

Gain on bond re-acquisition (20,819)

Loss (gain) on sale of financial assets at FVPL 1,571

(3,710)

Gain on sale of property and equipment –

5,217

Pension expense –

58,011

Operating income before changes in working capital 5,550,238

4,677,587

Decrease (increase) in:

Receivables 44,361

(1,028,153)

Inventories 609,527

(5,473,262)

Other current assets 154,293

(203,311)

Increase (decrease) in:

Accounts payable and other accrued liabilities (103,005)

623,378

Trust receipts and acceptances payable (1,121,218)

3,530,495

Cash generated from operations 5,134,196

2,126,734

Interest paid (1,196,130)

(829,638)

Interest received 809,196

1,058,318

Income taxes paid (81,689)

(192,239)

Net cash provided by operating activities 4,665,573

2,163,175

(Forward)

- 18 -

Nine Months Ended June 30

2009

2008

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of property, plant and equipment P=(3,459,453)

P=(3,101,365)

Proceeds from sale of property and equipment – 86,299

Disposal (acquisition) of financial assets at

fair value through profit or loss - net (46,595)

2,292,556

Dividends received from a joint venture 30,000 25,000

Decrease (increase) in:

Biological assets 33,841 (294,563)

Other assets (36,856)

(552,027)

Net cash used in investing activities (3,479,063)

(1,544,100)

CASH FLOWS FROM FINANCING ACTIVITIES

Net availments (payments) of:

Short-term borrowings (1,088,163)

4,250,226

Long – term debt 2,719,967 (6,110,411)

Cash dividends paid (538,134)

(1,480,499)

Acquisition of company’s shares (18,047)

(692,552)

Net cash provided by (used in) financing activities 1,075,623 (4,033,236)

NET INCREASE (DECREASE) IN CASH

AND CASH EQUIVALENTS 2,262,133 (3,414,161)

CASH AND CASH EQUIVALENTS AT

BEGINNING OF YEAR 2,215,628 5,055,486

CASH AND CASH EQUIVALENTS AT END OF

YEAR P=4,477,761

P=1,641,325

See accompanying Notes to Unaudited Consolidated Financial Statements.

- 19 -

UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousand Pesos, Except Per Share Amount)

1. Corporate Information

Universal Robina Corporation (hereinafter referred to as “the Parent Company” or “URC”) is

incorporated and domiciled in the Republic of the Philippines. The registered office address of

the Parent Company is 110 E. Rodriguez Avenue, Bagumbayan, Quezon City, Philippines.

The Parent Company is a majority owned subsidiary of JG Summit Holdings, Inc. (“the

ultimate parent” or “JGSHI”).

The Parent Company and its subsidiaries (hereinafter referred to as “the Group”) is one of the

largest branded food products companies in the Philippines and has a growing presence in

other markets in Asia. The Group is involved in a wide range of food-related businesses

which are organized into three (3) business segments: (a) the branded consumer food segment

which manufactures and distributes a diverse mix of salty snacks, chocolates, candies,

biscuits, bakery products, beverages, noodles and tomato-based products; (b) the agro-

industrial segment which engages in hog and poultry farming, production and distribution of

animal health products and manufacture and distribution of animal feeds, glucose and soya

bean products; and (c) the commodity food segment which engages in sugar milling and

refining, flour milling and manufacture and marketing of pasta. The Parent Company also

engages in consumer product-related packaging business through its packaging division which

manufactures bi-axially oriented polypropylene (BOPP) film and through its subsidiary, CFC

Clubhouse Property, Inc., which manufactures polyethylene terephthalate (PET) bottles and

printed flexible packaging materials. The Parent Company’s packaging division is included in

the branded consumer food segment.

Certain operations of the Parent Company and a certain consolidated subsidiary are registered

with the Board of Investments (BOI) as preferred pioneer and nonpioneer activities. Under the

terms of the registrations and subject to certain requirements, the Parent Company and a

certain subsidiary are entitled to certain fiscal and non-fiscal incentives, including among

others, an income tax holiday (ITH) for a period of four (4) years to six (6) years from

respective start dates of commercial operations. The Group is also subject to certain

regulations with respect to, among others, product composition, packaging, labeling,

advertising and safety.

2. Summary of Significant Accounting Policies

Basis of Preparation

The accompanying consolidated financial statements of the Group have been prepared on a

historical cost basis, except for financial assets at fair value through profit or loss (FVPL),

available-for-sale (AFS) investments and derivative financial instruments that have been

measured at fair value, and biological assets and agricultural produce that have been measured

at fair value less estimated point-of-sale costs.

- 20 -

The consolidated financial statements of the Group are presented in Philippine Peso. The

functional and presentation currency of the Parent Company and its Philippine subsidiaries

(except certain consolidated foreign subsidiaries), is the Philippine Peso.

These interim consolidated financial statements followed the same accounting policies by

which the most recent annual audited consolidated financial statements have been prepared.

Statement of Compliance

The consolidated financial statements of the Group have been prepared in compliance with

Philippine Financial Reporting Standards (PFRS).

Basis of Consolidation

The consolidated financial statements include the financial statements of the Parent Company

and the following wholly and majority owned subsidiaries:

Country of Effective Percentage of

Ownership

Subsidiaries Incorporation 2009 2008

CFC Clubhouse, Incorporated Philippines 100.00 100.00

CFC Clubhouse Property, Inc. - do - 100.00 100.00

URC Confectionary Corporation - do - 100.00 100.00

CFC Corporation - do - 100.00 100.00

South Luzon Greenland, Inc. - do - 100.00 100.00

Bio-Resource Power Generation Corporation

(formerly Universal Robina Sugar Milling

Corporation) - do -

100.00

100.00

Southern Negros Development Corporation

(SONEDCO) - do - 94.00 94.00

Nissin – URC - do - 65.00 65.00

URC Philippines, Limited (URCPL) British Virgin Islands 100.00 100.00

URC Asean Brands Co., Ltd. - do - 77.00 77.00

Hong Kong China Foods Co., Ltd. - do - 77.00 77.00

URC International Co. Ltd. (URCICL) - do - 77.00 77.00

Universal Robina (Cayman), Ltd. (URCL) Cayman Islands 100.00 100.00

Shanghai Peggy Foods Co., Ltd. China 100.00 100.00

Tianjin Pacific Foods Manufacturing Co., Ltd. - do - 100.00 100.00

URC China Commercial Co. Ltd. - do - 100.00 100.00

Xiamen Tongan Pacific Food Co., Ltd. - do - 100.00 100.00

Panyu Peggy Foods Co., Ltd. - do - 90.00 90.00

URC Hong Kong Company Limited (formerly

Hong Kong Peggy Snack Foods Co., Limited)

Hong Kong 100.00 100.00

PT URC Indonesia Indonesia 100.00 100.00

URC Snack Foods (Malaysia) Sdn. Bhd.

(formerly Pacific World Sdn. Bhd.) - do - 91.52 91.52

Ricellent Sdn. Bhd. Malaysia 54.03 54.03

URC Foods (Singapore) Pte. Ltd. (formerly

Pan Pacific Snacks Pte. Ltd.) Singapore 100.00 100.00

Acesfood Network Pte. Ltd. - do - 96.08 96.08

Advanson International Pte. Ltd. - do - 100.00 100.00

URC (Thailand) Co., Ltd. (formerly

Thai Peggy Foods Co. Ltd.) Thailand 100.00 100.00

URC Vietnam Co., Ltd. Vietnam 100.00 100.00

The consolidated financial statements are prepared using uniform accounting policies for like

transactions and other events in similar circumstances. All significant intercompany

transactions and balances, including intercompany profits and unrealized profits and losses,

are eliminated in the consolidation.

- 21 -

Subsidiaries are fully consolidated from the date of acquisition, being the date on which the

Group obtains control, and continue to be consolidated until the date that such control ceases.

Acquisitions of subsidiaries are accounted for using the purchase method. The cost of an

acquisition is measured as the fair value of the assets given, equity instruments issued and

liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the

acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a

business combination are measured initially at their fair value at the acquisition date,

irrespective of the extent of any minority interest.

Any excess of the cost of the business combination over the Group’s interest in the net fair

value of the identifiable assets, liabilities and contingent liabilities represents goodwill. Any

excess of the Group’s interest in the net fair value of the identifiable assets, liabilities and

contingent liabilities over the cost of business combination is recognized in the consolidated

statement of income on the date of acquisition.

Minority interests represent the portion of income or loss and net assets not held by the Group

and are presented separately in the consolidated statement of income and within equity in the

consolidated balance sheet, separately from the parent shareholders’ equity. Acquisitions of

minority interests are accounted for using the parent entity extension method, whereby, the

difference between the consideration and the book value of the share of the net assets acquired

is recognized as goodwill.

New Accounting Standards, Interpretations, and Amendments to Existing Standards Effective

Subsequent to September 30, 2008

The Group will adopt the following standards enumerated below when these become effective.

Except as otherwise indicated, the Group does not expect the adoption of these new and

amended PFRS to have significant impact on its financial statements.

• PFRS 1, First-time Adoption of PFRS – Cost of an Investment in a Subsidiary, Jointly

Controlled Entity or Associate, (effective for annual periods beginning on or after

January 1, 2009)

The amended PFRS 1 allows an entity, in its separate financial statements, to determine

the cost of investments in subsidiaries, jointly controlled entities or associates (in its

opening PFRS financial statements) as one of the following amounts: a) cost determined in

accordance with PAS 27; b) at the fair value of the investment at the date of transition to

PFRS, determined in accordance with PAS 39; or c) previous carrying amount (as

determined under generally accepted accounting principles) of the investment at the date of

transition to PFRS.

• PFRS 2, Share-based Payment – Vesting Condition and Cancellations, (effective for

annual periods beginning on or after January 1, 2009)

The standard has been revised to clarify the definition of a vesting condition and

prescribes the treatment for an award that is effectively cancelled. It defines a vesting

condition as a condition that includes an explicit or implicit requirement to provide

services. It further requires non-vesting conditions to be treated in a similar fashion to

market conditions. Failure to satisfy a non-vesting condition that is within the control of

either the entity or the counterparty is accounted for as cancellation. However, failure to

satisfy a non-vesting condition that is beyond the control of either party does not give rise

to a cancellation.

- 22 -

• PFRS 8, Operating Segments, (effective for annual periods beginning on or after January

1, 2009)

PFRS 8 will replace PAS 14, Segment Reporting, and adopts a full management approach

to identifying, measuring and disclosing the results of an entity’s operating segments. The

information reported would be that which management uses internally for evaluating the

performance of operating segments and allocating resources to those segments. Such

information may be different from that reported in the consolidated balance sheet and

consolidated statement of income and the Group will provide explanations and

reconciliations of the differences. This Standard is only applicable to an entity that has

debt or equity instruments that are traded in a public market or that files (or is in the

process of filing) its financial statements with a securities commission or similar party.

The Group is in the process of assessing the impact of this Standard to its current manner

of reporting segment information.

