1. business and industrial
2. company
3. merger and acquisition

COVER SHEET
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S.E.C. REGISTRATION NUMBER
S P L A S H
C O R P O R A T I O N
(COMPANY’S FULL NAME)
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5
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4 8
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U I R I
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R P O R A T E
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D A N A O
A V E N U E
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G H W A Y
C I T Y
T R E
C O R
.
(Business Address: No. Street/City/Town/Province)
ATTY. MA. LOURDES B. RODRIGUEZ
984-5555
Contact Person
DECEMBER
31
Company Telephone Number
3rd Saturday of June
Definitive Information Statement
___________
______________
Month
Day
Fiscal Year
________________________
Form Type
____________
_____________
Month
Day
Annual Meeting
____________________________________________
Secondary License Type, If Applicable
Corporation Finance Department
___________________________________
Department Requiring this Document
____________________________________
Amended Articles Number / Section
Total Amount of Borrowings
_____________________
Total no. of Subscribers
__________________ _________________
Domestic
Foreign
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------TO BE ACCOMPLISHED BY SEC PERSONNEL CONCERNED
File Number
______________________________________________
LCU
Document I.D.
______________________________________________
Cashier
6
SECURITIES AND EXCHANGE COMMISSION
SEC FORM 20 - IS
1. Date of Report :
May 19, 2009
2. SEC Identification Number:
ASO91-196206.
3. BIR Tax Identification No:
001-096-221
4. Exact name of issuer as specified in its charter
Splash Corporation
5. Province, country or other jurisdiction of incorporation
6. Industry Classification Code: (SEC Use Only)
7. Address of principal office:
3F HBC Corporate Centre
Mindanao Ave., Q.C. 1116
8. Issuer's telephone number, including area code:
(02) 984-5555
9. Former name or former address, if changed since last report NA
10.Securities registered pursuant to Sections 8 and 12 of the SRC or Sections 4 and 8 of the
RSA
Number of Shares of Common Stock
Common Shares listed in the Philippine
223,848,107 common shares
Stock Exchange
11. Indicate the item numbers reported herein:
Submission of the Definitive Information Statement
SIGNATURE
Pursuant to the requirement of the Securities Regulation Code, the issuer has duly
caused this report to be signed on its behalf by the undersigned, duly authorized for the purpose.
SPLASH CORPORATION
By:
ATTY. MA. LOURDES B. RODRIGUEZ
Compliance Officer
May 19, 2009
Disclosure Department
The Philippine Stock Exchange, Inc.
Philippine Stock Exchange Centre
Exchange Road, Ortigas Center
Pasig City
Attention:
Ms. Janet A. Encarnacion
Head, Disclosure Department
Subject:
Filing of Splash Corporation’s Definitive
Information Statement under SEC Form 20-IS
Gentlemen:
Please be informed that Splash Corporation (SPH) hereby discloses the filing of its Definitive
Information Statement (SEC Form 20-IS) with the Securities and Exchange Commission.
Thank you.
Very truly yours,
ATTY. MA. LOURDES B. RODRIGUEZ
Corporate Secretary
cc :
Director Justina F. Callangan
Corporate Finance Department
Securities and Exchange Commission
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO ALL STOCKHOLDERS:
Notice is hereby given that the Annual Meeting of the Stockholders of Splash Corporation
will be held on Saturday, June 20, 2009, at nine o’clock in the morning at the Crowne Plaza
Galleria Manila, ADB Avenue, Pasig City to consider and act upon the following matters:
1. Certification on sending of notices and quorum
2. Annual Report of the President and Chief Operating Officer
3. Ratification of the Actions of the Board of Directors and the Corporate Officers for the
year 2008
4. Ratification of the Annual Report and Ratification of the Actions of the Board of Directors
and Corporate Officers
5. Declaration of Dividends
6. Appointment of External Auditors
7. Election of Directors
8. Adjournment
Only stockholders of record as of May 20, 2009 will be entitled to attend and vote at the
meeting. For this purpose, the Stock and Transfer Books of the Corporation will be closed on May 20,
2009.
Please be advised that we are not soliciting your proxy
FOR THE BOARD OF DIRECTORS
MA. LOURDES R. BANTEGUI- RODRIGUEZ
Corporate Secretary
1
Instructions
We are not soliciting your proxy. However, if you would be unable to attend the
meeting but would like to be represented thereat, you may accomplish the proxy form herein
provided below for the purpose and submit the same to the Office of the Secretariat at Stock
Transfer Service, Inc. (STSI), Tel. Nos. (632) 898-7555 / 898-7611, c/o Mr. Richard D. Regala, Jr.,
Assistant Manager-Operations Head, 8th Floor, Phinma Plaza, 39 Plaza Drive, Rockwell Center,
1211 Makati City on or before June 5, 2009.
This Proxy, when properly executed, will be voted in the manner as Directed herein by the
Stockholder. If no direction is made, this Proxy will be voted “FOR” the election of all nominees, “FOR”
the ratification of all previous acts and resolutions of the outgoing Board of Directors and
Management, and “FOR” such other matters as may properly come before the meeting.
Revocability of Proxy
A stockholder giving a proxy has the power to revoke it at any time prior to its exercise by
giving written notice to the Corporate Secretary at least six (6) working days prior to the Annual
Meeting or by personal presence of the stockholder at the said meeting.
SPLASH CORPORATION
PROXY
I/WE hereby name and appoint __________________________________, or in his/her
absence, the Chairman of the Meeting, as my/our proxy at the annual stockholders’ meeting of
SPLASH CORPORATION to be held at the Crowne Plaza Galleria Manila, ADB Avenue, Pasig
City on Saturday, June 20, 2009 at 9:00 A.M. and at any postponement or adjournment thereof.
_____________________________
Place
______________________________
Date
__________________________________________
Printed Name & Signature
Number of shares held: __________________
2
SPLASH CORPORATION
INFORMATION STATEMENT PURSUANT TO RULE 20
OF THE SECURITIES REGULATION CODE
A. GENERAL INFORMATION
Item 1 - Date, Time and Place of Meeting
The Annual Meeting of Stockholders of Splash Corporation is scheduled on June 20, 2009
at 9:00 A.M. at the Ruby Ballroom, Crown Plaza Galleria Manila, ADB Avenue, Pasig City.
The complete mailing address of the principal:
Office of the Secretariat at Stock Transfer Service, Inc. (STSI)
c/o Mr. Richard D. Regala, Jr.
Assistant Manager-Operations Head
8th Floor, Phinma Plaza, 39 Plaza Drive, Rockwell Center, 1211 Makati City
Tel. Nos. (632) 898-7555 / 898-7611
The information statement and form of proxy is targeted to be mailed to the stockholders
on or before May 29, 2009
Item 2 - Dissenter’s Right of Appraisal
There are no corporate actions or matters that will be taken up during the meeting that will entitle
dissenting stockholders to exercise their right of appraisal under Section 81 of the Corporation
Code of the Philippines, which provides as follows:
Any stockholder of a corporation shall have the right to dissent and demand payment of the fair
value of his shares in the following instances:
1. In case any amendment to the Articles of Incorporation has the effect of changing or
restricting the rights of any stockholder or class of shares, or of authorizing preferences in any
respect superior to those of outstanding shares of any class, or of extending or shortening the
term of corporate existence;
2. In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or
substantially all of the corporate property and assets as provided in this Code; and
3. In case of merger or consolidation.
Item 3 - Interest of Certain Persons or Opposition to Matters to be Acted Upon
The Registrant is not a party to any arrangement with any person with regard to any matter to be
acted upon at the meeting.
No director has informed the Registrant that he intends to oppose any action intended to be taken
by the Registrant.
Neither has any director or executive officer of the corporation, or nominee for director, or any
associate of the foregoing persons have any substantial interest, direct or indirect, in any matter
to
be
acted
upon,
other
than
election
to
office.
3
B. CONTROL AND COMPENSATION INFORMATION
Item 4 - Voting Securities and Principal Holders
There are 691,290,326 shares of Splash Corporation common stock issued and outstanding and
entitled to vote at the Annual Meeting. Only stockholders of record as of May 20, 2008, will be
entitled to notice of and to vote at the Annual Meeting.
An agenda item at the Annual Meeting is the election of directors for the ensuing year.
Article II, Section 6 of the Company’s Amended By-Laws, provides:
VOTING – At all meetings of the stockholders, each stockholder shall be entitled to one vote for
each share of stock outstanding in his name in the stock transfer books of the Corporation. In the
election, a stockholder may vote his shares in person or by proxy for all the nominees for directors,
or he may cumulate said shares and give one nominee as many votes as the number of directors
to be elected multiplied by the number his shares shall equal, or he may distribute them on the
same principle among as many nominees as he shall see fit. Provided, however, that the whole
number of votes cast by him shall not exceed the number of shares outstanding in his name in the
stock transfer books of the Corporation multiplied by the number of directors to be elected.
Discretionary authority to cumulate votes is not solicited.
Security Ownership of Certain Record and Beneficial Owners of more than 5%:
The following table is a list of the top stockholders as of December 31, 2008 including stockholders
with beneficial ownership of more than 5%.
4
Stockholder
Name and Address
Citizenship
Rank Number
1
1 SPLASH HOLDINGS INC.
Filipino
3/F HBC CORPORATE CENTER
548 MINDANAO AVE. QUEZON CITY
2
9 PCD NOMINEE CORP.(FIL.)
Filipino
THE ENTERPRISE BLDG.
AYALA AVE. MAKATI CITY
3
10 PCD NOMINEE CORP. (NON-FIL.)
Foreign
THE ENTERPRISE BLDG.
AYALA AVE. MAKATI CITY
4
483 YAO ALFREDO M.
Filipino
84 DAPITAN STREET
QUEZON CITY
5
20 ENRILE WILLIAM T.
Filipino
VICENTE MADRIGAL AVENUE
CORINTHIAN GARDEN, QUEZON CITY
6
481 BAYOG ROMEO D.
Filipino
4420 SCARLET STREET SUNVALLEY SUBD.
BRGY. SUNVALLEY PARANAQUE CITY
7
479 YAO ANNIKA SHERRYN
Filipino
158 SUERTE STREET
PASAY CITY
8
482 KHO DAVID LIMQUECO
Filipino
35 QUEZON AVENUE
QUEZON CITY
9
19 DUY WINSTON L.
Filipino
J.P. CABAGUIO AVENUE
DAVAO CITY
10
485 REYES ANNA KARENINA E.
Filipino
BLK 1 LOT 37 SUGARTOWNE SUBD.
BATASAN HILLS QUEZON CITY
11
488 OLIVEROS FEDERICO S. JR.
Filipino
10 PEARL STREET SEVERINA DIAMOND SUBD
PARANAQUE CITY
12
489 SOLOMON ANTONINA SABLAN
Filipino
17-D REYNADO STREET TIERRA BELLA HOME
TANDANG SORA QUEZON CITY
13
21 SANTOS ALFREDO M.
Filipino
40 AUGUST STREET, VISTA VERDE VILLAGE
CAINTA RIZAL
14
469 ALMIRA PILAR P.
Filipino
135 ANONAS EXTENSION SIKATUNA VILLAGE
QUEZON CITY
15
487 HWANG DAVID Y.
Filipino
1209 ACACIA ROAD DASMARINAS VILLAGE
16
17
18
19
20
12
11
478
17
16
MAKATI CITY
CHERYL LADD CHING OR CHRISTOPHER CHIN
103 KAMUNING ROAD
KAMUNING QUEZON CITY
JOSE A. FERRIOLS &/OR EDUARDO A. FERRIO
1612 TAYUMAN STREET
STA. CRUZ MANILA
YU KEVIN &/OR EMMA CONCEPCION YU
UNIT 3 101 4TH STREET NEW MANILA
QUEZON CITY
AGUAS RENE Q.
491 KAYUMANGI STREET
PLAINVIEW MANDALUYONG CITY
TIO ELSON A.
ELSON AUTO SUPPLY
R. MAGSAYSAY AVENUE, DAVAO CITY
Total Top 20 Shareholders
Other
Total Outstanding Shares
Holdings
%
492,009,214
71.17%
93,031,107
13.46%
104,980,500
15.19%
599,000
0.09%
320,000
0.05%
56,000
0.01%
50,000
0.01%
50,000
0.01%
50,000
0.01%
0.00%
23,000
0.00%
20,000
0.00%
10,000
10,000
0.00%
10,000
0.00%
5,000
0.00%
Filipino
5,000
0.00%
Filipino
5,000
0.00%
Filipino
5,000
0.00%
Filipino
5,000
0.00%
Filipino
5,000
0.00%
691,248,821
41,505
691,290,326
99.99%
0.01%
100.00%
5
Security Ownership of Management
Name
Rolando B. Hortaleza, M.D., Chairman and
Chief Executive Officer
Sinforoso Jesus R. Soriano, President
Citizenship
Shareholdings
% to Total
Filipino
1
0.0000001%
Filipino
20,000
0.0028931%
Item 5 – Directors and Executive Officers
1.
Directors
The following table lists the Directors of the Company, and following this table are
profiles of each Director
Name
Rolando B. Hortaleza, M.D.
Rosalinda A. Hortaliza, M.D.
Sinforoso Jesus R. Soriano
Allue Krisanne A. Hortaleza
Maurice P. Ligot
Rizalino D. Rivera, Independent Director
Jimmy T. Yaoksin, Independent Director
Position
Chairman
Vice‐Chairman
Director
Director
Director
Independent Director
Independent Director
Rolando B. Hortaleza, M.D. Dr. Hortaleza, 50, Filipino, is the Chairman of the Board and
Chief Executive Officer of Splash Corporation which he co-founded with his wife, Rosalinda,
also a medical doctor, in 1985. He is a scion of the Hortaleza family which pioneered the
Hortaleza Vaciador and Beauty Supplies, a trail-blazing chain of stores that sells cosmetic
products, nippers, scissors and other beauty salon supplies. Dr. Hortaleza also sits as
Chairman of Splash Holding, Inc. and Vice-Chairman of the following corporations: HBC, Inc.,
World Partners Bank and World Partners Finance Corporation. He is also Vice-Chairman of
Splash Foundation, Inc.
Dr. Hortaleza graduated with a Bachelor of Science degree in Preparatory Medicine (PreMed) from the University of the East and obtained his degree in Medicine from Our Lady of
Fatima University in 1984.
Dr. Hortaleza also attended the Owners and Presidents Management Program at the Harvard
Business School in Boston, Massachusetts from 1997 to 1998.
Rosalinda Ang-Hortaleza, M.D. Dr. Ang-Hortaleza, 51, Filipino, is the Vice-Chairman of
Splash Corporation. She also sits as Vice Chairman of Splash Holdings, Inc., and is the
Chairman and Chief Executive Officer of HBC, Inc., Splash Foundation, Inc., World Partners
Bank, and World Partners Finance Corporation.
She graduated with a Bachelor of Science degree in Medical Technology from the University
of Santo Tomas in 1980. She obtained her degree in Medicine from Our Lady of Fatima
University in 1984. She attended the Advanced Management Program at the Harvard
Business School in Boston, Massachusetts in 2000.
6
Sinforoso Soriano. Mr. Soriano, 46, Filipino, is the President and Chief Operating Officer of
Splash Corporation. He is also heads the Company’s Investor Relations. He joined Splash in
2005. He was formerly the President/COO of Splash Nutraceutical Corporation until June
2006. Thereafter, he held the President/COO position of Splash Holdings, Inc. until his
appointment to Splash Corporation in August 2007. Prior to joining Splash, Mr. Soriano spent
his entire professional career with Eli Lilly (Philippines), Inc. where he started as a
Professional Medical Sales Representative in 1987. He was assigned to various positions in
the Eli Lily’s sales and marketing organization in the Philippines and the United States,
highlighted by his appointment as Asia-Pacific Area Operations Manager (Sales) based in
Singapore and as National Sales Director for the Philippines, a position he held until he left
the company in February 2004.
Mr. Soriano graduated from the University of Santo Tomas with a Bachelor of Science degree
in Pharmacy. He passed the Pharmacy Licensure Examinations in 1986. He obtained his
Master in Business Administration degree from St. Louis College.
Allue Krisanne A. Hortaleza. Ms. Hortaleza, 24 Filipino, is the eldest daughter of Drs.
Rolando and Rosalinda Hortaleza and was elected to the Board in 2007. She obtained her
Bachelor of Science degree in Management from the Ateneo de Manila University in March
2007. She is currently the Executive Assistant to the Chairman/CEO of HBC, Inc.
Maurice P. Ligot. Ms. Ligot, 57, Filipino, has been a Director of Splash Corporation since
2002 and President and Chief Operating Officer of Splash Foundation, Inc. since 1997. Ms.
Ligot is also a member of the Board of Directors of World Partners Finance Corporation and
HBC, Inc. Prior to her present positions, she was with Splash Manufacturing Corporation as
Production Manager, Quality Assurance Manager and then Total Quality Manager.
Ms. Ligot obtained her Bachelor of Science degree in Pharmacy from the Centro Escolar
University (CEU) where she was Outstanding Alumna of the School of Pharmacy in 2000 and
Centennial Awardee in 2007. She earned units in Master of Science in Pharmacy from the
University of the Philippines. She also obtained diplomas in Creating Value in CSR from the
Asian Institute of Management in Indonesia; Triple Bottomline: Operationalizing The Doing
Good from Asian Institute of Management, Philippines; and Corporate Governance from the
University of the Philippines.
Ms. Ligot was Trustee and Treasurer of the League of Corporate Foundations in 2003 – 2007
and currently, a trustee of Ninoy and Cory Aquino Center for Leadership.
Rizalino D. Rivera. Mr. Rivera, 47 Filipino, was elected to the Board of Splash Corporation
on 1 October 2007. He is in charge of Management Planning for Digital Alliance which is a
group of companies involved in ICT and Broadcast. He is President of Change Consultants,
Inc. which offers consultancy services to top business corporations as well as government
organizations, the academe, and development work. Mr. Rivera is the Faculty Chair for the
Human Resource Cluster of the Ateneo Graduate School of Business. He is also involved
with the Institute of People Power and Development of the Benigno S. Aquino, Jr. Foundation
and is a member of the advisory team to former President Corazon C. Aquino. Mr. Rivera has
been a senior consultant on human resource management and organizational development
for several companies which include Nestle Philippines, Kraft Foods, Jollibee Foods
Corporation, Wyeth Philippines, Pfizer, La Farge Cement, HBC, Inc. and the Asian
Development Bank.
Mr. Rivera has a Bachelor of Arts degree in Political Science from the University of the
Philippines. He is a candidate for the Master of Arts in Counseling Psychology program of the
Ateneo de Manila University as well as the Master of Science in Organization Development
program of the Pepperdine University, U.S.A.
Jimmy T. Yaokasin. Mr. Yaokasin, 40, Filipino, was elected to the Board of Splash
Corporation on October 1, 2007. He is currently the Chairman of the Board of Trustees of the
Development Academy of the Philippines in his capacity as the representative of the Office of
the President. He is also a member of the Board of Directors of MRC Allied, Inc., Menlo
7
Capital, Leyte Cable TV Network, Inc. and the YKS Group of Companies. Mr. Yaokasin is an
active member of civic and community organizations – Paul Harris Fellow of Rotary
International, Gideons International and former National President of the Philippine Jaycees.
Mr. Yaokasin obtained his degree in Business Administration major in Accountancy (Magna
cum Laude) from the University of the Philippines. He obtained his Master in Business
Administration (MBA) under the joint Executive MBA program of the Kellogg School of
Management of Northwestern University, Chicago and the Hongkong University of Science
and Technology. Mr. Yaokasin is a Certified Public Accountant.
Independent Directors:
Among the seven (7) Directors, Messrs. Rizalino D. Rivera and Jimmy Tiu Yaokasin, Jr. are
the independent directors of the company, having been as such pursuant to Article III, Section
1(a) of the By-Laws of the Corporation.
For 2009, the following have been nominated by the stockholders as independent Directors:
Nominees as Independent Directors:
Messrs. Rizalino D. Rivera and Jimmy Tiu Yaokasin, Jr. were nominated by Splash Holdings,
Inc., represented by Dr. Rolando B. Hortaleza. Messrs. Rivera and Yaokasin have no family
or business relationships with the person who nominated them, and have accepted their
nominations to again serve as Independent Directors. They possess the qualifications and
none of the disqualifications of an Independent Director.
The Certification of Independent Director Rizalino D. Rivera was submitted to the Securities
and Exchange Commission on July 18, 2009 while the Certification of Independent Director
Jimmy Tiu Yaokasin, Jr. was filed with the said Office on July 21, 2009.
Nominations for Directors and Independent Directors will be received during the period May 1
to 7, 2009, all of which are compliant with Art. III, Sec. 2(a) of the By-Laws of the Corporation
requiring submission of same in writing to the Corporate Secretary not later than thirty (30)
days prior to the date of the regular meeting of stockholders for the election of directors.
The Nominations Committee evaluated the qualifications of the seven (7) nominees and
concluded that they have more than the required qualifications and have none of the
disqualifications for directorship as set out in the Corporation’s By-Laws and Manual on
Corporate Governance which are based on SRC Rule 38-1.
The Committee submitted the list of qualified nominees to the Board on May 15, 2009, in
compliance with the By-Laws requiring submission of same at least 30 days before the
Annual Meeting.
8
2. Executive Officers
Name
Rolando B. Hortaleza, M.D.
Sinforoso Jesus R. Soriano
Ramon G. Trajano
Edgardo I. Patron
Deogracia G. Orpilla
Atty. Ma. Lourdes Bantegui‐Rodriguez
Higinio P. Porte, Jr.
Teodulo L. Manlubatan
Teresa M. Conde
Rico B. Lavalle
Garyzalde O. Morales
Kriskyril Peteilhard M. Lapitan
Menchie P. Sadornas
Arthur P. Bautista
Loida S. de Vera
Emyl B. Rendon
Grace D. del Rosario
Loida E. Moreno
Position
Chief Executive Officer
President and Chief Operating Officer
Chief Financial Officer
General Manager for International Operations
General Manager for Domestic Operations
Corporate Secretary
Head ‐ Research and Supply Chain Management
Head ‐ Corporate Services
Head ‐ Marketing and Brand Development
Head ‐ Customer and Business Development
Head ‐ Brand Activation Group
Head ‐ Human Resources
Head ‐ Finance
Head ‐ Splash Research Institute
Head ‐ Strategic Procurement
Head ‐ Plant Operations and Logistics Division
Head ‐ Regulatory Affairs
Head ‐ Market Research
Ramon G. Trajano, 53, Filipino, Chief Financial Officer. Mr. Trajano joined Splash in August
2008. Prior to Splash he was Finance Director of APAC Manila (a Nasdaq-listed BPO
company) , CFO of Globalstride Corp (a Philippine call center), and finance head of two Ayala
Corporation companies: CFO of Ayala Health Care and Finance Director of Ayala Life.
Mr. Trajano graduated with degrees of Bachelor of Arts (Economics) and Bachelor of Science
in Commerce (Accounting) from De La Salle University, Manila. He obtained his M.B.A. from
the Wharton School of the University of Pennsylvania. He is a Certified Public Accountant.
