SanMlguel Pure Foods - San Miguel PureFoods

SanMlguel
Pure Foods
April 16, 2012
Philippine Stock Exchange, Inc.
Disclosure Department
Philippine Stock Exchange Plaza
Ayala Triangle, Ayala Avenue
Makati City
Attention:
Ms. Janet A. Encarnacion
Head - Disclosure Department
Ladies and Gentlemen:
Please see the attached SEC Form 17-A of San Miguel Pure Foods Company, Inc. in
compliance with Section 17.2 (a) of the Revised Disclosure Rules.
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i
ALE~r)I6RA
TRILLANA
Corporate Secretary
A Company of
San Miguel Pure Foods Company, Inc.
23rd Fir.. The JMT Corporate Condominium. ADS Avenue
, 605 Ortigas Center. Pasig City, Metro Manila, Philippines
Tel. No.: (632) 702·5000
vvebsne: www.sanmlguelpurefoods.com.ph
SANMIGUEl
CORPORATION
ORIGINAL SEC COPY
COVER SHEET
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(Business Address: No. Street City/Town/Province)
ALEXANDRA B. TRILLANA
(632) 702-5000
Contact Person
Company Telephone Number
SEC Form
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FORM TYPE
Month
Day
Annual Meeting
Secondary License Type, If Applicable
Dept. Requiring this Doc.
Amended Articles Number/Section
Total Amount of Borrowings
Total No. of Stockholders
Domestic
Foreign
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Document I. D.
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SEC Number
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SAN MIGUEL PURE FOODS COMPANY, INC. and
SUBSIDIARIES
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(Company’s Full Name)
The JMT Corporate Condominium
ADB Avenue, Ortigas Center, Pasig City
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(Company’s Address)
702-5000
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(Telephone Number)
December 31
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(month & day)
SEC Form 17-A Annual Report
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Form Type
_______________________________
Amendment Designation (if applicable)
December 31, 2011
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Period Ended Date
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(Secondary License Type and File Number)
11840
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SEC FORM 17-A
ANNUAL REPORT PURSUANT TO SECTION 17
OF THE SECURITIES REGULATION CODE AND SECTION 141
OF THE CORPORATION CODE OF THE PHILIPPINES
1. For the calendar year ended December 31, 2011
2. SEC Identification Number 11840
3.BIR Tax Identification No. 000-100-341-000
4. Exact name of registrant as specified in its charter
SAN MIGUEL PURE FOODS COMPANY, INC.
5. Philippines
Province, country or other jurisdiction
of incorporation or organization
6.
_________SEC
Use
Only
Industry classification code
7. The JMT Corporate Condominium
ADB Avenue, Ortigas Center, Pasig City
Address of principal office
1605
Postal Code
8. (02) 702-5000
Registrant’s telephone number, including area code
9. N/A
Former name, former address, and former fiscal year, if changed since last report.
10. Securities registered pursuant to Sections 8 and 12 of the SRC
Title of Each Class
Number of Shares of Stock Outstanding
and Debt Outstanding
(As of December 31, 2011)
Common - P 10 par value
Preferred - P 10 par value
166,667,096
15,000,000
181,667,096
Total Liabilities
P21,265,888,952.71
11. Are any or all securities listed on the Philippine Stock Exchange?
Yes (  )
No (
)
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If yes, state the name of such stock exchange and the classes of securities listed therein:
Philippine Stock Exchange
Common and Preferred shares
12. Check whether the registrant:
a) Has filed all reports required to be filed by Section 17 of the SRC and SRC Rule 17
thereunder, and Sections 26 and 141 of The Corporation Code of the Philippines
during the preceding 12 months (or such shorter period that the registrant was
required to file such reports):
Yes (  )
No (
)
b) Has been subject to such filing requirements for the past 90 days:
Yes (  )
No (
)
13. Aggregate market value of the voting stocks held by non-affiliates as of
December 31, 2011 and March 31, 2012 were P197,824,200 and P142,006,000,
respectively.
Documents incorporated by reference
14. The following documents are incorporated by reference:
None
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PART I – BUSINESS AND GENERAL INFORMATION
Item 1. Business
San Miguel Pure Foods Company, Inc. (SMPFC or the “Company”) was incorporated in 1956 to
engage primarily in the business of manufacturing and marketing of processed meat products. The
Company, through its subsidiaries, later on diversified into poultry and livestock operations, feeds
and flour milling, dairy and coffee operations, food service, franchising and young animal ration
manufacturing and distribution. The Company has been listed on the PSE since 1971.
SMPFC holds in its portfolio the names of some of the most formidable brands in the Philippine food
industry, among them, Magnolia, Pure Foods, Monterey, Star, Dari Crème, B-Meg, and JellyAce. To
date, SMPFC has a product line up that is unparalleled in the industry, offering a variety of food
products and services for both individual and food service customers. Its products range from
cooking oils, feeds, flour and flour-based products, poultry, fresh and value-added meats, breadfill,
dairy and coffee.
The support of parent company SMC and partnerships with major international companies like United
States-based Hormel Foods International Corporation and Singapore-based Super Coffee Corporation
Pte Ltd (SCCPL) and Penderyn Pte Ltd. have given SMPFC access to the latest technologies and
expertise, allowing it to deliver flavor, freshness, safety, quality and value-for-money to its
customers.
There was no bankruptcy, receivership or similar proceeding or material reclassification, merger,
consolidation, purchase or sale, or purchase or sale of a significant amount of assets by the Company,
which is not in the ordinary course of business during the past three years, except as described in
Management’s Discussion and Analysis of Financial Position and Financial Performance attached
hereto as Annex “D”.
Major developments in the Company are discussed in Note 5 (Investments in Subsidiaries),
Note 12 (Investments), Note 14 (Property, Plant and Equipment), Note 15 (Other Intangible Assets),
Note 19 (Long-term Debt) and Note 20 (Equity) of the Audited Consolidated Financial Statements,
attached hereto as Annex “E”, and in the Management’s Discussion and Analysis of Financial
Position and Financial Performance attached hereto as Annex “D”.
Products
The Company operates its businesses through the following subsidiaries and division:

San Miguel Foods, Inc. (SMFI) - is a 99.97%-owned subsidiary of SMPFC and operates
the integrated Feeds, and Poultry and Fresh Meats businesses, the Franchising business,
and the San Miguel Integrated Sales selling and distribution activities.
a) Feeds business - manufactures and sells different types of feeds to
commercial growers. Internal requirements of SMFI’s Poultry and Fresh
Meats businesses are likewise being served by the Feeds business.
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b) Poultry and Fresh Meats business - was a result of Monterey’s Fresh Meats
business being folded into SMFI’s Poultry business following the merger of
Monterey Foods Corporation (Monterey) with SMFI in 2010, with the latter
as the surviving corporation. The business engages in poultry operations and
sells live birds, frozen and fresh chilled birds, and cut-ups. It is also into
livestock farming and processing and selling of meat products, mainly pork
and cattle. Fresh produce, as well as further processed or value-added meat
products are sold in Monterey meat shops located in major supermarkets and
cities throughout the country. The business supplies the chicken meat
requirements of The Purefoods-Hormel Company, Inc. (PF-Hormel), an
affiliate, for the latter’s manufacture of chicken-based value-added products.
It also supplies PF-Hormel’s primals requirements.
c) Franchising business - engages in franchising operations and was
established in September 2011 primarily to strengthen and grow SMFI’s
retail business model through faster franchise expansion, brand performance
improvement and development of new business concepts for retail. Its three
(3) current retail concepts, namely Smokey’s hotdog bars, Hungry Juan roast
barbecue outlets, and San Mig Food Ave., which consolidates the former San
Miguel Food Shop outlets and the Treats convenience stores network
acquired by SMFI from Petron Corporation in September 2011, showcase the
San Miguel Group’s food and beverage products. A total of 253 outlets for
the three retail concepts were operating as at December 31, 2011.
d) San Miguel Integrated Sales (SMIS) - was formed in May 2009 when the
receivables, inventories and fixed assets of SMC’s Centralized Key Accounts
Group were transferred to SMFI. SMIS is engaged in the business of selling
and distributing various products of SMPFC’s subsidiaries to modern trade
customers.

San Miguel Mills, Inc. (SMMI) - is a 100%-owned subsidiary of SMPFC and engages in
the manufacture and distribution of flour and premixes. In September 2011, SMMI
formed Golden Bay Grain Terminal Corporation (GBGTC) as its wholly-owned
subsidiary. GBGTC is a domestic company with the primary purpose of providing and
rendering general services connected with and incidental to the operation and
management of port terminals engaged in handling and/or trading of grains, among
others. As at December 31, 2011, GBGTC has not yet started commercial operations.

The Purefoods-Hormel Company, Inc. - is a 60%-40% joint venture between the
Company and Hormel Netherlands B.V., which produces and markets value added or
processed meats (hotdogs, hams, bacons, cold cuts and gourmet meat) and canned meat
products (corned beef, luncheon meat, Vienna sausage, pork and beans, liver spread and
meat loaf). PF-Hormel also distributes value-added pork, beef and poultry products such
as chicken/pork nuggets, chicken balls, chicken hotdogs, premium marinated chicken,
cordon bleu, beef burgers, budget patties, longganisa lines and ready-to-eat meat
products.

Magnolia Inc. (“Magnolia”) - is a 100%-owned subsidiary of SMPFC and manufactures
and markets butter, margarine, cheese, milk, ice cream and cooking oils. The business
also handles the sale and marketing of jellies and desserts, production of which is
outsourced to third party tollers. In September 2011, Magnolia acquired the subscription
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rights of certain individuals in Golden Food & Dairy Creamery Corporation (GFDCC),
a domestic company engaged in the toll manufacturing of ice cream products. GFDCC,
thus, became a wholly-owned subsidiary of Magnolia.

PT San Miguel Pure Foods Indonesia (PTSMPFI, formerly PT Pure Foods Suba
Indah) - started as a 49%-51% joint venture between the Company and the Hero Group
of Companies and organized in 1995 for the manufacture and distribution of processed
meats in Indonesia. In 2004, SMPFC increased its ownership to 75% following the Hero
Group’s divestment of its interest in PTSMPFI to Lasalle Financial Inc. (“Lasalle”). The
remaining 25% is currently owned by Penderyn Pte Ltd. (“Penderyn”) of Singapore by
virtue of the sale and transfer by Lasalle of its entire shareholding in PTSMPFI to
Penderyn effective February 2, 2010. On February 5, 2010, Lasalle, Penderyn and
SMPFC executed an Adherence Agreement pursuant to which Penderyn agreed to
observe and perform all obligations of Lasalle under the Joint Venture Agreement relating
to PTSMPFI.

San Miguel Super Coffeemix Co., Inc. (SMSCCI) - is a 70%-30% joint venture between
the Company and Super Coffeemix Manufacturing Ltd (SCML) of Singapore, which
started commercial operations in April 2005 by marketing its 3-in-1 coffee mixes in the
Philippines. Since then, SMSCCI has introduced a good number of products that include
a sugar-free line of coffee mixes, a premium line of coffee mixes, 100% Premium Instant
Coffee, 2-in-1 coffee mixes and a pro-health line of coffee mixes. In November 2009, by
virtue of the Deed of Assignment and Deed of Novation of Joint Venture Agreement
executed by and among SMSCCI, SCML and SCCPL, SCML assigned and transferred its
entire shareholding in SMSCCI to SCCPL, and SCCPL agreed to perform and comply
with all obligations of SCML under the Joint Venture Agreement relating to SMSCCI.

SMPFC’s Great Food Solutions (GFS) - is the food service division of the Company
that caters to hotels, restaurants and institutional accounts for their meat, poultry, dairy
and flour-based requirements, as well as provides food solutions/recipes and menus.

San Miguel Pure Foods International, Limited (SMPFIL) - is a company incorporated
in the British Virgin Islands in February 2007 and is 100%-owned by SMPFC. In July
2010, SMPFC acquired San Miguel Hormel (Vn) Co., Ltd. (SMHVN, formerly San
Miguel Pure Foods (Vn) Co., Ltd.), a company incorporated in Vietnam that engages in
live hog farming and the production of feeds and fresh and processed meats, through
SMPFIL.

San Miguel Pure Foods Investment (BVI) Limited (“SMPFI Limited”, formerly TTCV
Investment (B.V.I.) Co. Ltd.) - is a company incorporated in the British Virgin Islands in
August 1996 and started as a 51%-49% joint venture between San Miguel Foods and
Beverage International Limited (SMFBIL) and Hormel Netherlands B.V.. In July 2010,
SMPFIL acquired SMC’s 51% interest (through SMFBIL) in SMPFI Limited. SMPFI
Limited owns 100% of SMHVN.