• Amendments to PAS 1, Presentation of Financial Statements, (effective for annual

periods beginning on or after January 1, 2009)

This Amendment introduces a new statement of comprehensive income that combines all

items of income and expenses recognized in the profit or loss together with ‘other

comprehensive income’ (OCI). Entities may choose to present all items in one statement,

or to present two linked statements, a separate statement of income and a statement of

comprehensive income. This Amendment also requires additional requirements in the

presentation of the balance sheet and owner’s equity as well as additional disclosures to be

included in the financial statements. The Group will assess and evaluate the options

available under the amendment to PAS 1, and will comply with such changes once

effective.

• PAS 23, Borrowing Costs, (effective for annual periods beginning on or after January 1,

2009)

The standard has been revised to require capitalization of borrowing costs when such

costs relate to a qualifying asset. A qualifying asset is an asset that necessarily takes a

substantial period of time to get ready for its intended use or sale. In accordance with the

transitional requirements in the standard, the Group will adopt this as a prospective

change. Accordingly, borrowing costs will be capitalized on qualifying assets with a

commencement date after January 1, 2009. No changes will be made for borrowing costs

incurred to this date that have been expensed.

• Amendments to PAS 27, Consolidated and Separate Financial Statements – Cost of an

Investment in a Subsidiary, Jointly Controlled Entity or Associate, (effective for annual

periods beginning on or after July 1, 2009)

Amendments to PAS 27 will be effective on January 1, 2009 which has changes in respect

of the holding companies separate financial statements including (a) the deletion of ‘cost

method’, making the distinction between pre- and post-acquisition profits no longer

required; and (b) in cases of reorganizations where a new parent is inserted above an

existing parent of the group (subject to meeting specific requirements), the cost of the

subsidiary is the previous carrying amount of its share of equity items in the subsidiary

rather than its fair value. All dividends will be recognized in profit or loss. However, the

payment of such dividends requires the entity to consider whether there is an indicator of

impairment. The Group does not expect significant changes in its

- 23 -

accounting policies when it adopts the foregoing accounting changes effective January 1,

2009.

• Amendments to PAS 32, Financial Instruments: Presentation and PAS 1 Presentation of

Financial Statements – Puttable Financial Instruments and Obligation Arising on

Liquidation, (effective for annual periods beginning on or after January 1, 2009)

These amendments specify, among others, that puttable financial instruments will be

classified as equity if they have all of the following specified features: (a) The instrument

entitles the holder to require the entity to repurchase or redeem the instrument (either on an

ongoing basis or on liquidation) for a pro rata share of the entity’s net assets, (b) The

instrument is in the most subordinate class of instruments, with no priority over other

claims to the assets of the entity on liquidation,(c) All instruments in the subordinate class

have identical features (d) The instrument does not include any contractual obligation to

pay cash or financial assets other than the holder’s right to a pro rata share of the entity’s

net assets, and (e) The total expected cash flows attributable to the instrument over its life

are based substantially on the profit or loss, a change in recognized net assets, or a change

in the fair value of the recognized and unrecognized net assets of the entity over the life of

the instrument.

Significant Accounting Policies

Revenue Recognition

Revenue is recognized to the extent that it is probable that the economic benefits will flow to

the Group and the revenue can be reliably measured. Revenue is measured at the fair value of

the consideration received, excluding discounts, rebates and other sales taxes or duty. The

following specific recognition criteria must also be met before revenue is recognized:

Sale of goods

Revenue from sale of goods is recognized upon delivery, when the significant risks and

rewards of ownership of the goods have passed to the buyer and the amount of revenue can be

measured reliably. Revenue is measured at the fair value of the consideration received or

receivable, net of any trade discounts, prompt payment discounts and volume rebates.

Rendering of services

Revenue derived from tolling activities, whereby raw sugar from traders and planters is

converted into refined sugar, is recognized as revenue when the related services have been

rendered.

Dividend income

Dividend income is recognized when the shareholder’s right to receive the payment is

established.

Rent income

Rent income arising on investment properties is accounted for on a straight-line basis over the

lease term on on-going leases.

Interest income

Interest is recognized as it accrues (using the effective interest rate method under which

interest income is recognized at the rate that exactly discounts estimated future cash receipts

through the expected life of the financial instrument to the net carrying amount of the financial

asset).

- 24 -

Cash and Cash Equivalents

Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid

investments that are readily convertible to known amounts of cash with original maturities of

three (3) months or less from dates of placement, and that are subject to an insignificant risk

of changes in value.

Recognition of Financial Instruments

Date of recognition

Financial instruments within the scope of PAS 39, Financial Instruments: Recognition and

Measurement, are recognized in the consolidated balance sheet when the Group becomes a

party to the contractual provisions of the instrument. Purchases or sales of financial assets

that require delivery of assets within the time frame established by regulation or convention in

the marketplace are recognized on the settlement date. Derivatives are recognized on trade

date basis.

Initial recognition of financial instruments

Financial instruments are recognized initially at fair value. Except for financial instruments

fair value through profit or loss valued at fair value through profit or loss (FVPL), the initial

measurement of financial assets includes transaction costs. The Group classifies its financial

assets into the following categories: financial assets at FVPL, held-to-maturity (HTM)

investments, AFS investments, and loans and receivables. The Group classifies its financial

liabilities into financial liabilities at FVPL and other financial liabilities. The classification

depends on the purpose for which the investments were acquired and whether they are quoted

in an active market. Management determines the classification of its investments at initial

recognition and, where allowed and appropriate, re-evaluates such designation at every

reporting date.

Reclassification of financial assets

A financial asset is reclassified out of the FVPL category when the following conditions are

met:

• the financial asset is no longer held for the purpose of selling or repurchasing it in the near

term; and

• there is a rare circumstance.

A financial asset that is reclassified out of the FVPL category is reclassified at its fair value

on the date of reclassification. Any gain or loss already recognized in the consolidated

statement of income is not reversed. The fair value of the financial asset on the date of

reclassification becomes its new cost or amortized cost, as applicable.

Determination of fair value

The fair value for financial instruments traded in active markets at the balance sheet date is

based on their quoted market price or dealer price quotations (bid price for long positions and

ask price for short positions), without any deduction for transaction costs. When current bid

and ask prices are not available, the price of the most recent transaction provides evidence of

the current fair value as long as there has not been a significant change in economic

circumstances since the time of the transaction.

For all other financial instruments not listed in an active market, the fair value is determined

by using appropriate valuation techniques. Valuation techniques include net present value

techniques, comparison to similar instruments for which market observable prices exist,

options pricing models and other relevant valuation models.

- 25 -

Day 1 difference

Where the transaction price in a non-active market is different from the fair value based on

other observable current market transactions in the same instrument or based on a valuation

technique whose variables include only data from an observable market, the Group recognizes

the difference between the transaction price and fair value (a Day 1 difference) in the

consolidated statement of income. In cases where variables used are made of data which is not

observable, the difference between the transaction price and model value is only recognized in

the consolidated statement of income when the inputs become observable or when the

instrument is derecognized. For each transaction, the Group determines the appropriate

method of recognizing the Day 1 difference amount.

Financial assets and financial liabilities at FVPL

Financial assets and financial liabilities at FVPL include financial assets and financial

liabilities held for trading purposes, derivative instruments, or those designated upon initial

recognition when any of the following criteria are met:

• the designation eliminates or significantly reduces the inconsistent treatment that would

otherwise arise from measuring the assets or liabilities or recognizing gains or losses on

them on a different basis; or

• the assets and liabilities are part of a group of financial assets, financial liabilities or both

which are managed and their performance are evaluated on a fair value basis, in

accordance with a documented risk management or investment strategy; or

• the financial instrument contains an embedded derivative, unless the embedded derivative

does not significantly modify the cash flows or it is clear, with little or no analysis, that it

would not be separately recorded.

Financial assets and financial liabilities at FVPL are recorded in the consolidated balance

sheet at fair value. Changes in fair value are reflected in the consolidated statement of income.

Interest earned or incurred is recorded in interest income or expense, respectively, while

dividend income is recorded in other operating income according to the terms of the contract,

or when the right of the payment has been established.

The Group’s financial assets at FVPL consist of private bonds and equity securities

(Note 7).

Derivatives recorded at FVPL

The Parent Company is counterparty to certain derivative contracts, such as currency

forwards. These derivatives are entered into as a means of reducing or managing their

respective foreign exchange and interest rate exposures, as well as for trading purposes. Such

derivative financial instruments are initially recorded at fair value on the date at which the

derivative contract is entered into and are subsequently remeasured at fair value. Any gains or

losses arising from changes in fair values of derivatives (except those accounted for as

accounting hedges) are taken directly to the consolidated statement of income. Derivatives are

carried as assets when the fair value is positive and as liabilities when the fair value is

negative.

The fair values of the Group’s derivative instruments are calculated by using certain standard

valuation methodologies and quotes obtained from third parties.

The Group assesses the existence of an embedded derivative on the date it first becomes a

party to the contract, and performs re-assessment where there is a change to the contract that

significantly modifies the cash flows.

- 26 -

The Group has identified certain derivatives that are embedded in host contracts (such as debt

instruments). These embedded derivatives include foreign currency denominated derivatives in

purchase orders. Embedded derivatives are bifurcated from their host contracts and carried at

fair value with fair value changes being reported through profit or loss, when the entire hybrid

contracts (composed of both the host contract and the embedded derivative) are not accounted

for as financial instruments at FVPL, and when their economic risks and characteristics are

not closely related to those of their respective host contracts.

Loans and receivables

Loans and receivables are nonderivative financial assets with fixed or determinable payments

and fixed maturities that are not quoted in an active market. After initial measurement, loans

and receivables are subsequently carried at amortized cost using the effective interest rate

(EIR) method less any allowance for impairment. Amortized cost is calculated taking into

account any discount or premium on acquisition and includes fees that are an integral part of

the EIR and transaction costs. The amortization is included under the Interest income account

in the consolidated statement of income. Gains and losses are recognized in the consolidated

statement of income when the loans and receivables are derecognized or impaired, as well as

through the amortization process.

This accounting policy applies primarily to the Group’s trade and other receivables (Note 8).

AFS investments

AFS investments are those nonderivative investments which are designated as such or do not

qualify to be classified or designated as financial assets at FVPL, HTM investments or loans

and receivables. They are purchased and held indefinitely, and may be sold in response to

liquidity requirements or changes in market conditions.

After initial measurement, AFS investments are subsequently measured at fair value. The

effective yield component of AFS debt securities, as well as the impact of restatement on

foreign currency-denominated AFS debt securities, is reported in the consolidated statement of

income. The unrealized gains and losses arising from the fair valuation of AFS investments

are excluded, net of tax, from reported earnings and are reported under the Equity section of

the consolidated balance sheet, if any.

When the security is disposed of, the cumulative gain or loss previously recognized in equity is

recognized in the consolidated statement of income. Interest earned on holding AFS

investments are reported as interest income using the EIR. Where the Group holds more than

one (1) investment in the same security these are deemed to be disposed of on a first-in, first-

out basis. Dividends earned on holding AFS investments are recognized in the consolidated

statement of income, when the right to receive payment has been established. The losses

arising from impairment of such investments are recognized in the consolidated statement of

income.