Deogracia G. Orpilla, 38, Filipino, EVP and General Manager for Domestic Operations. Mr.
Orpilla joined Splash in 2006. Prior to joining Splash, he was Sales Director of Reckitt
Benckiser from 2004 to 2006. He was National Sales Manager in Master Foods (Mars, Inc.)
from 1996 to 2004.
Mr. Orpilla graduated with a Bachelor of Arts degree in Public Administration from the
University of the Philippines, Diliman, Quezon City.
Edgardo I. Patron, 50, Filipino. EVP and General Manager for International Operations. Mr.
Patron joined Splash in January 2005. Prior to joining Splash, he was with Kraft Foods
International from 2000 to 2004 where he held senior positions in the company’s Southeast
Asian operations, his last position being General Manager for Thailand.
Mr. Patron completed the Management Development Program of the Asian Institute of
Management and obtained his Bachelor of Science degree in Commerce from San Sebastian
College, Manila.
9
Ma. Lourdes R. Bantegui-Rodriguez, 53, Filipino, Head of Corporate Legal Affairs and
Corporate Secretary. Atty. Rodriguez joined Splash Corporation in January 2007. Prior to
joining Splash she was the Corporate Counsel and the Corporate Secretary of Araneta
Properties, Inc.
Atty. Rodriguez graduated cum laude with a Bachelor of Arts degree in Mass
Communications from the Far Eastern University where she also obtained her Bachelor of
Laws.
Higinio P. Porte, 46, Filipino, Vice President and Head of the Research and Supply Chain
Management Division. Prior to joining Splash, he was with Interphil Laboratories, Inc. from
1987 to June 2000 where he last position was Division Head for Logistics and Materials
Management.
Mr. Porte obtained his Bachelor’s degree in Chemical Engineering from the University of the
Philippines. He was a Director’s Awardee of the Management Development Program, Ateneo
Professional Schools.
Teodulo L. Manlubatan , 48, Filipino, Vice President and Head of Corporate Services. Mr.
Manlubatan also worked for Lamoiyan Corporation as Senior Assistant Vice-President for
Supply Chain Management. He holds a bachelors degree in Chemical Engineering from the
University of the Philippines where he also completed academic requirements for a Masters
degree in Chemical Engineering.
Teresa M. Conde, 36, Filipino, Head of Marketing and Brand Development. Ms. Conde was
Infant Food Category Manager for Philippine Health Food Center, Inc. (a subsidiary of Unilab)
from 1998 to 2001; and Senior Product Manager for RFM Swift Foods Inc. from 1994 to 1998.
Ms. Conde graduated with a Bachelor of Science degree in Commerce from St. Paul’s
College (Quezon City) and obtained her Master in Business Administration degree from the
De La Salle University.
Rico Ramon B. Lavalle, 39, Filipino, Head of Customer and Business Development. Mr.
Lavalle was with the Pure Foods Corporation sales organization from 1993 to 1997. He also
worked for Mead Johnson Philippines. He holds a Bachelors Degree in Commerce, major in
Economics from the Central Philippine University in Iloilo. He is likewise a holder of a Diploma
in Business Administration from the Ateneo Graduate School of Business
Arthur P. Bautista, 34, Filipino. Head of Splash Research Institute. Before joining Splash, he
was Faculty Member and Department Chairman of the Industrial Pharmacy Department of the
College of Pharmacy, University of the Philippines, Manila. Mr. Bautista obtained his
Bachelor of Science degree in Industrial Pharmacy from the University of the Philippines.
Loida S. De Vera., 50, Filipino, Head of Strategic Procurement. Prior to joining Splash, she
was the Strategic Sourcing Manager of Stephan Phils. Inc.. Ms. De Vera obtained her
Bachelor of Science in Chemical Engineering from the University of Sto. Tomas.
Emyl B. Rendon. 36, Filipino, Head of Plant Operations and Logistics Division. Prior to
joining Splash, Mr. Rendon was the Warehouse and Distribution Manager for Red Ribbon
Bakeshop Inc. He
and holds a Bachelor’s Degree in Electrical Engineering from the Mapua Institute of
Technology and is a Registered Electrical Engineer.
Grace S. Domingo-Del Rosario, 53, Head of Regulatory Affairs. Filipino. Before joining
Splash, she was Senior Vice-President of Federal Chemicals, Inc. Ms. Del Rosario graduated
from the University of the Philippines where she obtained her Bachelor of Science degree in
Chemistry.
10
Loida E. Moreno, 33, Filipino, Head of Market Research Prior to joining Splash, Ms. Moreno
was International Relations Assistant of PRTC Inc. She obtained her Bachelor of Arts degree
in Psychology from De La Salle University.
3. Relationships and Related Transactions
The Registrant sells to the following affiliates: HBC, Inc. and PT Splash Indonesia (PTSI),
companies owned by Splash Holdings, Inc. where Dr. Rolando B. Hortaleza, Dr. Rosalinda
Ang-Hortaleza, and Allue Krisanne A. Hortaleza are members of the Board of Directors and/or
executive officers. The Company sells to HBC, Inc. and PTSE on an arm’s length basis.
HBC accounted for 4.3% of total Company sales while PTSI accounted for 1.3%.
There are no material transactions which were negotiated by Splash Corporation with parties
whose relationship with the Corporation fall outside the definition of “related parties” under
SFA/IAS No. 24 but with whom Splash Corporation has relationship that enables such parties
to negotiate terms that may not be available from other, more clearly independent parties on
an arm’s length basis.
With the exception of the spouses Dr. Rolando B. Hortaleza and Dr. Rosalinda Ang-Hortaleza
and their eldest daughter Allue Krisanne A. Hortaleza who are the Chairman, Vice-Chairman,
and Director, respectively, of the Company, there are no family relationships either by
consanguinity or affinity up to the fourth (4th) civil degree among the directors, executive
officers and nominees for election as directors.
Splash Holdings, Inc (SHI) is the parent company of Splash Corporation (SC). SHI sold
Php100 million of SC shares of stock to SC, and used the proceeds to partially pay P.T.
Indonesia’s (PTSI) Notes Payable to SC. SHI is guarantor of this Notes Payable.
Item 6 - Compensation of Directors and Executive Officers
All the members of the Board of Directors are entitled to P20,000.00 per diem for attendance in
any regular or special meeting.
The compensation table which follows summarizes total salaries, allowances and bonuses for the
last two fiscal years (2007 and 2008) and estimated to be paid for 2009 to the principal executive,
operating and financial officers.
Other than the election of directors, there is no action to be taken at the Annual Stockholders’
Meeting that will affect directors and executive officers relative to bonus, profit sharing,
pension/retirement plan, granting or extension of any option, and warrants or rights to purchase
any securities.
The members of the Compensation Committee are Maurice P. Ligot as Chairman with Allue
Krisanne A. Hortaleza and Rizalino D. Rivera (Independent Director), as members.
11
Name and Principal Position
Rolando B. Hortaleza, M.D.
Chiarman and Chief Executive Officer
Sinforoso Jesus R. Soriano
President and Chief Operating Officer
Ramon G. Trajano
Chief Financial Officer
Year
Salary
Php Mil)
Other Variable
Pay (Php Mil)
39.473
60.028
60.510
25.847
31.727
37.691
9.929
13.170
13.917
6.502
Deogracia G. Orpilla
EVP and GM for Domestic Operations
Edgardo I. Patron
EVP and GM for International Operations
Higinio P. Porte, Jr.
VP for Research and Supply Chain Management
Atty. Ma. Lourdes Bantegui‐Rodriguez
AVP ‐ Corporate Legal / Corporate Secretary
Teresa M. Conde
AVP ‐ Marketing and Brand Development
Actual 2007
CEO and most highly compensated Executive Officers Actual 2008
Projected 2009
Actual 2007
Actual 2008
Projected 2009
All other officers* as a group unnamed
6.948
8.669
*Senior Managers and above
Item 7 – Independent Public Accountant
Sycip, Gorres, Velayo (SGV) is the Company’s independent external auditor and is proposed to
be retained.
There are no disagreements with SGV regarding accounting and financial
disclosure. A representative of SGV will be at the annual general meeting and will have the
opportunity to make a statement if they desire to do so, and, will respond to appropriate
questions.
The table below summarized fees billed by SGV in the past two years:
Audit fees
Other audit related fees
Tax services fees
Other fees
Totals
2007
2,395,646
69,930
425,600
246,400
3,137,576
2008
3,531,336
263,298
300,000
246,400
4,341,034
The members of the Audit Committee are Jimmy Tiu Yaokasin, Jr. (Independent Director) of the
corporation as Chairman with Rosalinda Ang-Hortaleza and Maurice P. Ligot as members.
12
C. NATURE AND SCOPE OF BUSINESS
1. Business Overview
Splash Corporation (the Company) was incorporated in the Philippines and registered with
the Philippine Securities and Exchange Commission (SEC) on September 30, 1991
primarily to develop, manufacture, bottle, pack, and market cosmetics and other beauty
products, and pharmaceutical products in the Philippines and abroad. On November 14,
2008, the Company’s Board of Directors (BOD) approved to amend the primary purpose of
the Articles of Incorporation to include the development or acquisition of technology to
manufacture and sell personal care, pharmaceuticals, food, health, home, household care
and other ancillary products in the Philippines and abroad.
Before the Company listed its shares of stock with the Philippine Stock Exchange (PSE), the
Company was a wholly owned subsidiary of Splash Holdings, Inc. (SHI). On November 15,
2007, the Company’s shares of stock were listed and traded in the PSE. After the IPO wherein
the Company offered 30% of outstanding shares (both primary and secondary) to the public,
the Company became 70% owned by SHI. On December 4, 2008, the BOD approved to buy
back the Company’s shares of stock totaling 30.3 million shares held by SHI. After the
buyback, SHI’s ownership of the company increased from 70% to 71.17% and SHI continues
to exercise control over the Company.
The Company’s registered office address is HBC Corporate Centre, 548 Mindanao Avenue
corner Quirino Highway, Quezon City.
2. Products and Brands
The Company markets and sells its products and brands in the Philippines (Domestic segment)
and abroad (International segment). In turn, the Company’s products and brands sold in these
two segments fall under the following categories:
•
Hair care – Consists of hair care products, with sales derived from the following brands:
Kolours (premium hair dye), Vitress (cuticle coat), and Control (hair dressing)
•
Skin care – Products positioned to provide total skin care solution through the use of
potent non-herbal active ingredients. Revenues are largely generated by Maxipeel
(exfoliants) and Skin White (skin whitening). These brands each generate sales in excess
of P1 billion.
•
Naturals – Products with active ingredients derived from natural or herbal sources. Sales
result from the following brands: Biolink VCO (Virgin Coconut Oil), Biolink Tea Tree Oil,
Biolink Green Papaya, Extract (calamansi, papaya, avocado and cucumber), and Baby
Spa.
•
Health and wellness – Consists of products with naturally-derived ingredients which
promote health and general well-being. Revenues are generated by Theraherb VCO.
13
The Skin care, Hair care and Naturals categories comprise the Personal care business of the
Company. The following table shows the Company’s market leadership position tracked by
A.C. Nielsen across several category/brand/product lines:
Splash Brand
Maxi-peel Exfoliant Solution
Skinwhite Lotion
Extract Lotion
Biolink GP Lotion
Total Splash (Whitening Lotion)
Skinwhite Soap
Extract Soap
Biolink GP Soap
Total Splash (Whitening Soap)
Extract Facial Cleanser
Biolink GP Facial Cleanser
Skinwhite Toner
Total Splash (Facial Cleanser)
Kolours Hair Dye
Market Share Market Standing
82%
Market Leader
29%
Market Leader
4%
1%
34%
45%
Market Leader
6%
4%
55%
10%
Strong Challenger
3%
1%
14%
58%
Market Leader
Source: AC Nielsen Retail Audit, 31 Dec 2008
3. Marketing
The Company is positioned as a marketer of innovative personal care products. This
positioning combined with an effective communication, pricing, sales and distribution
strategies, provide a compelling value proposition for the Philippine mass market. Through
new product launches and product reformatting, the Company keeps market excitement for its
brands and product lines at high levels, resulting in market share growth.
The Company uses television, radio and print advertising as well as in-store activities and
promotions to communicate the benefits and features of its products to consumers. In addition
to nationwide advertising programs, regional campaigns are also undertaken to increase
consumer demand in specific geographic markets.
The Company develops annual brand marketing plans that are based on market studies,
trend analyses, focus groups, surveys, and portfolio reviews. These marketing plans go
through an intensive approval process that forms part of the Company’s strategic and annual
business planning cycle. Post-implementation evaluation studies are done to assess the
effectiveness of the marketing initiatives and approaches.
4. Selling and Distribution
The Company’s distribution network consists of in-house and third party distributors. The
Company delivers directly to strategic accounts, or what it calls the National Accounts Group
(NAG). These accounts are Super Value, Inc. and Super SM (of the SM Group), Mercury Drug
Inc., Watson’s, Robinson’s, HBC and IDS Philippines Inc. . For other key accounts and outlets,
Splash utilizes twenty-four (24) third party distributors which are assigned specific territories.
Apart from National Accounts, Splash products are also sold to two other major trade groups:
Modern Trade and General Trade. Modern Trade consists of all large accounts outside of NAG
such as the Gaisano Group, Ever Gotesco, Puregold, Cherry Foodarama, and The Landmark.
General Trade is composed of small retail trade outlets including groceries, stand-alone
drugstores, sari-sari stores and market stalls.
14
The table below summarizes percent contribution to sales, indicating relative balance of revenue
sources. The largest contributor is General Trade which accounted for 41% of sales in 2008.
Account Group
National Accounts
Modern Trade
General Trade
Totals
Contribution to Total Sales
2008
2007
28%
29%
31%
32%
41%
39%
100%
100%
Served By
Splash Corp.
Distributors
In Metro Manila, South Luzon, North Luzon, and the Samar-Leyte islands, goods are delivered
over land using third party service providers. For the rest of Visayas and Mindanao regions,
delivery is by sea using third party service providers. The Company employs demandbased production planning and inventory management systems. Each distributor maintains
an optimal level of inventory which is automatically replenished whenever inventory
levels fall to re-order point.
The following diagram illustrates the Company’s distribution network in the Philippines:
Supermarkets
Splash
Factory or
Warehouse
24 National
Distributors
GT
MT
Department Stores
Minimarts
Convenience Stores
Small Pharmacies
National
Accounts
Internationally, the Company has established market presence in 38 countries through its
distributors and local consolidators. These countries include the ASEAN counties, China/Hong
Kong, Japan, Korea, India, and countries in the Middle East (United Arab Emirates and Saudi
Arabia among them) and in Africa (notably Nigeria).
5. Manufacturing Facilities
The Company’s industrial plant, where substantially all of its manufacturing are conducted, is
situated at F. Lazaro Street, West Canumay, Valenzuela City with an estimated lot area of
29,410 square meters and buildings with a total floor area of 20,910 square meters.
The properties and structures located in the plant include the following: Production Building,
Finished Goods Warehouse, the Splash Research Institute Building, Chemical Storage
Building, Soap Plant, Canteen, Power House, Engineering Building, Substation, Recovery
Warehouse, Guard House, Multi-purpose Hall, Alcohol Storage, and the Waste Water
Treatment Plant.
15
6. Manufacturing Facilities
The Company established the Splash Research Institute (SRI) to continuously develop, by
employing cutting-edge technology, new products that will meet the growing needs of the
personal care market. It adopted the “open innovation” concept whereby the Company
collaborates with its suppliers to come up with new and better product formulations in a cost
effective manner. It also developed a flexible brand and product creation process that
allows it to quickly respond to changes in consumer preferences. The Company strives to
have at least two (2) years worth of new products in the pipeline at any given time.
SRI departments (Product Research and Development,
Packaging
Innovations,
Product Testing and Documentation, and Skin Research) work interdependently towards
creating innovative products which address the felt and latent needs of consumers.
16
D. OTHER MATTERS
1. Legal Proceedings
During the past 5 years, 2004-2008, there has been no pending Legal Proceeding,
Bankruptcy petition, or conviction by final judgment, against any Director and Executive
Officer of the Registrant that is material to an evaluation of their ability or integrity to become
a Director or Executive Officer of the Company. Neither has any of them been subject to any
Order, Judgment, or Decree, nor involved in any proceeding for violation of a Securities or
Commodities law.
There are pending legal cases against the Company that are being contested by the
Company and its legal counsels. Management and its legal counsels believe that the final
resolution of these cases will not have material effect on the financial position and operating
results of the Company.
2. Vote on Certain Matters
The Board of Directors recommends a vote on the following matters:
(i) Election of the seven (7) members of the Board who are indicated above.
(ii) Appointment of External Auditor.
(iii) The President’s Report, Annual Report and the Financial Report as of December 31,
2008 will be submitted to the stockholders for their approval. Likewise, the stockholders
will be asked to confirm and ratify the resolutions or actions of the outgoing Board of
Directors and the Management of the Company in 2008, on matters related to budget,
cost control and cost reduction measures, and marketing strategies. The resolutions
adopted by the Board in 2008 pertain to:
a) Approval to sell the shares of stock of the Corporation in Professional Services, Inc.;
b) Approval of Share Buy Back Program;
c) Approval of the Amendment of the Articles of Incorporation by a majority of the Board
of Directors and the Stockholders;
d) MOU with IDS Philippines, Inc.;
e) Approval to buy back shares owned by Splash Holdings, Inc.;
f) Approval for a new subsidiary in Indonesia;
g) Authority to open or close bank accounts, and designation of authorized signatories;
and
h) Authority to sell used motor vehicles.
(iv) Declaration of Dividends for stockholders on record as of May 20, 2009.
3. Voting Procedures
The voting procedure for election and approval of corporate action in which Stockholders’
approval will be required shall be by “viva voce” unless voting by balloting is demanded by the
stockholders representing at least 20% of the outstanding capital stock entitled to vote.
(i) The vote required for approval
The approval of any corporate action shall require the majority vote of all stockholders
present either in person or represented by proxy in the meeting, if constituting a quorum,
except the Amendment to the Articles of Incorporation which shall require two-thirds vote.
For election of Directors, Section 24 of the Corporation Code shall apply.
17
(ii) The methods by which vote will be counted
Except in cases where voting by ballot is required by law, voting and counting shall be by
“viva voce”. If by ballot, counting shall be supervised by external auditors.
18
SIGNATURE PAGE
After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set
forth in this report is true, complete and correct. This report is signed in the City of Quezon City on May
18, 2009
By:
RAMON G. TRAJANO
Chief Financial Officer
19
MANAGEMENT REPORT
1. Audited Financial Statements and Interim Financial Statements
Registrant incorporates by reference the Annual Report containing the financial report of the
corporation as of December 31, 2008, and other related information. Accompanying this
Annual Report is the Statement of Management’s Responsibility for Financial Statements
The Annual Report will be handed to stockholders together with this Information Statement
and copies of the Minutes of the June 21, 2008 Annual Stockholders’ Meeting.
The interim financial statements for the first quarter of 2009 are also provided.
2. Management’s Discussion and Analysis
20
Revenues
Net sales in 2008 was Php3.165 million, Php154.4 million or 5.1% higher than last year. In spite
of adverse economic conditions marked by record oil price increases and the global financial
crisis in 2008, revenue growth was achieved by sustained marketing activities and new product
introductions.
Amounts in Php 000s
Net sales
Change
%
2008
2007
2006
3,165,224
154,392
5.1%
3,010,832
611,750
25.5%
2,399,082
‐294,233
‐10.9%
The Company introduced the following new products in 2008:
•
Extraderm New Generation Sunblock Cream
•
Maxi-Peel Facial Cleanser
•
Maxi-Peel Exfoliant Neck & Body Lotion
•
Maxi-Peel Exfoliant Soap
•
Maxi-Peel Exfoliant Cream
•
Skin White Power Whitening Lotion
•
Skin White Power Whitening Bath Soap
•
Skin White Power Whitening Face Cream Powder
•
Skin White Milk Soap
•
Skin White Glutathione Lotion
•
Skin White Glutathione Bath Soap
•
Skin White Gluta Capsules
•
Extract Whitening Face Cream
Sales from these new products contributed 23% of revenues in 2008.
21
Business Segments and Market Performance
The tables below shows shares in the domestic and international segments, broken down
further by product category. The split of domestic to international sales (92% to 8%)
remained unchanged in 2008 and 2007. In the core skin care category, share of domestic
sales was 91% in 2008, up from 87% in 2007. This resulted from the 40% growth in domestic
sales of skin care products from Php1.481 billion in 2007 to Php2.066 billion in 2008 (when
Skin White and Maxi-Peel reached P1 billion in sales). For hair care, share of domestic sales
was virtually relative flat year on year (98% in 2008 versus 99% in 2007)
Product Category
Personal Care:
Skin Care
Hair Care
Naturals
Other
Total Personal Care
Health and Wellness
Totals
Product Category
Personal Care:
Skin Care
Hair Care
Naturals
Other
Total Personal Care
Health and Wellness
Totals
Net Sales ‐ 2008 (Amounts in Php 000s)
Domestic
Int'l
Total
2,066,794
511,662
266,903
8,489
2,853,848
45,004
2,898,852
91%
98%
85%
100%
91%
98%
92%
209,238
9,887
46,459
‐
265,583
789
266,372
9%
2%
15%
0%
9%
2%
8%
2,276,032
521,549
313,362
8,489
3,119,431
45,793
3,165,224
100%
100%
100%
100%
100%
100%
100%
Net Sales ‐ 2007 (Amounts in Php 000s)
Domestic
Int'l
Total
1,481,295
536,414
628,519
105,000
2,751,228
13,812
2,765,040
87%
99%
97%
100%
92%
72%
92%
213,487
7,143
19,866
‐
240,496
5,302
245,798
13%
1%
3%
0%
8%
28%
8%
1,694,782
543,557
648,385
105,000
2,991,724
19,114
3,010,838
100%
100%
100%
100%
100%
100%
100%
In 2008, the lead brands of the skin care category continue to maintain market leadership as shown
by market share data from AC Nielsen summarized in the preceding table (Products and Brands).
Expenses
As shown by the cost summary table below, total cost and operating expenses increased by
Php221 million (8.2%) to Php2.908 billion in 2008. (By comparison, total costs rose by
Php535 million to Php2.687 billion in 2007). The increase in 2008 was largely due to the
Php192 (15.9%) million rise in operating costs. Cost of goods sold increased by Php29
million (2%) to Php1.504 billion in 2008
Operating expenses increased in 2008 mainly as a result of the Php194 million (26.9%) rise
in advertising and promotions (Php916 million in 2008) as the Company intensified its
marketing and brand building initiatives in 2008. Increases in personnel costs (Php47
million:27%) and transportation and travel expenses (Php25 milllion: 37%) were largely offset
by declines in other expense categories notably outside services (down Php43 million or
59.5%), and bad debts expense (lower by Php15 million or 76.3%).
