1. technology and computing
2. mp3 and midi

COVER SHEET
1
5
1
0
9
6
S.E.C. Registration Number
T A N D U A Y
D I
S
T I
L L E R S
,
I
N C
,
S
.
(Company’s Full Name)
3
4
8
J
.
N E P O M U C E N O
S
T
.
A N
.
M I
G U E L
M A N I
L A
(Business Address: No. Street City / Town / Province)
NESTOR MENDONES
Contact Persons
1
2
3 1
Month
Day
Fiscal Year
519-7981
Company Telephone Number
1
7
-
A
0
FORM TYPE
5
0 5
Month
Day
Annual Meeting
Secondary License Type, If Applicable
Dept. Requiring this Doc.
Amended Articles Number/Section
Total Amount of Borrowings
Total No. of Stockholders
Domestic
Foreign
-----------------------------------------------------------------------------------------------------------------------------To be accomplished by SEC Personnel concerned
File Number
LCU
Document I.D.
Cashier
STAMPS
Remarks = pls. use black ink for scanning purposes
1
SECURITIES AND EXCHANGE COMMISSION
SEC FORM 17-A
ANNUAL REPORT PURSUANT TO SECTION 17
OF THE SECURITIES REGULATION CODE AND SECTION 141
OF CORPORATION CODE OF THE PHILIPPINES
1.
For the calendar year ended December 31, 2010
2.
SEC Identification Number 151096
3.
BIR Tax Identification No. 000-086-108-000
4.
Exact name of registrant as specified in its charter Tanduay Distillers, Inc.
5.
Philippines
6.
Province, Country or other jurisdiction of
incorporation or organization
7.
8.
(SEC Use Only)
Industry Classification Code:
348 J. Nepomuceno St. San Miguel District, Manila
Address of principal office
(632) 7339301
Registrant's telephone number, including area code
1001
Postal 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 SRC, or 4 and 8 of the RSA
Number of Shares of Common Stock
Outstanding and Amount of Debt Outstanding
Title of Each Class
Common shares, P1.00 par value
11.
Are any or all of these securities listed on a Stock Exchange?
Yes
12.
960,000,000
No []
[ ]
Check whether the registrant:
(a) has filed all reports required to be filed by Section 17 of the SRC and SRC Rule 17
thereunder or Section 11 of the Revised Securities Act (RSA) and RSA Rule 11(a)-1
thereunder and Sections 26 and 141 of The Corporation Code of the Philippines during the
preceding 12 months (or for such shorter period that the registrant was required to file
such reports);
Yes
[ ]
No [
]
(b) has been subject to such filing requirements for the past 90 days.
Yes
[ ]
No [
]
13.
Not applicable
14.
Not applicable
DOCUMENTS INCORPORATED BY REFERENCE
3
PART I – BUSINESS AND GENERAL INFORMATION
Item 1. Business
Corporate History
Tanduay Distillers, Inc. (the Company) was acquired from the Elizalde family and was incorporated
in the Philippines as Twin Ace Holdings, Inc. (Twin Ace) on May 10, 1988. The Company is a wholly
owned subsidiary of Tanduay Holdings, Inc. (THI), formerly known as Asian Pacific Equity Corporation
(APEC). The Company is primarily engaged in, operates, conducts and maintains the business of
manufacturing, compounding, bottling, importing, exporting, buying, selling or otherwise dealing in, at
wholesale and retail such goods as rhum, spirit beverages, liquor products; and any and all equipment,
materials, supplies used and/or employed in or related to the manufacture of such finished goods. The
Company sells its products in the domestic market mainly through major distributors.
On July 8, 1999, THI acquired 100% ownership of Twin Ace via share swap with Twin Ace’s
existing shareholders, Tangent Holdings Corporation. On July 30, 1999, the Philippine Securities and
Exchange Commission (SEC) approved the change in the corporate name of Twin Ace to Tanduay
Distillers Inc. (TDI) and its authorized capital increased from P
= 2.0 million to P
= 2.0 billion at a par value
of P
= 1.00 per share. TDI produces distilled spirits consisting of rum, wine, gin and brandy. Total sales
for 2010 amounted to P
= 11.3 billion while reported sales for 2009 were P
= 10.0 billion. Five Year Rum
brand continued to lead all brands capturing 84% of total sales.
On June 30, 2005, TDI acquired controlling interests in Asian Alcohol Corporation (AAC) and
Absolut Distillers, Inc. (ADI) formerly known as Absolut Chemicals, Inc. (ACI). AAC and ADI are
domestic corporations registered with, the Philippine SEC which are the suppliers of TDI’s alcohol
requirements. AAC is primarily involved in the manufacture of refined and/or denatured alcohol and in
the production of fodder yeast, and to market, sell, distribute, and generally deal in any or all of such
liquids or products. AAC’s principal place of business is in Pulupandan, Negros Occidental. ADI, on
the other hand, is primarily engaged in manufacturing, distilling, importing, exporting, buying, selling or
otherwise deal in chemicals including alcohol and molasses, at wholesale and retail and any and all
equipments, materials, supplies used or employed in or related to the manufacture of such finished
products. ADI’s principal place of business is in Lian Batangas.
In December 2006, TDI converted certain advances to AAC and ADI amounting to P200 million
and P185 million, respectively, into equity in the subsidiaries. This increased TDI’s ownership over
AAC and ADI to 93% and 96% respectively. In October 2007, the Philippine SEC approved ADI’s
equity restructuring. On the other hand, the increase in authorized capital stock of AAC was approved
on January 10, 2008.
In March 2008, TDI bought additional shares in AAC amounting to P 150 million, which increased
TDI’s ownership from 93% to 95%. For purposes of consolidation as of December 31, 2010, the
Company’s ownership over AAC and ADI was 95% and 96% respectively.
Description of Subsidiaries/Investments
The following companies are majority owned by TDI:
•
Asian Alcohol Corporation (AAC) – 95%
AAC is a distillery located in Negros Occidental with a daily rated capacity of 150,000 liters
of fine quality ethyl alcohol. AAC has a distillation process that uses molasses, yeast, water and
other ingredients. It has a ten-hectare plant in Negros, which is the center of the country’s sugar
industry. Plant facilities include aging facilities and a modern wastewater treatment plant, which
converts distillery waste into biogas energy for its power requirements. AAC also has a methane
4
gas capture system that enables it to use the methane generated from distillation as power to fire
up its boilers.
•
Absolut Distillers, Inc. (ADI) – 96%
ADI formerly known as Absolut Chemicals, Inc. (ACI) has a daily rated capacity of 75,000
liters of fine ethyl alcohol located in a nine-hectare distilling plant in Lian, Batangas. The plant
site also houses a water treatment facility, which converts distillery wastes into environmentfriendly form. ADI also sells all of its output to TDI. ADI is upgrading its distillation plant to
enable it increase its production of extra neutral alcohol.
ADI, in a joint venture with Mitsubishi Corporation of Japan, installed a high-rate
thermophilic anaerobic digester and lagoon system that will capture methane from the distillation
process and use it for the plant’s power requirements. This will enable ADI to reduce its power
cost by an estimate of 50% of current consumption levels. The project with Mitsubishi is being
undertaken under the Clean Development Mechanism (CDM) Project of the 1997 Kyoto Protocol
– a UN sponsored program that aims to reduce the emissions into the atmosphere of harmful gases
like methane which emissions are the primary cause of global warming. Under the Protocol,
developed countries are mandated to reduce their carbon emission levels by 2012. As an
alternative compliance mechanism, developed countries may invest in CDM projects in
developing countries like the Philippines. Mitsubishi provided the funding for the project in
exchange for the certified emission reduction (CER) credits to be generated from the project. The
CERs are the alternative compliance mechanisms under the Kyoto Protocol.
The Company, AAC and ADI are collectively referred to hereinafter as the “Group”.
Products
The Group has brands in all major liquor categories – rum, gin, brandy, vodka and whiskey.
The Company’s primary products consist of the following:
•
Tanduay Five Years Fine Dark Rhum - 80 proof - 250ml, 375ml, 750ml
This rhum reflects the hallmark of Tanduay’s rich and lively heritage. The ageing process of
this extra special blend is extended for five long years. As a result, the aged rhum reveals a
lush shade of mahogany and a lasting aroma of sweet nutty smoked flavor.
The brand accounts for 82% of TDIs total sales volume.
•
Tanduay Rhum 65 Fine Dark Rhum 65 proof - 375ml, 750ml
Exuding a well-rounded character with a smooth mellow finish, this exciting dark rhum
exhibits a grand array of flavors that is full-bodied yet with an edge of sweetness on the tail.
•
Tanduay E.S.Q. Fine Dark Rhum - 65 proof - 375ml, 750ml
This extra smooth rhum is expertly blended to obtain a more robust, pronounced flavor, with
just the right amount of sweetness and aroma.
•
Tanduay White Premium Rhum - 72 proof - 375ml, 750ml
Exquisitely blended and flawlessly light, this special rhum is meticulously filtered resulting in
a sparkling clear spirit with a subtle sweet and spicy tang, enhancing any drink it is mixed
with.
•
Tanduay Primiero Ron 8 Anos - 80 proof - 700ml
The Premium Rum. From Tanduay's rare collection of aged spirits reserved for premium
brands, Tanduay's master blender developed this rich blend of varying vintages as long as
eight years, exuding a smooth flavor and a nutty smoky aroma without much woody notes.
5
•
Tanduay Superior Dark Rhum - 80 proof - 750ml
This is considered the “Cognac” of rhum. Aged in oak wood barrels for twelve years, this
superb rhum boasts of a compelling flavor with a hint of smokiness and a long well rounded
finish.
•
Tanduay Rum 1854 - 80 proof - 700ml
Tanduay's rich 150 year history in distilling and blending fine rums is captured in Tanduay
Rum 1854, specially prepared in celebration of Tanduay's 150th year anniversary. It comes
from Tanduay's collection of reserved aged rum, masterfully blended to acquire an aura of
festivity and flavor.
•
Tanduay Centennial Dark Rhum - 80 proof - 1 liter
Exclusive to the Philippine Centennial celebration, this distinctive rhum was produced from
100 carefully selected barrels aged to perfect the bouquet and aroma of a 20-year-old rhum.
•
Barcelona Brandy – 65 proof, 350/700 ml
In 2001, Tanduay entered the fast growing local brandy market by introducing its first brandy
product, Barcelona. Made from the finest ingredients and blended to perfection.
•
London Gin – 80 proof, 375/700ml
Great taste and sparklingly pure, this gin is expertly distilled and packaged with the most
modern methods to suit discriminating tastes worldwide. This is bottled under license from
London Birmingham Distillers, Ltd., London, England.
•
Gin Kapitan – 80 proof, 350ml
Gin Kapitan was produced to address the preferences of local drinkers for strong alcoholic
drinks, particularly in Northern Philippines.
•
Cossack Vodka Red - 80 proof, 350/700 ml
The Pure Spirit. This vodka is treated through carbon and force-filtered in the true Russian
tradition to produce a premium, high quality vodka that captures the spirit of Russian brands.
•
Cossack Vodka Blue – 65 proof , 375/700ml
In 2009, this 65 proof vodka was introduced to address the growing preference by young drinkers for
smooth and easy to drink liquor.
• Embassy Whiskey – 72 proof, 700ml
A smooth, mellow mix of imported malt whiskey and fine spirits that has been skillfully and
meticulously blended together to achieve the character and rich depth of flavour associated
with whiskies aged in oak barrels.
• T5 Light - 60 proof , 700ml
The World’s first Light Rhum. With its superb smoothness and aromatic hints of caramel and
dark sugar, it is ideal straight, “on the rocks” or with a mixer. Ideal for the trendy and young
active set.
•
T5 Extra Strong Rhum - 100 proof , 700ml
The rhum with the bold taste, extra strength but is still smooth and easy to drink, robust
without being intimidating, vibrant without being aggressive.
Currently, sales of TDI are still predominantly domestic. Export sales comprise approximately 1%
of total sales, mostly coming from the Company’s distributor in Hong Kong and Malaysia.
Distribution method of the products
The Company serves more than 170,000 retail and wholesale sales outlets throughout the
Philippines through 4 exclusive distributors for its liquor products and direct sales by the Company’s
6
sales staff to wholesalers and retailers. These 4 distributors have been with the Company since 1988.
The Company’s distributors operate 21 sales offices and 52 warehouses located throughout the
Philippines. The Company generally contracts with third parties for transportation services, thereby
minimizing overhead expenses such as maintenance of vehicles and employment of laborers. In
addition, this enables the Company to service a large portion of its market through various distribution
channels.
Status of any publicly-announced new product or services
In 2009, TDI successfully launched Cossack Blue through the “Sarap Straight Up” advertising
campaign. The brand’s main feature is its clear, crisp and smooth qualities that mixing would be
unnecessary to any drinks. In addition, TDI also launched its newest and premier whiskey brand,
Embassy Special Blended Whiskey. It is a smooth mix of imported malt whiskey and the finest selected
spirits that have been skillfully and meticulously blended to achieve the character and rich depth of
flavor associated with whiskies aged in oak barrels. Last quarter of 2010, two new products were
launched, Tanduay Extra Strong Rhum (50%/100 proof) and T5 Light (30%/ 60 proof). With the
introduction of these new products, the house of Tanduay has now a complete range of products that
cover every facet of the ever-growing alcohol market.
Competitive business condition/position in the industry
Rum is one of the biggest product categories in the distilled spirits industry, accounting for 28% of
industry sales. In this segment, TDI has established itself as the undisputed market leader, capturing over
95% of rum sales and possessing a 30% market share in the local distilled spirits industry. On the global
stage, TDI rhum is second to Bacardi of Puerto Rico in sales volume despite catering primarily to the
Philippine market. Currently, sales of TDI are still predominantly domestic. Export sales comprise
approximately 1% of total sales, mostly coming from the Company’s distributor in Malaysia.
TDI’s sales come mostly from the Visayas and Mindanao area where it is the most dominant liquor
seller. The Company’s major competitors are Ginebra San Miguel, Inc. (GSMI), maker of gin and
brandy products, which dominate the Luzon area capturing an estimated 50% market share in distilled
spirits industry and Emperador Distilers, Inc. (EDI) which has an estimated 16% market share.
Tanduay’s market strength is its 156 years corporate history which make it a part of the country’s sociocultural heritage and 148 awards in product excellence given by various international award givingbodies like the Monde Selection.
TDI’s distillery subsidiary, AAC is one of the top producers of potable ethyl alcohol in the country
until its operational shutdown in 2009. ADI on the other hand hold the distinction as the only alcohol
producer that started the liquid fertilization program in 1999, a method of wastewater treatment wherein
ADI was able to convert the liquid waste into liquid fertilizer, it became a treatment of choice of the
National Biofuel Law. ADI is the first company in the Philippines in the private and manufacturing
sector to have been registered a Clean Development Mechanism (CDM) Project No.0504 in partnership
with Mitsubishi Corporation of Japan last October 1, 2006 by the United Nations Framework
Convention on Climate Change (UNFCCC) and on December 16, 2009. It was chosen and awarded by
the DENR as one of only 8 companies with their seal of approval for qualifying under Track 1 Category
of the Phil. Environment Partnership Program for its superior environmental laws, rules and regulations.
ADI was declared the winner of the "Success Story Award" last April 28-30, 2010 at the Pollution
Control Association of the Philippines, Inc. (PCAPI) 30th National Annual Convention held in Puerto
Princesa, Palawan. Just recently, the Environmental Management Bureau of the DENR disclosed the
results of validation with regard to the implementation of the "Revised Industrial Ecowatch System
Amending Implementing Guidelines of DAO 51 Series of 1998". Based on their assessment and
validation, ADI was given another "Green" (Very Good) rating for the second time in a row (2008 &
2009). Another distinction was given on February 26, 2010 for being the first Philippine Distillery to be
awarded the Presidential Certificate of Recognition for exemplary environmental undertakings.
7
Raw Materials and Principal Suppliers
Principal raw materials in the rum production process are the following:
1. Alcohol: The most important raw material in rum is the distilled alcohol, which is derived
from molasses – the by-product of the sugar milling process. The Company obtains most of its
distilled alcohol from its two subsidiaries – AAC and ADI. Alcohol is delivered directly to the
plant by tanker. Quality of alcohol is being checked prior to acceptance. Alcohol accounts for
35% of product cost. Specific tax on alcohol is presently at P 14.68 per proof liter and
accounts for 20% of the total cost. The tax is generally included as part of the cost charged by
the alcohol supplier. With the temporary shutdown (please refer to page 16 / Legal
proceedings) of AAC’s operations, TDI increased its importation of alcohol from Pakistan,
Thailand & Indonesia.
The distillery companies obtain their molasses from sugar mills and traders. Major suppliers
are Victorias Milling Co., Binalbagan Sugar Company and Tate & Lyle Corp.
2. Sugar: Victorias Milling Co., Inc. is the primary supplier of its refined sugar requirements.
3. Water: The plants use significant amounts of demineralized water for blending liquor
products. The water is supplied by the local utility. Each of the plants has its own water
storage and demineralization facilities.
4. Flavoring Agents: Essences and other flavoring agents are used in the production of rum.
The major supplier is International Flavors, which supplies 75% of the Company’s
requirements.
5. Bottles: The Company’s liquor products are bottled in glass bottles, which are manufactured
by its affiliate, Asia Brewery. Glass bottles account for approximately 25% of cost of goods
sold for the Company’s products. The cost is managed in part by recycling the bottles.
The Company maintains a network of secondhand bottle dealers across the nation who
retrieves the bottles from the market and sells them back to the Company. The cost of
reprocessing the bottles is 50% lower than the cost of purchasing new bottles.
6. Caps: All products are sealed with tamper-proof resealable aluminum caps, which average
3% of total product cost. Main supplier of caps is Lapu-Lapu Packaging Corporation. The
aluminum closure sheets being used by the main supplier in the manufacture of caps is being
imported from Italy.
7. Labels: Major suppliers of the labels being used by the Company is Parity Packaging
Corporation, which uses imported base coated paper as its main raw material. Label cost
accounts for 1% of product cost.
There are no long-term purchase commitments as purchases are made through purchase orders
on a per need basis from a list of accredited suppliers.
Dependence on one or two major customers
TDI has a large network of wholesale customers all over the Philippines through its four (4)
major distributors. TDI has been dealing with these distributors for over 20 years and there had been no
major problems encountered with them. Distributors have a wide network covering around 170,000
wholesale and retail outlets and are not dependent on a few customers only. AAC and ADI sell majority
of its alcohol to TDI. AAC sells its entire production output to TDI. Although TDI buys most of its
alcohol from AAC and ADI, it has a network of secondary suppliers locally and abroad.
8
Transactions with and/or dependence on related parties
Please refer to Note 18 of the Notes to Consolidated Financial Statements for the significant
transactions with related parties.
Patents, trademarks, licenses, franchises, concessions, royalty agreements or labor contracts
All product names, devices and logo being used by the Company are registered with or are covered
by pending Application for Registration with the Intellectual Property Office.
The Group also has current Environmental Compliance Certificate issued by the DENR and a
license to operate from the Bureau of Foods and Drug. All products currently being produced are
registered with the Bureau of Food and Drug and the BIR.
Product
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
Duration of Registration
Tanduay 5 yrs
Tanduay Rhum Dark
Tanduay Rhum ESQ
Tanduay Rhum 65
Tanduay White Rhum
Premium Dry London Gin
Barcelona Brandy
Cossack Vodka
Gin Kapitan
Ban De Vendange Red Wine
Chardon Blanc White Wine
Cuvee De La Californie Wine
Cossack blue
Embassy Whiskey
Vino Agila
T-5 light
Tanduay Extra Strong Rhum
- five years
- five years
- five years
- five years
- five years
- five years
- five years
- five years
- five years
- five years
- five years
- five years
- two years
- two years
- two years
- two years
- two years
The Group has an existing agreement with London Birmingham Distillers, Ltd. London, England for
the use of the Barcelona and London Gin brands.
The Group has existing labor supply contracts with seven (7) manpower agencies and one (1) labor
cooperative covering its four plants.
Need for any government approval of principal products
The approval of the Bureau of Food & Drugs and Bureau of Internal Revenue is required before
manufacturing a new product. In addition, all new products must be registered with the BIR prior to
production.
Effect of existing or probable governmental regulations on the business
Increase in value-added and excise taxes will affect manufacturing costs, which may require an
increase in selling prices. Higher selling prices can lower volume of sales.
The foreign alcohol market, coupled with new technologies on alcohol production and lower tariffs,
can make the price of imported alcohol cheaper than those produced locally.
With comprehensive review of the Clean Water Act Law through its Implementing Rules and
Regulations (IRR), the government had recognized and exempted distilleries with liquid fertilization
program from the mandatory discharge fees.
9
Research and development activities
Amount
2008
2009
2010
% to Revenues
10,882,822
8,710,676
9,757,240
.12
.09
.08
Costs and effects of compliance with environmental laws
The Group has wastewater treatment facilities in all its plants. In order to maintain said facilities,
additional costs for labor, chemicals, and power supply are being charged to overhead expenses. The
plants also have a permit to operate from the DENR.
On October 26, 2010, the Laguna Lake Development Authority (LLDA) issued an Ex-Parte cease
and Desist Order against Cabuyao Plant. This is in relation to the fire that hit TDI’s Cabuyao plant and it
was alleged that the fish kill incident in the area was due to the alcohol spill brought about by the fire.
TDI submitted short and long-term pollution measures for pollution management and a
memorandum of agreement on Adopt-A-River project between LLDA and TDI was signed on
November 26, 2010. After LLDA reinspected the TDI Cabuyao Plant on December 1, 2010, LLDA
declared that the plant is now safe for operation. Temporary Lifting Order was issued by the LLDA on
December 2, 2010.
Last November 27, 2007, TDI, ADI and Japan’s Mitsubishi Corp. signed a Clean Development
Mechanism (CDM) Project Agreement. Under this agreement, Mitsubishi Corp. will bankroll the
construction of a “high-rate” thermophilic anaerobic digestor and covered lagoon to capture methane gas
from the wastewater generated at ADI’s plant in Lian, Batangas. The project was being undertaken
under the Kyoto-Protocol – A United Nations –sponsored program that aims to reduce the emission of
greenhouse gases to the atmosphere.
ADI has been given various awards from different award giving bodies for its exemplary
contribution in environmental undertakings.
Human Resources and Labor Matters
Total number of employees and number of full time employees as of December 31, 2010:
Administrative
Regular monthly
Regular daily
Contractual
Total
TDI
218
207
974
1,399
AAC
4
8
7
19
ADI
36
27
63
TOTAL
4
262
241
974
1,481
TDI
Except for the Cagayan De Oro Plant, all daily employees of the TDI Plants have separately formed
a labor union. The Regular Daily Employees of TDI-Quiapo plant (154 employees) is under a collective
bargaining agreement (CBA), which expired on March 04, 2011 and is currently under negotiation.
There were no strikes or labor disputes in the past three (3) CBA’s. Daily employees of Cabuyao (48
employees) are covered by a CBA, which took effect in August 2008 for a period of three years. The
CBA for the daily employees union at the Negros Plant is currently in the negotiation phase.
AAC
10
The CBA of AAC for its regular monthly and daily employees expired on December 20, 2005. A
new CBA, which is good for five years, was signed on May 3, 2006. There has been no strike since
AAC was incorporated in 1973. AAC had a retrenchment program in September and October 2009 as a
result of the temporary shut down of its operation.
In June 2009, Asian Alcohol stopped its operations in view of the disruption of the water supply
system when the water pipe line to the plant was damaged allegedly during a road improvement project
of the municipality. Earlier, local residents barricaded the Plant in protest over the pollution allegedly
being caused by AACs operations. The barricades were subsequently lifted when AAC was able to
obtain a Temporary Restraining Order (TRO) from the local court. However, AAC could not resume
operations as the local government has not yet issued a permit to repair the damaged water facilities. As
a consequence, AAC embarked on a retrenchment program in 2009 and 2010 to minimize losses. As of
December 31, 2010, 47 employees were separated.
ADI
The CBA of ADI for its regular daily employees was renewed last May 2010 and will expire on
April 30, 2015. The last strike took place on June 4, 1998.
TDI and ADI expect to maintain its average number of employees in the next twelve months while
AAC expects to hire new employees when it resumes normal operations.
There are no supplemental benefits or incentive arrangements that the Group has or will have with
its employees.
Major risk/s and Procedures Being Taken to Address The Risks
Market / Competitor Risk
The Company’s principal customers for its products are individuals in the lower income brackets
comprising over 80% of the Philippine population and account for 66% of domestic liquor
consumptions. The preferences of these consumers change for various reasons driven largely by
demographics, social trends in leisure activities and health effects. Entrants of new competitive and
substitute products to address these customers’ preferences may adversely affect the business
prospects of the Company if it does not adapt or respond to these changes.
In addition, the market of the Company is highly sensitive to price changes given the low
purchasing power and disposable income of their customers. Any adverse change in the economic
environment of the Philippines may affect the purchasing power of the consumers and adversely affect
the Company’s financial position and performance.
The Company responds to customer preferences by continuing to monitor market trends and
consumer needs to identify potential opportunities. Its existing product portfolio covers all major
liquor category and price range enabling it to respond quickly to any change in consumer preference.
Development of new products and brands is continuously being undertaken to address the current and
emerging requirements of the customers.
Raw Material Supply Risk
The major raw material of the Company is molasses which comprises 18% of its cost of goods
sold. A shortage in the local supply of molasses and the volatility in its price may adversely affect the
operations and financial performance of the Company.
The Company addresses this risk by regularly monitoring its molasses and alcohol requirements.
At the start of each annual sugar milling season, the Company normally negotiates with major sugar
millers for the purchase in advance of the mill’s molasses output at agreed upon prices and terms. It
11
also imports raw materials in the event that the local supply is not sufficient or the prices are not
favorable. Furthermore, Parent company, Tanduay Holdings, Inc. (THI) owns a 10% stake in Victorias
Milling Company, Inc. (VMC), the largest sugar producer in the Philippines and currently the
Company’s major supplier of molasses. Together with PNB, the Lucio Tan Group of Companies
(LTGC) owns 25% of VMC.
In addition, the acquisition of AAC and ADI was designed to control alcohol cost and minimize
the chances of shortage in supply. Adequate storage facilities have been constructed to enable the
Group to buy and stock molasses at a time when sugar centrals are at their production peaks. To
address any disruption in supply from AAC and ADI, the Group maintains a network of local and
foreign alcohol suppliers.
Credit Risk
The Group relies on four (4) exclusive distributors for the sales of its liquor products. Any
disruption or deterioration in the credit worthiness of these distributors may adversely affect their
ability to satisfy their obligations to the Group.
The operations and financial condition of distributors are monitored daily and directly supervised
by the Group’s sales and marketing group. Credit dealings with these distributors for the past twenty
years have been generally satisfactory and the Group does not expect any deterioration in credit
worthiness. The four distributors also a have a wide range of retail outlets and there are no significant
concentration of risk with any counterparty.
Trademark Infringement Risk
The Company’s image and sales may be affected by counterfeit products with inferior quality. Its
new product development efforts may also be hampered by the unavailability of certain desired brand
names. The Company safeguards its brand names, trademarks and other intellectual property rights by
registering them with the Intellectual Property Office in the Philippines and in all countries where it
sells or plans to sell its products. Brand names for future development are also being registered in
advance of use to ensure that these are available once the Company decides to use them. Except for its
sister company, the Company also does not license any third party to use its brand names and
trademarks.
The risk of counterfeiting is constantly being monitored and legal action is undertaken against any
violators. The use of tamper proof caps is also seen as a major deterrent to counterfeiting.
Regulatory Risk
The Company is subject to extensive regulatory requirements regarding production, distribution,
marketing, advertising and labeling both in the Philippines and in the countries where it distributes its
products. Specifically in the Philippines, these include the Bureau of Food and Drugs, Department of
Environment and Natural Resources, Bureau of Internal Revenue and Intellectual Property Office.
Decisions and changes in the legal and regulatory environment in the domestic market and in the
countries in which it operates or seeks to operate could limit its business activities or increase its
operating costs. The government may impose regulations such as increases in sales or specific taxes
which may materially and adversely affect the Company’s operations and financial performance.
To address regulatory risks like the imposition of higher excise taxes, the Company would employ
an increase in its selling prices and make efforts to reduce costs. Other regulatory risks are managed
through close monitoring and coordination with the regulatory agencies on the application and renewal
of permits. The Company closely liaises with appropriate regulatory agencies to anticipate any potential
problems and directional shifts in policy. The Company is a member of the Distilled Spirits Association
of the Philippines which acts as the medium for the presentation of the industry position in case of major
changes in regulations.
12
It is the policy of the Company to comply with existing environmental laws and regulations. A
major portion of its investment in physical facilities was allocated to environmental protection systems
which have been favorably cited as compliant by the environmental regulators.
Item 2. Properties
TDI has four (4) liquor bottling plants located in the following areas:
1.
2.
3.
4.
Quiapo Plant – 348 J. Nepomuceno St., San Miguel District, Manila
Cabuyao Plant – Brgy. Sala, Cabuyao, Laguna
Bacolod Plant – Barangay Blumentritt, Murcia, Negros Occidental
El Salvador –Plant – El Salvador, Misamis Oriental
The lands owned by TDI are located in the following areas:
1. Quiapo, Manila – Plant
2. Lanang, Davao – Being leased out
3. Talisay, Negros – For bottle sorting
TDI does not own the lots of its Cabuyao and Bacolod Plants and its warehouses. All equipments
however are owned by TDI.
The following are the leased properties of TDI:
Location
Cabuyao
Cabuyao
Cabuyao
Quiapo
Paco
Paco
Paco
Sucat
Murcia, Negros
Calaca Batangas
Bacolod
Cabuyao
Cabuyao
Cagayan de Oro
Nature Amount per month
Plant
P 172,931
=
Plant
53,735
Plant
600,787
Gym
66,550
Warehouse
829,555
Warehouse
687,374
Warehouse
435,699
Warehouse
420,482
Plant
300,000
Warehouse
493,155
Warehouse
459,271
Washing
279,670
Washing
594,293
Plant
79,860
Expiry*
12/31/2010
12/31/2010
12/31/2010
05/31/2010
02/28/2014
12/31/2010
12/31/2010
12/31/2010
09/30/2010
05/15/2011
02/01/2011
12/31/2010
12/31/2010
12/31/2010
* The leases are subject to automatic renewal options every year except for the Paco
warehouse, which is renewable every 15 years (expires on February 28, 2014 but preterminated
on May 31, 2010).
The plant and equipment are located at the following areas:
Location
Quiapo plant
Cabuyao plant
Bacolod plant
El Salvador plant
Condition
In good condition
In good condition
In good condition
In good condition
On October 14, 2010, one of the Company’s compounding facilities located at its Cabuyao Plant
was destroyed by fire. The said warehouse contained the plant’s storage tanks containing raw alcohol
13
and compounded liquor. The Plant was able to resume operations in December 2010. The estimated
loss was P 228 million.