Other financial liabilities

Issued financial instruments or their components, which are not designated at FVPL are

classified as other financial liabilities where the substance of the contractual arrangement

results in the Group having an obligation either to deliver cash or another financial asset to the

holder, or to satisfy the obligation other than by the exchange of a fixed amount of cash or

another financial asset for a fixed number of own equity shares. The components of issued

financial instruments that contain both liability and equity elements are accounted for

separately, with the equity component being assigned the residual amount after deducting from

- 27 -

the instrument as a whole the amount separately determined as the fair value of the liability

component on the date of issue.

After initial measurement, other financial liabilities are subsequently measured at amortized

cost using the EIR method. Amortized cost is calculated by taking into account any discount

or premium on the issue and fees that are an integral part of the EIR.

This accounting policy applies primarily to the Group’s short-term and long-term debt,

accounts payable and other accrued liabilities and other obligations that meet the above

definition (other than liabilities covered by other accounting standards, such as income tax

payable).

Classification of Financial Instruments Between Debt and Equity

A financial instrument is classified as debt if it provides for a contractual obligation to:

• deliver cash or another financial asset to another entity; or

• exchange financial assets or financial liabilities with another entity under conditions that

are potentially unfavorable to the Group; or

• satisfy the obligation other than by the exchange of a fixed amount of cash or another

financial asset for a fixed number of own equity shares.

If the Group does not have an unconditional right to avoid delivering cash or another financial

asset to settle its contractual obligation, the obligation meets the definition of a financial

liability.

The components of issued financial instruments that contain both liability and equity elements

are accounted for separately, with the equity component being assigned the residual amount

after deducting from the instrument as a whole the amount separately determined as the fair

value of the liability component on the date of issue.

Impairment of Financial Assets

The Group assesses at each balance sheet date whether there is objective evidence that a

financial asset or group of financial assets is impaired. A financial asset or a group of

financial assets is deemed to be impaired if, and only if, there is objective evidence of

impairment as a result of one (1) or more events that has occurred after the initial recognition

of the asset (an incurred ‘loss event’) and that loss event (or events) has an impact on the

estimated future cash flows of the financial asset or the group of financial assets that can be

reliably estimated. Evidence of impairment may include indications that the borrower or a

group of borrowers is experiencing significant financial difficulty, default or delinquency in

interest or principal payments, the probability that they will enter bankruptcy or other

financial reorganization and where observable data indicate that there is a measurable decrease

in the estimated future cash flows, such as changes in arrears or economic conditions that

correlate with defaults.

Financial assets carried at amortized cost

If there is objective evidence that an impairment loss on financial assets carried at amortized

cost (i.e. receivables) has been incurred, the amount of the loss is measured as the difference

between the asset’s carrying amount and the present value of estimated future cash flows

discounted at the asset’s original EIR. The carrying amount of the asset is reduced through

the use of an allowance account. The loss is recognized in the consolidated statement of

income. The asset, together with the associated allowance accounts, is written off when there

is no realistic prospect of future recovery.

- 28 -

The Group first assesses whether objective evidence of impairment exists individually for

financial assets that are individually significant, and individually or collectively for financial

assets that are not individually significant. If it is determined that no objective evidence of

impairment exists for an individually assessed financial asset, whether significant or not, the

asset is included in a group of financial assets with similar credit risk characteristics and that

group of financial assets is collectively assessed for impairment. Those characteristics are

relevant to the estimation of future cash flows for groups of such assets by being indicative of

the debtor’s ability to pay all amounts due according to the contractual terms of the assets

being evaluated. Assets that are individually assessed for impairment and for which an

impairment loss is or continues to be recognized are not included in a collective assessment of

impairment.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can

be related objectively to an event occurring after the impairment was recognized, the

previously recognized impairment loss is reversed. Any subsequent reversal of an impairment

loss is recognized in the consolidated statement of income to the extent that the carrying value

of the asset does not exceed its amortized cost at the reversal date.

The Group performs a regular review of the age and status of these accounts, designed to

identify accounts with objective evidence of impairment and provide the appropriate allowance

for impairment loss. The review is accomplished using a combination of specific and

collective assessment approaches, with the impairment loss being determined for each risk

grouping identified by the Group.

AFS investments

The Group assesses at each balance sheet date whether there is objective evidence that a

financial asset or group of financial assets is impaired. In case of equity investments classified

as AFS investments, this would include a significant or prolonged decline in the fair value of

the investments below its cost. Where there is evidence of impairment, the cumulative loss

which is measured as the difference between the acquisition cost and the current fair value,

less any impairment loss on that financial asset previously recognized in the consolidated

statement of income is removed from equity and recognized in the consolidated statement of

income. Impairment losses on equity investments are not reversed through the consolidated

statement of income. Increases in fair value after impairment are recognized directly in equity.

In the case of debt instruments classified as AFS investments, impairment is assessed based on

the same criteria as financial assets carried at amortized cost. Interest continues to be accrued

at the original EIR on the reduced carrying amount of the asset and is recorded under Interest

Income account in the consolidated statement of income. If, in subsequent year, the fair value

of a debt instrument increases, and the increase can be objectively related to an event

occurring after the impairment loss was recognized in the consolidated statement of income,

the impairment loss is reversed through the consolidated statement of income.

Derecognition of Financial Instruments

Financial assets

A financial asset (or, where applicable a part of a financial asset or part of a group of

financial assets) is derecognized where:

• the rights to receive cash flows from the asset have expired;

• the Group retains the right to receive cash flows from the asset, but has assumed an

obligation to pay them in full without material delay to a third party under a “pass-

through” arrangement; or

- 29 -

• the Group has transferred its rights to receive cash flows from the asset and either (a) has

transferred substantially all the risks and rewards of ownership and retained control of the

asset, or (b) has neither transferred nor retained the risk and rewards of the asset but has

transferred the control of the asset.

Where the Group has transferred its rights to receive cash flows from an asset or has entered

into a pass-through arrangement, and has neither transferred nor retained substantially all the

risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the

extent of the Group’s continuing involvement in the asset. Continuing involvement that takes

the form of a guarantee over the transferred asset is measured at the lower of original carrying

amount of the asset and the maximum amount of consideration that the Group could be

required to repay.

Financial liabilities

A financial liability is derecognized when the obligation under the liability is discharged or

cancelled or has expired. Where an existing financial liability is replaced by another from the

same lender on substantially different terms, or the terms of an existing liability are

substantially modified, such an exchange or modification is treated as a derecognition of the

original liability and the recognition of a new liability, and the difference in the respective

carrying amounts is recognized in the consolidated statement of income.

Financial Guarantee Contracts

In the ordinary course of business, the Parent Company gives financial guarantees. Financial

guarantees are initially recognized in the financial statements at fair value, and the initial fair

value is amortized over the life of the financial guarantee. The guarantee liability is

subsequently carried at the higher of this amortized amount and the present value of any

expected payment (when a payment under the guaranty has become probable).

Offsetting Financial Instruments

Financial assets and financial liabilities are offset and the net amount is reported in the

consolidated balance sheet if, and only if, there is a currently enforceable legal right to offset

the recognized amounts and there is an intention to settle on a net basis, or to realize the asset

and settle the liability simultaneously. This is not generally the case with master netting

agreements; thus, the related assets and liabilities are presented gross in the consolidated

balance sheet.

Inventories

Inventories, including goods-in-process, are valued at the lower of cost or net realizable value

(NRV). NRV is the estimated selling price in the ordinary course of business, less estimated

costs of completion and the estimated costs necessary to make the sale. NRV for materials,

spare parts and other supplies represents the related replacement costs.

Costs incurred in bringing each product to its present location and conditions are accounted

for as follows:

Finished goods, work-in-process, raw materials, containers and packaging materials

Cost is determined using the average method. Finished goods and work-in-process include

direct materials and labor, and a proportion of manufacturing overhead costs based on actual

goods processed and produced, but excluding borrowing costs.

Materials in-transit

Cost is determined using the specific identification basis.

- 30 -

Spare parts and supplies

Cost is determined using the average method.

Assets Held for Sale

The Group classifies assets as held for sale (disposal group) when their carrying amount will

be recovered principally through a sale transaction rather than through continuing use. For

this to be the case, the asset must be available for immediate sale in its present condition

subject only to terms that are usual and customary for sales of such assets and its sale must be

highly probable. For the sale to be highly probable, the appropriate level of management must

be committed to a plan to sell the asset and an active program to locate a buyer and complete

the plan must have been initiated. Furthermore, the asset must be actively marketed for sale at

a price that is reasonable in relation to its current fair value. In addition, the sale should be

expected to qualify for recognition as a completed sale within one (1) year from the date of

classification.

The related results of operations and cash flows of the disposal group that qualify as

discontinued operations are separated from the results of those that would be recovered

principally through continuing use, and prior years’ consolidated statement of income and

consolidated statement of cash flows are re-presented. The results of operations and cash

flows of the disposal group that qualify as discontinued operations are presented in the

consolidated statement of income and consolidated statement of cash flows as items associated

with discontinued operations.

Property, Plant and Equipment

Property, plant and equipment, except land, are carried at cost less accumulated depreciation

and amortization and impairment losses, if any. The cost of an item of property, plant and

equipment comprises its purchase price and any cost attributable in bringing the asset to its

intended location and working condition. Cost also includes: (a) interest and other financing

charges on borrowed funds used to finance the acquisition of property, plant and equipment to

the extent incurred during the period of installation and construction; and (b) asset retirement

obligation (ARO) relating to property, plant and equipment installed/constructed on leased

properties, if any.

Land is stated at cost less any impairment in value.

Subsequent costs are capitalized as part of the Property, plant and equipment account, only

when it is probable that future economic benefits associated with the item will flow to the

Group and the cost of the item can be measured reliably. All other repairs and maintenance

are charged against current operations as incurred.

Foreign exchange differentials arising from the acquisition of property, plant and equipment

are charged against current operations and are no longer capitalized.

Construction in-progress are transferred to the related Property, Plant and Equipment account

when the construction or installation and related activities necessary to prepare the property,

plant and equipment for their intended use are completed, and the property, plant and

equipment are ready for service.

Depreciation and amortization of property, plant and equipment commence, once the property,

plant and equipment are available for use and are computed using the straight-line method

over the estimated useful lives (EUL) of the assets regardless of utilization.

- 31 -

The EUL of property, plant and equipment of the Group follow:

Land improvements 20 years

Buildings and improvements 10-30 years

Machinery and equipment 10 years

Transportation equipment 5 years

Furniture, fixtures and equipment 5 years

Leasehold improvements are amortized over the shorter of their EUL or the corresponding

lease terms.

Major spare parts and stand-by equipment items that the Group expects to use over more than

one (1) period and can be used only in connection with an item of property, plant and

equipment are accounted for as property, plant and equipment. Depreciation and amortization

on these major spare parts and stand-by equipment commence once these have become

available for use (i.e. when it is in the location and condition necessary for it to be capable of

operating in the manner intended by the Group).