22
Amounts in Php 000s
Net Sales
Cost of goods sold
% to Net sales
Advertising and promotions
Personnel costs
Transportation and travel
Outside services
Taxes and licenses
Rent
Depreciation and Amortization
Insurance
Communication, light and water
Membership, dues and subscriptions
Provision for doubtful accounts
Repairs and maintenance
Research and development
Supplies
Product samples and give‐aways
Others
Total operating expenses
% to Net sales
2008
3,165,224
1,504,004
47.5%
916,440
221,093
92,229
29,250
22,521
20,583
20,477
13,032
11,234
5,628
4,732
3,849
3,404
2,571
1,964
34,668
1,403,677
44.3%
2007
3,010,832
1,475,161
49.0%
722,013
174,049
67,327
72,136
18,071
11,939
16,278
13,663
11,895
7,173
19,948
4,257
11,050
7,548
7,511
46,535
1,211,395
40.2%
2006
2,399,082
1,093,979
45.6%
648,145
122,300
43,681
124,682
17,338
8,173
32,151
10,020
6,561
1,774
3,000
3,200
6,068
5,826
3,757
20,729
1,057,403
44.1%
Total COGS and expenses
% to Net sales
2,907,680
91.9%
2,686,556
89.2%
2,151,382
89.7%
Profitability
Gross profit margin improved to 10.5% of sales in 2008, from 4.1% in 2007 as a result of lower
costs of goods. With higher operating expenses however, operating profit margin declined to 8.1%
in 2008 from 10.8% the previous year. Net income margin of 9.4% in 2008 is virtually flat to 9.3%
for 2006 and 2007
Amounts in Php 000s
Net sales
Cost of goods sold
Gross profit
Margin
Operating expenses
2008
3,165,224
1,504,004
1,661,221
10.5%
1,403,677
2007
3,010,832
1,475,161
1,535,671
4.1%
1,211,395
2006
2,399,082
1,093,979
1,305,103
19.3%
1,057,403
Operating profit
Margin
257,544
8.1%
324,276
10.8%
247,700
10.3%
Net income after tax
% to net sales
297,734
9.4%
279,271
9.3%
223,607
9.3%
23
.
The following two tables summarize segment profitability. The domestic business segment
accounted for 90% of gross profits in 2008, unchanged from the previous two years; and delivered
67% of operating profit in 2008 and 2007.
Business Segment
Domestic
International
Totals
Gross Profit (Amounts in Php 000s)
2008
2007
2006
1,498,467 90% 1,380,735 90%
1,175,144 90%
162,754 10%
154,936 10%
129,959 10%
1,661,221 100% 1,535,671 100% 1,305,103 100%
Business Segment
Domestic
International
Totals
Operating Profit (Amounts in Php 000s)
2008
2007
2006
172,283 67%
217,796 67%
170,612 69%
85,261 33%
106,480 33%
77,089 31%
257,544 100%
324,276 100%
247,701 100%
Key Indicators
The table which follows summarizes the Company’s key financial and market share
measures. It shows that year on year, net sales grew by 5.1%; net income after tax (NIAT)
improved by 6.6%; and EBITDA increased by 1.3%. EBITDA margin was 10.9% in 2008
versus 11.3% in 2007.
Turnover of both trade receivables and inventory declined: 3.5 for receivables in 2008 (from
5.0 the previous year); 4.2 for inventory in 2008 (from 5.8 in 2007)
Key Indicators
Amounts in Php millions
Net Sales
Sales of new products
Net income after tax
EBITDA
Margin
2008
2007
Change
3,165.2
736.9
297.7
346.0
10.9%
3,010.8
482.0
279.3
341.4
11.3%
5.1%
52.9%
6.6%
1.3%
‐0.4%
Trade receivables turnover
Inventory turnover
3.5
4.2
5.0
5.8
‐1.5
‐1.5
Market shares of core brands*
Maxi-peel Exfoliant
Skin White Lotion
Skin White Soap
Extract Facial Clenser
Kolours Hair Dye
82%
29%
45%
10%
58%
81%
25%
36%
11%
49%
1.0%
4.0%
9.0%
‐1.0%
9.0%
*Source: AC Nielsen Retail Audit, 31 Dec 2008
24
Liquidity and capital resources
The Company remains liquid with current assets more than four times current liabilities, resulting in
current ratios of 4.2 and 4,4 in 2008 and 2007, respectively. Net cash flow from operations was
Php321 million in 2008 compared to Php103 million in 2007, while cash flow from investing
activities was Php 26 million in 2008 compared to a net outflow of Php128 million the previous year.
Total equity was relatively flat at Php2.677 billion in 2008 versus Php 2.712 billion in 2007. Debt to
equity ratio was steady at 0.7 in both years.
Amounts in Php millions
2008
2007
Current assets
Current liabilities
Current ratio
3,548.3
850.3
4.2
3,547.7
809.5
4.4
Cash flow from operations
Cash flow from investing activities
320.9
26.4
103.3
(127.5)
2,676.7
0.7
2,711.8
0.7
Total Equity
Debt to equity
3.
Market Information
The Company’s common shares are traded at the Philippine Stock Exchange. The table below
summarizes the monthly high, low and closing prices for the months of Q4/2008, as well as the closing
share prices for the first nine months of 2008:
Q4/2008
October
November
December
High
6.10
3.45
3.65
Q1 to Q4/2008
January
February
March
April
May
June
July
August
September
Low
3.00
2.60
2.70
Close
3.40
3.40
3.00
Close
6.30
6.20
5.30
4.50
4.80
4.40
3.85
3.70
5.60
25
4. Stockholders
The following table is a list of the top stockholders as of April 30, 2009
Stockholder
Rank
No.
1
1
2
9
3
10
4
483
5
20
6
498
7
495
8
481
9
482
10
19
11
479
12
500
13
501
14
502
15
485
16
488
17
497
18
499
19
489
20
21
5.
Stockholder
SPLASH HOLDINGS INC.
PCD NOMINEE CORP.(FIL.)
PCD NOMINEE CORP. (NON-FIL.)
YAO ALFREDO M.
ENRILE WILLIAM T.
COBANKIAT JOHNNY
GOTIANSE PAUL L.
BAYOG ROMEO D.
KHO DAVID LIMQUECO
DUY WINSTON L.
YAO ANNIKA SHERRYN
QUALITY INVESTMENTS & SECURITIES CORPORATION
ZANTUA NILO C.
SOLINAP GERONIMO A.
REYES ANNA KARENINA E.
OLIVEROS FEDERICO S. JR.
PABLO DELLA LOUISE A.
GO IRENE CHAN
SOLOMON ANTONINA SABLAN
SANTOS ALFREDO M.
Total Top 20 Shareholders
Other
Total Outstanding Shares
Citizenship Holdings
FILIPINO
492,009,214
FILIPINO
92,655,107
FOREIGN
104,980,500
FILIPINO
599,000
FILIPINO
320,000
FILIPINO
111,000
FILIPINO
100,000
FILIPINO
56,000
FILIPINO
50,000
FILIPINO
50,000
FILIPINO
50,000
FILIPINO
50,000
FILIPINO
50,000
FILIPINO
30,000
FILIPINO
23,000
FILIPINO
20,000
FILIPINO
15,000
FILIPINO
10,000
FILIPINO
10,000
FILIPINO
10,000
691,198,821
91,505
691,290,326
%
71.17%
13.40%
15.19%
0.09%
0.05%
0.02%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
99.99%
0.01%
100.00%
Dividends
Below are details of cash dividends declared and paid in 2007 and 2008:
Declaration Date
August 31, 2007
June 19, 2008
Dividend per Share
Amount
P 1.59
P 350,000,000
P 0.18
134,308,864
Record Date
August 31, 2007
May 22, 2008
Declaration and payment of dividends in the aggregate for any given year shall not exceed
50% of the Company’s net income after tax as stated in the Company’s audited financial
statements for the most recent fiscal year as provided for in the negative covenants of its
Floating Rate Note (FRN) Agreement.
6.
Sales of unregistered securities
There were no recent sales of unregistered or exempt securities including recent issuance of
securities constituting an exempt transaction.
26
7.
Governance Practices
a) The Company’s Manual of Corporate Governance and the 2008 Corporate Governance
Scorecard for Publicly Listed companies prepared by the Institute of Corporate Directors
in collaboration with the Philippine Stock Exchange and the Securities and Exchange
Commission serve as the bases of an evaluation system established by the Company to
measure or determine the level of compliance of the Board of Directors and top-level
management with good governance practices
b) Measures consistently undertaken by the Company to fully comply with leading practices
in good corporate governance include:
i. The offer of equitable shares of the profits or cash dividends to the shareholders;
ii. The shareholders’ opportunity to elect each board member individually through voting
by ballots during the Annual General Meeting;
iii. The observance of at least two (2) weeks for the notice to call shareholders for the
Annual General meeting;
iv. Adequate information on the individual profile of the new directors and the returning
directors;
v. Adequate public information on the Company’s ownership structure;
vi. The opportunity of the shareholders to ask questions/raise issues in the Annual
General Meeting and on meetings duly constituted for the purpose;
vii. The prompt disclosure to the Philippine Stock Exchange and the Securities and
Exchange Commission of material information or events occurring in the Company;
viii. The provision of a retirement fund for its employees which is held in a trust fund with
Metrobank;
ix. The continuous honoring of the Company’s debt agreements and timely payment of
its debt obligations;
x. The recognition by the Company of its broader obligations to society and/or the
community through the projects and activities of the Splash Foundation, Inc.;
xi. The existence of an internal audit operation as a separate unit in the Company
c) There has been no deviation from the Company’s Manual of Corporate Governance as of
31 December 2008.
d) As the need arises or in compliance with other leading governance practices, the
Company intends to adopt other measures which will improve its corporate governance.
The Company undertakes to provide without charge to each person, on the
written request of any such person, a copy of its annual report on SEC Form
17-A, indicating in the copy the name and address of the requesting person.
27
37
38
Splash Corporation
(A Subsidiary of Splash Holdings, Inc.)
Financial Statements
December 31, 2008 and 2007
and Years Ended December 31, 2008, 2007 and 2006
and
Independent Auditors’ Report
SyCip Gorres Velayo & Co.
*SGVMC308954*
COVER SHEET
A S 0 9 1 9 6 2 0 6
SEC Registration Number
S P L A S H
C O R P O R A T I O N
( A
i d i a r y
S u b s
H o l d i n g s
,
I n c
o f
.
S p l a s h
)
(Company’s Full Name)
H B C
C o r p o r a t e
5 4 8
M i n d a n a o
Q u i
r
i n o
C e n t r e
A v e n u e
H i g h w a y ,
c o r n e r
Q u e z o n
C i
t y
(Business Address: No. Street City/Town/Province)
Mr. Ramon G. Trajano
984-5555
(Contact Person)
(Company Telephone Number)
1 2
3 1
Month
Day
A A F S
(Form Type)
(Calendar Year)
0 4
1 9
Month
Day
(Annual Meeting)
Not Applicable
(Secondary License Type, If Applicable)
Dept. Requiring this Doc.
Amended Articles Number/Section
Total Amount of Borrowings
153
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.
SPLASH CORPORATION
(A Subsidiary of Splash Holdings, Inc.)
BALANCE SHEETS
December 31
2008
ASSETS
Current Assets
Cash and cash equivalents (Notes 4 and 15)
Receivables - net (Notes 5, 8, 11 and 15)
Current portion of note receivable (Notes 8 and 15)
Advances to a stockholder (Note 15)
Inventories - net (Note 6)
Prepaid expenses and other current assets (Note 7)
Total Current Assets
Noncurrent Assets
Note receivable- net of current portion (Notes 8 and 15)
Property, plant and equipment - net (Note 9)
Available-for-sale investments (Note 10)
Land for development (Note 11)
Deferred income tax assets (Note 20)
Other noncurrent assets (Note 20)
Total Noncurrent Assets
TOTAL ASSETS
2007
(As restated,
Note 2)
P
=1,842,075,488
1,087,810,564
54,215,416
137,370,246
381,756,239
45,023,355
3,548,251,308
=1,975,037,566
P
1,024,454,563
50,030,502
137,370,246
328,675,357
32,155,443
3,547,723,677
150,091,505
272,065,531
215,945,000
141,956,454
33,193,965
56,948,398
870,200,853
P
=4,418,452,161
200,122,007
294,573,396
219,770,000
141,956,454
37,045,274
56,422,097
949,889,228
=4,497,612,905
P
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable and accrued expenses (Note 12)
=762,491,968
P
P
=803,343,598
Current portion of floating rate notes payable (Note 13)
46,923,404
46,990,002
809,481,970
Total Current Liabilities
850,267,002
Noncurrent Liabilities
Floating rate notes payable - net of current portion (Note 13)
938,426,801
891,503,397
Retirement benefits liability (Note 18)
37,930,101
–
976,356,902
Total Noncurrent Liabilities
891,503,397
1,785,838,872
Total Liabilities
1,741,770,399
Equity (Note 14)
Capital stock
746,160,357
746,160,357
Additional paid-in capital
1,676,712,406
1,676,712,406
Unrealized valuation gain on available-for-sale
investments (Note 10)
4,543,100
718,100
Cumulative actuarial gain (loss) on defined benefit plan (Note 2)
(27,524,027)
13,962,294
Treasury stock
–
(236,178,536)
Retained earnings (Note 2)
311,882,197
475,307,141
2,711,774,033
Total Equity
2,676,681,762
P4,497,612,905
TOTAL LIABILITIES AND EQUITY
P
=4,418,452,161 =
See accompanying Notes to Financial Statements.
SPLASH CORPORATION
(A Subsidiary of Splash Holdings, Inc.)
STATEMENTS OF RECOGNIZED INCOME AND EXPENSE
FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
2008
Actuarial gain (loss) on defined benefit plan
(Notes 2, 18 and 22)
Adjustment on asset ceiling (Notes 18 and 22)
Effect of deferred income tax
Net actuarial gain (loss) on defined benefit plan
and adjustment on asset ceiling
Unrealized gain (loss) on available-for-sale
investments
NET INCOME (EXPENSE)
RECOGNIZED DIRECTLY IN EQUITY
NET INCOME FOR THE YEAR
TOTAL RECOGNIZED NET INCOME
FOR THE YEAR
See accompanying Notes to Financial Statements.
December 31
2007
2006
P
=73,227,686
(21,454,563)
(10,286,802)
(P
=6,524,288)
–
(1,512,917)
(P
=27,957,832)
–
9,835,789
41,486,321
(8,037,205)
(18,122,043)
(3,825,000)
5,520,000
1,400,000
37,661,321
(2,517,205)
(16,722,043)
297,733,808
279,270,860
223,606,843
P
=335,395,129
=276,753,655
P
=
P206,884,800
SPLASH CORPORATION
(A Subsidiary of Splash Holdings, Inc.)
STATEMENTS OF INCOME
Years Ended December 31
2008
NET SALES (Notes 11 and 15)
2007
(As restated,
Note 2)
2006
(As restated,
Note 2)
P
=3,165,224,133
=3,010,832,030
P
=
P2,399,082,430
COST OF GOODS SOLD (Notes 11 and 16)
1,504,003,578
1,475,161,239
1,093,979,127
GROSS PROFIT
1,661,220,555
1,535,670,791
1,305,103,303
OPERATING EXPENSES
(Note 17)
INTEREST INCOME (Notes 4, 8, 15
and 19)
(1,403,676,775) (1,211,395,081) (1,057,402,607)
96,206,842
36,022,712
2,580,950
INTEREST EXPENSE (Notes 13 and 19)
(73,015,901)
(74,509,990)
(62,655,776)
OTHER INCOME (CHARGES)
Foreign exchange gain (loss) - net (Note 7)
Provision for probable loss (Note 27)
Reversal of excess provision (Note 12)
Others
14,515,826
(12,000,000)
–
13,583,176
(14,836,325)
–
–
7,619,896
(7,330,087)
–
60,461,525
3,328,078
INCOME BEFORE INCOME TAX
296,833,723
278,572,003
PROVISION FOR (BENEFIT FROM)
INCOME TAX (Note 20)
NET INCOME
Earnings Per Share (Note 23)
See accompanying Notes to Financial Statements.
(900,085)
(698,857)
244,085,386
20,478,543
P
=297,733,808
=279,270,860
P
P
=223,606,843
P
=0.40
=0.98
P
=
P2.08
SPLASH CORPORATION
(A Subsidiary of Splash Holdings, Inc.)
STATEMENTS OF CASH FLOWS
2008
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax
Adjustments for:
Interest income (Note 19)
Interest expense (Note 19)
Depreciation and amortization (Notes 9 and 17)
Provision for probable loss
Unrealized foreign exchange loss (gain)
Dividend income
Gain on sale of property and equipment
Reversal of excess provision (Note 12)
Operating income before working capital changes
Decrease (increase) in:
Receivables
Inventories
Prepaid expenses and other current assets
Increase (decrease) in:
Accounts payable and accrued expenses
Retirement benefits liability (Note 18)
Net cash generated from operations
Interest received
Income taxes paid
Net cash flows from operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Collection of note receivable (Note 8)
Additions to property, plant and equipment (Note 9)
Dividends received
Increase in other noncurrent assets
Proceeds from sale of property and equipment
Cash advances to a stockholder
Decrease in other investments
Net cash flows from (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Acquisition of treasury stock (Note 14)
Payments of:
Dividends
Interest
Floating rate notes
Bank loans
Proceeds from issuance of capital stock - net (Note 14)
Proceeds from availment of:
Floating rate notes
Bank loans
Payment of long-term debt
Net cash flows from (used in) financing activities
EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS AT END
OF YEAR (Notes 4 and 15)
See accompanying Notes to Financial Statements.
P
=296,833,723
Years Ended December 31
2007
=
P278,572,003
2006
=
P244,085,386
(96,206,842)
73,015,901
47,348,669
12,000,000
(9,010,630)
(3,785,844)
(2,109,119)
–
318,085,858
(36,022,712)
74,509,990
50,731,775
–
12,220,520
–
(814,489)
–
379,197,087
(2,580,950)
62,655,776
78,113,226
–
1,040,176
–
(736,742)
(60,461,525)
322,115,347
(54,600,894)
(53,080,882)
(2,280,625)
(329,449,802)
(146,216,699)
(49,497,453)
(179,231,185)
60,270,048
4,540,752
22,557,793
13,843,022
244,524,272
92,456,323
(16,122,695)
320,857,900
274,989,605
(15,593,621)
113,429,117
3,756,502
(13,918,678)
103,266,941
(34,433,608)
(120,328)
173,141,026
2,580,950
(19,514,404)
156,207,572
45,845,588
(24,887,804)
3,785,844
(526,300)
2,156,119
–
–
26,373,447
–
(20,585,127)
–
(1,175,477)
1,424,276
(117,012,421)
9,835,205
(127,513,544)
–
(2,901,900)
–
(665,880)
1,067,375
(52,986,905)
–
(55,487,310)
(236,178,536)
–
–
(134,308,864)
(66,642,984)
(46,990,002)
–
–
(350,000,000)
(70,431,990)
–
(640,000,000)
2,058,182,348
–
(62,655,776)
–
(220,000,000)
–
–
–
–
(484,120,386)
985,416,803
280,000,000
(367,173,612)
1,895,993,549
433,500,000
270,000,000
(499,826,389)
(78,982,165)
(8,569,832)
(137,747)
3,926,961
1,863,177,114
21,600,350
1,975,037,566
111,860,452
90,260,102
P
=1,842,075,488
=
P1,975,037,566
=
P111,860,452
(132,962,078)
SPLASH CORPORATION
(A Subsidiary of Splash Holdings, Inc.)
NOTES TO FINANCIAL STATEMENTS
1. Corporate Information
General
Splash Corporation (the Company) was incorporated in the Philippines and registered with the
Philippine Securities and Exchange Commission (SEC) on September 30, 1991 primarily to
develop, manufacture, bottle, pack, and market cosmetics and other beauty products, and
pharmaceutical products in the Philippines and abroad. On March 4, 2009, the SEC approved the
Company’s amendment of the primary purpose of the Articles of Incorporation to include the
development or acquisition of technology to manufacture and sell personal care, pharmaceuticals,
food, health, home, household care and other ancillary products in the Philippines and abroad.
Before the Company listed its shares of stock with the Philippine Stock Exchange (PSE) on
November 15, 2007, the Company is a wholly-owned subsidiary of Splash Holdings, Inc. (SHI).
On November 15, 2007, the Company’s shares of stock were listed and traded in the PSE. After
the Initial Public Offering (IPO) wherein the Company offered 30% of its outstanding shares (both
primary and secondary) to the public, the Company became 70%-owned by SHI. On December 4,
2008, the BOD approved to buyback the Company’s shares of stock totalling 30.30 million shares
held by SHI (see Note 14f). After the buyback, SHI’s ownership in the Company increased from
70% to 71.17%, and SHI continues to exercise control over the Company (see Note 14).
The Company’s registered office address is HBC Corporate Centre, 548 Mindanao Avenue corner
Quirino Highway, Quezon City.
The accompanying financial statements were authorized for issuance by the BOD on April 14,
2009.
2. Summary of Significant Accounting and Financial Reporting Policies
Basis of Financial Statement Preparation
The accompanying financial statements have been prepared under the historical cost basis, except
for derivative financial instruments and available-for-sale (AFS) financial assets which have been
measured at fair value. The financial statements are presented in Philippine peso, which is the
Company’s functional currency.
Statement of Compliance
The Company’s financial statements have been prepared in conformity with Philippine Financial
Reporting Standards (PFRS).
Changes in Accounting Policies and Disclosures
The accounting policies adopted are consistent with those of the previous financial year, except for
the following:
•
PFRS 8, Operating Segments. The Company early adopted PFRS 8 which will become
effective on January 1, 2009. PFRS 8 replaces PAS 14, Segment Reporting, and adopts a full
management approach to identifying, measuring and disclosing the results of an entity’s
-2operating segments. The information reported is that which management uses internally for
evaluating the performance of operating segments and allocating resources to those segments.
Such information may be different from that reported in the balance sheet and statement of
income, and the Company will provide explanations and reconciliations of the differences, if
any. The adoption of this standard resulted in a change in the reportable segments from
business segments consisting of naturals, skin care and hair care to geographical areas where
the Company’s products are sold. Comparatives for 2007 and 2006 have been restated. The
changes of disclosures relating to segment information are fully discussed in Note 21 to the
financial statements.
•
In 2008, the Company changed its accounting policy for actuarial gains or losses from
immediate recognition as income or expense to full recognition directly in equity under the
statement of recognized income and expense (SORIE). This is to align the Company’s
accounting policy with comparable companies within the industry.
The change in accounting policy was accounted for retroactively which resulted in the
following:
Retained earnings
Actuarial loss on defined benefit plan
Retirement benefits cost
Provision for income tax - deferred
December 31,
2007
P
=8,037,205
8,037,205
(6,524,288)
(1,512,917)
Increase (Decrease)
December 31,
2006
=
P18,122,043
18,122,043
(27,957,832)
9,835,789
January 1,
2006
=
P1,364,779
1,364,779
–
–
Additional disclosures required as a result of the change in accounting policy were made in the
financial statements (see Notes 18 and 22).