SMPFC Capital Investments, Limited (SCIL) - is a 100%-owned subsidiary of SMPFC
incorporated in the Cayman Islands in November 2010 and was dissolved in September
2011 by virtue of the Certificate of Dissolution issued to SCIL by the Registrar of
Companies of the Cayman Islands in August 2011. SCIL did not engage in commercial
operations from its incorporation date until its dissolution.
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
RealSnacks Mfg. Corp. - was incorporated in April 2004 as a 100%-owned subsidiary of
SMPFC. However, commercial operations have yet to commence.
The list of products and/or services of the Company and its subsidiaries (collectively referred to as the
“Group”) is attached hereto as Annex “A”.
Amounts of revenue, profitability, and identifiable assets attributable to domestic operations for 2011,
2010 and 2009 follow:
Sales
Operating income
Total Assets
2011
P 89,591,080
6,141,894
60,952,970
( in 000’s )
2010
P 79,269,760
5,901,769
47,518,089
2009
P 75,042,967
4,637,624
40,175,873
Percentage of Sales Contributed by Export Sales
Information as to the relative contribution of the operating segments to total sales is as follows:
Sales
2011
P 89,591,080
(in 000’s)
2010
P 79,269,760
2009
P 75,042,967
63.60%
13.51%
9.32%
13.57%
100.00%
65.98%
14.55%
9.03%
10.44%
100.00%
65.39%
14.97%
9.97%
9.67%
100.00%
Agro-Industrial
Value-Added Meats
Milling
Others
TOTAL
The consolidated 2011 revenues include P1,785.3 million or about 1.99% in export sales of the
Company’s several businesses.
Distribution Methods of Products and Services
The Group utilizes different modes of distribution depending on the location and how the
subsidiary/division operates. In general, third party logistics providers are hired to provide services
related to warehousing, transporting and delivery of goods from the businesses’ plants and
warehouses to the distributors/dealers, depots and meat shops or directly to key retail and institutional
customers based in Metro Manila and Luzon. For those based in Visayas and Mindanao, goods are
transported through forwarders and shipping lines.
To maximize utilization of haulers/truckers that cater to the requirements of the value-added
businesses of the Company, namely, Magnolia, PF-Hormel, SMMI’s retail flour line and SMSCCI,
the Company’s Division Logistics Group centrally manages and directs the warehousing, hauling and
delivery activities of the third party logistics providers.
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To ensure product availability at all times, the Poultry and Fresh Meats business maintains a sales
force to handle selling of their products to major accounts like supermarkets/hypermarkets and meat
shops, and engage third party distributors and dealers to handle the selling of their products to
groceries and wet markets. SMMI relies mainly on its distributors/dealers for the marketing and
selling of flour to major noodle factories and bakeries. The value-added businesses, through SMIS,
likewise utilize the services of distributors for the marketing of their products to tertiary channels
such as sari-sari stores and market stalls. The Feeds business, on the other hand, largely depends on
its strategically located distributors nationwide.
Selling of Magnolia, PF-Hormel, SMMI’s retail flour and SMSCCI products to both modern and
general trades such as major supermarket chains, hypermarkets, groceries and convenience stores are
being handled by SMIS. The Company’s GFS, meanwhile, takes care of selling Poultry, SMMI, PFHormel, SMSCCI, Fresh Meats and Magnolia goods to key foodservice customers such as hotels,
restaurants, bakeshops, and fast-food and pizza chains.
Development of New Product or Service
The Group does not have any publicly announced new major product that is being developed.
Competition
The Company is known for its high quality products and well-known brands in the market and is
regarded as one of the leaders in the food manufacturing industry.
It is estimated that SMFI’s Feeds business accounts for more than one-third of the feeds milling
industry and competes with other major industry players such as Univet Nutrition and Animal
Healthcare Co., Universal Robina Corporation (URC), New Hope, Charoen Pokphand Foods and
Tateh, and numerous regional feed mill companies as well as local feed millers. The Feeds milling
industry falls under the commodity type of industry with most of its major raw materials such as corn,
soybean meal and feed wheat categorized as global commodities. Since feed millers use some
imported major raw materials, the industry is affected by foreign exchange fluctuations. The industry
derives its sales mainly from hog and broiler producers. Majority of local industry players have
evolved from merely selling feeds products to offering total value service packages to customers. In
an effort to increase sales volume and grab market share, many companies implement more flexible
credit terms, after-harvest payment schemes and volume lock-in programs. Technical services and
buy-back schemes are also offered to customers. In terms of product promotion, some market players
aggressively invest in various types of visibility campaigns, the most popular of which is through
tri-media placements.
SMFI’s Poultry business is considered a major player in its industry group and competes with
integrators such as Bounty Fresh Foods, Inc./Bounty Agro Ventures, Inc., Cobb Vantress Philippines,
Inc., URC, Swift Foods, Inc. and other independent commercial growers. The industry continues to
exhibit a commodity behavior with performance subject to the law of supply and demand. Most of
the major integrators employ contract-growing schemes for the production of live broilers. Also
considered as common practices among the big market players are the contract breeding and toll
dressing arrangements. Major industry players likewise took advantage of the growing popularity of
the digital medium, thus, the use of social networking sites as alternative in promoting their products.
SMFI Poultry’s competitive advantages lie in the areas of breed management, growing efficiencies,
sales and distribution network, and customer care.
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SMFI’s Fresh Meats business is considered a major player in the highly fragmented domestic pork
and beef markets and competes with integrators such as Robina Farms, Foremost Farms and several
other commercial-scale and numerous small-scale hog farms that supply live hogs to traders, which in
turn supply hog carcasses to wet markets and supermarkets. Since fresh meats are regarded as
commodity products, the industry’s performance greatly depends on the law of supply and demand.
Backyard players largely dominate the unbranded fresh meats segment while SMFI’s Fresh Meats
business, carrying the “Monterey” brand, accounts for a larger share in the branded segment. Among
the market players in the commercial-scale group, SMFI’s Fresh Meats business has the biggest farm
with the largest capacity and size of operations, as well as the latest technology in breeding, livestock
raising, slaughtering and meat wholesaling. To date, there are 383 Monterey meat shops nationwide
distributing quality meats to consumers.
SMMI’s Flour business belongs to a highly commoditized industry sensitive to price movements and
characterized by low brand loyalty. It accounts for the largest market share in the industry and
competes on the basis of price, quality, customer service and distribution. Other players with vast
resources and who compete for market share are GMC, URC, Philippine Foremost Milling,
Wellington Flour Mills, PILMICO Foods Corporation, RFM Corporation (RFM), Morning Star,
Liberty Flour Mills, Philippine Flour Mill, Delta and Monde Nissin. Competition within the industry
is intense due to the prevailing excess capacity and the presence of lower-priced imported flour.
Considered growth drivers of the industry are population growth rate, demand for bread and other
flour-based products, growth of the bakery sector and home baking. Although price is the main
purchasing consideration, the quality of products and services offered cannot be discounted in
acquiring customer patronage. Flour continues to be more of an intermediary product used as a raw
material rather than a consumer product.
The Value-Added or Processed Meats business under PF-Hormel remains the dominant player in the
hotdog market and in the premium segment of canned goods market, particularly corned beef. Other
players in the value-added or processed meats’ business include Foodsphere, Inc. (CDO), Virginia
Foods, Inc. (Winner and Champion), RFM (Swift), Mekeni, Pacific Meat Company, Inc. (Argentina
and 555) and the distributors of Maling. To maintain its leadership position and to address increased
competition from both established local players, which are employing aggressive pricing and
promotion schemes, and from new entrants to the market, the business engaged in extensive
advertising and promotion for its core brands. To further improve its position in the market,
PF-Hormel capitalized on its extensive distribution network, brand equity, high quality image and
technology link with joint venture partner Hormel Foods. Noted trends in the industry are the
consumers’ preference for smaller size and mid-priced brands, and the growing demand for healthy
products, i.e., low sodium, low fat and no monosodium glutamate (MSG), and alternative protein
sources. Still found effective in pushing sales are continuous participation in special and major events
and the conduct of promotional activities using novelty items.
Magnolia offers a wide array of products to Filipino consumers and its Magnolia brand is recognized
as one of the most trusted brands in the country. It competes in various categories, which include
bread spreads such as butter, margarine (refrigerated and non-refrigerated), cheese and salad
dressings, ready-to-drink milk, jelly-based snacks, cooking oil and ice cream. Magnolia caters to
both retail and institutional sectors of the market. While brand building is critical to the retail sector,
the institutional segment is more price-driven. Magnolia is believed to be the leader in the butter
category followed by New Zealand Milk Products and New Zealand Creamery (NZC). In the
refrigerated margarine category where NZC and RFM also compete, Magnolia accounts for a
significant market share. The same holds true in the non-refrigerated margarine category. In the
cheese category, however, Kraft Phils. is believed to be the leading player followed by Magnolia and
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NZC. Major players in the bread spreads industry continue to reach consumers via tri-media to spur
trial and usage for their products and have resorted to downsizing to reduce cash outlay in line with
efforts to sustain consumption. Innovation and more product offerings with health benefits remain as
the basic theme in the breadfill market. In the jelly-based snacks industry, on the other hand, where
Magnolia and Knotsberry Farm are the major players, slowed growth in recent years was noted as
more varieties of alternative snack products became available. The industry was also marked by the
proliferation of imported, low-priced, unbranded jelly snacks in tertiary outlets such as market stalls
and sari-sari stores. The milk industry, which registered stable growth in recent years, has Nestle as
the major player with Magnolia and Alaska following suit. Ice cream industry, on the other hand, has
Selecta and Nestle as dominant players with Magnolia ranking as the third largest player.
The Company’s coffee business under SMSCCI is estimated to be occupying the number three
position in terms of market share in the coffee mix segment. The coffee industry, composed of instant
coffee, coffee mixes and ready-to-drink coffee, is still dominated by Nestle who is the market leader
in almost all coffee sub-categories. Another key player is Tridharma Marketing Corp., maker of
Kopiko. Other players in the coffee industry include URC (Great Taste), Kraft Foods Inc. (Maxwell
House), Commonwealth Foods, Inc. (Café Puro) and Goldshine Pharmaceuticals, Inc. (Jimm’s).
Coffee remains to be among the top beverages consumed in the country and appealing to a much
broader market and coming from all socio-economic classification demographics.
SMPFC, with its strong financial position, believes it could sustain the competitiveness of its different
businesses. It will continue to improve and introduce quality products and create product
differentiation.
Purchase of Raw Materials and Supplies
Major suppliers of SMFI’s Feeds business for its soybean meal requirements are Singapore-based
Louis Dreyfus Commodities Asia and U.S.A.-based AG Processing, Inc. Other raw materials, on the
other hand, are sourced from various local suppliers.
SMFI’s Poultry business’ breeder stocks are imported mostly from Aviagen and Cobb Vantress Inc.,
both are agribusiness firms based in U.S.A.
The internal feeds requirements of SMFI’s Poultry and Fresh Meats business are served by its Feeds
business.
SMMI’s Flour business imports more than 20% of its wheat requirements from U.S.A.-based
Columbia Grains International and Toyota Tsusho America, Inc.
PF-Hormel gets its pork requirements from various local suppliers and from affiliate, SMFI. On the
other hand, more than 20% of its Indian buffalo meat requirements are imported from India-based
Allanasons Limited.
Magnolia imports more than 20% of its major raw materials, such as cheese curds and anhydrous
milk fat, from Fonterra (SEA) Pte. Ltd. (formerly New Zealand Milk Products) based in Singapore
while the bulk of its oil requirements are sourced from Tap Oil Manufacturing Corp.
SMSCCI imports its coffee mixes for repacking from SCCPL based in Singapore and from SCML
(Thailand) Company Ltd.
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Except for SMSCCI whose coffee mixes are provided solely by SCCPL and SCML, the Company
and its subsidiaries are not dependent on one or a limited number of suppliers for its essential raw
materials and supplies, such that, operations will not be disrupted if any supplier refuses or cannot
meet its delivery commitment.
Customers
The Company and its subsidiaries have a broad market base that includes supermarkets,
hypermarkets, grocery stores, cooperative stores, sari-sari stores, convenience stores, warehouse
clubs, mini-marts, market stalls, wet market vendors/dealers and commissaries,
wholesalers/distributors, animal raisers, buyers of live birds and institutional accounts (i.e., fast food
outlets and restaurants, burger and pizza chains, bakeshops/bakeries, hotels, snack/biscuit
manufacturers, noodle manufacturers, membership clubs, school/office canteens and franchise
holders). The Company sells its products to Luzon, Visayas and Mindanao through its own sales
force or SMIS and through strategically located partners/distributors all over the country.
Except for GFS, whose sales through Jollibee account for more than 20% of its total business, the
Company’s other subsidiaries are not dependent on any single customer. This gives the businesses
flexibility in managing their sales activities.
Transactions with and/or Dependence on related parties
The Group, in its regular course of business, has transactions with related parties. These transactions,
which include the purchase/sale of goods and services discussed in the foregoing section on Purchase
of Raw Materials and Supplies, are also described in Note 29 (Related Party Disclosures) of the
Audited Consolidated Financial Statements attached hereto as Annex “E”.
Patents, Trademarks, Copyrights, Licenses
Brands, trademarks, patents and other related intellectual property rights used by the Company and its
subsidiaries on its principal products in the Philippines and foreign markets, are either registered or
pending registration in the name of SMPFC or an affiliate company.
Government Approvals
The Company and its subsidiaries have obtained all necessary permits, licenses and government
approvals to manufacture and sell its products.
Governmental Regulation
The Company and its subsidiaries have no knowledge of recent or probable governmental regulations,
the implementation of which will result in a material adverse effect on the Company and its
significant subsidiaries’ business or financial position.
Various laws and government agencies in the Philippines regulate the manufacturing, processing, sale
and distribution aspects of the Group’s businesses. Specific to the food business are the following:
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The Foods, Drugs and Devices, and Cosmetics Act
The Foods, Drugs and Devices, and Cosmetics Act, as amended by the FDA Act of 2009 (the “FDDC
Act”), establishes standards and quality measures in relation to the manufacturing and branding of
food products to ensure the safe supply thereof to and within the Philippines. The Food and Drug
Administration (previously referred to as the Bureau of Food and Drugs) (the “FDA”) is the
governmental agency under the Department of Health (“DOH”) tasked to implement and enforce the
FDDC Act.
Pursuant to the FDDC Act, food manufacturers are required to obtain a license to operate as such.
The law further requires food manufacturers to obtain a certificate of product registration for each
product it sells in the market. SMPFC and its subsidiaries have the relevant Licenses To Operate as
food manufacturers and Certificates of Product Registration for its products.
The DOH also prescribes Guidelines on Current Good Manufacturing Practice in Manufacturing,
Packing, Repacking, or Holding Food for food manufacturers. The Group is compliant with these
Guidelines.
The Consumer Act
The Consumer Act of the Philippines (the “Consumer Act”) establishes quality and safety standards
with respect to the composition, contents, packaging, labeling and advertisement of food products.
The DOH (which includes the FDA) is the government agency tasked to implement the Consumer
Act with respect to food products.
The Consumer Act provides for minimum labeling and packaging requirements for food products to
enable consumers to obtain accurate information as to the nature, quality, and quantity of the contents
of food products available to the general public. The Group complies with these requirements.
The Livestock and Poultry Feeds Act
The Livestock and Poultry Feeds Act and its implementing rules and regulations (the “Livestock and
Poultry Feeds Act”), regulates and controls the manufacture, importation, labeling, advertising and
sale of livestock and poultry feeds. The Bureau of Animal Industry (the “BAI”) is the governmental
office under the Department of Agriculture (“DA”) tasked to implement and enforce the Livestock
and Poultry Feeds Act.
Under the Livestock and Poultry Feeds Act, any entity desiring to engage in the manufacture,
importation, exportation, sale, trading or distribution of feeds or other feed products must first register
with the BAI. Further, all commercial feeds must comply with the nutrient standards prescribed by
the DA. The Livestock and Poultry Feeds Act also provides branding, labeling and advertising
requirements for feeds and feed products.
The Group’s feedmills, whether self-owned and tolled, are all registered with the BAI. The Group
also seeks approval from the BAI for brand names and registers every new product prior to market
launch.
12
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The Meat Inspection Code
The Meat Inspection Code of the Philippines (the “Meat Inspection Code”) establishes quality and
safety standards for the slaughter of food animals and the processing, inspection, labeling, packaging,
branding and importation of meat (including, but not limited to, pork, beef and chicken meat) and
meat products. The National Meat Inspection Service (“NMIS”), a specialized regulatory service
attached to the DA, serves as the national controlling authority on all matters pertaining to meat and
meat product inspection and meat hygiene to ensure meat safety and quality from farm to table.
The Meat Inspection Code provides for labeling, branding and packaging requirements for meat and
meat products to enable consumers to obtain accurate information and ensure product traceability.
The Group’s poultry processing plants and livestock slaughter plants, both self-owned and tolled, are
all accredited by NMIS.
The Philippine Food Fortification Act
The Philippine Food Fortification Act of 2000 (the “PFF Act”) provides for the mandatory
fortification of wheat flour, cooking oil and other staple foods and the voluntary fortification of
processed food products. The FDA is the government agency responsible for the implementation the
PFF Act with the assistance of the different local government units which are tasked under the said
law to monitor foods mandated to be fortified which are available in public markets, retail stores and
food service establishments and to check if the labels of fortified products contain nutrition facts
stating the nutrient added and its quantity.
All Magnolia-branded products are compliant with the PFF Act. For wheat flour, the addition of
Vitamin A and Iron are mandated under standards set by the DOH. SMPFC’s flour business is
compliant with the requirements of the PFF Act.
Research and Development
The total amount spent by the Company and its subsidiaries on research and development for the
years 2011, 2010 and 2009 were P184.4 million, P51.3 million and P55.7 million, respectively. As a
percentage of net sales revenues, spending on research and development for the years 2009 to 2011
barely ranged from 0.1% to 0.2%.
Cost of Compliance with Environmental Laws
The Company and its subsidiaries incurred about P 20.3 million in expenses for environmental
compliance for the year 2011. On an annual basis, operating expenses incurred by the Group to
comply with environment laws are not significant or material relative to the Company and its
subsidiaries’ total cost and revenues.
Human Resources and Labor Matters
Please see the list of Collective Bargaining Agreements entered into by the Company and its
significant subsidiaries with its various employee unions, as well as the Group’s employee headcount
by position attached hereto as Annex “B”.
13
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The Group does not expect any significant change in its existing workforce level within the ensuing
12 months.
The Company and majority of its subsidiaries have funded, noncontributory retirement plans covering
all of its permanent employees. The retirement plans are described in Note 28 (Retirement Plans) of
the Audited Consolidated Financial Statements of the Company attached hereto as Annex “E”.
Major Business Risks
The major business risks the Company and its subsidiaries have to contend with are the following:
Competitor/Market Risks
New and existing competitors can erode the Group’s competitive advantage through the introduction
of new products, improvement of product quality, increase in production efficiency, new and updated
technologies, costs reductions and the reconfiguration of the industry’s value chain. To manage all
these, the Group continuously comes up with new exciting products, improves product propositions
and packaging, and redefines the manner of product distribution. A new support unit called Corporate
Innovations Group was likewise created primarily to identify breakthrough ideas for new product
categories, synergize marketing initiatives of the Group and develop innovation opportunities.
Catastrophy and Environmental Risks
Rigorous weather conditions and outbreaks of animal diseases such as bird flu or avian influenza
(chicken), foot-and-mouth and Ebola Reston (hogs) and mad cow are all beyond the control of the
Group, but could have severe effect on its business operations. To manage these occasional
outbreaks, the Group adopted preventive measures like farm sanitation and bio-security to minimize,
if not totally avoid, the risks from these diseases.
Social and Cultural Risks
Consumer taste and preferences have evolved through time due to a host of reasons such as health,
fads and fast-paced lifestyles. The Group manages these risks by establishing a small presence first in
food products where consumer preferences seem to be leaning towards. Should demand take off and
stabilize, operations are expanded.
Sourcing Risks/Price Risks
Alternative sources of raw materials are used in the Group’s operations to avoid and manage risks on
unstable supply and higher costs. This is true for most businesses that have foreign-denominated raw
material requirements.
The Company and some of its subsidiaries enter into various commodity derivatives to manage its
price risks on strategic commodities. Commodity hedging allows predictability in prices, thus
offsetting the risk of volatile market fluctuations. Through hedging, prices of commodities are fixed
at levels acceptable to the Company, with the objective of protecting raw material cost and preserving
margins.
14
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Financial Risks
For the various financial risks, please refer to Note 32 (Financial Risk Management Objectives and
Policies) of the Audited Consolidated Financial Statements attached hereto as Annex “E”.
Item 2. Properties
The locations of the various plants and farms owned and leased by the Group are attached hereto as
Annex “C”.
The Group owns most of its major facilities, i.e., flour and feed mills, farms, meats processing and
poultry dressing plants, ice cream plant and butter, margarine and cheese plant. Its Feeds, Fresh
Meats and Poultry operations, including the poultry dressing operation, however, are mostly
contracted out to third parties.
The Company and its subsidiaries have no principal properties that are subject to a mortgage, lien or
encumbrance. For properties leased by the Company and its subsidiaries, the term of lease is
normally on a yearly basis and annual rentals amount to P 669.2 million on an aggregate basis.
There are no imminent acquisitions of any material property, which cannot be funded by the working
capital of the Group.
For additional information on the Company’s properties, please refer to Note 13 (Investment
Properties) and Note 14 (Property, Plant and Equipment) of the Audited Consolidated Financial
Statements attached hereto as Annex “E”.
Item 3. Legal Proceedings
The Company or any of its subsidiaries is not a party to, and its properties are not the subject of, any
material pending legal proceeding that could be expected to have a material adverse effect on the
Company or its results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of SMPFC’s shareholders, through the solicitation of
proxies or otherwise, during the fourth quarter of 2011.
PART II – OPERATIONAL AND FINANCIAL INFORMATION
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters
The Company’s common equity is traded in the PSE.
The Company’s high and low prices for each quarter of the last two fiscal years, are as follows:
15
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Quarter
1st
2nd
3rd
4th
2010
Common2
High
Low
300.00
91.00
350.00
250.00
800.00
320.00
2011
Preferred3
Common
High
3,000.00
1,840.00
1,407.00
-
Low
800.00
900.00
850.00
-
High
1,040.00
1,002.00
1,040.00
1,022.00
Low
990.00
990.00
998.00
1,012.00
The closing prices as of the latest practicable trading date are:
Common shares
Preferred shares
P 1,010.00
P 1,026.00
February 15, 2012
March 9, 2012
The approximate number of shareholders of the Company as of December 31, 2011, is as follows:
Common shareholders
Preferred shareholders
122
204
The top 20 stockholders of the Company as at December 31, 2011 are as follows:
No. of Shares
Rank
Stockholder Name
1
San Miguel Corporation
PCD Nominee Corporation
2
(Filipino)
Knights of Columbus Fraternal
Association of the Philippines
3
Inc.
PCD Nominee Corporation (Non4
Filipino)
5
PFC ESOP/ESOWN Account
6
Cecille Y. Ortigas
7
Francisco S. Alejo III
Allan Catindig Lanip or Nilda
8
Caponpon Lanip
Marinneth Ngo &/ Or Bernneth
9
Temew
10
Ramon L. Chua
11
Jorge Ramos
12
Enrique Ll. Yusingco
13
Safeway Customs Brokerage, Inc.
2
Common
166,526,487
Preferred
0
49,593 14,647,525
% vs
Outstanding
Total
Shares
166,526,487
91.66574%
14,697,118
8.090138%
0
100,000
100,000
0.055046%
2,990
22,975
19,374
1
63,455
0
0
10,000
66,445
22,975
19,374
10,001
0.036575%
0.012647%
0.010665%
0.005505%
0
10,000
10,000
0.005505%
0
6,538
5,868
0
0
7,000
0
0
5,100
5,000
7,000
6,538
5,868
5,100
5,000
0.003853%
0.003599%
0.003230%
0.002807%
0.002752%
The SEC approved the de-classification of the Company’s common shares on April 12, 2010.
3
The SEC approved the reclassification of the Company’s 40,000,000 common shares to preferred
shares on December 23, 2010.
16
+
14
15
16
17
18
19
20
Daisy Que Lim &/Or Lolita Que
Lim
Luciano Q. Puno or Imelda V.
Puno
MRL Cybertec Corporation
Jocelyn Chan Go &/or George
Hao Go
Willy Te Go &/or Anita Ong Go
Ana Maria De Olondriz Ortigas
Jaltin Corp.
0
5,000
5,000
0.002752%
0
0
5,000
5,000
5,000
5,000
0.002752%
0.002752%
0
0
4,688
0
5,000
5,000
0
4,000
5,000
5,000
4,688
4,000
0.002752%
0.002752%
0.002581%
0.002202%
In 2011, the Company paid out cash dividends of P3.00 per common share and P60.00 per preferred
share.
In 2010, a total of 25,423,746 common shares with a par value of P10.00 per share were distributed
on July 26, 2010 to cover the 18% stock dividend declaration to stockholders of record as at June 30,
2010.
There were no securities sold by the Company within the past three (3) years that were not registered
under the Securities Regulation Code.
In November 2005, the Board of Directors and stockholders of the Company approved the issuance
by the Company to SMC of 9,436,814 Common Class “A” shares and 4,442,620 Common Class “B”
shares out of its unissued capital stock in exchange for cash. In December 2006 and January 2007,
the Board of Directors and stockholders of the Company, respectively, approved in their respective
meetings the issuance to SMC of 47,479,602 Common Class “A” shares and 23,385,476 Common
Class “B” shares in exchange for shares of SMC in Magnolia, Monterey and SMFI. The issuance of
these common shares is pursuant to an exempt transaction under Section 10.1 (e) of the Securities
Regulation Code.
In January 2011, the SEC approved the Company’s Registration Statement covering the registration
of 15,000,000 preferred shares with a par value of P10.00 per share, and the PSE approved, subject to
certain conditions, the application of the Company to list up to 15,000,000 preferred shares with a par
value of P10.00 per share to cover the Company’s follow-on preferred shares offering at an offer
price of P1,000.00 per share. In February 2011, on the basis of the SEC order for the registration of
the Company’s 15,000,000 preferred shares with a par value of P10.00 per share and Certificate of
Permit to Offer Securities for Sale, SMPFC offered for subscription by the public 15,000,000
preferred shares with 5-year maturity at an offer price of P1,000.00 per share. The dividend rate was
set at 8% per annum. The offering was fully subscribed and the 15,000,000 preferred shares were
issued on March 3, 2011, its listing date on the PSE.
Description of the securities of the Company may be found in Note 20 (Equity) of the Audited
Consolidated Financial Statements, attached hereto as Annex “E”.
As stated in Note 20 of the Audited Consolidated Financial Statements, accumulated equity in
undistributed net earnings of the consolidated subsidiaries are not available for dividend distribution
until declared by the subsidiaries.
17
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Item 6. Management’s Discussion and Analysis or Plan of Operation
The information required by Item 6 may be found on Annex “D” attached hereto.
Item 7. Financial Statements (FS) and Other Documents Required to be filed with the FS
under SRC Rule 68, as Amended
The 2011 Audited Consolidated Financial Statements of the Company (with the auditors’ PTR, name
of certifying partner and address) and Statement of Management’s Responsibility are attached hereto
as Annex “E” with the Supplementary Schedules (including the report of the external auditors on the
Supplementary Schedules) attached hereto as Annex “E-1”.
The additional components of the FS together with their corresponding separate report of auditor,
required to be filed with the FS under SRC Rule 68, as amended, are hereto attached as follows:
Reconciliation of Retained Earnings Available for Dividend Declaration
(Part 1, 4 [c])
Tabular schedule of standards and interpretations as of reporting date
(Part 4 [I])
A map of the conglomerate or group of companies showing the relationships
between and among the company and its ultimate parent company, middle
parent, subsidiaries or co-subsidiaries, and associates (Part 4 [h])
Annex “E-2”
Annex “E-3”
Annex “E-4”
Item 8. Information on Independent Accountant and Other Related Matters
A. External Audit Fees and Services
The accounting firm of Manabat Sanagustin & Company, CPAs (MSC) served as the Company’s
external auditors for fiscal year 2011. The Board of Directors will again nominate MSC for reappointment for fiscal year 2012.
MSC has been the Company’s external auditors since 2007. Nevertheless, the current signing partner
for the Company, Mr. Wilfredo Z. Palad, replaced the previous signing partner
Mr. Ricardo G. Manabat, for the fiscal year 2008. As such, the Company is not yet subject to the rule
on rotation for the signing partner every after five (5) years under SRC Rule 68 (3) (b) (iv) in respect
of its engagement of MSC.
Fees billed for the services rendered by the external auditors to the Company in connection with the
Company’s annual financial statements and other statutory and regulatory filings for 2010 and 2011
amounted to about P1.2 million per year. For the Company’s follow-on preferred shares offering in
2011, the fees billed for the services rendered by the external auditors amounted to P1.9 million. No
other services were rendered by the external auditors to the Company.
The stockholders approve the appointment of the Company’s external auditors. The Audit Committee
reviews the audit scope and coverage, strategy and results for the approval of the Board and ensures
that audit services rendered shall not impair or derogate the independence of the external auditors or
violate SEC regulations.
18
+
B. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
There are no disagreements with the Company’s external auditors on accounting and financial
disclosure.
PART III – CONTROL AND COMPENSATION INFORMATION
Item 9. Directors and Executive Officers of the Issuer
The names of the incumbent directors and key executive officers of the Company and their respective
ages, periods of service, directorships in other reporting companies and positions in the last five (5)
years, are as follows:
Eduardo M. Cojuangco, Jr., Filipino, 76, is the Chairman and a non-executive director of the
Company, a position he has held since May 22, 2001, and Chairman of the Company’s Executive
Committee. He is also Chairman and Chief Executive Officer of San Miguel Corporation and Ginebra
San Miguel, Inc. He is also the Chairman of ECJ and Sons Agricultural Enterprises, Inc. and the
Eduardo Cojuangco, Jr. Foundation, Inc.; and a Director of Cainaman Farms, Inc., Petron Corporation
and Manila Electric Company.
Ramon S. Ang, Filipino, 58, is the Vice Chairman of the Company, a position he has held since May
13, 2011. He has been a Director of the Company since May 22, 2001 and a member of the
Company’s Executive Committee. He also holds, among others, the following positions: Vice
Chairman, President and Chief Operating Officer of San Miguel Corporation; Chairman of San
Miguel Brewery Inc., San Miguel Properties, Inc., San Miguel Yamamura Packaging Corporation,
San Miguel Foods, Inc., San Miguel Mills, Inc., Magnolia Inc., The Purefoods-Hormel Company,
Inc., San Miguel Super Coffeemix Co., Inc., Anchor Insurance Brokerage Corporation, San Miguel
Brewery Hong Kong Limited and San Miguel Energy Corporation; and a Director of Ginebra San
Miguel, Inc. and Top Frontier Investment Holdings Inc. He is also the Chairman and Chief Executive
Officer of Petron Corporation and SMC Global Power Holdings Corp.; Chairman of Liberty
Telecoms Holdings Inc., Philippine Diamond Hotel & Resort, Inc., Philippine Oriental Realty
Development, Inc., Atea Tierra Corporation and Cyber Bay Corporation; Vice-Chairman of Manila
Electric Company; and an independent director of Philweb Corporation. Mr. Ang has held
directorships in various subsidiaries of San Miguel Corporation in the last five years.
Francisco S. Alejo III, Filipino, 63, is the President of the Company (since May 20, 2005). He has
been a Director of the Company since May 22, 2001 and a member of the Company’s Executive
Committee and Nominations and Hearing Committee. He also holds the following positions: Vice
Chairman of San Miguel Foods, Inc. and San Miguel Mills, Inc.; President of Magnolia Inc., The
Purefoods-Hormel Company, Inc. and San Miguel Super Coffeemix Co., Inc.; Chairman and
President of Sugarland Corporation and Golden Food & Dairy Creamery Corporation; Chairman of
San Miguel Pure Foods (Vn) Co., Ltd., Golden Bay Grain Terminal Corporation and Philippine Prime
Meat Marketing Corporation; Director of San Miguel Foods & Beverage International Limited (BVI),
San Miguel Pure Foods Investment (BVI) Ltd. and San Miguel Pure Foods International, Limited
(BVI); and President Commissioner of PT San Miguel Pure Foods Indonesia.
Menardo R. Jimenez, Filipino, 79, has been a Director of the Company since April 25, 2002 and is
Chairman of the Company’s Executive Compensation Committee and member of its Audit
Committee. He is also a Director of San Miguel Corporation and Magnolia Inc. He also holds the
19
+
following positions: Chairman and President of Majent Management and Development Corporation,
Majent Agro Industrial Corporation, M. A. Jimenez Enterprises, Inc., Pac Rim Realty Development
Corporation, Television International Corporation, Alta Tierra Resources, Inc. and Fibers Trading,
Inc.; Chairman of United Coconut Planters Bank, Cable Entertainment Corporation, Majent
Foundation, Inc., Marathon Building Technologies, Inc. and Meedson Properties Corporation;
President and Chief Executive Officer of Albay-Agro Industrial Development Corporation; and a
Director of First Metro Investment Corporation, Cunickel Mining Corporation, Electronic Realty
Associates, Inc., Mabuhay Philippines Satellite Corporation, Franchise One Corporation, CBTL
Holdings, Inc., CCC Insurance Corporation and Pan-Phil Aqua Culture Corporation.
Cancio C. Garcia, Filipino, 74, has been an Independent Director of the Company since June 27,
2008 and is Chairman of the Company’s Audit Committee and member of its Executive Committee,
Executive Compensation Committee and Nominations and Hearing Committee. He is also an
Independent Director of San Miguel Properties, Inc. and Union Bank of the Philippines. Justice
Garcia is a former Associate Justice of the Supreme Court of the Philippines. He was also Presiding
Justice of the Court of Appeals.
Mario C. Garcia, Filipino, 60, has been a Director of the Company since November 4, 2009. He is
also a Director of San Miguel Properties, Inc. and Clark Development Corporation; Member of Board
of Advisers of Freeport Service Corporation, International Reporters and Editors Association, USA;
and Consultant of Radio Affairs, Pulis Ng Bayan (PNP). He was a former TV Host of Kapihan Ng
Bayan, NBN-4 and Comentaryo, NBN-4, a Radio Host/Anchorman of Uno Por Dos, PBS Radyo Ng
Bayan, Interim National President of KBP Society of Broadcast Journalists; and Director of the Subic
Bay Metropolitan Authority. He was previously a Director and Vice Chairman of Quezon City Red
Cross, Vice President for Programming and Operations and Station Manager of Radio Veritas.
Carmelo L. Santiago, Filipino, 69, has been an Independent Director of the Company since August
12, 2010, and is the Chairman of the Nominations and Hearing Committee and a member of the
Company’s Audit and Executive Compensation Committees. He is an Independent Director of San
Miguel Corporation, San Miguel Brewery Inc. and Liberty Telecoms Holdings, Inc.; and Director of
Terbo Concept, Inc. He is also an Independent Non-Executive Director of San Miguel Brewery Hong
Kong Limited. He was previously Independent Director of Ginebra San Miguel Inc., Anchor
Insurance Brokerage Corporation and San Miguel Properties, Inc.
Plaridel M. Abaya, Filipino, 78, has been an Independent Director of the Company since November
11, 2010. He is also a Director of Grayline Services, (a management company) and La Saga
Commercial Corporation (a financing company). He established Progressive Homes, Inc. and
Baypoint Estates Development Corporation, both housing development companies with projects in
Laguna and Cavite. He was previously Congressman representing the First District of Cavite in the
Philippine House of Representatives (1995-2005), and served in the Philippine military for over 30
years.
Leandro R. Mendoza, Filipino, 66, has been a Director of the Company since February 11, 2011. He
is a noted management practitioner and a distinguished professional military officer. He was
previously Executive Secretary to the Office of the President, Chairman of the Anti-Terrorism
Council, Presidential Human Rights Council Commission, and Maritime and Oceanic Affairs (from
March 2010 to June 2010); and Secretary of the Department of Transportation and Communications
(DOTC) and Chairman of the Boards of DOTC Attached Agencies/Sectoral Offices and Corporations
(from July 2002 to March 2010).
20
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Zenaida M. Postrado, Filipino, 56, is the Vice President and Division Chief Finance Officer of the
Company (since May 2005). She also holds the following positions: Director and Treasurer of
Magnolia Inc., The Purefoods-Hormel Company, Inc., San Miguel Mills, Inc., Golden Bay Grain
Terminal Corporation, Sugarland Corporation, Golden Food & Dairy Creamery Corporation and
Philippine Prime Meat Marketing Corporation; Treasurer of San Miguel Foods, Inc. and San Miguel
Super Coffeemix Co., Inc.; and Commissioner of PT San Miguel Pure Foods Indonesia. She was a
former General Manager (2005) of The Purefoods-Hormel Company, Inc.
Ma. Soledad E. Olives, Filipino, 52, is the Compliance Officer of the Company (since September 15,
2010). She is also Vice President and Corporate Planning & Management Group Services Manager
of the Company; Director of The Purefoods-Hormel Company, Inc., Golden Food & Dairy Creamery
Corporation and Philippine Prime Meat Marketing Corporation; and Commissioner of PT San Miguel
Pure Foods Indonesia. She was a former Director of PT San Miguel Pure Foods Indonesia (from
November 4, 2008 to November 19, 2009); and was previously Assistant Vice President and
Planning, Projects & Management Group Services Manager of the Company (from May 16, 2005 to
March 29, 2010).
Alexandra Bengson Trillana, Filipino, 38, is the Corporate Secretary of the Company (since
September 15, 2010). She is also Assistant Vice President and General Counsel of the Company; and
Corporate Secretary of San Miguel Foods, Inc., San Miguel Mills, Inc., Magnolia, Inc., Sugarland
Corporation, Golden Food & Dairy Creamery Corporation, Golden Bay Grain Terminal Corporation,
The Purefoods-Hormel Company, Inc., San Miguel Super Coffeemix Co., Inc. and Philippine Prime
Meat Marketing Corporation. She was previously Assistant Corporate Secretary of the Company
(from April 26, 2004 to September 14, 2010); and Senior Manager – Commercial Transactions of San
Miguel Corporation’s Office of the General Counsel (from August 2005 to December 2009).
Florentino C. Policarpio, Filipino, 62, is the President of San Miguel Mills, Inc. He was previously
General Manager of San Miguel Foods, Inc.’s Flour Business (2002-2005) and Group Manager of the
Purchasing Department of the Company.
Rita Imelda B. Palabyab, Filipino, 52, is the President of San Miguel Foods, Inc. and Head of the
Agro-Industrial Cluster of the Company, which comprises the poultry, fresh meats, franchising
business that includes San Mig Food Ave., Hungry Juan and Smokey’s, and feeds businesses of San
Miguel Foods, Inc. She was previously General Manager of San Miguel Foods, Inc.’s Poultry
Business (April 2004-January 2010).
Eliezer O. Capacio, Filipino, 57, is the Vice President and Division Human Resources Head of the
Company. He is also Director of PT San Miguel Pure Foods Indonesia. He was previously Vice
President and Account Manager of the Food Group Human Resources of San Miguel Corporation’s
Corporate Human Resources Group (April 2004-June 2007).
Term of Office
Pursuant to the Company’s Amended By-Laws, the directors are elected at each annual stockholders
meeting by stockholders entitled to vote. Each director holds office for a term of one (1) year and
until the election and qualification of their successors, unless he resigns, dies or is removed prior to
such election.
The Company’s Amended By-Laws provide that the annual stockholders’ meeting shall be held on
the second Friday of May of every year.
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Independent Directors
The independent directors of the Company are Justice Cancio C. Garcia, Mr. Carmelo L. Santiago
and Mr. Plaridel M. Abaya.
Significant Employees
The Company has no employee who is not an executive officer but who is expected to make a
significant contribution to the business.
Family Relationships
There are no family relationships up to the fourth civil degree either by consanguinity or affinity
among the Company’s directors, executive officers or persons nominated or chosen by the Company
to become its directors or executive officers.
Parent Company
San Miguel Corporation holds 166,526,487 common shares of the Company, equivalent to 99.9156%
ownership, as at December 31, 2011.
Involvement in Certain Legal Proceedings
None of the directors, nominees for election as director, executive officers or control persons of the
Company have been the subject of any (a) bankruptcy petition, (b) conviction by final judgment in a
criminal proceeding, domestic or foreign, excluding traffic violations and other minor offenses, (c)
order, judgment or decree of any court of competent jurisdiction, domestic or foreign, permanently or
temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of
business, securities, commodities or banking activities, which is not subsequently reversed,
suspended or vacated, or (d) judgment of violation of a securities or commodities law or regulation by
a domestic or foreign court of competent jurisdiction (in a civil action), the Securities and Exchange
Commission (SEC) or comparable foreign body, or a domestic or foreign exchange or other organized
trading market or self regulatory organization, which has not been reversed, suspended or vacated, for
the past five (5) years up to the date that is material to the evaluation of his ability or integrity to hold
the relevant position in the Company.
Item 10. Executive Compensation
The aggregate compensation paid or incurred during the last two (2) fiscal years, as well as those
estimated to be paid in the ensuing fiscal year, to the Company’s President and senior executive
officers are as follows:
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+
NAME
YEAR
Total Compensation of
the President and
Senior Executive
Officers4
2012
(estimated)
P 52.8
Million
P 19.2
Million
P 7.8
Million
P 79.8
Million
2011
P 47.4
Million
P 27.9
Million
P 8.1
Million
P 83.4
Million
2010
P 42.2
Million
P 23.0
Million
P 10.8
Million
P 76.0
Million
2012
(estimated)
P163.7
Million
P59.7
Million
P 46.6
Million
P270.0
Million
2011
P151.6
Million
P 86.1
Million
P 46.0
Million
P283.7
Million
2010
P131.0
Million
P 61.6
Million
P 46.9
Million
P239.5
Million
2012
(estimated)
P216.5
Million
P 78.9
Million
P 54.4
Million
P349.8
Million
2011
P199.0
Million
P114.0
Million
P 54.1
Million
P367.1
Million
2010
P173.2
Million
P 84.6
Million
P 57.7
Million
P315.5
Million
All other officers and
directors as a group
unnamed
TOTAL
SALARY
BONUS
OTHERS
TOTAL
Article II, Section 5 of the Amended By-laws of the Company provides that the members of the
Board of Directors shall each be entitled to a director’s fee in the amount to be fixed by the
stockholders at a regular or special meeting duly called for that purpose.
Each director receives a per diem of P10,000.00 per attendance at Board and Board Committee
meetings of the Company.
There are no other arrangements pursuant to which any of the directors was compensated or is to be
compensated, directly or indirectly, by the Company for services rendered during the last fiscal year,
and the ensuing fiscal year.
There are no employment contracts between the Company and its executive officers.
There are neither compensatory plans nor arrangements with respect to an executive officer that
results or will result from the resignation, retirement or any other termination of such executive
4 The President and senior executive officers of the Company are as follows: (for 2012 and 2011) Francisco S.
Alejo III, Zenaida M. Postrado, Florentino C. Policarpio, Rita Imelda B. Palabyab and Ma. Soledad E. Olives;
and (for 2010) Francisco S. Alejo III, Zenaida M. Postrado, Rolando A. Cabredo, Florentino C. Policarpio and
Rita Imelda B. Palabyab.
23
+
officer’s employment with the Company, or from a change-in-control of the Company, or a change in
an executive officer’s responsibilities following a change-in-control of the Company.
There are no outstanding warrants or options held by the Company’s President, named executive
officers and all directors and officers as a group.
Item 11. Security Ownership of Certain Beneficial Owners and Management
Owners of record of more than 5% of the Company’s voting5 securities as at December 31, 2011 are
as follows:
Title of
Class
Common
Name, Address of
Record Owner and
Relationship with
Issuer
San Miguel
Corporation6
SMC Head Office
Complex
40 San Miguel
Avenue,
Mandaluyong City
1550, parent
company of issuer
Name of
Beneficial
Owner and
Relationship
with Record
Owner
San Miguel
Corporation
Citizenship
Filipino
No. of Shares
Held
166,526,487
Percent
91.6657%
5
The holders of common shares have the right to vote on all matters requiring stockholders’
approval. The holders of preferred shares shall not be entitled to vote except in matters provided for
in the Corporation Code: amendment of articles of incorporation; adoption and amendment of bylaws; sale, lease, exchange, mortgage, pledge, or other disposition of all or substantially all of the
corporate property; incurring, creating or increasing bonded indebtedness; increase or decrease of
capital stock; merger or consolidation with another corporation; investment of corporate funds in
another corporation or business; and dissolution.
6
The Board of Directors of San Miguel Corporation (SMC) authorizes any one Group A signatory or
any two Group B signatories to act and vote in person or by proxy, shares held by SMC in other
corporations. The Group A signatories of SMC are Eduardo M. Cojuangco, Jr., Ramon S. Ang,
Ferdinand K. Constantino, Aurora T. Calderon, Ma. Belen C. Buensuceso, Sergio G. Edeza, Joseph
N. Pineda and Virgilio S. Jacinto. The Group B signatories of SMC are David S. Santos, Bella O.
Navarra, Cecile Caroline U. de Ocampo, Manuel M. Agustin, Lorenzo G. Formoso III and Virgilio S.
de Guzman.
24
+
Title of
Class
Common
Preferred
Name, Address of
Record Owner and
Relationship with
Issuer
PCD Nominee
Corporation7
37th Floor, Tower
One, Enterprise
Center
Ayala Ave. corner
Paseo de Roxas Ave.,
Makati City, no
relation to issuer
Name of
Beneficial
Owner and
Relationship
with Record
Owner
Various8
Citizenship
Filipino
No. of Shares
Held
49,593
Percent
8.0901%
14,647,525
The following are the number of shares of the Company’s capital stock, all of which are voting shares
with the exception of the preferred shares, owned of record by the directors and key officers of the
Company as of December 31, 2011:
Title of
Class
Common
Preferred
Common
Common
Preferred
Common
Common
Common
Common
Common
Common
Preferred
Preferred
Preferred
Name of Owner
Eduardo M. Cojuangco, Jr.
Ramon S. Ang
Francisco S. Alejo III
Menardo R. Jimenez
Cancio C. Garcia
Mario C. Garcia
Carmelo L. Santiago
Plaridel M. Abaya
Leandro R. Mendoza
Zenaida M. Postrado
Ma. Soledad E. Olives
Alexandra Bengson Trillana
Amount and
Nature of
Ownership
1 (Direct)
5,500 (Beneficial)
1 (Direct)
1 (Direct)
10,000 (Beneficial)
1 (Direct)
1 (Direct)
1 (Direct)
1 (Direct)
1 (Direct)
1 (Direct)
7,000 (Beneficial)
3,400 (Beneficial)
500 (Beneficial)
Citizenship
Total No. of
Shares
Filipino
5,501 (0.00%)
Filipino
Filipino
1 (0.00%)
10,001 (0.01%)
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
1 (0.00%)
1 (0.00%)
1 (0.00%)
1 (0.00%)
1 (0.00%)
1 (0.00%)
7,000 (0.00%)
3,400 (0.00%)
500 (0.00%)
The aggregate number of shares owned of record by the Chairman, President, key officers and
directors as a group as of December 31, 2011 is 26,409 shares or approximately 0.0145% of the
Company’s outstanding capital stock.
The aggregate number of shares owned by all officers and directors as a group as of December 31,
2011 is 37,509 shares or approximately 0.0206% of the Company’s outstanding capital stock.
7
Registered owner of shares held by participants in the Philippine Central Depository, Inc., a private
company organized to implement an automated book entry of handling securities in the Philippines.
8
None of the holders of the Company's common or preferred shares registered under the name of
PCD Nominee Corporation owns more than 5% of the Company’s shares.
25
+
The foregoing beneficial or record owners have no right to acquire additional shares within thirty (30)
days from options, warrants, conversion privileges or similar obligations or otherwise.
There is no person holding more than 5% of the Company’s voting securities under a voting trust or
similar agreement.
Since the beginning of the last fiscal year, there were no arrangements, which resulted in a change in
control of the Company.
Item 12. Certain Relationships and Related Transactions
See Note 5 (Investments in Subsidiaries), Note 12 (Investments), Note 15 (Other Intangible Assets),
Note 19 (Long-term Debt), Note 29 (Related Party Disclosures) and Note 34 (Employee Stock
Purchase Plan (of the Audited Consolidated Financial Statements of the Company attached hereto as
Annex “E”, as well as the discussion under Transactions with and/or Dependence on related parties
in Item 1 (Business) of this report.
There were no transactions with directors, officers or any principal stockholders (owning at least 10%
of the total outstanding shares of the Company) that are not in the ordinary course of business of the
Company. There have been no complaints, disputes or problems regarding related party transactions
of the Company. The Company observes an arm’s length policy in its dealings with related parties.
The Human Resources Division of the Company ensures the implementation of the Company’s policy
against conflict of interests and the misuse of inside and proprietary information throughout the
organization. Employees are required to promptly disclose any business and family-related interest or
involvement, which, by nature, may directly or indirectly conflict with the interests of the Company
to ensure that such potential conflicts of interest are surfaced and brought to the attention of
management for resolution.
PART IV – CORPORATE GOVERNANCE
Item 13. Corporate Governance
The Company’s Manual on Corporate Governance (the “Manual”) was approved by the Board of
Directors on August 16, 2002 and amended on March 30, 2010 and August 12, 2011 in compliance
with the Revised Code of Corporate Governance of the SEC.
The evaluation by the Company to measure and determine the level of compliance of the Board of
Directors and top level management with its Manual is vested by the Board of Directors in the
Compliance Officer. The Compliance Officer is mandated to monitor compliance by all concerned
with the provisions and requirements of the Manual. Compliance by the Board of Directors and top
level management with the Manual is evaluated on the basis of their compliance with the policies and
procedures of the Company specifically adopted for good corporate governance.
In this connection, in 2011, the Company participated in the annual Corporate Governance Scorecard
process for publicly listed companies of the Institute of Corporate Directors, and together with SMC
and its other listed subsidiaries, organized a seminar on Corporate Governance for its Board of
Directors and senior management. All members of the operating committee of the Company have
26
+
thus attended a seminar on corporate governance given by a SEC-accredited provider. On this basis,
the Compliance Officer has certified that, for 2011, the Company has substantially adopted all the
provisions of the Manual.
Pursuant to its commitment to good governance and business practice, the Company continues to
review and strengthen its policies and procedures in order to ensure that such policies and procedures
are consistent with leading practices on good corporate governance, giving due consideration to
developments in the area of corporate governance, which it determines to be in the best interests of
the Company and its stockholders.
PART V – EXHIBITS AND SCHEDULES
Item 14. Exhibits and Reports on SEC Form 17-C
(A) Exhibits
The 2011 Audited Consolidated Financial Statements and the Supplementary Schedules (including
the report of the external auditors on the Supplementary Schedules) are attached hereto as Annex
“E”.
(B) Reports on SEC Form 17-C
The Report on each Form 17-C filed during the last 12-month period covered by this report is
attached hereto as Annex “F”.
27
+
SIGNATURES
Pursuant to the requirements of Section 17 of the Code and Section 141 of the Corporation Code, this
report is signed on behalf of the issuer by the undersigned, thereunto duly authorized, in the City of
MAN.DAUJY~~G
n
I' 7 "~'?, 2012.
~GAI\u.-:<?A-J
FRANCISCO
President
S. ALEJO III
t1~_!-, ~
AL~XAAD~.TRILLANA
Corporate Secretary
MAR 2
SUBSCRIBED AND SWORN to before me this
me their Passports, as follows:
NAME
Eduardo M. Cojuangco, Jr.
Francisco S. Alejo III
Zenaida M. Postrado
Alexandra B. Trillana
Ma. Evarisa B. Capito
Page No. '"\~.
Doc.No.~;
BookNo.~·
Series of 2fu
7 ~2
day of __
, 2012 affiants exhibiting to
PASSPORT/
LICENSE NO.
EXPIRY DATE
XX-1347206
XX-0861508
XX-4870820
EA0009733
N04-92-236745
June 5, 2013
April 3, 2013
October 29,2014
December 3,2014
October 2,2012
PLACE OF ISSUE
Manila
Manila
Manila
Manila
Mandaluyong City
J\<fARY ROSE S. TAN
CoIll!llksion No. 0252-11
Notary Public f:>r!!, wd·lluyocg Citv
Ur; ~.c.31:..!·~2
SMC, 40 San I!' :;;1 : A"-c.,:. ~:-1~~::~:"'-1
1 :':.1. o . .:.~1 -~
PTR11o. 1~C36n; nsni, r' ~cW1'!)"l'
LifetimeMemberI ..).~.,4-;); ':.1.1...Jll; tlt_~.
+
Annex “A”
San Miguel Pure Foods Company, Inc. and Subsidiaries
List of Products and/or Services as at December 31, 2011
San Miguel Foods, Inc.
POULTRY
Live Broilers
Dressed Chicken (Wholes)