An item of property, plant and equipment is derecognized upon disposal or when no future

economic benefits are expected to arise from the continued use of the asset. Any gain or loss

arising on derecognition of the asset (calculated as the difference between the net disposal

proceeds and the carrying amount of the item) is included in the consolidated statement of

income, in the year the item is derecognized.

The assets’ residual values, useful lives and methods of depreciation and amortization are

reviewed and adjusted, if appropriate, at each financial year-end.

Investment Properties

Investment properties consist of properties that are held to earn rentals or for capital

appreciation or both, and those which are not occupied by entities in the Group. Investment

properties, except for land, are carried at cost less accumulated depreciation and any

impairment in value. Land is carried at cost less any impairment in value. The carrying

amount includes the cost of replacing part of an existing investment property at the time that

cost is incurred if the recognition criteria are met; and excludes the cost of day-to-day

servicing of an investment property.

The Group’s investment properties are depreciated using the straight-line method over their

EUL as follows:

Land improvements 10 years

Buildings and building improvements 10 to 30 years

Investment properties are derecognized when either they have been disposed of or when the

investment properties are permanently withdrawn from use and no future economic benefit is

expected from their disposal. Any gains or losses on the retirement or disposal of investment

properties are recognized in the consolidated statement of income in the year of retirement or

disposal.

Transfers are made to investment property when, and only when, there is a change in use,

evidenced by the end of owner occupation, commencement of an operating lease to another

party or by the end of construction or development. Transfers are made from investment

property when, and only when, there is a change in use, evidenced by commencement of owner

occupation or commencement of development with a view to sale.

- 32 -

For a transfer from investment property to owner-occupied property to inventories, the deemed

cost of property for subsequent accounting is its fair value at the date of change in use. If the

property occupied by the Group as an owner-occupied property becomes an investment

property, the Group accounts for such property in accordance with the policy stated under

Property, Plant and Equipment account up to the date of change in use.

Biological Assets

The biological assets of the Group are divided into two (2) major categories with sub-

categories as follows:

Swine livestock - Breeders (livestock bearer)

- Sucklings (breeders’ offspring)

- Weanlings (comes from sucklings intended to be breeders or to be

sold as fatteners)

- Fatteners/finishers (comes from weanlings unfit to become

breeders; intended for the production of meat)

Poultry livestock - Breeders (livestock bearer)

- Chicks (breeders’ offspring intended to be sold as breeders)

A biological asset shall be measured on initial recognition and at each balance sheet date at its

fair value less estimated point-of-sale costs, except for a biological asset where fair value is

not clearly determinable. Agricultural produce harvested from an entity’s biological assets

shall be measured at its fair value less estimated point-of-sale costs.

The Group is unable to measure fair values reliably for its poultry livestock breeders in the

absence of: (a) an available market determined prices or values; and (b) alternative estimates

of fair values that are determined to be clearly reliable; thus, these biological assets are

measured at cost less accumulated depreciation and any accumulated impairment losses.

However, once the fair values become reliably measurable, the Group measures these

biological assets at their fair values less estimated point-of-sale costs.

Agricultural produce is the harvested product of the Group’s biological asset. A harvest

occurs when agricultural produce is either detached from the bearer biological asset or when

the asset’s life processes of the agricultural produce ceases. A gain or loss arising on initial

recognition of agricultural produce at fair value less estimated point-of-sale cost shall be

included in the consolidated statement of income in the period in which it arises. The

agricultural produce in swine livestock is the suckling that transforms into weanling then into

fatteners/finishers, while the agricultural produce in poultry livestock is the hatched chick.

Biological assets at cost

The cost of an item of biological asset comprises its purchase price and any costs attributable

in bringing the biological asset to its location and conditions intended by management.

Depreciation is computed using the straight-line method over the EUL of the biological assets,

regardless of utilization. The EUL of biological assets is reviewed annually based on expected

utilization as anchored on business plans and strategies that considers market behavior to

ensure that the period of depreciation is consistent with the expected pattern of economic

benefits from items of biological assets. The EUL of biological assets ranges from two (2) to

three (3) years.

- 33 -

The carrying values of biological assets are reviewed for impairment when events or changes

in the circumstances indicate that the carrying values may not be recoverable (see further

discussion under Impairment of Nonfinancial Assets).

Biological assets carried at fair values less estimated point-of-sale costs

Swine livestock are measured at their fair values less point-of-sale costs. The fair values are

determined based on current market prices of livestock of similar age, breed and genetic merit.

Point-of-sale costs include commissions to brokers and dealers, nonrefundable transfer taxes

and duties. Point-of-sale costs exclude transport and other costs necessary to get the

biological assets to the market.

A gain or loss on initial recognition of a biological asset at fair value less estimated point-of-

sale costs and from a change in fair value less estimated point-of-sale costs of a biological

asset shall be included in the consolidated statement of income in the period in which it arises.

Investments in a Joint Venture

The Group also has a 50% interest in Hunt-Universal Robina Corporation (HURC), a joint

venture which is a jointly controlled entity. A joint venture is a contractual arrangement

whereby two (2) or more parties undertake an economic activity that is subject to joint control,

and a jointly controlled entity is a joint venture that involves the establishment of a separate

entity in which each venturer has an interest.

The Group’s investments in a joint venture are accounted for using the equity method of

accounting. Under the equity method, joint venture is carried in the consolidated balance sheet

at cost plus post-acquisition changes in the Group’s share of net assets of the joint venture.

The consolidated statement of income reflects the share of the results of operations of the joint

venture. Where there has been a change recognized directly in the investees’ equity, the Group

recognizes its share of any changes and discloses this, when applicable, in the consolidated

statement of changes in equity. Profits and losses arising from transactions between the

Group and the joint venture are eliminated to the extent of the interest in the joint venture.

The investee companies’ accounting policies conform to those used by the Group for like

transactions and events in similar circumstances.

Goodwill

Goodwill represents the excess of the cost of the acquisition over the fair value of identifiable

net assets of the investee at the date of acquisition which is not identifiable to specific assets.

Goodwill acquired in a business combination from the acquisition date is allocated to each of

the Group’s cash-generating units, or groups of cash-generating units that are expected to

benefit from the synergies of the combination, irrespective of whether other assets or liabilities

of the Group are assigned to those units or groups of units. Each unit or group of units to

which the goodwill is so allocated:

• represents the lowest level within the Group at which the goodwill is monitored for

internal management purposes; and

• is not larger than a segment based on either the Group’s primary or secondary reporting

format determined in accordance with PAS 14, Segment Reporting.

Following initial recognition, goodwill is measured at cost, less any accumulated impairment

losses. Goodwill is reviewed for impairment annually or more frequently, if events or changes

in circumstances indicate that the carrying value may be impaired (see further discussion

under Impairment of Nonfinancial Assets).

- 34 -

If the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent

liabilities exceeds the costs of the business combination, the acquirer shall recognize

immediately in the consolidated statement of income any excess remaining after reassessment.

Intangible Assets

Intangible assets acquired separately are measured on initial recognition at cost. Following

initial recognition, intangible assets are measured at cost less any accumulated amortization

and impairment losses, if any. The useful lives of intangible assets with finite life are assessed

at the individual asset level. Intangible assets with finite life are amortized over their useful

lives. Periods and method of amortization for intangible assets with finite useful lives are

reviewed annually or earlier when an indicator of impairment exists.

The EUL of intangible assets are assessed to be either finite or indefinite.

Intangible assets with finite lives are amortized over the EUL and assessed for impairment,

whenever there is an indication that the intangible assets may be impaired. The amortization

period and the amortization method for an intangible asset with a finite useful life are reviewed

at least at each financial year-end. Changes in the EUL or the expected pattern of

consumption of future economic benefits embodied in the asset is accounted for by changing

the amortization period or method, as appropriate, and treated as changes in accounting

estimates. The amortization expense on intangible assets with finite useful lives is recognized

in the consolidated statement of income in the expense category consistent with the function of

the intangible asset.

Intangible assets with indefinite useful lives are tested for impairment annually either

individually or at the cash-generating unit level (see further discussion under Impairment of

Nonfinancial Assets). Such intangibles are not amortized. The useful life of an intangible

asset with an indefinite useful life is reviewed annually to determine whether indefinite life

assessment continues to be supportable. If not, the change in the useful life assessment from

indefinite to finite is made on a prospective basis.

A gain or loss arising from derecognition of an intangible asset is measured as the difference

between the net disposal proceeds and the carrying amount of the asset and is recognized in the

consolidated statement of income when the asset is derecognized.

A summary of the policies applied to the Group’s intangible assets follow:

Product

Formulation Trademarks

Useful lives Indefinite

Indefinite

Finite (4 years)

Amortization method used No amortization

No amortization

Straight-line

amortization

Internally generated or acquired Acquired

Acquired

Acquired

Impairment of Nonfinancial Assets

This accounting policy applies primarily to the Group’s property, plant and equipment,

investment properties, investment in a joint venture, and intangible assets with finite lives.

The Group assesses at each reporting date whether there is an indication that its nonfinancial

assets may be impaired. When an indicator of impairment exists or when an annual

impairment testing for an asset is required, the Group makes a formal estimate of recoverable

amount. Recoverable amount is the higher of an asset’s (or cash-generating unit’s) fair value

less costs to sell and its value in use and is determined for an individual asset, unless the asset

- 35 -

does not generate cash inflows that are largely independent of those from other assets or

groups of assets, in which case the recoverable amount is assessed as part of the cash-

generating unit to which it belongs. Where the carrying amount of an asset (or cash

generating unit) exceeds its recoverable amount, the asset (or cash-generating unit) is

considered impaired and is written down to its recoverable amount. In assessing value in use,

the estimated future cash flows are discounted to their present value using a pre-tax discount

rate that reflects current market assessments of the time value of money and the risks specific

to the asset (or cash-generating unit).

Impairment losses are recognized under Impairment losses account in the consolidated

statement of income.

For assets excluding goodwill, an assessment is made at each reporting date as to whether

there is any indication that previously recognized impairment losses may no longer exist or

may have decreased. If such indication exists, the recoverable amount is estimated. A

previously recognized impairment loss is reversed only if there has been a change in the

estimates used to determine the asset’s recoverable amount since the last impairment loss was

recognized. If that is the case, the carrying amount of the asset is increased to its recoverable

amount. That increased amount cannot exceed the carrying amount that would have been

determined, net of depreciation, had no impairment loss been recognized for the asset in prior

years. Such reversal is recognized in the consolidated statement of income. After such a

reversal, the depreciation expense is adjusted in future years to allocate the asset’s revised

carrying amount, less any residual value, on a systematic basis over its remaining life.

The following criteria are also applied in assessing impairment of specific assets:

Goodwill

Goodwill is reviewed for impairment, annually or more frequently, if events or changes in

circumstances indicate that the carrying value may be impaired.