The following Philippine Interpretations International Financial Reporting Interpretations
Committee (IFRIC) interpretations which became effective on January 1, 2008 and an amendment
to an existing Philippine Accounting Standard (PAS) that became effective on
July 1, 2008 are determined by management to be not relevant and not applicable to the Company.
•
Philippine Interpretation IFRIC 11, PFRS 2, Group and Treasury Share Transactions
This Interpretation addresses issues relating to whether transactions should be accounted for as
equity-settled or as cash-settled under PFRS 2 and issues concerning share-based payment
arrangement involving entities within the same group. The Company has no share-based
payments.
•
Philippine Interpretation IFRIC 12, Service Concession Arrangements
This Interpretation applies to contractual arrangements whereby a private sector party
participates in the development, financing, operation and maintenance of infrastructure
for public sector services. The Company has no service concession arrangements.
•
Philippine Interpretation IFRIC 14, PAS 19 - The Limit on a Defined Benefit Asset,
Minimum Funding Requirements and their Interaction
Philippine Interpretation IFRIC 14 addresses how to assess the limit under PAS 19,
Employee Benefits, on the amount of the pension scheme surplus that can be recognized as an
asset in balance sheet, in particular, when a minimum funding requirement exists. This
Interpretation has no impact on the Company’s financial statements.
-3•
Amendments to PAS 39, Financial Instruments: Recognition and Measurement, and
PFRS 7, Financial Instruments: Disclosures - Reclassification of Financial Assets
Entities are not permitted to reclassify financial assets in accordance with the amendments
before July 1, 2008. Any reclassification of a financial asset made in periods beginning on
or after November 15, 2008 will take effect only from the date the reclassification is made.
The amendments to PAS 39 permit an entity to: (1) reclassify non-derivative financial assets
(other than those designated at fair value through profit or loss by the entity upon initial
recognition) out of the fair value through profit or loss category if the financial asset is no
longer held for the purpose of selling or repurchasing it in the near term in particular
circumstances; and (2) transfer from the available-for-sale category to the loans and
receivables category a financial asset that would have met the definition of loans and
receivables (if the financial asset had not been designated as available-for-sale), if the entity
has the intention and ability to hold that financial asset for the foreseeable future. This
amendment had no impact on the Company’s financial statements.
New Accounting Standards, Interpretations and Amendments to
Existing Standards Effective Subsequent to December 31, 2008
The Company will adopt the following standards, amendment to existing standard and
Interpretations enumerated below when these become effective. Except as otherwise indicated, the
Company does not expect the adoption of these new and amended PFRS and Philippine
Interpretations to have significant impact on its financial statements.
Effective in 2009
•
PFRS 1, First-time Adoption of Philippine Financial Reporting Standards - Cost of an
Investment in a Subsidiary, Jointly Controlled Entity or Associate
The amended PFRS 1 allows an entity, in its separate financial statements, to determine the
cost of investments in subsidiaries, jointly controlled entities or associates (in its opening
PFRS financial statements) as one of the following amounts: a) cost determined in accordance
with PAS 27; b) at the fair value of the investment at the date of transition to PFRS,
determined in accordance with PAS 39; or c) previous carrying amount (as determined under
generally accepted accounting principles) of the investment at the date of transition to PFRS.
•
PFRS 2, Share-based Payment - Vesting Condition and Cancellations
The standard has been revised to clarify the definition of a vesting condition and prescribes the
treatment for an award that is effectively cancelled. It defines a vesting condition as a
condition that includes an explicit or implicit requirement to provide services. It further
requires non-vesting conditions to be treated in a similar fashion to market conditions. Failure
to satisfy a non-vesting condition that is within the control of either the entity or the
counterparty is accounted for as cancellation. However, failure to satisfy a non-vesting
condition that is beyond the control of either party does not give rise to a cancellation.
•
Amendments to PAS 1, Presentation of Financial Statements
These Amendments introduce a new statement of comprehensive income that combines all
items of income and expenses recognized in the profit or loss together with “other
comprehensive income” (OCI). Entities may choose to present all items in one statement, or
to present two linked statements, a separate statement of income and a statement of
comprehensive income. These amendments also require additional requirements in the
presentation of the balance sheet and owner’s equity as well as additional disclosures to be
included in the financial statements.
-4•
PAS 23, Borrowing Costs
The standard has been revised to require capitalization of borrowing costs when such costs
relate to a qualifying asset. A qualifying asset is an asset that necessarily takes a substantial
period of time to get ready for its intended use or sale. In accordance with the transitional
requirements in the standard, the Company will adopt this as a prospective change.
Accordingly, borrowing costs will be capitalized on qualifying assets with a commencement
date after January 1, 2009. No changes will be made for borrowing costs incurred to this date
that have been expensed.
•
Amendments to PAS 27, Consolidated and Separate Financial Statements - Cost of an
Investment in a Subsidiary, Jointly Controlled Entity or Associate
Amendments to PAS 27 will be effective on January 1, 2009 which has changes in respect of
the holding companies separate financial statements including: (a) the deletion of “cost
method”, making the distinction between pre- and post-acquisition profits no longer required;
and (b) in cases of reorganizations where a new parent is inserted above an existing parent of
the group (subject to meeting specific requirements), the cost of the subsidiary is the previous
carrying amount of its share of equity items in the subsidiary rather than its fair value. All
dividends will be recognized in profit or loss. However, the payment of such dividends
requires the entity to consider whether there is an indicator of impairment.
•
Amendment to PAS 32, Financial Instruments: Presentation and PAS 1 Presentation of
Financial Statements - Puttable Financial Instruments and Obligations Arising on
Liquidation
These amendments specify, among others, that puttable financial instruments will be classified
as equity if they have all of the following specified features: (a) the instrument entitles the
holder to require the entity to repurchase or redeem the instrument (either on an ongoing basis
or on liquidation) for a pro rata share of the entity’s net assets; (b) the instrument is in the most
subordinate class of instruments, with no priority over other claims to the assets of the entity
on liquidation; (c) all instruments in the subordinate class have identical features; (d) the
instrument does not include any contractual obligation to pay cash or financial assets other
than the holder’s right to a pro rata share of the entity’s net assets; and (e) the total expected
cash flows attributable to the instrument over its life are based substantially on the profit or
loss, a change in recognized net assets, or a change in the fair value of the recognized and
unrecognized net assets of the entity over the life of the instrument.
•
Philippine Interpretation IFRIC 13, Customer Loyalty Programmes
This Interpretation requires customer loyalty award credits to be accounted for as a separate
component of the sales transaction in which they are granted and therefore part of the fair
value of the consideration received is allocated to the award credits and realized in income
over the period that the award credits are redeemed or expire.
•
Philippine Interpretation IFRIC 16, Hedges of a Net Investment in a Foreign Operation
This Interpretation provides guidance on identifying foreign currency risks that qualify for
hedge accounting in the hedge of net investment; where within the group, the hedging
instrument can be held in the hedge of a net investment; and how an entity should determine
the amount of foreign currency gains or losses, relating to both the net investment and the
hedging instrument, to be recycled on disposal of the net investment.
-5Improvements to PFRS
In May 2008, the International Accounting Standards Board issued its first omnibus of
amendments to certain standards, primarily with a view to removing inconsistencies and clarifying
wording. There are separate transitional provisions for each standard:
Effective in 2009
•
PFRS 5, Non-current Assets Held for Sale and Discontinued Operations
When a subsidiary is held for sale, all of its assets and liabilities will be classified as held for
sale under PFRS 5, even when the entity retains a non-controlling interest in the subsidiary
after the sale.
•
PAS 1, Presentation of Financial Statements
Assets and liabilities classified as held for trading are not automatically classified as current in
the balance sheet.
•
PAS 16, Property, Plant and Equipment
The amendment replaces the term “net selling price” with “fair value less costs to sell”, to be
consistent with PFRS 5, Non-current Assets Held for Sale and Discontinued Operations and
PAS 36, Impairment of Assets.
Items of property, plant and equipment held for rental that are routinely sold in the ordinary
course of business after rental, are transferred to inventory when rental ceases and they are held
for sale. Proceeds of such sales are subsequently shown as revenue. Cash payments on initial
recognition of such items, the cash receipts from rents and subsequent sales are all shown as
cash flows from operating activities.
•
PAS 19, Employee Benefits
Revises the definition of “past service costs” to include reductions in benefits related to past
services (“negative past service costs”) and to exclude reductions in benefits related to future
services that arise from plan amendments. Amendments to plans that result in a reduction in
benefits related to future services are accounted for as a curtailment.
Revises the definition of “return on plan assets” to exclude plan administration costs if they
have already been included in the actuarial assumptions used to measure the defined benefit
obligation.
Revises the definition of “short-term” and “other long-term” employee benefits to focus on the
point in time at which the liability is due to be settled.
Deletes the reference to the recognition of contingent liabilities to ensure consistency with
PAS 37, Provisions, Contingent Liabilities and Contingent Assets.
•
PAS 20, Accounting for Government Grants and Disclosures of Government Assistance
Loans granted with no or low interest rates will not be exempt from the requirement to impute
interest. The difference between the amount received and the discounted amount is accounted
for as a government grant.
•
PAS 23, Borrowing Costs
Revises the definition of borrowing costs to consolidate the types of items that are considered
components of “borrowing costs”, i.e., components of the interest expense calculated using the
effective interest rate method.
-6•
PAS 28, Investment in Associates
If an associate is accounted for at fair value in accordance with PAS 39, only the requirement
of PAS 28 to disclose the nature and extent of any significant restrictions on the ability of the
associate to transfer funds to the entity in the form of cash or repayment of loans applies. An
investment in an associate is a single asset for the purpose of conducting the impairment test.
Therefore, any impairment test is not separately allocated to the goodwill included in the
investment balance.
•
PAS 29, Financial Reporting in Hyperinflationary Economies
Revises the reference to the exception that assets and liabilities should be measured at
historical cost, such that it notes property, plant and equipment as being an example, rather
than implying that it is a definitive list.
•
PAS 31, Interest in Joint ventures
If a joint venture is accounted for at fair value, in accordance with PAS 39, only the
requirements of PAS 31 to disclose the commitments of the venturer and the joint venture, as
well as summary financial information about the assets, liabilities, income and expense will
apply.
•
PAS 36, Impairment of Assets
When discounted cash flows are used to estimate “fair value less cost to sell” additional
disclosure is required about the discount rate, consistent with disclosures required when the
discounted cash flows are used to estimate “value in use”.
•
PAS 38, Intangible Assets
Expenditure on advertising and promotional activities is recognized as an expense when the
Company either has the right to access the goods or has received the services. Advertising and
promotional activities now specifically include mail order catalogues.
Deletes references to there being rarely, if ever, persuasive evidence to support an
amortization method for finite life intangible assets that results in a lower amount of
accumulated amortization than under the straight-line method, thereby effectively allowing the
use of the unit of production method.
•
PAS 39, Financial Instruments: Recognition and Measurement
Changes in circumstances relating to derivatives - specifically derivatives designated or dedesignated as hedging instruments after initial recognition - are not reclassifications.
When financial assets are reclassified as a result of an insurance company changing its
accounting policy in accordance with paragraph 45 of PFRS 4, Insurance Contracts, this is a
change in circumstance, not a reclassification.
Removes the reference to a “segment” when determining whether an instrument qualifies as a
hedge.
Requires use of the revised effective interest rate (rather than the original effective interest
rate) when re-measuring a debt instrument on the cessation of fair value hedge accounting.
-7•
PAS 40, Investment Properties
Revises the scope (and the scope of PAS 16, Property, Plant and Equipment) to include
property that is being constructed or developed for future use as an investment property.
Where an entity is unable to determine the fair value of an investment property under
construction, but expects to be able to determine its fair value on completion, the investment
under construction will be measured at cost until such time as fair value can be determined or
construction is complete.
•
PAS 41, Agriculture
Removes the reference to the use of a pre-tax discount rate to determine fair value, thereby
allowing use of either a pre-tax or post-tax discount rate depending on the valuation
methodology used.
Removes the prohibition to take into account cash flows resulting from any additional
transformations when estimating fair value. Instead, cash flows that are expected to be
generated in the “most relevant market” are taken into account.
Effective in 2010
•
Revised PFRS 3, Business Combinations and PAS 27, Consolidated and
Separate Financial Statements
The revised PFRS 3 introduces a number of changes in the accounting for business
combinations that will impact the amount of goodwill recognized, the reported results in the
period that an acquisition occurs, and future reported results. The revised PAS 27 requires,
among others, that (a) change in ownership interests of a subsidiary (that do not result in loss
of control) will be accounted for as an equity transaction and will have no impact on goodwill
nor will it give rise to a gain or loss; (b) losses incurred by the subsidiary will be allocated
between the controlling and non-controlling interests (previously referred to as ‘minority
interests’); even if the losses exceed the non-controlling equity investment in the subsidiary;
and (c) on loss of control of a subsidiary, any retained interest will be remeasured to fair value
and this will impact the gain or loss recognized on disposal. The changes introduced by the
revised PFRS 3 and PAS 27 must be applied prospectively and will affect future acquisitions
and transactions with non-controlling interests.
•
Amendment to PAS 39, Financial Instruments: Recognition and Measurement Eligible Hedged Items
Amendment to PAS 39 will be effective on July 1, 2009, which addresses only the designation
of a one-sided risk in a hedged item, and the designation of inflation as a hedged risk or
portion in particular situations. The amendment 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.
Effective in 2012
•
Philippine Interpretation IFRIC 15, Agreement for Construction of Real Estate
This Interpretation 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
-8PAS 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.
Cash and Cash Equivalents
Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid
investments that are readily convertible to known amounts of cash with original maturities of three
months or less from dates of acquisition and that are subject to an insignificant risk of changes in
value.
Financial Assets and Financial Liabilities
Date of recognition
The Company recognizes a financial asset or a financial liability in the balance sheet when it
becomes a party to the contractual provisions of the instrument. In the case of a regular way
purchase or sale of financial assets, recognition and derecognition, as applicable, is done using
settlement date accounting. Regular way purchases or sales are purchases or sales of financial
assets that require delivery of assets within the period generally established by regulation or
convention in the market place.
Initial recognition of financial instruments
All financial assets and financial liabilities are recognized initially at fair value. Except for
financial instruments measured at fair value through profit or loss (FVPL), the initial measurement
of all financial assets includes transaction costs. The Company classifies its financial assets in the
following categories: financial assets at FVPL, loans and receivables, held-to-maturity (HTM)
investments and AFS investments. The Company also classifies its financial liabilities into
financial liabilities at FVPL and other financial liabilities. The classification depends on the
purpose for which the investments were acquired and whether they are quoted in an active market.
The Company determines the classification of its financial assets at initial recognition and, where
allowed and appropriate, re-evaluates such designation at every reporting date.
As of December 31, 2008 and 2007, the Company has no financial instruments classified as HTM
investments.
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.
Determination of fair value
The fair value of financial instruments that are actively traded in organized financial market is
determined by reference to quoted market bid prices at the close of business at the balance sheet
date. When the current bid and asking prices are not available, the price of the most recent
transaction provides evidence of the current fair value as long as there has not been a significant
change in economic circumstances since the time of the transaction.
For all other financial instruments not listed in an active market, the fair value is determined by
using appropriate valuation methodologies. Valuation methodologies include net present value
techniques, comparison to similar instrument for which market observable prices exist and other
relevant valuation models.
-9Day 1 profit
Where the transaction price in a non-active market is different from the fair value from other
observable current market transactions in the same instrument or based on a valuation technique
whose variables include only data from observable market, the Company recognizes the difference
between the transaction price and fair value (a Day 1 profit) in the statement of income, unless it
qualifies for recognition as some other type of asset. In cases where use of data is made which are
not observable, the difference between the transaction price and model value is only recognized in
the statement of income when the inputs become observable or when the instrument is
derecognized. For each transaction, the Company determines the appropriate method of
recognizing the “Day 1” profit amount.
Financial assets and financial liabilities at FVPL
Financial assets and financial liabilities at FVPL include financial assets and liabilities held for
trading purposes, derivative financial instruments or those financial assets and liabilities
designated upon initial recognition as at FVPL.
Financial assets and financial liabilities are classified as held for trading if they are acquired for
the purpose of selling or repurchasing in the near term. Derivative instruments, including
separated embedded derivatives are also classified as held for trading unless they are designated as
effective hedging instruments in hedge accounting or a financial guarantee contract.
Financial assets and financial liabilities may be designated at initial recognition as at FVPL if any
of the following criteria are met:
•
•
•
the designation eliminates or significantly reduces the inconsistent treatment that would
otherwise arise from measuring the assets or liabilities or recognizing gains or losses on a
different basis; or
the assets and liabilities are part of a group of financial assets, financial liabilities or both
which are managed and their performance are evaluated on a fair value basis in accordance
with a documented risk management or investment strategy; or
the financial instrument contains an embedded derivative, unless the embedded derivative
does not significantly modify the cash flows or it is clear, with little or no analysis, that it
would not be separately recorded.
Financial assets and financial liabilities at FVPL are recorded in the balance sheet at fair value.
Changes in fair value are accounted for in the statement of income. Interest earned or incurred is
recorded as interest income or expense, respectively. Dividend income is recorded in other
income when the right to receive payment has been established.
The Company’s embedded derivative is included under this category.
Embedded Derivative
An embedded derivative is separated from the host contract and accounted for as a derivative if all
of the following conditions are met: a) the economic characteristics and risks of the embedded
derivative are not closely related to the economic characteristics and risks of the host contract;
b) a separate instrument with the same terms as the embedded derivative would meet the definition
of a derivative; and c) the hybrid or combined instrument is not recognized at FVPL.
The Company assesses whether embedded derivatives are required to be separated from the host
contracts when the Company first becomes a party to the contract. Subsequent reassessment is
prohibited unless there is a change in the terms of the contract that significantly modifies the cash
flows that otherwise would be required under the contract, in which case reassessment is required.
- 10 The Company determines whether a modification to cash flows is significant by considering the
extent to which the expected future cash flows associated with the embedded derivative, the host
contract or both have changed and whether the change is significant relative to the previously
expected cash flows on the contract.
The Company has identified certain contracts with embedded third-currency derivatives
(see Notes 7 and 25).
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 recognition measurement, such assets are
subsequently carried at amortized cost using the effective interest method, less any allowance for
impairment losses. Amortized cost is calculated by taking into account any discount or premium
on acquisition and fees that are an integral part of the effective interest rate.
Gains and losses are recognized in the statement of income when the loans and receivables are
derecognized or impaired, as well as through the amortization process. Loans and receivables are
included in current assets if maturity is within 12 months of the balance sheet date. Otherwise,
these are classified as noncurrent assets (see Notes 5 and 8).
The Company’s cash and cash equivalents, receivables, note receivable and advances to a
stockholder are classified under this category.
AFS investments
AFS investments are non-derivative financial assets that are designated as such or do not qualify
to be classified as designated as at FVPL, loans and receivables or HTM investments. They are
purchased and held indefinitely, and may be sold in response to liquidity requirements or changes
in market conditions.
After initial recognition, the Company measures its AFS investments at fair value with gains or
losses being recognized as a separate component of equity under “Unrealized Valuation Gain on
Available-for-Sale Investments” until the investment is derecognized or until the investment is
determined to be impaired at which time the cumulative gain or loss previously reported in equity
is included in the statement of income. These financial assets are classified as noncurrent assets
unless there is intention to dispose such assets within 12 months of the balance sheet date.
When the fair value of AFS investments cannot be measured reliably because of lack of reliable
estimates of future cash flows and discount rates necessary to calculate the fair value of unquoted
equity instruments, these investments are carried at cost, less any allowance for impairment losses.
When the security is disposed of, the cumulative gain or loss previously recognized in equity is
recognized in the statement of income. Where the Company holds more than one investment in
the same security, these are deemed to be disposed of on a first-in-first-out basis. Interest earned
on the AFS investment is reported as interest income using the effective interest rate. Dividends
earned are recognized on the statement of income when the right to receive payment is established.
The losses arising from impairment investments are recognized in the statement of income.
The Company’s AFS investments consist of investments in quoted and unquoted equity shares and
are classified under noncurrent assets (see Note 10).
- 11 Other financial liabilities
This category pertains to financial liabilities that are not held for trading or designated as at FVPL
upon the inception of the liability. These include liabilities arising from operations (e.g. accounts
payable and accrued liabilities) and loans and borrowings. All loans and borrowings are initially
recognized at fair value less debt issue costs associated with the borrowings.
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 discount or premium on the issue and debt issue costs that are an integral part of the
effective interest rate. Gains and losses are recognized in profit or loss when the liabilities are
derecognized as well as through the amortization process.
The Company’s other financial liabilities consist of accounts payable and accrued expenses and
floating-rate notes payable (see Notes 12 and 13).
Impairment of Financial Assets
The Company assesses at each balance sheet date whether there is objective evidence that a
financial asset or group of financial assets may be impaired. A financial asset or 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 group of financial assets that can be reliably estimated. Objective
evidence of impairment may include indications that the borrower is experiencing significant
financial difficulty, default or delinquency in 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.
Assets carried at amortized cost
If there is objective evidence that an impairment loss on loans and receivables carried at amortized
cost 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 (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 either directly or through the use of an allowance account. The amount of the
loss shall be recognized in the statement of income. Loans and receivables, together with the
associated allowance accounts, are written off when there is no realistic prospect of future
recovery.
The Company first assesses whether objective evidence of impairment exists individually for
financial assets that are individually significant, and individually or collectively for financial
assets that are not individually significant. If it is determined that no objective evidence of
impairment exists for an individually assessed financial asset, whether significant or not, the asset
is included in a group of financial assets with similar credit risk characteristics and that group of
financial assets is collectively assessed for impairment. Assets that are individually assessed for
impairment and for which an impairment loss is or continues to be recognized are not included in
a collective assessment of impairment.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be
related objectively to an event occurring after the impairment was recognized, the previously
recognized impairment loss will be reversed. Any subsequent reversal of an impairment loss is
recognized in the statement of income, to the extent that the carrying value of the asset does not
exceed its amortized cost at the reversal date.
- 12 With respect to receivables, the Company performs a regular review of the age and status of these
accounts, designed to identify accounts with objective evidence of impairment and provide the
appropriate allowance for impairment losses. The review is accomplished using a combination of
specific and collective assessment approaches, with the impairment losses being determined for
each risk grouping identified by the Company.
AFS investments carried at fair value
For AFS investment, the Company assesses at each balance sheet whether there is objective
evidence that an investment is impaired. If an AFS investment carried at fair value is impaired, an
amount comprising the difference between its cost and its current fair value, less any impairment
loss previously recognized in the statement of income, is transferred from equity to the statement
of income. In the case of equity investment classified as AFS investments, objective evidence of
impairment would include a significant or prolonged decline in the fair value of the investments
below its cost. Reversals of impairment losses in respect of equity instruments classified as AFS
are not recognized in the statement of income.