Magnolia Fresh Chicken (Fresh Chilled & Frozen)
Magnolia Spring Chicken (Fresh Chilled & Frozen)
Magnolia Jumbo Chicken (Fresh & Frozen)
Magnolia Free Range Chicken (Fresh & Frozen)
Purefoods Supermanok (Fresh Chilled & Frozen)
Housebrand and Unbranded Chicken (Fresh Chilled & Frozen)
Cut-ups



Magnolia Chicken Cut-ups (Fresh Chilled & Frozen)
Housebrand and Unbranded Chicken Cut-ups
Magnolia Chicken Station Cut-ups (prepared on site)
Convenient Cuts

Magnolia Chicken Station convenient cuts (freshly prepared on site)
Marinated

Magnolia Chicken Station Cook Easy products (freshly prepared on site)
Giblets

Magnolia Chicken Giblets (Frozen Liver and Gizzard)
Export

Frozen Chicken Yakitori
MEATS
Hungry Juan










Roast Pork & Chicken
Crispy Chikinini
Pork BBQ
Fried Chicken
Chicken Isaw
Chicken Proven
Breaded Porkchop
Sisig
BBQ Liempo
Beef Tapa Toppings
29
+
Monterey Meatshop



Fresh Meats Primals (Pork, Beef, Lamb)
Fresh Meats Individual Portion Cuts (Pork, Beef, Lamb)
Ready-to-Cook Marinated Meats or Timplados (Pork, Beef, Lamb)
FEEDS
Animal & Aquatic Feeds

Hog Feeds
o B-MEG Premium
o B-MEG Dynamix
o Pureblend
o B-MEG Expert
o Bonanza
o B-MEG Essential
o Jumbo
o Maton

Poultry Feeds
o B-MEG Premium Layer
o Pureblend Layer
o B-MEG Expert Layer
o B-MEG Layer (Regular)
o B-MEG Essential Layer
o Pureblend Layer Breeder
o B-MEG Premium Broiler
o Pureblend Broiler
o Pureblend Special Broiler
o B-MEG Broiler (Regular)
o B-MEG Essential Broiler
o B-MEG Essential Broiler Breeder
o B-MEG Kabir Mash
o B-MEG Integra
o Jumbo Pullet

Duck Feeds
o B-MEG Duck Pellets
o Pureblend

Gamefowl Feeds
o B-MEG Derby Ace
o B-MEG Alertone
o B-MEG Fighting Cock Pellets

Quail, Pigeon & Ostrich Breeder Feeds
o B-MEG Quail Mash
o Pureblend Quail Feeds
o B-MEG Pigeon Feed Pellets
o B-MEG Ostrich Breeder Pellets

Horse Feeds
o B-MEG Horse Pellets
30
+

Aquatic Feeds
o B-MEG Super Premium Feeds
o B-MEG Premium Tilapia Feeds
o B-MEG Premium Bangus Feeds
o B-MEG Aquaration
o B-MEG Expert Fish Feeds
o B-MEG Prize Catch Feeds
o B-MEG Nutrifloat
o B-MEG Nutrisink
o B-MEG CE-90
o B-MEG NV-21
o Pinoy Sinking Feeds
o Pinoy Floating Feeds

Concentrates
o B-MEG Hog Concentrate 32%
o B-MEG Dynamix Pig Protein
o B-MEG Layer Protein
o B-MEG Broiler Protein
o B-MEG Pullet Concentrate
o B-MEG Cattle Lactating Concentrate
Animal Health Care Veterinary Medicines

Anti-infective - Water Soluble Preparation
o Amoxicillin 10% and 20%
o Cephalexin 20%
o Chlortetracycline 15% and 25%
o Cotrimoxazole 48%
o Doxycycline 20%
o Levamisole 20%
o Doxy+Tiam+Vit ABC
o Niclosamide+Levamisole

Supplement/Vitamins - Water Soluble Preparation
o Electrolytes
o Multivitamins
o Multivitamins +Minerals + Amino Acids
o Vitamin B Complex for broiler
o Vitamin B Complex for breeder
o Vitamin E 50%

Anti-Inflammatory/Anti-pyretic - Water Soluble Preparation
o Paracetamol 25%

Disinfectant
o Gluta-Quat
o Povidone Iodine

Injectables
o Norotyl LA
o Alamycin LA
o Multivitamins
o Iron-Vet
31
+

Oral Preparation
o First Pulse D

Feed Premixes
o Tiamulin 10%
o Swine Mineral Premix
o Poultry Mineral Premix
o Swine Vitamin Premix
o Poultry Vitamin Premix
o Cotrimazine 48%

Liquid Preparation
o Vitamin ADE
o Vitamin E 60%
o Norfloxacin 20%
San Miguel Mills, Inc.
Hard Wheat Flour





King
Emperor
Monarch
Pacific
Harina de Pan de Sal
Soft Wheat Flour



Queen
Countess
Red Dragon
Specialty Flour





Baron All-Purpose Flour
Baron Siopao Flour
Princess Cake Flour
Golden Wheat Whole Wheat Flour (Course & Fine)
Fine Wheat Bran
Customized Flour






Royal Premium Noodle Flour
Royal Special Noodle Flour
Prince Miki Flour
Prince Noodle Flour
Prince Wrapper Flour
Emperor High Gluten Flour
32
+
Premixes




Mix’ n Bake
o Brownie Mix
o Cookie Mix
o Crinkle Mix
o Muffin Mix
o Pan de Sal Mix
Mix’ n Fry
o Pancake & Waffle Mix
o Yeast-Raised Doughnut
Mix’ n Steam
o Siopao Mix
o Puto Mix
Retail Mixes
o Magnolia Pancake Plus with Syrup (Maple, Chocolate, Strawberry)
o Magnolia Pancake & Waffle Mix (500g and 200g)
Bakery Ingredients


Zuprim Bread Improver
Bake Best Baking Powder
Services



Product Customization
Recipe Development
Technical Training in Flour Applications
The Purefoods-Hormel Company, Inc.
REFRIGERATED MEATS
Hotdogs






Purefoods Tender Juicy Hotdog (Classic, Jumbo, Kingsize, Cocktail, Cheesedog, Chick ‘n Cheese)
Purefoods Star Hotdog (Regular, Jumbo, Footlong, Cheezeedog)
Purefoods Deli Franks (German, Angus Beef, Smoked Turkey, Beef, Cheese)
Purefoods Beefies Hotdog (Classic, Jumbo, Lots A Cheese)
Purefoods Chick’N Tasty Chicken Hotdog (Classic, Jumbo, Cheese, Tasty Franks)
Vida Hotdog (Classic, Jumbo)
Battered, Breaded & Fried





Purefoods Chicken Fun Nuggets
Purefoods Porkchoplets
Purefoods Crisp ‘n Juicy Drummets
Purefoods Crisp ‘n Juicy Chicken Burger
Purefoods Stuffed Nuggets (Bacon & Cheese, Chicken & Cheese)
Bacon






Purefoods Honeycured Bacon
Purefoods Maple-flavored Bacon
Purefoods Lean ‘N Mean Bacon
Purefoods Bits ‘N Ends Bacon
Hormel Bacon
Vida Bacon
33
+
Sliced Hams






Purefoods Sweet Ham
Purefoods Cooked Ham
Purefoods Deli Cold Cuts (Salami, Spiced Ham, Bologna)
Purefoods Fiesta Ham Slices
Ham Selections (Sweetened, Bologna, Spiced)
Vida Ham
Whole Hams








Purefoods Fiesta Ham
Purefoods Fiesta Ham Smoked Bone-in
Purefoods Tasty Ham
Purefoods Jamon de Bola
Purefoods Chinese-Cooked Ham
Purefoods Brick Ham
Purefoods Pear-Shaped Ham
Iberico Jamon Royale
Monterey Line

Monterey Sisig (Filipino Favorites)
Ready-to-Cook Magnolia Line

Magnolia Golden Crispy (Classic)
Tender Cuts

Fully-cooked/ Ready-to-Heat Line
o Purefoods Tender Cuts Asado
GROCERY PRODUCTS
Corned Meats



Purefoods Corned Beef (Classic, Hash, Chili)
Purefoods Chunkee Corned Beef
Purefoods Carne Norte
Luncheon Meats




Purefoods Luncheon Meat
Purefoods Chinese Luncheon Meat
Purefoods Beef Loaf
Purefoods Chicken Luncheon Meat
Sausages


Purefoods Vienna Sausage
Purefoods Chicken Vienna Sausage
Canned Viands






Purefoods Sizzling Delights Sisig
Ulam King - Saucy Asado
Ulam King - Saucy Caldereta
Ulam King - Saucy Lechon Paksiw
Ulam King - Saucy Menudo
Ulam King - Saucy Mechado
34
+
Specialty Grocery Products



Purefoods Liver Spread
Purefoods Spaghetti Meat Sauce
Purefoods Chorizo Filipino
Magnolia, Inc.
BUTTER, MARGARINE & CHEESE
Butter


Magnolia Gold (Salted, Unsalted) and Magnolia Gold Lite
Magnolia Butter-licious!
Refrigerated Margarine



Dari Crème (Classic, Buttermilk) and Dari Crème Lite
Buttercup
Baker’s Best
Non-Refrigerated Margarine



Star Margarine (Classic, Sweet Blend, Garlic, Vanilla, Chocolate)
Delicious Margarine
Magnolia Non-Refrigerated Margarine (Food Service)
Cheese








Magnolia Cheezee (Block and Spread)
Daily Quezo
Magnolia Quickmelt
Magnolia Cheddar
Magnolia Cream Cheese (Block and Spread)
Magnolia Christmas Cheeseballs (Quezo de Bola, Gold Edam) - Seasonal
Magnolia Cheese Sauce (Food Service)
Magnolia Sharp-flavored Melting Cheese (Food Service)
JELLY SNACKS AND DESSERTS





JellYace Fruiteez
JellYace Bites
JellYace Snackers
JellYace Suki Pack/ Gara Jar/ Buhos Pack
Magnolia Best Fruits Jam (Strawberry, Pineapple, Apple Cinnamon, Pink Guava, Mango)
MILK





Magnolia Chocolait
Magnolia Chocolait Choco Magic (Mocha, Melon, Strawberry, Rocky Road, Cookies & Cream)
Magnolia Purefresh Natural Cow’s Milk
Magnolia Purefresh Low Fat Cow’s Milk
Magnolia Full Cream Milk
SPECIALTY OILS




Magnolia Nutri - Oil Coconut Oil
Magnolia Nutri - Oil Palm Oil
Magnolia Pure - Oil
Primex Shortening (Food Service)
35
+
ALL-PURPOSE CREAM

Magnolia All-Purpose Cream
SALAD AIDS

Magnolia Real Mayonnaise (Food Service)
ICE CREAM
Bulk Ice Cream







Magnolia Classic (Vanilla, Chocolate, Mocca, Strawberry, Ube, Mango, Caramel)
Magnolia Classic Medley (Black & White, Dare Devil, Bumble Bee)
Magnolia Gold Label (Double Dutch, Rocky Road, Cookies N’ Cream, Dulce de Leche, Creamy HaloHalo Delight, Macapuno Ube Ripple, Buko Salad Royale, Quezo Primero, Choco Chip Cookie Dough,
Coffee Vienna, Buttery Sweet Corn, Ube Quezo, Mangoes & Cream)
Magnolia President’s Tub (Butter Pecan, Blueberry Cheesecake, Vanilla Almond Fudge, Belgian
Chocolate Truffle)
Magnolia Sorbetes (Ube, Tsokolate, Keso)
Magnolia Chocolait Ice Cream
Magnolia No Sugar Added (Vanilla, Chocolate, Cheese, Cafe Latte)
Frozen Novelties






Magnolia Spinner (Chocolate, Vanilla, Caramel, Hazelnut)
Magnolia Party Cups (Vanilla, Chocolate, Ube, Mango)
Magnolia Sweetie Bites (Cookie Craze, Cheesy Bliss)
Magnolia Fun Bar (Choco Loco, Cool Bubblegum, Cotton Candy)
Magnolia Popsies (Orange Chill, Choco Cool)
Magnolia Pinipig Crunch (Vanilla Crisp and Sweet Corn)
Opportunistic Products

Magnolia Limited Editions (Seasonal)
San Miguel Gold Label (For Export)



SMGL Mellorine - USA
SMGL Frozen Dessert - Canada
SMGL Ice Confectionery - Australia, Canada, Italy, United Kingdom
San Miguel Super Coffeemix Co., Inc.
COFFEE





San Mig Coffee Regular 3-in-1 Coffeemix- Mild, Original, Strong & Extra Strong
San Mig Coffee Sugar Free 3-in-1 Coffeemix- Mild, Original, Strong & Extra Strong
Grandeur Premium 3-in-1 Coffeemix- Original, Hazelnut, Italian Original & Mocha
San Mig Coffee 100% Premium Instant Black Coffee
San Mig Coffee Pro-Health Line - Pro-Fiber & Pro-Slim
36
+
Great Food Solutions (GFS)
Value-Added Meats/Poultry








Primo D’ Italia TM Pizza Topping Line
Deli Ready TM Sliced Deli Meats Line
Tender Cuts TM Product Line
Fast N’ Easy Prepared Meals and Cuts
Purefoods TM Foodservice Meatballs, Chickenballs and Burgerballs
Purefoods TM Corned Beef in Chubs - 1 kg
Purefoods Corned Beef Blue Label Institutional Corned Beef 800g can
Purefoods TM Breakfast Sausages
Flour and Premixes
Traded Product



Mozarella Cheese
Stocks and Desserts
Balut, Penoy and Hard Boiled Egg
GFS Commissary Products






Heat n’ Serve “Cook Express”
Breaded, Battered and Fried
Patties
Marinated Value-Added Meats
Sauces and Dips
Ready-to-Eat Snacks
Smokey’s



Hotdog Sandwiches
Pizzas
Burgers
GFS Services







Product Customization
Menu & Recipe Development
Packing Development
Food Safety Trainings and Consultancy
Quality Assurance Services
Food Laboratory Analysis
Marketing Services and Promotional Tie-Ups
P.T. San Miguel Pure Foods Indonesia
Bakso (Meat Balls)




Farmhouse (Beef, Chicken)
Vida (Beef)
Vida Saving (Beef)
Purefoods Choice (Beef)
37
+
Sausages






Farmhouse (Beef, Chicken, Beef Cocktail, Beef Frankfurter, Beef Weiner, Fried Beef, Fried Chicken,
Cheese Jumbo, Hot & Spicy)
FunKidz Chubbies (Cheese)
Gusto (Pork Breakfast, Pork Cabanosi, Pork Cocktail, Pork Hotdog)
Purefoods Choice (Beef, Chicken, Beef Jumbo, Beef Weiner, Beef Black Pepper, Beef Pepper,
Chicken Pepper, Bakery)
Vida (Beef, Chicken, Frank, Weiner, Fried)
Vida Saving (Beef, Chicken)
Retort Sausage

Vida Cociz (Chicken)
Cold Cuts



Farmhouse (Beef Pepperoni, Chicken Roll, Garlic Salami, Smoked Beef, Smoked Chicken)
Gusto (Gammon Ham, Smoked Ham, Back Bacon, Cooked Ham, Smoked Pork Loin, Steaky Bacon)
Purefoods Choice (Chicken Chunk, Minced Beef, Minced Chicken Teriyaki, Smoked Beef, Meat
Block Papz)
Luncheon Burger




Farmhouse (Beef, Chicken, Cheese Burger)
Purefoods Choice (Beef, Chicken, Bakery Burger, Mini Burger)
Vida (Beef, Mini Burger)
Vida Saving (Beef)
Nugget

FunKidz Nuggies (Chicken)
Value Added

Farmhouse Corned Beef
Services

Customization
San Miguel Hormel (Vn) Co., Ltd.
Feeds Business


BMEG (Hog, Poultry and Aquatic Feeds)
Pureblend (Hog and Poultry Feeds)
Live Pigs
Hormel Monterey Meatshops