Impairment is determined by assessing the recoverable amount of the cash-generating unit (or

group of cash-generating units) to which the goodwill relates. Where the recoverable amount

of the cash-generating unit (or group of cash-generating units) is less than the carrying amount

to which goodwill has been allocated, an impairment loss is recognized. Where goodwill

forms part of a cash-generating unit (or group of cash-generating units) and part of the

operation within that unit are disposed of, the goodwill associated with the operation disposed

of is included in the carrying amount of the operation when determining the gain or loss on

disposal of the operation. Goodwill disposed of in this circumstance is measured on the basis

of the relative fair values of the operation disposed of and the portion of the cash-generating

unit retained. Impairment losses relating to goodwill cannot be reversed in future periods.

Biological assets at cost

The carrying values of biological assets are reviewed for impairment when events or changes

in the circumstances indicate that the carrying values may not be recoverable.

Intangible assets

Intangible assets with indefinite useful lives are tested for impairment annually as of year-end

either individually or at the cash-generating level, as appropriate.

Investment in a joint venture

After application of the equity method, the Group determines whether it is necessary to

recognize an additional impairment loss of the Group’s investments in a joint venture. If this

is the case, the Group calculates the amount of impairment as being the difference between the

- 36 -

fair value of the associate and the acquisition cost and recognizes the amount in the

consolidated statement of income.

Short-term and Long-term Debt

All loans and borrowings are initially recognized at the fair value of the consideration received

less directly attributable debt issuance costs.

After initial recognition, interest-bearing loans and borrowings are subsequently measured at

amortized cost using the EIR method. Amortized cost is calculated by taking into account any

issue costs, and any discount or premium on settlement.

Gains and losses are recognized in the consolidated statement of income when the liabilities

are derecognized or impaired, as well as through the amortization process.

Debt Issuance Costs

Debt issuance costs are amortized using the EIR method and unamortized debt issuance costs

are offset against the related carrying value of the loan in the consolidated balance sheet.

When a loan is paid, the related unamortized debt issuance costs at the date of repayment are

charged against current operations (see accounting policy on Financial Instruments).

Treasury Shares

Treasury shares are recorded at cost and are presented as a deduction from equity. When the

shares are retired, the capital stock account is reduced by its par value. The excess of cost

over par value upon retirement is debited to the following accounts in the order given: (a)

additional paid-in capital to the extent of the specific or average additional paid-in capital

when the shares were issued, and (b) retained earnings. No gain or loss is recognized in the

consolidated statement of income on the purchase, sale, issue or cancellation of the Group’s

own equity instruments.

Provisions

Provisions are recognized when: (a) the Group has a present obligation (legal or constructive)

as a result of a past event; (b) it is probable (i.e. more likely than not) that an outflow of

resources embodying economic benefits will be required to settle the obligation; and (c) a

reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each

balance sheet date and adjusted to reflect the current best estimate. If the effect of the time

value of money is material, provisions are determined by discounting the expected future cash

flows at a pre-tax rate that reflects current market assessment of the time value of money and,

where appropriate, the risks specific to the liability. Where discounting is used, the increase in

the provision due to the passage of time is recognized as an interest expense in the

consolidated statement of income. Where the Group expects a provision to be reimbursed, the

reimbursement is recognized as a separate asset but only when the reimbursement is probable.

Contingencies

Contingent liabilities are not recognized in the consolidated financial statements but disclosed

unless the possibility of an outflow of resources embodying economic benefits is remote.

Contingent assets are not recognized in the consolidated financial statements but disclosed

when an inflow of economic benefits is probable.

Pension Costs

Pension cost is actuarially determined using the projected unit credit method. This method

reflects services rendered by employees up to the date of valuation and incorporates

assumptions concerning employees’ projected salaries. Actuarial valuations are conducted

with sufficient regularity, with option to accelerate when significant changes to underlying

- 37 -

assumptions occur. Pension cost includes current service cost, interest cost, expected return

on any plan assets, actuarial gains and losses and the effect of any curtailments or settlements.

Actuarial gains and losses arising from experience adjustments and changes in actuarial

assumptions are credited to or charged against income when the net cumulative unrecognized

actuarial gains and losses at the end of the previous period exceed 10% of the higher of the

present value of the defined benefit obligation and the fair value of plan assets at that date.

The excess actuarial gains or losses are recognized over the average remaining working lives

of the employees participating in the plan.

The asset or liability recognized in the consolidated balance sheet in respect of defined benefit

pension plans is the present value of the defined benefit obligation as of the balance sheet date

less the fair value of plan assets, together with adjustments for unrecognized actuarial gains or

losses and past service costs. The value of any asset is restricted to the sum of any past

service cost not yet recognized and the present value of the any economic benefits available in

the form of refunds from the plan or reductions in the future contributions to the plan. The

defined benefit obligation is calculated annually by an independent actuary using the projected

unit credit method. The present value of the defined benefit obligation is determined by

discounting the estimated future cash inflows using risk-free interest rates that have terms to

maturity approximating the terms of the related pension liability.

Past service costs, if any, are recognized immediately in the consolidated statement of income,

unless the changes to the pension plan are conditional on the employees remaining in service

for a specified period of time (the vesting period). In this case, past service costs are

amortized on a straight-line basis over the vesting period.

Income Taxes

Current tax

Current tax assets and liabilities for the current and prior periods are measured at the amount

expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws

used to compute the amount are those that are enacted or substantially enacted at the balance

sheet date.

Deferred tax

Deferred tax is provided using the balance sheet liability method on all temporary differences,

with certain exceptions, at the balance sheet date between the tax bases of assets and liabilities

and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognized for all taxable temporary differences, with certain

exceptions. Deferred tax assets are recognized for all deductible temporary differences with

certain exceptions, and carryforward benefits of unused tax credits from excess minimum

corporate income tax (MCIT) over regular corporate income tax and unused net operating loss

carryover (NOLCO), to the extent that it is probable that taxable income will be available

against which the deductible temporary differences and carryforward benefits of unused tax

credits from excess MCIT and unused NOLCO can be utilized.

Deferred tax assets are not recognized when they arise from the initial recognition of an asset

or liability in a transaction that is not a business combination and, at the time of transaction,

affects neither the accounting income nor taxable income or loss. Deferred tax liabilities are

not provided on nontaxable temporary differences associated with investments in domestic

subsidiaries, associates and interests in joint ventures. With respect to investments in foreign

subsidiaries, associates and interests in joint ventures, deferred tax liabilities are recognized

- 38 -

except where the timing of the reversal of the temporary differences can be controlled and it is

probable that the temporary difference will not reverse in the foreseeable future.

The carrying amounts of deferred tax assets are reviewed at each balance sheet date and

reduced to the extent that it is no longer probable that sufficient taxable income will be

available to allow all or part of the deferred tax assets to be utilized. Unrecognized deferred

tax assets are reassessed at each balance sheet date, and are recognized to the extent that it has

become probable that future taxable income will allow the deferred tax asset to be recognized.

Deferred tax assets and liabilities are measured at the tax rate that is expected to apply to the

period when the asset is realized or the liability is settled, based on tax rates (and tax laws)

that have been enacted or substantively enacted as of balance sheet date.

Income tax relating to items recognized directly in equity is recognized in equity and not in the

consolidated statement of income.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to

set off current tax assets against current tax liabilities and the deferred taxes relate to the same

taxable entity and the same taxation authority.

Leases

The determination of whether an arrangement is, or contains a lease, is based on the substance

of the arrangement at inception date, and requires an assessment of whether the fulfillment of

the arrangement is dependent on the use of a specific asset or assets and the arrangement

conveys a right to use the asset. A reassessment is made after inception of the lease only if

one (1) of the following applies:

a. there is a change in contractual terms, other than a renewal or extension of the

arrangement;

b. a renewal option is exercised or an extension granted, unless that term of the renewal or

extension was initially included in the lease term;

c. there is a change in the determination of whether fulfillment is dependent on a specified

asset; or

d. there is a substantial change to the asset.

Where a reassessment is made, lease accounting shall commence or cease from the date when

the change in circumstances gave rise to the reassessment for any of the scenarios above, and

at the date of renewal or extension period for scenario b.

Group as a lessee

Leases where the lessor retains substantially all the risks and benefits of ownership of the asset

are classified as operating leases. Operating lease payments are recognized as an expense in

the consolidated statement of income on a straight-line basis over the lease term.

Group as a lessor

Leases where the Group does not transfer substantially all the risks and benefits of ownership

of the assets are classified as operating leases. Initial direct costs incurred in negotiating

operating leases are added to the carrying amount of the leased asset and recognized over the

lease term on the same basis as the rental income. Contingent rents are recognized as revenue

in the period in which they are earned.

- 39 -

Borrowing Costs

Borrowing costs are generally expensed as incurred. Interest and other finance costs incurred

during the construction period on borrowings used to finance property development are

capitalized to the appropriate asset accounts. Capitalization of borrowing costs commences

when the activities to prepare the asset are in-progress and expenditures and borrowing costs

are being incurred. The capitalization of these borrowing costs ceases when substantially all

the activities necessary to prepare the asset for sale or its intended use are complete. If the

carrying amount of the asset exceeds its recoverable amount, an impairment loss is recorded.

Capitalized borrowing cost is based on the applicable weighted average borrowing rate.

Interest expense on loans is recognized using the EIR method over the term of the loans.

Foreign Currency Translation/Transactions

The functional and presentation currency of the Parent Company and its Philippine

subsidiaries (except for certain consolidated foreign subsidiaries), is the Philippine Peso.

Each entity in the Group determines its own functional currency and items included in the

consolidated financial statements of each entity are measured using that functional currency.

Transactions in foreign currencies are initially recorded in the functional currency rate ruling

at the date of the transaction. Monetary assets and liabilities denominated in foreign

currencies are retranslated at the functional currency rate of exchange ruling at the balance

sheet date. All differences are taken to the consolidated statement of income with the

exception of differences on foreign currency borrowings that provide a hedge against a net

investment in a foreign entity. These are taken directly to equity until the disposal of the net

investment, at which time they are recognized in the consolidated statement of income. Tax

charges and credits attributable to exchange differences on those borrowings are also dealt

with in equity. Nonmonetary items that are measured in terms of historical cost in a foreign

currency are translated using the exchange rate as at the date of initial transaction.

Nonmonetary items measured at fair value in a foreign currency are translated using the

exchange rates at the date when the fair value was determined.

The functional currencies of the Group’s consolidated foreign subsidiaries follow:

Country of Functional

Subsidiaries Incorporation Currency

URCPL British Virgin Islands US Dollar

URC Asean Brands Co. Ltd. - do - - do -

Hong Kong China Foods Co. Ltd. - do - - do -

URCICL - do - - do -

URCL. Cayman Islands - do -

Shanghai Peggy Foods Co., Ltd. China Chinese Yuan

Tianjin Pacific Foods Manufacturing Co., Ltd. - do - - do -

URC China Commercial Co. Ltd. - do - - do -

Xiamen Tongan Pacific Food Co., Ltd. - do - - do -

Panyu Peggy Foods Co., Ltd. - do - - do -

URC Hong Kong Company Limited (formerly Hong Kong Peggy

Snacks Foods Co., Limited) Hong Kong HK Dollar

PT URC Indonesia Indonesia Indonesian Rupiah

URC Snack Foods (Malaysia) Sdn. Bhd.