Assets carried at cost
If there is objective evidence that an impairment loss has been incurred in an unquoted equity
instrument that is not carried at fair value because 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, the amount of the 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 current market
rate of return for a similar financial asset.
Renegotiated receivables
The Company seeks to restructure receivables rather than to take further legal actions. This
involves extending the payment arrangements and the arrangement of the new receivable
conditions. Once the terms have been renegotiated, the receivables are no longer considered past
due. Management continuously reviews renegotiated receivables to ensure that future payments
are likely to occur. The receivables continue to be subject to individual or collective impairment
assessment.
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 where:
a. the right to receive cash flows from the asset has expired;
b. the Company retains the right to receive cash flows from the asset, but has assumed an
obligation to pay them in full without material delay to a third party under a ‘pass-through’
arrangement; or
c. the Company has transferred its right to receive cash flows from the asset and either has
transferred substantially all the risks and rewards of the asset or has neither transferred nor
retained substantially all the risks and rewards of the asset, but has transferred control of the
asset.
Where the Company has transferred its right to receive cash flows from an asset 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 Company’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 Company could be required to repay.
- 13 Financial liabilities
A financial liability is derecognized when the obligation under the liability is 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 statement of
income.
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 asset and settle the liability
simultaneously. This is not generally the case with master netting agreements, and the related
assets and liabilities are presented gross in the balance sheet.
Inventories
Inventories are stated at the lower of cost and net realizable value (NRV). Costs incurred in
bringing each inventories to its present location and condition are accounted for as follows:
Finished goods and work in process
- Cost is determined based on the moving average
method. Cost includes direct materials, labor and
a proportion of manufacturing overhead costs
based on normal operating capacity.
Raw materials
- Cost is determined using the moving average
method.
Land for development
- Carried at the lower of cost and NRV.
NRV is the estimated selling price in the ordinary course of business, less estimated costs of
completion and the estimated costs necessary to make the sale.
Property, Plant and Equipment
Property, plant and equipment, except land, are carried at cost less accumulated depreciation,
amortization and impairment losses. Land is stated at cost less any impairment losses.
The initial cost of an item of property, plant and equipment includes its purchase price and any
directly attributable costs of bringing the asset to its working condition and location for its
intended use. Expenditures incurred after the property, plant and equipment have been put into
operation, such as repairs and maintenance costs, are normally charged to income in the period
the costs are incurred. In situations where it can be clearly demonstrated that the expenditures
have resulted in an increase in the future economic benefits expected to be obtained from the use
of an item of property, plant and equipment beyond its originally assessed standard of
performance, the expenditures are capitalized as additional costs of the property, plant and
equipment.
Assets under installation are carried at cost and transferred to the related property, plant and
equipment account when the installation and related activities necessary to prepare the assets for
their intended use are complete and the assets are ready for use.
- 14 Depreciation commences once the property, plant and equipment are available for use and
computed using the straight-line method over the estimated useful lives of the assets as follows:
Buildings and improvements
Machinery and equipment
Transportation equipment
Office furniture and fixtures
Other equipment
Years
10-15
5
5
2-5
2-5
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.
Fully depreciated assets are retained in the accounts until they are no longer in use and no further
depreciation and amortization are credited to or charged against current operations.
The assets’ residual values, useful lives and depreciation method are reviewed periodically to
ensure that the residual values, periods and method of depreciation are consistent with the
expected pattern of economic benefits from items of property, plant and equipment.
When assets are retired or otherwise disposed of, the cost and the related accumulated depreciation
and amortization and any impairment loss are removed from the accounts and any resulting gain
or loss is credited to or charged against current operations.
Impairment of Nonfinancial Assets
The Company assesses at each balance sheet date whether there is an indication that the
nonfinancial assets, like property, plant and equipment may be impaired. If any such indication
exists, the Company makes an estimate of the asset’s recoverable amount.
An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair
value less costs to sell and its value in use and is determined for an individual asset, unless the
asset does not generate cash inflows that are largely independent of those from other assets or
groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset
is considered impaired and is written down to its recoverable amount. In assessing value-in-use,
the estimated future cash flows are discounted to their present value using pretax discount rate that
reflects current market assessments of the time value of money and the risks specific to the asset.
Impairment losses on continuing operations are recognized in the statement of income.
An assessment is further made at each balance sheet date as to whether there is any indication that
previously recognized impairment losses may no longer exist or may have decreased. If such
indication exists, the recoverable amount is estimated. A previously recognized impairment loss is
reversed only if there has been a change in the estimates used to determine the asset’s recoverable
amount since the last impairment loss was recognized. If that is the case, the carrying amount of
the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying
amount that would have been determined, net of depreciation, had no impairment loss been
recognized for the asset in prior years. Such reversal is recognized in the statement of income.
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 useful
life.
- 15 Debt Issuance Costs
Transaction costs paid in relation to the issuance of the floating rate promissory notes issued to a
syndicate of lenders, shown as a contra-liability account to the floating rate notes payable, are
deferred and being amortized over the term of the notes starting August 1, 2007 until August 31,
2012 using the effective interest rate method.
Provisions
Provisions are recognized when the Company 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. Where the Company expects some or all of a provision to be reimbursed, for example
under an insurance contract, the reimbursement is recognized as a separate asset but only when the
reimbursement is virtually certain. The expense relating to any provision is presented in the
statement of income, net of any reimbursement. If the effect of the time value of money is
material, provisions are discounted using a current pre-tax rate that reflects, 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 in the statement of income.
Treasury Stock
Treasury stock is recorded at cost and is presented as deduction from equity. When the shares are
retired, the capital stock account is reduced by its par value and the excess of cost over par value
upon retirement is debited to additional paid-in-capital to the extent of the specific or average
additional paid-in-capital when the shares were issued and to retained earnings for the remaining
balance.
Revenue Recognition
Revenue is recognized when it is probable that the economic benefits associated with the
transaction will flow to the enterprise and the amount of revenue can be reliably measured. The
following specific recognition criteria must also be met before revenue is recognized:
Sales are recognized upon delivery of goods to customers.
Land for development - revenue on sale of land for development is recognized only to the extent
cash is received or when the exchange consideration can be measured reliably.
Rental income is accounted for on a straight-line basis over the term of the lease.
Interest income is recognized as it accrues using the effective interest rate method.
Retirement Benefits Cost
Retirement benefits cost is actuarially determined using the projected unit credit actuarial
valuation method. This method considers each period of service as giving rise to an additional
unit of benefit entitlement and measures each separately to build up the final obligation. Past
service costs are recognized on a straight-line basis over the average period until the amended
benefits become vested. To the extent that the benefits are already vested immediately, upon
introduction of a new plan or improvement of an existing plan, past service costs are immediately
expensed. Any actuarial gains and losses and adjustments arising from the limits on asset ceiling
test are taken directly to equity. Gains or losses on the curtailment or settlement of pension
benefits are recognized in the statement of income when the curtailment or settlement occurs.
- 16 The defined benefit asset or liability comprises the present value of the defined benefit obligation
less past service cost not yet recognized and less the fair value of plan assets out of which the
obligations are to be settled directly. The value of any asset is restricted to the sum of any past
service cost not yet recognized and the present value of any economic benefits available in the
form of refunds from the plan or reductions in future contributions to the plan.
Leases
The determination of whether an arrangement is, or contains a lease is based on the substance of
the arrangement and requires an assessment of whether the fulfillment of the arrangement is
dependent on the use of a specific asset and the arrangement conveys a right to use the asset.
Operating lease payments where the Company is a lessee are recognized as expense on a straightline basis over the terms of the lease contracts.
Borrowing Costs
Borrowing costs are generally expensed as incurred and are capitalized if they are directly
attributable to the acquisition or construction of a qualifying asset. Capitalization of borrowing
costs commences when the activities to prepare the asset are in progress and expenditures and
borrowing costs are being incurred. Borrowing costs are capitalized until the assets are
substantially ready for their intended use. If the carrying amount of the asset exceeds its
recoverable amount, an impairment loss is recorded.
Foreign Currency Transactions
Transactions in foreign currencies are initially recorded in Philippine peso, the Company’s
functional currency, based on the exchange rates prevailing at the transaction date. Outstanding
foreign currency-denominated monetary assets and liabilities are restated to Philippine peso using
the closing exchange rates prevailing at the balance sheet date. Foreign exchange gains or losses
arising from the translation or settlement of foreign currency-denominated monetary assets and
liabilities at exchange rates different from those at which the assets and liabilities are initially
recorded, are taken to the statement of income.
Income Tax
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 balance
sheet date.
Deferred Income Tax
Deferred income tax is provided, using the balance sheet liability method, on all temporary
differences at the balance sheet date between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes.
Deferred income tax liabilities are recognized for all taxable temporary differences. Deferred
income tax assets are recognized for all deductible temporary differences, carryforward benefits of
unused tax credits from excess minimum corporate income tax (MCIT) and unused tax losses or
net operating loss carry over (NOLCO) to the extent that it is probable that taxable profit will be
available against which the deductible temporary differences and carryforward benefits of unused
tax credits and unused tax losses can be utilized.
Deferred income tax relating to items recognized directly in equity is recognized in equity and not
in the statement of income.
- 17 The carrying amount of deferred income tax assets is reviewed at each balance sheet date and
reduced to the extent that it is no longer probable that sufficient taxable profit will be available to
allow all or part of the deferred income tax asset to be utilized.
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 balance sheet date.
Earnings Per Share (EPS)
Basic EPS is determined by dividing net income by the weighted average number of shares issued
and outstanding, after giving retroactive adjustments for any stock split and stock dividends or
reverse stock splits during the year. The Company does not have dilutive potential common
shares.
Segment Reporting
The Company chose to organize the entity into geographical areas, where the Company’s products
are sold. The Company’s operating segments consist of: (1) Domestic operations and (2)
International operations. In addition, the operating segments are reported in a manner that is more
consistent with the internal reporting provided to the Chief Operating Decision Maker (CODM).
The CODM, who is responsible for allocating resources and assessing performance of the
operating segments, has been identified as the BOD that makes strategic decisions. The Company
has no inter-segment sales and transactions.
Contingencies
Contingent liabilities are not recognized in the financial statements. These are disclosed unless the
possibility of an outflow of resources embodying economic benefits is remote. Contingent assets
are not recognized in the financial statements but are disclosed when an inflow of economic
benefits is probable.
Events After the Balance Sheet Date
Post year-end events that provide additional information about the Company’s position at the
balance sheet date (adjusting events) are reflected in the financial statements. Post year-end
events that are not adjusting events are disclosed in the notes to financial statements when
material.
3. Management’s Significant Accounting Judgments and Use of Estimates
The preparation of the financial statements in conformity with PFRS requires management to
make estimates and assumptions that affect the amounts reported in the financial statements and
accompanying notes.
In the opinion of management, these financial statements reflect all adjustments necessary to
present fairly the results for the periods presented. Actual results could differ from these
estimates, and the effect of any change in estimates will be reflected in the financial statements
when they become reasonably determinable.
- 18 Judgments
In the process of applying the Company’s accounting policies, management has made the
following judgments, apart from those involving estimations, which have the most significant
effect on the amounts recognized in the financial statements as follows:
Determination of the Company’s functional currency
Based on the economic substance of the underlying circumstances relevant to the Company, the
functional currency of the Company has been determined to be the Philippine peso. It is the
currency that mainly influences the selling price of goods and cost of producing and selling the
goods.
Assessment whether the lease agreement is a finance or operating lease
The management assesses at the inception of the lease whether the arrangement is a finance or
operating lease based on who bears substantially all the risks and benefits incidental to ownership
of the leased item.
The Company has entered into a property lease where it has determined that the risks and rewards
related to the property are retained with the lessor. As such, the agreement is accounted for as an
operating lease.
Impairment of AFS investments
The Company treats AFS equity investments as impaired when there has been a significant or
prolonged decline in the fair value below its cost or where other objective evidence of impairment
exists. The determination of what is “significant” or “prolonged” requires judgment. The
Company treats “significant” generally as 20% or more of the original cost of investment, and
“prolonged”, greater than 6 months. In addition, the Company evaluates other factors, including
normal volatility in share price for quoted equities and the future cash flows and the discount
factors for unquoted equities. As of December 31, 2008 and 2007, the carrying value of the
Company’s AFS investments amounted to =
P215.95 million and P
=219.77 million, respectively (see
Note 10).
Estimation Uncertainty
The key assumptions concerning the future and other key sources of estimation uncertainty at the
balance sheet date, that have a significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year are discussed below:
Estimation of allowance for doubtful accounts
Provisions are made using a combination of specific and collective assessment approaches, with
impairment losses being determined for each risk grouping identified by the Company. The level
of this allowance is evaluated by management on the basis of factors that affect the collectibility of
the accounts. These factors include, but are not limited to, the length of the Company’s
relationship with its debtors, the debtors’ payment behavior and known market factors. The
amount and timing of recorded expenses for any period would differ if the Company made
different judgments or utilized different methodologies. An increase in allowance for doubtful
accounts would increase the recorded operating expenses and decrease current assets. Allowance
for doubtful accounts amounted to =
P33.82 million and P
=29.09 million as of December 31, 2008
and 2007, respectively. The amount of receivables, net of allowance for doubtful accounts,
amounted to =
P1,087.81 million and P
=1,024.45 million as of December 31, 2008 and 2007,
respectively (see Note 5).
- 19 Estimation of allowance for inventory obsolescence and market decline
The Company, in determining the NRV of inventories, considers any adjustments necessary for
obsolescence, which is generally provided 100% allowance on nonmoving items or expired or
near expiring (inventories which will expire within six months) inventories. The Company adjusts
the cost of the inventory to its recoverable value at a level considered adequate to reflect market
decline in the value of the recorded inventories.
The amount and timing of recorded expenses for any period would differ if different judgments
were made or different estimates were utilized. An increase in allowance for inventory
obsolescence and market decline would increase recorded operating expenses and decrease current
assets.
As of December 31, 2008 and 2007, allowance for inventory obsolescence amounted to
=34.89 million and =
P
P36.00 million, respectively (see Note 6).
Estimation of the useful lives of property, plant and equipment
The useful life of each of the item of property, plant and equipment are estimated based on the
period over which the asset is expected to be available for use. Such estimation is based on a
collective assessment of industry practice, internal technical evaluation and experience with
similar assets. The estimated useful life of each asset is reviewed periodically and updated if
expectations differ from previous estimates due to physical wear and tear, technical or commercial
obsolescence and legal or other limits on the use of the asset. It is possible, however, that future
results of operations could be materially affected by changes in the amounts and timing of
recorded expenses brought about by changes in the factors mentioned above. A reduction in the
estimated useful life of property, plant and equipment would increase the recorded operating
expenses and decrease the noncurrent assets.
There is no change in the estimated useful lives of property, plant and equipment as of
December 31, 2008 and 2007. The carrying values of property, plant and equipment amounted to
=272.07 million and =
P
P294.57 million as of December 31, 2008 and 2007, respectively (see
Note 9).
Asset impairment
The Company assesses impairment of assets (property, plant and equipment) whenever events or
changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
The factors that would trigger an impairment review include the following:
•
•
Significant underperformance relative to the future sales performance and projected operating
results.
Significant negative industry or market trends.
An impairment loss is recognized whenever the carrying amount of an asset exceeds its
recoverable amount. The recoverable amount is the higher of an asset’s net selling price and
value-in-use. The net selling price is the amount obtainable from the sale of an asset in an arm’s
length transaction while value-in-use is the present value of the estimated future cash flows
expected to arise from the continuing use of an asset and from its disposal at the end of its useful
life. Recoverable amounts are estimated for individual assets if it is not possible, for the cashgenerating unit to which the asset belongs. For impairment loss on a specific asset, the
recoverable amount represents the net selling price.
Based on the evaluation made by management, as of December 31, 2008 and 2007, no indication
of impairment was noted.
- 20 Recognition of deferred income tax assets
The Company reviews the carrying amounts of deferred income taxes at each balance sheet date
and reduces deferred income tax assets to the extent that it is no longer probable that sufficient
taxable income will be available to allow all or part of the deferred income tax assets to be
utilized. However, there is no assurance that the Company will generate sufficient taxable income
to allow all or part of its recognized deferred income tax assets to be utilized.
As of December 31, 2008 and 2007, the Company recognized deferred income tax assets
amounting to =
P33.19 million and =
P37.05 million, respectively (see Note 20).
Retirement benefits cost and obligation
The present value of the pension obligation depends on a number of factors that are determined on
an actuarial basis using a number of assumptions. The assumptions used in determining the net
cost for pensions include the discount rate, mortality rate and compensation increase.
The Company determines the appropriate discount rate at the end of each year. This is the
discount rate that should be used to determine the present value of estimated future cash outflows
expected to be required to settle the pension obligations. In determining the appropriate discount
rate, the Company considers the interest rates on government bonds that are denominated in
Philippine peso, and that have terms to maturity approximating the terms of the related pension
liability. The details of retirement benefits cost are disclosed in Note 18. Retirement benefits
liability recognized by the Company as of December 31, 2007 amounted to =
P37.93 million (nil in
2008). Retirement benefits cost amounted to =
P13.84 million, =
P10.28 million and =
P6.88 million in
2008, 2007 and 2006, respectively (see Note 18).
Provisions and contingencies
The estimate of probable costs of resolution of possible claims has been developed in consultation
with external counsels handling the Company’s defense in these matters and is based upon an
analysis of potential results. The Company is a party to certain lawsuits or claims arising from the
ordinary course of business. However, the Company’s management and legal counsel believe that
the eventual liabilities under these lawsuits or claims, if any, will not have a material effect on the
Company’s financial statements (see Note 27).
Fair value of financial instruments
Where the fair values of financial assets and financial liabilities recorded in the balance sheet or
disclosed in the financial statements cannot be derived from active markets, they are determined
using internal valuation techniques using generally accepted market valuation models. The inputs
to these models are taken from observable market where possible, but where this is not feasible,
estimates are used in establishing fair values.
The carrying values and fair values of financial instruments, as well as the methods on how the
fair values were derived are discussed in Note 25.
4. Cash and Cash Equivalents
Cash on hand and in banks
Short-term placements (Note 15)
2008
P
=259,573,171
1,582,502,317
P
=1,842,075,488
2007
P251,990,457
=
1,723,047,109
=1,975,037,566
P
- 21 Cash in banks earn interest at the respective bank deposit rates. Short-term placements are made
for varying periods of up to three months depending on the immediate cash requirements of the
Company, and earn interest at the respective short-term placements rates.
5. Receivables
Trade:
Distributors and other accounts
Related party (Note 15)
Others:
Related parties (Notes 4, 8 and 15)
Third parties
Receivable from a land developer (Note 11)
Less allowance for doubtful accounts
2008
2007
P
=912,882,470
137,578,453
1,050,460,923
=626,917,661
P
131,288,422
758,206,083
6,188,739
46,230,549
18,750,000
1,121,630,211
33,819,647
P
=1,087,810,564
187,564,772
32,771,012
75,000,000
1,053,541,867
29,087,304
=1,024,454,563
P
Trade receivables from third parties are noninterest-bearing and are generally on 30-90 days’
terms.
Movements in the allowance for doubtful accounts related to trade receivables - distributors and
other accounts are as follows:
Balance at beginning of year
Provisions for the year (Note 17)
Write-off
Balance at end of year
2008
P
=29,087,304
4,732,343
–
P
=33,819,647
2007
=11,604,212
P
19,948,367
(2,465,275)
=29,087,304
P
6. Inventories
Finished goods
Work in process
Raw materials
2008
P
=156,007,133
13,238,348
212,510,758
P
=381,756,239
2007
=130,843,753
P
12,654,473
185,177,131
=328,675,357
P
The cost of inventories carried at NRV amounted to =
P34,893,095 and P
=36,000,000 as of
December 31, 2008 and 2007, respectively. The inventories valued at NRV are fully provided
with allowance for obsolescence.
Movements in the allowance for inventory obsolescence are as follows:
Balance at beginning of year
Provisions for the year
Write-off
Balance at end of year
2008
P
=36,000,000
63,336,465
(64,443,370)
P
=34,893,095
2007
=35,000,002
P
999,998
–
=36,000,000
P
- 22 -
7. Prepaid Expenses and Other Current Assets
Prepaid income tax
Supplies
Derivative asset
Others
2008
P
=21,539,379
11,706,938
–
11,777,038
P
=45,023,355
2007
=10,952,092
P
12,895,127
1,076,940
7,231,284
=32,155,443
P
Embedded Derivatives
Embedded foreign currency derivative was bifurcated from the Company’s purchase contract,
which is denominated in a currency that is neither the functional currency of a substantial party to
the contract nor the routine currency for the transaction. The total outstanding notional amount of
such embedded foreign currency derivative amounting to US$122,952 as of December 31, 2007 is
fully settled in 2008.
In 2008 and 2007, the net mark-to-market loss/(gain) on the outstanding embedded derivative
amounted to =
P907,069 and (P
=2,486,462), respectively was netted against “Foreign exchange loss net” account in the statements of income.
The net movements in fair value changes of the Company’s derivative instruments are as follows:
Balance at beginning of year
Net changes in fair value of derivatives not
designated as accounting hedges
Less fair value of settled instruments
Balance at the end of the year
2008
P
=1,076,940
(907,069)
169,871
169,871
P
=–
2007
=–
P
2,486,462
2,486,462
1,409,522
=1,076,940
P
8. Note Receivable
The noninterest-bearing, due and demandable note receivable issued by P.T. Splash Indonesia
(PTSI) in favor of the Company on December 31, 2006 in settlement of PTSI’s trade and nontrade
accounts with the Company as of December 31, 2006 has been restructured on February 1, 2007,
amounting to =
P250,152,509. The new promissory note is collectible in five (5) equal annual
installments starting December 31, 2008 and is subject to 11.2949% interest per year.
The details of the account follows:
Balance at beginning of year
Less collections
Balance at end of year
Less current portion
Noncurrent portion at end of year
The note receivable is guaranteed by SHI.
2008
P
=250,152,509
45,845,588
204,306,921
54,215,416
P
=150,091,505
2007
=259,987,715
P
9,835,206
250,152,509
50,030,502
=200,122,007
P
- 23 The interest is collectible annually with the first collection on July 1, 2008, covering all accrued
interest starting February 1, 2007. Interest income amounted to =
P28,254,476 and =
P25,899,936 in
2008 and 2007, respectively (see Notes 15 and 19). On December 4, 2008, the Company collected
all the interest receivables accrued in 2008 and 2007.