Pork
Beef
Value-Added Meats


Le Gourmet (Bacon, Ham, Sausages, Traditional Meats, Pate, Mixed Cuts)
Du Moc (Traditional Meats)
38
+
Annex “B”
Number of Employees of San Miguel Pure Foods Company, Inc. and its Subsidiaries
As at December 31, 2011
Level
Union
Expiration of CBA
Headcount
(Economic)
Rank and File
SMFI
MPEU - PTGWO
MPPPMEU - PTGWO
SMFIEU - PTGWO
SMMI
PFMEU
MAGNOLIA
PDPCEU IBM 85 - Cavite
PDPCWU IBM 47 - Cavite
PTSMPFI
Federasi Serikat Pekerja Seluruh
Indonesia sector Rokok,
Tembakau, Makanan & Minuman
(FSPSI RTMM)
June 30, 2013
June 30, 2011
June 30, 2013
48
31
110
July 31, 2011
34
July 31, 2011
February 28, 2011
66
104
December 31, 2011
126
December 31, 2011
780
SMHVN
Trade Union Foundation of
SMHVN
Non-Unionized/Exempt
Total Rank & File
Supervisors
Managers
Executives
TOTAL
1,862
3,161
288
217
40
3,706
39
+
Annex “C”
PROPERTIES
A. Company-Owned
Address
MAIN OFFICE
JMT Corporate Condominium Building
ADB Avenue, Ortigas Center, Pasig City
ADMINISTRATION OFFICES
Feeds & Poultry Iloilo Office
Melliza St., Brgy. Zamora, Iloilo City
MANUFACTURING PLANTS/FACILITIES
Processed Meats Cavite Plant
Mabini Flourmill
Tabangao Flourmill
Pampanga Poultry Dressing Plant
Cebu Poultry Dressing Plant
Davao Poultry Dressing Plant
Feeds Spent Grain Drying and Rendering Plant
Feeds Spent Grain Drying Plant
Laguna Feedmill
Bulacan Feedmill
Tarlac Feedmill
B-Meg Pangasinan Feedmill
Isabela Feedmill
Bataan Feedmill
General Santos Feedmill
Cagayan de Oro Feedmill
Bukidnon Feedmill
Magnolia Plant
Magnolia Ice Cream Plant
Processed Meats Vietnam Plant
Governor’s Drive, Bo. De Fuego, Gen. Trias, Cavite
Brgy. Bulacan, Mabini, Batangas
Brgy. Tabangao, Batangas City
SMC Complex, Bo. Quebiawan, San Fernando, Pampanga
Brgy. Canduman, Mandaue City
Toril, Sirawan, Davao City
SMC Complex, San Fernando, Pampanga
Mc Arthur Hi-Way, Valenzuela City
Brgy. Malitlit, Sta. Rosa, Laguna
Brgy. Marmale, San Miguel, Bulacan
Luisita Industrial Park, San Miguel, Tarlac City
Km. 189, Brgy. Bued, Binalonan, Pangasinan
Bo. Soyung, Echague, Isabela
Mindanao Avenue, cor 10th Avenue, BEZ, Mariveles, Bataan
SMPFC Cmpd., Rivera St., Brgy. Calumpang, Gen. Santos City
Brgy. Baloy, Tablon, Cagayan de Oro City
Milmar Cpmd., Impalutao, Impasug-ong, Bukidnon
Governor’s Drive, Bo. De Fuego, Gen. Trias, Cavite
Sta. Rosa Industrial Complex, Brgy. Pulong Sta. Cruz, Sta. Rosa,
Laguna
Banay-banay, Cabuyao, Laguna
Governor’s Drive, Langkaan, Dasmariñas, Cavite
Jl. Raya Bogor Km. 37 Sukamaju, Cilodong, Depok, Indonesia
Cau Sat Hamlet, Lai Hung Village, Ben Cat, Binh Duong,
Vietnam
An Tay, Ben Cat, Binh Duong, Vietnam
FARMS/HATCHERIES/COLD STORAGE
Calamba Hatchery
Bulacan Hatchery
Orion Experimental Training Farm
Grandparent Hatchery
Calauan Experimental Farms
Angat Hog Farm
Alfonso Hog Farm
Quilo Hog Farm
Sta. Maria Hog Farm
Isabela Cattle Farm
Polomolok Cattle Farm
Brgy. Licheria, Calamba City
Km. 37, Pulong Buhangin, Sta. Maria, Bulacan
Brgy. General Lim, Orion, Bataan
Kapitan Bayong, Impasug-ong, Bukidnon
SMC Cmpd., Brgy. Mabacan, Calauan, Laguna
Brgy. Pulong Yantok, Angat, Bulacan
Buck Estate & Brgy. Amuyong, Alfonso, Cavite
Lot No. 2489, Quilo, Ibaan, Batangas
Brgy. Guyong, Sta. Maria, Bulacan
Bo. San Luis, Cauayan, Isabela
Matinao, Polomolok, South Cotabato
Cabuyao Poultry Plant
Monterey Fresh Meats Plant
Processed Meats Indonesia Plant
Bin Duong Feedmill and Farm
40
+
Address
FARMS/HATCHERIES/COLD STORAGE
Calamias Hog Farm
Lipa Hog Farm
San Miguel Farm
Sumilao Farm
San Pablo Poultry Farm
Processed Meats Marikina Warehouse
Processed Meats Fairview Cold Storage
Otis Warehouse
Tulay na Patpat, Ibaan, Batangas
Barrio San Jose Patay, Lipa, Batangas
Magmarale, San Miguel, Bulacan
San Vicente, Sumilao, Bukidnon
San Rafael, San Pablo, Laguna
JP Rizal St., Bo. San Roque, Marikina City
34 Consul St., Fairview Park Subdivision, Fairview, Quezon City
Mendiola Ext., Otis, Pandacan, Manila
B. Leased Properties
MANUFACTURING PLANTS/FARM
B-Meg Pangasinan Feedmill (lot only)
Bataan Feedmill (lot only)
Pampanga Poultry Dressing Plant (lot only)
Great Food Solutions Commissary
Orion Experimental Training Farm (lot only)
Cagayan de Oro Feedmill (lot only)
Polomolok Cattle Farm (lot only)
Km. 189, Brgy. Bued, Binalonan, Pangasinan
Mindanao Avenue, cor 10th Avenue, BEZ, Mariveles, Bataan
SMC Complex, Bo. Quebiawan, San Fernando, Pampanga
Lapu-Lapu Ave. cor. North Bay Blvd., Navotas, Metro Manila
Brgy. General Lim, Orion, Bataan
Brgy. Baloy, Tablon, Cagayan de Oro City
Matinao, Polomolok, South Cotabato
FORESHORE (Flour)
Mabini
Tabangao
Brgy. Bulacan, Mabini, Batangas
Brgy. Tabangao, Batangas City
WAREHOUSE/SALES & ADMINISTRATION OFFICES
San Miguel Food Group Admin Office
SMFG Cmpd., Legaspi cor Eagle St., Ugong, Pasig City
San Miguel Food Group Purchasing Office
4F JMT Corp. Cond., ADB Avenue, Ortigas Center, Pasig City
Food Group Consolidated Warehouse
403 F. Legaspi Street, Maybunga, Pasig
Flour
Bulacan Warehouse
Sta. Rita, Guiguinto, Bulacan
Poultry
Pampanga
RRK Building, Jose Abad Santos Ave., Dolores, City of San
Fernando, Pampanga
Polytrade Warehouse
Lagundi, Mexico, Pampanga
Pangasinan
Brgy. San Vicente, San Jacinto, Pangasinan
Bataan
Brgy. Tumalo, Hermosa, Bataan
Isabela
Purok 5, Brgy. Rizal, Santiago City, Isabela
Zambales
Brgy. Mangan-vaca, Subic, Zambales
VAO Office
San Roque, Sto. Tomas, Batangas
Laguna
3rd Flr Dencris Bus. Center, Brgy. Halang, Calamba City, Laguna
MIPC Office
Anderson Bldg. II, Parian, Calamba City, Laguna
Quezon
Brgy. Lagalag, Tiaong, Quezon
Albay
Brgy. Anislag, Daraga, Albay
Bohol
Albur Dressing Plant, Eastern Poblacion, Alburquerque, Bohol
Leyte Sales Office
Robledo Compound, Real St., Brgy. Campitik, Palo, Leyte
Pavia Warehouse
19 B San Jose St., Cogon Dist., Tagbilaran City
Bacolod
Door 3 & 4, VCY Center, Hilado Extension, Kamagong St.,
Bacolod City
Dumaguete
2F THS Bldg, Real St. Brgy. 7, North Road Hi-way, Dumaguete
City, Negros Oriental
41
+
Address
WAREHOUSE/SALES & ADMINISTRATION OFFICES
Poultry
LTE Transport Warehouse
Dumaguete City, Negros Oriental
San Roberto Warehouse
Hacienda Maquina, Silay City, Negros Occidental
Tacloban
Brgy. 79, Marasbaras, Tacloban, Leyte
Cebu
6th Flr Clotilde Bldg., Casuntingan, Mandaue City
Ormoc
Door 4, 2nd Flr Tan Bldg., Lilia Ave., Cogon, Ormoc
Davao
2nd Flr. ARC Bldg., cor Dakudao Ave. and Lakandula St., Agdao,
Davao City
Bukidnon
Gellor Bldg., Propia St., Malaybalay City
Cagayan de Oro
3rd Flr, HBL Bldg., Gusa, Cagayan de Oro City
Zamboanga
Door #2, Nuño Bldg, MCLL Highway, Guiwan, Zamboanga City
Ozamis
Mialen, Clarin, Misamis Occidental
Butuan
Km 9, Tag-ibo, Butuan City
Feeds
Bulacan Sales Office
Cabiawan St., Banga 1st, Plaridel, Bulacan
Cebu Office
Ground Flr., GSMI Bldg., Subangdaku, Mandaue City
Bacolod Sales Office
JA Building, San Patricio, Brgy. Banago, Bacolod City
Butuan Sales Office
Brgy. 23, Langihan Road, Butuan City
Tacoma
Tacoma & 2nd St., Port Area, Manila
Nawaco
Port Area, Manila
PNOC
Mainaga, Mabini, Batangas
G1 Airmoving Logistics
3270 Merville, MIA District, Brgy. 201, Pasay City
NFA Isabela
Northern Philippine Grains Complex,Echague, Isabela
Marilao Warehouse
Bo. Loma de Gato, Marilao, Bulacan
Intercity Warehouse
Bocaue, Bulacan
William Sim
Nancayasan, Urdaneta City, Pangasinan
Alejo Sim
Nancayasan, Urdaneta City, Pangasinan
JNPL Morning Star Warehouse
Brgy. Rizal, Moncada, Tarlac
YKK Warehouse
Mabini, Moncada, Tarlac
Warensburg Warehouse
Mariveles, Bataan
Paddad Warehouse
Brgy. Victoria, Alicia, Isabela
Masaya Warehouse
Brgy. Masaya, Rosario, Batangas
Malitlit Warehouse
Brgy. Malitlit, Sta. Rosa, Laguna
CRM Warehouse
San Fermin and Minante, Cauayan, Isabela
Fortune Warehouse
Bacnotan, La Union
UGMC Warehouse
Cabatuan, Isabela
Isarog Logistics & Property Management Corp.
Pili, Camarines Sur
Queen Elizabeth Trading
Santiago, Pili, Camarines Sur
Pili-Queen Elizabeth Warehouse
Santiago, Pili, Camarines Sur
Pili-Cosay Warehouse
Maharlika Hi-way, Santiago, Pili, Camarines Sur
PKS Shipping
Sitio Tawagan, Tayud Consolacion, Cebu
San Miguel Shipping and Lighterage
Looc, Mandaue City, Cebu
Rocksun Warehouse
Marasbaras, Tacloban City
5’s Feed Milling Corp.
Brgy. Loboc, Lapaz, Iloilo City
SIAIN Warehouse
Brgy. Loboc, Lapaz, Iloilo City
Bassett Land, Inc.
Sitio Tawagan, Consolacion, Cebu
MARBEMCO
Marvick Compound, Sitio Tawagan, Consolacion, Cebu
LMDC Enterprises Co.
Brgy. Guaan, Leganes, Iloilo City
Cabigon Mktg. Realty Dev. Corp.
87 Senator Enage St., Tacloban City
42
+
Address
WAREHOUSE/SALES & ADMINISTRATION OFFICES
Feeds
KIMWA Warehouse
KIMWA Cmpd., Baloy, Cagayan de Oro City
MITIMCO Warehouse
Mitimco Compound, Baloy, Cagayan de Oro City
CATIMCO Warehouse
Puntod, Cagayan de Oro City
Anakciano Warehouse
Valencia City, Bukidnon
Manzano Warehouse
Puntod, Cagayan de Oro City
Tan Warehouse
Lam-an, Ozamiz City
Western Feedmill Corp.
Coaco Road, Sasa, Davao City
MIMIJOE
Ladislawa Village, Buhangin, Davao City
LSL Multi-Serve Company
Km 8 Pareñas Compound, Diversion Road, Buhangin, Davao
City
Greenhills Milling Corporation
MCLL Highway, Culianan, Zamboanga City
GFI Warehouse
Polomolok, South Cotabato
Fresh Meats
Pampanga Livestock Selling Station
Sta. Barbara, Bacolor, Pampanga
Batangas Livestock Selling Station
Brgy. San Felix., Sto. Tomas, Batangas
Tacloban Office
17 Justice Romualdez, Tacloban City
Mandaue Office
SFI Bldg., S. E. Jayme St., Pakna-an, Mandaue City. Cebu
Iloilo Office
F. Palmares St., Passi City, Iloilo
Jaro Office
Sambag, Jaro, Iloilo City
Misamis Oriental Office
Sta. Ana, Tagoloan, Misamis Oriental
South Cotabato Office
Purol 3, Brgy. Glamang, Polomolok, South Cotabato
Davao Office
Marapangi, Toril, Davao City
Bukidnon Live Operations Office
Gellor Bldg., Propia St., Malaybalay City
Great Food Solutions
Cebu Office
PSO Bldg., SMC Complex, Highway, Tipolo, Mandaue City
Davao Office
2nd Flr. ARC Bldg., cor Dakudao Ave. and Lakandula St., Agdao,
Davao City
San Miguel Integrated Sales
Pasig Office
El Magnifico Bldg., No. 19 General Atienza St., San Antonio
Village, Pasig City
Pampanga Office
2F Rickshaw Arcade, Greenfield Square, Km. 76, Mc Arthur
Highway, Sindalan, San Fernando City, Pampanga
Laguna Office
Brgy Pulong Sta. Cruz, Sta. Rosa, Laguna
Bacolod Office
William Lines Warehouse, Magsaysay cor. Araneta Sts.,
Singcang, Bacolod City
Iloilo Office
YK Marine Bldg., Iloilo Fishing Port Complex, Brgy. Tanza,
Bay-bay, Iloilo City
Mandaue Office
2nd Flr Planters Bldg., West Office, SMC Shipping & Lighterage
Comp., Ouano Wharf, Mandaue City, Cebu
Tacloban Office
Barangay No. 91, Abucay, Tacloban City
Cagayan de Oro Office
Door 5, Banyan Place, Alwana Compound, Cugman, Cagayan de
Oro City
Davao Office
Door #6 Plug Holding Cmpd., R. Castillo St., Agdao, Davao City
San Miguel Pure Foods Indonesia
Bandung Office
3rd Flr Jl. Soekarno Hatta No. 606 Bandung
Surabaya Office
Perumahan Citra Harmoni Block C1 No. 25 Trosobo Sidoarjo
Jawa Timur
Yogyakarta Office
Jl. Palagan Tentara Pelajar Gg. Gambir No. 100B, SleamanYogyakarta
43
+
Address
WAREHOUSE/SALES & ADMINISTRATION OFFICES
San Miguel Hormel Vietnam
Ho Chi Minh Admin Office
6F Mekong Tower, 235-241 Ward 13, Tan Binh, Ho Chi Minh
City
Long An Sales Office
High Way 1A, 1 Hamlet, My Yen, Ben Luc, Long An
Ho Chi Minh Sales Office
Tan Thanh Tay, Cu Chi District, Ho Chi Minh City
Tay Ninh Sales Office
Long Binh, Long Thanh Nam, Hoa Thanh, Tay Ninh
Chau Thanh Sales Office
Phuoc Hoa, Phuoc Thanh, Chau Thanh, Tien Giang
Go Cong Tay Sales Office
Tan Thanh, Thanh Nhut, Go Cong Tay, Tien Giang
Trang Bom Sales Office
39/2 An Hoa, Tay Hoa, Trang Bom, Dong Nai
Xuan Loc District Sales Office
Bao Hoa Village, Xuan Loc District, Dong Nai
Tan Phu Sales Office
160 Tho Lam 2, Phu Xuan, Tan Phu, Dong Nai
Vinh Long Sales Office
194/2 Pham Hung St., Ward 9, Vinh Long
Soc Trang Sales Office
Dong Hai, Dai Hai, Ke Sach, Soc Trang
Tra Vinh Sales Office
Xom Trang, Nguyet Hoa, Chau Thanh, Tra Vinh
Bac Ninh Sales Office
Dinh Bang Village, Tu Son District, Bac Ninh
Bao Loc Sales Office
1023 Tran Phu Road, Loc Tien, Bao Loc,Lam Dong
Duc Trong Sales Office
5 Thon An Hiep I, Lien Hiep, Duc Trong, Lam Dong
Dak Lak Sales Office
Tan Hoa Ward, Buon Ma Thuoc City, Dak Lak
Binh Dinh Sales Office
150 Tran Phu Street, Tuy Phuoc Town, Tuy Phuoc District, Binh
Dinh
Ben Tre Sales Office
Phu Nhon, Thi Tran Chau Than, Cau Thanh, Ben Tre
Ha Noi Sales Office
116 Thanh Liet, Thanh Tri, Ha Noi
COLD STORAGE/REEFER VANS
Poultry
Vifel Ice Plant and Cold Storage Inc.
Estrella Ice Plant and Cold Storage
Diaz Dressing Plant
Kenwood Construction
Lolim Dressing Plant
Abanilla Dressing Plant
ARS Dressing Plant
Aces AMC Integrated Poultry Processing
Corporation
New Vreed Dressing Plant
Integrated Meat and Poultry Processing, Inc.
Adriano Dressing Plant
Mayharvest Corp.
Poltyrade Sales and Services, Inc.
SG Farms
V and F Ice Plant and Cold Storage, Inc.
Gallintina Industrial Corp.
Palmas Agribusiness Inc.
Johanna’s Chicken Processing Center
Silangan Poultry Farms
Cariño & Sons Agri-Dev’t Inc.
MKC Poultry Dressing Plant
Technofreeze, Inc.
Malogo Agri Ventures & Management Service
Corporation
First Farmers Food Corp.
Corden Agro Industries
FBIC Reefer Corporation
North Bay Blvd., Navotas, Metro Manila
Valenzuela, Metro Manila
Km. 104, Brgy. Tabuating, San Leonardo, Nueva Ecija
Brgy. San Vicente, San Jacinto, Pangasinan
Brgy. Mabilao, San Fabian, Pangasinan
Laoag, Ilocos Norte
Purok 5, Brgy. Rizal, Santiago City, Isabela
Km. 342, Purok III, Garit Norte, Echague, Isabela
Brgy. Mangan-vaca, Subic, Zambales
Brgy. Tumalo, Hermosa, Bataan
95 Landicho St., Brgy. Balasing, Sta. Maria, Bulacan
Caysio, Sta. Maria, Bulacan
Lagundi, Mexico, Pampanga
San Simon, Pampanga
San Roque, Sto. Tomas, Batangas and Antipolo
GIC Compound, Brgy. Tagbong, Pili, Camarines Sur
Brgy. Anislag, Daraga, Albay
Brgy. Bocohan, Lucena City and Brgy. Lagalag, Tiaong, Quezon
Brgy. San Jose and Brgy. Kayumangi, Lipa City, Batangas
Brgy. Aya, San Jose, Batangas
Brgy. Tagburos, Puerto Princesa City, Palawan
114 East Science Drive, Laguna Techno Park, Biñan, Laguna
Hacienda Binunga, Brgy. Guinhalaran, Silay City, Negros
Occidental
Brgy. Dos Hermanos, Talisay City, Negros Occidental
Brgy. Tungay, Sta, Barbara, Iloilo
Dumaguete City, Negros Oriental
44
+
Address
COLD STORAGE/REEFER VANS
Poultry
Quest Blast Freezing and Cold Storage Corp.
Big Blue Logistics
Coldlink Asia Logistics Corp.
3G Logistics and Storage, Inc.
Tsumetai Corp.
Cebu Sherilin Agro-Industrial Corp.
Mindanao Coolers Corporation
Elim Dressing Plant
Green Pine Dressing Plant
St. Jude Dressing Plant
MK Business Ventures
ECA Resources, Inc.
Davao Fresh Foods Corporation
Sirawan Ice Plant
Polar Bear Freezing & Storage
Polar Bear Cold Storage
Fresh Meats
Koldstor Centre Philippines, Inc.
Icon Reefer Corp.
METS Logistics, Inc.
Kenwood Construction
Rombe Philippines, Inc.
V& F Ice Plant & Cold Storage
Polytrade Sales & Services, Inc.
Supreme Aqua Resources Corporation
Sunpride Foods, Inc.
Big Blue Logistic Corporation
3G Logistics and Storage, Inc.
Jentec Storage, Inc.
Everest Cold Storage, Inc.
Polar Bear Freezing & Storage
Polar Bear Cold Storage
ECA Resources, Inc.
PF-Hormel
Vifel Ice Plant & Cold Storage, Inc.
V& F Ice Plant & Cold Storage
Koldstor Centre Philippines, Inc.
METS Logistics, Inc.
Estrella Ice Plant and Cold Storage
UTS Logistics & Distribution Co., Inc.
Royal Cargo Combined Logistics, Inc.
Big Blue Logistics Corporation
Magnolia
Koldstor Centre Philippines, Inc.
San Miguel Pure Foods Indonesia
PT Hagajaya Kemasindo Sarana
Brgy. Canduman, Mandaue City, Cebu
Brgy. Pakna-an, Mandaue City, Cebu
PC Suico St., Tabok, Mandaue City, Cebu
Hernan Cortes St., Tipolo, Mandaue City, Cebu
Cabancalan, Mandaue City. Cebu
Brgy. Pangdan, Naga City, Cebu
Dacudao Cmpd., Corrales Ext., Cagayan de Oro City
Mialen, Clarin, Misamis Occidental
Km 9, Tag-ibo, Butuan City
Mohon, Tagoloan, Misamis Oriental
Boalan, Zamboanga City
Brgy. Banisil, Tambler, General Santos City
Km. 20 Los Amigos, Tugbok, Davao City
Sirawan, Toril, Davao City
Phividec Industrial Estate, Sugbongcogon, Tagoloan, Misamis
Oriental
Davao Fishing Port Complex, Brgy. Daliao, Toril, Davao City
Anabu Hills Industrial Estate, Anabu I-C, Imus, Cavite
Unit 526 5F Valero Plaza Building, Salcedo Village, Makati City
and F. Palmares St., Passi City, Iloilo
Barrio Bancal, Carmona, Cavite
Brgy. San Vicente, San Jacinto, Pangasinan
Dampol 1st, Pulilan, Bulacan
Antipolo, Metro Manila
Lagundi, Mexico, Pampanga
17 Justice Romualdez St., Tacloban City
SFI Bldg., S.E. Jayme St., Pakna-an, Mandaue City, Cebu
S. E. Jayme St., Pakna-an, Mandaue City, Cebu
Hernan Cortes St., Tipolo, Mandaue City
Diit Rd., Brgy. 99, Tacloban City
Sambag, Jaro, Iloilo City
Phividec Industrial Estate, Sugbongcogon, Tagoloan, Misamis
Oriental
Davao Fishing Port, Brgy. Daliao, Toril, Davao City
Brgy. Banisil, Tambler, General Santos City
C-3 Road cor. North Bay Blvd., Navotas, Metro Manila
437 San Roque, Sto. Tomas, Batangas
Anabu Hills Industrial Estate, Anabu I-C, Imus, Cavite
Governor’s Drive, Bo. Bancal, Carmona, Cavite
Lawang Bato, East Canumay, Valenzuela, Bulacan
New Cavite Industrial Center, Stateland Subd., Brgy.
Manggahan, Gen. Trias, Cavite
7001 Emilio Aguinaldo Hi-way, Salitran1, Dasmariñas, Cavite
Zuellig Ave., North Reclamation Area, Subangdaku, Mandaue
City
Anabu Hills Industrial Estate, Anabu I-C, Imus, Cavite
Graha Cempaka Mas Block C-28, Jl. Letjend Suprapto,
Jakarta Pusat
45
+
Address
COLD STORAGE/REEFER VANS
San Miguel Pure Foods Indonesia
Alex H
Tiga Raksa Satria
PT. Sewu Segar Nusantara
Joko P
DEPOT
San Miguel Integrated Sales
Cebu
Jl. Raya Bogor Km. 37 Sukamaju, Cilodong, Depok, Indonesia
3rd Flr. Jl. Soekarno Hatta No. 606 Bandung
Jl. Beringin Bendo Kawasan Industri Ragam II Kav. 8 RT 06/08
Taman Sepayang Surabaya
Jl. Ring Road Utara Pandega Patma DP 16D Yogyakarta
SMC-SL Compound, Ouano Wharf, Brgy. Looc, Mandaue City
46
Annex “D”
MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL POSITION AND
FINANCIAL PERFORMANCE
This discussion summarizes the significant factors affecting the consolidated financial position,
financial performance and cash flows of San Miguel Pure Foods Company, Inc. (“SMPFC” or the
“Company”) and its subsidiaries (collectively referred to as the “Group”) for the three-year period
ended December 31, 2011. The following discussion should be read in conjunction with the attached
audited consolidated statements of financial position of the Group as atDecember 31, 2011 and 2010,
and the related consolidated statements of income, comprehensive income, changes in equity and cash
flows for each of the three years in the period ended December 31, 2011. All necessary adjustments to
present fairly the Group’s consolidated financial position as at December 31, 2011 and the financial
performance and cash flows for the year ended December 31, 2011 and for all the other periods
presented, have been made.
I.
BASIS OF PREPARATION
Statement of Compliance
The consolidated financial statements have been prepared in compliance with
Financial Reporting Standards (PFRS). PFRS includes statements named PFRS and
Accounting Standards (PAS) and Philippine Interpretations from International
Reporting Interpretations Committee (IFRIC), issued by the Financial Reporting
Council (FRSC).
Philippine
Philippine
Financial
Standards
Basis of Measurement
The consolidated financial statements of the Group have been prepared on a historical cost basis
of accounting, except for the following:




derivative financial instruments are measured at fair value;
available-for-sale (AFS) financial assets are measured at fair value;
defined benefit liability is measured as the aggregate of the present value of the defined
benefit obligation and unrecognized net actuarial gain or loss less any unrecognized past
service costs and the fair value of plan assets; and
agricultural produce are measured at fair value less estimated costs to sell at the point of
harvest.
Functional and Presentation Currency
The consolidated financial statements are presented in Philippine peso, which is the Company’s
functional currency. All values are rounded off to the nearest thousand (P000), except when
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otherwise indicated.
Significant Accounting Policies
The accounting policies set out below have been applied consistently by the Group to all periods
presented in the consolidated financial statements, except for the changes in accounting policies
as explained below.
Adoption of New or Revised Standards, Amendments to Standards and Interpretations
The FRSC approved the adoption of a number of new or revised standards, amendments to
standards, and interpretations (based on IFRIC Interpretations) as part of PFRS.
Adopted Effective 2011
The Group has adopted the following PFRS starting January 1, 2011 and accordingly, changed its
accounting policies in the following areas:

Amendment to PAS 32, Financial Instruments: Presentation - Classification of Rights Issues,
permits rights, options or warrants to acquire a fixed number of the entity’s own equity
instruments for a fixed amount of any currency to be classified as equity instruments
provided the entity offers the rights, options or warrants pro rata to all of its existing owners
of the same class of its own non-derivative equity instruments. The amendment is applicable
for annual periods beginning on or after February 1, 2010.