(formerly Pacific World Sdn. Bhd.) Malaysia Malaysian Ringgit

Ricellent Sdn. Bhd. - do - - do -

URC Foods (Singapore) Pte. Ltd. (formerly Pan

Pacific Snacks Pte. Ltd.) Singapore Singapore Dollar

Acesfood Network Pte. Ltd. - do - - do -

Advanson International Pte. Ltd. - do - - do -

URC (Thailand) Co., Ltd. (formerly Thai Peggy Foods Co. Ltd.)

Thailand Thai Baht

URC Vietnam Co., Ltd. Vietnam Vietnam Dong

- 40 -

As of reporting date, the assets and liabilities of these subsidiaries are translated into the

presentation currency of the Group at the rate of exchange ruling at the balance sheet date and

their respective statements of income are translated at the weighted average exchange rates for

the year. The exchange differences arising on the translation are taken directly to a separate

component of equity except for URCPL and URCL which are considered integral part of the

parent company. Exchange differences of these subsidiaries are recognized in the consolidated

statement of income. On disposal of a foreign entity, the deferred cumulative amount

recognized in equity relating to that particular foreign operation shall be recognized in the

consolidated statement of income.

Earnings Per Share (EPS)

Basic EPS is computed by dividing net income applicable to common stock (net income less

dividends on preferred stock) by the weighted average number of common shares issued and

outstanding during the year, adjusted for any subsequent stock dividends declared.

Diluted EPS amounts are calculated by dividing the net profit attributable to ordinary equity

holders of the parent by the weighted average number of ordinary shares outstanding during

the year plus the weighted average number of ordinary shares that would be issued on the

conversion of all the dilutive potential ordinary shares into ordinary shares.

Segment Reporting

The Group’s operating businesses are organized and managed separately according to the

nature of the products and services provided, with each segment representing a strategic

business unit that offers different products and serves different markets. Financial information

on business segments is presented in Note 5 to the consolidated financial statements.

Subsequent Events

Any post year-end event up to the date of approval of the BOD of the consolidated financial

statements that provides additional information about the Group’s position at the balance sheet

date (adjusting event) is reflected in the consolidated financial statements. Any post year-end

event that is not an adjusting event is disclosed in the notes to the consolidated financial

statements, when material.

3. Significant Accounting Judgments and Estimates

The preparation of the consolidated financial statements in compliance with PFRS requires the

Group to make estimates and assumptions that affect the reported amounts of assets,

liabilities, income and expenses and disclosure of contingent assets and contingent liabilities.

Future events may occur which will cause the assumptions used in arriving at the estimates to

change. The effects of any change in estimates are reflected in the consolidated financial

statements as they become reasonably determinable.

Judgments and estimates are continually evaluated and are based on historical experience and

other factors, including expectations of future events that are believed to be reasonable under

the circumstances.

Judgments

In the process of applying the Group’s accounting policies, management has made the

following judgments, apart from those involving estimations, which have the most significant

effect on the amounts recognized in the consolidated financial statements:

- 41 -

Classification of financial instruments

The Group exercises judgment in classifying a financial instrument, or its component parts, on

initial recognition as either a financial asset, a financial liability or an equity instrument in

accordance with the substance of the contractual arrangement and the definitions of a financial

asset, a financial liability or an equity instrument. The substance of a financial instrument,

rather than its legal form, governs its classification in the consolidated balance sheet.

In addition, the Group classifies financial assets by evaluating, among others, whether the

asset is quoted or not in an active market. Included in the evaluation on whether a financial

asset is quoted in an active market is the determination on whether quoted prices are readily

and regularly available, and whether those prices represent actual and regularly occurring

market transactions on an arm’s length basis.

Determination of fair values of financial instruments

The Group carries certain financial assets and liabilities at fair value, which requires extensive

use of accounting judgment and estimates. While significant components of fair value

measurement were determined using verifiable objective evidence (i.e. foreign exchange rates,

interest rates, volatility rates), the amount of changes in fair value would differ if the Group

utilized different valuation methodologies and assumptions. Any changes in fair value of these

financial assets and liabilities would affect profit and loss and equity.

Where the fair values of certain financial assets and financial liabilities recorded in the

consolidated balance sheet cannot be derived from active markets, they are determined using

internal valuation techniques using generally accepted market valuation models. The inputs to

these models are taken from observable market data where possible, but where this is not

feasible, estimates are used in establishing fair values. The judgments include considerations

of liquidity and model inputs such as correlation and volatility for longer dated derivatives.

Classification of leases

Management exercises judgment in determining whether substantially all the significant risks

and rewards of ownership of the leased assets are transferred to the Group. Lease contracts,

which transfer to the Group substantially all the risks and rewards incidental to ownership of

the leased items, are capitalized. Otherwise, they are considered as operating leases.

Distinction between investment properties and owner-occupied properties

The Group determines whether a property qualifies as an investment property. In making its

judgment, the Group considers whether the property generates cash flows largely independent

of the other assets held by an entity. Owner-occupied properties generate cash flows that are

attributable not only to property but also to the other assets used in the production or supply

process.

Some properties comprise a portion that is held to earn rentals or for capital appreciation and

another portion that is held for use in the production or supply of goods or services or for

administrative purposes. If these portions cannot be sold separately, the property is accounted

for as investment property only if an insignificant portion is held for use in the production or

supply of goods or services or for administrative purposes. Judgment is applied in

determining whether ancillary services are so significant that a property does not qualify as an

investment property. The Group considers each property separately in making its judgment.

Contingencies

The Group is currently involved in various legal proceedings. The estimate of the probable

costs for the resolution of these claims has been developed in consultation with outside counsel

handling the defense in these matters and is based upon an analysis of potential results. The

- 42 -

Group currently does not believe these proceedings will have a material effect on the Group’s

financial position. It is possible, however, that future results of operations could be materially

affected by changes in the estimates or in the effectiveness of the strategies relating to these

proceedings.

Estimates

Estimation of allowance for impairment losses on trade and other receivables

The Group maintains allowances for impairment losses on trade receivables at a level

considered adequate to provide for potential uncollectible receivables. The level of this

allowance is evaluated by the management on the basis of factors that affect the collectibility

of the accounts. These factors include, but are not limited to, the length of relationship with

the customer, the customer’s payment behavior and known market factors. The Group

reviews the age and status of receivables, and identifies accounts that are to be provided with

allowances on a continuous basis. The Group provides full allowance for trade receivables

that it deems uncollectible.

The amount and timing of recorded expenses for any period would differ if the Group made

different judgments or utilized different estimates. An increase in the allowance for

impairment losses on trade receivables would increase recorded operating expenses and

decrease current assets.

Determination of NRV of inventories

The Group, in determining the NRV, considers any adjustment necessary for obsolescence

which is generally provided 100% for nonmoving items for more than one (1) year. The

Group adjusts the cost of inventory to the recoverable value at a level considered adequate to

reflect market decline in the value of the recorded inventories. The Group reviews the

classification of the inventories and generally provides adjustments for recoverable values of

new, actively sold and slow-moving inventories by reference to prevailing values of the same

inventories in the market.

The amount and timing of recorded expenses for any period would differ if different judgments

were made or different estimates were utilized. An increase in inventory obsolescence and

market decline would increase recorded operating expenses and decrease current assets.

EUL of property, plant and equipment and investment properties

The Group estimated the useful lives of its property, plant and equipment and investment

properties based on the period over which the assets are expected to be available for use. The

EUL of property, plant and equipment and investment properties are reviewed at least

annually and are updated if expectations differ from previous estimates due to physical wear

and tear and technical or commercial obsolescence on the use of these assets. It is possible

that future results of operations could be materially affected by changes in these estimates

brought about by changes in factors mentioned above. A reduction in the EUL of property,

plant and equipment and investment properties would increase depreciation expense and

decrease noncurrent assets.

Fair values less estimated point-of-sale costs of biological assets

The fair values of swine are determined based on current market prices of livestock of similar

age, breed and genetic merit. Point-of-sale costs include commissions to brokers and dealers,

nonrefundable transfer taxes and duties. Point-of-sale costs exclude transport and other costs

necessary to get the biological assets to the market. The fair values are reviewed and updated

if expectations differ from previous estimates due to changes brought by both physical change

and price changes in the market. It is possible that future results of operations could be

- 43 -

materially affected by changes in these estimates brought about by the changes in factors

mentioned.

Impairment of nonfinancial assets

The Group assesses the impairment of assets whenever events or changes in circumstances

indicate that the carrying amount of an asset may not be recoverable. The factors that the

Group considers important which could trigger an impairment review include the following:

• significant underperformance relative to expected historical or projected future operating

results;

• significant changes in the manner of use of the acquired assets or the strategy for overall

business; and

• significant negative industry or economic trends.

In the case of goodwill and intangible assets with indefinite lives, at a minimum, such assets

are subject to an annual impairment test and more frequently whenever there is an indication

that such asset may be impaired. This requires an estimation of the value in use of the cash-

generating units to which the goodwill is allocated. Estimating the value in use requires the

Group to make an estimate of the expected future cash flows from the cash-generating unit

and to choose a suitable discount rate in order to calculate the present value of those cash

flows.

In determining the present value of estimated future cash flows expected to be generated from

the continued use of the assets, the Group is required to make estimates and assumptions that

can materially affect the consolidated financial statements.

Estimation of pension and other benefits costs

The determination of the obligation and cost of retirement and other employee benefits is

dependent on the selection of certain assumptions used in calculating such amounts. Those

assumptions include, among others, discount rates, expected returns on plan assets and salary

increase rates. Actual results that differ from the Group’s assumptions are accumulated and

amortized over future periods and therefore, generally affect the recognized expense and

recorded obligation in such future periods.

While the Group believes that the assumptions are reasonable and appropriate, significant

differences between actual experiences and assumptions may materially affect the cost of

employee benefits and related obligations.

The Group also estimates other employee benefits obligation and expense, including the cost

of paid leaves based on historical leave availments of employees, subject to the Group’s

policy. These estimates may vary depending on the future changes in salaries and actual

experiences during the year.

Recognition of deferred tax assets

The Group reviews the carrying amounts of deferred taxes at each balance sheet date and

reduces deferred tax assets to the extent that it is no longer probable that sufficient taxable

income will be available to allow all or part of the deferred tax assets to be utilized.

- 44 -

4. Financial Risk Management Objective and Policies

The Group’s principal financial instruments, other than derivatives, comprise cash and cash

equivalents, financial assets at FVPL, AFS investments, and interest-bearing loans and other

borrowings. The main purpose of these financial instruments is to finance the Group’s

operations and related capital expenditures. The Group has various other financial assets and

financial liabilities, such as trade receivables and payables which arise directly from its

operations.

The BOD of the Parent Company and its subsidiaries review and approve policies for

managing each of these risks and they are summarized below, together with the related risk

management structure.