The El Salvador Plant officially started operations in January 2008. There are no expected major
acquisitions for 2010 as the various machineries and equipments for the El Salvador Plant have already
been acquired.
AAC has its distillery plant at Pulupandan, Negros Occidental and owns the buildings, machinery
and equipment and other structures in it. AAC has alcohol and molasses storage facilities at
Pulupandan, Cebu and North Harbor, Manila. Office furniture and fixtures and office equipment are
found in Bacolod, Pulupandan and Manila. Lands owned by AAC are located in Pulupandan and Cebu.
The Plant and equipment located in Negros plant and the storage facilities are all in good condition.
ADI on the other hand, owns a distillery plant in Lian, Batangas. All transportation equipments
owned by ADI are in good condition. There are no mortgages or lien or encumbrance over the
properties and there are no limitations as to its ownership and usage.
TDI and its subsidiaries have the following investment properties:
TDI
ADI
AAC
AAC
AAC
AAC
Location
Type of Property
Makati City
Makati City
Talisay Batangas
Tanza Cavite
Tanza Cavite
San Mateo Rizal
Condominium unit
Condominium unit
Land
Land
Land
Land
Item 3. Legal Proceedings
•
TDI
In the ordinary course of business, TDI is contingently liable for lawsuits and claims, which are either
pending with the courts or are being contested, the outcomes of which are not presently determinable. In
the opinion of the Group’s management and legal counsel, the eventual liability under these lawsuits and
claims, if any, would not have a material or adverse effect on the Group’s financial position and results
of operations.
To date, the pending legal proceedings to which TDI is a party thereto is the P
= 100 million civil
infringement suit filed against TDI last August 2003 by Ginebra San Miguel, Inc. (GSMI) for the
launching of Ginebra Kapitan, a gin product which allegedly has a “confusing similarity” with GSMI’s
principal gin product. On September 23, 2003, the Mandaluyong Regional Trial Court (RTC) issued a
TRO preventing TDI from manufacturing, selling and advertising Ginebra Kapitan.
On November 11, 2003, the Court of Appeals issued a 60-day TRO versus the Mandaluyong RTC,
effectively allowing TDI to resume making and selling Ginebra Kapitan. The Court of Appeals however
subsequently affirmed the Mandaluyong RTC TRO on January 9, 2004. On January 28, 2004, the
Company filed a motion for reconsideration with the Court of Appeals. The Court of Appeals denied the
TDI motion for reconsideration on July 2, 2004. On Dec. 28, 2004, TDI then filed a petition for review
on certiorari before the Supreme Court. On Aug. 17, 2009, the Supreme Court reversed the decision of
the Court of Appeals and nullified the writ of preliminary injunction issued by the Mandaluyong RTC.
GSMI filed a motion for reconsideration but the Supreme Court denied the GSMIs motion with finality
on Nov. 25, 2009.
While the injunction on the use by TDI of the brand name Ginebra Kapitan has been lifted, the trial of
the infringement suit is still ongoing.
14
On August 9, 2006, GSMI also filed an opposition to TDIs application for registration of the brand
name Ginebra Kapitan with the Intellectual Property Office (IPO). The Bureau of Legal Affairs of the
Intellectual Property Office (IPO) ruled on April 23, 2008 that the word “GINEBRA” is a generic term
that is not capable of exclusive appropriation. The decision paves the way for the registration with the
IPO of our brand name “GINEBRA KAPITAN”.
On May 29, 2008, TDI’s legal counsel filed a manifestation case for the consideration of the IPO
ruling in the pending cases regarding the GINEBRA brand name at the Mandaluyong RTC.
On March 4, 2009, the IPO denied GSM’s motion for reconsideration but the latter filed its appeal
memorandum on April 7, 2009. TDI on the other hand filed its comment on said appeal last May 18,
2009. TDI received a copy of the Supreme Court’s Resolution dated November 25, 2009 on January
5, 2010 denying San Miguel’s motion for reconsideration with finality meaning they cannot file
another motion for reconsideration. The Supreme Court ruled that there was no basis for the issuance
of the injunction restraining Tanduay from using GINEBRA KAPITAN as a trademark for its gin
product.
As of December 31, 2010, the trial of the main case in the Regional Trial Court of Mandaluyong is
still ongoing.
•
AAC
1.
On July 22, 2008, the DENR issued a Cease and Desist Order (CDO) against AAC upon the
recommendation of the Pollution Adjudication Board (PAB) for failure to meet the effluent
standards. AAC filed a Motion for a Temporary Lifting Order (TLO) on August 4, 2008 in which
AAC committed to implement immediate and long term remedial measures until August 2011.
On August 8, 2008, the PAB issued a TLO to AAC for purposes of allowing AAC to operate and
implement the committed remedial measures. The said TLO was subsequently extended for
successive 3-month periods based on the favourable results of PABs inspection and samplings of
the wastewater discharged (effluents) by the AAC plant.
In May 2009, the residents of Pulupandan complained to the local government on the alleged
pollution being caused by AACs operation on the marine and aerial environment. The roads to the
Plant were barricaded and some portions of the road were dug up to prevent access to the Plant.
AAC was able to obtain a court TRO to lift said barricades.
On June 1, 2009, the water pipeline to the AAC Plant was damaged allegedly during a road
improvement project. This forced AAC to temporary stop its operations as water is a necessary
element in its operations. The local government openly supported the protests of the residents and
on September 8, 2009, the town’s Environment Officer recommended to the town mayor the
permanent closure of AAC.
In the meantime and while the protests were ongoing, the existing TLO of AAC expired on June
16, 2009. AAC filed for a renewal of the TLO and this time AAC requested for a one-year validity
of the TLO. The Regional Office of the PAB favourably endorsed said application to the PAB
Head Office. The PAB Head Office issued a TLO in favour of AAC initially for a period of two
months to enable it to repair its damaged water pipeline in order that AAC can resume operations
and that the PAB can perform inspections and samplings of it effluent as a basis for acting upon
AACs motion for a one-year TLO.
2. On August 25, 2010, AAC received a Notice of Assessment from the Provincial Assessor
of Negros Occidental representing deficiency realty taxes for the period 1997 to 2009
totaling P 264 million. On September 24, 2010, AAC formally protested the assessment
and asked for the cancellation of the assessment on the following grounds:
1. The period to assess real property taxes for the years 1997 to 2004 has already
prescribed;
15
2. The assessments covering 2005 to 2009 are void and of no legal effect because it
covers properties beyond the territorial jurisdiction of the province of Negros
Occidental;
3. The value of AAC’s properties indicated in the audited financial statements,
which was made the basis in determining the assessed value included properties
of AAC located in Manila and Cebu;
4. The notice of assessment covered anti-pollution machinery and equipment or the
biogas plant which are exempt by law from taxation;
5. The notice did not follow the legal mandate in determining assessed values.
As of the date of the report, the AAC protest is still being pending with the Local Board of
Assessment.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal
year covered by this report.
PART II - OPERATIONAL AND FINANCIAL INFORMATION
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) Market Price of and Dividends on Registrant’s Common Equity and Related Stockholder Matters.
1. Market Information
The Company’s and its subsidiaries’ common shares are not publicly traded and are not listed in
any public market and/or exchanges.
2. Holders
The number of shareholders of record as of December 31, 2010 was 8. Common shares outstanding
as of December 31, 2010 were 960,000,000 shares. The stockholders as of December 31, 2010 are as
follows:
Stockholder's Name
No. of Common Shares Held
% to total
Tanduay Holdings, Inc.
Lucio C. Tan
Harry C. Tan
Lucio K. Tan Jr.
Domingo T. Chua
Wilson T. Young
Peter P. Ong*
Carlos R. Alindada*
Total
959,999,986
2
2
2
2
2
2
2
960,000,000
100%
0%
0%
0%
0%
0%
0%
0%
100%
*Independent directors elected since December 2009
TDI has no preferred shares.
3. Dividends
16
a.) Dividend declarations
On a meeting held February 19, 2008, TDI declared and distributed cash dividends of P
= 0.50
per share to THI. On March 24, 2009, TDI declared cash dividends of P
= 0.50 per share (totaling
= 300 million).
P
On February 23, 2010 the board of directors of TDI approved the declaration and
distribution of stock dividends amounting to P 360 million, which is equivalent to 60% of the
TDI’s outstanding capital stock. On May 05, 2010 the stockholders of TDI authorized the
declaration of the said stock dividends for all stockholders of record as of June 2, 2010 to be
paid not later than June 29, 2010.
On March 22, 2011 meeting of TDI, the board of directors approved the declaration and
distribution of cash dividends of P
= 0.45 per share to all stockholders of TDI as of Mar 31, 2011
to be paid immediately.
b.) Restrictions that limit the ability to pay dividends on common equity or that are likely to
happen in the future.
“Dividends shall be declared and paid out of the unrestricted retained earnings which shall be
payable in cash, property, or stock to all stockholders on the basis of outstanding stock held by
them, as often and at such times as the Board of Directors may determine and in accordance
with law and applicable rules and regulations.” (Article VII Sec. 3 By-Laws)
4. Recent Sales of Unregistered Securities (For the Past Three Years)
There was no recorded sale of unregistered securities during the past three years.
PART III – FINANCIAL INFORMATION
A. MANAGEMENT DISCUSSION AND ANALYSIS (MD&A)
ITEM 6. Management’s Discussion and Analysis or Plan of Operation
I. RESULTS OF OPERATIONS
Comparisons of key operating results for the last two years are summarized in the following tables.
2010
(In millions)
Net Sales
Cost of sales
Operating expenses
Other charges-net
Income before income tax
Net income
2009
= 11,497
P
8,871
1,155
669
802
634
= 10,202
P
8,342
748
364
748
543
2010 vs 2009
TDI posted a consolidated net income of P634 million for the period ended December 31, 2010,
higher by 17% from the 2009 net income of P543 million. Despite the very challenging year, the
Company still managed to improve its performance by increasing its net sales by 13%. This can be
attributed to the increase in sales volume by 7.5% and the increase in selling prices in February and
October 2010 by an average of 5%. Cost of goods sold increased by 6% as alcohol cost increased by 9%
17
and the cost of brand new bottles by 13%. Gross profit rate increased from 18% to 23% or an
improvement of 5%.
Operating expenses is higher by 54% which can be attributed to the increase in general and
administrative expenses by 110% due to higher management fees and increased depreciation expenses of
AAC due to change in estimated useful life of its PPE. Selling expenses grew by 14% due to the
aggressive tri-media advertising campaign of new products and the promotional tours for Tanduay Five
Years brand highlighted by a nationwide concert by 5 popular bands also known as “ Tanduay’s First
Five”.
Other income (charges) account increased by 84%. Although interest expense for the year decreased
due to the refinancing of bank debts through the issuance of the P5 billion fixed-rate retail bonds with
lower interest rate, this was offset by the increase in prepayment penalty as a result of the pretermination of TDI’s syndicated loan and lower interest income by 37%. Provision for the fire loss of
P228 million arising from Cabuyao plant fire in October 2010 also increased other charges by 398%.
2009 vs 2008
Amidst the global economic crisis and natural calamities which resulted in the decline of the
country’s domestic agricultural sector by 2.8% in 2009, Tanduay still managed to post a consolidated net
sales of P 10.2 billion for the period ended December 31, 2009, which is higher by 13% from the
previous period’s of P 9.0 billion.
As sales volume grew by only 3%, compared to the 14% growth last year, the increase in sales can
be primarily attributable to the increase in selling prices by an average of 10% in 2009. Cost of goods
sold increased at a slower rate of 10% thus enabling gross profit rate to improve from 16% to 18%. The
increase in cost is primarily due to the 8% increase in excise tax, higher cost of alcohol, packaging
materials and manufacturing overhead.
Consolidated net income amounted to P543 million, an increase of 193% from last years’ figure of
P186 million. Apart from the increase in operating income by 41%, this was also on account of the P115
million gain on changes in fair values of investment properties recognized as part of other income.
Interest expense increased by 7% due to the short-term loans availed during the period. An
impairment loss on property, plant and equipment amounting to P50.6 million was also recorded as a
result of the temporary shutdown of AAC’s operations. There was also a drop in foreign exchange gain
by 101% as the exchange rates did not significantly fluctuate in the current period compared to the
previous year. Interest income decreased by 74% since the 2008 figures included interest income from
advances to THI.
Total operating expenses increased by 11% on account of higher selling expenses and general and
administrative expenses, which both increased by 11%. The increase in selling expenses was due to
higher advertising and promotion expenses as a result of Tanduay’s ongoing activities in celebration of
its 155 year-anniversary in 2009. One of the highlights of the celebration was the launching of the
biggest nationwide concert last March 2009, which ran until December 2009 and participated in by the
country’s top 5 most popular bands. This marketing effort was geared towards attracting the young
drinkers. TDI also launched a new product called “Cossack Blue” in August 2009.
The effect of the other comprehensive income particularly revaluation increment of property, plant
and equipment and the changes in fair value of AFS financial assets coupled by the increase in
consolidated net income led to the increase in total comprehensive income by 710% from P 79 million in
2008 to P643 million in 2009.
2008 vs 2007
TDI’s consolidated net sales for 2008 amounted to P 9.0 billion or an increase of 18% from P 7.6
billion in 2007. Despite the global financial turmoil in the second half of the year, TDI still managed to
18
post growth in sales volume by 14% as a result of the favorable economic performance in the Southern
Philippines. The impressive growth can also be attributed to the all year round advertising and
promotional campaigns, which pushed brand awareness and patronage to TDI’s liquor products. On the
other hand, the opening of TDI’s new production facility in Cagayan de Oro, Misamis Oriental also
contributed to the sales growth. This made Tanduay products more accessible and readily available in
the Mindanao region. The Cagayan de Oro plant has served 50% of the region’s requirement for 2008.
Cost of goods sold increased by 25% and gross profit rate dropped by 5% from 21% in 2007 to 16%
in 2008. This is on account of the higher cost of imported alcohol, packaging materials like brand new
bottles, and manufacturing overhead as a result of higher fuel operating costs and the depreciation of the
plant facilities in Cagayan de Oro.
Total operating expenses decreased by 10% on account of lower selling expenses, which decreased
by 14%. TDI spent more in its various promotional and advertising activities in 2007, which positively
resulted in the growth of liquor sales in 2008 despite the lower advertising expenses. TDI also focused in
the implementation and enhancement of its various Quality Improvement Programs so as to respond to
the preferences of customers and enabling it to maintain market leadership.
Other charges-net of other income, resulted in an increase of 13%. This is due to the decrease in
interest income by 58% as a result of lower money market placements as compared to the previous year.
Foreign exchange transactions resulted in a gain of P 56 million which is a reversal of the previous
years’ loss of the same figure as the peso to dollar exchange rate appreciated in value from P 41.28 as of
December 31, 2007 to P 47.52 as of December 31, 2008. TDI’s interest expense increased by 12% as a
result of the additional P 500 million short term loans availed in October and December 2008. The
impairment loss of AFS financial assets and property, plant and equipment was due to the decline in
value of TDI’s investment in debt securities and the impairment loss as a result of the revaluation of
AAC’s land, land improvements, building and building improvements and machinery and equipment.
Consolidated net income decreased by 40% from 308 million in 2007 to P 186 million in 2008
II. FINANCIAL CONDITION
2010
Tanduay’s consolidated assets as of December 31, 2010 amounted to P12.2 billion, higher by 11%
from P11 billion in 2009. Current ratio increased to 4.8 as compared to 3.8 in December 2009. The
improvement in current ratio can be attributed to the increase in cash by 67%, receivables by 10%,
inventories by 28% and prepayments and other current assets by 6%.
Increase in cash and receivables are mainly due to the increase in sales while the increase in
inventories is due to the increase in production volume and increase in alcohol purchases due to
favorable prices from external suppliers. The increase in prepayments and other current assets by 6% is
primarily due to higher input vat from TDI and ADI’s construction in progress.
Property plant and equipment decreased by 13% which can be attributed to accelerated depreciation
expenses on AAC’s assets as a result of the shutdown. Investment properties increased by 12% as a
result of higher fair value of land and condominium units owned by the group.
Total liabilities increased by 10%. This is on account of higher trade purchases which increased by
36% due to increase in production volume and the issuance of a P5 billion retail bonds in February 2010
to mature in 2015 at 8.055% interest p.a. proceeds of which were used in paying the P4.2 billion
syndicated loan of TDI. Short term bank loans were also paid during the year. The decrease in net
retirement benefits liabilities by 20% was due to payment of retirement liabilities by AAC and TDI .
Issued Capital stock increased by 60% as a result of the stock dividends declared by the board of
directors on February 23, 2010 and approved by the stockholders on May 5, 2010. This is equivalent to
60% of the Company’s authorized capital stock.
19
2009
TDI’s consolidated total assets as of December 31, 2009 amounted to P 11 billion. Current ratio
increased to 3.8 in December 2009 from 2.8 in December 2008. The increase in current ratio is on
account of the decrease in current liabilities by 27% due to the payment of short-term bank loans, which
decreased by 43% and the decrease in accounts payable and accrued liabilities by 22% due to payment
of various accounts. Income tax payable on the other hand increased by 2091% in relation to TDI’s
accrual of tax liability for the taxable year 2009. There was also a slight decrease in total current assets
by 2% which is on account of lower inventories by 16% as a result of higher material consumption. Cash
and cash equivalents increased by 8% due to the improvement in TDI’s collections during the period.
Receivables also increased by 34% on account of higher sales which increased by13%.
Available-for-sale investments decreased by 82% due to TDI’s disposal of its US dollardenominated government and corporate bonds in May and November 2009. Property, plant and
equipment at appraised values-net decreased by 5% due to the depreciation of the plant facilities in
Cagayan De Oro while the property, plant and equipment-cost increased by 13%. This can be attributed
to the various construction projects of TDI, AAC and ADI in line with their expansion projects. ADI’s
on-going construction and installation of the Clean Development Mechanism (CDM) project is in
partnership with Japan’s Mitsubishi Corporation. This also increased the deposit for future certified
emission reduction by 76% due to the advances made by Mitsubishi Corporation in accordance with
their agreement.
Investment properties increased by 216% on account of the increase in appraisal value of the
Group’s land and condominium units. Other noncurrent assets decreased by 42% on account of AAC’s
non-performing loans which were reclassified to other receivables. A portion of these non-performing
loans were contributed to AAC’s retirement fund.
Significant changes in the equity account were the net changes in fair values of available-for-sale
investments that improved by 110%, which is due to disposal of AFS with negative change in fair
values. The increase in retained earnings by 19% was due to the income reported during the period.
2008
Tanduay’s consolidated total assets amounted to P11.1 billion as of December 31, 2008, an increase
of 9% from the previous years’ P10.2 billion. Current ratio dropped to 2.8 in 2008 as compared to 5.4 in
2007. Items affecting the current ratio were the decrease in cash and cash equivalents by 33%,
prepayments and other current assets by 17% and increase in inventories by 26%.
The decrease in cash and cash equivalents was due to payments made to various suppliers on
account of bigger production to meet higher demands and interest expense on TDI’s syndicated loan.
The decrease in prepayments and other current assets was due to the reclassification to property plant
and equipment and inventories the marginal deposits on the importation of machinery and equipment
used in the Cagayan de Oro plant and raw materials particularly alcohol, spare parts and other inventory
items such as base coated paper, aluminum closure sheets and aluminum caps. This was one of the
reasons why inventories increased by 26% apart from higher demand.
Available-for-sale investments decreased by 51% on account of the decline in value of its AFS debt
securities as of December 31, 2008.
Property, plant and equipment increased by 11%. This can be attributed to AAC’s and ADI’s
expansion and modernization program. ADI has started the construction and installation of the Clean
Development Mechanism (CDM) project in partnership with Japan’s Mitsubishi Corporation. The
project aims to reduce the emission of greenhouse gases to the atmosphere as a way to help lessen the
ill-effects of global warming.
20
Investment properties decreased by 22% on account of AAC’s disposal of a parcel of land and it’s
building for P14 million.
Consolidated total liabilities amounted to P6.8 billion in 2008 or an increase of 20% from the
previous years’ P5.7 billion. This was due to the increase in accounts payable by 55% caused by
purchases of alcohol and other raw materials to sustain bigger production. Another factor was the
increase in short-term bank loans as the Company and AAC availed of short-term loans amounting to
P500 million and P200 million, respectively, for additional working capital and expansion programs
during the last quarter of 2008. Income tax payable decreased by 98% since most of the income taxes
was paid during the 2nd and 3rd quarters of the year.
The deposits for future Certified Emission Reduction, which amounted to P40 million as of
December 31, 2008, was the result of the advances made by Mitsubishi Corporation with regard to the
CDM Project of ADI.
The significant changes in the equity portion of TDI are the effects of the decline in value of TDI’s
AFS debt securities, which led to the decrease in the net changes in fair values of available-for-sale
investments by 397%. The revaluation increment in property, plant and equipment resulted in a decrease
of 5% since there were fully depreciated appraised properties in 2002 that were realized in 2008.
III. KEY PERFORMANCE INDICATORS
The Company uses the following major performance measures. The analyses are based on
comparisons and measurements on financial data of the current period against the same period of the
previous year. The discussion on the computed key performance indicators can be found in the “Results
of Operations” in the MD & A above.
1.) Gross Profit Ratio
Gross profit ratio in 2010 was 23% versus 18% in 2009.
2.) Return on Equity
Consolidated net income for 2010 amounted to P
= 634 million, higher by 17% from last year’s
= 543 million. Ratio of net income to equity is 11.9% in 2010 and 11.6% in 2009.
P
3.) Current Ratio
Current ratio for 2010 is 4.8:1 while last year was 3.8:1.
4.) Debt-to-equity ratio
Debt-to-equity ratio for 2010 is 1.28:1 and for 2009 is 1.33:1.
5.) Earnings per share
Earnings per share attributable to equity holders of the company is P0.658 for 2010 and
P0.562 for 2009.
The manner by which the Company calculates the above indicators is as follows:
Gross profit rate – Gross profit/Net sales
Return on Equity – Net income / Stockholders equity
Current ratio – Current assets/Current liabilities
Debt-to equity ratio – Total liabilities/Total equity
Earnings per share – Net income attributable to holders of Company/Common shares
outstanding
21
IV. OTHER MATTERS
(i.)
On February 12, 2010, TDI issued P
= 5 billion fixed rate bonds due in 2015 with a fixed
interest rate of 8.055% per annum. The proceeds of the bonds were used to pay the P
= 4.2
billion syndicated loan availed in February 2006.
On April 23, 2010, TDI settled its unsecured P200million loan from Security Bank
Corporation (SBC).
Short-term loans payable to Allied Banking Corporation by AAC amounting to P
= 200 million
which bears an annual interest of 8.5% was fully paid in February 15, 2010.
Except for the above transactions, there are no other trends or any known demands,
commitments, events or uncertainties that will result in or that are reasonably likely to result in
the Group’s increasing or decreasing liquidity in any material way.
The Group is not in
default or breach of any note, loan, lease or other indebtedness or financing arrangement
requiring it to make payments. The Company does not have any liquidity problems.
(ii)
There are no events that will trigger direct or contingent financial obligation that is material to
the Company, including any default or acceleration of an obligation.
(iii)
There are no known material off-balance sheet transactions, arrangements, obligations
(including contingent obligations), and other relationships of the company with
unconsolidated entities or other persons created during the reporting period.
(iv)
There are no known material commitments for capital expenditures for the Company.
(v)
TDI’s major subsidiary, AAC has stopped its operations initially as a result of the protest of
the local residents due to the alleged pollution being caused by AAC’s operations. The
protesters prevented the access to the alcohol plant. Legal remedies were obtained by AAC to
enable its to resume operations such as an injunction against barricades, protests, etc. and a
temporary lifting order on the cease and desist order issued by the Pollution Adjudication
Board. However, the waterline to the plant was damaged during a road improvement project
by the local government and the local government has refused to grant permit to repairs the
waterline to date.
(vi)
Except for the fire loss recorded in 2010 which amounted to P228.6 million, there are no other
significant elements of income or loss that did not arise from the Company’s continuing
operations.
(vii)
The causes for any material change from period to period which shall include vertical and
horizontal analyses of any material item;
Results of our Horizontal (H) and Vertical (V) analyses showed the following material changes
as of and for the years ended December 31, 2010 and 2009:
1.
2.
3.
4.
5.
6.
7.
8.
9.
Cash and cash equivalents – H- 67%
Receivables-net – H- 10%
Inventories – H- 28%
Prepayments and other current assets – H- 6%
Available-for-sale investments – H- 29%
Property plant and equipment - H- (10%)
Investment Properties – H- 12%
Net retirement plan assets – H- (39%)
Deferred tax assets-net – H – 259%
22
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
Other noncurrent assets – H- 18%
Accounts payable and accrued expenses –H- 36%
Bank loans – H- (100%)
Current portion of bank loans – H- (100%)
Long-term bank loans – H- (100%); V- (38%)
Bonds payable – V- 40%
Deferred tax liabilities–net – H- (29%)
Net retirement benefits liabilities – H- (20%)
Capital stock – H- 60%
Net changes in FV of AFS financial assets – H- 67%
Retained earnings – H- 18%
Net sales – H- 13%
Cost of goods sold – H- 6% V-(5%)
Gross profit – H– 41% V-5%
Selling expenses – H- 14%
General and administrative expenses – H- 110%
Finance cost – H- 6%
Interest income – H- (37%)
Rental income – H- (18%)
Gain (loss) on sale of AFS financial assets – H- (100%)
Other charges-net – H- 398%
Net income – H- 17%
The causes for these material changes in the balance sheet and income statement accounts are all
explained in the Management’s Discussion and Analysis (MDA) –Results of Operations and
Financial Condition above.
(viii)
There are no seasonal aspects that have a material effect on the financial condition or results of
operations of the Company.
B. Information on Independent Accountant and other Related Matters
(1) External Audit Fees and Services
a.) Audit and Audit-Related Fees
1. The audit of the Company’s annual financial statements or services that are
normally provided by the external auditor in connection with statutory and
regulatory filings or engagements for 2010 and 2009.
Tanduay Distillers, Inc.
Yr. 2010- P
= 2,150,000
Yr. 2009- P
= 2,010,000
Asian Alcohol Corp.
Yr. 2010- P
= 325,000
Yr. 2009- P
= 302,500
Absolut Distillers, Inc.
Yr. 2010- P
= 320,000
Yr. 2009- P
= 300,000
23
2. Other assurance and related services by the external auditor that are reasonably
related to the performance of the audit or review of the registrants’ financial
statements:
Not applicable
b.) Tax Fees
none
c.) All Other Fees
Asian Alcohol Corp.
Professional fees paid on legal proceedings on real property tax assessments
amounted to P
= 1,451,400 in 2010.
d.) The audit committee’s approval policies and procedures for the above services:
Upon recommendation and approval of the audit committee, the appointment of the
external auditor is being confirmed in the annual stockholders’ meeting. On the other
hand, financial statements should be approved by the Board of Directors before these
are released.
Item 7. Financial Statements
The consolidated financial statements and schedules listed in the accompanying Index to Financial
Statements and Supplementary Schedules (page 35) are filed as part of this Form 17-A (pages 35 to 113)
Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
There are no changes in and disagreements with accountants on any accounting and financial
disclosures during the past two years ended December 31, 2010 or during any subsequent interim
period.
PART III – CONTROL AND COMPENSATION INFORMATION
Item 9. Directors and Executive Officers
1.
Directors
Name
Lucio C. Tan
Age
76
Citizenship
Business Experience/Other
Directorship within the
Last five (5) years
Chairman of Philippine Airlines, Inc.,
Asia Brewery Inc., Eton Properties
Philippines, Inc., Fortune Tobacco
Corp., PMFTC Inc., Grandspan
Development
Corp.,
Himmel
Industries Inc., Lucky Travel Corp.,
PAL Holdings, Inc., Tanduay
Holdings, Inc., Tanduay Brands
International, Inc., The Charter
House, Inc., Asian Alcohol Corp.,
Absolut Distillers, Inc., Progressive
24
Position/Term of
Office/Period
Served
Chairman/1Year/
1998 to present
Harry C. Tan
64
Lucio K. Tan, Jr.
44
Filipino
Farms, Inc., Eton City, Inc., Belton
Communities, Inc., Manufacturing
Services & Trade Corp., REM
Development Corp., Foremost Farms,
Inc.,
Basic
Holdings
Corp.,
Dominium Realty & Construction
Corp., Shareholdings, Inc., Sipalay
Trading Corp. and Fortune Tobacco
International Corp.; Director of
Philippine National Bank, majority
stockholder of Allied Banking
Corp., and Century Park Hotel
Vice
Chairman
of
Tanduay
Holdings, Inc., Eton Properties
Philippines, Inc., Eton City, Inc.,
Belton Communities, Inc., Pan Asia
Securities, Inc., and Lucky Travel
Corp.; Managing Director of The
Charter
House,
Inc.;
Director/Chairman
for
Tobacco
Board of Fortune Tobacco Corp.,
Director/President of Century Park
Hotel, and Landcom Realty Corp.,
Director of Allied Banking Corp.,
Asia Brewery Inc., Basic Holdings
Corp., Philippine Airlines Inc., PAL
Holdings, Inc., Foremost Farms,
Inc., Himmel Industries, Inc., Asian
Alcohol Corp., Absolut Distillers,
Inc., Progressive Farms, Inc.,
Manufacturing Services & Trade
Corp.,
PMFTC
Inc.,
REM
Development Corp.,
Grandspan
Development Corp.,
Dominium
Realty & Construction Corp., Fortune
Tobacco
International
Corp.,
Shareholdings, Inc., Sipalay Trading
Corp.,
and
Tanduay
Brands
International, Inc.
Director/EVP of Fortune Tobacco
Corp.; Director of AlliedBankers
Insurance Corp., Philippine Airlines,
Inc., Tanduay Holdings, Inc.,
Philippine National Bank, PAL
Holdings, Inc., Eton Properties
Philippines,
Inc.,
MacroAsia
Corporation, PMFTC Inc., Lucky
Travel Corp., Air Philippines Corp.,
Tanduay Brands International, Inc,
Asian Alcohol Corp., Absolut
Distillers, Inc., Asia Brewery, Inc.,
Foremost Farms, Inc., Himmel
Industries, Inc., Progressive Farms,
Inc., The Charter House, Inc., Eton
City, Inc., Belton Communities, Inc.,
REM Development Corporation,
25
Director; Vice
Chairman/ 1 Year/
July 2009 to present
Director; President
and CEO; Audit
Committee member/
1 Year/ July 2009 to
present
Domingo T. Chua
69
Filipino
Carmen K. Tan
69
Filipino
Peter P. Ong
63
Filipino
Grandspan Development Corporation,
Dominium Realty & Construction
Corp., Manufacturing Services &
Trade Corp., Fortune Tobacco
International
Corp.,
and
Shareholdings, Inc.