Philippine Interpretation IFRIC 19, Extinguishing Financial Liabilities with Equity
Instruments, addresses issues in respect of the accounting by the debtor in a debt for equity
swap transaction. It clarifies that equity instruments issued to a creditor to extinguish all or
part of a financial liability in a debt for equity swap are consideration paid in accordance with
PAS 39, Financial Instruments: Recognition and Measurement paragraph 41. The
interpretation is applicable for annual periods beginning on or after July 1, 2010.

Revised PAS 24, Related Party Disclosures (2009), amends the definition of a related party
and modifies certain related party disclosure requirements for government-related entities.
The revised standard is effective for annual periods beginning on or after January 1, 2011.

Prepayments of a Minimum Funding Requirement (Amendments to Philippine Interpretation
IFRIC 14: PAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements
and their Interaction). These amendments remove unintended consequences arising from the
treatment of prepayments where there is a minimum funding requirement and result in
prepayments of contributions in certain circumstances being recognized as an asset rather
than an expense. The amendments are effective for annual periods beginning on or after
January 1, 2011.

Improvements to PFRS 2010 contain 11 amendments to 6 standards and 1 interpretation, of
which only the following are applicable to the Group:
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PFRS 3, Business Combinations. The amendments: (a) clarify that contingent
consideration arising in a business combination previously accounted for in accordance
with PFRS 3 (2004) that remains outstanding at the adoption date of PFRS 3 (2008)
continues to be accounted for in accordance with PFRS 3 (2004); (b) limit the
accounting policy choice to measure non-controlling interests upon initial recognition at
fair value or at the non-controlling interest’s proportionate share of the acquiree’s
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identifiable net assets to instruments that give rise to a present ownership interest and that
currently entitle the holder to a share of net assets in the event of liquidation; and (c)
expand the current guidance on the attribution of the market-based measure of an
acquirer’s share-based payment awards issued in exchange for acquiree awards between
consideration transferred and post-combination compensation cost when an acquirer is
obliged to replace the acquiree’s existing awards to encompass voluntarily replaced
unexpired acquiree awards. The amendments are effective for annual periods beginning
on or after July 1, 2010.
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PAS 27, Consolidated and Separate Financial Statements. The amendments clarify that
the consequential amendments to PAS 21, The Effects of Changes in Foreign Exchange
Rates, PAS 28, Investments in Associates, and PAS 31, Interests in Joint Ventures,
resulting from PAS 27 (2008) should be applied prospectively, with the exception of
amendments resulting from renumbering. The amendments are effective for annual
periods beginning on or after July 1, 2010.
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PFRS 7, Financial Instruments: Disclosures. The amendments add an explicit statement
that qualitative disclosure should be made in the context of the quantitative disclosures to
better enable users to evaluate an entity’s exposure to risks arising from the financial
instruments. In addition, the International Accounting Standards Board (IASB) amended
and removed existing disclosure requirements. The amendments are effective for annual
periods beginning on or after January 1, 2011.
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PAS 1, Presentation of Financial Statements. The amendments clarify that
disaggregation of changes in each component of equity arising from transactions
recognized in other comprehensive income is also required to be presented either in the
statement of changes in equity or in the notes. The amendments are effective for annual
periods beginning on or after January 1, 2011.
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PAS 34, Interim Financial Reporting. The amendments add examples to the list of
events or transactions that require disclosure under PAS 34 and remove references to
materiality in PAS 34 that describes other minimum disclosures. The amendments are
effective for annual periods beginning on or afterJanuary 1, 2011.
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Philippine Interpretation IFRIC 13, Customer Loyalty Programmes. The amendments
clarify that the fair value of award credits takes into account the amount of discounts or
incentives that otherwise would be offered to customers that have not earned the award
credits. The amendments are effective for annual periods beginning on or after January
1, 2011.
The adoption of these foregoing new or revised standards, amendments to standards and
interpretations did not have a material effect on the consolidated financial statements.
Additional disclosures required by revised standards, amendments to standards and
interpretations were included in the consolidated financial statements, where applicable.
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II. FINANCIAL PERFORMANCE
2011 vs 2010
Consolidated revenues of SMPFC and subsidiaries reached record high level at P89.6 billion, a 13%
growth or a P10.3 billion increase from 2010 level, amidst rising costs of major raw materials and
tough competition. Higher sales volume, combined with better selling prices, as well as the full year
impactof the consolidation of San Miguel Hormel (Vn) Co., Ltd. (SMHVN, formerly San Miguel
Pure Foods (Vn) Co., Ltd.) starting August 2010, were the main revenue growth drivers. Improved
distribution network, favorable export sales and new products introduction likewise contributed to the
double-digit growth in revenues.
The 16% increase in cost of sales, mainly due to the escalating major raw material costs and the
consolidation of SMHVN, outpaced the increase in the Group’s sales turnover, thus, translating to a
modest 1% increase in gross profit.
Interest expense and other financing charges grew by 48% on account of San Miguel Foods, Inc.’s
(SMFI) issuance of a five-year peso-denominated fixed rate and floating rate notes in December 2010
and the consolidation of SMHVN’s balances.
Interest income increased significantly as proceeds from SMPFC’s issuance of preferred shares in
March 2011 were temporarily held in short-term placements until the purchase of Manila Electric
Company’s (Meralco) shares in August 2011.
Equity in net earnings of an associate represents SMPFC’s equity share in Meralco’s net income
relative to the purchase of the latter’s shares of stock in August 2011.
Gain (loss) on sale of property and equipment contrasted that of 2010 on account of gain recognized
from disposal of assets in 2011 versus loss on retirement of certain fixed assets that were completely
damaged by a typhoon in 2009.
Other income (charges) - netlikewise contrasted that of 2010 mainly on account of mark-to-market
loss in 2011, with lower market price of wheat options and loss incurred from the Group’s embedded
third currency transactions due to unfavorable foreign exchange rates, versus mark-to-market gain on
derivatives in 2010.
Income tax expense rose by 5% due to the increase in taxable income.
The favorable operating performance of the Group, boosted by the equity share in Meralco’s net
income and higher interest income, translated to a net income surpassing 2010 level.
Net income attributable to equity holders of the Parent Company is likewise higher versus same
period in 2010 due to better combined performances of subsidiaries where SMPFC holds significant
ownership.
On the other hand, net income attributable to non-controlling interests dropped primarily due the
decline in profit of a subsidiary where non-controlling stockholders hold stake.
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Business Highlights:
Agro-Industrial
SMFI’s Feeds business registered 8% revenue growth on account of better selling prices and 3%
increase in volume. Despite the market demand contraction for hogsdue to the disease that plagued
the hog industry and lower demand for aquatic feeds, the business posted commendable
volumegrowths in the broiler and gamefowl feeds segments. Increasing raw materials and production
costs, as well as higher operating expenses, particularly advertising and promotion to support various
marketing programs, prevented the business from matching 2010’s operating income level.
The combinedPoultry and Fresh Meats business of SMFI posted8% and 11% increase in volume and
revenue, respectively. However, higher feed costs tempered profit growth ascosts of broiler and
marketable hogswere similarly affected. The Poultry business recorded 6% and 10% increases in
volume and revenue, respectively, due to improved supply availability. The Fresh Meats business, on
the other hand, posted a 16% revenue growth on account of the 17% increase in volume driven by the
branded and live segments. The Poultry and Fresh Meats business’continuous drive to improve
production efficienciesand effectively manage fixed costs cushioned the impact of significant
increases inraw material costs even as operating profit fell short of the 2010 performance.
Value-Added
The Purefoods-Hormel Company, Inc.’s (PF-Hormel) Value-Added or Processed Meats
businessmanaged to register5% growth both in volume and revenue despite lost volumes from the
discontinuance of low margin products. Favorable performancesin hotdogs, new products and
variants, and exports categories made up for the lost volumes. Product mix optimization and cost
reduction initiatives that resulted in improvement in margins helped the business achieve a doubledigit growth in operating profit.
Milling
The Company’s Flour business under San Miguel Mills, Inc. (SMMI) registered sales volume at par
with 2010 levelamidst the growing competitive presence of lower-priced imported flour. SMMI
reinforced its premier position in the flour business through operational efficiency improvements,
effective fixed costs management and better positioning for its value-added mixes, thus, tempering
the impact of increasing wheat costs to its profitability, as the business increased its revenue by 17%
and posted an operating income higher than 2010.
Dairy & Others
The Company’s Dairy, Fats and Oils business under Magnolia Inc. (Magnolia) posted 23% increase
in revenue versus 2010 level on account of better selling prices and strong volume of butter,
margarine, cheese, ice cream and cooking oils.The higher revenue, combined with improved
operational efficiencies and effective fixed costs management, resulted in operating income that
surpassed 2010 performance.
San Miguel Super Coffeemix Co., Inc.’s (SMSCCI) volume and revenue grew by 35% and 32%,
respectively, on account of the improved sales in the general trade. Operating performance likewise
registered growth versus 2010 level.
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Institutional brand building and relationship management activitiesof Great Food Solutions (GFS),
the food service division of the Company, yielded positive results. The business posted a double-digit
improvement in operating income as volume and revenue grew by 8% and 13%,respectively.
2010 vs 2009
SMPFC and subsidiaries ended 2010 with consolidated revenues reaching record high level at P79.3
billion, a 6% growth or a P4.2 billion increase from 2009 level mainly due to higher volume
generated through improved distribution network, strong export sales and new products introduction.
The consolidation of SMHVN also contributed P974.4 million to the Group’s revenues in 2010.
The increase in the Group’s sales turnover, combined with sustained operational efficiency
improvements, cost reduction initiatives and cost breaks in some major raw materials translated to
better margins, thus the 18% surge in gross profit versus same period in 2009.
Selling and administrative expenses went up by 12% on account of higher manpower costs, increased
advertising and promotions spending on brand building and product visibility activities, and the
impact of the escalation in fuel prices on distribution and transportation, among other expenses. The
full year effect of the transfer of Centralized Key Accounts Group (CKAG) from San Miguel
Corporation (SMC) in May 2009 likewise contributed to the increase in selling and administrative
expenses. CKAG, now known as San Miguel Integrated Sales (SMIS), handles the selling function to
service the Group’s modern and general trade customers for branded products.
The decrease in banks’ interest rates, combined with lower average level of borrowings for working
capital requirements due to subsidiaries’ settlement of maturing short-term loans, resulted in the 52%
drop in interest expense and other financing charges versus 2009’s level.
Interest income rose by 53% due to the increase in the average level of money market placements.
Loss on retirement of fixed assets, which was presented net of the gain on sale of property and
equipment in the consolidated statements of income, increased by 32% mainly on account of PFHormel’s retirement of certain fixed assets that were completely damaged by a typhoon in 2009.
Other income (charges) - net contrasted that of 2009 on account of realized mark-to-market gain on
derivatives in 2010 due to favorable foreign exchange rates versus realized mark-to-market loss on
derivatives in 2009.
The strong overall performance of the Group, as well as lower interest rates, resulted in income
before income tax and net income growing by 49% and 53%, respectively, versus same period in
2009.
Income tax expense was similarly higher by 40% due to the increase in taxable income.
Net income attributable to equity holders of the Parent Company grew by 48% versus 2009 level due
to better combined performances of subsidiaries where SMPFC holds significant ownership.
Profit recorded by subsidiaries where non-controlling stockholders hold stake likewise improved,
thus, the increase in net income attributable to non-controlling interests.
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Business Highlights:
Agro-Industrial
SMFI’s Feeds business registered commercial sales’ volume and revenue growth of 10% and 9%,
respectively, on account of better selling prices and various selling and marketing programs
implemented. The use of alternative raw materials, which translated to cost savings, and other
business-initiated cost reduction and efficiency improvement programs likewise yielded positive
results. The business spent on additional advertising and promotion to support development and
promote awareness of its fighting cock feed segment, thus the increase in its operating expenses.
Income from operations registered almost at par with 2009.
The combined Poultry business of SMFI and Fresh Meats business of Monterey Foods Corporation
(Monterey) led the Group in terms of revenue contribution, posting 9% and 4% increase in volume
and revenue, respectively. Operating income, on the other hand, registered a double-digit growth
versus 2009 level. The Poultry business alone posted 13% and 9% increase in volume and revenue,
respectively, due to improved supply availability. The continuous drive to improve operational
efficiencies and reduce costs enabled the business to achieve profit improvement over the same
period in 2009. The Fresh Meats business, on the other hand, sustained its turnaround in profitability
due to effective management of fixed costs and improvements in operational efficiencies and
distribution network.
Value-Added
Although volume was at par with 2009, PF-Hormel’s Value-Added or Processed Meats business
registered a modest revenue growth of 2% due to the favorable performances of the hotdog and
exports categories. Operating income was higher than 2009’s level on account of lower fixed costs
spending, use of alternative materials which cushioned the impact of higher raw material prices, and
toll fee recovery from insurance.
Milling
The Company’s Flour business under SMMI posted a modest volume growth of 1% versus 2009
level. Revenue, however, was 2% short versus same period in 2009 due to lower flour selling prices,
mainly influenced by lower global wheat prices and freight costs. Nevertheless, the business recorded
an operating performance higher than 2009 on account of better margins.
Dairy & Others
Revenue of the Company’s Dairy, Fats and Oils business under Magnolia was 4% higher than 2009’s
level as butter, cheese and cooking oils recorded improvements in sales turnover. However, the onetime payment of retirement costs and the increase in prices of some major raw materials during the
last quarter of 2010 prevented the business to register operating profit higher than 2009.
SMSCCI’s volume and revenue grew by 26% and 17%, respectively, on account of the improved
sales in general trade. A turn around in operating profit was likewise registered by the business.
GFS, the food service division of the Company, registered volume and revenue almost at par with
2009 level in spite of lost volumes brought about by price hikes in flour and decreased share in the
supply requirements of some convenience store outlets. Operating profit was lower than 2009’s level
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as some major fast food outlets started to engage in backward integration. Total number of outlets
served went up from 9,456 in 2009 to 9,518 in 2010.
III. FINANCIAL POSITION
2011 vs 2010
SMPFC’s healthy performance is also reflected in the Group’s consolidated statements of financial
position as current ratio and debt to equity ratio registered at 1.95:1 and 0.54:1, respectively, in 2011
from 1.57:1 and 1.14:1, respectively, in 2010. Total equity increased from P22.2 billion to P39.7
billion while total asset base rose from P47.5 billion to P61.0 billion or a growth of 28%.
Below were the major developments in 2011:
INVESTMENTS IN SUBSIDIARIES
a) Magnolia
In September 2011, Magnolia, a wholly-owned subsidiary of SMPFC, acquired the
subscription rights of certain individuals in Golden Food & Dairy Creamery Corporation
(GFDCC), a Philippine company engaged in the toll manufacturing of ice cream products. As
such, GFDCC became a subsidiary of Magnolia and was consolidated into SMPFC through
Magnolia. Total consideration paid amounted to P104.9 million.
b) SMMI
In September 2011, SMMI formed Golden Bay Grain Terminal Corporation (GBGTC), a
wholly-owned subsidiary with an authorized capital stock of P2.0 billion. GBGTC is a
Philippine company with the primary purpose of providing and rendering general services
connected with and incidental to the operation and management of port terminals engaged in
handling and/or trading of grains, among others. In November 2011, following the approval
by the Securities and Exchange Commission (SEC) of the incorporation of GBGTC, SMMI
subscribed to 5,000,000 GBGTC shares for a total subscription value of P500.0 million and
paid an initial consideration amounting to P125.0 million. As at December 31, 2011, GBGTC
has not yet started commercial operations.
c) SMFI and Monterey
In August 2010, the SEC approved the merger of Monterey into SMFI, with SMFI as the
surviving corporation, following the approvals of the merger by the respective Board of
Directors (BOD) and stockholders of Monterey and SMFI in June 2010 andJuly 2010,
respectively. The merger became effective on September 1, 2010. SMFI’s request for
confirmation of the tax-free merger, filed in September 2010, is still pending with the Bureau
of Internal Revenue (BIR) as at March 7, 2012.
d) San Miguel Pure Foods International, Limited (SMPFIL)
In May 2011, SMPFC increased its investment in SMPFIL by US$16.8 millionequivalent to
the 90% balance of the purchase price of SMHVN acquired by SMPFIL from San Miguel
Foods and Beverage International Limited (SMFBIL). Subsequently, SMPFIL paid SMFBIL
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the remaining balance of the purchase price of the Vietnam food business.
e) SMPFC Capital Investments, Limited (SCIL)
In September 2011, SCIL, a Cayman Islands company and a wholly-owned subsidiary of
SMPFC, was dissolved by virtue of the Certificate of Dissolution issued to SCIL by the
Registrar of Companies of the Cayman Islands in August 2011. SCIL did not engage in
commercial operations since its incorporation in November 2010.
INVESTMENT IN AN ASSOCIATE
In August 2011, SMPFC entered into a Share Purchase Agreement with SMC covering the sale by the
latter of its 5.2% shareholdings in Meralco comprising of 59,090,909 common shares for a total
consideration of P13.0 billion.
OTHER INTANGIBLE ASSETS
In March 2011, the Company paid SMC the amount of P2.9billion representing the 90% balance of
the purchase price of the food-related brands and intellectual property rights.
LONG-TERM DEBT
GFDCC, Magnolia’s newly acquired wholly-owned subsidiary, has an unsecured loan facility with
Bank of Commerce amounting to P210.0 million, proceeds from which were used to finance the
construction of an ice cream plant manufacturing facility.
EQUITY
On January 20, 2011, the SEC favorably considered the Company’s Registration Statement covering
the registration of 15,000,000 preferred shares with a par value of P10.00 per share.
On January 26, 2011, the Philippine Stock Exchange, Inc. (PSE) approved, subject to certain
conditions, the application of the Company to list up to 15,000,000 preferred shares with a par value
of P10.00 per share to cover the Company’s follow-on preferred shares offering at an offer price of
P1,000.00 per share and with a dividend rate determined by management on the dividend rate setting
date.
On February 10, 2011, the SEC issued the order for the registration of the Company’s 15,000,000
preferred shares with a par value of P10.00 per share and released the Certificate of Permit to Offer
Securities for Sale.
On February 11, 2011, the Company’s BOD approved the terms of the preferred shares offer (Terms
of the Offer) and the amendment of the Articles of Incorporation of the Company to reflect the
additional optional redemption features of the preferred shares, to align with the Terms of the Offer.
The stockholders of the Company approved the said amendment during its annual meeting on May
13, 2011.
A summary of the Terms of the Offer is set out below.
SMPFC, through the underwriters and selling agents, offered 15,000,000 cumulative, non-voting,
non-participating and non-convertible preferred shares at an offer price of P1,000.00 per share during
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the period February 14 to 25, 2011. The dividend rate was set at 8% per annum with dividend
payment dates on March 3, June 3, September 3 and December 3 of each year calculated on a30/360day basis, as and if declared by the BOD. The preferred shares are redeemable in whole or in part, in
cash, at the sole option of the Company, at the end of the 5th year from issuance date or on any
dividend payment date thereafter, at the price equal to the issue price plus any accumulated and
unpaid cash dividends. Optional redemption of the preferred shares prior to 5th year from issuance
date was provided under certain conditions (i.e., accounting, tax or change of control events). Unless
the preferred shares are redeemed by the Company on its 5th year anniversary, the dividend rate shall
be adjusted thereafter to the higher of the dividend rate of 8% or the ten-year PDST-F rate prevailing
on the optional redemption date plus 3.33% per annum.
On March 3, 2011, the Company’s 15,000,000 preferred shares with par value of P10.00 per share
were listed with the PSE.
On June 2, 2011, the SEC issued the Certificate of Filing of Amended Articles of Incorporation
approving the additional redemption features of the preferred shares of the Company.
On June 13, 2011, cash dividend of P3.00 per share was paid to all common shareholders of record as
of May 23, 2011.
On June 3, September 3, and December 3, 2011, cash dividends of P20.00 per share were paid to all
preferredshareholders of record as of May 23, August 26, and November 23, 2011, respectively.
Analysis of Financial Position Accounts
Cash and cash equivalents decreased by 30% as funds were used for cash dividend payments and to
settle certain payables with suppliers.
Trade and other receivables - net roseby 12% mainly due to the increase in revenues.
Current biological assets grew by 26% due to higher feed costsand increase in volume of growing
poultry livestock and hogs.
The 70% decrease in derivative assets is largely due to the lower market price of wheat options and
the closure of outstanding purchase orders to be settled with third currencies, further deliveries of
which were no longer expected.
Prepaid expenses and other current assets grew by 11% mainly due to the increase in the level of
creditable input taxes for application against future tax liabilities.
The Company’s acquisition from SMC of 59,090,909 Meralco shares explains the P13.2 billion
balance ofinvestments account.
Investment properties - net went up by 19% due to additional foreclosed properties during the year.
The 22% surge in biological assets - net of current portion was due to the increase in volume of
breeding stock coupled with higher feed costs.
Other intangible assets - net increased by 7% mainly due to the expenditures incurred in connection
with the Group’s development and upgrading of its business processes, hardware and software
systems.
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The reversal of certain deferred tax benefit provisions during the year resulted in a 16% drop in
deferred tax assets.
The increase in other noncurrent assets was mainly due to a subsidiary’s reclassification to this
account of certain parcels of idle land from property, plant and equipment following the change in
management’s intention on these assets.
SMPFC’s full settlement of the remaining balance of the brands and Vietnam food business
acquisitions from SMC and the payments made by the Group to suppliers resulted in the 27% decline
in trade payables and other current liabilities.
Current maturities of long-term debt representsthe portion of GFDCC’s long-term loan that is payable
within the next twelve months.
The full utilization of tax benefits from minimum corporate income tax and net operating loss carryover (NOLCO) in 2010and improved performance of certain subsidiaries in 2011 resulted in higher
income tax liability.
A subsidiary’s recognition of realized gain from insurance claim resulted in a 39% drop in deferred
tax liabilities.
Other noncurrent liabilities increased by 33% mainly due to higher retirement liabilities in 2011.
Capital stockrose by 9% due to the issuance of the Company’s 15,000,000 preferred shares with par
value of P10.00 per share in March 2011.
The increase in additional paid-in capital represents the difference between the offer price and par
value of the preferred shares issued by the Company, net of transaction costs.
The 8% increment in cumulative translation adjustments is primarily due to the translation of foreign
subsidiaries’ net assets.
Retained earnings grew by 23% on account of the income earned, net of dividends declared to
common and preferred shareholders in 2011.
2010 vs 2009
The commendable operating performance of SMPFC is similarly reflected on the Group’s
consolidated statements of financial position as current ratio and debt to equity ratio registered at
1.57:1 and 1.14:1, respectively, in 2010 from 1.30:1 and 1.28:1, respectively, in 2009. Total equity
increased from P17.6 billion to P22.2 billion while total asset base rose from P40.2 billion to
P47.5 billion or a growth of 18%.
Below were the major developments in 2010:
INVESTMENTS IN SUBSIDIARIES
a) SMFI and Monterey
i.
In August 2010, the SEC approved the merger of Monterey into SMFI, with SMFI as the
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surviving corporation, following the approvals of the merger by the respective BOD and
stockholders of Monterey and SMFI in June 2010 and July 2010, respectively. SMFI issued
to Monterey’s stockholders one (1) SMFI share of stock for every two hundred sixty eight
(268) Monterey shares of stock. No fractional shares resulting from the merger were issued
by SMFI. The merger became effective September 1, 2010. SMFI’s request for confirmation
of the tax-free merger, filed in September 2010, wasstill pending with the BIR as at March 9,
2011.
ii. In July 2010, the SEC approved the application of Monterey for the increase in its authorized
capital stock. Following SEC’s approval, 22,500,000 Monterey shares of stock were issued to
SMPFC in exchange for the Company’s deposit for future stock subscription of
P450.0 million in 2008.
iii. In January 2008, SMFI executed a Deed of Assignment assigning its 16,457,310 shares in
SMMI, then a 100%-owned subsidiary of SMFI, to SMPFC effective December 28, 2007.
The assignment is in accordance with SMFI’s property dividend declaration of its SMMI
shares in favor of the Company, as approved by SMFI’s BOD in June 2007, subject to the
necessary regulatory approvals. In December 2010, the SEC approved the declaration of
SMFI’s 16,457,310 shares in SMMI as property dividend in favor of the Company.
b) SMPFIL
In July 2010, the Company, through its wholly-owned subsidiary, SMPFIL, acquired SMC’s
51% interest (through SMFBIL) in San Miguel Pure Foods Investment (BVI) Limited
(SMPFI Limited) for US$18.6 million. SMPFI Limited owns 100% of SMHVN. Pursuant to
the Sale and Purchase Agreement between SMFBIL and SMPFIL, 10% of the purchase price
was paid in July 2010 and the balance of US$16.8 million (P734.3 million as at December 31,
2010) shall be payable (i) upon change in controlling interest of SMPFIL to any third person
other than an affiliate or (ii) two years from July 30, 2010, subject to floating interest rate
based on one-year LIBOR plus an agreed margin after one year, whichever comes first. The
balance was recognized as part of the Company’s payable to related parties in 2010. As
discussed in Note 19 of the 2010 Audited Consolidated Financial Statements, the proceeds of
SMPFC’s preferred shares offering was intended to pay off, among others, the SMHVN
acquisition, through SMPFIL. The preferred shares offering took place in February 2011.
INTANGIBLE ASSETS
In July 2010, SMC and SMPFC entered into an Intellectual Property Rights Transfer Agreement
(Agreement) for the transfer to SMPFC of SMC’s food-related brands and intellectual property rights
at a purchase price of P3.2 billion. Pursuant to the Agreement, 10% of the purchase price was paid in
July 2010 and the balance shall be payable (i) upon change in controlling interest of SMPFC to any
third person other than an affiliate or (ii) two years from July 30, 2010, subject to floating interest rate
based on one-year PDSTF plus an agreed margin after one year, whichever comes first. The balance
was recognized as part of the Company’s payable to related parties as at December 31, 2010. As
discussed in Note 35 of the 2010 Audited Consolidated Financial Statements, the remaining balance
was subsequently settled by SMPFC on March 8, 2011.
LONG-TERM DEBT
In December 2010, SMFI offered for sale and subscription to the public Philippine
peso-denominated fixed rate and floating rate notes with principal amount of
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P800.0 million and P3.7 billion, respectively. Both types of notes have a term of five years and one
day beginning on December10, 2010 (Issue Date) and ending onDecember 11, 2015. The fixed rate
note has a fixed interest rate of 5.4885% per annum while the floating rate note has a floating interest
rate based on three-month PDST-F plus an agreed margin. Proceeds from the issuance of the notes
will be used to fund any expansion or any investment in new businesses by SMFI and for other
general corporate purposes.
EQUITY
On February 2, 2010 and March 12, 2010, the Company’s BOD and stockholders, respectively,
approved the (i) de-classification of SMPFC’s common shares and increase in SMPFC’s authorized
capital stock by P1.0 billion or 100,000,000 shares at P10.00 par value, and (ii) declaration of 18%
stock dividend based on the issued and outstanding shares to be taken out of the proposed increase in
authorized capital stock.
On April 12, 2010, the SEC approved SMPFC’s amendment to its Articles of Incorporation for the
de-classification of common shares.
On May 21, 2010, the SEC issued to SMPFC the Certificate for the Approval of Increase of Capital