9. Property, Plant and Equipment
As of December 31, 2008:
Cost:
Beginning balances
Additions
Reclassification
Disposals
Ending balances
Accumulated
Depreciation
and Amortization:
Beginning balances
Depreciation and
amortization
Disposals
Ending balances
Net Book Values
Land
Buildings and
Improvements
Machinery
and
Equipment
Office
Furniture
and Fixtures
Other
Equipment
P
=149,614,341
–
–
–
149,614,341
P
=419,797,262
485,983
1,510,340
–
421,793,585
P
=221,274,017
2,643,032
–
–
223,917,049
P
=16,773,320
–
–
–
16,773,320
P
=143,032,234
6,500,000
10,556,323
–
160,088,557
–
–
318,930,935
214,589,101
26,543,290
–
345,474,225
P
=76,319,360
3,925,864
–
218,514,965
P
=5,402,084
44,982,712
16,154,882
139,844,152
–
9,553,398
(17,324,545)
37,211,565
P
=18,037,758
618,438
–
16,773,320
P
=–
6,707,679
–
146,551,831
P
=13,536,726
–
–
–
P
=9,155,262
Buildings and
Improvements
Machinery
and
Equipment
Transportation
Equipment
Office
Furniture
and Fixtures
Other
Equipment
Assets for
Installation
=
P419,083,619
713,643
–
–
419,797,262
=
P220,210,291
1,063,726
–
–
221,274,017
=
P54,232,134
10,513,377
–
(2,634,154)
62,111,357
=
P15,602,560
1,170,760
–
–
16,773,320
=
P141,542,080
1,490,154
–
–
143,032,234
=
P10,839,180
5,633,467
–
–
16,472,647
–
291,687,324
204,257,567
38,758,162
15,256,667
135,834,655
–
–
–
–
=149,614,341
P
27,243,611
–
318,930,935
=
P100,866,327
10,331,534
–
214,589,101
=
P6,684,916
8,248,918
(2,024,368)
44,982,712
=
P17,128,645
898,215
–
16,154,882
=
P618,438
4,009,497
–
139,844,152
=
P3,188,082
–
–
–
=
P16,472,647
–
–
P
=149,614,341
Transportation
Equipment
P
=62,111,357
10,509,511
–
(17,371,545)
55,249,323
Assets for
Installation
P
=16,472,647
4,749,278
(12,066,663)
–
9,155,262
Total
P
=1,029,075,178
24,887,804
–
(17,371,545)
1,036,591,437
734,501,782
47,348,669
(17,324,545)
764,525,906
P
=272,065,531
As of December 31, 2007:
Land
Cost:
Beginning balances
Additions
Reclassification (Note 11)
Disposals
Ending balances
Accumulated
Depreciation
and Amortization:
Beginning balances
Depreciation and
amortization
Disposals
Ending balances
Net Book Values
=
P396,570,795
–
(246,956,454)
–
149,614,341
Total
=
P1,258,080,659
20,585,127
(246,956,454)
(2,634,154)
1,029,075,178
685,794,375
50,731,775
(2,024,368)
734,501,782
=
P294,573,396
The total cost of fully depreciated property, plant and equipment still in use amounted to
=502,272,967 and =
P
P499,177,938 as of December 31, 2008 and 2007, respectively.
10. Available-for-Sale Investments
This account consists of investments in:
Shares of stock:
Unquoted
Quoted
Unrealized valuation gain - net
2008
2007
P
=200,000,000
15,226,900
215,226,900
718,100
P
=215,945,000
=200,000,000
P
15,226,900
215,226,900
4,543,100
=219,770,000
P
- 24 The cost of unquoted investments in shares of stock represents the cost of the investment in
common shares (50,000 shares representing 7.21% ownership) in Professional Services, Inc., the
owner and operator of Medical City, previously owned by SHI, which SHI assigned to the
Company on September 27, 2007 in settlement of SHI’s cash advances from the Company (see
Note 15c). As of December 31, 2008, the Company has no intention to dispose its investment in
common shares of Professional Services, Inc.
Movements in the net unrealized valuation gain (loss) on AFS investments are as follows:
Balance at beginning of year
Gain (loss) recognized in equity
Balance at end of year
2008
P
=4,543,100
(3,825,000)
P
=718,100
2007
(P
=976,900)
5,520,000
=4,543,100
P
11. Land for Development
Land for development represents a parcel of land owned by the Company, which is held for sale to
Crown Asia Properties, Inc. (the developer) under a Memorandum of Agreement (MOA) dated
November 28, 2007, executed between the Company and the developer, wherein the developer
undertakes to develop the entire parcel of land into a mixed-used residential and commercial
condominium project. Under the MOA, the Company receives consideration (1) payable in cash
amounting to =
P105,000,000 and (2) a minimum of 3,383.4 square meters of gross office/condotel
areas and 26 parking slots or 7.5% of the condominium building, whichever is greater. The cash
consideration is collectible as follows: November 30, 2007 - =
P30 million and =
P18.75 million in
each of the quarters ending March 31, 2008, June 30, 2008, September 30, 2008, and December
31, 2008. The last installment payment was received on January 20, 2009.
Under the MOA, the developer shall have full, exclusive and absolute authority over the
implementation of the project, including the planning, conceptualization, design, construction and
financing of the Project in accordance with the terms of the Agreement.
In 2007, the Company accounted for the cash component of the payment by the developer as sale
of land using the “cost recovery method”. Accordingly, sales and cost of sales amounting to
=105.00 million has been recognized in the 2007 statement of income. The value of the land
P
amounting to =
P141.96 million is shown as “Land for development” in the balance sheets as the
Company’s intention is to sell the condominium units.
12. Accounts Payable and Accrued Expenses
Trade payables
Accrued expenses:
Advertising and promotions
Interest payable (Note 13)
Others
VAT payable
Other current liabilities
2008
P
=637,956,867
2007
=637,434,171
P
111,432,170
6,372,917
19,284,726
20,957,560
7,339,358
P
=803,343,598
81,480,424
4,078,000
17,010,549
11,133,496
11,355,328
=762,491,968
P
The Company reversed excess provision amounting to =
P60,461,525 in 2006.
- 25 -
13. Floating Rate Notes
The Company entered into a Floating Rate Notes (FRNs) Facility Agreement (Notes Facility) for
the issuance of =
P1 billion FRNs to a syndicate of lenders (four local financial institutions). The
FRNs were issued on August 31, 2007 and are payable in five (5) annual installments.
The proceeds of the FRNs were used to pay in full all seven outstanding unsecured bank loans and
long-term loans, with principal amounts totaling P430 million and P306.77 million, respectively,
and interest in September 2007. The short-term loan from local banks and long-term debt bear
interest rates ranging from 6.5% to 9.0% and 6.75% to 11.16%, respectively per year
As of December 31, 2008 and 2007, the maturities of the FRNs at nominal values, excluding the
unamortized debt issuance costs follow:
Due in
2008
2009
2010
2011
2012
2008
P
=–
50,000,000
50,000,000
50,000,000
800,000,000
P
=950,000,000
2007
=50,000,000
P
50,000,000
50,000,000
50,000,000
800,000,000
=1,000,000,000
P
The FRNs bear interest starting August 31, 2007 and such interest is payable on each interest
payment date which falls three months after the preceding interest payment date, in the case of the
first interest payment date, after August 31, 2007. The rate of interest for such interest period
shall be based on the Interest Rate 1 Setting Date by reference to the three- (3) month Philippine
Dealing System Treasury Rate 1 at approximately 11:16 A.M., Manila time, on such date, plus an
interest spread of 165 basis points (1.65%) per year.
All payments by the Company under the Notes Facility, whether of principal, interest, fees, early
redemption or otherwise, shall be made without set-off or counterclaim for indemnifiable taxes,
and are free and clear and without any deduction or withholding on account of any indemnifiable
taxes, unless such withholding is required by law.
The Notes Facility provides, among other terms and conditions, that, for as long as the FRNs
remain outstanding, the Company is subject to certain negative covenants requiring prior written
approval from the majority of the Note Holders for specified acts which include, but are not
limited to: amendment of Articles of Incorporation and other organization documents, e.g.,
materially changing the nature of its present business; entering into merger or consolidation;
granting of loans or advances to or investment in which its directors, officers, stockholders and
other related persons, except those made in the ordinary course of business; creation of lien with
respect to any of its properties; sale or lease of assets; guaranteeing indebtedness; prepaying longterm indebtedness, except for those provided in Section 2.07 of the Notes Facility; entering into
additional loans; entering into any new management contracts; declaration or payment of
dividends in excess of fifty percent (50%) of the Company’s net income for the most recent fiscal
year; purchase, redeem, retire or otherwise acquire for value its capital stock; declare or pay
management bonuses or profits sharing; and execute any act which shall have a material adverse
effect. In addition, the Notes Facility provides that the Company has to maintain a ratio of current
assets to current liabilities of at least 2.0 times and its equity-to-debt ratio should not be more than
1.5 times until final payment date. As of December 31, 2008 and 2007, the Company is in
compliance with the negative debt covenants.
- 26 In the event of default as provided under the Note Facility, the default penalty is 2% per month, or
a fraction of a year.
The Notes Facility also provides for early redemption, at the option of the Company, starting at
the end of the thirty-sixth (36th) month from the issue date, without premium or penalty. In
addition, the Company has a one-time option, at any interest rate settling date, to convert the
interest from a floating interest rate structure to a fixed interest rate structure on the remaining life
of the outstanding amount of the Notes. The fixed interest rate shall be based on the applicable
Fixed Base Rate plus a spread of 165 basis points (1.65%) per annum subject to certain conditions
stipulated in the Notes Facility.
The total transaction costs of the FRNs amounting to P
=15,540,298, is capitalized and is being
amortized over the term of the FRNs using the effective interest rate method. Movement of the
unamortized debt issuance costs follows:
2008
P
=14,583,197
–
(3,009,998)
P
=11,573,199
Balance beginning of year
Additions
Amortization
Balance at end of year
2007
=–
P
15,540,298
(957,101)
=14,583,197
P
Outstanding balance of the FRNs is as follows:
As of December 31, 2008:
Nominal amount
Unamortized debt issuance costs
Current
P
=50,000,000
(3,076,596)
P
=46,923,404
Long-term
P
=900,000,000
(8,496,603)
P
=891,503,397
Total
P
=950,000,000
(11,573,199)
P
=938,426,801
Current
=
P50,000,000
(3,009,998)
=
P46,990,002
Long-term
=
P950,000,000
(11,573,199)
=
P938,426,801
Total
=
P1,000,000,000
(14,583,197)
=
P985,416,803
As of December 31, 2007:
Nominal amount
Unamortized debt issuance costs
14. Equity
a. The details of capital stock are shown below:
Authorized - par value of
=1 per share (Note b)
P
(Forward)
December 31, 2008
Number
of Shares
Amount
December 31, 2007
Number
of Shares
Amount
1,000,000,000 P
=1,000,000,000
1,000,000,000 P
=1,000,000,000
- 27 December 31, 2007
Number
of Shares
Amount
December 31, 2008
Number
of Shares
Amount
Issued:
Balance at beginning of
year
Additional issuance before
the IPO (Notes b and c)
Issuances through the
IPO (Note e)
Issued
Less treasury stock (Note f)
Outstanding at end of year
746,160,357
P
=746,160,357
107,312,250
P
=107,312,250
–
–
450,000,000
450,000,000
–
746,160,357
54,870,031
691,290,326
–
746,160,357
236,178,536
P
=509,981,821
188,848,107
746,160,357
–
746,160,357
188,848,107
746,160,357
–
P
=746,160,357
b. Increase in authorized capital stock
On June 25, 2007, the BOD and stockholders approved the increase in the Company’s
authorized capital stock from =
P400 million to =
P1,000 million, divided into 400 million
common shares with =
P1.00 par value and 1,000 million common shares with =
P1.00 par value,
respectively. The increase in the Company’s authorized capital stock was approved by the
SEC on September 20, 2007. Out of the =
P600 million increase in authorized capital stock,
SHI, the Company’s parent, subscribed and paid =
P112.50 million for 112.50 million shares of
stock.
c. On September 4, 2007, SHI subscribed and paid for additional shares amounting to
=337.50 million for 337.50 million shares.
P
d. Cash dividends
Information on the Company’s declaration of cash dividends follow:
Declaration Date
June 19, 2008
August 31, 2007
Dividend per Share
P
=0.18
P
=1.59
Amount
P
=134,308,864
=
P350,000,000
Record Date
May 22, 2008
August 31, 2007
There was no cash dividend declaration to stockholders in 2006.
e. IPO
On November 15, 2007, the Company completed its IPO of common shares, at an offer price
of P
=8.98 a share. The total net proceeds from the Primary Share Offer of 188,848,107 shares
amounted to =
P1,608,182,348 (net of IPO cost of =
P87,673,652). The excess of net proceeds
from par value of the shares issued of =
P1,419,334,241 is credited to additional paid-in capital
in the balance sheets. The net proceeds from the Primary Share Offer are intended to be used
by the Company in projects that will further enhance its research and development
capabilities, support brand building, new product introductions and future acquisitions.
f.
Treasury stock
On September 17, 2008, the BOD approved the Share Buyback Program of the Company.
The Company reacquired its common shares totalling 24,567,000 shares for =
P136,178,536 at
an average price of =
P5.52 per share.
On December 12, 2008, the BOD also approved the buyback of the Company’s 30,303,031
shares owned by SHI for =
P100 million at =
P3.30 per share.
- 28 g. Restrictions on retained earnings
Declaration and payment of dividends in the aggregate for any given year shall not exceed
fifty percent (50%) of the Company’s net income after tax as stated in the Company’s audited
financial statements for the most recent fiscal year as provided for in the negative covenants of
the FRNs (see Note 13).
The retained earnings is further restricted for dividend declaration to the extent of
=236,178,536 as of December 31, 2008, representing the cost of the Company’s shares of
P
stock held in treasury.
15. Related Party Transactions
The Company has the following significant transactions with related parties:
For the year ended December 31, 2008:
Sister companies:
HBC
PTSI
World Partners Bank
(WPB)
Related company:
Splash Foundation,
Inc. (SFI)
Sales
Outside
Services
Rent
Expense
Donation
Interest Income
(Notes 4 and 8)
P
=168,610,946
9,837,241
P
=–
–
P
=12,906,271
–
P
=–
–
P
=–
28,254,476
–
–
–
–
16,190,416
–
P
=178,448,187
–
P
=–
–
P
=12,906,271
9,000,000
P
=9,000,000
–
P
=44,444,892
Sales
Outside
Services
Rent
Expense
Donation
Interest Income
(Notes 4 and 8)
=
P–
=
P28,000,000
=
P–
=
P–
=
P–
148,071,540
5,838,808
–
–
9,562,022
–
–
–
–
25,899,936
–
–
12,000,000
–
–
–
–
–
–
313,843
–
=
P153,910,348
–
=
P40,000,000
–
=
P9,562,022
9,000,000
=
P9,000,000
–
=
P26,213,779
For the year ended December 31, 2007:
Parent company:
SHI
Sister companies:
HBC
PTSI
Splash International, Inc.
(SII)
WPB
Related company:
SFI
For the year ended December 31, 2006:
Parent company:
SHI
Sister companies:
HBC
PTSI
SII
WPFC
WPB
Related company:
SFI
Sales
Outside
Services
Rent
Expense
Donation
Interest Income
(Note 4)
=
P–
P
=72,422,916
=
P–
=
P–
=
P–
132,269,969
11,565,763
–
–
–
–
–
45,598,508
–
–
14,363,345
–
–
–
–
–
–
–
–
–
–
–
–
376,293
432,292
–
=
P143,835,732
–
=
P118,021,424
–
=
P14,363,345
9,946,006
=
P9,946,006
–
=
P808,585
- 29 The Company has the following account balances with related parties:
December 31, 2008:
Cash and
Cash
Equivalents
(Note 4)
Parent company:
SHI
Sister companies:
WPB
HBC
PTSI
SII
WPFC
Trade
Receivables
(Note 5)
Other
Receivables
(Notes 5
and 8)
Note
Receivable
(Note 8)
Advances
to a
Stockholder
P
=–
P
=–
P
=–
P
=–
P
=137,370,246
750,199,322
–
–
–
–
P
=750,199,322
–
136,456,921
1,121,532
–
–
P
=137,578,453
2,113,969
–
–
1,287,234
2,787,536
P
=6,188,739
–
–
204,306,921
–
–
P
=204,306,921
–
–
–
–
–
P
=137,370,246
December 31, 2007:
Cash and
Cash
Equivalents
(Note 4)
Parent company:
SHI
Sister companies:
WPB
HBC
PTSI
SII
WPFC
SNC
Trade
Receivables
(Note 5)
Other
Receivables
(Notes 5
and 8)
Note
Receivable
(Note 8)
Advances
to a
Stockholder
=
P–
=
P–
=
P–
=
P–
=
P137,370,246
328,860,516
–
–
–
–
–
=
P328,860,516
–
130,647,605
640,817
–
–
–
=
P131,288,422
94,444
4,255,418
25,899,936
29,881,267
2,870,326
124,563,381
=
P187,564,772
–
–
250,152,509
–
–
–
=
P250,152,509
–
–
–
–
–
–
=
P137,370,246
The Company has the following transactions with related parties:
a. Maintains bank accounts and short-term cash placements with WPB subject to the prevailing
market interest rates. As of December 31, 2008 and 2007, the Company’s time deposits
(shown as part of cash equivalents amounted to =
P715,866,106 and P
=300,094,444, respectively
(see Note 4).
b. Has an outstanding note receivable from PTSI amounting to =
P204,306,921 and =
P250,152,509
as of December 31, 2008 and 2007, respectively. The advances are guaranteed by SHI (see
Note 8 for a more detailed discussion).
c. Has extended cash advances to SHI with an outstanding balance of =
P137,370,246 as of
December 31, 2008 and 2007. These advances do not have fixed repayment terms. In
September 2007, SHI assigned all its rights in SHI’s investment in shares of stock in
Professional Services, Inc. valued at =
P200 million as partial payment for SHI’s advances (see
Note 10 for a more detailed discussion).
d. Sells goods to HBC and PTSI, two of the Company’s distributors.
e. Has lease agreement with HBC for the lease of the Company’s office space for a year,
renewable annually upon mutual agreement of both parties, for a monthly fee of =
P768,398.
f. Donates to SFI to support SFI’s various outreach programs.
- 30 g. Had Marketing Services Agreement with SII to market the Company’s products and goods in
the international market at a monthly fee of =
P1.50 million until August 2007. Starting
September 2007, the Company manages its own international operations.
h. Had Management Services Agreement with SHI to provide the Company with its expertise
and facilities in the conduct and operations of the Company, for a monthly fee of
=3.50 million until August 2007. Starting September 1, 2007, the Company has assumed the
P
functions being done by SHI.
i. There are certain patents owned by Dr. Rolando Hortaleza, Chairman and Chief Executive
Officer, which the Company uses free of charge.
j. Compensation of key management personnel of the Company are as follows:
Short-term employee benefits
Post-employment retirement benefits
2008
P
=70,598,595
4,194,600
P
=74,793,195
2007
=76,082,019
P
5,669,162
=81,751,181
P
2006
=
P52,678,141
4,008,326
=
P56,686,467
16. Cost of Goods Sold
2008
Raw materials and changes in inventories
(Note 11)
Direct and indirect labor (Note 17b)
Depreciation and amortization (Note 17a)
Other overhead costs
2007
2006
P1,369,611,637 P
=962,523,439
P
=1,400,322,459 =
49,054,759
43,198,617
43,974,255
34,453,715
45,962,397
26,871,422
22,041,128
42,294,674
32,835,442
=1,475,161,239 P
=1,093,979,127
P
=1,504,003,578 P
17. Operating Expenses
Advertising and promotions
Personnel costs (Notes 2 and 17b)
Transportation and travel
Outside services (Note 15)
Taxes and licenses
Rent (Note 15)
Depreciation and amortization (Note 17a)
Insurance
Communication, light and water
Membership, dues and subscriptions
Provision for doubtful accounts (Note 5)
Repairs and maintenance
Research and development
Supplies
Product samples and give aways
Others
2008
P
=916,440,475
221,092,909
92,228,895
29,250,176
22,521,186
20,582,564
20,477,247
13,031,880
11,234,230
5,628,122
4,732,343
3,849,371
3,404,124
2,571,168
1,963,761
34,668,324
P
=1,403,676,775
2007
2006
(As restated,
(As restated,
Note 2)
Note 2)
=
P722,012,581 =
P648,144,571
174,049,355
122,300,335
67,327,381
43,680,597
72,136,430
124,681,966
18,070,934
17,338,075
11,939,319
8,173,075
16,278,060
32,150,829
13,663,113
10,019,762
11,894,820
6,561,015
7,173,334
1,773,541
19,948,367
3,000,000
4,256,903
3,199,565
11,049,536
6,067,506
7,548,380
5,825,660
7,511,300
3,757,067
46,535,268
20,729,043
=
P1,211,395,081 =
P1,057,402,607
- 31 a. Depreciation and amortization expense are charged to the following:
Cost of goods sold (Note 16)
Operating expenses
2008
P
=26,871,422
20,477,247
P
=47,348,669
2007
=34,453,715
P
16,278,060
=50,731,775
P
2006
=
P45,962,397
32,150,829
=
P78,113,226
2008
P
=196,534,924
13,843,022
54,689,218
P
=265,067,164
2007
(As restated,
Note 2)
=160,747,162
P
10,278,863
52,078,089
=223,104,114
P
2006
(As restated,
Note 2)
=
P118,757,492
6,879,672
39,861,788
=
P165,498,952
b. Personnel costs are composed of the following:
Salaries and wages
Retirement benefits cost (Note 18)
Employees’ benefits
Personnel costs are charged to the following:
Cost of goods sold (Note 16)
Operating expenses
2008
2007
2006
P
=43,974,255
221,092,909
P
=265,067,164
P49,054,759
=
174,049,355
=223,104,114
P
=
P43,198,617
122,300,335
=
P165,498,952
18. Retirement Benefits
The Company has a funded, noncontributory, defined benefit retirement plan covering
substantially all its regular employees. The benefits are based on years of service and
compensation on the last year of employment. The latest actuarial valuation of the defined benefit
retirement plan is as of December 31, 2008.
The components of retirement benefits cost (included in “Personnel Costs” and “Direct and
Indirect Labor” under operating expenses and cost of goods sold, respectively) in the statements of
income are as follows:
Current service cost
Interest cost on benefit obligation
Expected return on plan assets
Retirement benefits cost
2007
2006
(As restated, (As restated,
Note 2)
Note 2)
2008
=6,526,733
P
=
P3,713,683
P
=7,206,200
8,230,778
7,498,780
12,155,324
(4,478,648)
(4,332,791)
(5,518,502)
=10,278,863
=
P6,879,672
P
=13,843,022 P
The unfunded status shown as “Retirement benefits liability” in the balance sheets are as follows:
Present value of defined benefit obligation
Fair value of plan assets
Adjustment on asset ceiling
Retirement benefits liability
2008
P
=60,441,000
(81,895,563)
21,454,563
P
=–
2007
=116,765,841
P
(78,835,740)
–
=37,930,101
P
- 32 The following tables present the changes in the present value of defined benefit obligation and fair
value of plan assets:
Defined benefit obligation
2008
P
=116,765,841
7,206,200
12,155,324
(2,377,011)
Balance at beginning of year
Current service cost
Interest cost
Benefits paid
Transfer from affiliate
Actuarial losses (gain)
Balance at end of year
–
(73,309,354)
P
=60,441,000
2007
=99,623,372
P
6,526,733
8,230,778
(5,570,777)
2,242,689
5,713,046
=116,765,841
P
Fair value of plan assets
2008
P
=78,835,740
5,518,502
Balance at beginning of year
Expected return on plan assets
Contributions
Benefits paid
Transfer from affiliate
Actuarial losses
Balance at end of year
–
(2,377,011)
–
(81,668)
P
=81,895,563
2007
=52,623,938
P
4,478,648
16,758,424
(5,570,777)
11,356,749
(811,242)
=78,835,740
P
The allocation of the fair value of the plan assets follows:
2008
73%
5%
8%
14%
100%
Government securities
Investment in shares of stock
Cash and cash equivalents
Other receivables and investments
2007
70%
7%
22%
1%
100%
The actual return of plan assets amounted to =
P5,436,834 and P
=3,667,406 in 2008 and 2007,
respectively. The overall expected rate of return on plan assets is determined based on the market
prices prevailing on that date, applicable to the period within which the obligation is to be settled.