Chairman of Allied Banking Corp., Director; Nomination
Air Philippines Corp., and PNB
and Compensation
Securities, Inc.; Vice Chairman of Committee Member/
PNB General Insurers Co., Inc.; 1 Year/ May 2010 to
Managing
Director/Treasurer
of
present
Himmel
Industries,
Inc.;
Director/Treasurer of Dominium
Realty & Construction Corp., Asia
Brewery,
Inc.,
Manufacturing
Services & Trade Corp., Grandspan
Development Corp., Foremost Farms,
Inc., The Charter House, Inc.,
Progressive Farms, Inc., Fortune
Tobacco Corp., Fortune Tobacco
International Corp., Lucky Travel
Corp., Tanduay Holdings, Inc.,
Tanduay Brands International, Inc.,
Absolut Distillers, Inc., Asian
Alcohol Corp., Eton City, Inc., and
Belton Communities, Inc.; Director of
Pan Asia Securities Corp., Allied
Commercial Bank, Allied Bankers
Insurance Corp., Maranaw Hotels &
Resort Corp., Eurotiles Industrial
Corp., Eton Properties Philippines,
Inc., PAL Holdings, Inc., and PNB
Life Insurance Inc.; Former Director
of Philippine National Bank
Director of Asia Brewery, Inc., The
Director/ 1 Year/
Charter House, Inc., Dominium May 2010 to present
Realty & Construction Corp., Eton
City, Inc., Foremost Farms, Inc.,
Fortune Tobacco Corp., Fortune
Tobacco International Corp., Himmel
Industries, Inc., Lucky Travel Corp.,
Manufacturing Services & Trade
Corp., Progressive Farms, Inc., REM
Development Corp., PMFTC Inc.,
Shareholdings, Inc., Sipalay Trading
Corp. and Tanduay Holdings, Inc.
Independent Director of Tanduay Independent Director;
Holdings,
Inc.;
Director/Sales
Chairman of
Director
of
PDM
Philippine
Nomination and
Industries Inc.; Director of Luna
Remuneration
RioLand Holdings and Industrial
Committee; Audit
Products Sales Manager of Kimberly- Committee member/
Clark Philippines, Inc.
1 Year/
December 2009 to
present
26
2.
Executive Officers
Name
Age
Citizenship
Business Experience/Other
Directorship within the
Last five (5) years
See above
Position/Term of
office/Period
Served
Chairman/1Year/
1998 to present
See above
Vice Chairman/ 1
Year/
July 2009 to
present
See above
President and
CEO/
1 Year/ July 2009
to present
See above
Treasurer/1 Year/
July 2009 to
present
Chief Operating
Officer/1 Year/
1988 to present
Lucio C. Tan
76
Harry C. Tan
64
Lucio K.
Tan, Jr.
44
Domingo T.
Chua
69
Wilson T.
Young
54
Filipino
Managing Director and Deputy CEO of
Tanduay
Holdings,
Inc.;
Director/President of Tanduay Brands
International, Inc.; Chief Operating
Officer of Asian Alcohol Corp., Absolut
Distillers, Inc.; Director of Eton
Properties Philippines, Inc., Flor De
Caña Shipping, Inc., Air Philippines
Corp., and PAL Holdings, Inc.;
Chairman of Victorias Milling Co., Inc.;
Vice Chairman of the Board of Trustees
of UERM Medical Center, Board of
Trustees Member of the University of
the East, and Chief Operating Officer of
Total Bulk Corp.
Juanita Tan
Lee
67
Filipino
Director of Eton Properties Philippines,
Inc., PAL Holdings, Inc., Air
Philippines Corp.; Director/ Corporate
Secretary of Asia Brewery, Inc.,
Fortune Tobacco Corp., Dominium
Realty and Construction Corp., and
Shareholdings,
Inc.;
Corporate
Secretary of Asian Alcohol Corp.,
Absolut Distillers, Inc., The Charter
House, Inc., Far East Molasses Corp.,
Foremost Farms, Inc., Fortune Tobacco
Int’l Corp., Grandspan Development
Corp., Himmel Industries, Inc.,
Landcom Realty Corp., Lucky Travel
Corp., Manufacturing Services & Trade
Corp.,
Marcuenco
Realty
&
Development Corp., PMFTC Inc.
Progressive
Farms,
Inc.,
REM
Development Corp., Tanduay Brands
International Inc., Tobacco Recyclers
Filipino
Filipino
Filipino
27
Corporate
Secretary;
Nomination and
Remuneration
Committee
member; Audit
Committee
member/ 1 Year/
1998 to present
Nestor C.
Mendones
55
Filipino
Corp., Total Bulk Corp., Zebra
Holdings, Inc.; Assistant Corporate
Secretary of Basic Holdings Corp. and
Tanduay Holdings, Inc.
Chief Financial Officer of Tanduay
Holdings, Inc.
Senior VicePresident and
Chief Financial
Officer/1 Year/
1999 to present
Independent Directors and their qualifications:
1.
Peter P. Ong, 63, Filipino, and was elected as an Independent Director since October 8, 2001.
Term of office – 1 year
Period served – 1 year
Educational attainment:
Bachelor of Science Major in Management, University of the East
Positions held in the last 5 years:
- PDM Philippine Industries Inc. – Sales Director
- Tanduay Distillers, Inc. – Independent Director
- Luna RioLand Holdings – Director
- Air Philippines Corporation – Director
- Industrial Product Sales Director - Kimberly Clark Philippines, Inc.
2.
Carlos R. Alindada, 74, Filipino, and was elected as an Independent Director on since April 12,
2005.
Term of office – 1 year
Period served – 1 year
Educational attainment:
Advanced Management Program, Harvard University, USA
Masters in Business Administration, New York University, USA
Bachelor in Business Administration – U.E. Manila (Magna cum laude)
Certified Public Accountant (First Placer)
Positions held in the last five (5) years:
- Tanduay Distillers, Inc. – Independent Director
- East West Banking Corporation - Independent Director
- Citibank Savings, Inc. – Independent Director
- 3-man permanent rehabilitation receiver of PAL – Member
- Accounting Standards Council – Chairman
- Energy Regulatory Commission – Commissioner
The Independent Directors are duly qualified and suffer from no disqualification under
Section 11(5) of the Code of Corporate Governance. Independent director refers to a person
other than an officer or employee of the corporation, its parent or subsidiaries, or any other
individual having any relationship with the corporation, which would interfere with the
exercise of independent judgment in carrying out the responsibilities of a director. This means
that apart from the director’s fees and shareholdings, he should be independent of
management and free from any business or other relationship which could materially interfere
with the exercise of his independent judgment (SEC Memorandum Circular No. 2, Code of
Corporate Governance).
2.
Significant Employees
28
While all of the employees of the Company are valued for their contribution to the Company,
none are expected to contribute significantly more than any of the others.
3.
Family Relationship
Mr. Lucio C. Tan, Chairman, is the brother of Mr. Harry C. Tan. He is also the father of Mr.
Lucio K. Tan, Jr. and Mr. Michael G. Tan. Ms. Carmen K. Tan is the wife of Mr. Lucio C.
Tan and the mother of Mr. Lucio K. Tan, Jr.. Mr. Domingo T. Chua is the borther-in-law of
Mr. Lucio C. Tan and Mr. Harry C. Tan.
4.
Involvement in Certain Legal Proceedings during the past 5 years
The Directors and Executive Officers of the Company are not involved in any bankruptcy
petition by or against any business of which such person was a general partner or executive
officer either at the time of the bankruptcy or within two years prior to that time; any
conviction by final judgment in a criminal proceeding, domestic or foreign, or being subject to
a pending criminal proceeding, domestic or foreign, excluding traffic violations and other
minor offenses; being subject to any order, judgment, or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, domestic or foreign,
permanently or temporarily enjoining, barring, suspending or otherwise limiting his
involvement in any type of business, securities, commodities or banking activities; and being
found by a domestic or foreign court of competent jurisdiction (in a civil action), the
Commission or comparable foreign body, or a domestic or foreign Exchange or other
organized trading market or self regulatory organization, to have violated a securities or
commodities law or regulation, and the judgment has not been reversed, suspended, or
vacated.
Item 10. Executive Compensation
The following compensation was given to officers and directors for the reporting year.
Summary Compensation Table
Annual Compensation
Four (4) most
highly
compensated
executive officers
(see below)
All other officers
and directors as a
group unnamed
Year
2011
(estimate)
Salary
N/A
Bonus
N/A
Others*
N/A
2010
N/A
N/A
N/A
2009
N/A
N/A
N/A
2011
(estimate)
N/A
N/A
N/A
2010
N/A
N/A
N/A
2009
N/A
N/A
N/A
There are no arrangements to which the directors of the Company are compensated, or
are to be compensated, directly or indirectly, for any services provided as a director,
including any additional amounts payable for committee participation or special
assignments, for the last completed fiscal year and the ensuing year.
29
There are no other arrangements, employment contract, compensatory plan,
arrangement nor outstanding warrants and options in place with the Company’s CEO,
executive officers and all officers and directors as a group.
The CEO and the senior officers are seconded by THI and do not receive
compensation from TDI. The Company pays a fixed amount of management fees for
all the executive officers and directors seconded by THI to TDI. From 2009 to 2010
the Company paid P
=36Million per year in management fees and expects to pay
=48Million in 2011.
P
Warrants and Options Outstanding: Repricing
a.) There are no outstanding warrants or options held by the Company’s CEO, the named executive
officers, and all officers and directors as a group.
b.) This is not applicable since there are no outstanding warrants or options held by the Company’s
CEO, executive officers and all officers and directors as a group.
Item 11.
1.
Security Ownership of Certain Record and Beneficial Owners and Management as of
December 31, 2010.
Security Ownership of Certain Record and Beneficial Owners of more than 5%
Title of
Class
Common
Name and Address of
Record Owner and
relationship with
Issuer
Tanduay Holdings, Inc.
7/F Allied bank Center
6754 Ayala Avenue
Makati City
Name of
Beneficial
Ownership
and
relationship
with Record
Owner
-ditto-
Citizenship
No. of Shares
Percent
of Class
Filipino
959,999,986/
Record Owner
100%
Controlling Stockholder
2.
Security Ownership of Management
Title
Class
of Name of Beneficial owner
Common
Lucio C. Tan
Amount and
Nature of
Beneficial
Ownership
2/r
Common
Harry C. Tan
2/r
Filipino
Nil
Common
Lucio K. Tan Jr.
2/r
Filipino
Nil
Common
Peter P. Ong
2/r
Filipino
Nil
Common
Carlos P. Alindada
2/r
Filipino
Nil
Common
Domingo T. Chua
2/r
Filipino
Nil
Common
Wilson T. Young
2/r
Filipino
Nil
30
Citizenship
Percent of
Beneficial
Ownership
Filipino
Nil
-
Juanita Tan Lee
Nestor C. Mendones
Andres C. Co
Randy L. Cailles
Miguel C. Khao
None
None
None
None
None
Filipino
Filipino
Filipino
Filipino
Filipino
N/A
N/A
N/A
N/A
N/A
-
Teddy C. Ong
None
Filipino
N/A
-
Joseph E. Tcheng, Jr.
None
Filipino
N/A
-
Ma. Irma B. Tan
None
Filipino
N/A
Security ownership of all directors and officers as a group unnamed is 14 representing 0% of the
company’s total outstanding capital stock.
*There are no additional shares which the listed beneficial and record owners has the right to acquire
within 30 days from any warrants, options, rights and conversion privileges or similar obligations or
otherwise.
The right to vote or direct the voting or disposition of the Company’s shares held by Tanduay
Holdings, Inc. is lodged in the latter’s Board of Directors, the members of which are Messrs. Lucio C.
Tan, Harry C. Tan, Domingo T. Chua, Carmen K. Tan, Lucio K. Tan, Jr., Michael G. Tan, Wilson T.
Young, Andres C. Co, Teddy C. Ong, Peter P. Ong, and Carlos P. Alindada. Mr. Harry C. Tan is
expected to be given the proxy to vote the shares of Tanduay Holdings, Inc.
3.
Voting Trust Holders of 5% or more
There are no voting trust holders of 5% or more of the common shares.
4.
Changes in Control
None
Item 12. Certain Relationships and Related Transactions
In addition to Note 18 of the Notes to the Consolidated Financial Statements on pages 87 to 89 the
following are additional relevant related party disclosures:
(1)
The Company’s noted related parties are Asia Brewery, Inc. (ABI), Allied Banking
Corporation (ABC), Philippine National Bank (PNB) and Tanduay Holdings, Inc. (THI).
Transactions with these related parties are necessary in the normal course of the Company’s
business. Though substantial in amount, they are still under normal trade practice. There are
no special risks or contingencies since the usual business risks like problem in quality, failure
to deliver when needed and price of product, which is dependent on the cost efficiency of
suppliers.
a.)
Business purpose of the arrangements:
We do business with related parties to avoid the risk of material shortages, unfair pricing and stronger
ties, which is based on trust and confidence. There is also better coordination with the
suppliers on the quality, production scheduling and pricing considerations.
b.)
Identification of the related parties transaction business and nature of the relationship:
1.
2.
3.
4.
Asia Brewery Inc. – supplier of bottles
Allied Banking Corporation – investments/loans/services
Philippine National Bank – deposits
Tanduay Holdings, Inc. – advances/management fees
31
c.)
Transaction prices are based on terms that are no less favorable than those arranged with third
parties.
d.)
Transactions have been fairly evaluated since we adhere to industry standards and practices.
e.)
There is no other on going contractual or other commitments as a result of the arrangements.
There is no long term supplier’s contract. The Company can source out from outside suppliers
if they are more favorable.
(2)
Not applicable – there are no parties that fall outside the definition “related parties” with
whom the Company or its related parties have a relationship that enables the parties to
negotiate terms of material transactions that may not be available from other, more clearly
independent parties on an arm’s length basis.
The effects of the related party transactions on the financial statements have been identified in Note 18
of the Notes to Consolidated Financial Statements.
PART IV - EXHIBITS AND SCHEDULES
Item 14. Exhibits and Reports on SEC Form 17-C
a. Exhibits - see accompanying Index to Exhibits (page 114)
The other exhibits, as indicated in the Index to Exhibits are either not applicable to the
Group or require no answer
b. Reports on SEC Form 17-C
SEC Form 17-C (Current Reports), which has been filed during the year, is no longer filed
as part of the exhibits.
LIST OF ITEMS REPORTED UNDER SEC FORM 17-C
(FOR THE PERIOD OF JULY 2010 TO DECEMBER 2010)
Date of Report
July 29, 2010
Subject Matter Disclosed
Tanduay Distillers, Inc. officially listed its P5,000,000,000
Fixed Rate Bonds due on 2015 with the Philippine Dealing
and Exchange Corporation. The Listing Ceremony was
held at The Enterprise Center, Tower One Lobby, 6766
Ayala Avenue, Makati City.
October 20, 2010
Press Release for October 15, 2010 – “Tanduay Warehouse
Fire Under Tight Watch”
November 2, 2010
Letter of Tanduay Distillers, Inc. addressed to the Laguna
Lake Development Authority dated October 29, 2010.
PART V
ITEM 15.
The evaluation system established by the Company to measure or determine the
level of compliance of the Board of Directors and top-level management with its
Manual of Corporate Governance.
The Compliance Officer is currently in charge of evaluating the level of compliance of
the Board of Directors and top-level management of the Company. The implementation
32
of the Corporate Governance Scorecard allows the Company to properly evaluate
compliance to the Manual.
ITEM 16.
Measures being undertaken by the Company to fully comply with the adopted
leading practices on good corporate governance.
Some of the measures undertaken by the Company to fully comply with the adopted
leading practices on good corporate governance are the following:
1.
2.
3.
4.
5.
Computerization
Creation of budget system
Various information campaign
Attending seminars for Corporate Directors
Strengthen the oversight of the Audit Committee on the work process of
the Company
6. Review of existing provisions of the Manual on Corporate Governance in
order to update and comply with the Revised Code of Corporate
Governance of the Securities and Exchange Commission (SEC) (Series of
2009).
ITEM 17.
Any deviation from the Company’s Manual of Corporate Governance. It shall
include a disclosure of the name and position of the person(s) involved, and the
sanctions imposed on said individual.
The Company has established a procedure that imposes corresponding penalties in
dealing with cases of non-compliance with the Corporate Governance Manual.
ITEM 18.
Any plan to improve corporate governance of the Company.
The Company is in the process of revising its Manual on Corporate Governance in
accordance with Revised Code of Corporate Governance of the SEC (Series of 2009).
Further, the Company continues to improve its Corporate Governance when appropriate
and warranted, in its best judgment.
33
34
TANDUAY DISTILLERS, INC.
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES
SEC FORM 17-A
Page
CONSOLIDATED FINANCIAL STATEMENTS
Statement of Management’s Responsibility for Financial Statements
Report of Independent Auditors
Consolidated Balance Sheets as of December 31, 2010 and 2009
Consolidated Statements of Income for the Years Ended December 31, 2010, 2009
and 2008
Consolidated Statements of Comprehensive Income for the Years Ended December
31, 2010, 2009 and 2008
Consolidated Statement of Changes in Equity for the Years Ended December 31, 2010,
2009 and 2008
Consolidated Statements of Cash Flows for Years Ended December 31, 2010, 2009,
and 2008
Notes to Consolidated Financial Statements
36-37
40-41
42
43
44
45
46-47
48-108
SUPPLEMENTARY SCHEDULES
Report of Independent Public Auditors on Supplementary Schedules
A.
Marketable Securities (Current Marketable Equity Securities and Other
Short-Term Cash Investments)
B.
Amounts Receivable from Directors, Officers, Employees, Related Parties,
and Principal Stockholders (Other than Related Parties)
C.
Non-Current Marketable Equity Securities, Other Long-Term Investments
in Stock, and Other Investments
D.
Indebtedness of Unconsolidated Subsidiaries and Related Parties
E.
Intangible Assets and Other Assets
F.
Bonds Payable
G.
Indebtedness to Related Parties
H.
Guarantees of Securities of Other Issuers
I.
Capital Stock
J
Reconciliation of Retained Earnings (Sec 11)
K.
Index to Exhibits
109
*
*
*
*
110
111
*
*
112
113
114
* These schedules which are required by part IV (e) of SRC Rule 68, have been omitted because they
are either not required, not applicable or the information required to be presented is included in the
Consolidated Financial Statements.
35
36
37
Tanduay Distillers, Inc.
(AWholly Owned Subsidiary of
Tanduay Holdings, Inc.)
and Subsidiaries
Consolidated Financial Statements
December 31, 2010 and 2009
and Years Ended December 31, 2010, 2009 and 2008
and
Independent Auditors’ Report
SyCip Gorres Velayo & Co.
38
COVER SHEET
P W - 0 0 1 5 1 0 9 6
SEC Registration Number
T A N D U A Y
( A
W h o l
T a n d u a y
D I S T I L L E R S ,
l y
O w n e d
I N C .
S u b s
H o l d i n g s
,
i d i a r y
I n c
.
)
o f
a n d
W
S U B S I D I A R I E S
(Company’s Full Name)
3 4 8
J .
S a n
M i
N e p o m u c e n o
g u e
l
D i
s
t r
i
S t r e e t
c
t
,
,
M a n i
l a
(Business Address: No. Street City/Town/Province)
Nestor C. Mendones
733-9301
(Contact Person)
(Company Telephone Number)
1 2
3 1
A A C F S
0 5
0 5
Month
Day
(Form Type)
Month
Day
(Calendar Year)
(Annual Meeting)
Not Applicable
(Secondary License Type, If Applicable)
SEC
Not Applicable
Dept. Requiring this Doc.
Amended Articles Number/Section
Total Amount of Borrowings
Total No. of Stockholders
Domestic
Foreign
To be accomplished by SEC Personnel concerned
File Number
LCU
Document ID
Cashier
STAMPS
Remarks: Please use BLACK ink for scanning purposes.
39
40
41
TANDUAY DISTILLERS, INC.
(A Wholly Owned Subsidiary of Tanduay Holdings, Inc.)
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31
2010
ASSETS
Current Assets
Cash (Note 6)
Receivables (Note 7)
Inventories (Note 8)
Prepayments and other current assets (Note 9)
Total Current Assets
Noncurrent Assets
Available-for-sale (AFS) financial assets (Note 10)
Property, plant and equipment (Note 11)
At appraised values
At cost
Investment properties (Note 12)
Goodwill (Note 4)
Net retirement plan assets (Note 19)
Deferred income tax assets - net (Note 22)
Other noncurrent assets (Note 13)
Total Noncurrent Assets
TOTAL ASSETS
LIABILITIES AND EQUITY
Current Liabilities
Short-term bank loans (Note 15)
Current portion of long-term bank loans (Note 15)
Accounts payable and other current liabilities (Note 14)
Income tax payable
Total Current Liabilities
Noncurrent Liabilities
Bonds payable (Note 16)
Long-term bank loans - net of current portion (Note 15)
Deferred income tax liabilities - net (Note 22)
Deposits for future Certified Emission Reduction (Note 30)
Net retirement benefits liabilities (Note 19)
Total Noncurrent Liabilities
Total Liabilities
Equity
Attributable to equity holders of the Company:
Capital stock - P
=1 par value (Note 23)
Additional paid-in capital
Revaluation increment on property, plant and equipment,
net of deferred income tax effect (Note 11)
Net changes in fair values of AFS financial assets, net of
deferred income tax effect (Note 10)
Effect of transactions with non-controlling interests (Note 4)
Retained earnings (Note 23)
Non-controlling interests (Note 4)
Total Equity
TOTAL LIABILITIES AND EQUITY
See accompanying Notes to Consolidated Financial Statements.
42
2009
P
= 826,234,366
1,868,451,706
4,060,864,539
401,111,670
7,156,662,281
=
P493,919,149
1,694,445,656
3,181,464,452
377,730,918
5,747,560,175
26,960,269
20,960,269
3,699,329,182
876,116,838
188,862,182
144,702,917
21,840,822
53,715,870
41,516,883
5,053,044,963
P
= 12,209,707,244
3,806,367,344
977,550,587
168,089,172
144,702,917
35,737,180
14,945,146
35,208,251
5,203,560,866
=
P10,951,121,041
P
=–
–
1,443,278,858
47,805,009
1,491,083,867
=
P400,000,000
10,000,000
1,058,879,328
49,603,896
1,518,483,224
4,943,080,295
–
328,600,809
70,857,506
27,634,681
5,370,173,291
6,861,257,158
–
4,160,000,000
463,801,359
70,857,506
34,333,899
4,728,992,764
6,247,475,988
P
= 960,000,000
1,212,290,309
=
P600,000,000
1,212,290,309
900,128,159
941,266,562
13,520,000
52,156,083
2,080,770,536
5,218,865,087
129,584,999
5,348,450,086
P
= 12,209,707,244
8,115,000
52,156,083
1,762,974,291
4,576,802,245
126,842,808
4,703,645,053
=
P10,951,121,041
TANDUAY DISTILLERS, INC.
(A Wholly Owned Subsidiary of Tanduay Holdings, Inc.)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
2010
NET SALES (Note 18)
COST OF GOODS SOLD (Notes 18 and 20)
GROSS PROFIT
OPERATING EXPENSES (Note 20)
Selling expenses
General and administrative expenses
=9,046,188,121
P
8,871,448,295
8,341,754,877
7,587,565,663
2,625,410,803
1,860,489,672
1,458,622,458
497,708,714
656,734,573
1,154,443,287
435,432,691
312,886,456
748,319,147
390,652,337
280,701,149
671,353,486
(472,146,944)
7,880,217
3,244,073
(446,192,791)
12,600,468
3,938,875
(417,212,748)
48,301,227
4,292,652
–
–
–
(207,841,229)
(668,863,883)
(4,222,939)
–
–
69,641,934
(364,234,453)
–
(795,000)
8,928
(11,903,233)
(377,308,174)
802,103,633
747,936,072
409,960,798
345,250,414
(176,960,436)
168,289,978
260,695,158
(56,193,849)
204,501,309
235,682,716
(11,239,379)
224,443,337
INCOME BEFORE INCOME TAX
PROVISION FOR (BENEFIT FROM)
INCOME TAX (Note 22)
Current
Deferred
Net income (loss) attributable to:
Equity holders of the Company
Non-controlling interests
2008
=10,202,244,549
P
=11,496,859,098 P
OTHER INCOME (CHARGES)
Finance costs (Notes 17 and 18)
Interest income (Notes 6, 10 and 18)
Rental income (Note 12)
Gain (loss) on sale of:
AFS financial assets (Note 10)
Investment property (Note 12)
Property, plant and equipment (Note 11)
Others - net (Note 21)
NET INCOME
Years Ended December 31
2009
P
=633,813,655
=543,434,763
P
=185,517,461
P
P
=631,470,491
2,343,164
P
=633,813,655
=539,564,076
P
3,870,687
=543,434,763
P
=191,115,153
P
(5,597,692)
=185,517,461
P
P
=0.658
=0.562
P
=0.199
P
Basic/Diluted Earnings Per Share Attributable
to Equity Holders of the Company (Note 24)
See accompanying Notes to Consolidated Financial Statements.
43
TANDUAY DISTILLERS, INC.
(A Wholly Owned Subsidiary of Tanduay Holdings, Inc.)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
2010
Years Ended December 31
2009
2008
P
=633,813,655
=543,434,763
P
=185,517,461
P
5,586,378
11,950,271
–
5,405,000
83,249,249
–
–
10,991,378
4,222,939
–
99,422,459
–
59,955,509
(106,119,894)
TOTAL COMPREHENSIVE INCOME
P
=644,805,033
=642,857,222
P
=79,397,567
P
Total comprehensive income (loss)
attributable to:
Equity holders of the Company
Non-controlling interests
P
=642,062,842
2,742,191
=638,132,944
P
4,724,278
=84,995,259
P
(5,597,692)
P
=644,805,033
=642,857,222
P
=79,397,567
P
NET INCOME
OTHER COMPREHENSIVE INCOME (LOSS)
Revaluation increment on property, plant
and equipment, net of deferred income tax
effect (Note 11)
Changes in fair value of AFS financial assets, net of
deferred income tax effect (Note 10)
Unrealized loss on changes in fair values
of AFS financial assets removed from equity
and recognized in profit or loss through:
Sale (Note 10)
Impairment (Note 10)
See accompanying Notes to Consolidated Financial Statements.
44
(166,075,403)
TANDUAY DISTILLERS, INC.
(A Wholly Owned Subsidiary of Tanduay Holdings, Inc.)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
Capital
Stock
BALANCES AT DECEMBER 31, 2007
Net income (loss) for the year
Other comprehensive loss
Total comprehensive income (loss) for the year
Transfer of portion of revaluation increment
on property, plant and equipment realized
through depreciation (Note 11)
Effect of transactions with non-controlling
interests (Note 4)
Cash dividends - P
=0.50 per share (Note 23)
Additional
Paid-in Capital
P
=600,000,000 P
=1,212,290,309
–
–
–
–
–
–
P
=1,024,099,982
–
–
–
–
–
–
–
–
–
–
–
–
–
–
976,202,015
–
11,096,680
11,096,680
–
–
(46,032,133)
–
–
–
–
941,266,562
–
5,187,351
5,187,351
–
–
(46,325,754)
–
BALANCES AT DECEMBER 31, 2008
Net income for the year
Other comprehensive income
Total comprehensive income for the year
Transfer of portion of revaluation increment
on property, plant and equipment realized
through depreciation and sale (Note 11)
Cash dividends - P
=0.50 per share (Note 23)
600,000,000
–
–
–
BALANCES AT DECEMBER 31, 2009
Net income for the year
Other comprehensive income
Total comprehensive income for the year
Transfer of portion of revaluation increment
on property, plant and equipment realized
through depreciation (Note 11)
Stock dividends - 60% (Note 23)
600,000,000
–
–
–
BALANCES AT DECEMBER 31, 2010
Attributable to Equity Holders of the Company
Revaluation
Net Changes
Effect of
Increment on
in Fair Values
Transactions with
Property, Plant
of AFS
Non-controlling
and Equipment
Financial Assets
Interests
1,212,290,309
–
–
1,212,290,309
–
360,000,000
P
=960,000,000
P
=1,212,290,309
See accompanying Notes to Consolidated Financial Statements.
(47,897,967)
P
=900,128,159
Retained
Earnings
Total
P
=–
–
–
–
P
=1,538,364,962
191,115,153
–
191,115,153
P
=4,401,517,959
191,115,153
(106,119,894)
84,995,259
–
–
47,897,967
–
–
–
52,156,083
–
–
(300,000,000)
52,156,083
(300,000,000)
52,156,083
–
–
–
1,477,378,082
539,564,076
–
539,564,076
4,238,669,301
539,564,076
98,568,868
638,132,944
122,118,530
3,870,687
853,591
4,724,278
–
–
–
–
46,032,133
(300,000,000)
–
(300,000,000)
–
–
8,115,000
–
5,405,000
5,405,000
52,156,083
–
–
–
1,762,974,291
631,470,491
–
631,470,491
4,576,802,245
631,470,491
10,592,351
642,062,842
126,842,808
2,343,164
399,027
2,742,191
4,703,645,053
633,813,655
10,991,378
644,805,033
–
–
–
–
46,325,754
(360,000,000)
–
–
–
–
–
–
P
=13,520,000
P
=52,156,083
P
=2,080,770,536
P
=5,218,865,087
P
=26,762,706
–
(106,119,894)
(106,119,894)
(79,357,188)
–
87,472,188
87,472,188
Non-controlling
Interests
Total
P
=179,872,305 P
=4,581,390,264
(5,597,692)
185,517,461
–
(106,119,894)
(5,597,692)
79,397,567
–
–
(52,156,083)
–
–
(300,000,000)
4,360,787,831
543,434,763
99,422,459
642,857,222
–
(300,000,000)
P
=129,584,999 P
=5,348,450,086
TANDUAY DISTILLERS, INC.