Stock from 146,000,000 common shares to 246,000,000 common shares with par value of P10.00 per
share and the Certificate of Filing of Amended Articles of Incorporation.
On July 6, 2010, the PSE approved the application of SMPFC to list additional 25,423,746 common
shares, with a par value of P10.00 per share, to cover the 18% stock dividend declaration to
stockholders of record as at June 30, 2010. Stock dividend distribution was made on July 26, 2010.
OnSeptember 15, 2010, Company’s BOD approved, among others, the(i) reclassification of up to
75,000,000 authorized and unissued common shares into cumulative, non-participating, non-voting
and non-convertible preferred shares with par value of P10.00 per share, (ii) issuance of preferred
shares with total issue size of up to P50.0billion, part of the proceeds of which will be used to settle
the Company’s remaining 90% balance relating to the brands and SMHVN acquisitions from SMC,
(iii) listing of such preferred shares at the appropriate exchanges, and (iv) amendment of the
Company’s Articles of Incorporation to reflect the reclassification of such common shares to
preferred shares and the denial of pre-emptive rights of shareholders for the proposed issuance of said
preferred shares.
On November 3, 2010, the Company’s stockholders approved, among others, the (i) reclassification
of the Company’s 40,000,000 authorized and unissued common shares into non-voting, cumulative
and non-participating preferred shares with par value of P10.00 per share,(ii) issuance of such
preferred shares and the listing thereof at the appropriate exchanges, and (iii) amendment of the
Company’s Articles of Incorporation to reflect the reclassification of 40,000,000 common shares to
preferred shares and the denial of pre-emptive rights of shareholders for the proposed issuance of said
preferred shares (Amendment).
On December 23, 2010, the SEC approved the foregoing Amendment to the Articles of Incorporation
of the Company.
+
Analysis of Financial Position Accounts
The issuance by SMFI of fixed and floating rate corporate notes in December 2010 resulted in the
recognition of long-term debt - net of debt issue costs and the increase in cash and cash equivalents
by 78% as proceeds were temporarily invested in short-term placements by end of 2010.
Trade and other receivables - net declined by 14% due to effective management of receivables and
the collection by a subsidiary of insurance claims on damages caused by a typhoon.
Current biological assets grew by 29% on account of the increase in volume of growing stock in
anticipation of the Christmas season and the consolidation of SMHVN’s balances.
Derivative assets grew mainly due to higher number of wheat options outstanding by end of 2010 and
favorable market prices.
The 42% surge in prepaid expenses and other current assets is largely due to the increase in the level
of creditable input tax brought about by the Company’s acquisition of food-related brands and
intellectual property rights from SMC and withholding taxes for application against tax liabilities.
Investment properties - net went up by 5% on account of additional properties acquired through
foreclosure proceedings in 2010.
Property, plant and equipment - net, biological assets - net of current portion and goodwill - net grew
versus same period in 2009 mainly due to the consolidation of SMHVN’s balances.
The substantial increase in other intangible assets - net is mainly attributed to the purchase of foodrelated brands and intellectual property rights from SMC.
Deferred tax assets and income tax payable decreased by 51% and 65%, respectively, mainly on
account of the reversal of certain deferred tax provisions in 2010 and the utilization of deferred tax
benefits from a subsidiary’s NOLCO.
Other noncurrent assets declined by 6% due to a subsidiary’s recognition of impairment loss on
certain machinery and equipment considered as idle assets.
Healthy operating cash flows of most subsidiaries enabled the Group to partially settle their shortterm borrowings, thus, the decrease in notes payable by 41%.
Trade payables and other current liabilities registered a 20% increase primarily on account of the
90% remaining liability of SMPFC to SMC relating to the acquisition of the latter’s food-related
brands and intellectual property rights, and SMHVN.
The 32% drop in deferred tax liabilities resulted from a subsidiary’s reversal of unrealized gains
brought about by the settlement of matured 2010 and 2009’s wheat options.
Other noncurrent liabilities decreased by 52% due to payment of retirement plan contributions.
The 17% increase in capital stock resulted from SMPFC’s stock dividend payout in July 2010.
The 92% increment in cumulative translation adjustments is primarily due to foreign currency
translation difference following the consolidation of SMHVN’s balances.
+
Changes in retained earnings and non-controlling interests are primarily on account of the income
earned, net of dividends declared in 2010.
IV. SOURCES AND USES OF CASH
A brief summary of cash flow movements is shown below:
2011
December 31
2010
2009
(In Millions)
Net cash flows provided by operating activities
Net cash flows used in investing activities
Net cash flows provided by (used in) financing
activities
P 3,756
(18,935)
13,071
P 4,816 P 5,536
(2,038)
(1,518)
316
(2,850)
Net cash from operationsbasically consisted of income for the period and changes in noncash
current assets, certain current liabilities and others.
Net cash flows used in investing activities included the following:
2011
December 31
2010
2009
(In Millions)
Net additions to investments
Acquisition of intangible assets
Additional investment in subsidiary
Acquisition of property, plant and equipment
Acquisition of a subsidiary net of cash received
Proceeds from sale of property and equipment
Increase in noncurrent biological assets and other
noncurrent assets net of noncurrent liabilities
(P12,907)
(3,129)
(721)
(598)
(98)
8
(1,490)
P
(338)
(581)
(39)
108
P(23)
(651)
39
(1,188)
(883)
Net cash flows provided by (used in) financing activities included the following:
2011
December 31
2010
2009
(In Millions)
Proceeds from issuance of preferred shares
Cash dividends paid
Net payments of notes payable
Proceeds from (payments of) long-term debt
P 14,829
(1,580)
(171)
(7)
P(4,184)
4,500
P(2,850)
-
+
V. ADDITIONAL INFORMATION ON UNAPPROPRIATED RETAINED EARNINGS
The following items are not available for declaration as dividends:
December 31
2010
2011
(In Millions)
Accumulated equity in net earnings of subsidiaries
(included in the unappropriated retained earnings
balance)
Treasury stock
P
6,704
P 5,408
182
182
VI. KEY PERFORMANCE INDICATORS
The following are the major performance measures that the Group uses. Analyses are employed by
comparisons and measurements based on the financial data of the current period against the same
period of previous year.
KPI
December 2011
December 2010
Liquidity:
Current Ratio
1.95
1.57
Solvency:
Debt to Equity Ratio
Asset to Equity Ratio
0.54
1.54
1.14
2.14
15.70%
22.43%
15.27
22.03
As at December 2011
As at December 2010
8.36%
13.02%
6.86%
6.71%
5.63%
7.45%
Profitability:
Return on Average Equity
Interest Rate Coverage Ratio
KPI
Operating Efficiency:
Volume Growth
Revenue Growth
Operating Margin
The manner by which the Group calculates the above indicators is as follows:
KPI
Current Ratio
Debt to Equity Ratio
Asset to Equity Ratio
Return on Average
Equity
Interest Rate Coverage
Ratio
Formula
Current Assets
Current Liabilities
Total Liabilities (Current + Noncurrent)
Non-controlling Interests + Equity
Total Assets (Current + Noncurrent)
Non-controlling Interests + Equity
Net Income Attributable to Equity Holders of the Parent Company*
Average Equity Attributable to Equity Holders of the Parent Company**
Earnings Before Interests, Taxes, Depreciation and Amortization
Interest Expense and Other Financing Charges
+
Volume Growth
Revenue Growth
Operating Margin
*
**
Sum of all Businesses’ Revenue at Prior Period Prices
Prior Period Net Sales
Current Period Net Sales
-1
Prior Period Net Sales
Income from Operating Activities
Net Sales
-1
excluding cash dividends paid to preferred shareholders
excluding preferred capital stock and related additional paid-in capital
VII. OTHER MATTERS
a) Cash Dividends
On February 7, 2012, the Company’s BOD declared cash dividends to all preferred and common
shareholders of record as of February 21, 2012 amounting to P20.00 and P1.20 per share,
respectively, payable on March 3, 2012.
b) Commitments
The outstanding capital and purchase commitments as at December 31, 2011 and 2010 amounted
to P9,158.6 million and P10,094.1 million, respectively.
c) Except for the Processed Meats, Dairy, Poultry and Basic Meats businesses, which consistently
earn more revenues during the Christmas holiday season, the effect of seasonality or cyclicality
on the operations of the Company’s other businesses is not material.
d) There are no unusual items as to the nature and amount affecting assets, liabilities, equity, net
income or cash flows, except those stated in Management’s Discussion and Analysis of Financial
Position and Performance.
e) There were no material changes in estimates of amounts reported in prior interim periods of the
current year or changes in estimates of amounts reported in prior financial years.
f) There were no known trends, demands, commitments, events or uncertainties that will have a
material impact on the Group’s liquidity.
g) There were no known trends, events or uncertainties that have had or that are reasonably expected
to have a favorable or unfavorable impact on net sales or revenues or income from continuing
operation.
h) There were no known events that will trigger direct or contingent financial obligation that is
material to the Group, including any default or acceleration of an obligation and there were no
changes in contingent liabilities and contingent assets since the last annual reporting date, except
for Note 35 (b) of the 2011 Audited Consolidated Financial Statements that remain outstanding as
at December 31, 2011. No material contingencies and any other events or transactions exist that
are material to an understanding of the current interim period.
i)
There were no material off-statements of financial position transactions, arrangements,
obligations (including contingent obligations), and other relationship of the Group with
unconsolidated entities or other persons created during the reporting period, except for the
outstanding derivative transactions entered by the Group as at and for the period ended December
31, 2011.
ANNEX "E"
STATEMENT OF MANAGEMENT'S RESPONSIBILITY
FOR CONSOLIDATED FINANCIAL STATEMENTS
SanM'guel
Pure Foods
The management of San Miguel Pure Foods Company, Inc. (the "Company") is responsible
for the preparation and fair presentation of the consolidated financial statements for the years
ended December 31, 2011, 2010 and 2009, including the additional components attached
therein, in accordance with the prescribed financial reporting framework indicated therein. This
responsibility includes designing and implementing internal controls relevant to the preparation
and fair presentation of the consolidated financial statements that are free from material
misstatement, whether due to fraud or error, selecting and applying appropriate accounting
policies, and making accounting estimates that are reasonable in the circumstances.
The Board of Directors reviews and approves the consolidated financial statements
and submits the same to the stockholders ofthe Company.
Manabat Sanagustin & Co., CPAs, the independent auditors appointed by the stockholders, has
examined the consolidated financial statements of the Company in accordance with Philippine
Standards on Auditing, and in its report to the stockholders has expressed its opinion on the
fairness of presentation upon completion of such examination.
1d.~·7·52:
duar
. Cojuangco,~
Chairman of the Board
/'
~~o~:Jrnr-~
President
. Postrado
and Chief Finance Officer
ACKNOWLEDGMENT
REPUBLIC OF THE PHILIPPINES)
City
) S.S.
":-'
of
p
T~-
-
~
Before me, a Notary Public for and in
2012, personally appeared:
Eduardo M. Cojuangco, Jr.
Francisco S. A1ejo ID
Zenaida M. Postrado
City this
MAR 7 - 7n1Z
day
Passport No.
Expiry DatelPlace Issued
XX-1347206
XX-0861508
XX-4870820
June 5, 2013 / Manila
April 3,20]3/ Manila
Oct. 29, 2014/ Manila
known to me to be the same persons who executed the foregoing Statement of Management's
Responsibility consisting of two (2) pages including this page on which this acknowledgment is
written and that they acknowledged to me that the same is their free and voluntary act and deed
and that of the principals they represent.
IN WITNESS WHEREOF, I have hereto affixed my notaria! sea! at the date and place
first above written.
Doc. No.
:;}-I\
~~~~~~.?fr
Series of2012.
Co-
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S.E.c. Registration Number
(Company's Full Name)
(Business Address: No. Street Company / Town / Province)
702-5000
Ms. Zenaida M. Postrado
Contact Person
Company Telephone Number
GIiliI§I]
Month
Day
FORM TYPE
Month
Day
Annual Meeting
Secondary License Type, If Applicable
[IT]
Dept. Requiring this Doe,
Amended Articles Number/Section
~ntofOIllJJJ
Total No. of Stockholders
Domestic
To be accomplished by SEC Personnel concerned
File Number
LCU
Document LD.
Cashier
,-------------------------)
STAMPS
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Foreign
SAN MIGUEL PURE FOODS COMPANY, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011, 2010 and 2009
SAN MIGUEL PURE FOODS COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Amounts in Thousands)
December 31
ASSETS
Current Assets
Cash and cash equivalents
Trade and other receivables - net
Inventories
Biological assets
Derivative assets
Prepaid expenses and other current assets
Total Current Assets
Noncurrent Assets
Investments
Investment properties - net
Property, plant and equipment - net
Biological assets - net of current portion
Other intangible assets - net
Goodwill - net
Deferred tax assets
Other noncurrent assets
Total Noncurrent Assets
LIABILITIES AND EQUITY
Current Liabilities
Notes payable
Trade payables and other current liabilities
Current maturities of long-term debt
Income tax payable
Total Current Liabilities
Noncurrent Liabilities
Long-term debt - net of current maturities and
debt issue costs
Deferred tax liabilities
Other noncurrent liabilities
Total Noncurrent Liabilities
Equity
Equity Attributable to Equity Holders of
the Parent Company
Capital stock
Additional paid-in capital
Revaluation surplus
Cumulative translation adjustments
Retained earnings
Treasury stock
Non-controlling Interests
Total Equity
Note
2011
2010
7, 32, 33
4, 8, 29, 32, 33
4, 9
10
32, 33
11
P4,932,718
8,700,217
12,068,381
4,123,777
31,869
1,968,552
31,825,514
P7,041,345
7,760,271
12,123,435
3,266,564
107,633
1,765,748
32,064,996
4, 12
4, 13
4, 14
4, 10
4, 15
4, 16
4, 27
4, 14, 32, 33
13,177,979
134,927
8,744,321
1,811,570
3,657,384
422,547
502,677
676,051
29,127,456
113,018
9,106,083
1,479,251
3,425,510
416,310
599,891
313,030
15,453,093
P60,952,970
P47,518,089
17, 32, 33
18, 29, 32, 33
19, 32, 33
P4,987,929
11,018,877
25,000
305,012
16,336,818
P5,172,538
15,145,969
162,159
20,480,666
19, 32, 33
27
28, 32, 33
4,646,449
166,572
116,050
4,929,071
4,460,807
271,074
87,544
4,819,425
1,858,748
20,500,284
18,219
(84,934)
14,475,689
(182,094)
36,585,912
3,101,169
39,687,081
1,708,748
5,821,288
18,219
(92,492)
11,773,185
(182,094)
19,046,854
3,171,144
22,217,998
20
P60,952,970
See Notes to the Consolidated Financial Statements.
P47,518,089
SAN MIGUEL PURE FOODS COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009
(Amounts in Thousands, Except Per Share Data)
Note
2011
2010
2009
21, 29
P89,591,080
P79,269,760
P75,042,967
22, 29, 35
73,417,057
63,291,086
61,447,996
16,174,023
15,978,674
13,594,971
23, 29
(10,032,129)
(10,076,905)
(8,957,347)
17, 19, 26
(530,972)
(359,415)
(751,042)
7, 26
393,572
105,488
69,141
12
270,478
REVENUES
COST OF SALES
GROSS PROFIT
SELLING AND
ADMINISTRATIVE
EXPENSES
INTEREST EXPENSE
AND OTHER
FINANCING CHARGES
INTEREST INCOME
EQUITY IN NET EARNINGS
OF AN ASSOCIATE
GAIN (LOSS) ON SALE OF
PROPERTY AND
EQUIPMENT
OTHER INCOME
(CHARGES) - Net
6,708
26
INCOME BEFORE INCOME
TAX
INCOME TAX EXPENSE
NET INCOME
27
Attributable to:
Equity holders of the Parent
Company
Non-controlling interests
Basic and Diluted Earnings Per
Common Share Attributable
to Equity Holders of the
Parent Company
See Notes to the Consolidated Financial Statements.
30
(323,696)
-
-
(32,612)
(24,663)
97,866
(88,968)
5,957,984
5,713,096
3,842,092
1,744,378
P4,213,606
1,654,207
P4,058,889
1,183,625
P2,658,467
P4,102,505
111,101
P4,213,606
P3,846,145
212,744
P4,058,889
P2,596,963
61,504
P2,658,467
P18.65
P23.08
P15.58
SAN MIGUEL PURE FOODS COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009
(Amounts in Thousands)
Note
NET INCOME
NET GAIN (LOSS) ON
EXCHANGE DIFFERENCES
ON TRANSLATION OF
FOREIGN OPERATIONS
2011
2010
2009
P4,213,606
P4,058,889
P2,658,467
8,508
(41,603)
16,147
NET GAIN ON CASH FLOW
HEDGES
-
-
11,196
INCOME TAX EXPENSE
-
-
(3,359)
(2,250)
(2,954)
2,434
NET GAIN (LOSS) ON
AVAILABLE-FOR-SALE
FINANCIAL ASSETS
INCOME TAX BENEFIT
(EXPENSE)
SHARE IN
COMPREHENSIVE
INCOME OF AN
ASSOCIATE
OTHER COMPREHENSIVE
INCOME (LOSS) - NET OF
TAX
TOTAL COMPREHENSIVE
INCOME - NET OF TAX
Comprehensive Income
Attributable to:
Equity holders of the Parent
Company
Non-controlling interests
See Notes to the Consolidated Financial Statements.
12
225
295
156
-
-
(44,262)
26,175
6,639
(243)
P4,220,245
P4,014,627
P2,684,642
P4,110,063
110,182
P4,220,245
P3,801,931
212,696
P4,014,627
P2,619,101
65,541
P2,684,642
SAN MIGUEL PURE FOODS COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009
(Amounts in Thousands)
Note
As at January 1, 2011
Net gain (loss) on exchange
differences on translation of
foreign operations
Net loss on available-for-sale
financial assets, net of tax
Share in comprehensive
income of an associate
Other comprehensive income
(loss)
Net income for the year
Total comprehensive income
(loss) for the year
Issuance of preferred shares
Cash dividends
Capital
Stock
(Note 20)
P1,708,748
12
Additional
Paid-in
Capital
(Note 20)
P5,821,288
Attributable to Equity Holders of the Parent Company
Cumulative Translation
Adjustments
Retained
Fair
Earnings
Value
Revaluation Translation
Hedging
(Note 20)
Reserve
Surplus
Reserve
Reserve
P18,219
(P96,102)
P -
P3,610
P11,773,185
Treasury
Stock
(Note 20)
Total
(P182,094)
P19,046,854
Noncontrolling
Interests
Total
Equity
P3,171,144
P22,217,998
-
-
-
9,427
-
-
-
-
9,427
-
-
-
-
-
(2,025)
-
-
(2,025)
-
-
-
-
-
-
-
156
-
-
-
9,427
-
-
(1,869)
-
4,102,505
-
7,558
4,102,505
(919)
111,101
6,639
4,213,606
-
9,427
-
-
(1,869)
-
4,102,505
(1,400,001)
-
4,110,063
14,828,996
(1,400,001)
110,182
(180,157)
4,220,245
14,828,996
(1,580,158)
156
(919)
-
8,508
(2,025)
156
150,000
-
14,678,996
-
As at December 31, 2011
P1,858,748
P20,500,284
P18,219
(P86,675)
P -
P1,741
P14,475,689
(P182,094)
P36,585,912
P3,101,169
P39,687,081
As at January 1, 2010
Net loss on exchange differences on
translation of foreign operations
Net loss on available-for-sale
financial assets, net of tax
Other comprehensive loss
Net income for the year
Total comprehensive income (loss)
for the year
Addition to non-controlling interests
Cash dividends
Stock dividends
P1,454,510
P5,821,288
P18,219
(P54,547)
P -
P6,269
P8,181,278
(P182,094)
P15,244,923
P2,400,327
P17,645,250
As at December 31, 2010
P1,708,748
Forward
-
-
-
(41,555)
-
-
-
-
-
(41,555)
-
-
(2,659)
(2,659)
-
-
-
(41,555)
-
-
(2,659)
-
(P96,102)
P -
254,238
P5,821,288
P18,219
P3,610
-
-
(41,555)
(48)
(41,603)
3,846,145
-
(2,659)
(44,214)
3,846,145
(48)
212,744
(2,659)
(44,262)
4,058,889
3,846,145
(254,238)
-
3,801,931
-
212,696
738,121
(180,000)
- -
4,014,627
738,121
(180,000)
P11,773,185
(P182,094)
P19,046,854
P3,171,144
P22,217,998
Capital
Stock
(Note 20)
As at January 1, 2009
Net gain on exchange differences on
translation of foreign operations
Net gain on cash flow hedges, net of
tax
Net gain on available-for-sale
financial assets, net of tax
Other comprehensive income
Net income for the year
Total comprehensive income for the
year
P1,454,510
As at December 31, 2009
P1,454,510
Additional
Paid-in
Capital
(Note 20)
P5,821,288
Attributable to Equity Holders of the Parent Company
Cumulative Translation
Adjustments
Fair
Retained
Revaluation Translation
Hedging
Value
Earnings
(Note 20)
Surplus
Reserve
Reserve
Reserve
P18,219
(P66,657)
(P7,837)
P4,078
P5,584,315
Noncontrolling
Interests
Total
Equity
Treasury
Stock
(Note 20)
Total
(P182,094)
P12,625,822
P2,334,786
P14,960,608
-
-
-
12,110
-
-
-
-
12,110
4,037
16,147
-
-
-
-
7,837
-
-
-
7,837
-
7,837
-
-
-
12,110
-
7,837
-
2,191
2,191
-
2,596,963
-
2,191
22,138
2,596,963
4,037
61,504
2,191
26,175
2,658,467
-
-
-
12,110
7,837
2,191
2,596,963
-
2,619,101
65,541
2,684,642
P6,269
P8,181,278
P15,244,923
P2,400,327
P17,645,250
See Notes to the Consolidated Financial Statements.
P5,821,288
P18,219
(P54,547)
P -
(P182,094)
SAN MIGUEL PURE FOODS COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009
(Amounts in Thousands)
2011
2010
2009
P5,957,984
P5,713,096
P3,842,092
2,120,433
1,926,403
1,704,508
177,005
150,043
193,192
26
530,972
359,415
751,042
26
69,986
(393,572)
(245,624)
(105,488)
114,935
(69,141)
12
(270,478)
Note
CASH FLOWS FROM
OPERATING ACTIVITIES
Income before income tax
Adjustments for:
Depreciation and amortization
Allowance for impairment
losses on receivables and
inventory losses
Interest expense and other
financing charges
Other charges net of loss (gain)
on derivative transactions
Interest income
Equity in net earnings of an
associate
Impairment loss on property
and equipment and idle
assets
Impairment loss on investment
properties
Loss (gain) on sale of property,
plant and equipment,
investment properties and
idle assets
Operating income before
working capital changes
Decrease (increase) in:
Trade and other receivables
Inventories
Biological assets
Prepaid expenses and other
current assets
Increase (decrease) in trade
payables and other current
liabilities
Cash generated from operations
Interest paid
Income taxes paid (including
final tax)
Interest received
Net cash flows provided by
operating activities
Forward
24
26
-
-
5,800
5,426
53,873
-
-
3,114
(6,708)
32,612
24,663
7,835,883
6,618,278
(891,484)
(117,118)
(857,731)
1,417,967
(161,056)
(284,278)
(1,349,470)
(26,575)
407,911
(174,466)
(453,178)
(430,237)
(643,149)
5,507,474
(468,266)
(1,798,537)
6,556,801
(337,871)
1,706,284
6,926,191
(569,452)
(1,594,143)
310,665
(1,488,791)
85,732
(872,252)
51,720
3,755,730
4,815,871
8,191,422
5,536,207
Note
CASH FLOWS FROM
INVESTING ACTIVITIES
Net additions to investments
Acquisitions of intangible assets
Additional investment in subsidiary
Acquisitions of property, plant
and equipment
Acquisition of a subsidiary net of
cash received
Increase in biological assets and
other noncurrent assets
Proceeds from sale of property
and equipment
Net cash flows used in investing
activities
CASH FLOWS FROM
FINANCING ACTIVITIES
Proceeds from issuance of
preferred shares
Cash dividends paid
Net payments of notes payable
Proceeds from (payments of)
long-term debt
Net cash flows provided by
(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
See Notes to the Consolidated Financial Statements.
2011
2010
2009
12
15
5
(P12,907,345)
(3,128,805)
(720,605)
P (338,278)
-
P (23,132)
-
14
(597,806)
(581,073)
(651,422)
5
(97,878)
(38,615)
(1,490,611)
(1,188,333)
7,905
20
107,942
458
(882,808)
39,127
(18,935,145)
(2,038,357)
(1,517,777)
14,828,996
(1,580,015)
(170,848)
(4,183,986)
(2,850,290)
(6,591)
13,071,542
(754)
4,500,000
316,014
(2,529)
(2,850,290)
-
(2,108,627)
3,090,999
1,168,140
7,041,345
3,950,346
2,782,206
P4,932,718
P7,041,345
P3,950,346
SAN MIGUEL PURE FOODS COMPANY, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Unless Otherwise Indicated)
1. Reporting Entity
San Miguel Pure Foods Company, Inc. (“SMPFC” or the “Company”) was incorporated
in the Philippines. The accompanying consolidated financial statements comprise the
financial statements of the Company and its Subsidiaries (collectively referred to as the
“Group”). The Company is a public company under Section 17.2 of the Securities
Regulation Code and its shares are listed in the Philippine Stock Exchange (PSE). The
Group is involved in poultry operations, livestock farming and processing and selling of
meat products, processing and marketing of refrigerated and canned meat products,
manufacturing and marketing of feeds and flour products, cooking oils, breadfill, desserts
and dairy-based products, and importation and marketing of coffee and coffee-related
products. The registered office address of the Company is JMT Corporate Condominium,
ADB Ave., Ortigas Center, Pasig City.
San Miguel Corporation (SMC) is the ultimate parent company of the Group.
2. Basis of Preparation
Statement of Compliance
The consolidated financial statements have been prepared in compliance with Philippine
Financial Reporting Standards (PFRS). PFRS includes statements named PFRS and
Philippine Accounting Standards (PAS) and Philippine Interpretations from International
Financial Reporting Interpretations Committee (IFRIC), issued by the Financial
Reporting Standards Council (FRSC).
The accompanying consolidated financial statements were authorized for issue by the
Board of Directors (BOD) on March 7, 2012.
Basis of Measurement
The consolidated financial statements of the Group have been prepared on a historical
cost basis of accounting, except for the following:




derivative financial instruments are measured at fair value;
available-for-sale (AFS) financial assets are measured at fair value;
defined benefit liability is measured as the aggregate of the present value of the
defined benefit obligation and unrecognized net actuarial gain or loss less any
unrecognized past service costs and the fair value of plan assets; and
agricultural produce are measured at fair value less estimated costs to sell at the
point of harvest.
Functional and Presentation Currency
The consolidated financial statements are presented in Philippine peso, which is the
Company’s functional currency. All values are rounded off to the nearest thousand
(P000), except when otherwise indicated.
Basis of Consolidation
The consolidated financial statements include the accounts of the Company and the
following subsidiaries:
San Miguel Mills, Inc. and subsidiary (SMMI) (a)
Magnolia, Inc. and subsidiaries (Magnolia) (b)
San Miguel Foods, Inc. (SMFI)
PT San Miguel Pure Foods Indonesia (PTSMPFI)
San Miguel Super Coffeemix Co., Inc. (SMSCCI)
The Purefoods-Hormel Company, Inc. (PF-Hormel)
RealSnacks Mfg. Corp. (RealSnacks)(c)
San Miguel Pure Foods International, Limited (SMPFIL)
[including San Miguel Pure Foods Investment (BVI)
Limited (SMPFI Limited) and subsidiary, San Miguel
Hormel (Vn) Co., Ltd. (SMHVN, formerly San Miguel
Pure Foods (Vn) Co. Ltd. (SMPFVN))(d)]
SMPFC Capital Investments, Limited (SCIL)(e)
Country of
Incorporation
Philippines
Philippines
Philippines
Indonesia
Philippines
Philippines
Philippines
British Virgin
Islands
Cayman Islands
Percentage of
Ownership
2010
2011
100.00 100.00
100.00 100.00
99.97 99.97
75.00 75.00
70.00 70.00
60.00 60.00
100.00 100.00
100.00
-
100.00
100.00
(a) Golden Bay Grain Terminal Corporation (GBGTC) was incorporated as a wholly-owned subsidiary of SMMI in
November 2011 and has not yet started commercial operations (Note 5).
(b) Magnolia acquired 100% equity interest in Golden Food & Dairy Creamery Corporation (GFDCC) in
September 2011 (Note 5).
(c) Incorporated in April 2004 and has not yet started commercial operations.
(d) Consolidated with SMPFC through SMPFIL starting August 1, 2010 (Note 5).
(e) Incorporated in November 2010 and was dissolved in September 2011 (Note 5).
A subsidiary is an entity controlled by the Group. Control exists when the Group has the
power, directly or indirectly, to govern the financial and operating policies of an entity so
as to obtain benefit from its activities. In assessing control, potential voting rights that
are presently exercisable or convertible are taken into account. The financial statements
of the subsidiaries are included in the consolidated financial statements from the date
when the Group obtains control and continue to be consolidated until the date when such
control ceases.
The consolidated financial statements are prepared for the same reporting period as the
Company, using uniform accounting policies for like transactions and other events in
similar circumstances. Intergroup balances and transactions, including intergroup
unrealized profits and losses, are eliminated in preparing the consolidated financial
statements.
Non-controlling interests represent the portion of profit or loss and net assets not held by
the Group and are presented in the consolidated statements of income, consolidated
statements of comprehensive income and within equity in the consolidated statements of
financial position, separately from the Group’s equity attributable to equity holders of the
Parent Company.
Non-controlling interests represent the interests not held by the Group in SMFI,
PTSMPFI, SMSCCI, PF-Hormel and SMPFI Limited in 2011 and 2010.
-2-
3. Significant Accounting Policies
The accounting policies set out below have been applied consistently by the Group to all
periods presented in the consolidated financial statements, except for the changes in
accounting policies as explained below.
Adoption of New or Revised Standards, Amendments to Standards and Interpretations
The FRSC approved the adoption of a number of new or revised standards, amendments
to standards, and interpretations (based on IFRIC Interpretations) as part of PFRS.
Adopted Effective 2011
The Group has adopted the following PFRS starting January 1, 2011 and accordingly,
changed its accounting policies in the following areas:

Amendment to PAS 32, Financial Instruments: Presentation - Classification of
Rights Issues, permits rights, options or warrants to acquire a fixed number of the
entity’s own equity instruments for a fixed amount of any currency to be classified as
equity instruments provided the entity offers the rights, options or warrants pro rata
to all of its existing owners of the same class of its own non-derivative equity
instruments. The amendment is applicable for annual periods beginning on or after
February 1, 2010.

Philippine Interpretation IFRIC 19, Extinguishing Financial Liabilities with Equity
Instruments, addresses issues in respect of the accounting by the debtor in a debt for
equity swap transaction. It clarifies that equity instruments issued to a creditor to
extinguish all or part of a financial liability in a debt for equity swap are
consideration paid in accordance with PAS 39, Financial Instruments: Recognition
and Measurement paragraph 41. The interpretation is applicable for annual periods
beginning on or after July 1, 2010.

Revised PAS 24, Related Party Disclosures (2009), amends the definition of a
related party and modifies certain related party disclosure requirements for
government-related entities. The revised standard is effective for annual periods
beginning on or after January 1, 2011.

Prepayments of a Minimum Funding Requirement (Amendments to Philippine
Interpretation IFRIC 14: PAS 19 - The Limit on a Defined Benefit Asset, Minimum
Funding Requirements and their Interaction). These amendments remove unintended
consequences arising from the treatment of prepayments where there is a minimum
funding requirement and result in prepayments of contributions in certain
circumstances being recognized as an asset rather than an expense. The amendments
are effective for annual periods beginning on or after January 1, 2011.

Improvements to PFRS 2010 contain 11 amendments to 6 standards and
1 interpretation, of which only the following are applicable to the Group:
-
PFRS 3, Business Combinations. The amendments: (a) clarify that contingent
consideration arising in a business combination previously accounted for in
accordance with PFRS 3 (2004) that remains outstanding at the adoption date of
PFRS 3 (2008) continues to be accounted for in accordance with PFRS 3 (2004);
(b) limit the accounting policy choice to measure non-controlling interests upon
initial recognition at fair value or at the non-controlling interest’s proportionate
share of the acquiree’s identifiable net assets to instruments that give rise to a
present ownership interest and that currently entitle the holder to a share of net
assets in the event of liquidation; and (c) expand the current guidance on the
-3-
attribution of the market-based measure of an acquirer’s share-based payment
awards issued in exchange for acquiree awards between consideration transferred
and post-combination compensation cost when an acquirer is obliged to replace