The principal actuarial assumptions used to determine the retirement benefits cost as of January 1
are as follows:
Discount rate
Salary increase rate
Expected rate of return on plan assets
2008
10.41%
7.5%
7.5%
2007
8.08%
9.00%
7.00%
2006
12.00%
7.50%
10.00%
The discount rate used to determine retirement benefits obligation as of December 31, 2008 is
13.8%.
- 33 Amounts for the current and previous three (3) years are as follows:
Defined benefit obligation
Plan assets
Unfunded (excess)
2007
2008
P116,765,841
P
=60,441,000 =
(78,835,740)
(81,895,563)
=37,930,101
(P
=21,454,563) P
2006
P
=99,623,372
(52,623,938)
=
P46,999,434
2005
=
P62,489,836
(43,327,906)
=
P19,161,930
2007
2006
2005
(P
=46,226,900)
=
P3,572,244
=
P1,341,365
=
P3,572,244
(27,082,454)
(73,309,354)
2,140,802
5,713,046
23,640,613
24,981,978
(772,526)
2,799,718
Actuarial loss (gain) on plan assets:
Experience adjustments on plan
assets
Net actuarial losses (gains)
81,668
(P
=73,227,686)
811,242
=
P6,524,288
2,975,854
=
P27,957,832
(777,824)
=
P2,021,894
Cumulative actuarial losses (gains)
(P
=36,723,672)
=
P36,504,014
=
P29,979,726
=
P2,021,894
2008
Actuarial loss (gain) on benefit
obligation:
Effects of changes in actuarial
assumptions
Experience adjustments on benefit
obligation
Movements in the retirement benefits liability for 2008 and 2007 are as follows:
Balance at beginning of year
Retirement benefits cost for the year
Actuarial gain (loss) recognized in SORIE
Adjustment in asset ceiling recognized in SORIE
Contributions paid
Transfer from affiliate
Balance at end of year
2008
P
=37,930,101
13,843,022
(73,227,686)
21,454,563
–
–
P
=–
2007
=46,999,434
P
10,278,863
6,524,288
–
(16,758,424)
(9,114,060)
=37,930,101
P
The Company does not expect to contribute to the retirement plan in 2008.
19. Interest Income and Interest Expense
a. Interest income was derived from:
Note receivable (Notes 8 and 15)
Cash and cash equivalents (Notes 4 and 15)
2008
P
=28,254,476
67,952,366
P
=96,206,842
2007
=25,899,936
P
10,122,776
=36,022,712
P
2006
=
P–
2,580,950
=
P2,580,950
2008
P
=70,005,903
2007
=21,199,044
P
2006
=
P–
3,009,998
–
–
P
=73,015,901
4,727,235
18,418,069
30,165,642
=74,509,990
P
–
30,364,288
32,291,488
=
P62,655,776
b. Interest expense (see Note 13) consists of:
FRNs
Amortization of debt issuance cost and
others
Bank loans
Long-term debt
- 34 20. Income Taxes
a. The components of the Company’s net deferred income tax assets represent the deferred
income tax effects of the following:
Accruals for expenses
Allowances for:
Doubtful accounts
Inventory obsolescence
Unamortized portion of past service cost
Unrealized foreign exchange loss (gain)
Retirement benefits liability
2007
=–
P
2006
P
=–
9,395,804
8,379,663
10,332,000
2,011,188
5,527,124
5,220,529
2,459,541
(1,187,837)
9,330,805
–
P37,045,274
P
=33,193,965 =
4,061,474
12,250,000
5,096,290
364,063
16,449,802
=
P38,221,629
2008
P
=18,770,422
The Company did not recognize the excess of MCIT over regular corporate income tax
(RCIT) incurred in 2008 amounting to P
=5,341,856 since management believes that the
Company has no sufficient taxable income in the future against which the excess MCIT can be
utilized prior to its expiration in 2011.
b. A reconciliation of the income tax expense computed by applying the statutory income tax
rate of 35% to the provision for (benefit from) income tax as shown in the statements of
income is summarized as follows:
2007
(As restated,
Note 2)
2008
=97,500,201
P
=103,891,803 P
Provision for income tax at 35%
Additions to (reductions in) income tax
resulting from:
Nontaxable net income under ITH
(107,126,182) (49,853,979)
Interest income subjected to final tax (23,783,328) (2,590,522)
Nondeductible interest expense
12,483,869
1,441,741
Nondeductible expenses
3,941,241
4,614,905
Nontaxable dividend income
(1,325,045)
–
Mark-to-market gain (loss) on
derivative asset
636,294
(27,678)
Recovery of prior income taxes paid
– (47,469,548)
Reversal of excess provision
–
–
Effect of change in income tax rate
and others
(4,304,285)
10,371,571
Provision for (benefit from) income tax
(P
=900,085)
(P
=698,857)
2006
(As restated,
Note 2)
=
P85,429,885
(43,410,478)
(903,332)
473,454
–
–
–
–
(21,161,534)
50,548
P
=20,478,543
The breakdown of provision for (benefit from) income tax follows:
2007
(As restated,
Note 2)
2008
Currently payable (MCIT in 2008 and
RCIT in 2007 and 2006)
Deferred
Recovery of prior income taxes paid
(see Note 20d)
2006
(As restated,
Note 2)
P47,107,253
P
=5,535,408 =
(6,435,493)
(336,562)
=
P19,514,404
964,139
– (47,469,548)
(P
=698,857)
(P
=900,085)
–
P
=20,478,543
- 35 c. The Bureau of Internal Revenue (BIR) on various dates from February 2, 2004 to
December 27, 2008 granted the Company income tax exemption under Republic Act (RA) No.
7459, otherwise known as the Inventors and Inventions Incentives Act of the Philippines, for
the following patented designs or products:
Utility Model No./
Patent Registration No.
2-2008-000258
Date of
First Sale
2008
2-2008-000196
2008
2-2008-000422
2008
UM -8471
2001
2 -1997 -15095
2 -1999 -00320
2 -2001 -000110
2 -2001 -000291
1997
1999
2006
2006
2005
2 -2003 -000284
2 -2004 -000075
2-2000-000161
2-2006-000297
2-2007-000428
2003
2006
2005
2002
2007
2008
2-2007-000192
2007
Products Covered
Maxipeel Exfoliating Soap, Skinwhite
Power Whitening Soap, Extraderm White
and Smooth Soap
Skinwhite HBL - SPF 10, SPF 20, Cooling
and Hydrating, Skinwhite Face Cream
Vitress Hair Cuticle Coat, Vitress Hair
Cuticle Coat - Hair Repair, Heat Protection,
Instant Relief,
Vitress Hair Solutions - Hair Repair Cuticle
Coat, Heat Protection Cuticle Coat, Instant
Relax Cuticle Coat
Extraderm Exfoliant Plus 1, 2, 3 & 4 and
Maxipeel 2
Maxipeel 3
Extract Therapy with Tea Tree Oil
Maxipeel Solution No. 3
Extraderm Exfoliating Facial Wash 1, 2, & 3
Extraderm Oil and Shine Control Purifying
Facial Wash, Skinwhite Whitening Body
Wash and Biolink Green Papaya Whitening
Facial Wash and Facial Scrub
Extraderm Clear Solution # 1, 2 & 3 and
Extraderm Age-defy Solutions # 1, 2 & 3
Livermore Illumiderm Glutathione Capsule
Vitasoft Cologne Gel
Biolink VCO Moisturizing Bath Soap
Extraderm W&S Solution #1,2 &3,
Maxipeel New Generation Solution #1, 2
and 3, Skinwhite Power Radiance Solution,
Skinwhite Power Whitening Face Hand &
Body Lotion SPF 20, Skinwhite Whitening
Face Solution, Maxipeel Exfoliant Face
Scrub, Maxipeel Exfoliant Facial Wash,
Maxipeel Exfoliant Serum
Extract Papaya Calamansi Soap,
Extract Green, Papaya Calamansi Soap
Extract Papaya Calamansi Lotion, Extract
Papaya Calamansi Facial Cleanser, Extract
Green Papaya Calamansi Facial Cleanser,
Extract Papaya Calamansi Facial Cream,
Extract Hand and Body Lotion Papaya
Calamansi, Extract Hard and Body
Lotion-Green Papaya Calamansi
- 36 The income tax exemption is granted to promote, encourage, develop and accelerate
commercialization of technologies developed by local researchers or adopted locally from
foreign sources including invention. Any income derived from these technologies shall be
exempted from income taxes during the first ten (10) years from the date of the first sale on a
commercial scale. Gross profit and net operating income covered by the income tax
exemption amounted to: 2008 - =
P1,426.9 million and =
P406.78 million; 2007 - =
P421.0 million
and P
=191.6 million; and 2006 - =
P489.1 million and =
P124.0 million.
d. On May 29, 2007, the Court of Tax Appeals (CTA) Second Division decided in favor of the
Company and ordered the BIR to refund the claim for refund for excess income taxes the
Company paid for the taxable year 2002 amounting to P
=47,469,548 arising from its retroactive
application of the income tax exemption incentives under RA No. 7459. On October 30,
2007, the CTA denied the Motion for Reconsideration that the BIR filed. On December 7,
2007, the BIR filed a petition for review with the CTA En Banc which the CTA En Banc
denied. On May 6, 2008, the CTA En Banc unanimously decided in favor of the Company.
Based on the above facts, the Company recognized the receivable from the BIR amounting to
=47,469,548 and recognized “Recovery of prior income taxes paid” for the same amount in
P
2007 (see Note 20).
On August 4, 2008, the Supreme Court denied the Petition for Review on Certiorari filed by
the BIR. On February 17, 2009, the CTA Second Division granted the Motion of Execution
that the Company filed.
e. The regular corporate income tax effective January 1, 2009 is 30% as provided under Republic
No. 9337 on the E-VAT Act of 2005.
21. Segment Reporting
The Company’s reportable segments in accordance with PFRS 8 are as follows:
Domestic Operations - sells and markets personal, health and beauty products through distributors
located within the Philippines.
International Operations - sells and markets personal, health and beauty products through foreign
distributors located outside the Philippines and through local consolidators located within the
Philippines.
For management purposes, the Company chose to organize the entity into geographical areas
where its products are sold. Management monitors the operating results of business segments
separately for the purpose of making decisions about resources to be allocated and of assessing
performance. Segment performance is evaluated based on Net sales and Operating profit or loss.
Operating profit is obtained only by deducting operating expenses from gross profit. Finance
costs, finance income and income taxes are managed at the Company level. Segment assets only
include receivables and inventories. All other assets are not allocated to the segments as part of
information provided to CODM. Segment liabilities are not reported to the CODM.
- 37 The Company’s segment information is as follows (in thousands):
Net sales (Notes a and b)
Cost of goods sold (Note b)
Gross profit
Operating expenses
Operating profit (Note c)
Depreciation and amortization (Note d)
December 31, 2008
Domestic
International
P
=2,898,852
P
=266,372
1,400,385
103,618
1,498,467
162,754
1,326,184
77,493
P
=172,283
P
=85,261
Total
P
=3,165,224
1,504,003
1,661,221
1,403,677
P
=257,544
P
=42,745
P
=56
P
=42,801
Segment Assets (Note e):
Trade receivables (Notes a and b)
Inventories (Notes b and g)
Total
Capital expenditures (Note f)
P
=909,093
388,673
P
=1,297,766
P
=24,888
P
=141,368
27,976
P
=169,344
–
P
=1,050,461
416,649
P
=1,467,110
24,888
Net sales (Notes a and b)
Cost of goods sold (Note b)
Gross profit
Operating expenses
Operating profit (Note c)
Depreciation and amortization (Note d)
December 31, 2007
Domestic
International
=
P2,765,040
=
P245,792
1,384,305
90,856
1,380,735
154,936
1,162,939
48,456
P
=217,796
P
=106,480
=
P50,676
=
P56
Total
=
P3,010,832
1,475,161
1,535,671
1,211,395
=
P324,276
=
P50,732
Segment Assets (Note e):
Trade receivables (Notes a and b)
Inventories (Notes b and g)
Total
Capital expenditures (Note f)
P
=690,974
344,477
=
P1,035,451
=20,585
P
P
=67,232
20,198
=
P87,430
=
P–
=
P758,206
364,675
=1,122,881
P
P
=20,585
Net sales (Notes a and b)
Cost of goods sold (Note b)
Gross profit
Operating expenses
Operating profit (Note c)
Depreciation and amortization (Note d)
December 31, 2006
Domestic
International
=
P2,184,909
=
P214,173
1,009,765
84,214
1,175,144
129,959
1,004,532
52,870
P
=170,612
P
=77,089
=
P77,970
=
P143
Total
=
P2,399,082
1,093,979
1,305,103
1,057,402
=
P247,701
=
P78,113
Segment Assets (Note e):
Trade receivables (Notes a and b)
Inventories (Notes b and g)
Total
Capital expenditures (Note f)
P
=390,796
207,600
=
P598,396
P
=2,902
P
=51,710
9,859
P
=61,569
=
P–
=
P442,506
217,459
=
P659,965
P
=2,902
Notes:
a. Segment revenues and related receivables for both domestic and international segments are
recognized when the goods are delivered to distributors/local consolidators which is the same
recognition followed and reflected in the financial statements.
- 38 b. There are no inter-segment sales or transactions. Consequently, the sum of the Domestic and
International segment accounts agree with the amounts reflected in the statements of income.
c. Operating profit is obtained only by deducting operating expenses from gross profit. Other
revenue and expenses to arrive at net income such as finance costs, finance income and income
taxes are managed at the Company level.
d. Depreciation and amortization expense is allocated to the segments based on asset utilization
without allocating the related depreciable assets to that segment.
e. Total segment assets include receivables and inventories. All other assets such as cash and other
financial instruments and property, plant and equipment are not allocated to the segments.
Segment liabilities are not reported to the CODM.
f. Capital expenditures consist mainly of additions to property, plant and equipment.
g. Inventories are presented at cost; thus allowance for inventory obsolescence are not deducted
from the amounts reported.
Product Category net sales information (in thousands):
Personal Care
Hair Care
Skin Care
Naturals
Others
Total Personal Care
Health and Wellness
Personal Care
Hair Care
Skin Care
Naturals
Others
Total Personal Care
Health and Wellness
Personal Care
Hair Care
Skin Care
Naturals
Total Personal Care
Health and Wellness
December 31, 2008
Domestic
International
Total
P
=511,662
2,066,794
266,903
8,489
2,853,848
45,004
P
=2,898,852
P
=9,887
209,238
46,458
–
265,583
789
P
=266,372
P
=521,549
2,276,032
313,361
8,489
3,119,431
45,793
P
=3,165,224
December 31, 2007
Domestic
International
Total
P
=536,414
1,481,295
628,519
105,000
2,751,228
13,812
=2,765,040
P
P
=7,143
213,481
19,866
–
240,490
5,302
=
P245,792
=
P543,557
1,694,776
648,385
105,000
2,991,718
19,114
P
=3,010,832
December 31, 2006
Domestic
International
Total
P
=480,524
1,388,444
302,691
2,171,659
13,250
=2,184,909
P
P
=2,718
188,711
21,303
212,732
1,441
=
P214,173
=
P483,242
1,577,155
323,994
2,384,391
14,691
P
=2,399,082
- 39 Geographic Information - Net Sales from External Customers (in thousands):
Philippines
UAE
USA
Indonesia
Nigeria
Malaysia
Other countries
2008
P
=2,898,852
139,304
51,820
30,337
23,011
8,061
13,839
266,372
P
=3,165,224
2007
=2,765,040
P
116,931
8,777
48,779
5,347
4,464
61,494
245,792
=3,010,832
P
2006
=
P2,184,909
91,694
1,695
49,874
3,905
12,691
54,314
214,173
=
P2,399,082
The net sales information above is based on the location of the customer.
Major customer:
Net sales from one (1) customer, who is the biggest drug store chain in the Philippines, in the
domestic market amounted to =
P314,450,533 or 10% of total Net sales in 2008. Sales to this
customer amounted to =
P368,069,440 and =
P212,790,798 in 2007and 2006, respectively.
22. Rollforward and Reconciliation of the Amounts Reflected in the
Equity Section of the Balance Sheets
(See Pages 40 and 41)
23. Earnings Per Share
(a) Net income
(b) Weighted average number of shares
(c) Earnings Per Share [(a)/(b)]
December 31,
2008
P
=297,733,808
December 31, December 31,
2006
2007
(As restated,
(As restated,
Note 2)
Note 2)
=279,270,860 P
P
=223,606,843
739,676,293
284,638,677
107,312,250
P
=0.40
=0.98
P
=2.08
P
24. Other Agreements and Commitments
Agreements with Toll Manufacturers
a. Full Toll Manufacturing
The Company has an agreement with a certain contractor for the compounding, processing,
and packaging of pure coconut chips, to be converted into the Company’s finished products, in
accordance with the product specifications and packaging designs provided by the Company.
The agreement with the contractor is for a period of one year, renewable at the option of the
Company.
- 42 b. Partial Toll Manufacturing
The Company has existing agreements with various contractors for the packaging of the
Company’s products. The agreements are for the period of one year, renewable at the option
of the Company.
Agreements with Suppliers
The Company has agreements with various suppliers for the delivery of raw materials and
packaging materials. Billings are based on the terms indicated on the purchase orders as mutually
agreed between the parties.
Agreements with Distributors
The Company has agreements with various distributors for the latter to sell the goods of the
Company in designated areas as indicated in the contracts. The distributors are given discount
packages as stated in the agreement.
25. Financial Instruments
Fair values
Set out below is a comparison by category of carrying amounts and fair values of all of the
Company’s financial instruments as of December 31, 2008 and 2007:
2007
2008
Carrying
Amount
Financial Assets:
Loans and Receivables:
Cash and cash equivalents
Receivables - net
Trade:
Related party
Distributors and other accounts
Others:
Related parties
Third parties
Receivable from a land developer
Note receivable, including
current portion - per class
Advances to a stockholder
AFS Investments:
Unquoted
Quoted
Financial assets at FVPL:
Derivative asset
(Forward)
Carrying
Fair
Amount
Value
(In Thousands)
Fair
Value
P
=1,842,075
P
=1,842,075
=1,975,038
P
P
=1,975,038
137,578
912,882
137,578
912,882
131,288
626,918
131,288
626,918
6,189
46,230
18,750
6,189
46,230
18,750
187,565
32,771
75,000
187,565
32,771
75,000
204,307
137,370
3,305,381
214,145
137,370
3,315,219
250,153
137,370
3,416,103
281,131
137,370
3,447,081
200,000
15,945
215,945
200,000
15,945
215,945
200,000
19,770
219,770
200,000
19,770
219,770
–
P
=3,521,326
–
P
=3,531,164
1,077
=3,636,950
P
1,077
P
=3,667,928
- 43 -
2007
2008
Carrying
Amount
Financial Liabilities:
Other Financial Liabilities
Accounts payable and accrued
expenses:
Trade payables
Accrued expenses
Other current liabilities
Floating rate notes payable
P
=637,956
137,090
7,339
938,427
P
=1,720,812
Carrying
Fair
Amount
Value
(In Thousands)
Fair
Value
=637,434
P
113,702
11,355
985,417
=1,747,908
P
P
=637,434
113,702
11,355
985,417
P
=1,747,908
P
=637,956
137,090
7,339
938,427
P
=1,720,812
Cash and cash equivalents, receivables, advances to a stockholder and
accounts payable and accrued expenses
The carrying amounts of the aforementioned financial assets and liabilities approximate the fair
values due to the short-term nature of these accounts.
Note receivable
The fair value of the note receivable with fixed interest rate is determined by discounting the
future cash flows using the prevailing rate as of the reporting date. Discount rates used range
from 7.65% to 8.38% and 7.30% to 7.61% as of December 31, 2008 and 2007, respectively.
AFS investments
The fair value of quoted AFS investments was determined by reference to market bid quotation as
of balance sheet date. The fair value of unquoted AFS investments was determined based on the
latest sale transaction as of balance sheet date as confirmed by the issuer.
Floating rate notes payable
The carrying value approximates the fair value because of the quarterly repricing of interest rates
based on market conditions.
Derivative asset
The fair value of derivative asset is based on valuation technique using market observable inputs
such as interest rates and spot rates.
26. Financial Risk Management Objectives and Policies
The Company’s principal financial instruments comprise of cash and cash equivalents, notes
receivable, advances to a stockholder, AFS investment, and floating rate notes payable. The main
purpose of the Company’s financial instruments is to fund its operations and capital expenditures.
The Company has various other financial assets and liabilities such as trade and other receivables,
accounts payable and accrued expense which arise directly from its operations.
The main risks arising from the Company’s financial instruments are interest rate risk, foreign
currency risk, credit risk and liquidity risk. The BOD reviews and agrees policies for managing
each of these risks and they are summarized below.
Interest rate risk
Interest rate risk is the risk that future cash flows from a financial instrument (cash interest rate
risk) or its fair value (fair value interest rate risk) will fluctuate because of changes in market
interest rates.
- 44 The Company’s floating rate notes payable is exposed to cash flow interest rate risk (see Note 13).
The repricing of the floating rate notes payable is done on intervals of three (3) months.
The Company regularly monitors interest rate movements and, on the basis of current and
projected economic and monetary data, decides on the best alternative to take. The Company has
a one time option under its Notes Facility to convert the interest rate from floating to fixed rate.
The Company monitors the interest rate volatility to determine whether the option to change the
interest rate to fixed rate has to be exercised, to protect it from spiraling interest costs should
interest rates go up.
The following table demonstrates the sensitivity of income before income tax as of December 31,
2008 and 2007 due to a reasonably possible change in interest rates, with all other variables held
constant.
2008
2007
Increase/decrease in
market basis points
+240 bps
-240 bps
+10bps
-10bps
Effect on income
before income tax
Increase (decrease)
(P
=22.79 million)
22.79 million
(P
=1.00 million)
1.00 million
There is no other impact on the Company’s equity other than those already affecting profit on loss.