(A Wholly Owned Subsidiary of Tanduay Holdings, Inc.)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
2010
CASH FLOWS FROM OPERATING
ACTIVITIES
Income before income tax
Adjustments for:
Depreciation and amortization (Notes 11 and 20)
Impairment loss on property, plant and equipment
and AFS financial assets (Notes 10 and 11)
Fire loss (Note 21)
Loss (gain) on changes in fair values of
investment properties (Note 12)
Gain on:
Settlement of nonperforming loans (Note 13)
Sale of property and equipment (Note 11)
Loss on sale of:
AFS financial assets (Note 10)
Investment properties (Note 12)
Interest income (Notes 6, 10 and 18)
Finance costs (Notes 17 and 18)
Unrealized foreign exchange losses (gains) - net
Movements in net retirement assets and liabilities
(Note 19)
Income before working capital changes
Decrease (increase) in:
Receivables
Inventories
Prepayments and other current assets
Increase (decrease) in accounts payable and other
current liabilities
Cash generated from (used in) operations
Interest received
Income taxes paid, including creditable withholding
and final taxes
Net cash from (used in) operating activities
CASH FLOWS FROM INVESTING
ACTIVITIES
Acquisitions of property, plant and equipment
(Notes 11 and 28)
Proceeds from sale of:
AFS financial assets (Note 10)
Property and equipment and investment
properties (Notes 11 and 12)
Collection of advances to parent company (Note 18)
Increase in other noncurrent assets
Net cash used in investing activities
(Forward)
Years Ended December 31
2009
2008
P
=802,103,633
=747,936,072
P
=409,960,798
P
531,746,956
434,035,742
408,791,234
–
228,611,063
50,568,442
–
59,955,509
–
(20,773,010)
–
–
–
–
(7,880,217)
472,146,944
(170,543)
7,197,136
2,012,981,962
(174,006,050)
(1,068,447,128)
(14,548,250)
(114,956,546)
163,636
(6,602,325)
–
–
(8,928)
4,222,939
–
(12,600,468)
446,192,791
605,804
–
795,000
(48,301,227)
417,212,748
(41,881,446)
25,417,330
1,574,819,781
347,927
1,207,035,251
(407,077,753)
(643,426,309)
607,173,414 (1,121,992,863)
(16,533,342)
74,949,806
(313,810,599)
1,444,571,501
17,778,512
415,312,073
(68,122,042)
41,884,087
(355,881,803)
898,366,782
(213,355,692)
1,248,994,321
(330,428,554)
(356,666,509)
(363,226,872)
(355,020,484)
(549,092,112)
490,387,834
1,246,368,368
7,880,217
–
–
–
(6,308,632)
(369,535,504)
177,223,153
–
–
(1,602,549)
(179,399,880)
–
14,008,928
301,435,980
(64,926)
(233,712,130)
-2-
Years Ended December 31
2009
2008
2010
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from:
Issuance of bonds payable (Note 16)
Availment of bank loans (Notes 15 and 18)
Payments of:
Bank loans (Note 15)
Finance costs (Notes 17 and 18)
Dividends paid (Notes 23 and 28)
Deposits for future Certified Emission Reduction
(Note 30)
Advances from parent company (Note 18)
Net cash from (used in) financing activities
=–
P
200,000,000
=–
P
700,000,000
=510,000,000)
(4,570,000,000) (P
(559,991,736) (451,079,286)
(300,000,000)
–
(P
=10,000,000)
(416,879,097)
–
30,692,306
–
–
–
(196,686,604) (1,030,386,980)
40,165,200
50,000,000
363,286,103
(605,804)
2,069,975
P
=4,933,305,132
–
EFFECT OF EXCHANGE RATE CHANGES
ON CASH
170,543
NET INCREASE (DECREASE) IN CASH
332,315,217
38,601,657
(225,022,561)
CASH AT BEGINNING OF YEAR
493,919,149
455,317,492
680,340,053
CASH AT END OF YEAR (Note 6)
P
=826,234,366
=493,919,149
P
=455,317,492
P
See accompanying Notes to Consolidated Financial Statements.
47
TANDUAY DISTILLERS, INC.
(A Wholly Owned Subsidiary of Tanduay Holdings, Inc.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Corporate Information and Authorization for Issue of the Financial Statements
Corporate Information
Tanduay Distillers, Inc. (the Company) was incorporated in the Philippines and registered with the
Philippine Securities and Exchange Commission (SEC) on May 10, 1988. The Company’s
immediate parent company, Tanduay Holdings, Inc. (THI), and its ultimate parent company,
Tangent Holdings Corporation (THC), were incorporated in the Philippines. The Company is
primarily engaged in, operates, conducts, and maintains the business of manufacturing,
compounding, bottling, importing, exporting, buying, selling or otherwise dealing in, at wholesale
and retail, such finished goods as rhum, spirit beverages, liquor products, and any and all
equipment, materials, supplies used and/or employed in or related to the manufacture of such
finished goods. The Company sells its products in the domestic market mainly through major
distributors. The Company’s registered business address is 348 J. Nepomuceno Street, San
Miguel District, Manila.
Authorization for Issue of the Financial Statements
The consolidated financial statements as of and for the years ended December 31, 2010 and 2009
and for each of the three years in the period ended December 31, 2010 were authorized for issue
by the Board of Directors (BOD) on February 22, 2011.
2. Summary of Significant Accounting and Financial Reporting Policies
Basis of Preparation
The consolidated financial statements have been prepared under the historical cost basis, except
for AFS financial assets, investment properties, land, land improvements, buildings and building
improvements, and machinery and equipment that have been measured at fair value. The
consolidated financial statements are presented in Philippine peso (Peso), which is the Company’s
functional currency, and all amounts are rounded to the nearest Peso, except when otherwise
indicated.
Statement of Compliance
The consolidated financial statements of the Company and its subsidiaries (collectively referred to
as the Group) have been prepared in compliance with Philippine Financial Reporting Standards
(PFRS). The term PFRS, in general, includes all applicable PFRS, Philippine Accounting
Standards (PAS) and Interpretations issued by former Standing Interpretations Committee, the
Philippine Interpretations Committee and the International Financial Reporting Interpretations
Committee (IFRIC) which have been approved by the Philippine Financial Reporting Standards
Council and adopted by the Philippine SEC.
Changes in Accounting Policies
The accounting policies adopted are consistent with those of the previous financial year except for
the following new and amended PFRS and Philippine Interpretations based on IFRIC
interpretations which were adopted as of January 1, 2010.
•
Amendment to PFRS 2, Share-based Payment - Group Cash-settled Share-based Payment
Transactions, clarifies the scope and the accounting for group cash-settled share-based
payment transactions. The adoption of this amendment does not have any impact on the
financial position or financial performance of the Group.
•
Revised PFRS 3, Business Combinations, and Amendment to PAS 27, Consolidated and
Separate Financial Statements, introduces significant changes in the accounting for business
combinations occurring after becoming effective. Changes affect the valuation of
non-controlling interest, the accounting for transaction costs, the initial recognition and
subsequent measurement of contingent consideration and business combinations achieved in
stages. These changes will impact the amount of goodwill recognized, the reported results in
the periods that an acquisition occurs and for future reported results.
Amendment to PAS 27 requires that a change in the ownership interests of a subsidiary
without loss of control is accounted for as a transaction with owners in their capacity as
owners. Therefore, such transactions will no longer give rise to goodwill, nor will it give rise
to a gain or loss. Furthermore, the amended standard changes the accounting for losses
incurred by the subsidiary as well as the loss of control of a subsidiary. The changes by
revised PFRS 3 and amended PAS 27 will affect future acquisitions or loss of control of
subsidiaries and transactions with non-controlling interests. Revised PFRS 3 will be applied
prospectively while amended PAS 27 will be applied retrospectively with a few exceptions.
The adoption of this amendment does not have any impact on the Group since there was no
business combination in 2010.
•
Amendment to PAS 39, Financial Instruments: Recognition and Measurement - Eligible
Hedged Items, clarifies that an entity is permitted to designate a portion of the fair value
changes or cash flow variability of a financial instrument as a hedged item. This also covers
the designation of inflation as a hedged risk or portion in particular situations. The
amendment has no impact on the financial position or financial performance of the Group
since it has not entered into any such hedges.
•
Philippine Interpretation IFRIC 17, Distributions of Non-cash Assets to Owners, provides
guidance on accounting for arrangements whereby an entity distributes non-cash assets to
shareholders either as a distribution of reserves or as dividends. The interpretation has no
effect on either the financial position or financial performance of the Group.
•
Philippine Interpretation IFRIC 18, Transfers of Assets from Customers, provides guidance on
how to account for items of property, plant and equipment received from customers or cash
that is received and used to acquire or construct assets that are used to connect the customer to
a network or to provide ongoing access to a supply of goods or services or both. The Group
expects that this interpretation will not have any impact on its financial statements.
Improvements to PFRS
The Financial Reporting Standards Council (FRSC), approved in its meeting in May 2009 the
adoption of Improvements to International Financial Reporting Standards (IFRS), issued by the
International Accounting Standards Board (IASB), in April 2009. There are separate transitional
provisions for each standard which are all effective beginning January 1, 2010. The adoption of
the following improvements did not have any significant impact on the Group’s financial
statements, unless otherwise indicated.
•
PFRS 2, Share-based Payment, clarifies that the contribution of a business on formation of a
joint venture and combinations under common control are not within the scope of PFRS 2
even though they are out of scope of revised PFRS 3. The amendment is effective for annual
periods beginning on or after July 1, 2009.
- 49 -
•
PFRS 5, Non-current Assets Held for Sale and Discontinued Operations, clarifies that when a
subsidiary is classified as held for sale, all its assets and liabilities are classified as held for
sale, even when the entity remains a non-controlling interest after the sale transaction.
PFRS 5 also clarifies that the disclosures required in respect of noncurrent assets and disposal
groups classified as held for sale or discontinued operations are only those set out in PFRS 5.
The disclosure requirements of other PFRS only apply if specifically required for such
noncurrent assets or discontinued operations.
•
PFRS 8, Operating Segments, clarifies that segment assets and liabilities need only be reported
when those assets and liabilities are included in measures that are used by the chief operating
decision maker (CODM). As the Company’s CODM does review segment assets and
liabilities, the Company has continued to disclose these information in Note 5.
•
PAS 1, Presentation of Financial Statements, clarifies that the terms of a liability that could
result, at anytime, in its settlement by the issuance of equity instruments at the option of the
counterparty do not affect its classification.
•
PAS 7, Statement of Cash Flows, explicitly states that only expenditure that results in a
recognized asset can be classified as a cash flow from investing activities.
•
PAS 17, Leases, removes the specific guidance on classifying land as a lease. Prior to the
amendment, leases of land were classified as operating leases. The amendment now requires
that leases of land are classified as either “finance” or “operating” in accordance with the
general principles of PAS 17. The amendments will be applied retrospectively.
•
PAS 36, Impairment of Assets, clarifies that the largest unit permitted for allocating goodwill,
acquired in a business combination, is the operating segment as defined in PFRS 8 before
aggregation for reporting purposes.
•
PAS 38, Intangible Assets, clarifies that if an intangible asset acquired in a business
combination is identifiable only with another intangible asset, the acquirer may recognize the
group of intangible assets as a single asset provided the individual assets have similar useful
lives. It also clarifies that the valuation techniques presented for determining the fair value of
intangible assets acquired in a business combination that are not traded in active markets are
only examples and are not restrictive on the methods that can be used.
•
PAS 39, Financial Instruments: Recognition and Measurement, clarifies the following:
(a) that a prepayment option is considered closely related to the host contract when the
exercise price of a prepayment option reimburses the lender up to the approximate present
value of lost interest for the remaining term of the host contract; (b) that the scope exemption
for contracts between an acquirer and a vendor in a business combination to buy or sell an
acquiree at a future date applies only to binding forward contracts, and not derivative contracts
where further actions by either party are still to be taken and (c) that gains or losses on cash
flow hedges of a forecast transaction that subsequently results in the recognition of a financial
instrument or on cash flow hedges of recognized financial instruments should be reclassified
in the period that the hedged forecast cash flows affect profit or loss.
•
Philippine Interpretation IFRIC 9, Reassessment of Embedded Derivatives, clarifies that it
does not apply to possible reassessment at the date of acquisition, to embedded derivatives in
contracts acquired in a business combination between entities or businesses under common
control or the formation of joint venture.
- 50 -
•
Philippine Interpretation IFRIC 16, Hedges of a Net Investment in a Foreign Operation, states
that, in a hedge of a net investment in a foreign operation, qualifying hedging instruments may
be held by any entity or entities within the group, including the foreign operation itself, as long
as the designation, documentation and effectiveness requirements of PAS 39 that relate to a
net investment hedge are satisfied.
Summary of Significant Accounting Policies
Basis of Consolidation
Basis of consolidation starting January 1, 2010
The consolidated financial statements comprise the financial statements of the Company and the
following subsidiaries, which were all incorporated in the Philippines and are registered with the
Philippine SEC as of December 31 of each year.
The Company’s ownership over the foregoing subsidiaries and their respective nature of business
are as follows:
Subsidiary
Percentage of Ownership
2009
2008
2010
Nature of Business
Absolut Distillers, Inc. (ADI)*
95
95
95
Producer of potable ethyl
alcohol
Asian Alcohol Corporation (AAC)
96
96
96
Producer of potable ethyl
alcohol and aged alcohol
* Formerly Absolut Chemicals, Incorporated
The financial statements of the subsidiaries are prepared for the same reporting period as that of
the Company using uniform accounting policies. All intra-group balances, transactions, income
and expenses, and profits and losses resulting from intra-group transactions and dividends are
eliminated in full. However, intra-group losses are also eliminated but are considered an
impairment indicator of the assets transferred.
Subsidiaries
Subsidiaries are entities over which the Company has the power to govern the financial and
operating policies of the entities, or generally have an interest of more than one-half of the voting
rights of the entities. The existence and effect of potential voting rights that are currently
exercisable or convertible are considered when assessing whether the Company controls another
entity. Subsidiaries are fully consolidated from the date on which control is transferred to the
Group or the Company directly or through the holding companies. Control is achieved where the
Company has the power to govern the financial and operating policies of an entity so as to obtain
benefits from its activities. They are deconsolidated from the date on which control ceases. A
change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an
equity transaction.
Non-controlling interest
Non-controlling interest represents equity in a subsidiary not attributable, directly or indirectly, to
the parent. Non-controlling interest represents the portion of profit or loss and the net assets not
held by the Group. Transactions with non-controlling interest are accounted for using the entity
concept method, whereby the difference between the consideration and the book value of the share
of the net assets acquired is recognized as an equity transaction. Non-controlling interest shares in
losses even if the losses exceed the non-controlling equity interest in the subsidiary.
- 51 -
If the Group loses control over a subsidiary, it derecognizes assets (including goodwill) and
liabilities of the subsidiary, carrying amount of any non-controlling interest, cumulative translation
differences, recorded in equity, recognizes fair value of the consideration received and any
investment retained, recognizes any surplus or deficit in profit or loss and reclassifies the parent’s
share of components previously recognized in other comprehensive income to profit or loss or
retained earnings, as appropriate.
Basis of consolidation prior to January 1, 2010
The above-mentioned requirements were applied on a prospective basis. The difference, however,
is carried forward in certain instances from the previous basis of consolidation. Losses incurred
by the Group were attributed to the non-controlling interest until the balance was reduced to nil.
Any further excess losses were attributed to the parent company, unless the non-controlling
interest had a binding obligation to cover these. Losses prior to January 1, 2010 were not
reallocated between non-controlling interests and the equity holders of the parent company.
Business Combination and Goodwill
Business combinations starting January 1, 2010
Business combinations are accounted for using the acquisition method. As of the acquisition date,
the acquirer shall recognize, separately from goodwill, the identifiable assets acquired, the
liabilities assumed and any non-controlling interest in the acquiree. The cost of an acquisition is
measured as the aggregate of the consideration transferred, measured at acquisition date fair value,
and the amount of any non-controlling interest in the acquiree. For each business combination, the
acquirer has the option to measure the non-controlling interest in the acquiree either at fair value
or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are
expensed as incurred.
When a business is acquired, the financial assets and financial liabilities assumed are assessed for
appropriate classification and designation in accordance with the contractual terms, economic
circumstances and pertinent conditions as at the acquisition date. This includes the separation of
embedded derivatives in host contracts by the acquiree.
If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s
previously held equity interest in the acquiree is remeasured to fair value as at the acquisition date
through profit or loss.
Any contingent consideration to be transferred by the acquirer will be recognized at fair value at
the acquisition date. Subsequent changes to the fair value of the contingent consideration which is
deemed to be an asset or liability will be recognized in accordance with PAS 39 either in profit or
loss or as a charge to other comprehensive income. If the contingent consideration is classified as
equity, it shall not be remeasured until it is finally settled within equity.
Goodwill is initially measured at cost being the excess of the aggregate of the consideration
transferred and the amount recognized for non-controlling interest over the fair values of net
identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair
value of the net assets of the subsidiary acquired, the difference is recognized in profit or loss.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For
the purpose of impairment testing, goodwill acquired in a business combination is, from the
acquisition date, allocated to each of the Group’s cash-generating units (CGU) that are expected to
benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are
assigned to those units.
- 52 -
Where goodwill forms part of a CGU and part of the operation within that unit is 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 based on the relative values of the operation disposed of and the
portion of the CGU retained.
A CGU to which goodwill has been allocated shall be tested for impairment annually, and
whenever there is an indication that the unit may be impaired, by comparing the carrying amount
of the unit, including the goodwill, with the recoverable amount of the unit. If the recoverable
amount of the unit exceeds the carrying amount of the unit, the unit and the goodwill allocated to
that unit shall be regarded as not impaired. If the carrying amount of the unit exceeds the
recoverable amount of the unit, the Group shall recognize the impairment loss. Impairment losses
relating to goodwill cannot be reversed in subsequent periods.
The Group performs its impairment test of goodwill on an annual basis every December 31 or
earlier whenever events or changes in circumstances indicate that goodwill may be impaired.
Business combinations prior to January 1, 2010
Business combinations are accounted for using the purchase method. This involves recognizing
identifiable assets and liabilities of the acquired business initially at fair value. If the acquirer’s
interest in the net fair value of the identifiable assets and liabilities exceeds the cost of the business
combination, the acquirer shall (a) reassess the identification and measurement of the acquiree’s
identifiable assets and liabilities and the measurement of the cost of the combination; and
(b) recognize immediately in profit or loss any excess remaining after that reassessment.
When a business combination involves more than one exchange transaction, each exchange
transaction shall be treated separately using the cost of the transaction and fair value information
at the date of each exchange transaction to determine the amount of any goodwill associated with
that transaction. This results in a step-by-step comparison of the cost of the individual
investments with the Group’s interest in the fair value of the acquiree’s identifiable assets,
liabilities and contingent liabilities at each exchange transaction. The fair values of the acquiree’s
identifiable assets, liabilities and contingent liabilities may be different at the date of each
exchange transaction. Any adjustments to those fair values relating to previously held interests of
the Group is a revaluation to be accounted for as such and presented separately as part of equity.
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s
share in the net identifiable assets of the acquired subsidiary or associate at the date of acquisition.
Goodwill on acquisitions of subsidiaries is recognized separately as a noncurrent asset. Goodwill
on acquisitions of associates is included in investments in associates and is tested annually for
impairment as part of the overall balance.
The financial statements of the subsidiaries are prepared for the same reporting year as that of the
Company using uniform accounting policies. All intra-group balances, transactions, income and
expenses, and profits and losses resulting from intra-group transactions are eliminated in full.
However, intra-group losses are also eliminated but are considered an impairment indicator of the
assets transferred.
Cash
Cash includes cash on hand and in banks.
- 53 -
Financial Instruments
Date of recognition
The Group recognizes financial asset or a financial liability in the consolidated balance sheet when
it becomes a party to the contractual provisions of the instrument. Purchases or sales of financial
assets that require delivery of assets within the time frame established by regulation or convention
in the market place are recognized on the settlement date.
Initial recognition and classification of financial instruments
Financial instruments are recognized initially at fair value, which is the fair value of the
consideration given (in case of an asset) or received (in case of a liability). The initial
measurement of financial instruments, except for those financial assets and liabilities at fair value
through profit or loss (FVPL), includes transaction costs.
On initial recognition, the Group classifies its financial assets in the following categories: financial
assets at FVPL, loans and receivables, held-to-maturity (HTM) investments and AFS financial
assets. The Group also classifies its financial liabilities into FVPL and other financial liabilities.
The classification depends on the purpose for which the investments are acquired and whether
they are quoted in an active market. Management determines the classification of its financial
assets and financial liabilities at initial recognition and, where allowed and appropriate,
re-evaluates such designation at the end of each reporting period.
Financial instruments are classified as liabilities or equity in accordance with the substance of the
contractual arrangement. Interest, dividends, gains and losses relating to a financial instrument or
a component that is a financial liability are reported as expense or income. Distributions to
holders of financial instruments classified as equity are charged directly to equity, net of any
related income tax benefits.
The Group has no financial assets or financial liabilities at FVPL and HTM investments as of
December 31, 2010 and 2009.
Determination of fair value
The fair value of financial instruments that are actively traded in organized financial markets is
determined by reference to quoted market bid prices at the close of business on the end of
reporting period. For investments and all other financial instruments where there is no active
market, fair value is determined using generally acceptable valuation techniques. Such techniques
include using arm’s length market transactions; reference to the current market value of another
instrument, which are substantially the same; discounted cash flow analysis and other valuation
models.
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 observable market, the Group recognizes the difference
between the transaction price and fair value (a Day 1 difference) in the consolidated statement of
income unless it qualifies for recognition as some other type of asset. In cases where use is made
of data which is not observable, the difference between the transaction price and model value is
only recognized in the 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.
- 54 -
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that
are not quoted in an active market. After initial measurement, loans and receivables are
subsequently carried at amortized cost using the effective interest method less any allowance for
impairment. Amortized cost is calculated taking into account any discount or premium on
acquisition and includes transaction costs and fees that are an integral part of the effective interest
rate and transaction costs. 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. These financial assets are included in current assets if maturity is within
12 months from the end of reporting period. Otherwise, these are classified as noncurrent assets.
As of December 31, 2010 and 2009, included under loans and receivables are the Group’s cash,
trade receivables, due from related parties, advances to suppliers and other receivables
(see Note 25).
AFS financial assets
AFS financial assets are non-derivative financial assets that are designated in this category or are
not classified in any of the three other categories. The Group designates financial instruments as
AFS if they are purchased and held indefinitely and may be sold in response to liquidity
requirements or changes in market conditions. After initial recognition, AFS financial assets are
measured at fair value with unrealized gains or losses being recognized in other comprehensive
income as “Changes in fair value of AFS financial assets”, net of deferred income tax effect.
When fair value cannot be reliably measured, AFS financial assets are measured at cost less any
impairment in value.
When the investment is disposed of or determined to be impaired, the cumulative gains or losses
recognized in other comprehensive income are recognized in the consolidated statement of
income. Interest earned on the investments is reported as interest income using the effective
interest method. Dividends earned on investments are recognized in the consolidated statement of
income as “Dividend income” when the right of payment has been established. These financial
assets are classified as noncurrent assets unless the intention is to dispose of such assets within
12 months from the end of reporting period.
The Group’s AFS financial assets include equity securities as of December 31, 2010 and 2009
(see Note 25).
Other financial liabilities
Other financial liabilities are initially recorded at fair value, less directly attributable transaction
costs. After initial recognition, interest-bearing loans and borrowings are subsequently measured
at amortized cost using the effective interest 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 as well
as through the amortization process.
As of December 31, 2010 and 2009, included in other financial liabilities are the Group’s trade
accounts payable, payables to related parties, non-trade accounts payable, accrued and other
liabilities, bank loans and bonds payable (see Note 25).
Offsetting of Financial Instruments
Financial assets and financial liabilities are offset and the net amount reported in the 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 assets and settle the liabilities
simultaneously.
- 55 -
Derecognition of Financial Assets and Financial Liabilities
Financial assets
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar
financial assets) is derecognized when:
•
•
•
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 third party under a “pass-through” arrangement;
or
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 the asset, or (b) has neither transferred nor
retained substantially all risks and rewards of the asset, but has transferred 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 the 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 was discharged,
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.
Impairment of Financial Assets
The Group assesses at the end of each reporting period 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 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 contracted parties or a group of contracted parties 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 measurable decrease in the estimated future cash
flows, such as changes in arrears or economic conditions that correlate with defaults.
Financial assets carried at cost
If there is objective evidence that an impairment loss on an unquoted equity instrument that is not
carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that
is linked to and must be settled by delivery of such an unquoted equity instrument 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 current market rate of return
of a similar financial asset.
- 56 -
Loans and receivables
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 the group of financial assets with similar credit risk and characteristics and that
group of financial assets is collectively assessed for impairment. 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 there is objective evidence that an impairment loss on financial assets carried at amortized cost
has been incurred, the amount of loss is measured as a difference between the asset’s carrying
amount and the present value of estimated future cash flows (excluding future credit losses that
have not been incurred) discounted at the financial asset’s original effective interest rate (i.e., the
effective interest rate computed at initial recognition). The carrying amount of the asset shall be
reduced through the use of an allowance account. The amount of loss is recognized in the
consolidated statement of income.
If in a subsequent period, the amount of the estimated impairment loss increases or decreases
because of an event occurring after the impairment was recognized, and the increase or decrease
can be related objectively to an event occurring after the impairment was recognized, the
previously recognized impairment loss is increased or reduced by adjusting the allowance for
impairment losses account. If a future write-off is later recovered, the recovery is recognized in
the consolidated statement of income under “Other income” account. 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 reversal date. Interest income
continues to be accrued on the reduced carrying amount based on the original effective interest
rate of the asset. Loans together with the associated allowance are written off when there is no
realistic prospect of future recovery and all collateral, if any, has been realized or has been
transferred to the Group.
AFS financial assets
For AFS financial assets, the Group assesses at the end of each reporting period, whether there is
objective evidence that a financial asset or group of financial assets is impaired.
In case of equity investments classified as AFS financial assets, this would include a significant or
prolonged decline in fair value of the investments below its cost. The determination of what is
“significant” or “prolonged” requires judgment. The Group treats “significant” generally as 20%
or more and “prolonged” as greater than 12 months for quoted equity securities. Where there is
evidence of impairment, the cumulative loss 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 other comprehensive income
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 other comprehensive
income.
In the case of debt instruments classified as AFS financial assets, impairment is assessed based on
the same criteria as financial assets carried at amortized cost. Future interest income is based on
the reduced carrying amount and is accrued based on the rate of interest used to discount future
cash flows for the purpose of measuring impairment loss. Such accrual is recorded as part of
- 57 -
“Interest income” 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.
Inventories
Inventories are valued at the lower of cost and net realizable value (NRV). Costs incurred in
bringing the inventory to its present location and condition are accounted for as follows:
Finished goods and work in process
-
direct materials, direct labor and
manufacturing overhead costs;
determined using the moving
average method
Raw materials and supplies
-
purchase cost using the moving average
method
NRV of finished goods is the estimated selling price less the estimated costs of marketing and
distribution. For raw materials, NRV is current replacement cost. In case of supplies, NRV is the
estimated realizable value of the supplies when disposed of at their condition at the end of
reporting period.
Prepayments
Prepayments are expenses paid in advance and recorded as asset before they are utilized. This
account comprises prepaid importation charges and excise tax, prepaid rentals and insurance
premiums and other prepaid items, and creditable withholding tax. Prepaid rentals and insurance
premiums and other prepaid items are apportioned over the period covered by the payment and
charged to the appropriate accounts in the consolidated statement of income when incurred.
Prepaid importation charges are applied to respective asset accounts, i.e., inventories and
equipment, as part of their direct cost once importation is complete. Prepaid excise taxes are
applied to inventory as part of its cost once related raw material item is consumed in the
production. Creditable withholding tax is deducted from income tax payable on the same year the
revenue was recognized. Prepayments that are expected to be realized for no more than 12 months
after the reporting period are classified as current asset, otherwise, these are classified as other
noncurrent asset.
Investment in Shares of Stock
The Company’s investment in the shares of stock of Domecq Asia Brands, Inc. (DABI), a joint
venture with Allied Domecq Philippines, Inc. (ADPI) where it holds a 50% interest, is accounted
at cost less any accumulated impairment in value. The Group determines at the end of each
reporting period whether there is any objective evidence that the investment in shares of stock is
impaired. If this is the case, the amount of impairment is calculated as the difference between the
recoverable amount of the investment in shares of stock, and its carrying amount. The amount of
impairment loss is recognized in the consolidated statement of income.
Property, Plant and Equipment
Property, plant and equipment, other than land, land improvements, buildings and building
improvements, and machinery and equipment, are stated at cost less accumulated depreciation and
amortization and any impairment in value.
- 58 -
The initial cost of property, plant and equipment consists of its purchase price and any directly
attributable costs of bringing the asset to its working condition and location for its intended use
and any estimated cost of dismantling and removing the property, plant and equipment item and
restoring the site on which it is located to the extent that the Group had recognized the obligation
of that cost. Such cost includes the cost of replacing part of the property, plant and equipment if
the recognition criteria are met. When significant parts of property, plant and equipment are
required to be replaced in intervals, the Group recognizes such parts as individual assets with
specific useful lives and depreciation, respectively. Likewise, when a major inspection is
performed, its cost is recognized in the carrying amount of property, plant and equipment as a
replacement if the recognition criteria are satisfied. All other repair and maintenance costs are
recognized in consolidated statement of income as incurred. Borrowing costs incurred during the
construction of a qualifying asset is likewise included in the initial cost of property, plant and
equipment.
Land, land improvements, buildings and building improvements, and machinery and equipment
are stated at revalued amounts based on a valuation performed by independent appraisers.
Revaluation is made every three to five years such that the carrying amount does not differ
materially from that which would be determined using fair value at the end of reporting period.
For subsequent revaluations, the accumulated depreciation at the date of revaluation is restated
proportionately with the change in the gross carrying amount of the asset so that the carrying
amount of the asset after revaluation equals the revalued amount. Any resulting increase in the
asset’s carrying amount as a result of the revaluation is credited directly to “Revaluation increment
on property, plant and equipment”, net of deferred income tax effect. Any resulting decrease is
directly charged against any related revaluation increment to the extent that the decrease does not
exceed the amount of the revaluation increment in respect of the same asset.
Construction in progress are properties in the course of construction for production or
administrative purposes, which are carried at cost less any recognized impairment loss. This
includes cost of construction and equipment, and other direct costs. Construction in progress is
not depreciated until such time that the relevant assets are completed and put into operational use.
Each part of an item of property, plant and equipment with a cost that is significant in relation to
the total cost of the item is depreciated separately.
Depreciation is computed using the straight-line method over the following estimated useful lives
of the assets:
Land improvements
Buildings and building improvements
Machinery and equipment
Furniture, fixtures and office equipment
Transportation equipment
Warehouse, laboratory and other equipment
Number of Years
5 to 15
10 to 30
5 to 20
5 to 20
5
4 to 10
Leasehold improvements are amortized on a straight-line basis over the terms of the leases or the
useful life of 10 years, whichever is shorter.
The estimated useful lives and depreciation and amortization method are reviewed periodically to
ensure that the periods and method of depreciation and amortization are consistent with the
expected pattern of economic benefits from items of property, plant and equipment.
- 59 -
Depreciation or amortization of an item of property, plant and equipment begins when it becomes
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 management. Depreciation or amortization ceases at the
earlier of the date that the item is classified as held for sale (or included in a disposal group that is
classified as held for sale) in accordance with PFRS 5 and the date the item is derecognized.