the acquiree’s existing awards to encompass voluntarily replaced unexpired
acquiree awards. The amendments are effective for annual periods beginning on
or after July 1, 2010.
-
PAS 27, Consolidated and Separate Financial Statements. The amendments
clarify that the consequential amendments to PAS 21, The Effects of Changes in
Foreign Exchange Rates, PAS 28, Investments in Associates, and PAS 31,
Interests in Joint Ventures, resulting from PAS 27 (2008) should be applied
prospectively, with the exception of amendments resulting from renumbering.
The amendments are effective for annual periods beginning on or after
July 1, 2010.
-
PFRS 7, Financial Instruments: Disclosures. The amendments add an explicit
statement that qualitative disclosure should be made in the context of the
quantitative disclosures to better enable users to evaluate an entity’s exposure to
risks arising from the financial instruments. In addition, the International
Accounting Standards Board (IASB) amended and removed existing disclosure
requirements. The amendments are effective for annual periods beginning on or
after January 1, 2011.
-
PAS 1, Presentation of Financial Statements. The amendments clarify that
disaggregation of changes in each component of equity arising from transactions
recognized in other comprehensive income is also required to be presented either
in the statement of changes in equity or in the notes. The amendments are
effective for annual periods beginning on or after January 1, 2011.
-
PAS 34, Interim Financial Reporting. The amendments add examples to the list
of events or transactions that require disclosure under PAS 34 and remove
references to materiality in PAS 34 that describes other minimum disclosures.
The amendments are effective for annual periods beginning on or after
January 1, 2011.
-
Philippine Interpretation IFRIC 13, Customer Loyalty Programmes. The
amendments clarify that the fair value of award credits takes into account the
amount of discounts or incentives that otherwise would be offered to customers
that have not earned the award credits. The amendments are effective for annual
periods beginning on or after January 1, 2011.
The adoption of these foregoing new or revised standards, amendments to standards and
interpretations did not have a material effect on the consolidated financial statements.
Additional disclosures required by the revised standards, amendments to standards and
interpretations were included in the consolidated financial statements, where applicable.
-4-
New or Revised Standards, Amendments to Standards and Interpretations Not Yet
Adopted
A number of new or revised standards, amendments to standards and interpretations are
effective for annual periods beginning after January 1, 2011, and have not been applied in
preparing these consolidated financial statements. None of these is expected to have a
significant effect on the consolidated financial statements of the Group, except for
PFRS 9, Financial Instruments, which becomes mandatory for the Group’s 2015
consolidated financial statement and could change the classification and measurement of
financial assets. The Group does not plan to adopt this standard early and the extent of
the impact has not been determined.
The Group will adopt the following new or revised standards, amendments to standards
and interpretations in the respective effective dates:

Disclosures - Transfers of Financial Assets (Amendments to PFRS 7) requires
additional disclosures about transfers of financial assets. The amendments require
disclosure of information that enables users of the consolidated financial statements
to understand the relationship between transferred financial assets that are not
derecognized in their entirety and the associated liabilities; and to evaluate the nature
of, and risks associated with, the entity’s continuing involvement in derecognized
financial assets. Entities are required to apply the amendments for annual periods
beginning on or after July 1, 2011.

Deferred Tax: Recovery of Underlying Assets (Amendments to PAS 12, Income
Taxes) introduces an exception to the current measurement principles of deferred tax
assets and liabilities arising from investment property measured using the fair value
model in accordance with PAS 40, Investment Property. The exception also applies
to investment properties acquired in a business combination accounted for in
accordance with PFRS 3 provided the acquirer subsequently measure these assets
applying the fair value model. The amendments integrated the guidance of Philippine
Interpretation Standards Interpretation Committee (SIC) - 21, Income Taxes Recovery of Revalued Non-Depreciable Assets into PAS 12, and as a result
Philippine Interpretation SIC - 21 has been withdrawn. The effective date of the
amendments is for periods beginning on or after January 1, 2012 and is applied
retrospectively.

Presentation of Items of Other Comprehensive Income (Amendments to PAS 1). The
amendments: (a) require that an entity present separately the items of other
comprehensive income that would be reclassified to profit or loss in the future if
certain conditions are met from those that would never be reclassified to profit or
loss; (b) do not change the existing option to present profit or loss and other
comprehensive income in two statements; and, (c) change the title of the statement of
comprehensive income to the statement of profit or loss and other comprehensive
income. However, an entity is still allowed to use other titles. The amendments do
not address which items are presented in other comprehensive income or which items
need to be reclassified. The requirements of other PFRSs continue to apply in this
regard. The effective date of the amendments is for periods beginning on or after
January 1, 2013.
-5-

PFRS 10, Consolidated Financial Statements. PFRS 10 introduces a new approach
to determining which investees should be consolidated and provides a single model
to be applied in the control analysis for all investees. An investor controls an
investee when: (a) it is exposed or has rights to variable returns from its involvement
with that investee; (b) it has the ability to affect those returns through its power over
that investee; and (c) there is a link between power and returns. Control is reassessed
as facts and circumstances change. PFRS 10 supersedes PAS 27 (2008). The new
standard is effective for annual periods beginning on or after January 1, 2013.

PFRS 11, Joint Arrangements. PFRS 11 focuses on the rights and obligations of joint
arrangements, rather than the legal form (as is currently the case). It (a) distinguishes
joint arrangements between joint operations and joint ventures; and (b) always
requires the equity method for jointly controlled entities that are now called joint
ventures; they are stripped of the free choice of using the equity method or
proportionate consolidation. PFRS 11 supersedes PAS 31, Interest in Joint Ventures
and Philippine Interpretation SIC-13, Jointly Controlled Entities - Non-Monetary
Contributions by Venturers. The new standard is effective for annual periods
beginning on or after January 1, 2013.

PFRS 12, Disclosure of Interests in Other Entities. PFRS 12 contains the disclosure
requirements for entities that have interests in subsidiaries, joint arrangements
(i.e. joint operations or joint ventures), associates and/or unconsolidated structured
entities, aiming to provide information to enable users to evaluate the nature of, and
risks associated with, an entity’s interests in other entities; and the effects of those
interests on the entity’s financial position, financial performance and cash flows. The
new standard is effective for annual periods beginning on or after January 1, 2013.

PFRS 13, Fair Value Measurement. PFRS 13 replaces the fair value measurement
guidance contained in individual PFRS with a single source of fair value
measurement guidance. It defines fair value, establishes a framework for measuring
fair value and sets out disclosure requirements for fair value measurements. It
explains how to measure fair value when it is required or permitted by other PFRS.
It does not introduce new requirements to measure assets or liabilities at fair value
nor does it eliminate the practicability exceptions to fair value measurements that
currently exist in certain standards. The new standard is effective for annual periods
beginning on or after January 1, 2013. Early application is permitted and is required
to be disclosed.

PAS 19, Employee Benefits (amended 2011). The amended PAS 19 includes the
following requirements: (a) actuarial gains and losses are recognized immediately in
other comprehensive income; this change will remove the corridor method and
eliminate the ability for entities to recognize all changes in the defined benefit
obligation and in plan assets in profit or loss, which is currently allowed under PAS
19; and, (b) expected return on plan assets recognized in profit or loss is calculated
based on the rate used to discount the defined benefit obligation. The adoption of the
amendment is required for annual periods beginning on or after January 1, 2013.

PAS 27, Separate Financial Statements (2011). PAS 27 (2011) supersedes
PAS 27 (2008). PAS 27 (2011) carries forward the existing accounting and
disclosure requirements for separate financial statements, with some minor
clarifications. The adoption of the amendment is required for annual periods
beginning on or after January 1, 2013.
-6-

PAS 28, Investments in Associates and Joint Ventures (2011). PAS 28 (2011)
supersedes PAS 28 (2008). PAS 28 (2011) makes the following amendments:
(a) PFRS 5, Noncurrent Assets Held for Sale applies to an investment, or a portion of
an investment, in an associate or a joint venture that meets the criteria to be classified
as held for sale; and, (b) on cessation of significant influence or joint control, even if
an investment in an associate becomes an investment in a joint venture or vice versa,
the entity does not remeasure the retained interest. The adoption of the amendment is
required for annual periods beginning on or after January 1, 2013.

PFRS 9, Financial Instruments. PFRS 9 (2009) is the first standard issued as part of
a wider project to replace PAS 39. PFRS 9 (2009) retains but simplifies the mixed
measurement model and establishes two primary measurement categories for
financial assets: amortized cost and fair value. The basis of classification depends on
the entity’s business model and the contractual cash flow characteristics of the
financial asset. The guidance in PAS 39 on impairment of financial assets and hedge
accounting continues to apply. Prior periods need not be restated if an entity adopts
the standard for reporting periods beginning before January 1, 2012. PFRS 9 (2010)
adds the requirements related to the classification and measurement of financial
liabilities, and derecognition of financial assets and liabilities to the version issued in
November 2009. It also includes those paragraphs of PAS 39 dealing with how to
measure fair value and accounting for derivatives embedded in a contract that
contains a host that is not a financial asset, as well as the requirements of Philippine
Interpretation - IFRIC 9, Reassessment of Embedded Derivatives. The adoption of
the amendment is required for annual periods beginning on or after January 1, 2015.
The Group will assess the impact of the new or revised standards, amendments to
standards and interpretations on the consolidated financial statements upon adoption in
their respective effective dates.
Financial Assets and Financial Liabilities
Date of Recognition. The Group recognizes a financial asset or a financial liability in the
consolidated statements of financial position 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 is done using settlement date accounting.
Initial Recognition of Financial Instruments. Financial instruments are recognized
initially at fair value of the consideration given (in case of an asset) or received (in case
of a liability). The initial measurement of financial instruments, except for those
designated at fair value through profit or loss (FVPL), includes transaction costs.
The Group classifies its financial assets in the following categories: held-to-maturity
(HTM) investments, AFS financial assets, financial assets at FVPL, and loans and
receivables. The Group classifies its financial liabilities as either financial liabilities at
FVPL or other financial liabilities. The classification depends on the purpose for which
the investments are acquired and whether they are quoted in an active market.
Management determines the classification of its financial assets and financial liabilities at
initial recognition and, where allowed and appropriate, re-evaluates such designation at
every reporting date.
-7-
Determination of Fair Value. The fair value of financial instruments traded in active
markets at the reporting date is based on their quoted market price or dealer price
quotations (bid price for long positions and ask price for short positions), without any
deduction for transaction costs. When current bid and ask prices are not available, the
price of the most recent transaction provides evidence of the current fair value as long as
there is no significant change in economic circumstances since the time of the
transaction.
For all other financial instruments not listed in an active market, the fair value is
determined by using appropriate valuation techniques. Valuation techniques include the
discounted cash flow method, comparison to similar instruments for which market
observable prices exist, options pricing models, and other relevant valuation models.
‘Day 1’ Profit. Where the transaction price in a non-active market is different from the
fair value of the other observable current market transactions in the same instrument or
based on a valuation technique whose variables include only data from observable
market, the Group recognizes the difference between the transaction price and fair value
(a ‘Day 1’ profit) in profit or loss unless it qualifies for recognition as some other type of
asset. In cases where the transaction price used is based on data which are not observable,
the difference between the transaction price and model value is only recognized in profit
or loss when the inputs become observable or when the instrument is derecognized. For
each transaction, the Group determines the appropriate method of recognizing the
‘Day 1’ profit amount.
Financial Assets
Financial Assets at FVPL. A financial asset is classified at FVPL if it is classified as held
for trading or is designated as such upon initial recognition. Financial assets are
designated at FVPL if the Group manages such investments and makes purchase and sale
decisions based on their fair value in accordance with the Group’s documented risk
management or investment strategy. Derivative instruments (including embedded
derivatives), except those covered by hedge accounting relationships, are classified under
this category.
Financial assets are classified as held for trading if they are acquired for the purpose of
selling in the near term.
Financial assets may be designated by management at initial recognition as at FVPL
when any of the following criteria is met:

the designation eliminates or significantly reduces the inconsistent treatment that
would otherwise arise from measuring the assets or recognizing gains or losses on a
different basis;

the assets are part of a group of financial assets which are managed and their
performances 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 recognized.
-8-
The Group carries financial assets at FVPL using their fair values. Attributable
transaction costs are recognized in profit or loss as incurred. Fair value changes and
realized gains or losses are recognized in profit or loss. Fair value changes from
derivatives accounted for as part of an effective accounting hedge are recognized in other
comprehensive income and presented under the “Cumulative translation adjustments
(CTA) - Hedging reserve” account in equity. Any interest earned shall be recognized as
part of “Interest income” in the consolidated statements of income. Any dividend income
from equity securities classified as FVPL shall be recognized in profit or loss when the
right to receive payment has been established.
The Group’s derivative assets are classified under this category.
The carrying amounts of derivative assets amounted to P31.9 million and P107.6 million
as at December 31, 2011 and 2010, respectively (Note 33).
Loans and Receivables. Loans and receivables are non-derivative financial assets with
fixed or determinable payments and maturities that are not quoted in an active market.
They are not entered into with the intention of immediate or short-term resale and are not
designated as AFS financial assets or financial assets at FVPL.
Subsequent to initial measurement, loans and receivables are carried at amortized cost
using the effective interest rate method, less any impairment in value. Any interest earned
on loans and receivables shall be recognized as part of “Interest income” in the
consolidated statements of income on an accrual basis. Amortized cost is calculated by
taking into account any discount or premium on acquisition and fees that are integral part
of the effective interest rate. The periodic amortization is also included as part of
“Interest income” in the consolidated statements of income. Gains or losses are
recognized in profit or loss when loans and receivables are derecognized or impaired, as
well as through the amortization process.
Cash includes cash on hand and in banks which are stated at face value. Cash equivalents
are short-term, highly liquid investments that are readily convertible to known amounts
of cash which are subject to an insignificant risk of change in value.
The Group’s cash and cash equivalents and trade and other receivables are included in
this category (Notes 7 and 8).
The combined carrying amounts of financial assets under this category amounted to
P13,632.9 million and P14,801.6 million as at December 31, 2011 and 2010, respectively
(Note 33).
HTM Investments. HTM investments are quoted non-derivative financial assets with
fixed or determinable payments and fixed maturities for which the Group’s management
has the positive intention and ability to hold to maturity. Where the Group sells other
than an insignificant amount of HTM investments, the entire category would be tainted
and reclassified as AFS financial assets. After initial measurement, these investments are
measured at amortized cost using the effective interest rate method, less impairment in
value. Any interest earned on the HTM investments shall be recognized as part of
“Interest income” in the consolidated statements of income on an accrual basis.
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. The periodic
amortization is also included as part of “Interest income” in the consolidated statements
of income. Gains or losses are recognized in profit or loss when the HTM investments are
derecognized or impaired, as well as through the amortization process.
As at December 31, 2011 and 2010, the Group has no investments accounted for under
this category.
-9-
AFS Financial Assets. AFS financial assets are non-derivative financial assets that are
either designated in this category or are not classified in any of the other financial asset
categories. Subsequent to initial recognition, AFS financial assets are measured at fair
value and changes therein, other than impairment losses and foreign currency differences
on AFS debt instruments, are recognized in other comprehensive income and presented
in the “CTA - Fair value reserve” in equity. The effective yield component of AFS debt
securities is reported as part of “Interest income” in the consolidated statements of
income. Dividends earned on holding AFS equity securities are recognized as “Dividend
income” when the right to receive payment has been established. When individual AFS
financial assets are either derecognized or impaired, the related accumulated unrealized
gains or losses previously reported in equity are transferred to and recognized in profit or
loss.
AFS financial assets also include unquoted equity instruments with fair values which
cannot be reliably determined. These instruments are carried at cost less impairment in
value, if any.
The Group’s investments in shares of stock included under “Other noncurrent assets” are
classified under this category.
The carrying amounts of financial assets under this category amounted to P8.9 million
and P11.2 million as at December 31, 2011 and 2010, respectively (Note 33).
Financial Liabilities
Financial Liabilities at FVPL. Financial liabilities are classified under this category
through the fair value option. Derivative instruments (including embedded derivatives)
with negative fair values, except those covered by hedge accounting relationships, are
also classified under this category.
The Group carries financial liabilities at FVPL using their fair values and reports fair
value changes in profit or loss. Fair value changes from derivatives accounted for as part
of an effective accounting hedge are recognized in other comprehensive income and
presented under the “CTA - Hedging reserve” account in equity. Any interest expense
incurred shall be recognized as part of “Interest expense” in the consolidated statements
of income.
The Group’s derivative liabilities are classified under this category (Note 18).
The carrying amounts of financial liabilities under this category amounted to
P28.7 million and P3.1 million as at December 31, 2011 and 2010, respectively
(Note 33).
Other Financial Liabilities. This category pertains to financial liabilities that are not
designated or classified as at FVPL. After initial measurement, other financial liabilities
are carried at amortized cost using the effective interest rate method. Amortized cost is
calculated by taking into account any premium or discount and any directly attributable
transaction costs that are considered an integral part of the effective interest rate of the
liability.
Included in this category are the Group’s liabilities arising from its trade or borrowings
such as notes payable, trade payables and other current liabilities, long-term debt and
other noncurrent liabilities (Notes 17, 18, 19 and 33).
The combined carrying amounts of financial liabilities under this category amounted to
P20,651.0 million and P24,779.1 million as at December 31, 2011 and 2010, respectively
(Note 33).
- 10 -
Debt Issue Costs
Debt issue costs are considered as an adjustment to the effective yield of the related debt
and are deferred and amortized using the effective interest rate method. When a loan is
paid, the related unamortized debt issue costs at the date of repayment are recognized in
profit or loss.
Derivative Financial Instruments and Hedging
Freestanding Derivatives
For the purpose of hedge accounting, hedges are classified as either: a) fair value hedges
when hedging the exposure to changes in the fair value of a recognized asset or liability
or an unrecognized firm commitment (except for foreign currency risk); b) cash flow
hedges when hedging exposure to variability in cash flows that is either attributable to a
particular risk associated with a recognized asset or liability or a highly probable forecast
transaction or the foreign currency risk in an unrecognized firm commitment; or
c) hedges of a net investment in foreign operations.
At the inception of a hedge relationship, the Group formally designates and documents
the hedge relationship to which the Group wishes to apply hedge accounting and the risk
management objective and strategy for undertaking the hedge. The documentation
includes identification of the hedging instrument, the hedged item or transaction, the
nature of the risk being hedged and how the entity will assess the hedging instrument’s
effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash
flows attributable to the hedged risk. Such hedges are expected to be highly effective in
achieving offsetting changes in fair value or cash flows and are assessed on an ongoing
basis to determine that they actually have been highly effective throughout the financial
reporting periods for which they were designated.
Fair Value Hedge. Derivatives classified as fair value hedges are carried at fair value
with corresponding change in fair value recognized in profit or loss. The carrying amount
of the hedged asset or liability is also adjusted for changes in fair value attributable to the
hedged item and the gain or loss associated with that remeasurement is also recognized in
profit or loss.
When the hedge ceases to be highly effective, hedge accounting is discontinued and the
adjustment to the carrying amount of a hedged financial instrument is amortized
immediately.
The Group discontinues fair value hedge accounting if the hedging instrument expires, is
sold, terminated or exercised, the hedge no longer meets the criteria for hedge accounting
or the Group revokes the designation.
As at December 31, 2011 and 2010, the Group has no outstanding derivatives accounted
for as fair value hedges.
Cash Flow Hedge. Changes in the fair value of a hedging instrument that qualifies as a
highly effective cash flow hedge are recognized in other comprehensive income and
presented under the “CTA - Hedging reserve” account in equity. The ineffective portion
is immediately recognized in profit or loss.
If the hedged cash flow results in the recognition of an asset or a liability, all gains or
losses previously recognized directly in equity are transferred from equity and included
in the initial measurement of the cost or carrying amount of the asset or liability.
Otherwise, for all other cash flow hedges, gains or losses initially recognized in equity
are transferred from equity to profit or loss in the same period or periods during which
the hedged forecasted transaction or recognized asset or liability affects profit or loss.
- 11 -
When the hedge ceases to be highly effective, hedge accounting is discontinued
prospectively. The cumulative gain or loss on the hedging instrument that has been
reported directly in equity is retained in equity until the forecasted transaction occurs.
When the forecasted transaction is no longer expected to occur, any net cumulative gain
or loss previously reported in equity is recognized in profit or loss.
As at December 31, 2011 and 2010, the Group has no outstanding derivatives accounted
for as cash flow hedges.
Net Investment Hedge. As at December 31, 2011 and 2010, the Group has no hedge of a
net investment in a foreign operation.
For derivatives that do not qualify for hedge accounting, any gains or losses arising from
changes in fair value of derivatives are taken directly to profit or loss during the year
incurred.
Embedded Derivatives
The Group assesses whether embedded derivatives are required to be separated from host
contracts when the Group becomes a party to the contract.
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. Reassessment only occurs if there is a
change in the terms of the contract that significantly modifies the cash flows that would
otherwise be required.
Derecognition of Financial Assets and Financial Liabilities
Financial Assets. A financial asset (or, where applicable, a part of a financial asset or part
of a group of similar financial assets) is derecognized when:

the rights to receive cash flows from the asset have expired;

the Group retains the right to receive cash flows from the asset, but has assumed
an obligation to pay them in full without material delay to a third party under a
‘pass-through’ arrangement; or

the Group has transferred its rights to receive cash flows from the asset and
either: (a) has transferred substantially all the risks and rewards of the asset; or
(b) has neither transferred nor retained substantially all the risks and rewards of
the asset, but has transferred control of the asset.
When the Group has transferred its rights 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 Group’s
continuing involvement in the asset. Continuing involvement that takes the form of a
guarantee over the transferred asset is measured at the lower of the original carrying
amount of the asset and the maximum amount of consideration that the Group could be
required to repay.
- 12 -
Financial Liabilities. A financial liability is derecognized when the obligation under the
liability is discharged, cancelled or expired. When 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.
The difference in the respective carrying amounts is recognized in profit or loss.
Impairment of Financial Assets
The Group assesses at reporting date whether a financial asset or group of financial assets
is impaired.
A financial asset or a group of financial assets is deemed to be impaired if, and only if,
there is objective evidence of impairment as a result of one or more events that have
occurred after the initial recognition of the asset (an incurred loss event) and that loss
event has an impact on the estimated future cash flows of the financial asset or the group
of financial assets that can be reliably estimated.
Assets Carried at Amortized Cost. For assets carried at amortized cost such as loans and
receivables, the Group first assesses whether objective evidence of impairment exists
individually for financial assets that are individually significant, or collectively for
financial assets that are not individually significant. If no objective evidence of
impairment has been identified for a particular financial asset that was individually
assessed, the Group includes the asset as part of a group of financial assets pooled
according to their credit risk characteristics and collectively assesses the group 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 the collective
impairment assessment.
Evidence of impairment for specific impairment purposes may include indications that
the borrower or a group of borrowers is experiencing financial difficulty, default or
delinquency in principal or interest payments, or may enter into bankruptcy or other form
of financial reorganization intended to alleviate the financial condition of the borrower.
For collective impairment purposes, evidence of impairment may include observable data
on existing economic conditions or industry-wide developments indicating that there is a
measurable decrease in the estimated future cash flows of the related assets.
If there is objective evidence of impairment, the amount of 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) discounted at the financial asset’s original
effective interest rate (i.e., the effective interest rate computed at initial recognition).
Time value is generally not considered when the effect of discounting the cash flows is
not material. If a loan or receivable has a variable rate, the discount rate for measuring
any impairment loss is the current effective interest rate, adjusted for the original credit
risk premium. For collective impairment purposes, impairment loss is computed based
on their respective default and historical loss experience.
The carrying amount of the asset shall be reduced either directly or through use of an
allowance account. The impairment loss for the period shall be recognized in profit or
loss. If, in a subsequent period, the amount of the impairment loss decreases and the
decrease can be related objectively to an event occurring after the impairment was
recognized, the previously recognized impairment loss is reversed. Any subsequent
reversal of an impairment loss is recognized in profit or loss, to the extent that the
carrying amount of the asset does not exceed its amortized cost at the reversal date.
- 13 -
AFS Financial Assets. If an AFS financial asset is impaired, an amount comprising the
difference between the cost (net of any principal payment and amortization) and its
current fair value, less any impairment loss on that financial asset previously recognized
in profit or loss, is transferred from equity to profit or loss. Reversals in respect of equity
instruments classified as AFS financial assets are not recognized in profit or loss.
Reversals of impairment losses on debt instruments are recognized in profit or loss, if the
increase in fair value of the instrument can be objectively related to an event occurring
after the impairment loss was recognized in profit or loss.
In the case of an unquoted equity instrument or of a derivative asset linked to and must
be settled by delivery of an unquoted equity instrument, for which its fair value cannot be
reliably measured, the amount of impairment loss is measured as the difference between