Risk Management Structure

The Group’s risk management structure is closely aligned with that of the ultimate Parent

Company. The BOD of the Parent Company and the respective BOD of each subsidiary are

ultimately responsible for the oversight of the Group’s risk management processes that involve

identifying, measuring, analyzing, monitoring and controlling risks.

Each BOD has created the board-level AC to spearhead the managing and monitoring of risks.

Audit Committed (AC)

The AC shall assist the Group’s BOD in its fiduciary responsibility for the over-all

effectiveness of risk management systems, and both the internal and external audit functions of

the Group. Furthermore, it is also the AC’s purpose to lead in the general evaluation and to

provide assistance in the continuous improvements of risk management, control and

governance processes.

The AC also aims to ensure that:

a. financial reports comply with established internal policies and procedures, pertinent

accounting and auditing standards and other regulatory requirements;

b. risks are properly identified, evaluated and managed, specifically in the areas of managing

credit, market, liquidity, operational, legal and other risks, and crisis management;

c. audit activities of internal and external auditors are done based on plan, and deviations are

explained through the performance of direct interface functions with the internal and

external auditors; and

d. the Group’s BOD is properly assisted in the development of policies that would enhance

the risk management and control systems

Enterprise Risk Management Group (ERMG)

The ERMG was created to be primarily responsible for the execution of the enterprise risk

management framework. The ERMG’s main concerns include:

a. recommending risk policies, strategies, principles, framework and limits;

b. managing fundamental risk issues and monitoring of relevant risk decisions;

c. providing support to management in implementing the risk policies and strategies; and

d. developing a risk awareness program.

Compliance with the principles of good corporate governance is also one (1) of the primary

objectives of the BOD. To assist the BOD in achieving this purpose, the BOD has designated

a Compliance Officer who shall be responsible for monitoring the actual compliance with the

provisions and requirements of the Corporate Governance Manual and other requirements on

- 45 -

good corporate governance, identifying and monitoring control compliance risks, determining

violations, and recommending penalties on such infringements for further review and approval

of the BOD, among others.

Risk Management Policies

The main risks arising from the use of financial instruments are foreign currency risk, equity

price risk, interest rate risk, credit risk and liquidity risk. The Group’s policies for managing

the aforementioned risks are summarized below.

Foreign currency risk

Foreign currency risk arises on financial instruments that are denominated in a foreign

currency other than the functional currency in which they are measured.

The Group has transactional currency exposures. Such exposures arise from sales and

purchases in currencies other than the entities’ functional currency. The Group does not have

any foreign currency hedging arrangements.

Equity price risk

Equity price risk is the risk that the fair values of equities decrease as a result of changes in

the levels of equity indices and the value of individual stocks.

Interest rate risk

The Group’s exposure to market risk for changes in interest rates relates primarily to the

Group’s short-term and long-term debt obligations. The Group’s policy is to manage its

interest cost using a mix of fixed and variable rate debt.

Credit risk

The Group trades only with recognized and creditworthy third parties. It is the Group’s policy

that all customers who wish to trade on credit terms are subject to credit verification

procedures. The Credit and Collection Department of the Group continuously provides credit

notification and implements various credit actions, depending on assessed risks, to minimize

credit exposure. Receivable balances of trade customers are being monitored on a regular

basis and appropriate credit treatments are executed for overdue accounts. Likewise, other

receivable balances are also being monitored and subjected to appropriate actions to manage

credit risk.

With respect to credit risk arising from the other financial assets of the Group, which comprise

cash and cash equivalents, financial assets at FVPL and certain derivative investments, the

Group’s exposure to credit risk arises from default of the counterparty with a maximum

exposure equal to the carrying amount of these instruments. The Group has a counterparty

credit risk management policy which allocates investment limits based on counterparty credit

ratings and credit risk profile.

Liquidity risk

The Group’s liquidity management involves maintaining funding capacity to finance capital

expenditures and service maturing debts, and to accommodate any fluctuations in asset and

liability levels due to changes in the Group’s business operations or unanticipated events

created by customer behavior or capital market conditions. The Group maintains a level of

cash and cash equivalents deemed sufficient to finance its operations. As part of its liquidity

risk management, the Group regularly evaluates its projected and actual cash flows. It also

continuously assesses conditions in the financial markets for opportunities to pursue fund

raising activities. Fund raising activities may include obtaining bank loans and capital market

issues both onshore and offshore.

- 46 -

Fair Value Measurement

The following methods and assumptions were used to estimate the fair value of each class of

financial instrument for which it is practicable to estimate such value:

Cash and cash equivalents, receivables, accounts payable and other accrued liabilities and

trust receipts and acceptances payable

Carrying amounts approximate their fair values due to the relatively short-term maturity of

these instruments.

Due from and due to related parties

Carrying amounts of due from and due to related parties which are payable and due on

demand approximate their fair values.

Financial assets at FVPL and AFS investments

Fair values of debt securities are generally based upon quoted market prices. If the market

prices are not readily available, fair values are estimated using either values obtained from

independent parties offering pricing services or adjusted quoted market prices of comparable

investments or using the discounted cash flow methodology.

Fair value of quoted equity securities are based on quoted prices published in markets. Fair

values of unquoted equity investments approximate carrying amounts (cost less allowance for

impairment) due to the unpredictable nature of future cash flows and lack of suitable methods

of arriving at reliable fair value.

Derivative financial instruments

The fair value of forward exchange contracts is calculated by reference to current forward

exchange rates for contracts with similar maturity profiles. The fair value of forward

exchange derivatives embedded in nonfinancial contracts is calculated by reference to the

prevailing interest differential and spot exchange rate as of valuation date, taking into account

the remaining term-to-maturity of the forwards.

Long-term debt

The fair value is determined using the discounted cash flow methodology, with reference to the

Group’s current incremental lending rates for similar types of loans.

5. Business Segment Information

The industry segments where the Group operates are as follows:

a. The branded consumer food products segment - manufactures and distributes a diverse mix

of snack foods, instant coffee products, instant noodles, chocolates, soft and hard candies,

biscuits, tomato-based products and ready-to-drink beverages. This segment also includes

the packaging division which manufactures BOPP films primarily used in packaging. In

2006, the Group, through its wholly owned subsidiary, CFC Clubhouse Property, Inc.

began operations of its PET bottle manufacturing and flexible packaging plants to supply

the packaging requirement of PET bottle products and various branded food products. Its

revenues are in their peak during the opening of classes in June and Christmas season.

b. The agro-industrial products segment engages in hog and poultry farming, manufactures

and distributes animal and fish feeds and soya products, and manufactures and distributes

animal health products. Its peak season is during summer and before Christmas season.

- 47 -

c. The commodity food products segment engages in sugar milling and refining, and flour

milling and pasta manufacturing and marketing. The peak season for sugar is during its

crop season, which normally starts in September and ends in May of the following year.

d. The corporate business segment engages in bonds and securities investment and fund

sourcing activities.

Management monitors the operating results of its business units separately for the purpose of

making decisions about resource allocation and performance assessment. Segment

performance is evaluated based on operating profit or loss which in certain respects is

measured differently from operating profit or loss in the consolidated financial statements.

Group financing (including finance costs and revenue), market valuation gain (loss), foreign

exchange loss and income taxes are managed on a group basis and are not allocated to

operating segments. Transfer prices between operating segments are on an arm’s length basis

in a manner similar to transactions with third parties.

The Group’s business segment information follows:

Sale of Goods and Services Segment Result

June 30

2009 2008 2009 2008

BCFG P=29,052,878

P=25,221,988

P=2,623,425

P=1,537,587

AIG 4,316,725 3,910,788 160,444 275,954

CFG 4,262,206 3,259,707 835,864 1,310,010

Corporate Businesses – – (479,355) (408,450)

P=37,631,809

P=32,392,483

P=3,140,378

P=2,715,101

Total Assets Total Liabilities

June 30

2009 2008 2009 2008

BCFG P=30,880,328

P=28,401,514

P=8,238,547

P=8,579,428

AIG 4,848,665 5,432,393 1,119,648 1,424,497

CFG 8,127,849 10,643,072 2,467,159 4,396,288

Corporate Businesses 17,147,955 16,689,784 15,087,055 12,823,223

P=61,004,797

P=61,166,763

P=26,912,409

P=27,223,436

6. Cash and Cash Equivalents

This account consists of:

Unaudited

June 30,

2009

Audited

September 30,

2008

Cash on hand P=202,039 P=108,577

Cash in banks 2,323,645 729,054

Short-term investments 1,952,077 1,377,997

P=4,477,761 P=2,215,628

- 48 -

Cash in banks earns interest at the respective bank deposit rates. Money market placements

are made for varying periods depending on the immediate cash requirements of the Group, and

earn interest ranging from 1.8% to 5.4% and 3.2% to 5.4%, in June 30, 2009 and September

30, 2008, respectively.

7. Financial Assets at Fair Value Through Profit or Loss

This account consists of:

Unaudited

June 30,

2009

Audited

September 30,

2008

Investments held-for-trading P=5,913,818

P=5,968,488

Derivative assets 5,435

10,697

P=5,919,253

P=5,979,185

Investments that are held-for-trading consist of:

Unaudited

June 30,

2009

Audited

September 30,

2008

Private bonds P=4,400,284

P=4,343,134

Equity securities 1,513,534

1,625,354

P=5,913,818

P=5,968,488

The above investments consist of quoted debt and equity securities issued by certain domestic

and foreign entities.

Net market valuation loss of financial assets at FVPL amounted to P=427.6 million and

P=1.3 billion for the nine months of fiscal 2009 and 2008, respectively.

8. Available-for-Sale Investments

This account consists of:

Unaudited

June 30,

2009

Audited

September 30,

2008

Private bonds P=4,137,019

P=4,080,460

Government securities 2,346,849

2,224,383

P=6,483,868

P=6,304,843

As of June 30, 2009 and September 30, 2008, net unrealized loss on market valuation

amounted to P=561.6 million and P=826.2 million, respectively, which are shown as a separate

component of equity in the consolidated balance sheets.