When assets are sold or retired, their cost and accumulated depreciation and amortization and any
impairment in value are removed from the accounts, and any gain or loss resulting from their
disposal is recognized in the consolidated statement of income.
Borrowing Costs
Borrowing costs are capitalized if they are directly attributable to the acquisition, construction or
production of a qualifying asset. Capitalization of borrowing costs commences when the activities
necessary to prepare the asset for intended use are in progress and expenditures and borrowing
costs are being incurred. Borrowing costs are capitalized until the asset is available for their
intended use. If the resulting carrying amount of the asset exceeds its recoverable amount, an
impairment loss is recognized. Borrowing costs include interest charges and other costs incurred in
connection with the borrowing of funds, as well as exchange differences arising from foreign
currency borrowings used to finance these projects, to the extent that they are regarded as an
adjustment to interest costs. All other borrowing costs are expensed as incurred.
Investment Properties
Investment properties are measured initially at cost, including transaction costs. 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 costs of day-to-day servicing of an
investment property. Subsequent to initial recognition, investment properties are stated at fair
value, which reflects market conditions at the end of reporting period. Gains or losses arising
from changes in the fair values of investment properties are recognized in the consolidated
statement of income in the year in which they arise.
Investment properties are derecognized when either they have been disposed of or when they 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 an investment property are recognized in the
consolidated statement of income in the year of retirement or disposal.
Transfers are made to or from investment property only when there is a change in use. For a
transfer from investment property to owner-occupied property, the deemed cost for subsequent
accounting is the fair value at the date of change in use. If owner-occupied property becomes an
investment property, the Group accounts for such property in accordance with the policy stated
under property, plant and equipment up to the date of change in use.
Impairment of Noncurrent Non-financial Assets
The Group assesses at the end of each reporting period whether there is indication that property,
plant and equipment and other noncurrent assets may be impaired. If any such indication exists, or
when an annual impairment testing for such items is required, the Group makes an estimate of
their recoverable amount. An asset’s recoverable amount is the higher of an asset’s or CGU’s fair
value less costs to sell and its value in use, and is determined for an individual item, unless such
item does not generate cash inflows that are largely independent of those from other assets or
group of assets or CGUs. When the carrying amount exceeds its recoverable amount, such item is
considered impaired and is written down to its recoverable amount. In assessing value in use, the
estimated future cash flows to be generated by such items are discounted to their present value
using a pre-tax discount rate that reflects the current market assessment of the time value of money
- 60 -
and the risks specific to the asset or CGU. Impairment losses of continuing operations are
recognized in the consolidated statement of income in the expense categories consistent with the
function of the impaired asset.
An assessment is made at least on at the end of each reporting period as to whether there is
indication that previously recognized impairment losses may no longer exist or may have
decreased. If any indication exists, the recoverable amount is estimated and a previously
recognized impairment loss is reversed only if there has been a change in the estimate in the
asset’s or CGU’s recoverable amount since the last impairment loss was recognized. If so, the
carrying amount of the item is increased to its new recoverable amount which cannot exceed the
impairment loss recognized in prior years. Such reversal is recognized in the consolidated
statement of income unless the asset or CGU is carried at its revalued amount, in which case the
reversal is treated as a revaluation increase. After such a reversal, the depreciation charge is
adjusted in future periods to allocate the asset’s revised carrying amount less any residual value on
a systematic basis over its remaining estimated useful life.
Revenue
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the
Group and the amount of the revenue can be measured reliably. The following specific
recognition criteria must also be met before revenue is recognized:
Sale of goods
Revenue from the sale of goods, shown as “Net sales”, is recognized when goods are delivered to
and accepted by the customers. Net sales are measured at the fair value of the consideration
received or receivable, excluding discounts, returns and value-added tax (VAT).
Interest income
Interest income is recognized as the interest accrues.
The Group assesses its revenue arrangements against specific criteria in order to determine if it is
acting as principal or agent. The Group concluded that it is acting as a principal in all of its
revenue arrangements.
Costs and Expenses
Cost and expenses are recognized in the consolidated statement of income when decrease in future
economic benefits related to a decrease in an asset or an increase of a liability has arisen that can
be measured reliably.
Cost of goods sold
Cost of goods sold is recognized as expense when the related goods are sold.
Selling and general and administrative expenses
Selling expenses are costs incurred to sell or distribute merchandise, it includes advertising and
promotions and freight and handling, among others. General and administrative expenses
constitute costs of administering the business. The selling and general and administrative
expenses are expensed as incurred.
Retirement Benefits Cost
Retirement benefits cost is actuarially determined using the projected unit credit method.
Actuarial gains and losses are recognized as income or expense when the net cumulative
unrecognized actuarial gains and losses for the Group’s retirement plan at the end of the previous
- 61 -
reporting year exceed 10% of the higher of the defined benefits obligation and the fair value of
plan assets at that date. These gains or losses are recognized over the expected average remaining
working lives of the employees participating in the plan.
Past service cost is recognized as an expense on a straight-line basis over the average period that
the benefits become vested. If the benefits are vested immediately following the introduction of,
or changes to, the retirement plan, past service cost is recognized immediately.
The defined benefit liability is either the aggregate of the present value of the defined benefits
obligation and actuarial gains and losses not recognized, reduced by past service cost not yet
recognized, and the fair value of plan assets from which the obligations are to be settled, or the
aggregate of cumulative unrecognized net actuarial losses and past service cost and the present
value of any economic benefits available in the form of refunds from the plans or reductions in
future contributions to the plan.
If the asset is measured at the aggregate of cumulative unrecognized net actuarial losses and past
service cost and the present value of any economic benefits available in the form of refunds from
the plan or reductions in the future contributions to the plan, net actuarial losses of the current
period and the past service cost of the current period are recognized immediately to the extent that
they exceed any reduction in the present value of these economic benefits. If there is no change or
there is an increase in the present value of economic benefits, the entire net actuarial losses of the
current period and the past service cost of the current period are recognized immediately to the
extent that they exceed any reduction in the present value of these economic benefits. Similarly,
net actuarial gains of the current period after the deduction of past service cost of the current
period exceeding any increase in the asset is measured with the aggregate of cumulative
unrecognized net actuarial losses and past service cost at the present value of any economic
benefits available in the form of refunds from the plan or reductions in the future contributions to
the plan. If there is no change or there is a decrease in the present value of the economic benefits,
the entire net actuarial gains of the current period after the deduction of past service cost of the
current period are recognized immediately.
Gains or losses on the curtailment or settlement of retirement benefits are recognized in
consolidated statement of income when the curtailment or settlement occurs. The gain or loss on a
curtailment or settlement consists of the resulting change in the present value of the defined
benefits obligation and any related actuarial gains and losses, and past service cost that had not
been previously recognized.
Operating Leases
Operating leases represent those leases under which substantially all risks and rewards of
ownership of the leased assets remain with the lessors. Lease receipts (payments) under operating
lease agreements are recognized as income (expense) on a straight-line basis over the term of the
lease.
Foreign Currency-denominated Transactions and Translations
Transactions denominated in foreign currencies are recorded using the applicable exchange rate at
the date of the transaction. Outstanding monetary assets and monetary liabilities denominated in
foreign currencies are retranslated using the applicable rate of exchange at the end of reporting
period. Foreign exchange gains or losses are recognized in the consolidated statement of income.
- 62 -
Taxes
Current income tax
Current income 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 substantively enacted at the end of
reporting period.
Deferred income tax
Deferred income tax is recognized on all temporary differences at the end of reporting period
between the tax bases of assets and liabilities and their carrying amounts for financial reporting
purposes.
Deferred income tax assets are recognized for all deductible temporary differences, carryforward
benefits of unused tax credits from excess of minimum corporate income tax (MCIT) over regular
corporate income tax (RCIT) and unused net operating loss carryover (NOLCO), to the extent that
it is probable that sufficient future taxable profits will be available against which the deductible
temporary differences, carryforward benefits of unused tax credits from excess of MCIT over
RCIT and unused NOLCO can be utilized. Deferred income tax liabilities are recognized for all
taxable temporary differences.
Deferred income tax, however, is not recognized when it arises from the initial recognition of an
asset or liability in a transaction that is not a business combination and, at the time of the
transaction, affects neither the accounting profit or loss nor taxable profit or loss.
Deferred income tax liabilities are not provided on non-taxable temporary differences associated
with investments in domestic subsidiaries, associates and interest in joint ventures. With respect
to investments in other subsidiaries, associates and interests in joint ventures, deferred income tax
liabilities are recognized except when the timing of the reversal of the temporary difference can be
controlled and it is probable that the temporary difference will not reverse in the foreseeable
future.
The carrying amount of deferred income tax assets is reviewed at the end of each reporting period
and reduced to the extent that it is no longer probable that sufficient future taxable profits will be
available to allow all or part of the deferred income tax assets to be utilized. Unrecognized
deferred income tax assets are reassessed at the end of each reporting period and are recognized to
the extent that it has become probable that sufficient future taxable profits will allow the deferred
income tax assets to be recovered. It is probable that sufficient future taxable profits will be
available against which a deductible temporary difference can be utilized when there are sufficient
taxable temporary difference relating to the same taxation authority and the same taxable entity
which are expected to reverse in the same period as the expected reversal of the deductible
temporary difference. In such circumstances, the deferred income tax asset is recognized in the
period in which the deductible temporary difference arises.
Deferred income tax assets and liabilities are measured at the tax rates that are 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 at the end of reporting period.
Deferred income tax assets and deferred income tax liabilities are offset if a legally enforceable
right exists to set off the current income tax assets against the current income tax liabilities and
deferred income taxes relate to the same taxable entity and the same taxation authority.
- 63 -
VAT
Revenues, expenses, assets and liabilities are recognized net of the amount of VAT, except where
the VAT incurred on the purchase of assets or services is not recoverable from the taxation
authority, in which case the VAT is recognized as part of the cost of acquisition of the asset or as
part of the expense item as applicable.
The net amount of VAT recoverable from, or payable to, the taxation authority is included as part
of “Prepayments and other current assets” or “Output VAT and other taxes payable”, included
under “Accounts payable and other current liabilities” in the consolidated balance sheet.
Provisions and Contingencies
Provisions are recognized when the Group has a present obligation (legal or constructive) as a
result of a past event, it is probable that an outflow of resources embodying economic benefits will
be required to settle the obligation and a reliable estimate can be made of the amount of the
obligation. 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
assessments 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 interest expense. When the Group expects a provision or loss to be reimbursed, the
reimbursement is recognized as a separate asset only when the reimbursement is virtually certain
and its amount is estimable. The expense relating to any provision is presented in the consolidated
statement of income, net of any reimbursement.
Contingent liabilities are not recognized in the consolidated financial statements. They are
disclosed unless the possibility of an outflow of resources embodying economic benefits is remote.
Contingent assets are not recognized in the consolidated financial statements but disclosed when
an inflow of economic benefits is probable. Contingent assets are assessed continually to ensure
that developments are appropriately reflected in the consolidated financial statements. If it has
become virtually certain that an inflow of economic benefits will arise, the asset and the related
income are recognized in the consolidated financial statements.
Deposits for Future Certified Emission Reduction (CER)
Deposits for future CER is recognized as a liability at fair value upon receipt and is derecognized
upon generation and transfer of the CER to a third party. CER means a unit of greenhouse gas
reductions that has been generated and certified under the Clean Development Mechanism (CDM)
of the Kyoto Protocol (see Note 30).
Capital Stock
Capital stock is measured at par value for all shares issued. When the Company issues more than
one class of stock, a separate account is maintained for each class of stock and the number of
shares issued. Incremental costs incurred directly attributable to the issuance of new shares are
shown in equity as a deduction from proceeds, net of tax. When any member of the Group
purchases the Company’s capital stock (treasury shares), the consideration paid, including any
attributable incremental costs, is deducted from equity attributable to the Company’s equity
holders until the shares are cancelled, reissued or disposed of. Where such shares are
subsequently sold or reissued, any consideration received, net of any directly attributable
incremental transaction costs, and the related tax effects is included in equity attributable to the
Company’s equity holders.
- 64 -
Additional Paid-in Capital
Additional paid in capital represents the portion of the paid in capital in excess over the par or
stated value.
Retained Earnings
Retained earnings represent the cumulative balance of net income or loss, dividend distributions,
prior period adjustments, effects of the changes in accounting policy and other capital adjustments.
Earnings per Share (EPS)
Basic EPS is computed by dividing net income for the year attributable to equity holders of the
Company by the weighted average number of common shares outstanding during the year,
excluding capital stock purchased by the Company and treated as treasury shares after giving
retroactive effect to stock dividends declared and stock rights exercised during the year, if any.
Diluted EPS amounts are calculated by dividing the net income attributable to ordinary equity
holders of the Company (after deducting interest on convertible preferred shares) 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 dilutive potential ordinary shares
into ordinary shares. The Group does not have diluted potential common shares as of
December 31, 2010 and 2009.
Dividend Distribution
Cash dividends on common shares are recognized as a liability and deducted from equity when
approved by the respective BOD of the Company. Stock dividends are treated as transfers from
retained earnings to capital stock. Dividends for the year that are approved after the end of
reporting period are dealt with as a non-adjusting event after the end of reporting period.
Related Party Relationships and Transactions
Related party relationship exists when the party has the ability to control, directly or indirectly,
through one or more intermediaries, or exercise significant influence over the other party in
making financial and operating decisions. Such relationships also exist between and/or among
entities which are under common control with the reporting entity and its key management
personnel, directors or stockholders. In considering each possible related party relationship,
attention is directed to the substance of the relationships, and not merely to the legal form.
Events after the End of Reporting Period
Events after the end of reporting period that provide additional information about the Group’s
position at the end of reporting period (adjusting event) are reflected in the consolidated financial
statements. Events after the end of reporting period that are not adjusting events, if any, are
disclosed when material to the consolidated financial statements.
Future Changes in Accounting Policies
The Group will adopt the following new PFRS and Philippine interpretations and amendments to
existing standards that will be effective subsequent to December 31, 2010. Except as otherwise
indicated, the Group does not expect the adoption of these new and amended PFRS and Philippine
interpretations to have significant impact on the consolidated financial statements.
Effective in 2011
• Amended PAS 24, Related Party Disclosures, clarifies the definition of a related party to
simplify the identification of such relationships and to eliminate inconsistencies in its
- 65 -
application. The revised standard introduces a partial exemption of disclosure requirements
for government related entities. Early adoption is permitted for either the partial exemption
for government-related entities or for the entire standard.
•
Amendment to PAS 32, Financial Instruments: Presentation - Classification of Rights Issues,
amended the definition of a financial liability in order to classify rights issues (and certain
options or warrants) as equity instruments in cases where such rights are given pro rata to all
of the existing owners of the same class of an entity’s nonderivative equity instruments, and to
acquire a fixed number of the entity’s own equity instruments for a fixed amount in any
currency.
•
Amendment to Philippine Interpretation IFRIC 14, Prepayments of a Minimum Funding
Requirement, provides guidance on assessing the recoverable amount of a net pension asset.
The amendment permits an entity to treat the prepayment of a minimum funding requirement
as an asset.
•
Philippine Interpretation IFRIC 19, Extinguishing Financial Liabilities with Equity
Instruments, clarifies that equity instruments issued to a creditor to extinguish a financial
liability qualify as consideration paid. The equity instruments issued are measured at their fair
value. In case that this cannot be reliably measured, the instruments are measured at the fair
value of the liability extinguished. Any gain or loss is recognized immediately in profit or
loss.
Improvements to PFRS
The FRSC approved in its meeting in July 2010 the adoption of Improvements to IFRS issued by
the IASB in May 2010. There are separate transitional provisions for each standard which are all
effective beginning January 1, 2011.
•
PFRS 3, Business Combinations, is applicable to annual periods beginning on or after
July 1, 2010. Amendments to this standard pertain to (a) transition requirements for
contingent consideration from a business combination that occurred before the effective date
of revised PFRS and is applied retrospectively, (b) measurement of non-controlling interest,
which is applied prospectively from the date the entity applies Revised PFRS 3, and
(c) un-replaced and voluntarily replaced share-based payment awards, which is applied
prospectively.
•
PFRS 7, Financial Instruments: Disclosures, emphasizes the interaction between quantitative
and qualitative disclosures and the nature and extent of risks associated with financial
instruments. The amendment is applied retrospectively.
•
PAS 1, Presentation of Financial Statements, clarifies that an entity will present an analysis of
other comprehensive income for each component of equity, either in the statement of changes
in equity or in the notes to the financial statements. The amendment is applied retrospectively.
•
PAS 27, Consolidated and Separate Financial Statements, clarifies that the consequential
amendments from PAS 27 made to PAS 21, The Effect of Changes in Foreign Exchange
Rates, PAS 28, Investments in Associates, and PAS 31, Interests in Joint Ventures, apply
prospectively for annual periods beginning on or after July 1, 2010 or earlier when PAS 27 is
applied earlier. The amendment is applicable to annual periods beginning on or after
July 1, 2010 and is applied retrospectively.
- 66 -
•
PAS 34, Interim Financial Reporting, provides guidance to illustrate how to apply disclosure
principles in PAS 34 and add disclosure requirements around (a) the circumstances likely to
affect fair values of financial instruments and their classification, (b) transfers of financial
instruments between different levels of the fair value hierarchy, (c) changes in classification of
financial assets, and (d) changes in contingent liabilities and assets. The amendment is applied
retrospectively.
•
Philippine Interpretation IFRIC 13, Customer Loyalty Programmes, clarifies that when the fair
value of award credits is measured based on the value of the awards for which they could be
redeemed, the amount of discounts or incentives otherwise granted to customers not
participating in the award credit scheme, is to be taken into account. The amendment is
applied retrospectively.
Effective in 2012
• Amendments to PFRS 7, Financial Instruments: Disclosure - Transfers of Financial Assets,
will allow users of financial statements to improve their understanding of transfer transactions
of financial assets (e.g., securitizations), including understanding the possible effects of any
risks that may remain with the entity that transferred the assets. The amendments also require
additional disclosures if a disproportionate amount of transfer transactions are undertaken
around the end of reporting period.
•
Amendment to PAS 12, Income Taxes - Deferred Tax: Recovery of Underlying Assets,
provides a practical solution to the problem of assessing whether recovery of an asset will be
through use or sale. It introduces a presumption that recovery of the carrying amount of an
asset will normally be through sale.
•
Philippine Interpretation IFRIC 15, Agreements for Construction of Real Estate, covers
accounting for revenue and associated expenses by entities that undertake the construction of
real estate directly or through subcontractors. This Interpretation requires that revenue on
construction of real estate be recognized only upon completion, except when such contract
qualifies as construction contract to be accounted for under PAS 11, Construction Contracts,
or involves rendering of services in which case revenue is recognized based on stage of
completion. Contracts involving provision of services with the construction materials and
where the risks and reward of ownership are transferred to the buyer on a continuous basis
will also be accounted for based on stage of completion.
Effective in 2013
• PFRS 9, Financial Instruments: Classification and Measurement, as issued in 2010, reflects
the first phase of the work on the replacement of PAS 39 and applies to classification and
measurement of financial assets and financial liabilities as defined in PAS 39. In subsequent
phases, hedge accounting and derecognition will be addressed. The completion of this project
is expected in early 2011. The adoption of the first phase of PFRS 9 will have an effect on the
classification and measurement of the Group’s financial assets. The Group will quantify the
effect in conjunction with the other phases, when issued, to present a comprehensive picture.
The Group continues to assess the impact of the above new and amended accounting standards
and interpretations effective subsequent to 2010 on the Group’s consolidated financial statements
prior to and in the period of initial application. Additional disclosures required by these standards
and interpretations will be included in the consolidated financial statements when these standards
and interpretations are adopted.
- 67 -
3. Management’s Use of Significant Judgments, Accounting Estimates and Assumptions
The preparation of the consolidated financial statements in accordance with PFRS requires the
Group to exercise judgments, make accounting estimates and use 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 accounting estimates to change. The effects of any change in accounting estimates
are reflected in the consolidated financial statements as they become reasonably determinable.
Accounting estimates and judgments 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 effects on
amounts recognized in the consolidated financial statements:
Classification of financial instruments
The Group exercises judgment in classifying financial instruments in accordance with PAS 39.
The Group classifies a financial instrument, or its components, on initial recognition as 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 Group’s consolidated balance sheets.
Classifications of financial instruments are further discussed in Note 25.
Determination of type of lease - operating lease
The Group has various lease agreements in respect of certain properties. The Group evaluates
whether significant risks and rewards of ownership of the leased properties are transferred
(finance lease) or retained by the lessor (operating lease) based on PAS 17, which requires the
Group to make judgments and estimates of transfer of risk and rewards of ownership of the leased
properties. The leases are, therefore, accounted for as operating leases (see Note 27).
Total lease expense arising from operating leases amounted to P
=58.0 million, P
=41.5 million and
P41.4 million in 2010, 2009 and 2008, respectively (see Note 20).
=
Estimates and Assumptions
The key assumptions concerning the future and other key sources of estimation uncertainties at the
end of reporting period, that have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next financial year are as follows:
Measurement of NRV of inventories
The Group’s estimates of the NRV of inventories are based on the most reliable evidence available
at the time the estimates are made, of the amount that the inventories are expected to be realized.
These estimates consider the fluctuations of price or cost directly relating to events occurring after
the end of the period to the extent that such events confirm conditions existing at the end of the
period. A new assessment is made of NRV in each subsequent period. When the circumstances
that previously caused inventories to be written down below cost no longer exist or when there is a
clear evidence of an increase in NRV because of change in economic circumstances, the amount
of the write-down is reversed so that the new carrying amount is the lower of the cost and the
revised NRV.
- 68 -
The Group’s inventories as of December 31, 2010 and 2009 amounting to P
=4,060.9 million and
P3,181.5 million, respectively, are carried at cost, except for some materials and supplies which
=
are carried at NRV amounting to P
=211.2 million and P
=317.0 million as of December 31, 2010 and
2009, respectively. Provision for inventory obsolescence amounted to P
=3.2 million, P
=0.4 million
and P
=1.1 million in 2010, 2009 and 2008, respectively (see Note 8).
Impairment of loans and receivables
The Group assesses on a regular basis if there is objective evidence of impairment of loans and
receivables. The amount of impairment loss is measured as the difference between the asset’s
carrying amount and the present value of the estimated future cash flows discounted at the asset’s
original effective interest rate. The determination of impairment requires the Group to estimate
the future cash flows based on certain assumptions as well as to use judgment in selecting an
appropriate rate in discounting. The Group uses specific impairment on its loans and receivables.
The Group did not assess its loans and receivables for collective impairment due to the few
counterparties which can be specifically identified. The amount of loss is recognized in the
consolidated statement of income with a corresponding reduction in the carrying value of the loans
and receivables through an allowance account.
Total carrying value of loans and receivables amounted to P
=2,693.5 million and P
=2,187.1 million
as of December 31, 2010 and 2009, respectively. In 2009, accounts amounting to P
=7.0 million
specifically identified as doubtful of collection were provided with an impairment allowance
(see Notes 7 and 25).
Impairment of AFS financial assets
The computation for the impairment of AFS financial assets requires an estimation of the present
value of the expected future cash flows and the selection of an appropriate discount rate. An
impairment issue arises when there is an objective evidence of impairment, which involves
significant judgment. In making this judgment, the Group evaluates the financial health of the
issuer, among others. In the case of AFS equity instruments, the Group expands its analysis to
consider changes in the issuer’s industry and sector performance, legal and regulatory framework,
changes in technology, and other factors that affect the recoverability of the Group’s investments.
As of December 31, 2010 and 2009, the aggregate carrying value of the Group’s AFS financial
assets amounted to P
=27.0 million and P
=21.0 million, respectively. Impairment loss of
=60.0 million has been recognized in the 2008 consolidated statement of income (see Notes 10
P
and 25).
Impairment of noncurrent non-financial assets
The Group assesses, at the end of each reporting period, whether there are indications of
impairment on its property, plant and equipment and other noncurrent assets. If such indication
exists, impairment testing is performed except for goodwill which is tested on an annual basis.
This requires an estimation of the value in use of the CGUs to which the assets belong. Estimating
value in use requires the Group to make an estimate of the expected future cash flows from the
CGU and also to choose a suitable discount rate in order to calculate the present value of those
cash flows.
In 2009, management assessed that there is an impairment indicator on the property, plant and
equipment of AAC due to the shutdown of AAC’s plant in Pulupandan, Negros Occidental. Thus,
management performed an impairment test and recognized impairment loss on property, plant and
equipment amounting to P
=50.6 million in the 2009 consolidated statement of income. In 2010,
AAC’s plant has not yet resumed operations indicating that there is still an indicator of
impairment. Thus, management performed an impairment test. Based on this test, using the value
in use of AAC, no further impairment loss needs to be recognized in 2010.
- 69 -
The aggregate carrying values of property, plant and equipment and other noncurrent assets, after
recognition of impairment, amounted to P
=4,617.0 million and P
=4,819.1 million as of
December 31, 2010 and 2009, respectively (see Notes 11 and 13).
Impairment of goodwill
The Group determines whether goodwill is impaired on an annual basis every December 31, or
more frequently, if events or changes in circumstances indicate that it may be impaired. This
requires an estimation of the value in use of the cash generating units to which the goodwill is
allocated. Estimating value in use requires management to make an estimate of the expected
future cash flows from the cash generating unit and also to choose a suitable discount rate in order
to calculate the present value of those cash flows.
As of December 31, 2010 and 2009, the carrying amount of goodwill, for which no impairment
was recognized, amounted to P
=144.7 million (see Note 4).
Valuation of property, plant and equipment under revaluation basis
The Group’s land and land improvements, buildings and building improvements, and machinery
and equipment are carried at revalued amounts, which approximate their fair values at the date of
the revaluation, less any subsequent accumulated depreciation and amortization and accumulated
impairment losses. The valuations of property, plant and equipment are performed by independent
appraisers. Revaluations are made every three to five years to ensure that the carrying amounts do
not differ materially from those which would be determined using fair values at the end of
reporting period.
In 2010 and 2009, the Group’s property, plant and equipment was appraised by an independent
appraiser which resulted to revaluation increment amounting to P
=5.6 million and P
=12.0 million,
respectively, presented as “Revaluation increment on property, plant and equipment”, net of
deferred income tax effect in the consolidated statement of comprehensive income. Property,
plant and equipment at appraised values amounted to P
=3,699.3 million and P
=3,806.4 million as of
December 31, 2010 and 2009, respectively (see Note 11).
Valuation of investment properties
The Group’s investment properties are carried at fair value, with changes in fair values recorded in
the consolidated statement of income in the year in which the fair value changes arise. The Group
opted to rely on independent appraisers in determining the fair values of investment properties,
and such fair values were determined based on recent prices of similar properties, with
adjustments to reflect any changes in economic conditions since the date of those transactions. The
amounts and timing of recorded changes in fair value for any period would differ if we made
different judgments and estimates or utilized a different basis for determining fair value. Annual
appraisal of investment properties is performed every December 31.
Total carrying value of investment properties as of December 31, 2010 and 2009 amounted to
P188.9 million and P
=
=168.1 million, respectively (see Note 12).
Estimation of useful lives of property, plant and equipment
The Group estimates the useful lives of property, plant and equipment based on internal technical
evaluation and experience with similar assets. Estimated useful lives of property, plant and
equipment are reviewed periodically and updated if expectations differ from previous estimates
due to physical wear and tear, technical and commercial obsolescence and other limits on the use
of the assets.
- 70 -
In 2010, AAC reassessed and changed the estimated useful lives of buildings and building
improvements, and machinery and equipment which resulted to additional depreciation expense
amounting to P
=100.4 million (see Notes 5 and 20).
The total carrying amount of property, plant and equipment as of December 31, 2010 and 2009
amounted to P
=4,575.4 million and P
=4,783.9 million, respectively (see Note 11). The estimated
useful lives of the Group’s property, plant and equipment are discussed in Note 2 to the
consolidated financial statements.
Recognition of deferred income tax assets
The Group reviews the carrying amounts at end of each reporting period and adjusts the balance of
deferred income tax assets to the extent that it is no longer probable that sufficient future taxable
profits will be available to allow all or part of the deferred income tax assets to be utilized. The
Group’s assessment on the recognition of deferred income tax assets on deductible temporary
differences is based on the level and timing of forecasted taxable income of the subsequent
reporting periods. This forecast is based on the Group’s past results and future expectations on
revenues and expenses as well as future tax planning strategies. However, there is no assurance
that the Group will generate sufficient taxable income to allow all or part of our deferred income
tax assets to be utilized.
Deferred income tax assets recognized in the consolidated balance sheets amounted to
=197.1 million and P
P
=58.0 million as of December 31, 2010 and 2009, respectively. On the other
hand, deferred income tax assets on deductible temporary differences, MCIT and NOLCO
amounting to P
=30.3 million and P
=91.2 million as of December 31, 2010 and 2009, respectively,
were not recognized based on the assessment that future taxable profits will not be available to
allow the deferred income tax assets to be utilized (see Note 22).
Estimation of retirement benefits cost and liability
The Group’s retirement benefits cost and liability are actuarially computed. This entails using
certain assumptions with respect to future annual increase in salary, expected annual rate of return
on plan assets and discount rate per annum.
Net retirement plan assets of the Company as of December 31, 2010 and 2009 amounted to
=21.8 million and P
P
=35.7 million, respectively. On the other hand, net retirement benefits liabilities
of the subsidiaries amounted to P
=27.6 million and P
=34.3 million as of December 31, 2010 and
2009, respectively. Retirement benefits costs in 2010, 2009 and 2008 amounted to P
=18.7 million,
=31.1 million and P
P
=8.0 million, respectively (see Note 19).
Provisions and 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 the legal counsel
handling the defense in these matters and is based upon our analysis of potential results. The
Group currently does not believe these proceedings will have a material adverse effect on the
consolidated financial statements. It is possible, however, that future financial performance could
be materially affected by changes in the estimates or effectiveness of the strategies relating to
these proceedings and assessments.
No provisions have been recorded as of December 31, 2010 and 2009 (see Note 29).
- 71 -
4. Goodwill and Transactions with Non-controlling Interests
Goodwill
As at December 31, 2010, the Group performed its annual impairment testing of goodwill related
to ADI, a CGU and also a reportable operating segment. The Group considers the relationship
between its market capitalization and its book value, among other factors, when reviewing for
indicators of impairment.
The key assumptions used in determining the recoverable amount of ADI based on value in use
calculations are as follows:
Projected
cash flows
Cash flow projections were based from financial budgets approved by
management covering a five-year period. The projected cash flows have been
updated to reflect the increase in demand for products based on the Company’s
projected sales volume increase, selling price increase and cost and expenses
increase as detailed below:
• Sales volume (in number of liters). Management based the sales volume on
the sales forecast of the Company. The increase in sales volume is based on
the assumption that the Company will source 30% of its alcohol requirements
from ADI.