Foreign currency risk
The Company is exposed to foreign currency exchange risk arising from its exposure to the US
dollar rate fluctuation on its trade receivables on export sales and cash and cash equivalents
denominated in US dollars.
It is not considered practical or cost effective at present to use financial instruments or derivatives
to manage the Company’s exposure to exchange rate fluctuation. Instead, foreign exchange rates
are reviewed and monitored periodically by the Company’s BOD. The Company maintains U.S.
dollar accounts to manage its foreign currency denominated transactions.
The outstanding balance as of December 31, 2008 and 2007 of the Company’s foreign currencydenominated financial assets and liabilities are as follows:
2007
2008
In U.S. dollar
Financial assets:
Cash and cash equivalents
Receivables - net
Financial liabilities:
Accounts payable and accrued
expenses
In Php
In U.S. dollar
In Php
$568,820
2,974,290
3,543,110
P
=27,030,334
141,368,000
168,398,334
$1,144,169
1,613,105
2,757,274
=
P47,231,296
66,588,974
113,820,270
–
$3,543,110
–
P
=168,398,334
(122,952)
$2,634,322
(5,075,458)
=
P108,744,812
- 45 The following table demonstrates the sensitivity to a reasonably possible movement of the
Philippine peso against the U.S. dollar, with all other variables held constant, of the Company’s
income before income tax due to changes in fair value of monetary assets and liabilities.
2008
2007
Appreciation
(depreciation) of
Php rate against
U.S. dollar
+ 9%
- 9%
+6.73%
-6.73%
Effect on profit
before tax
(P
=15.15 million)
15.15 million
(P
=7.32 million)
7.32 million
Credit risk
Credit risk is the risk that the Company will incur a loss because its customers or counterparties
failed to discharge their contractual obligations. The Company trades only with recognized,
creditworthy customers. It is the Company’s policy that all customers who wish to trade on credit
terms are subject to credit verification procedures and credit positions are monitored on a regular
basis. In addition, receivable balances are monitored on an ongoing basis with the result that the
Company’s exposure to bad debts is not significant. Outstanding receivables are mostly from big
retail store chains which the Company services directly. Credit lines on these accounts are
reviewed on a regular basis.
The maximum exposure to credit risk is represented by the carrying amount of each financial asset
in the balance sheets.
The table below shows the credit quality of the Company’s receivables based on their historical
experience with the corresponding third parties.
Cash and cash equivalents
Receivables
Trade
Related party
Distributor and
others
Others
Related parties
Third parties
Receivable from a land
developer
Note receivable, including
current portion
Advances to a stockholder
AFS investments:
Unquoted
Quoted
December 31, 2008 (in Millions)
Neither past due nor impaired
Past Due
Subor
Standard
Standard
Impaired
High Grade
Grade
Grade
P
=–
P
=–
P
=–
P
=1,842.08
Total
P
=1,842.08
1.12
–
100.84
35.62
137.58
198.43
78.68
167.74
468.03
912.88
–
46.23
6.19
–
–
–
–
–
6.19
46.23
18.75
–
–
–
18.75
–
–
204.31
137.37
–
–
–
–
204.31
137.37
200.00
15.94
P
=2,322.55
–
–
P
=426.55
–
–
P
=268.58
–
–
P
=503.65
200.00
15.94
P
=3,521.33
- 46 -
Derivative asset
Cash and cash equivalents
Receivables
Trade:
Related party
Distributor and
others
Others:
Related parties
Third parties
Receivable from a
land developer
Note receivable, including
current portion
Advances to a stockholder
AFS investments:
Unquoted
Quoted
December 31, 2007 (in Millions)
Neither past due nor impaired
SubPast Due
Standard
Standard
or
Grade
High Grade
Grade
Impaired
=
P1.08
=
P–
P
=–
=
P–
1,975.04
–
–
–
Total
P1.08
=
1,975.04
71.60
–
–
59.69
131.29
249.53
107.09
60.53
209.77
626.92
2.87
32.77
184.69
–
–
–
–
–
187.56
32.77
75.00
–
–
–
75.00
–
137.37
250.15
–
–
–
–
–
250.15
137.37
200.00
19.77
=2,765.03
P
–
–
P
=541.93
–
–
=
P60.53
–
–
=
P269.46
200.00
19.77
P
=3,636.95
High Grade financial assets are those cash and cash equivalents transacted with reputable local
banks and related party, receivables from clients or customers that consistently pay their accounts
on or before the due date and AFS investments transacted with counterparties that regularly
declare dividends. Standard grade receivables includes receivables that are collected on their due
dates even without an effort from the Company to follow them up while receivables which are
collected on their due dates provided that the Company made a persistent effort to collect them are
included under Sub-standard Grade receivables. Past due receivables and advances include those
that are past due but are still collectible. An analysis of past due receivables, by age, is provided
on the next table. The majority of these past due receivables are not considered to be impaired.
The table below shows an aging analysis of financial assets:
Cash and cash
equivalents
Receivables
Trade:
Related
party
Distributor
and other
Others:
Related
parties
Third parties
(Forward)
December 31, 2008 (in Millions)
Past due but not impaired
31-60
60-90
91-120 Over 120
Days
Days
Days
Days
Neither past
due nor
impaired
1-30
Days
P
=1,842.08
P
=–
P
=–
P
=–
P
=–
101.97
11.77
17.59
2.55
444.85
304.58
70.34
6.19
46.23
–
–
–
–
Subtotal
Impaired
Total
P
=–
P
=–
P
=–
P
=1,842.08
–
3.70
35.61
–
137.58
36.58
10.75
11.96
434.21
33.82
912.88
–
–
–
–
–
–
–
–
–
–
6.19
46.23
- 47 -
Receivable from a
land developer
Note receivable,
including
current portion
Advances to a
stockholder
AFS investments
Quoted
Unquoted
Derivative asset
Cash and cash
equivalents
Receivables
Trade:
Related
party
Distributor
and other
Others:
Related
parties
Third parties
Receivable from a
land developer
Note receivable,
including
current portion
Advances to a
stockholder
AFS investments
Quoted
Unquoted
December 31, 2008 (in Millions)
Past due but not impaired
31-60
60-90
91-120 Over 120
Days
Days
Days
Days
Neither past
due nor
impaired
1-30
Days
P
=18.75
P
=–
P
=–
P
=–
P
=–
204.31
–
–
–
–
137.37
–
200.00
15.94
P
=2,880.32
–
–
P
=453.72
–
–
P
=87.93
Subtotal
Impaired
Total
P
=–
P
=–
P
=–
P
=18.75
–
–
–
–
204.31
–
–
–
137.37
–
137.37
–
–
P
=39.13
–
–
P
=10.75
–
–
P
=15.66
–
–
–
P
=33.82
200.00
15.94
P
=3,521.33
December 31, 2007 (in Millions)
Past due but not impaired
31-60
60-90
91-120 Over 120
Days
Days
Days
Days
=–
P
=–
P
=–
P
=–
P
P
=607.19
Neither past
due nor
impaired
P
=1.08
1-30
Days
=–
P
1,975.04
–
–
–
–
–
–
–
1,975.04
71.61
–
–
–
–
53.57
53.57
6.11
131.29
417.15
106.52
36.54
5.90
0.49
37.34
186.79
22.98
626.92
187.56
32.77
–
–
–
–
–
–
–
–
–
–
–
–
–
187.56
32.77
75.00
–
–
–
–
–
–
–
75.00
250.15
–
–
–
–
–
–
–
250.15
137.37
–
–
–
–
–
–
–
137.37
200.00
19.77
=3,367.50
P
–
–
–
–
–
–
–
–
–
–
=
P90.91
–
–
–
=
P29.09
200.00
19.77
=
P3,636.95
=
P106.52
=
P36.54
=
P5.90
=
P0.49
Subtotal Impaired
P
=–
=
P–
=
P240.36
Total
=
P1.08
Liquidity risk
Liquidity risk is the risk the Company will be unable to meet its payment obligations when they
fall under normal and stress circumstances. The Company’s objective is to always maintain a
certain level of cash up to 14 days sales. Receivable monitoring is performed on a daily basis to
ensure positive liquidity. Standby credit lines are available from overdraft facilities and omnibus
lines provided by banks. Excess funds are deposited in high-interest yield placements with terms
of between 7 to 30 days.
- 48 The table below summarizes the maturity profile of the Company’s financial liabilities as of
December 31, 2007 based on undiscounted payments (in thousands):
December 31, 2008:
Floating rate notes payable*
Accounts payable and
accrued expenses:
Trade payables
Accrued expenses
Other current liabilities
Total
Less
than 1
Year
P
=123,689
1 to 2
years
P
=121,468
2 to 3
years
P
=118,311
3 to 4
years
P
=849,925
Total
P
=1,213,393
637,956
117,804
7,339
P
=886,788
–
–
–
P
=121,468
–
–
–
P
=118,311
–
–
–
P
=849,925
637,956
117,804
7,339
P
=1,976,492
December 31, 2007:
Floating rate notes payable*
Accounts payable and
accrued expenses:
Trade payables
Accrued expenses
Other current liabilities
Total
*Includes interest to maturity.
Less
than 1
Year
1 to 2
years
2 to 3
years
3 to 4
years
4 to 5
years
Total
=
P121,014
=
P123,689
=
P121,468
=
P118,311
=
P849,925
=
P1,334,407
637,434
98,490
11,356
=
P868,294
–
–
–
–
–
–
–
–
–
–
–
–
=
P123,689
=
P121,468
=
P118,311
=
P849,925
637,434
98,490
11,356
=
P2,081,687
Capital Management
The primary objective of the Company’s capital management is to ensure that it maintains a strong
credit rating and healthy capital ratios in order to support its business, continue to provide returns
to shareholders and benefits to other stakeholders, and to maintain an optimal capital structure that
would reduce the cost of capital.
The Company regularly monitors its use of capital using leverage ratios, such as debt-to-equity
ratio, and makes adjustments in the light of changes in economic conditions and its own financial
position. To maintain or adjust its capital structure, the Company may adjust the dividend
payment to shareholders, return capital to shareholders or issue new shares.
The following table summarizes the total capital considered by the Company as of December 31:
Floating rate notes payable
Capital stock
Additional paid-in capital
Treasury stock
Retained earnings
2007
(As restated,
Note 2)
2008
=985,416,803
P
P
=938,426,801
746,160,357
746,160,357
1,676,712,406
1,676,712,406
(236,178,536)
–
311,882,197
475,307,141
=3,720,171,763
P
=3,600,428,169 P
As described in Note 13-Floating Rate Notes, the Company is subject to certain negative
covenants that could affect the Company’s capital structure. These include provisions such as
contracting additional loans; declaration or payment of dividends in excess of fifty percent (50%)
of the Company’s previous year’s net income; purchase, redeem, retire or otherwise acquire for
- 49 value its capital stock; maintaining a current ratio of at least 2.0 and debt-to-equity ratio of not
more than 1.5 until final payment. The Company’s debt-to-equity ratio as of December 31, 2008
and 2007 is 0.65 and 0.66, respectively.
27. Contingencies
Except as disclosed in the following paragraphs, the Company is not a party to, and no property of
the Company is subject to, any other pending material legal proceedings.
a. BIR Assessment
The Company is a petitioner in a CTA case entitled Splash Corp. v. Commissioner of Internal
Revenue filed in the CTA Second Division. The Company seeks the CTA to
review/revise/recall the assessment/collection notice of July 3, 2003. The Company has been
assessed by the BIR in the amount of P16,123,980 for VAT interest and penalties and
surcharges for VAT return periods February 28, 2002 - March 31, 2002 and March 31, 2003.
The CTA issued a decision in the case on August 28, 2008. On January 16, 2009, the CTA
issued a resolution denying the Motion for Reconsideration filed by the Company. On
February 4, 2009, the Company filed a Petition for Review with the CTA En Banc, seeking
the Court to reverse and set aside its decision of August 28, 2008 and resolution of January 16,
2009. The case is still in progress and management believes that this case will not materially
affect the Company’s financial position and results of operations.
b. Others
The Company is also involved in certain other legal actions and claims arising in the ordinary
course of its business.
Management and the Company’s legal counsel strongly believe that the liabilities, if any that may
result from the final outcome of these cases and assessments will not materially affect the
Company’s financial position and results of operations.
28. Note to 2007 Statement of Cash Flows
In September 2007, the Company received shares of stock of Professional Services, Inc.
amounting to =
P200.00 million from SHI as partial payment of its advances from the Company
(see Note 10).
- 40 -
22. Rollforward and Reconciliation of the Amounts Reflected in the Equity Section of the Balance Sheets
BALANCES AT JANUARY 1, 2006,
AS PREVIOUSLY REPORTED
Change in accounting policy on actuarial
gain and loss (Note 2)
BALANCES AT JANUARY 1, 2006,
AS RESTATED
Net income for the year, as previously stated
Recovery in market value of AFS investments
Change in accounting policy on actuarial gain
and loss (Note 2)
Total recognized income and expense for
the year, as restated
BALANCES AT DECEMBER 31, 2006
AS RESTATED
BALANCES AT DECEMBER 31, 2006,
AS PREVIOUSLY REPORTED
Change in accounting policy in actuarial
gain and loss (Note 2)
BALANCES AT DECEMBER 31, 2006,
AS RESTATED
Net income for the year, as previously stated
Recovery in market value of available-forsale investments
Cumulative
Actuarial Gain (Loss)
on Defined Benefit
Plan and Adjustment
on Asset Ceiling
Capital Stock
(Note 14)
Additional
Paid-in Capital
(Note 14)
P
=107,312,250
P
=257,378,165
–
–
(1,364,779)
107,312,250
257,378,165
(1,364,779)
–
–
–
–
–
–
–
Unrealized
Valuation Gain
(Loss) on
Available-for-sale
Investments
Unappropriated
Retained
Earnings
Treasury
Stock
Total
P
=157,639,715
P
=–
P
=519,953,230
1,364,779
–
–
(2,376,900)
159,004,494
–
519,953,230
–
1,400,000
205,484,800
–
–
–
205,484,800
1,400,000
(18,122,043)
–
18,122,043
–
–
–
(18,122,043)
1,400,000
223,606,843
–
206,884,800
P
=107,312,250
P
=257,378,165
(P
=19,486,822)
(P
=976,900)
P
=382,611,337
P
=–
P
=726,838,030
P
=107,312,250
P
=257,378,165
(P
=976,900)
P
=363,124,515
P
=–
P
=726,838,030
–
–
(19,486,822)
19,486,822
–
–
107,312,250
257,378,165
(19,486,822)
382,611,337
–
726,838,030
–
–
–
–
271,233,655
–
271,233,655
–
–
–
5,520,000
–
–
5,520,000
P
=–
–
–
P
=–
(P
=2,376,900)
–
–
(976,900)
(Forward)
*SGVMC308954*
- 41 -
Capital Stock
(Note 14)
Change in accounting policy on actuarial gain
and loss (Note 2)
Total recognized income and expense for
the year, as restated
Dividends declared (Note 14)
Issuance of common stock (Note 14)
Additional
Paid-in Capital
(Note 14)
Cumulative
Actuarial Gain (Loss)
on Defined Benefit
Plan and Adjustment
on Asset Ceiling
Unrealized
Valuation Gain
(Loss) on
Available-for-sale
Investments
Unappropriated
Retained
Earnings
Treasury
Stock
Total
=
P8,037,205
P
=–
=
P–
279,270,860
(350,000,000)
–
–
–
–
=
P–
=
P–
(P
=8,037,205)
=
P–
–
–
638,848,107
–
–
1,419,334,241
(8,037,205)
–
–
5,520,000
–
–
P
=746,160,357
P
=1,676,712,406
(P
=27,524,027)
P
=4,543,100
P
=311,882,197
P
=–
P
=2,711,774,033
P
=746,160,357
P
=1,676,712,406
P
=4,543,100
P
=284,358,170
P
=–
P
=2,711,774,033
–
–
(27,524,027)
–
27,524,027
–
–
746,160,357
1,676,712,406
(27,524,027)
4,543,100
311,882,197
Recognized net actuarial gain and adjustment
on asset ceiling during the year
–
–
41,486,321
Decline in market value of AFS investments
Net income for the year
Total income and expense for the year
–
–
–
–
–
–
–
–
41,486,321
Dividends declared (Note 14)
–
–
–
–
Acquisition of treasury stock (Note 14)
–
–
–
–
–
(236,178,536)
P
=746,160,357
P
=1,676,712,406
P
=13,962,294
P
=718,100
P
=475,307,141
(P
=236,178,536)
BALANCES AT DECEMBER 31, 2007
BALANCES AT DECEMBER 31, 2007,
AS PREVIOUSLY REPORTED
Change in accounting policy on actuarial gain
and loss (Note 2)
BALANCES AT DECEMBER 31, 2007,
AS RESTATED
BALANCES AT DECEMBER 31, 2008
P
=–
–
(3,825,000)
–
(3,825,000)
276,753,655
(350,000,000)
2,058,182,348
2,711,774,033
–
–
41,486,321
–
297,733,808
297,733,808
–
–
–
(3,825,000)
297,733,808
335,395,129
(134,308,864)
–
(134,308,864)
(236,178,536)
P
=2,676,681,762
Interim Financial Statements – First Quarter of 2009
BALANCE SHEETS
As of March 31, 2009 and December 31, 2008
ASSETS
Current Assets
Cash and cash equivalents
Receivables - net
Current portion of notes receivable
Advances to stockholder
Inventories - net
Prepaid expenses and other current assets
Total Current Assets
Non-Current Assets
Notes receivable - net of current portion
Property, plant and equipment - net
Available for sale investments
Land for development
Deferred income tax assets
Other non-current assets
Total Non-Current Assets
TOTAL ASSSETS
As of March 31, 2009
(Unaudited)
As of Dec. 31, 2008
(Audited)
1,782,372,046
1,090,573,522
49,932,240
137,370,246
382,883,306
139,716,846
3,582,848,207
1,842,075,488
1,087,810,564
54,215,416
137,370,246
381,756,239
45,023,355
3,548,251,308
150,091,505
274,523,231
215,945,000
141,956,454
33,193,965
9,478,849
825,189,004
4,408,037,210
150,091,505
272,065,531
215,945,000
141,956,454
33,193,965
56,948,398
870,200,853
4,418,452,161
1
BALANCE SHEETS
As of March 31, 2009 and December 31, 2008
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable and accrued expenses
Current portion of floating rate notes payable
Total Current Liabilities
Non-current liabilities
Floating rate notes payable - net
Retirement benefits liability
Total Non-Current Liabilities
Total Liabilities
Equity
Capital Stock
Additional paid-in capital
Unrealized valuation gain (loss) on AFS assets
Cumulative acturial gain (loss) on defined benefit plan
Treasury stock
Retained earnings
Total Equity
TOTAL LIABILITIES AND EQUITY
As of March 31, 2009
(Unaudited)
As of Dec. 31, 2008
(Audited)
746,373,458
46,923,400
793,296,858
803,343,598
46,923,404
850,267,002
891,503,397
891,503,397
1,684,800,255
891,503,397
891,503,397
1,741,770,399
746,160,357
1,676,712,406
718,000
13,962,300
(236,178,500)
521,862,393
2,723,236,956
4,408,037,210
746,160,357
1,676,712,406
718,100
13,962,294
(236,178,536)
475,307,141
2,676,681,762
4,418,452,161
2
STATEMENTS OF INCOME
For the Quarters Ended March 31, 2009 and March 31, 2008
Net Sales
Cost of goods sold
Gross profit
Operating expenses
For Quarter Ended March 31
2009
2008
623,475,258
627,675,000
(248,174,224)
(259,864,000)
375,301,034
367,811,000
(298,288,090)
(297,280,000)
Interest income*
15,596,482
Interest expense
(18,649,380)
(16,004,000)
Other income (charges)*
Foreign exchange loss - net
Others
(8,421,177)
(16,028,810)
14,173,000
Net income before tax
Income tax
Net income after tax
49,510,059
(2,954,766)
46,555,293
68,700,000
(24,045,000)
44,655,000
Earnings per share
0.07
0.06
*2008 interest income, foreign exchange gain and other income (charges)
reported in Q1/08 as consolidated total of Php14.173 million
3
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Quarters Ended March 31, 2009 and March 31, 2008
Unrealized
Cumulative
Valuation Loss actuarial gain
on Available
(loss) on
Additional Paid In for Sale (AFS) defined benefit
Capital Stock
Capital
Investments
plan
Treasury Stock
(Unaudited)
Balances as at January 1, 2009
746,160,357
1,676,712,406
718,100
13,962,294
(236,178,536)
Net Income for the quarter
Balances as at March 31, 2009
746,160,357
1,676,712,406
718,100
(Unaudited)
Balances as at January 1, 2008
746,160,357
1,676,712,406
4,543,100
13,962,294
(236,178,536)
Net Income for the quarter
Balances as at March 31, 2008
746,160,357
1,676,712,406
4,543,100
-
-
Retained
Earnings
Total
475,307,141
2,676,681,762
46,555,293
46,555,293
521,862,434
2,723,236,956
284,358,170
2,711,774,033
68,700,000
68,700,000
353,058,170
2,780,474,033
4
STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2009 and March 31, 2008
For the Three Months Ended March 31
2009
2008
CASH FLOWS FROM OPERATING ACTIVITIES
Income before tax
Adjustments for:
Depreciation and amortization
Unrealized foreign exchange loss (gain)
Interest expense
Interest income
Operating income before working capital changes
Decrease (increase) in:
Receivables
Advances to stockholder
Inventories
Prepaid expenses and other current assets
Increase (decrease) in:
Accounts payable and accrued expenses
Current portion of floating payable
Retirement benefits liablity
Net cash from operations
Income taxes paid
Interest received, net
Net cash flows from (used in) operating activites
CASH FLOWS FROM INVESTING ACTIVITIES
(Additions) reductions to property, plant and equipment
Decrease in notes receivable
(Increase) decrease in other non-current assets
Net cash flows from (used in) investing activites
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from availment of:
Proceeds from issuance of capital stock
Proceeds from Floating Rate Notes
Net cash flows from (used in) investing activites
NET INCREASE IN CASH AND CASH EQUIVALENTS
49,510,059
68,700,000
4,145,856
18,649,380
(15,596,482)
56,708,812
10,176,624
1,262,340
16,004,000
(15,761,877)
80,381,087
(2,762,962)
(246)
(1,127,106)
(94,693,491)
(558,722,912)
(13,265,919)
(125,740,864)
138,764,379
(56,970,142)
-
228,229,740
(26,854,167)
37,930,101
(239,278,555)
(24,045,000)
1,643,672
(261,679,883)
(98,845,136)
(2,954,766)
(3,052,898)
(104,852,800)
(6,603,556)
4,283,353
47,469,549
45,149,346
(59,703,454)
280,491,070
(387,051,035)
(106,559,965)
2,058,182,348
118,985,546
2,177,167,894
1,808,928,046
CASH AND CASH EQUIVALENTS AT BEG. OF QUARTER
1,842,075,500
235,566,577
CASH AND CASH EQUIVALENTS AT END OF QUARTER
1,782,372,046
2,044,494,622
5