- 49 -

9. Receivables

This account consists of:

Unaudited

June 30,

2009

Audited

September 30,

2008

Trade receivables P=4,500,489 P=4,613,930

Due from related parties 485,015 448,125

Advances to officers, employees and suppliers 472,717 477,809

Interest receivable 197,921 142,815

Others 908,961 717,508

6,565,103 6,400,187

Less allowance for impairment loss 230,390 224,313

P=6,334,713 P=6,175,874

The aging analysis of the Group’s receivables follows:

Neither past

Past due but not impaired Past Unaudited

due nor

impaired

Less than 90

days

Over 90

days

due and

impaired June 30,

2009

Trade receivables P=1,690,407

P=1,788,430 P=791,262

P=230,390 P=4,500,489

Due from related parties 485,015 – –

– 485,015

Advances to officers,

employees and suppliers 236,365

226,853 9,499

– 472,717

Interest receivable 197,446 475 –

– 197,921

Others 424,743 433,646 50,572

– 908,961

P=3,033,976 P=2,449,404 P=851,333

P=230,390 P=6,565,103

Neither past

Past due but not impaired Past Audited

due nor

impaired

Less than 90

days

Over 90

days

due and

impaired September

30, 2008

Trade receivables P=740,790

P=2,457,452 P=1,191,375

P=224,313 P=4,613,930

Due from related parties 448,125 – –

– 448,125

Advances to officers,

employees and suppliers 238,911

229,297 9,601

– 477,809

Interest receivable 142,472 343 –

– 142,815

Others 347,521 331,345 38,642

– 717,508

P=1,917,819 P=3,018,437 P=1,239,618

P=224,313 P=6,400,187

- 50 -

10. Inventories

This account consists of:

Unaudited

June 30,

2009

Audited

September 30,

2008

At cost:

Raw materials P=2,334,608 P=2,545,062

Finished goods 1,765,825 1,751,043

4,100,433 4,296,105

At NRV:

Goods in-process 146,458 135,328

Containers and packaging materials 807,606 996,109

Spare parts and supplies 1,354,842 1,128,048

2,308,906 2,259,485

Materials in-transit 755,588 1,218,865

P=7,164,927 P=7,774,455

Under the terms of the agreements covering liabilities under trust receipts totaling P=1.9 billion

and P=3.0 billion as of June 30, 2009 and September 30, 2008, respectively, certain inventories

have been released to the Group in trust for the banks. The Parent Company is accountable to

these banks for the trusted merchandise or their sales proceeds.

11. Other Current Assets

This account consists of:

Unaudited

June 30,

2009

Audited

September 30,

2008

Input value-added tax P=696,264

P=792,558

Prepaid expenses 185,578

229,977

Others 229

13,829

P=882,071

P=1,036,364

The prepaid expenses account includes prepayments for:

Unaudited

June 30,

2009

Audited

September 30,

2008

Insurance P=69,728

P=65,883

Rentals 20,991

2,433

Taxes 20,682

4,665

Advertising 18,861

110,986

Computer maintenance 6,642

8,553

Others 48,674

37,457

P=185,578

P=229,977

- 51 -

12. Property, Plant and Equipment

This account consists of:

Unaudited

June 30,

2009

Audited

September 30,

2008

Acquisition Costs

Land Improvements P=1,547,705 P=1,718,786

Building and Improvements 8,892,796 8,154,087

Machinery and Equipment 32,979,764 30,553,185

Transportation Equipment 2,075,078 2,020,866

Furniture, Fixtures and Equipment 1,899,812 1,835,983

47,395,155 44,282,907

Accumulated Depreciation 25,149,414 22,934,558

Net Book Value 22,245,741 21,348,349

Land 1,571,708 1,498,315

Equipment In-transit 891,451 283,316

Construction In-progress 1,037,711 1,197,364

P=25,746,611 P=24,327,344

13. Intangible Assets

Movements in this account follow:

Unaudited

June 30,

2009

Audited

September 30,

2008

Cost

Balance at beginning of year P=1,891,603 P=1,399,024

Additions – 492,579

Balance at end of year 1,891,603 1,891,603

Accumulated Depreciation

Balance at beginning of year 244,840 242,072

Depreciation 2,076 2,768

Balance at end of year 246,916 244,840

Net Book Value P=1,644,687 P=1,646,763

Intangible assets consist of goodwill, trademark and product formulation.

- 52 -

14. Investment in a Joint Venture

This account consists of:

Unaudited

June 30,

2009

Audited

September 30,

2008

Acquisition Cost

Balance at beginning of year P=1,250 P=1,250

Disposal – –

Balance at end of year 1,250 1,250

Accumulated Equity in Net Earnings

Balance at beginning of year 91,807 88,623

Equity in net income during the year 23,099 28,184

Dividends received (30,000)

(25,000)

Disposal – –

Balance at end of year 84,906 91,807

Net Book Value at End of Year P=86,156 P=93,057

The Parent Company has an equity interest in Hunt-Universal Robina Corporation (HURC), a

domestic joint venture. HURC manufactures and distributes food products under the “Hunt’s”

brand name, which is under exclusive license to HURC in the Philippines.

15. Investment Properties

Movements in this account follow:

Unaudited

June 30,

2009

Audited

September 30,

2008

Cost

Balance at beginning and end of year P=107,947 P=107,947

Accumulated Depreciation

Balance at beginning of year 28,944 25,346

Depreciation 2,699 3,598

Balance at end of year 31,643 28,944

Net Book Value P=76,304 P=79,003

The investment properties consist of land and building which are made available for lease to

others.

- 53 -

16. Other Noncurrent Assets

This account consists of:

Unaudited

June 30,

2009

Audited

September 30,

2008

Input value-added tax P=182,436 P=171,457

Miscellaneous deposits 98,845 83,144

Others 169,206 159,030

P=450,487 P=413,631

17. Short-term Debt

This account consists of:

Unaudited

June 30,

2009

Audited

September 30,

2008

Parent Company

Philippine Peso - with interest rate of 6.75%

in

2009 and 2008

P=1,707,768

P=1,123,000

Subsidiaries

Foreign Currencies -

with interest rates ranging

from 1.92% to 3.25% per annum in 2009

and

3.39% to 5.46% per annum in 2008

5,182,834

6,946,508

P=6,890,602 P=8,069,508

Interest is based on prevailing market rates and repriced quarterly.

18. Accounts Payable and Other Accrued Liabilities

This account consists of:

Unaudited

June 30,

2009

Audited

September 30,

2008

Trade payables P=3,009,299 P=3,307,225

Accrued expenses 1,531,244 1,105,489

Due to related parties 286,171 127,615

Customers’ deposits 103,493 80,397

Derivative liabilities 25,025 40,421

Others 431,850 303,795

P=5,387,082 P=4,964,942

Other payables include advances from stockholders amounting to P=238.1 million and P=107.6

million as of June 30, 2009 and September 30, 2008, respectively, as well as withholding tax

payable amounting to P=97.3 million and P=65.6 million as of June 30, 2009 and September 30,

2008, respectively.

- 54 -

The Accrued expenses account includes accruals for:

Unaudited

June 30,

2009

Audited

September 30,

2008

Advertising and promotions P=695,751 P=425,096

Interest payable 317,034 208,776

Freight and handling costs 119,636 125,711

Others 398,823 345,906

P=1,531,244 P=1,105,489

19. Long-term Debt

This consists of:

Maturities Interest Rates Unaudited

June 30,

2009

Audited

September 30,

2008

Parent Company:

Foreign currencies

HypoVereinsbank term

loan facilities

Various dates

through

2009

EURIBOR/

USD LIBOR +

0.75% P=21,291 P=62,441

Philippine Peso

URC corporate note 2014 8.75% 3,000,000 –

3,021,291 62,441

Subsidiaries:

Foreign currencies

URCPL US$200 million

guaranteed notes 2012 8.25% 9,385,350 9,410,000

Philippine Peso

Philippine Sugar Corp.

restructured loan

2013 7.50% 39,991 46,395

9,425,341 9,456,395

12,446,632 9,518,836

Debt issuance costs 44,820 41,034

12,401,812 9,477,802

Less current portion 28,176 48,032

P=12,373,636 P=9,429,770

Repayments of the long-term debt follow:

Unaudited

June 30,

2009

Audited

September 30,

2008

Due within:

1 year P=41,838 P=48,032

2 years 22,254 27,699

3 years 9,370,421 7,401

4 years 10,778 9,417,969

5 years and thereafter 3,001,341 17,735

P=12,446,632 P=9,518,836

- 55 -

The exchange rates used to restate the foreign currency borrowings were P=48.13 to US$1.00

and P=47.05 to US$1.00 as of June 30, 2009 and September 30, 2008, respectively.

20. Equity

The details of the Parent Company’s common stock follow:

June 30

,

2009

September 30,

2008

Authorized shares 2,998,000,000

2,998,000,000

Par value per share P=1.00

P=1.00

Issued:

Balance at beginning of year

2,221,851,481

2,221,851,481

Issuance of common shares of stock

during the year 5,787,452 –

Balance at end of year 2,227,638,933

2,221,851,481

Less treasury shares 75,104,200

72,104,200

Outstanding Shares

2,152,534,733

2,149,747,281

On November 13, 2007, the Group’s BOD approved the creation and implementation of a

share buy-back program alloting up to P=2.5 billion to reacquire a portion of the Company’s

issued and outstanding common shares, representing approximately 7.63% of current market

capitalization.

Cumulative Redeemable Preferred Shares

The Group’s authorized preferred shares of stock are 12% cumulative, nonparticipating, and

nonvoting. In case of dissolution and liquidation of the Parent Company, the holders of the

preferred shares shall be entitled to be paid an amount equal to the par value of the shares or

ratably insofar as the assets of the Parent Company may warrant, plus accrued and unpaid

dividends thereon, if any, before the holders of the common shares of stock can be paid their

liquidating dividends. The authorized preferred stock is 2,000,000 shares at par value of P=1.0

per share. There have been no issuances of preferred stock as of June 30, 2009 and

September 30, 2008.

Deposits for Future Stock Subscriptions

On August 3, 2001, the Parent Company’s BOD approved the issuance of 55,659,008 shares

to JGSHI, Robinson’s Supermarket Corporation and a certain stockholder in exchange for two

(2) parcels of land and certain marketable securities which were valued at P=250.5 million.

This was reflected as Deposits for Future Stock Subscriptions in the consolidated balance

sheets pending approval of the Philippine SEC. On June 19, 2003, the Philippine SEC

approved the issuance of 49,871,556 shares for the two (2) parcels of land.

On April 2009, the Philippine SEC approved the issuance of 5,787,452 shares for the certain

marketable securities.

Retained Earnings

A portion of the unappropriated retained earnings representing the undistributed earnings of

the investee companies is not available for dividend declaration until received in the form of

dividends and is restricted to the extent of the cost of treasury shares.

- 56 -

21. Earnings Per Share

Basic earnings per share (EPS) is calculated by dividing the net income for the year

attributable to common shareholders by the weighted average number of common shares

outstanding during the year (adjusted for any stock dividends).

The following reflects the income and share data used in the basic/dilutive EPS computations:

Nine Months Ended June 30

2009

2008

Net income attributable to equity holders of the parent P=2,075,269

P=1,047,966

Weighted average number of

common shares 2,149,409

2,183,643

Basic/dilutive EPS P=0.97

P=0.48

There were no potential dilutive shares for the nine months of fiscal 2009 and 2008. As of

June 30, 2009, the Company’s outstanding common stock is 2,152,534,733 shares.

22. Commitments and Contingencies

The Group has various contingent liabilities arising in the ordinary conduct of business which

are either pending decision by the courts, under arbitration or being contested, the outcome of

which are not presently determinable. In the opinion of management and its legal counsel, the

eventual liability under these lawsuits or claims, if any, will not have a material or adverse

effect on the Group’s financial position and results of operations. The information usually

required by PAS 37, Provisions, Contingent Liabilities and Contingent Assets, is not

disclosed on the grounds that it can be expected to prejudice the outcome of these lawsuits,

claims, arbitration and assessments.

23. Subsequent Events

There were no material events that occurred subsequent to June 30, 2009 that requires

disclosures for the period.