• Selling price, exclusive of tax. Management expects a 5% annual increase in
selling price or an average of P
=3.0 per liter, based on history of selling price
increases. In February 2010, ADI increased its selling price by P
=10.0 per liter.
• Manufacturing expenses, including fuel and other expenses. Management
expects a 40% decrease in fuel per year, as a result of the savings on fuel cost
from operation of the CDM project in 2009 (see Note 30).
• Operating expenses. Management expects a 3% annual increase in operating
expenses.
Budgeted
capital
expenditure
The cash flow forecast for capital expenditure are based on past experience and
includes the ongoing capital expenditure required to repair and improve distilling
columns, to improve quality and production efficiency and to meet the volume
requirements of the Company. Capital expenditure expected to be spent
amounted to P
=380.0 million over the five-year period starting 2011. Management
also expects to spend P
=10.0 million annually for repairs and maintenance
requirements.
5% long-term
growth rate
For businesses where five years of management plan data is used for the Group’s
value in use calculations, a long-term growth rate into perpetuity has been
determined based on the projected industry growth for 2011.
16.14% pretax risk
adjusted
discount rate
The discount rate applied to the cash flows of ADI’s operations is based on the
risk-free rate for five-year bonds issued by the government in the respective
market, adjusted for a risk premium to reflect both the increased risk of investing
in equities and the systematic risk of the specific Group operating company. In
making this adjustment, inputs required are the equity market risk premium
(that is the required increased return over and above a risk-free rate by an investor
who is investing in the market as a whole) and the risk adjustment, beta, applied
to reflect the risk of the specific Group operating company relative to the market
as a whole.
(Forward)
- 72 -
In determining the risk-adjusted discount rate, management has applied an
adjustment for the systematic risk to ADI’s operations determined using an
average of the betas of comparable listed distillery companies across Asia.
Management has used market risk premium that takes into consideration studies
by independent economists.
Management believes that no reasonably possible change in any of the above key assumptions
would cause the carrying value of ADI to exceed its recoverable amount, which is based on value
in use.
Transactions with Non-controlling Interests
In December 2006, the Company converted certain advances to AAC and ADI, amounting to
=200.0 million and P
P
=185.0 million, respectively, to additional investments in the shares of stock of
the subsidiaries. Accordingly, AAC and ADI reclassified the advances from the Company for the
same amounts to deposits for stock subscription.
In 2007, AAC and ADI have undertaken equity restructuring. Deposits for stock subscription
aggregating to P
=385.0 million were converted to capital stock of AAC and ADI, thereby, resulting
in increase in ownership by the Company over AAC and ADI.
The following details the changes in the percentages of ownership in these subsidiaries:
AAC
ADI
Before equity restructuring
90%
90%
After equity restructuring
93%
96%
On October 26, 2007 and January 10, 2008, the SEC approved the equity restructuring and
increase in authorized capital stock of ADI and AAC, respectively.
On April 24, 2008, ADI’s BOD approved a resolution authorizing the conversion to equity of the
existing advances of the Company amounting to P
=100.0 million. The conversion was credited to
additional paid-in capital, and therefore, did not increase the Company’s ownership interest.
On March 17, 2008, the Company purchased additional shares of stock of AAC amounting to
P150.0 million which increased the Company’s ownership interest from 93% to 95%.
=
As a result of these transactions with non-controlling interests, equity attributable to the equity
holders of the Company increased by P
=52.2 million which is recognized in the consolidated
balance sheet and consolidated statement of changes in equity as “Effect of transactions with
non-controlling interests.”
5. Operating Segments Information
Operating segments are components of the Group; (a) that engage in business activities from
which they may earn revenues and incur expenses (including revenues and expenses relating to
transactions with other components of the Group); (b) whose operating results are regularly
reviewed by the Group’s CODM to make decisions about resources to be allocated to the segment
and assess its performance, and (c) for which discrete financial information is available. The
Group’s CODM is THI’s BOD.
- 73 -
For purposes of management reporting, the Group’s operating businesses are organized and
managed separately on a per company basis, with each company representing a strategic business
segment. The businesses were acquired as individual units, and their respective management
teams at the time of the acquisition were retained.
The Company’s identified operating segments, which are consistent with the segments reported to
the CODM, are as follows:
a. The Company, which produces distilled spirits with rhum being its main product and has four
liquor bottling plants located in Quiapo, Manila; Cabuyao, Laguna; Murcia, Negros
Occidental; and El Salvador, Misamis Oriental;
b. ADI, which produces fine quality ethyl alcohol from its distillery in Lian, Batangas; and,
c. AAC, which produces fine quality ethyl alcohol and aged alcohol from its distillery in
Pulupandan, Negros Occidental.
THI’s BOD regularly reviews the operating results of the business units to make decisions on
resource allocation and assess performance. Segment revenue and segment expenses are
measured in accordance with PFRS. The presentation and classification of segment revenues and
segment expenses are consistent with the consolidated statement of income. Financing costs
(including interest expense) and income taxes are managed on a per company basis and are not
allocated to operating segments.
Further, the measurement of the segments assets are the same as those described in the summary
of significant accounting and financial reporting policies, except for ADI’s property, plant and
equipment and investment properties which are measured at cost. Land and land improvements,
buildings and building improvements, and machinery and equipment of the Company and AAC
are stated at fair value based on a valuation performed by independent appraisers, while that of
ADI is stated using the cost basis in their separate financial statements. ADI’s land, land
improvements, buildings and building improvements, and machinery and equipment is adjusted at
the consolidated level to reflect their revalued amounts. The Company’s and AAC’s investment
properties are stated at fair value, which reflects market conditions at the end of reporting period,
while ADI’s investment property is stated at cost less accumulated depreciation and any
impairment in value in its separate financial statements. ADI’s investment property is adjusted at
the consolidated level to reflect their fair values.
The Group has only one geographical segment as all of its assets are located in the Philippines.
The Group operates and derives principally all of its revenue from domestic operations. Thus,
geographical business information is not required.
Revenue is recognized to the extent that it is probable those economic benefits will flow to the
Group and that the revenue can be reliably measured. Revenue is measured at the fair value of the
consideration received or receivable, excluding discounts, rebates, and other sales taxes or duties.
Substantially, all of the segment revenue of AAC and ADI are derived from the Company, while
an average of 97%, from 2008 to 2010, of the Company’s segment revenue is derived from four
major distributors. Sales from each four major distributors averaged 47%, 44%, 7% and 2%,
respectively, of the total sales of the Company.
Transfer prices between operating segments are on an arm’s length basis in a manner similar to
transactions with third parties. Segment revenue includes transfers between operating segments.
Such transfers are eliminated in the consolidation.
- 74 -
Segment expenses are those directly attributable to the segment and the relevant portion of an
expense that can be allocated on a reasonable basis to the segment, including expenses such as
cost of goods sold, selling and general and administrative expenses. General and administrative
expenses that arise at the entity level and relate to the entity as a whole are not included.
The following tables present the information about the Group’s operating segments:
December 31, 2010:
Segment revenue
External customers
Inter-segment
Segment expenses
Income (loss) before
income tax
Provision for (benefit from)
income tax
Segment profit (loss)
Fire loss
Changes in fair value
of investment properties
Depreciation and amortization
Interest income
Finance costs
The
Company
(Amounts in millions)
Eliminations
and
AAC
ADI Adjustments Consolidated
P
=11,316.3
–
11,316.3
10,496.8
P
=83.3
234.1
317.3
379.5
P
=97.3
1,054.6
1,151.9
1,066.9
P
=–
(1,288.7)
(1,288.7)
(1,248.4)
P
=11,496.9
–
11,496.9
10,694.8
819.5
(62.1)
85.0
(40.3)
802.1
246.5
P
=573.0
4.3
(P
=66.4)
(66.5)
P
=151.5
(16.0)
(P
= 24.3)
168.3
P
=633.8
P
=228.6
P
=–
P
=–
P
=–
P
=228.6
–
283.1
7.6
472.1
16.8
214.1
0.2
–
–
23.6
0.1
4.0
10.9
–
–
20.8
531.7
7.9
472.1
Other financial information of the operating segments are as follows:
The
Company
Assets
Current assets
Noncurrent assets
Total assets
Liabilities
Current liabilities
Noncurrent liabilities
Total liabilities
Additions to noncurrent assets
Property, plant and equipment
Other noncurrent assets
(Amounts in millions)
Eliminations
and
AAC
ADI
Adjustments Consolidated
P
=6,181.8
5,540.1
P
=11,721.9
P
=1,123.9
1,062.4
P
=2,186.3
P
= 562.1
395.7
P
= 957.8
(P
=711.1)
(1,945.2)
(P
=2,656.3)
P
=7,156.7
5,053.0
P
=12,209.7
P
=1,488.5
5,239.5
P
=6,728.0
P
=22.3
21.8
P
=44.1
P
= 610.5
76.7
P
= 687.2
(P
=630.2)
32.2
(P
=598.0)
P
=1,491.1
5,370.2
P
=6,861.3
P
=176.8
0.3
P
=11.8
6.0
P
=68.4
–
P
=118.1
–
P
=375.1
6.3
In 2010, the following events caused material changes in the assets of the operating segments:
i. Fire incident in the Company’s plant wherein losses incurred relate to damaged inventories
and property, plant and equipment (see Note 21); and,
ii. Revaluation and change in estimated useful lives of property, plant and equipment of AAC
(see Note 2 and 11).
- 75 -
December 31, 2009:
The
Company
Segment revenue
External customers
Inter-segment
Segment expenses
Income (loss) before
income tax
Provision for (benefit from)
income tax
Segment profit (loss)
Loss on sale of AFS financial
assets
Gain on:
Changes on fair value of
investment properties
Settlement of nonperforming
loans
Impairment loss on property,
plant and equipment
Depreciation and amortization
Interest income
Finance costs
(Amounts in millions)
Eliminations
and
AAC
ADI Adjustments
=9,975.3
P
–
9,975.3
9,244.4
=
P43.0
678.5
721.5
546.5
=
P183.9
403.4
587.3
626.8
730.9
175.0
225.7
=
P505.2
Consolidated
=
P–
(1,081.9)
(1,081.9)
(963.4)
=
P10,202.2
–
10,202.2
9,454.3
(39.5)
(118.5)
747.9
15.4
=
P159.6
–
(P
=39.5)
(36.6)
(P
=81.9)
204.5
=
P543.4
=
P4.2
=
P–
=
P–
=
P–
=
P4.2
1.7
108.2
–
5.1
115.0
–
6.6
–
–
6.6
–
278.5
11.7
446.2
50.6
115.5
0.8
–
–
25.8
0.1
–
–
14.2
–
–
50.6
434.0
12.6
446.2
(Amounts in millions)
Eliminations
and
AAC
ADI
Adjustments
Consolidated
Other financial information of the operating segments are as follows:
The
Company
Assets
Current assets
Noncurrent assets
Total assets
Liabilities
Current liabilities
Noncurrent liabilities
Total liabilities
Additions to noncurrent
assets
Property, plant and equipment
Other noncurrent assets
=4,557.3
P
5,693.6
=10,250.9
P
=
P1,307.6
1,237.1
=
P2,544.7
=
P263.0
290.7
=
P553.7
(P
=380.3)
(2,017.9)
(P
=2,398.2)
=
P5,747.6
5,203.5
=
P10,951.1
=1,286.9
P
4,548.5
=5,835.4
P
=
P306.5
29.7
=
P336.2
=
P359.0
75.5
=
P434.5
(P
=433.9)
75.3
(P
=358.6)
=
P1,518.5
4,729.0
=
P6,247.5
=
P170.3
1.1
=
P135.0
=
P71.6
–
=
P–
–
=
P376.9
1.1
–
- 76 -
December 31, 2008:
The
Company
Segment revenue
External customers
Inter-segment
Segment expenses
Income (loss) before
income tax
Provision for (benefit from)
income tax
Segment profit (loss)
Gain (loss) on sale of:
investment properties
Impairment loss on AFS
financial assets
Depreciation and amortization
Interest income
Finance costs
(Amounts in millions)
Eliminations
and
AAC
ADI
Adjustments
Consolidated
=8,955.9
P
–
8,955.9
8,461.3
=
P14.3
1,428.6
1,442.9
1,364.6
=
P76.0
458.6
534.6
733.4
=
P–
(1,887.2)
(1,887.2)
(1,923.0)
=
P9,046.2
–
9,046.2
8,636.3
494.6
78.3
(198.8)
35.8
409.9
195.8
=
P298.8
31.3
=
P47.0
–
(P
=198.8)
(2.7)
=
P38.5
224.4
=
P185.5
=
P–
=
P–
=
P0.8
=
P–
=
P0.8
60.0
282.3
44.6
416.5
–
109.1
3.6
0.7
–
15.0
0.1
–
–
2.4
–
–
60.0
408.8
48.3
417.2
(Amounts in millions)
Eliminations
and
AAC
ADI
Adjustments
Consolidated
Other financial information of the operating segments are as follows:
The
Company
Assets
Current assets
Noncurrent assets
Total assets
Liabilities
Current liabilities
Noncurrent liabilities
Total liabilities
Additions to noncurrent
assets
Property, plant and equipment
Other noncurrent assets
=4,669.2
P
5,890.9
=10,560.1
P
=
P1,347.6
1,132.7
=
P2,480.3
=
P270.4
244.9
=
P515.3
(P
=415.7)
(1,986.3)
(P
=2,402.0)
=
P5,871.5
5,282.2
=
P11,153.7
=1,870.9
P
4,566.5
=6,437.4
P
=
P412.4
18.9
=
P431.3
=
P312.8
43.9
=
P356.7
(P
=528.1)
95.6
(P
=432.5)
=
P2,068.0
4,724.9
=
P6,792.9
=
P314.8
1.8
=
P116.2
–
=
P159.6
–
(P
=25.5)
–
=
P565.1
1.8
- 77 -
6. Cash
2009
P1,227,000
=
492,692,149
=493,919,149
P
2010
P
=1,187,000
825,047,366
P
=826,234,366
Cash on hand
Cash in banks (Notes 18 and 25)
Cash in banks earn interest at bank deposit rates. Interest income earned from cash in banks
amounted to P
=7.9 million, P
=3.7 million and P
=7.1 million in 2010, 2009 and 2008, respectively.
7. Receivables
2010
P
=1,561,554,146
202,868,690
68,380,299
71,951,592
1,904,754,727
36,303,021
P
=1,868,451,706
Trade (Notes 18 and 25)
Due from related parties (Notes 18 and 25)
Advances to suppliers (Notes 18 and 25)
Others (Notes 13, 18 and 25)
Less allowance for doubtful accounts
2009
=1,415,745,051
P
175,183,637
61,546,675
78,273,314
1,730,748,677
36,303,021
=1,694,445,656
P
a. The Group’s credit term is 30 days.
b. Movements in and details of allowance for doubtful accounts in 2010 and 2009 are as follows
(amounts in thousands):
At January 1
Provisions during
the year
At December 31
Trade
2009
2010
=1,049
P
= 5,098
P
–
= 5,098
P
4,049
=5,098
P
Advances to
Suppliers
2009
2010
P25,692
P
= 25,692 =
–
P
= 25,692
–
=
P25,692
Others
2009
2010
=
P2,529
= 5,513
P
2010
P
=36,303
2009
=
P29,270
2,984
=
P5,513
–
P
=36,303
7,033
=
P36,303
–
= 5,513
P
Total
The receivables provided with allowance for doubtful accounts are identified to be individually
impaired. No receivables were identified to be collectively impaired.
8. Inventories
Finished goods - at cost
Work in process - at cost (Note 21)
Raw materials - at cost (Notes 18 and 21)
Materials and supplies:
At cost
At NRV
2010
P
=767,975,526
890,726,424
1,584,373,912
2009
=267,369,165
P
689,395,100
1,337,095,403
606,620,640
211,168,037
P
=4,060,864,539
570,582,861
317,021,923
=3,181,464,452
P
Allowance for inventory obsolescence on materials and supplies amounted to P
=11.5 million and
=8.3 million as of December 31, 2010 and 2009, respectively. The cost of materials and supplies
P
stated at NRV amounted to P
=222.7 million and P
=325.3 million as of December 31, 2010 and 2009,
respectively.
- 78 -
9. Prepayments and Other Current Assets
Prepaid:
Importation charges
Excise tax
Input VAT
Others
2010
2009
P
=209,739,934
19,353,770
115,086,759
56,931,207
P
=401,111,670
=233,671,821
P
10,744,160
89,743,768
43,571,169
=377,730,918
P
Prepaid importation charges pertain to the acquisition machinery and equipment in line with the
Group’s expansion program and purchases of raw materials. Input VAT primarily arose from the
Company’s and ADI’s ongoing construction (see Note 11).
10. AFS Financial Assets
2010
P
=26,500,000
460,269
P
=26,960,269
Quoted equity share (Note 25)
Unquoted equity shares (Note 25)
2009
=20,500,000
P
460,269
=20,960,269
P
c. The Group’s investment in quoted equity shares pertains to the club share in Manila Golf and
Country Club, Inc. which is carried at fair value based on the quoted price of the club share at
the close of business, with changes in fair value being recognized in other comprehensive
income. Changes in fair value as of December 31, 2010 and 2009 amounted to P
=13.5 million
and P
=8.1 million, net of deferred income tax effect of P
=1.5 million and P
=0.9 million,
respectively. The cost of this investment amounted to P
=11.5 million.
d. In 2008, the Group had investments in debt securities which consist of United States dollar
(US$)-denominated government bonds that are carried at fair value (after recognizing in the
consolidated statement of income the effective interest amortization and foreign exchange
restatement) with net cumulative loss amounting to P
=87.9 million as of December 31, 2008
recognized as a separate component of equity. The fair values of these securities are based on
their quoted prices that are readily and regularly available from the investment trustee. Those
prices are indicative of actual and regularly occurring market transactions on an arm’s length
basis.
e.
In 2008, management assessed that there was impairment in the value of the Group’s
investment in debt securities (Ecuador bonds), and accordingly transferred the cumulative
decline in value recorded in other comprehensive income amounting to P
=60.0 million to the
2008 consolidated statement of income.
On May 29, 2009, the Group’s investment in Ecuador bonds was sold for a price equivalent to
=33.1 million (US$0.7 million), inclusive of the interest receivable amounting to P
P
=6.7 million
(US$0.1 million). Total gain recognized amounted to P
=2.9 million, which also represent the
changes in fair value up to the date of sale that was transferred from other comprehensive
income to the consolidated statement of income.
On November 11, 2009, the Group’s remaining investment in debt securities (Venezuela
bonds) were sold for a price equivalent to their face amount of P
=149.5 million
(US$3.2 million). Total consideration received amounted to P
=154.8 million (US$3.3 million)
- 79 -
which includes interest receivable equivalent to P
=3.4 million (US$0.1 million). Total loss
recognized from the sale amounted to P
=7.1 million, which also represent the changes in fair
value up to the date of sale that was transferred from other comprehensive income to the
consolidated statement of income.
Interest earned from these investments amounted to P
=8.7 million and P
=22.1 million in 2009
and 2008, respectively.
The total cost of these investments in debt securities amounted to P
=286.0 million.
Presented below are the movements in the net changes in fair values of AFS financial assets:
At January 1
Fair value changes during the year recognized in
other comprehensive income, net of deferred
income tax effect
Transfer to consolidated statement of income
through sale
At December 31
- 80 -
2010
P
=8,115,000
2009
(P
=79,357,188)
5,405,000
83,249,249
–
P
=13,520,000
4,222,939
=8,115,000
P
11. Property, Plant and Equipment
At Appraised Values
Land
Improvements,
Buildings and
Building
Land
Improvements
At Cost
Machinery and
Equipment
Subtotal
Furniture,
Fixtures and
Equipment
Transportation
Equipment
Warehouse, Laboratory
and Other
Leasehold
Equipment Improvements
P
=77,897,072
3,923,738
–
–
(149,690)
81,671,120
P
=320,796,288
5,069,556
–
–
–
325,865,844
P
=568,445,437
78,064,358
–
(6,236,420)
(811,039)
639,462,336
P
=82,239,042
229,888,837
39,884,730
–
–
–
269,773,567
P
= 56,092,277
158,037,146
43,902,967
–
(6,953,792)
(152,813)
194,833,508
P
= 444,628,828
22,395,117
7,169,771
–
–
–
29,564,888
P
= 58,254,511
–
–
–
–
–
–
P
= 291,649,187
Construction in
Progress
Subtotal
Total
December 31, 2010
Appraised Values/Cost
January 1, 2010
Additions
Appraisal increase (decrease)
Reclassifications
Disposals/write-offs (Note 21)
December 31, 2010
Accumulated Depreciation,
Amortization and
Impairment
January 1, 2010
Additions
Appraisal increase
Reclassifications
Disposal/write-offs (Note 21)
December 31, 2010
Net Book Value
=1,068,791,475
P
–
(77,227,400)
–
–
991,564,075
=1,875,401,599
P
1,038,700
81,760,748
116,539,890
(29,211,423)
2,047,206,652
P
=3,058,199,120
71,855,403
220,148,022
177,032,783
(426,418,637)
3,099,139,553
–
–
–
–
–
–
P
= 991,564,075
818,577,471
108,184,014
49,071,135
–
(8,762,121)
967,070,499
P
= 1,080,136,153
1,377,447,379
327,441,877
167,629,695
6,953,792
(407,962,144)
1,471,510,599
P
= 1,627,628,954
=1,068,655,631
P
135,844
–
–
1,068,791,475
=1,804,235,851
P
825,179
28,288,984
42,051,585
1,875,401,599
P
=2,921,515,850
91,971,585
–
44,711,685
3,058,199,120
P
= 5,794,407,332
92,932,608
28,288,984
86,763,270
6,002,392,194
P
=69,663,622
8,233,450
–
–
77,897,072
P
=309,529,471
11,266,817
–
–
320,796,288
P
=515,373,756
50,019,730
–
3,051,951
568,445,437
P
=81,033,685
–
–
1,205,357
82,239,042
P
=266,247,275
214,432,329
–
(91,020,578)
389,659,026
P
=1,241,847,809
283,952,326
–
(86,763,270)
1,439,036,865
P
= 7,036,255,141
376,884,934
28,288,984
–
7,441,429,059
–
–
–
–
–
P
= 1,068,791,475
662,292,477
121,440,825
11,217,169
23,627,000
818,577,471
P
= 1,056,824,128
1,126,042,938
224,462,999
–
26,941,442
1,377,447,379
P
= 1,680,751,741
1,788,335,415
345,903,824
11,217,169
50,568,442
2,196,024,850
P
= 3,806,367,344
45,857,033
5,308,145
–
–
51,165,178
P
= 26,731,894
187,056,539
42,832,298
–
–
229,888,837
P
= 90,907,451
123,073,928
34,963,218
–
–
158,037,146
P
= 410,408,291
17,366,860
5,028,257
–
–
22,395,117
P
= 59,843,925
–
–
–
–
–
P
= 389,659,026
373,354,360
88,131,918
–
–
461,486,278
P
= 977,550,587
2,161,689,775
434,035,742
11,217,169
50,568,442
2,657,511,128
P
= 4,783,917,931
P
= 6,002,392,194
72,894,103
224,681,370
293,572,673
(455,630,060)
6,137,910,280
2,196,024,850
435,625,891
216,700,830
6,953,792
(416,724,265)
2,438,581,098
P
= 3,699,329,182
51,165,178
5,163,597
–
–
(149,690)
56,179,085
P
=25,492,035
–
5,580,357
–
87,819,399
P
=389,659,026
194,906,771
–
(292,916,610)
–
291,649,187
P
=1,439,036,865
281,964,423
–
(293,572,673)
(960,729)
1,426,467,886
P
= 7,441,429,059
354,858,526
224,681,370
–
(456,590,789)
7,564,378,166
461,486,278
96,121,065
–
(6,953,792)
(302,503)
550,351,048
P
= 876,116,838
2,657,511,128
531,746,956
216,700,830
–
(417,026,768)
2,988,932,146
P
= 4,575,446,020
December 31, 2009
Appraised Values/Cost
January 1, 2009
Additions
Revaluation increase
Reclassifications
December 31, 2009
Accumulated Depreciation,
Amortization and
Impairment
January 1, 2009
Additions
Revaluation increase
Impairment
December 31, 2009
Net Book Value
a. Interest expense from short-term borrowings of AAC, incurred specifically to finance the
construction of a qualifying asset, was capitalized to property, plant and equipment amounting
to P
=15.0 million in 2009 (see Note 15). The capitalization rate used was 7.46%.
b. ADI completed the construction of the wastewater treatment digester and methane gas
collector under the CDM Project in August 2009 (see Note 30).
c. AAC started expanding its facilities by acquiring parcels of land and started construction of its
facilities in 2008. In 2009, plant expansion continued in order to produce extra neutral potable
alcohol. However, in June 2009, the Group recognized impairment loss of =
P50.6 million as a
result of the shutdown of AAC’s operation (see Note 29). In 2010, management performed
impairment testing on AAC’s property, plant and equipment due to the continued shutdown of
its plant and determined that no further impairment loss was necessary.
The recoverable amount of AAC as an operating segment has been determined based on a
value in use calculation. That calculation uses cash flow projections based on financial
forecast approved by management covering a five-year period, and a pre-tax discount rate of
15.09% and 17.69% in 2010 and 2009, respectively. Cash flows forecasts are extrapolated
after the five-year period at a steady growth rate of 5.0% and 4.5% in 2010 and 2009,
respectively. Management believes that any reasonably possible change in the key
assumptions on which the recoverable amount is based would not cause the carrying amount
to exceed its recoverable amount.
d. In 2010 and 2009, AAC revalued its land, land improvements, buildings and building
improvements and machinery and equipment based on a valuation made by independent
appraisers. The revaluation resulted in revaluation increment of =
P5.6 million and
=12.0 million, net of deferred income tax liability of =
P
P2.4 million and P
=5.1 million,
respectively.
The fair value as of December 31, 2010 and 2009 was determined based on market values as
of that date, which were arrived at using the Market Data Approach for land using the
gathered available market evidences and Depreciated Replacement Cost for buildings, land
improvements and machinery and equipment which have no available market evidences.
e. If land, land improvements, buildings and building improvements, and machinery and
equipment were carried at cost less accumulated depreciation and impairment, the amounts
would be as follows:
December 31, 2010:
Cost
Accumulated Depreciation
and Impairment
Net Book Value
Land
P
=247,149,987
–
P
=247,149,987
Land
Improvements,
Buildings and
Building
Improvements
P
=1,350,138,154
(720,597,490)
P
=629,540,664
82
Machinery and
Equipment
P
=3,530,707,438
Total
P
=5,127,995,579
(1,992,643,418)
P
=1,538,064,020
(2,713,240,908)
P
=2,414,754,671
December 31, 2009:
Cost
Accumulated Depreciation
and Impairment
Net Book Value
f.
Land
=324,377,387
P
Land
Improvements,
Buildings and
Building
Improvements
=1,198,192,813
P
Machinery and
Equipment
=3,209,791,852
P
Total
=4,732,362,052
P
–
=324,377,387
P
(612,413,476)
P585,779,337
=
(1,658,247,749)
P1,551,544,103
=
(2,270,661,225)
P2,461,700,827
=
Fully depreciated property, plant and equipment that are still used in operations as of
December 31 follows:
2010
P
=1,030,096,898
252,169,062
P
=1,282,265,960
At appraised values
At cost
2009
=
P935,555,114
211,686,054
=
P1,147,241,168
12. Investment Properties
Movements of the Group’s investment properties are as follows:
2010
P
=168,089,172
20,773,010
P
=188,862,182
January 1
Changes in fair values (Note 21)
December 31
2009
=
P53,132,626
114,956,546
=
P168,089,172
The Group’s investment properties consist of parcels of land and condominium units which are
carried at fair value. The condominium units are being leased out to third parties. Rent income
derived from the rental of condominium units amounted to =
P3.2 million, =
P3.9 million and
=4.3 million in 2010, 2009 and 2008, respectively. Expenses paid for the land and condominium
P
units that are being leased out amounted to =
P21,741 in 2010, 2009 and 2008.
In 2008, AAC sold a parcel of land and the building therein for =
P14.0 million resulting to a loss on
sale amounting to P
=0.8 million.
Fair values as of December 31, 2010 and 2009 were determined by an independent firm of
appraisers based on market values, which were arrived at using the Market Data Approach.
13. Other Noncurrent Assets
2010
P
=23,667,124
17,849,759
P
=41,516,883
Investment in shares of stock of DABI
Others
2009
=
P23,667,124
11,541,127
=
P35,208,251
a. On February 26, 2003, the BOD of DABI approved a resolution to cease DABI’s business
operations effective March 1, 2003. Consequently, DABI’s Guerrero brand was transferred to
the Company while Don Pedro brand was transferred to ADPI. The Company now has full
ownership and control over the marketing, sales, and distribution of the Guerrero brand.
83
Pursuant to the Termination of Joint Venture Agreement signed by the Company and ADPI on
September 15, 2003, the parties terminated the Joint Venture Agreement effective
March 1, 2003. DABI shall be dissolved and liquidated, and the parties agree to take all
corporate actions necessary to dissolve DABI, wind up its affairs and distribute its assets in an
orderly fashion. The parties have yet to decide on the date of liquidation. The liability to
DABI amounting to P
=20.0 million is only with recourse to the Company’s investment in the
shares of DABI (see Note 18).
Investment in shares of stock of DABI is net of impairment losses amounting to P
=1.3 million
as of December 31, 2010 and 2009.
b. AAC’s nonperforming loans, which were previously assigned by Allied Bank Corporation
(ABC) as settlement of AAC’s investment, amounting to =
P20.2 million, represent impaired
receivables with parcels of land held as collaterals. The parcels of land were subject to court
case in previous years. On January 19, 2009, a judgment was entered in light of the agreement
between the parties to the case ordering the third party to pay just compensation of P
=1,500 per
square meters (sqm) for parcels of land with total land lot area of 17,454.25 sqm. A
receivable from the third party amounting to =
P26.2 million resulting from the judgment is
included as nontrade receivables which is presented under “Other receivables” as of
December 31, 2010 and 2009 (see Note 7). A gain amounting to =
P6.6 million was recognized
in the 2009 consolidated statement of income as a result of the said judgment (see Note 21).
In May 2009, AAC contributed a nonperforming loan amounting to =
P8.0 million to its
retirement fund (see Note 18).
14. Accounts Payable and Other Current Liabilities
Accounts payable (Note 25):
Trade
Related parties (Note 18)
Nontrade
Accrued and other liabilities (Notes 17 and 25)
VAT and other taxes payable
2010
2009
P
=706,953,735
459,013,863
133,992,161
99,194,149
44,124,950
P
=1,443,278,858
=
P455,749,406
244,710,045
164,938,521
176,161,152
17,320,204
=
P1,058,879,328
Non-trade accounts payable pertains to payables other than to suppliers of raw materials which
include, but not limited to, advertising and freight companies.
Accrued and other liabilities consist mainly of accrued interest payable of the Company on the
bonds payable and syndicated loan amounting to =
P54.8 million and =
P152.4 million as of
December 31, 2010 and 2009, respectively (see Notes 16, 17 and 18).
15. Bank Loans
ABC
On December 16, 2008, AAC availed of a secured =
P200.0 million loan from ABC for the purpose
of financing its working capital requirements. The loan was secured by parcels of land of AAC
and a local company belonging to the Lucio Tan Group of Companies (LTGC). The principal and
interest shall be payable upon maturity on January 15, 2009. The loan carried an annual interest of
84
8.5%. Maturity of the loan was extended several times and interest rates changed between the
range of 8.5% to 7.0%. The new maturity date was on February 15, 2010. On February 15, 2010,
AAC fully paid the loan.
Security Bank Corporation (SBC)
On April 29, 2009, the Company availed of an unsecured =
P200.0 million loan from SBC for the
purpose of financing its working capital requirements. Interest shall be payable on the last day of
the current interest period or the 180th day of said period, whichever occurs earlier, and full
payment of principal at maturity on October 26, 2009. The loan carried an annual repricing rate of
8.0% to 8.4% for the months of May to October 2009.
On October 26, 2009, the Company and SBC agreed to extend the maturity date of the loan for an
additional 179 days. The new maturity date of the loan was on April 23, 2010. This carried an
annual repricing rate of 7.23% to 7.75% for the months of November 2009 to April 2010. On
maturity date, the Company fully paid the loan.
Banco de Oro (BDO)
On October 30, 2008, the Company availed of an unsecured =
P300.0 million loan from BDO for
the purpose of financing its working capital requirements. Interest shall be payable on the last day
of the current interest period or the 90th day of said period, whichever occurs earlier, and full
payment of principal at maturity, which was on January 28, 2009. The loan carried an annual
interest of 10%. Maturity of the loans was extended several times. New maturity date was on
November 23, 2009. The Company preterminated and fully paid the loan on October 26, 2009.
On December 23, 2008, the Company availed of additional unsecured =
P200.0 million loans from
BDO for the purpose of financing its working capital requirements. Interest shall be payable on
the last day of the current interest period or the 90th day of said period, whichever occurs earlier,
and full payment of principal at maturity on March 23, 2009. The loan carried an annual interest
of 10%. The Company preterminated and fully paid the loan, including interest, on
February 23, 2009.
Syndicated Loan
On February 10, 2006, the Company availed of a =
P4,200.0 million syndicated loan from a
consortium of banks for the purpose of financing its general corporate funding requirements,
including plant expansion and servicing its existing short-term obligations. The loan was payable
in nine semi-annual installments of =
P5.0 million starting on February 15, 2007, and a final
payment of P
=4,155.0 million on August 15, 2011. The loan carried an annual interest that is fixed
at the five-year MART1 rate as of February 13, 2006 plus 1% spread.
The loan provided for certain negative covenants on the part of the Company such as:
i.
The Company shall not create or suffer to exist any lien, security interest or other charge or
encumbrance.
ii.
The Company shall not make any material and adverse change in the present nature of its
business taken as a whole.
iii. The Company shall not enter into any merger or consolidation, except where the Company is
the surviving corporation.
iv. There shall be no significant change in the Company’s present management or change in the
majority ownership and control of its capital stock.
85
v.
The Company shall not sell, lease, or transfer all or a substantial portion of its assets other
than in the ordinary course of its business.
vi. The Company shall not make any loans or advances to its directors, officers, and
stockholders, except in the ordinary course of business.
vii. The Company shall maintain, based on the current audited financial statements, a maximum
debt-to-equity ratio of 1.75 times and a minimum current ratio of 2.0 times.
As of February 14, 2010 and December 31, 2009, the Company has complied with the loan
covenants.
The Company paid P
=10.0 million per year in 2009 and 2008.
On February 15, 2010, using the proceeds from the bond issuance (see Note 16), the Company
preterminated and fully paid the outstanding balance of the syndicated loan, including the loan
prepayment charges, gross receipts tax and accrued interest payable.
16. Bonds Payable
On November 24, 2009, the Company’s BOD approved and confirmed the issuance of the retail
bonds amounting to P
=5,000.0 million due in 2015 at 8.055% per annum, payable quarterly, to be
used for general corporate purposes, including debt refinancing.
On February 12, 2010, the Company completed the bond offering and issued the Retail Bonds
with an aggregate principal amount of =
P5,000.0 million (see Note 17). The bonds will mature on
February 13, 2015.
The bond provides that the Company may at any time purchase any of the bonds at any price in
the open market or by tender or by contract at any price, without any obligation to purchase bonds
pro-rata from all bondholders and the bondholders shall not be obliged to sell. Any bonds so
purchased shall be redeemed and cancelled and may not be re-issued.
The bond also provides for certain negative covenants on the part of the Company such as:
i.
The Company shall not create or suffer to exist any lien, security interest or other charge or
encumbrance, upon or with respect to any of its properties, whether now owned or hereafter
acquired.
ii.
The Company shall not assign any right to receive income for the purpose of securing any
other debt, unless at the same time or prior thereto, its obligations under the bond Agreement
are forthwith secured equally and ratably therewith.
iii. The Company shall not have the benefit of such other security as shall not be materially less
beneficial to the bondholders.
iv. The Company shall maintain, based on the most recent audited financial statements prepared
in accordance with PFRS, a maximum debt-to-equity ratio of 1.75 times and a minimum
current ratio of 2.0 times.
As of December 31, 2010, the Company has complied with the bond covenants.
86
17. Finance Costs
2010
For the years ended December 31:
Bank loans (Note 15):
Short-term
Long-term
Bonds payable (Note 16)
Amortization of bond issue cost (Note 16)
Finance costs before capitalization
Capitalized borrowing costs (Note 11)
2009
2008
P55,593,810
=
P5,625,000
P
=5,041,667 =
99,330,115 405,691,203 411,587,748
–
–
357,999,999
–
–
9,775,163
472,146,944 461,285,013 417,212,748
(15,092,222)
–
–
P446,192,791 =
P417,212,748
P
=472,146,944 =
As of December 31:
Accrued interest payable (Note 14)
P152,438,705 =
P156,616,867
P
=54,818,750 =
a. Total bond issue cost incurred prior to amortization amounted to =
P66.7 million in 2010.
b. Loan prepayment charges amounting to =
P41.7 million, included as finance costs of long-term
bank loans, relates to the pretermination of the syndicated loan in February 2010
(see Note 15).
18. Related Party Transactions
As of December 31, 2010 and 2009, the consolidated balance sheets include the following
account balances resulting from transactions with related parties:
2010
2009
Cash with local banks belonging to the
LTGC (Note 6)
P
=823,374,493
=
P490,396,985
Trade receivables from other local companies
belonging to the LTGC (Note 7)
P
=202,868,690
=
P175,183,637
P
=383,193,863
55,820,000
20,000,000
P
=459,013,863
=
P165,980,045
58,730,000
20,000,000
=
P244,710,045
P
=–
=
P198,571,429
Accounts payable to (Note 14):
Local companies belonging to the LTGC
Parent company
Joint venture (Note 13)
Banks loans from local banks belonging to
the LTGC (Note 15)
The Group, in the normal course of business, has the following significant transactions with
related parties which are entered into under normal commercial terms and conditions.
Transactions with the parent company and ultimate parent company
• In February 2006, prior to the acquisition by THI of Unimark Investments (SPV-AMC)
Corporation (Unimark) (a wholly owned subsidiary of THC), the Company advanced
=750.0 million to THC which bears interest at 9.8% per annum. On September 13, 2006, THI
P
acquired Unimark for P
=800.0 million on account, by recognizing such liability to the previous
owners of Unimark of the same amount.
87
Subsequently in September 2006, THI assumed THC’s liability to the Company amounting to
=750.0 million in exchange for THC’s assumption of THI’s liability to the previous
P
stockholders of Unimark. The Company recognized interest income relating to these advances
amounting to P
=19.1 million in 2008.
On October 13, 2008, the Company collected in full its advances to THI. The Company also
received advances from THI amounting to =
P50.0 million and included under “Accounts
payable and other current liabilities” in the 2010 and 2009 consolidated balance sheets.
In 2010 and 2009, stock dividends and cash dividends amounting to =
P360.0 million and
=300.0 million, respectively, were declared and distributed, in favor of the parent company
P
(see Note 23).
•
On January 3, 2002, the Company entered into a Management Contract (the Contract) with
THI for the management and supervision of the Company’s business for a fee. Under the
terms of the Contract, THI was appointed as manager of the Company subject to the directives
of the Company’s BOD, and shall have authority to engage, hire, employ, appoint and
contract, such persons as THI may deem necessary, beneficial and/or incidental to the proper
conduct and operation of the affairs of the Company covered by the Contract.
As compensation for THI’s services, the Company shall pay =
P3.0 million per month, exclusive
of VAT, billable and payable at end of the year. The Contract became effective starting
January 1, 2002 and shall be in full force and in effect for a period of one year and can be
renewed for another year under a renegotiated rate, terms and conditions subject to the good
outcome of the business operations of the Company. Management fee payable as of
December 31, 2010 and 2009 amounted to =
P5.8 million and =
P8.7 million, respectively,
included under “Accounts payable and other current liabilities” (see Note 14).
The Contract is still in force and in effect as of December 31, 2010.
Transactions with other related parties
Local banks belonging to the LTGC
• The Group has outstanding Peso and US$-denominated current and savings deposit, which
bear interest based on prevailing market rates. Interest income amounted to P
=7.9 million,
=3.7 million and P
P
=7.1 million in 2010, 2009 and 2008, respectively.
•
The Company has a long-term debt amounting to =
P198.6 million included as part of the
syndicated loan as of December 31, 2009. Interest expense from this loan amounted to
=19.5 million in 2009, 2008 and 2007.
P
•
AAC has a short-term loan amounting to =
P200.0 million as of December 31, 2009 and 2008
included as part of bank loans. Interest expense amounting to =
P15.0 million in 2009 was
capitalized to property, plant and equipment (see Note 11). None was capitalized in 2008.
Other local companies belonging to the LTGC
• Purchases of bottles and other materials amounting to =
P978.7 million, =
P838.8 million and
=1,263.4 million in 2010, 2009 and 2008, respectively.
P
• Sale of cullets and other items amounting to =
P33.3 million, =
P36.6 million and =
P36.0 million in
2010, 2009 and 2008, respectively.
• Sale of alcohol amounting to =
P19.7 million, =
P9.5 million and =
P51.4 million in 2010, 2009 and
2008, respectively.
88
Key management personnel
Compensation of key management personnel of the Group are summarized as follows:
Short-term employee benefits
Post-employment benefits
2009
=
P7,994,457
5,570,915
=
P13,565,372
2010
P
=8,142,188
2,906,451
P
=11,048,639
2008
=
P8,226,060
157,114
=
P8,383,174
Terms and conditions of transactions with related parties
The sales to and purchases from related parties are made under normal commercial terms and
conditions. Outstanding balances at year-end are unsecured and settlement occurs in cash, unless
otherwise indicated. There have been no guarantees provided or received for any related party
receivables or payables. Peso-denominated advances to parent company bear interest of 10% per
annum whereas, accounts payable and advances to other related parties are non-interest bearing
and payable on demand.
As of December 31, 2010 and 2009, the Group has not recorded any impairment of receivables
relating to amounts owed by related parties. This assessment is undertaken each financial year
through examining the financial position of the related parties and the market in which these
related parties operate.
19. Retirement Benefits
The Company, AAC and ADI have funded, noncontributory defined benefit retirement plans,
administered by a trustee, covering all of its permanent employees. The following tables
summarize the components of the net retirement benefits cost recognized in the consolidated
statements of income and the funded status and amounts recognized in the consolidated balance
sheets:
The details of the Group’s net retirement plan assets and liabilities are as follows:
Net retirement plan assets:
The Company
Net retirement benefits liabilities:
AAC
ADI
2010
2009
P
=21,840,822
=
P35,737,180
P
=21,807,345
5,827,336
P
=27,634,681
=
P29,698,700
4,635,199
=
P34,333,899
The details of the Group’s net retirement benefits costs are as follows:
Current service cost
Interest cost on benefits obligation
Expected return on plan assets
Effect of employee curtailment
2010
P
=3,376,947
18,698,600
(10,571,866)
8,021,674
(Forward)
89
2009
P3,149,066
=
28,170,264
(12,651,840)
18,099,496
2008
P9,430,960
=
10,091,720
(11,684,375)
–
Effect of retirement assets ceiling
Net actuarial loss (gain)
Portions recognized in (Note 20):
Cost of goods sold
General and administrative
expenses
Selling expenses
2010
P
=–
(838,151)
P
=18,687,204
2009
(P
=5,649,283)
(65,658)
=31,052,045
P
2008
(P
=532,382)
722,004
=8,027,927
P
P
=13,010,358
=31,326,900
P
=8,171,048
P
4,454,379
1,222,467
P
=18,687,204
(213,160)
(61,695)
=31,052,045
P
(110,995)
(32,126)
=8,027,927
P
Net Retirement Plan Assets
The details of net retirement assets of the Company are as follows:
Present value of defined benefits obligation
Fair value of plan assets
Unrecognized net actuarial losses before the effect
of retirement assets ceiling
Effect of retirement assets ceiling
2010
P
=73,439,303
(75,161,401)
(1,722,098)
2009
=
P57,452,383
(88,788,872)
(31,336,489)
(39,957,978)
19,839,254
(P
=21,840,822)
(24,239,945)
19,839,254
(P
=35,737,180)
Changes in present value of the defined benefits obligation of the Company are as follows:
At January 1
Current service cost
Interest cost
Benefits paid
Unrecognized actuarial gain due to curtailment
Unrecognized actuarial loss on defined benefits
obligation
At December 31
2010
P
=57,452,383
1,249,190
13,604,724
(21,128,432)
(103,749)
2009
=
P46,298,640
1,243,556
10,963,518
(1,053,331)
–
22,365,187
P
=73,439,303
–
=
P57,452,383
2010
P
=88,788,872
8,878,887
1,200,000
(21,128,432)
(2,577,926)
P
=75,161,401
2009
=
P83,284,410
8,328,441
1,200,000
(1,053,331)
(2,970,648)
=
P88,788,872
P
=6,300,961
=
P5,357,793
Changes in fair value of plan assets are as follows:
At January 1
Expected return on plan assets
Contributions to the plan
Benefits paid
Unrecognized actuarial loss on plan assets
At December 31
Actual return on plan assets
90
Net Retirement Benefits Liabilities
The details of net retirement liabilities of AAC and ADI are as follows:
AAC
ADI
2009
2010
2009
P
=12,248,682
(33,007,448)
(20,758,766)
=
P28,903,117 P
=10,933,357
(19,713,053) (1,591,600)
9,190,064
9,341,757
=
P9,356,950
(814,372)
8,542,578
42,566,111
P
=21,807,345
20,508,636
=
P29,698,700
(3,907,379)
=
P4,635,199
2010
Present value of defined
benefits obligation
Fair value of plan assets
Unrecognized net actuarial
gains (losses)
(3,514,421)
P
=5,827,336
Changes in present value of the defined benefits obligation of ADI and AAC are as follows:
AAC
At January 1
Current service cost
Interest cost
Benefits paid
Curtailment loss
Unrecognized actuarial
losses (gains) on defined
benefits obligation
At December 1
ADI
2010
P
=28,903,117
2,026,758
3,020,376
(22,134,907)
–
2009
2010
=
P47,613,305 P
=9,356,950
1,821,229
100,999
15,369,575
2,073,500
(57,702,954)
(355,818)
18,099,496
–
2009
=
P8,290,485
84,281
1,837,171
(854,987)
–
433,338
P
=12,248,682
3,702,466
(242,274)
=
P28,903,117 P
=10,933,357
–
=
P9,356,950
Changes in fair value of plan assets of ADI and AAC are as follows:
AAC
ADI
2009
2010
2010
At January 31
P62,588,519
P
=27,700,553 =
P
=814,372
Expected return on
plan assets
4,306,090
1,662,033
30,946
Contributions to the plan
(Note 13)
1,100,000
9,190,064 11,227,500
Benefits paid
(22,134,907) (57,702,954)
(355,818)
Unrecognized actuarial gains
(losses) on plan assets
(706,102)
16,589,705
2,100
At December 31
P19,713,053 P
P
=33,007,448 =
=1,591,600
Actual return on plan assets
P11,587,488
P
=8,206 =
P
=33,046
2009
=
P455,494
17,309
1,194,715
(854,987)
1,841
=
P814,372
=
P19,150
Major Categories of the Consolidated Net Plan Assets
The major categories of the consolidated net plan assets as a percentage of the fair value of
consolidated plan assets are as follows:
2010
69.2%
30.8%
0.5%
(0.5%)
100.0%
Cash and cash equivalents
Investments in debt securities
Receivables and others
Payables
Net plan assets
91
2009
81.2%
3.8%
15.3%
(0.3%)
100.0%
In 2009, receivables and other assets include nonperforming loans amounting to P
=8.0 million
which were contributed by AAC to its plan assets. The Group expects to contribute P
=5.5 million
to their defined benefit pension plans in 2011.
The principal assumptions used in determining retirement benefits cost for the Group’s plans as of
December 31 are as follows:
2009
2008
2010
Number of employees
654
517
497
Discount rates per annum
6.6% to 7.3% 22.2% to 32.3% 7% to 10%
Expected annual rates of return on plan assets 2.3% to 6.6%
3.8% to 10% 6.9% to 10%
Future annual increase in salary
5% to 10% 4% to 10%
5% to 10%
The expected rates of return used as of December 31, 2010, 2009 and 2008 are based on the
respective current rates of return of the funds.
Amounts for the current and previous year are as follows:
2009
2010
Defined benefits
obligation
Plan assets
Excess
Experience adjustment
on defined benefits
obligation
Experience adjustment
on plan assets
P
=96,621,342
(109,760,449)
(13,139,107)
2008
=95,712,450
P
(109,316,297)
(13,603,847)
–
3,702,466
–
(3,674,909)
P102,202,430
=
(146,328,423)
(44,125,993)
(4,345,860)
271,307
2007
P111,775,628
=
(135,704,209)
(23,928,581)
2006
P128,077,098
=
(128,261,625)
(184,527)
6,533,464
4,753,420
–
3,188,511
20. Cost of Goods Sold and Operating Expenses
Materials used and changes in inventories
Depreciation and amortization (Note 11)
Personnel
Advertising and promotions
Fuel and power
Management and professional fees (Note 18)
Repairs and maintenance
Freight and handling
Taxes and licenses
Occupancy (Note 27)
Others
2009
2008
2010
P7,012,323,446 P
=5,768,517,048
P
=7,484,948,017 =
434,035,742
408,791,234
531,746,956
379,270,328
353,068,628
390,515,385
311,147,445
260,018,017
382,533,163
291,308,971
685,881,251
305,313,374
55,715,465
49,747,721
220,495,803
141,501,880
152,474,670
171,448,064
131,466,336
162,552,407
119,265,835
62,467,416
30,851,578
33,355,653
41,525,603
41,407,139
57,956,931
229,311,392
345,609,456
328,312,401
=9,090,074,024 =
P8,258,919,149
P
=10,025,891,582 P
Fuel and power in 2010 and 2009 decreased as compared to 2008 due to the temporary shutdown
of AAC’s plant in Pulupandan, Negros Occidental and also as a result of the savings on fuel cost
from operation of the CDM Project which was put into operation in 2009 (see Notes 29 and 30).
92
21. Other Income (Charges) - Others
2010
Fire loss
(P
=228,611,063)
Gain (loss) on:
Changes in fair value of investment
properties (Note 12)
20,773,010
Settlement of nonperforming loans
(Note 13)
–
Impairment loss on property, plant and
equipment and AFS financial
assets (Notes 10 and 11)
–
Foreign exchange gains (losses) - net
(Notes 6 and 10)
170,543
Others
(173,719)
(P
=207,841,229)
2009
=–
P
2008
=–
P
114,956,546
(163,636)
6,602,325
–
(50,568,442)
(59,955,509)
(605,804)
(742,691)
=69,641,934
P
55,881,698
(7,665,786)
(P
=11,903,233)
On October 14, 2010, a fire broke out at the Company’s Cabuyao Plant which originated from the
compounding facility where the alcohol and other ingredients are blended. During the fire, several
alcohol tanks were damaged as well as portions of the plant’s nearby warehouses. Fire loss
recorded in 2010 amounted to =
P228.6 million, for which recovery claim was filed with the
insurance company on December 1, 2010. The losses pertain to the damaged inventories and
property, plant and equipment amounting to =
P189.0 million and =
P39.6 million, respectively
(see Notes 8 and 11).
As of February 22, 2011, the claim is still under review by the insurance company.
22. Income Taxes
a. Details of the Group’s deferred income tax assets and liabilities are as follows:
Deferred income tax assets - net:
AAC
ADI
Deferred tax liabilities - net:
The Company
ADI
2010
2009
P
=15,209,514
38,506,356
P
=53,715,870
=
P14,945,146
–
=
P14,945,146
P
=328,600,809
–
P
=328,600,809
=
P436,614,614
27,186,745
=
P463,801,359
b. The Company’s net deferred income tax liabilities as of December 31 are as follows:
Deferred income tax assets on:
Fire loss
Unrealized gain on sale of property to a
subsidiary
(Forward)
93
2010
2009
P
=68,583,319
=
P–
9,341,174
12,763,375
Unrealized gain on inventories on hand
purchased from subsidiaries
Allowance for doubtful accounts
Accrued expenses
Unamortized past service cost
Deferred income tax liabilities on:
Revaluation increment on property, plant
and equipment
Excess of fair values over carrying values of
property, plant and equipment acquired
through business combination
Borrowing cost capitalized as property, plant
and equipment
Net retirement plan assets
Unrealized loss on inventories on hand
purchased from subsidiaries
Net changes in fair values of AFS financial
assets
Net changes in fair values of investment
properties
Unrealized foreign exchange gains
2010
2009
P
=7,402,736
6,783,978
4,269,841
1,876,709
98,257,757
=
P–
6,783,978
3,698,688
2,466,893
25,712,934
(350,114,792)
(368,639,392)
(48,892,934)
(58,241,358)
(19,338,848)
(6,552,247)
(20,821,169)
(10,721,154)
–
(2,615,332)
(1,480,000)
(885,000)
(314,220)
(165,525)
(426,858,566)
(P
=328,600,809)
(314,220)
(89,923)
(462,327,548)
(P
=436,614,614)
c. AAC’s net deferred income tax assets are as follows:
Deferred income tax assets on:
Provision for losses
Net retirement benefits liabilities
Allowances for doubtful accounts
Deferred income tax liabilities on:
Net changes in fair value of investment
properties
Revaluation increment on property, plant and
equipment
2010
2009
P
=19,694,153
6,542,204
4,106,929
30,343,286
=
P16,499,431
8,909,610
4,106,929
29,515,970
(10,457,580)
(9,449,280)
(4,676,192)
(15,133,772)
P
=15,209,514
(5,121,544)
(14,570,824)
=
P14,945,146
As of December 31, 2010, AAC has unrecognized deferred tax asset pertaining to NOLCO
and MCIT amounting to =
P82,746,160 and =
P4,148,450, respectively, which will expire in 2013.
94
d. ADI’s net deferred income tax assets (liabilities) are as follows:
Deferred income tax assets on:
NOLCO
Allowance for inventory obsolescence
Net retirement benefits liabilities
Unamortized past service cost
Unrealized foreign exchange loss
Deferred income tax liabilities on:
Revaluation increment on property, plant
and equipment
Net changes in fair values of investment
Properties
Unrealized foreign exchange gain
2010
2009
P
=63,157,903
3,160,516
1,748,201
392,504
24,440
68,483,564
=
P2,777,467
–
–
–
–
2,777,467
(29,655,368)
(29,639,019)
(321,840)
–
(29,977,208)
P
=38,506,356
(321,840)
(3,353)
(29,964,212)
(P
=27,186,745)
In 2010, management assessed that it is probable that ADI will generate sufficient future
taxable profits against which the deductible temporary differences and NOLCO can be
utilized.
In 2009, ADI recognized deferred income tax assets to the extent of deferred income tax
liabilities on revaluation increment on property, plant and equipment and unrealized foreign
exchange gain amounting to =
P9,215,110 and P
=43,113, respectively.
ADI’s deductible temporary differences and NOLCO, for which no deferred income tax assets
were recognized in the Group’s consolidated balance sheets as of December 31, 2010 and
2009 are as follows:
MCIT
NOLCO*
Deductible temporary differences on:
Allowance for inventory obsolescence
and write-down
Net retirement benefits liabilities
Unamortized past service cost
2010
P
=1,998,775
–
2009
=
P–
290,441,080
–
–
–
7,372,171
4,635,200
1,479,390
* Net of deferred income tax assets recognized to the extent of deferred income tax liabilities that were
expected to reverse in 2010.
As of December 31, 2010, ADI’s NOLCO and MCIT that can be claimed as deduction from
future taxable income are as follows:
Incurred During the
Year Ended
December 31
2008
2009
2010
Available for
Deduction Until
December 31
2011
2012
2013
NOLCO
=
P178,248,637
32,277,705
–
=
P210,526,342
95
MCIT
P
=–
–
1,998,775
=
P1,998,775
The following are the movements in NOLCO:
2010
P
=299,699,303
–
(89,172,961)
–
P
=210,526,342
At January 1
Additions
Applications
Expirations
At December 31
2009
=
P387,929,397
32,277,705
–
(120,507,799)
=
P299,699,303
e. A reconciliation of the Group’s provision for income tax computed based on income before
income tax at the statutory income tax rates to the provision for income tax shown in the
consolidated statements of income is as follows:
2009
2008
2010
Provision for income tax at statutory income
tax rates
=224,380,822 P
=143,486,279
P
=240,631,090 P
Adjustments resulting from:
Deductible temporary differences for
which no deferred income tax
assets
were recognized in prior
years,
recognized in current
year
–
–
(67,203,932)
NOLCO for which no deferred income
tax asset was recognized in prior
years, but applied in current year
–
–
(26,751,889)
Deductible temporary differences, MCIT
and unused NOLCO for which no
deferred income tax assets were
recognized
10,799,725
81,651,178
26,329,749
Difference on tax rates used on changes in
fair value of investment properties
–
(5,260,473) (39,885,210)
Nondeductible portion of interest expense
and others
8,538,848
497,109
1,382,092
Interest income subjected to final tax and
others
(534,006)
(1,720,890)
(836,659)
Nontaxable interest income on accretion
(65,752)
–
–
Nontaxable loss on sale of AFS
financial assets
1,266,882
–
–
Effect of change in tax rate
–
529,661
–
Provision for income tax
=204,501,309 =
P224,443,337
P
=168,289,978 P
Provision for current income tax consists of:
Regular income tax
Final tax
f.
2010
P
=341,722,694
3,527,720
P
=345,250,414
2009
=
P260,116,135
579,023
=
P260,695,158
2008
=
P235,054,628
628,088
=
P235,682,716
The Republic Act No. 9337 or the Expanded-Value Added Tax (E-VAT) Act of 2005 took
effect on November 1, 2005. The new E-VAT law provides, among others, for change in
regular corporate income tax rate from 32% to 35% for the next three years effective on
November 1, 2005 and 30% starting January 1, 2009. The unallowable deductions for interest
expense was likewise changed from 38% to 42% of the interest income subjected to final tax,
provided that, effective January 1, 2009, the rate shall be 33%.
96
23. Equity
Capital Stock
As of December 31, 2010 and 2009, capital stock consists of the following shares:
Number of Shares
2009
2010
Authorized capital stock at =
P1 par value per share
2,000,000,000
2,000,000,000
600,000,000
360,000,000
960,000,000
600,000,000
–
600,000,000
Issued capital stock at P
=1 par value per share:
At beginning of year
Stock dividends
At end of year
Retained Earnings and Dividends
a. On February 23, 2010 and May 5, 2010, the Company’s BOD and stockholders, respectively,
authorized and approved the declaration of 60% stock dividends in the amount of
=360.0 million to all stockholders as of June 2, 2010 to be paid no later than June 29, 2010.
P
b. On March 24, 2009, the Company’s BOD declared cash dividends of =
P0.5 per share, or a total
of P
=300.0 million, in favor of THI.
c. On February 19, 2008, the Company’s BOD approved and authorized the declaration and
distribution of cash dividends of =
P0.5 per share (totaling of =
P300.0 million) in favor of THI.
d. The undistributed earnings of subsidiaries amounting to =
P205.4 million, =
P268.4 million and
=116.0 million as of December 31, 2010, 2009 and 2008, respectively, which are included in
P
retained earnings, are not available for declaration as dividend until declared by the
subsidiaries.
24. Basic/Diluted Earnings Per Share
Basic/diluted earnings per share were calculated as follows:
2010
Net income attributable to equity
holders of the Company
Divided by weighted average number
of common shares outstanding
Basic/diluted EPS for net income
attributable to equity holders of
the Company
2009
2008
P
=631,470,491
=
P539,564,076
=
P191,115,153
960,000,000
960,000,000
960,000,000
P
=0.658
97
=
P0.562
P
=0.199
25. Financial Risk Management Objectives and Policies
The Group’s principal financial instruments comprise of bonds payable, receivables, and cash.
The main purpose of these financial instruments is to ensure adequate funds for the Group’s
operations and capital expansion. Excess funds are invested in securities with a view to liquidate
these to meet various operational requirements when needed. The Group has various other
financial assets and financial liabilities such as AFS financial assets, bank loans and accounts
payables and other current liabilities which arise directly from its operations.
It is, and has been throughout the year under review, the Group’s policy that no trading in
financial instruments shall be undertaken. The Group does not actively enter into hedging
transactions.
Risk Management Strategies
The Group’s financial risk management strategies are handled on a group-wide basis, side by side
with those of the other related companies within the Group. The Group’s management and the
BODs of the various companies comprising the Group review and approve policies for managing
these risks. Management closely monitors the funds and financial transactions of the Group.
Funds are normally deposited with local banks belonging to the LTGC, and financial transactions
are normally dealt with companies belonging to the LTGC.
Financial Risk Management Policy
The main risks arising from the Group’s financial instruments are foreign currency risk, credit and
concentration risk, liquidity risk and cash flow interest rate risk. These policies are summarized as
follows:
Foreign currency risk
The Group’s foreign currency risk relates to its US$-denominated cash in banks. Management
closely monitors the fluctuations in exchange rates so as to anticipate the impact of foreign
currency risks associated with the financial instruments. The Group currently does not enter into
derivative transactions to hedge its currency exposure.
The Group’s significant US$-denominated financial assets as of December 31, 2010 and 2009
pertain to cash in banks which amounted to $175,748 and $121,095, respectively.
The Group recognized foreign exchange loss of =
P0.3 million and =
P0.6 million in 2010 and 2009,
respectively and foreign exchange gain of =
P55.9 million in 2008 arising from the translation and
settlement of these US$-denominated financial assets. The exchange rates of the Peso to US$ as
of December 31, 2010, 2009 and 2008 used in translating US$-denominated financial assets are
=43.84, P
P
=46.20 and P
=47.52, respectively.
Shown below is the impact on the Group’s income before income tax of reasonably possible
changes in exchange rate of the US$ against the Peso.
December 31, 2009
Change in Foreign
Effect on Income
Exchange Rate Before Income Tax
+2.00%
Increase by
=
P111,892
-2.00%
Decrease by
=
P111,892
December 31, 2010
Change in Foreign
Effect on Income
Exchange Rate
Before Income Tax
+5.00%
Increase by
P
=385,240
-5.00%
Decrease by
P
=385,240
There is no other impact on the Group’s equity other than those already affecting the profit or
loss.
98
The reasonable movement in exchange rates for 2010 was determined using a one-year historical
data.
Credit and concentration risk
The Group’s credit risk encompasses issuer risk on receivables, equity securities and on cash in
banks. The Group manages its credit risk by transacting with counterparties of good financial
condition and selecting investment grade securities. The Group trades only with recognized,
creditworthy third parties. In addition, receivable balances are monitored on an on-going basis
with the result that the Group’s exposure to bad debts is not significant. The Group limits bulk of
its alcoholic beverage sales to four trusted parties with sales to them comprising about 97% of
total alcoholic beverage sales each year. Management closely monitors the fund and financial
condition of the Group. Funds are normally deposited with affiliated banks, and financial
transactions are normally dealt with related parties. These strategies, to an extent, mitigate the
Group’s counterparty risk.
The table below summarizes the Group’s exposure to credit risk for the components of the
consolidated balance sheets as of December 31.
Loans and receivables:
Cash in banks
Trade receivables
Due from related parties
Advances to suppliers
Other receivables
AFS financial assets:
Quoted equity securities
Unquoted equity securities
2010
2009
P
=825,047,366
1,556,456,469
202,868,690
42,688,794
66,437,753
2,693,499,072
=
P492,692,149
1,410,647,374
175,183,637
35,855,170
72,759,475
2,187,137,805
26,500,000
460,269
26,960,269
P
=2,720,459,341
20,500,000
460,269
20,960,269
=
P2,208,098,074
Credit quality per class of financial assets
“Standard grade” accounts consist of financial assets with good financial condition. “Substandard
grade” accounts, on the other hand, are financial assets from other counterparties with relatively
low defaults. The Group did not regard any financial asset as “high grade” in view of the erratic
cash flows or uncertainty associated with the financial instruments. “Past due but not impaired”
are items with history of frequent default, nevertheless, the amount due are still collectible.
Lastly, “Impaired financial assets” are those that are long-outstanding and has been provided with
allowance for doubtful accounts.
The following tables show the credit quality of financial assets and an aging analysis of past due
but not impaired accounts as of December 31, 2010 and 2009:
December 31, 2010:
Neither past due nor impaired
Standard Substandard
Grade
Grade
Loans and receivables:
Cash in banks
Trade receivables
Due from related parties
Advances to suppliers
Other receivables
P
= 825,047,366
708,752,544
13,000,911
18,056,715
419,869
1,565,277,405
P
=–
–
–
1,258,865
177,910
1,436,775
31 to
60 days
Past due but not impaired
61 to
91 to
90 days
120 days
P
=–
P
=–
389,036,814 246,786,595
11,478,877
9,209,840
517,681
1,129,056
113,757
1,468,247
401,147,129 258,593,738
(Forward)
99
Impaired
Financial
Assets
Total
P
=–
P
=–
P
=–
29,829,166 182,051,350 5,097,677
10,317,569 158,861,493
–
6,134,029 15,592,448 25,691,505
777,774 63,480,196 5,513,839
47,058,538 419,985,487 36,303,021
P
=825,047,366
1,561,554,146
202,868,690
68,380,299
71,951,592
2,729,802,093
Over 120
Days
Neither past due nor impaired
Standard Substandard
Grade
Grade
AFS financial assets:
Quoted equity shares
Unquoted equity shares
P
= 26,500,000
460,269
26,960,269
P
= 1,592,237,674
31 to
60 days
Past due but not impaired
61 to
91 to
90 days
120 days
Over 120
Days
Impaired
Financial
Assets
Total
P
=–
P
=–
P
=–
P
=–
P
=–
P
=–
P
=26,500,000
–
–
–
–
–
–
460,269
–
–
–
–
–
–
26,960,269
P
= 1,436,775 P
=401,147,129 P
=258,593,738 P
=47,058,538 P
=419,985,487 P
=36,303,021 P
=2,756,762,362
December 31, 2009:
Neither past due nor impaired
Standard Substandard
Grade
Grade
Loans and receivables:
Cash in banks
Trade receivables
Due from related parties
Advances to suppliers
Other receivables
AFS financial assets:
Quoted equity shares
Unquoted equity shares
=492,692,149
P
1,015,765,996
12,062,971
8,087,697
29,665,195
1,558,274,008
20,500,000
460,269
20,960,269
=1,579,234,277
P
31 to
60 days
=–
P
– 273,033,921
– 13,286,879
– 10,385,614
32,843
5,414,879
32,843 302,121,293
Past due but not impaired
91 to
61 to
90 days
120 days
=–
P
35,154,775
10,247,610
609,195
1,155,473
47,167,053
–
–
–
–
–
–
–
–
–
=32,843 P
P
=302,121,293 P
=47,167,053
Impaired
Financial
Assets
Total
=–
P
=–
P
=–
P
2,051,718 84,640,964 5,097,677
5,001,037 134,585,140
–
120,173 16,652,491 25,691,505
7,488,828 29,002,257 5,513,839
14,661,756 264,880,852 36,303,021
=492,692,149
P
1,415,745,051
175,183,637
61,546,675
78,273,314
2,223,440,826
Over 120
Days
–
–
–
20,500,000
–
–
–
460,269
–
–
–
20,960,269
=14,661,756 P
P
=264,880,852 P
=36,303,021 P
=2,244,401,095
Impairment assessment
The main consideration for impairment assessment includes whether there are known difficulties
in the cash flow of the counterparties. The Group assesses impairment in two ways: individually
and collectively.
First, the Group determines allowance for each significant receivable on an individual basis.
Among the items that the Group considers in assessing impairment is the inability to collect from
the counterparty based on the contractual terms of the receivables. Receivables included in the
specific assessment are the accounts that have been endorsed to the legal department, non-moving
accounts receivable and other accounts of defaulted counterparties.
For collective assessment, allowances are assessed for receivables that are not individually
significant and for individually significant receivables where there is not yet objective evidence of
individual impairment. Impairment losses are estimated by taking into consideration the age of the
receivables, past collection experience and other factors that may affect their collectability.
The Group recognized impairment loss on its financial assets amounting to =
P7.0 million for
receivables in 2009 and P
=60.0 million for AFS financial assets in 2008. No impairment loss was
recognized in 2010.
Liquidity risk
The Group’s objective is to maintain a balance between continuity of funding and sourcing
flexibility through the use of available financial instruments. The Group manages its liquidity
profile to meet its working and capital expenditure requirements and service debt obligations. As
part of the liquidity risk management program, the Group regularly evaluates and considers the
maturity of both its financial investments and financial assets (e.g., trade receivables, other
financial assets) and resorts to short-term borrowings whenever its available cash or matured
placements is not enough to meet its daily working capital requirements. To ensure availability of
short-term borrowings, the Group maintains credit lines with banks on a continuing basis.
100
The Group relies on budgeting and forecasting techniques to monitor cash flow concerns. The
Group also keeps its liquidity risk minimum by prepaying, to the extent possible, interest-bearing
debt using operating cash flows. In 2010 and 2009, the Group prepaid syndicated loan amounting
to P
=4,165.0 million and short-term debt amounting to =
P500.0 million (see Note 15), respectively.
The following tables show the maturity profile of the Group’s other financial liabilities
(undiscounted amounts of principal and related interest) as well as financial assets used for
liquidity management:
December 31, 2010:
Cash
Receivables
Accounts payable:
Trade
Related parties
Non-trade
Accrued and other
liabilities
Bonds payable
Less than 1 to less than 2 to less than 3 to less than
one year
2 years
3 years
4 years
P
= 826,234,366
P
=–
P
=–
P
=–
–
–
1,868,451,706
–
P
=2,694,686,072
P
=–
P
=–
P
=–
P
= 706,953,735
459,013,863
133,992,161
P
=–
–
–
P
=–
–
–
P
=–
–
–
4 to less than
5 years
Total
P
=– P
=826,234,366
– 1,868,451,706
P
=– P
=2,694,686,072
P
=–
–
–
P
=706,953,735
459,013,863
133,992,161
99,194,149
–
–
99,194,149
–
–
402,750,000 402,750,000 402,750,000 402,750,000 5,048,106,250 6,659,106,250
P
=1,801,903,908 P
=402,750,000 P
=402,750,000 P
=402,750,000 P
=5,048,106,250 P
=8,058,260,158
December 31, 2009:
Cash
Receivables
Accounts payable:
Trade
Related parties
Non-trade
Accrued and other
liabilities
Bank loans
Less than
one year
=493,919,149
P
1,694,445,656
=2,188,364,805
P
1 to less than
2 to less 3 to less than 4
2 years than 3 years
years
=–
P
=–
P
=–
P
–
–
–
=–
P
=–
P
=–
P
=455,749,406
P
244,710,045
164,938,521
=–
P
–
–
176,161,152
1,123,272,305
=2,164,831,429
P
–
4,562,304,645
=4,562,304,645
P
4 to less than 5
Total
years
=– P
P
=493,919,149
– 1,694,445,656
=– =
P
P2,188,364,805
=–
P
–
–
=–
P
–
–
=–
P
–
–
–
=–
P
–
–
=–
P
–
176,161,152
– 5,685,576,950
=– =
P
P6,727,136,074
=455,749,406
P
244,710,045
164,938,521
Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates would unfavorably affect
future cash flows from financial instruments. As of December 31, 2010, the Group is not exposed
to the risk in changes in market interest rates since bonds payable is issued at fixed rate. As of
December 31, 2009, the Group’s exposure pertains only to short-term bank loans. Fixed rate
financial instruments are subject to fair value interest rate risk while floating rate financial
instruments are subject to cash flow interest rate risk. Repricing of floating rate financial
instruments is mostly at interval of three months or six months.
A sensitivity analysis to a reasonable possible change in the market interest rates would show the
potential increase or decrease on profit or loss. If the market interest rate for the period had been
0.10% higher or lower, income before income tax would increase or decrease by P
=0.4 million in
2009. As of December 31, 2010, the Group is not exposed to interest rate risk since the bonds
payable are issued at fixed rate (see Note 16). There is no other impact on the Group’s equity
other than those affecting profit or loss.
101
The assumed movement in basis points for interest rate sensitivity analysis is based on currently
observable market environment, showing a significantly higher volatility as in prior years.
Financial Instruments Carried at Fair Value
The fair value information as of December 31, 2010 of AFS financial assets are analyzed by
source of inputs on fair valuation as follows
•
•
•
Quoted prices in active markets for identical assets (Level 1);
Those involving inputs other than quoted prices included in Level 1 that are observable for the
asset, either directly (as prices) or indirectly (derived from prices) (Level 2); and,
Those inputs for the asset that are not based on observable market data (unobservable inputs)
(Level 3).
As of December 31, 2010 and 2009, the Group’s financial instruments carried at fair values
pertains to quoted equity securities amounting to =
P26.5 million and =
P20.5 million, respectively,
which has been determined by reference to the price of the most recent transaction at the close of
the end of reporting period (Level 1). There were no financial instruments carried at fair values
measured under Level 2 and Level 3. During the year ended December 31, 2010 and 2009, there
were no transfers between Level 1 and Level 2 fair value measurements and no transfers into and
out of Level 3 fair value measurements.
Categories of Financial Instruments:
The following is a comparison by category of carrying amounts and fair values of the Group’s
financial instruments that are reflected in the consolidated financial statements as of December 31:
2009
2010
Carrying
Values
Financial Assets
Loans and receivables:
Cash
Trade receivables
Due from related parties
Advances to suppliers
Other receivables
AFS financial assets:
Quoted equity securities
Unquoted equity securities
Financial Liabilities
Other financial liabilities:
Accounts payable:
Trade
Related parties
Non-trade
Accrued and other liabilities
Bonds payable
Bank loans
P
=826,234,366
1,556,456,469
202,868,690
42,688,794
66,437,753
2,694,686,072
Fair
Values
Carrying
Values
Fair
Values
P
=826,234,366
1,556,456,469
202,868,690
42,688,794
66,437,753
2,694,686,072
=493,919,149
P
1,410,647,374
175,183,637
35,855,170
72,759,475
2,188,364,805
=493,919,149
P
1,410,647,374
175,183,637
35,855,170
72,759,475
2,188,364,805
26,500,000
26,500,000
460,269
460,269
26,960,269
26,960,269
P
=2,721,646,341 P
=2,721,646,341
20,500,000
20,500,000
460,269
460,269
20,960,269
20,960,269
=2,209,325,074 P
P
=2,209,325,074
P
=706,953,735
P
=706,953,735
459,013,863
459,013,863
133,992,161
133,992,161
99,194,149
99,194,149
4,943,080,295 5,611,080,010
–
–
P
=6,342,234,203 P
=7,010,233,918
=455,749,406
P
=455,749,406
P
244,710,045
244,710,045
164,938,521
164,938,521
176,161,152
176,161,152
–
–
4,570,000,000
5,685,576,950
=5,611,559,124 =
P
P6,727,136,074
102
The following methods and assumptions are used to estimate the fair value of each class of
financial instruments:
Cash, receivables, accounts payable and other current liabilities. The carrying amounts of these
instruments approximate fair values due to their short-term maturities.
AFS financial assets. Fair value of investment in club securities is based on the quoted market
prices of the investment. Investments in unquoted equity securities are carried at cost as there is
no available basis of reasonable fair values due suspended trading of the said securities.
Management has no intention to dispose the unquoted equity securities.
Bank loans and bonds payable. The fair values of banks loans are based on the expected cash
flows on the instruments, discounted using the prevailing interest rate of 7% at December 31, 2009
for comparable instruments in the market. These rates were obtained from Bangko Sentral ng
Pilipinas, representing bank average lending rates in 2009. The fair value of bonds payable is
determined by reference to latest transaction price at the end of reporting period.
26. Capital Management
The main trust of the Group’s capital management policy is to ensure that the Group complies
with externally imposed capital requirements, maintains a good credit standing and a sound capital
ratioto be able to support its business and maximize the value of its shareholders equity. The
Group is required to maintain a maximum debt-to-equity ratio of 1.75:1 by its bank creditors in
2009 and bondholders in 2010.
The Group’s dividend declaration is dependent on the availability of earnings and operating
requirements. The Group manages its capital structure and makes adjustment to it, in light of
changes in economic conditions. To maintain or adjust capital structure, the Company may adjust
the dividend payment to shareholders, return capital to shareholders or issue new shares. No
changes were made in the objectives, policies or processes in 2010 and 2009.
The Group met its objectives, policies or processes in 2010 and 2009.
The Group considers its total equity reflected in the consolidated balance sheets as its capital. The
Group monitors its use of capital and the Group’s capital adequacy by using leverage ratios,
specifically, debt ratio (total debt/total equity and total debt) and debt-to-equity ratio
(total debt/total equity). Included as debt are the Group’s total liabilities. Equity pertains to total
equity as shown in the consolidated balance sheets.
The table below shows the leverage ratios of the Group as of December 31:
Total liabilities
Total equity
Total liabilities and equity
Debt ratio
Debt-to-equity ratio
2010
P
=6,861,257,158
5,348,450,086
P
=12,209,707,244
0.56:1
1.28:1
103
2009
=
P6,247,475,988
4,703,645,053
=
P10,951,121,041
0.57:1
1.33:1
27. Lease Commitment
The Company has an operating lease contract, covering one of its warehouses for 15 years up to
February 28, 2014, renewable at the option of the lessor. Monthly rental amounted to P
=829,555.
Future minimum rentals payable under the lease contract as of December 31 are as follows:
2010
P
=9,954,660
29,863,980
P
=39,818,640
Within one year
After one year but not more than five years
2009
=
P9,954,660
39,818,640
=
P49,773,300
Rent expense recognized for the lease of the warehouse amounted to =
P10.0 million in 2010, 2009
and 2008, respectively.
28. Notes to Consolidated Statements of Cash Flows
Non-cash Investing Activities
The payables related to construction in progress of ADI and the Company amounting to
=34.0 million and P
P
=12.1 million, respectively, as of December 31, 2009 and 2008 were paid in
2010 and 2009, respectively.
As of December 31, 2010, unpaid additions to property, plant and equipment amounted to
=25.8 million which is included as part of “Accounts payable and other liabilities.”
P
Packaging materials amounting to =
P331.0 million were reclassified to the property, plant and
equipment as part of “Warehouse and other equipment” in the 2008 consolidated balance sheet.
Non-cash Financing Activity
In 2008, dividends declared by the Company due to THI amounting to =
P300.0 million were
applied against the advances to and interest receivable from THI amounting to =
P261.0 million and
=39.0 million, respectively.
P
29. Contingencies
In the ordinary course of business, the Group is contingently liable for lawsuits and claims which
are either under pending decisions by the courts or are still being contested, the outcomes of which
are not presently determinable.
a. On August 25, 2010, AAC received a Notice of Assessment from the Provincial Assessor of
Negros Occidental representing deficiency realty taxes for the period 1997 to 2009 totaling
=263.7 million. On September 24, 2010, AAC formally protested the assessment and asked
P
for the cancellation of the assessment on the following grounds:
(i) The period to assess real property taxes for the years 1997 to 2004 has already prescribed.
(ii) The assessment covering 2005 to 2009 are void and of no legal effect because it covers
properties beyond the territorial jurisdiction of the province of Negros Occidental.
104
(iii) The value of AAC’s properties indicated in the audited financial statements, which was
made the basis in determining the assessed value, included properties of AAC located in
Manila and Cebu.
(iv) The notice of assessment covered anti-pollution machinery and equipment or the biogas
plant which are exempt by law from taxation.
(v) The notice did not follow the legal mandate in determining assessed values.
As of February 22, 2011, the AAC protest is still pending with the Local Board of Assessment.
b. On May 29, 2008, the Company’s legal counsel filed a manifestation case with the respective
courts for the consideration of the Intellectual Property Office (IPO) ruling in the pending
cases regarding the GINEBRA brand name. Ginebra San Miguel (GSM), Inc. filed a
=100.0 million trademark infringement case and unfair competition versus the Company in the
P
Court of Appeals. The Company then petitioned in the Supreme Court for review on certiorari
to question the Court of Appeals ruling in favor of GSM and granting the latter’s petition for a
temporary restraining order on the Company’s use of the brand name GINEBRA.
On March 4, 2009, the IPO denied GSM’s motion for reconsideration but the latter filed its
appeal memorandum on April 7, 2009. The Company, on the other hand, filed its comment on
said appeal last May 18, 2009.
On January 5, 2010, the Company received a copy of the Supreme Court’s Resolution dated
November 25, 2009 denying GSM’s motion for reconsideration with finality, meaning, they
cannot file another motion for reconsideration. The Supreme Court ruled that there was no
basis for the issuance of the injunction restraining the Company from using GINEBRA
KAPITAN as a trademark for its gin product.
As of February 22, 2011, the Company is waiting for the decision of the aforementioned
courts.
c.
On July 22, 2008, the Department of Environment and Natural Resources (DENR) issued a
Cease and Desist Order against AAC upon the recommendation of the Pollution Adjudication
Board (PAB) for failure to meet the effluent standards. AAC filed a Motion for a Temporary
Lifting Order (TLO) on August 4, 2008 in which AAC committed to implement immediate
and long term remedial measures until August 2011.
On August 8, 2008, the PAB issued a TLO to AAC for purposes of allowing AAC to operate
and implement the committed remedial measures. The said TLO was subsequently extended
for successive three-month period based on the favorable results of PAB’s inspection and
samplings of the wastewater discharged (effluents) by the AAC plant.
In May 2009, the residents of Pulupandan complained to the local government on the alleged
pollution being caused by AAC’s operation on the marine and aerial environment. The roads
to the plant were barricaded and some portions of the road were dug up to prevent access to
the plant. AAC was able to obtain a court TRO to lift said barricades.
105
On June 1, 2009, the water pipeline to the AAC plant was damaged allegedly during a road
improvement project. This forced AAC to temporary stop its operations as water is a
necessary element in its operations. The local government openly supported the protests of
the residents and on September 8, 2009, the town’s Environment Officer recommended to the
town mayor the permanent closure of AAC.
In the meantime and while the protests were ongoing, the existing TLO of AAC expired on
June 16, 2009. AAC filed for a renewal of the TLO and this time, AAC requested for a
one-year validity of the TLO. The Regional Office of the PAB favorably endorsed said
application to the PAB Head Office. The PAB Head Office issued a TLO in favor of AAC
initially for a period of two months to enable it to repair its damaged water pipeline in order
that AAC can resume operations and that the PAB can perform inspections and samplings of
its effluent as a basis for acting upon AAC’s motion for a one-year TLO.
AAC has advised the local government of Pulupandan on the PAB resolution and has
requested for a permit to repair the damaged water pipeline.
As of February 22, 2011, the Pulupandan local government has not acted upon AAC’s request.
In the opinion of the Group’s management and legal counsel, the eventual liability under these
lawsuits, claims, events and transactions, if any, would not have a material or adverse effect on the
Group’s financial position and financial performance. Hence, no provision has been made as of
December 31, 2010 and 2009.
30. Other Matters
CDM Project
On June 30, 2006, the DENR approved the implementation of a greenhouse gas (GHG) reducing
project at the ADI’s plant in Lian, Batangas. The project is a joint undertaking between the
Company (through ADI) and Mitsubishi Corporation (MC) and involves the construction of a
waste water treatment digestor and methane gas collector in accordance with the CDM of the
1997 Kyoto Protocol. The CDM allows developing countries to host emission reduction project
and sell their reduction credit or CER to industrialized countries to help the latter meet their target
of 5% below existing 1990 levels in the commitment period from 2008 to 2012.
By October 1, 2006, it became the biggest CDM registered project in the country thus far, and the
first for the manufacturing sector.
On November 27, 2007, ADI and MC executed the CDM Project Agreement (the Agreement)
which provides for the following, among others:
• ADI and MC (the Parties) acknowledge and agree that they are each entering into the
Agreement in exchange for, and in reliance upon, each other party’s entry into an agreement to
provide funding for the construction of a biogas digester for in exchange and/or transfer of
CERs from the project to MC and the payment by MC in advance therefore in accordance with
that certain Certified Emission Reductions Purchase Agreement (CERPA) as of date of the
Agreement.
• The Parties agree to seek a seven-year crediting period to be renewed twice, adding up to a
total crediting period of 21 years. Crediting period is the period in which the GHG reductions
are verified and certified for the purpose of issuance of CERs and which shall commence after
the first emission reductions are generated by the Project.
106
• MC agrees to provide to ADI the basic design and operational parameters of the system;
provided that MC shall not be deemed to have provided any representation warranty or other
guarantee regarding the feasibility, operation on performance of such design or any system
based on such design.
In accordance with CERPA, ADI agreed to sell and MC to purchase any and all the CERs
generated by the Project up to 480,000 CERs, which are estimated by the Parties to be in the
annual aggregate amount set forth in the Project Design Document (First CERs). The Parties
acknowledge and agree that certain First CERs generated by the Project on or prior to
December 31, 2012 will be issued and delivered after December 31, 2012. MC agreed to make
an advance of US$1.6 million to ADI in exchange for the First CERs in accordance with the
following Payment Schedule:
a. 30% of the advance payment at issuance of purchase order for the foundation and the
construction of the System;
b. 30% of the advance payment at the time of the start of the construction for the steel structure
of the System;
c. 30% of the advance payment at completion of the construction of the System, and
d. 10% of the advance payment after successful operation of the System.
With respect to the obligations of the parties, ADI shall:
a. use its best effort to conduct its business and operate its plant, machinery and equipment and
other property substantially as it does at the date of this Agreement and not make any material
change to its business (except due to market conditions beyond its reasonable control) or
operations the result of which could reasonably be expected to reduce the ability of the Project
to produce the amount of emission reductions;
b. operate and maintain its plant, machinery, equipment and other property, and make all
necessary repairs and renewals thereof, all in accordance with its customary engineering,
financial and environmental practices;
c. satisfy any obligations in respect of securing and remaining in compliance with all consents;
d. deliver to MC a copy of its annual audited financial reports prepared in accordance with
generally accepted accounting and auditing laws and standards in the Philippines within
180 days of the end of ADI’s financial year during the term of this Agreement;
e. take all necessary measure within its powers to make the Project, after the Project
Commissioning Date, result in (1) GHG reductions; (2) the creation of CERs that are
merchantable under the CDM; and (3) to transfer Contracted CERs into MC’s account. For
this purpose, ADI shall perform all its obligations under the International Rules as a Project
Participant of the Project with due diligence and efficiency and in conformity with the
applicable International Rules and the Applicable Laws of the Philippines, including satisfying
all requirements of:
(i) The relevant Designated Operational Entity and the CDM Executive Board under the
International Rules; and
(ii) The
Designated
National
Authorities
107
in
the
Philippines
and
Japan;
and
f. not create or permit to exit any claim or encumbrance of any kind over either (1) the System;
or (2) the contracted CERs.
MC shall with respect to the Project:
a. pay the Advance Payment in accordance with this Agreement;
b. not take any action to prevent delivery of the contracted CERs unless ADI is in breach of this
Agreement or the Agreement has been terminated; and
c. take all reasonable steps required to cause ADI to deliver the contracted CERs sold under this
Agreement into its Registry Account.
In 2009, the parties agreed to increase the advance payment for the First CERs to US$2.0 million.
As of December 31, 2009, MC made US$1.6 million advance payment or equivalent to
=70.9 million. ADI completed the construction and installation of the anaerobic digester and
P
mixing tanks which were put into operation in 2009.
In August 2010, initial validation of CERs was made; however, as of February 22, 2011, no
certification on the generated CERs has been issued yet.
108
109
TANDUAY DISITILLERS, INC. AND SUBSIDIARIES
SCHEDULE E. – INTANGIBLE ASSETS – Other Assets
DECEMBER 31, 2010
Description
Beginning
Balance
Additions
At cost
Charged
to cost
and
expenses
Goodwill
= 144,702,917
P
P
= 144,702,917
Software
= 3,380,397
P
P
=
110
Charged
to other
accounts
Other changes
additions(deductions)
Ending
balance
3,380,397
TANDUAY DISTILLERS, INC. AND SUBSIDIARIES
SCHEDULE F. – BONDS PAYABLE
DECEMBER 31, 2010
Title of Issue and type of obligation
1. Five year – Fixed rate bonds
Amount shown under caption
“Current portion of long-term debt”
in related balance sheet
Amount authorized by indenture
=
P 5,000.0 million
-
Amount shown under caption “ LongTerm Debt” and notes payable in
related balance sheet
P
= 4,943 million
The bonds with a fixed interest rate
equivalent to 8.055% p.a matures on
February 13, 2015. Interest on the bonds
are payable quarterly in arrears starting
May 13 for the first interest payment
date, and on May 13, August 13,
November 13 and February 13 of each
year. Bond issue cost amortized for the
year amounts to P
= 10 million.
111
TANDUAY DISTILLERS, INC. AND SUBSIDIARIES
SCHEDULE I - CAPITAL STOCK
FOR THE YEAR ENDED DECEMBER 31, 2010
Title of Issue
Common Stock
Number of
Shares
Authorized
2,000,000,000
Number of
Shares Issued
And Outstanding
960,000,000
Number of shares
Reserved
Options, Warrants,
Conversions,
and Other Rights
Number of shares
Held by related
Parties
Directors,
Officers and
Employees
Others
-
959,999,986
14
-
112
TANDUAY DISTILLERS, INC. AND SUBSIDIARIES
SUPPLEMENTARY SCHEDULE OF RETAINED EARNINGS
AVAILABLE FOR DIVIDEND DECLARATION
DECEMBER 31, 2010
Retained earnings, as adjusted to available for dividend
declaration, beginning
Add: Net income actually incurred during the year
Net income during the year closed to retained earnings
Less: Non-actual/unrealized income, net of tax
Movements in deferred income tax asset
Add: Non-actual losses
Depreciation on revaluation increment on property,
plant and equipment, net of tax
Net income actually earned during the year
Less: Stock dividend issued
RETAINED EARNINGS AVAILABLE FOR
DIVIDEND DECLARATION, END
113
P
=1,687,093,064
=
P573,004,588
68,564,291
43,261,231
547,701,528
2,234,794,592
360,000,000
P
=1,874,794,592
TANDUAY DISTILLERS, INC.
INDEX TO EXHIBITS
SEC FORM 17-A
(1)
(2)
(3)
(27)
Publication of Notice re: Filing
Underwriting Agreement
Plan of Acquisition, Reorganization, Arrangement, Liquidation or
Succession
Articles of Incorporation and By-laws
Instruments Defining The Rights of Security Holders, Including
Indentures
Opinion Re: Legality
Opinion Re: Tax Matters
Voting Trust Agreement
Material Contracts
Annual Report to Security Holders, FORM 17-Q or Quarterly Reports
To Security Holders
Material Foreign Patents
Letter Re: Unaudited Interim Financial Information
Letter Re: Change in Certifying Accountant
Letter Re: Director Resignation
Letter Re: Change In Accounting Principles
Report Furnished To Security Holders
Other Documents Or Statements To Security Holders
Subsidiaries Of The Registrant
Published Report Regarding Matters Submitted To Vote Of Security
Holders
Consents Of Experts and Independent Counsel
Power of Attorney
Statement Of Eligibility Of Trustee
Exhibits to be Filed With Bond Issues
Exhibits to be Filed With Stock Options Issues
Exhibits to be Filed by Investment Companies
Copy of Board of Investment Certificate in the case of Board of
Investment Registered Companies
Authorization to Commission to Access Registrant’s Bank Accounts
(28)
Additional Exhibits
(29)
Copy of the Board Resolution approving the securities offering and
authorizing the filing of the registration statement
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
(23)
(24)
(25)
(26)
Page
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
115
*
*
*
*
*
*
*
*
*
*
*
(30)
•
Duly verified resolution of the issuer’s Board of Directors
These exhibits are either not applicable to the Company or require no answer.
114
*
EXHIBIT 18 SUBSIDIARIES OF THE REGISTRANT
Tanduay Distillers, Inc. has the following subsidiaries:
Name
Jurisdiction
1. Asian Alcohol Corp.
Philippines
2. Absolut Distillers, Inc.
Philippines
- 115 -