the asset’s carrying amount and the present value of estimated future cash flows from the
asset discounted using its historical effective rate of return on the asset.
Classification of Financial Instruments Between Debt and Equity
From the perspective of the issuer, a financial instrument is classified as debt instrument
if it provides for a contractual obligation to:

deliver cash or another financial asset to another entity;

exchange financial assets or financial liabilities with another entity under
conditions that are potentially unfavorable to the Group; or

satisfy the obligation other than by the exchange of a fixed amount of cash or
another financial asset for a fixed number of own equity shares.
If the Group does not have an unconditional right to avoid delivering cash or another
financial asset to settle its contractual obligation, the obligation meets the definition of a
financial liability.
Offsetting Financial Instruments
Financial assets and financial liabilities are offset and the net amount is reported in the
consolidated statements of financial position 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 at gross in the consolidated statements of financial position.
Inventories
Inventories are valued at the lower of cost and net realizable value.
Costs incurred in bringing each inventory to its present location and condition are
accounted for as follows:
Finished goods and goods in
process
-
Raw materials, feeds, feed
ingredients, factory supplies and
others
-
at cost using the moving average method;
includes direct materials and labor and a
proportion of manufacturing overhead costs
based on normal operating capacity but
excluding borrowing costs; finished goods
also include unrealized gain (loss) on fair
valuation of agricultural produce;
at cost using the moving average method
- 14 -
Net realizable value of finished goods is the estimated selling price in the ordinary course
of business less the estimated costs necessary to make the sale. Net realizable value of
goods in process is the estimated selling price in the ordinary course of business, less the
estimated costs of completion and the estimated costs necessary to make the sale.
Net realizable value of raw materials, feeds, feed ingredients, factory supplies and others
is the current replacement cost.
Biological Assets and Agricultural Produce
The Group’s biological assets include breeding, growing poultry livestock, hogs and
cattle and goods in process which are grouped according to their physical state,
transformation capacity (breeding, growing or laying), as well as their particular stage in
the production process.
Growing poultry livestock, hogs and cattle, and goods in process are carried at
accumulated costs while breeding stocks are carried at accumulated costs net of
amortization and any impairment in value. The costs and expenses incurred up to the
start of the productive stage are accumulated and amortized over the estimated productive
lives of the breeding stocks. The Group uses this method of valuation since fair value
cannot be measured reliably. The Group’s biological assets have no active market and no
active market for similar assets prior to point of harvest are available in the Philippine
poultry and hog industries. Further, the existing sector benchmarks are determined to be
irrelevant and the estimates (i.e., revenues due to highly volatile prices, input costs,
efficiency values, production) necessary to compute for the present value of expected net
cash flows comprise a wide range of data which will not result in a reliable basis for
determining the fair value.
The carrying amounts of the biological assets are reviewed for impairment when events
or changes in circumstances indicate that the carrying amounts may not be recoverable.
The Group’s agricultural produce, which consists of grown broilers and marketable hogs
and cattle harvested from the Group’s biological assets, are measured at their fair value
less estimated costs to sell at the point of harvest. The fair value of grown broilers is
based on the quoted prices for harvested mature grown broilers in the market at the time
of harvest. For marketable hogs and cattle, the fair value is based on the quoted prices in
the market at any given time.
The Group in general, does not carry any inventory of agricultural produce at any given
time as these are either sold as live broilers, hogs and cattle or transferred to the different
poultry or meat processing plants and immediately transformed into processed or dressed
chicken and carcass.
Amortization is computed using straight-line method over the following estimated
productive lives of breeding stocks:
Number of Years
3 years or 6 births,
whichever is shorter
2.5 - 3 years
2.5 - 3 years
40 - 44 weeks
Hogs - sow
Hogs - boar
Cattle
Poultry breeding stock
- 15 -
Business Combination
Acquisitions on or After January 1, 2010
Business combinations are accounted for using the acquisition method as at the
acquisition date, which is the date on which control is transferred to the Group. Control
is the power to govern the financial and operating policies of an entity so as to obtain
benefits from its activities. In assessing control, the Group takes into consideration
potential voting rights that currently are exercisable.
If the business combination is achieved in stages, the acquisition date fair value of the
acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the
acquisition date through profit or loss.
For acquisitions on or after January 1, 2010, the Group measures goodwill at the
acquisition date as: (a) the fair value of the consideration transferred; plus (b) the
recognized amount of any non-controlling interests in the acquiree; plus (c) if the
business combination is achieved in stages, the fair value of the existing equity interest in
the acquiree; less (d) the net recognized amount (generally fair value) of the identifiable
assets acquired and liabilities assumed. When the excess is negative, a bargain purchase
gain is recognized immediately in profit or loss. Subsequently, goodwill is measured at
cost less any accumulated impairment in value. Goodwill is reviewed for impairment,
annually or more frequently, if events or changes in circumstances indicate that the
carrying amount may be impaired.
The consideration transferred does not include amounts related to the settlement of
pre-existing relationships. Such amounts are generally recognized in profit or loss. Costs
related to the acquisition, other than those associated with the issue of debt or equity
securities, that the Group incurs in connection with a business combination are expensed
as incurred. Any contingent consideration payable is measured at fair value at the
acquisition date. If the contingent consideration is classified as equity, it is not
remeasured and settlement is accounted for within equity. Otherwise, subsequent changes
to the fair value of the contingent consideration are recognized in profit or loss.

Goodwill in a Business Combination
Goodwill acquired in a business combination is, from the acquisition date, allocated
to each of the cash-generating units, or groups of cash-generating units that are
expected to benefit from the synergies of the combination, irrespective of whether
other assets or liabilities are assigned to those units or groups of units. Each unit or
group of units to which the goodwill is so allocated:

represents the lowest level within the Group at which the goodwill is monitored
for internal management purposes; and

is not larger than an operating segment determined in accordance with PFRS 8,
Operating Segments.
Impairment is determined by assessing the recoverable amount of the cashgenerating unit or group of cash-generating units, to which the goodwill relates.
Where the recoverable amount of the cash-generating unit or group of cashgenerating units is less than the carrying amount, an impairment loss is recognized.
Where goodwill forms part of a cash-generating unit or group of cash-generating
units and part of the operation within that unit is disposed of, the goodwill associated
with the operation disposed of is included in the carrying amount of the operation
when determining the gain or loss on disposal of the operation. Goodwill disposed of
in this circumstance is measured based on the relative values of the operation
disposed of and the portion of the cash-generating unit retained. An impairment loss
with respect to goodwill is not reversed.
- 16 -

Intangible Assets Acquired in a Business Combination
The cost of intangible assets acquired in a business combination is the fair value as at
the date of acquisition, determined using discounted cash flows as a result of the
asset being owned.
Following initial recognition, intangible assets are carried at cost less any
accumulated amortization and impairment losses, if any. The useful lives of
intangible assets are assessed to be either finite or indefinite.
Intangible assets with finite lives are amortized over the useful economic life and
assessed for impairment whenever there is an indication that the intangible assets
may be impaired. The amortization period and the amortization method for intangible
assets with finite useful lives are reviewed at least at each reporting date. Changes in
the expected useful lives or the expected pattern of consumption of future economic
benefits embodied in the assets are accounted for by changing the amortization
period or method, as appropriate, and are treated as changes in accounting estimates.
The amortization expense on intangible assets with finite lives is recognized in profit
or loss.

Loss of Control
Upon the loss of control, the Group derecognizes the assets and liabilities of the
subsidiary, any non-controlling interests and the other components of equity related
to the subsidiary. Any surplus or deficit arising on the loss of control is recognized in
profit or loss. If the Group retains any interest in the previous subsidiary, then such
interest is measured at fair value at the date that control is lost. Subsequently, it is
accounted for as an equity-accounted investee or as an available-for-sale financial
asset depending on the level of influence retained.
Acquisitions Prior to January 1, 2010
In comparison to the foregoing requirements, the following differences applied:

Business combinations were accounted for using the purchase method. Transaction
costs directly attributable to the acquisition formed part of the acquisition costs.

The non-controlling interest was measured at the proportionate share of the
acquiree’s identifiable net assets.

Business combinations achieved in stages were accounted for as separate steps. Any
additional acquired share of interest did not affect previously recognized goodwill.

Contingent consideration was recognized if, and only if, the Group had a present
obligation, the economic outflow was more likely than not and a reliable estimate
was determinable. Subsequent adjustments to the contingent consideration were
recognized as part of goodwill.
Transactions under Common Control
Transactions under common control entered into in contemplation of each other, and
business combination under common control designed to achieve an overall commercial
effect are treated as a single transaction.
Transfers of assets between commonly controlled entities are accounted for using the
book value accounting.
- 17 -
Non-controlling Interests
For acquisitions of non-controlling interests on or after January 1, 2010, the acquisitions
are accounted for as transactions with owners in their capacity as owners and therefore no
goodwill is recognized as a result of such transactions. Any difference between the
purchase price and the net assets of acquired entity is recognized in equity. The
adjustments to non-controlling interests are based on a proportionate amount of the net
assets of the subsidiary.
Investment in an Associate
The Group’s investment in an associate is accounted for under the equity method of
accounting from the date when it becomes an associate. An associate is an entity in which
the Group has significant influence and which is neither a subsidiary nor a joint venture.
Significant influence is presumed to exist when the Group holds between 20 and 50
percent of the voting power of another entity.
Under the equity method, the investment in an associate is initially recognized at cost and
the carrying amount is increased or decreased to recognize the Group’s share of the profit
or loss of the associate after the date of acquisition. The Group’s share of the profit or
loss of the associate is recognized in the Group’s profit or loss. Dividends received from
an associate reduce the carrying amount of the investment. Adjustments to the carrying
amount, may also be necessary for changes in the Group’s proportionate interest in the
associate arising from changes in the associate’s other comprehensive income. Such
changes include those arising from the revaluation of property, plant and equipment and
from foreign exchange translation differences. The Group’s share of those changes is
recognized in other comprehensive income.
Goodwill relating to an associate is included in the carrying amount of the investment
and is not amortized.
After application of the equity method, the Group determines whether it is necessary to
recognize any additional impairment loss with respect to the Group’s net investment in
the associate. Profits and losses resulting from transactions between the Group and the
associate are eliminated to the extent of the interest in the associate.
Upon acquisition of the investment, any difference between the cost of the investment
and the investor’s share in the net fair value of the associate’s identifiable assets,
liabilities and contingent liabilities is accounted for in accordance with PFRS 3.
Consequently:
a. goodwill that forms part of the carrying amount of an investment in an associate is
not recognized separately, and therefore is not tested for impairment separately.
Instead, the entire amount of the investment in an associate is tested for impairment
as a single asset when there is objective evidence that the investment in an associate
may be impaired.
b. any excess of the Group’s share in the net fair value of the associate’s identifiable
assets, liabilities and contingent liabilities over the cost of the investment is excluded
from the carrying amount of the investment and is instead included as income in the
determination of the Group’s share in the associate’s profit or loss in the period in
which the investment is acquired.
- 18 -
The Group discontinues applying the equity method when its investment in an associate
is reduced to zero. Additional losses are provided only to the extent that the Group has
incurred obligations or made payments on behalf of the associate to satisfy obligations of
the associate that the Group has guaranteed or otherwise committed. If the associate
subsequently reports profits, the Group resumes applying the equity method only after its
share of the profits equals the share of net losses not recognized during the period the
equity method was suspended.
The financial statements of the associate are prepared for the same reporting period as the
Company. The accounting policies of the associate conform to those used by the Group
for like transactions and events in similar circumstances.
Property, Plant and Equipment
Property, plant and equipment, except land, are stated at cost less accumulated
depreciation and any accumulated impairment in value. Such cost includes the cost of
replacing part of the property, plant and equipment at the time that cost is incurred, if the
recognition criteria are met, and excludes the costs of day-to-day servicing. Land is stated
at cost less any impairment in value.
The initial cost of property, plant and equipment comprises its construction cost or
purchase price, including import duties, taxes and any directly attributable costs in
bringing the asset to its working condition and location for its intended use. Cost also
includes any related asset retirement obligation and interest incurred during the
construction period on funds borrowed to finance the construction of the projects.
Expenditures incurred after the asset has been put into operation, such as repairs,
maintenance and overhaul costs, are normally recognized as expense in the period the
costs are incurred. Major repairs are capitalized as part of property, plant and equipment
only when it is probable that future economic benefits associated with the items will flow
to the Group and the cost of the items can be measured reliably.
Construction in progress represents structures under construction and is stated at cost.
This includes the costs of construction and other direct costs. Borrowing costs that are
directly attributable to the construction of plant and equipment are capitalized during the
construction period. Construction in progress is not depreciated until such time that the
relevant assets are ready for use.
Depreciation is computed using the straight-line method over the following estimated
useful lives of the assets:
Land improvements
Buildings and improvements
Machinery and equipment
Office furniture and equipment
Transportation equipment
Factory furniture, equipment and others
Number of Years
5 - 10
5 - 50
5 - 20
3-5
5
3-5
The remaining useful lives, residual values and depreciation method are reviewed and
adjusted periodically, if appropriate, to ensure that such periods and method of
depreciation are consistent with the expected pattern of economic benefits from the items
of property, plant and equipment.
The carrying amounts of property, plant and equipment are reviewed for impairment
when events or changes in circumstances indicate that the carrying amounts may not be
recoverable.
- 19 -
Fully depreciated assets are retained in the accounts until they are no longer in use and no
further depreciation is recognized in profit or loss.
An item of property, plant and equipment is derecognized when either it has been
disposed of or when it is permanently withdrawn from use and no future economic
benefits are expected from its use or disposal. Any gain or loss arising on the retirement
and disposal of an item of property, plant and equipment (calculated as the difference
between the net disposal proceeds and the carrying amount of the asset) is included in
profit or loss in the period of retirement or disposal.
Investment Properties
Investment properties consist of properties held to earn rentals and/or for capital
appreciation but not for sale in the ordinary course of business, used in the production or
supply of goods or services or for administrative purposes. Investment properties, except
for land, are measured at cost, including transaction costs, less accumulated depreciation
and any accumulated impairment in value. The carrying amount includes the cost of
replacing part of an existing investment property at the time the cost is incurred, if the
recognition criteria are met, and excludes the costs of day-to-day servicing of an
investment property. Land is stated at cost less any impairment in value.
Depreciation of buildings and improvements is computed using the straight-line method
over 20 to 40 years.
The residual values, useful lives and method of depreciation of the assets are reviewed
and adjusted if appropriate, at each reporting date.
Investment property is derecognized either when it has been disposed of or when it is
permanently withdrawn from use and no future economic benefit is expected from its
disposal. Any gains and losses on the retirement and disposal of investment property are
recognized in profit or loss in the period of retirement or disposal.
Transfers are made to investment property when, and only when, there is a change in use,
evidenced by ending of owner’s occupation or commencement of an operating lease to
another party. Transfers are made from investment property when, and only when, there
is a change in use, evidenced by commencement of the owner’s occupation or
commencement of development with a view to sale.
For a transfer from investment property to owner-occupied property or inventories, the
cost of property for subsequent accounting is its carrying amount at the date of change in
use. If the property occupied by the Group as an owner-occupied property becomes an
investment property, the Group accounts for such property in accordance with the policy
stated under property, plant and equipment up to the date of change in use.
Intangible Assets
Intangible assets acquired separately are measured on initial recognition at cost.
Subsequently, intangible assets are measured at cost less accumulated amortization and
any accumulated impairment losses. Internally generated intangible assets, excluding
capitalized development costs, are not capitalized and expenditure is recognized in profit
or loss in the year in which the related expenditure is incurred. The useful lives of
intangible assets are assessed to be either finite or indefinite.
- 20 -
Intangible assets with finite lives are amortized over the useful life and assessed for
impairment whenever there is an indication that the intangible assets may be impaired.
The amortization period and the amortization method used for intangible assets with
finite useful lives are reviewed at least at each reporting date. Changes in the expected
useful lives or the expected pattern of consumption of future economic benefits embodied
in the assets are accounted for by changing the amortization period or method, as
appropriate, and are treated as changes in accounting estimates. The amortization
expense on intangible assets with finite lives is recognized in profit or loss consistent
with the function of the intangible asset.
Amortization of computer software and licenses is computed using the straight-line
method over the estimated useful life of 2 to 8 years.
The Group assessed the useful life of the trademarks and brand names and formulas and
recipes to be indefinite. Based on an analysis of all the relevant factors, there is no
foreseeable limit to the period over which the asset is expected to generate cash inflows
for the Group.
Trademarks and brand names and formulas and recipes with indefinite useful lives are
tested for impairment annually either individually or at the cash-generating unit level.
Such intangibles are not amortized. The useful life of an intangible asset with an
indefinite life is reviewed annually to determine whether indefinite life assessment
continues to be supportable. If not, the change in the useful life assessment from
indefinite to finite is made on a prospective basis.
Gains or losses arising from disposal of an intangible asset are measured as the difference
between the net disposal proceeds and the carrying amount of the asset and are
recognized in profit or loss when the asset is derecognized.
Impairment of Non-financial Assets
The carrying amounts of investments and advances, property, plant and equipment,
investment properties, biological assets, other intangible assets with finite useful lives
and idle assets are reviewed for impairment when events or changes in circumstances
indicate that the carrying amount may not be recoverable. If any such indication exists,
and if the carrying amount exceeds the estimated recoverable amount, the assets or
cash-generating units are written down to their recoverable amounts. The recoverable
amount of the asset is the greater of fair value less costs to sell and value in use. The fair
value less costs to sell is the amount obtainable from the sale of an asset in an arm’s
length transaction between knowledgeable, willing parties, less costs of disposal. In
assessing value in use, the estimated future cash flows are discounted to their present
value using a pre-tax discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset. For an asset that does not generate
largely independent cash inflows, the recoverable amount is determined for the
cash-generating unit to which the asset belongs. Impairment losses of continuing
operations are recognized in profit or loss in those expense categories consistent with the
function of the impaired asset.
An assessment is made at each reporting date as to whether there is any indication that
previously recognized impairment losses may no longer exist or may have decreased. If
such indication exists, the recoverable amount is estimated. A previously recognized
impairment loss is reversed only if there has been a change in the estimates used to
determine the asset’s recoverable amount since the last impairment loss was recognized.
If that is the case, the carrying amount of the asset is increased to its recoverable amount.
That increased amount cannot exceed the carrying amount that would have been
determined, net of depreciation and amortization, had no impairment loss been
recognized for the asset in prior years. Such reversal is recognized in profit or loss.
- 21 -
After such a reversal, the depreciation and amortization 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.
Provisions
Provisions are recognized when the Group has: (a) a present obligation (legal or
constructive) as a result of a past event; (b) it is probable ( i.e., more likely than not) that
an outflow of resources embodying economic benefits will be required to settle the
obligation; and (c) a reliable estimate can be made of the amount of the obligation. If the
effect of the time value of money is material, provisions are determined by discounting
the expected future cash flows at a pre-tax rate that reflects current market assessment of
the time value of money and those 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. Where some or all of the expenditure required to settle a provision is expected
to be reimbursed by another party, the reimbursement shall be recognized when, and only
when, it is virtually certain that reimbursement will be received if the entity settles the
obligation. The reimbursement shall be treated as a separate asset. The amount
recognized for the reimbursement shall not exceed the amount of the provision.
Provisions are reviewed at each reporting date and adjusted to reflect the current best
estimate.
Share Capital
Common Shares
Common shares are classified as equity. Incremental costs directly attributable to the
issue of common shares and share options are recognized as a deduction from equity, net
of any tax effects.
Preferred Shares
Preferred shares are classified as equity if they are non-redeemable, or redeemable only
at the Company’s option, and any dividends thereon are discretionary. Dividends thereon
are recognized as distributions within equity upon approval by the Company’s BOD.
Preferred shares are classified as a liability if they are redeemable on a specific date or at
the option of the shareholders, or if dividend payments are not discretionary. Dividends
thereon are recognized as interest expense in profit or loss as accrued.
Treasury Shares
Own equity instruments which are reacquired are carried at cost and are deducted from
equity. No gain or loss is recognized on the purchase, sale, issue or cancellation of the
Company’s own equity instruments. 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 to the extent that it is probable that the economic benefits will
flow to the Group and the amount of the revenue can be reliably measured. The following
specific recognition criteria must also be met before revenue is recognized:
Sales. Revenue from the sale of goods in the course of ordinary activities is measured at
the fair value of the consideration received or receivable, net of returns, trade discounts
and volume rebates. Revenue is recognized when the significant risks and rewards of
ownership of the goods have passed to the buyer, which is normally upon delivery and
the amount of revenue can be measured reliably.
- 22 -
Agricultural Produce. Revenue from initial recognition of agricultural produce is
measured at fair value less estimated costs to sell at the point of harvest. Fair value is
based on the relevant market price at the point of harvest.
Interest. Revenue is recognized as the interest accrues, taking into account the effective
yield on the asset.
Dividend. Revenue is recognized when the Group’s right as a shareholder to receive the
payment is established.
Rent. Revenue from investment properties is recognized on a straight-line basis over the
term of the lease. Lease incentives granted are recognized as an integral part of the total
rent income, over the term of the lease. Rent income is included as part of other income.
Gain or Loss on Sale of Investments in Shares of Stock. Gain or loss is recognized if the
Group disposes of its investment in a subsidiary or associate. Gain or loss is computed as
the difference between the proceeds of the disposed investment and its carrying amount,
including the carrying amount of goodwill, if any.
Cost and Expense Recognition
Costs and expenses are recognized upon receipt of goods, utilization of services or at the
date they are incurred.
Share-based Payment Transactions
Under SMC’s Employee Stock Purchase Plan (ESPP), employees of the Group receive
remuneration in the form of share-based payment transactions, whereby the employees
render services as consideration for equity instruments of SMC. Such transactions are
handled centrally by SMC.
Share-based payment transactions in which SMC grants option rights to its equity
instruments directly to the Group’s employees are accounted for as equity-settled
transactions. SMC charges the Group for the costs related to such transactions with its
employees. The amount is recognized in profit or loss by the Group.
The cost of ESPP is measured by reference to the market price at the time of the grant
less subscription price. The cumulative expense recognized for share-based payment
transactions at each reporting date until the vesting date reflects the extent to which the
vesting period has expired and SMC’s best estimate of the number of equity instruments
that will ultimately vest. Where the terms of a share-based award are modified, as a
minimum, an expense is recognized as if the terms had not been modified. In addition,
an expense is recognized for any modification, which increases the total fair value of the
share-based payment arrangement, or is otherwise beneficial to the employee as
measured at the date of modification. Where an equity-settled award is cancelled, it is
treated as if it had vested on the date of cancellation, and any expense not yet recognized
for the award is recognized immediately. However, if a new award is substituted for the
cancelled award, and designated as a replacement award on the date that it is granted, the
cancelled and new awards are treated as if they were a modification of the original award.
- 23 -
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 or assets and the arrangement
conveys a right to use the asset. A reassessment is made after the inception of the lease
only if one of the following applies:
(a) there is a change in contractual terms, other than a renewal or extension of the
arrangement;
(b) a renewal option is exercised or extension granted, unless the term of the renewal
or extension was initially included in the lease term;
(c) there is a change in the determination of whether fulfillment is dependent on a
specific asset;
(d) there is a substantial change to the asset.
Where a reassessment is made, lease accounting shall commence or cease from the date
when the change in circumstances gives rise to the reassessment for scenarios (a), (c) or
(d) above, and at the date of renewal or extension period for scenario (b).
Operating Lease
Group as Lessee. Leases which do not transfer to the Group substantially all the risks
and benefits of ownership of the asset are classified as operating leases. Operating lease
payments are recognized as an expense in profit or loss on a straight-line basis over the
lease term. Associated costs such as maintenance and insurance are expensed as incurred.
Group as Lessor. Leases where the Group does not transfer substantially all the risks and
benefits of ownership of the assets are classified as operating leases. Rent income from
operating leases is recognized as income on a straight-line basis over the lease term.
Initial direct costs incurred in negotiating an operating lease are added to the carrying
amount of the leased asset and recognized as an expense over the lease term on the same
basis as rent income. Contingent rents are recognized as income in the period in which
they are earned.
Borrowing Costs
Borrowing costs 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 recognized.
Research and Development Costs
Research costs are expensed as incurred. Development costs incurred on an individual
project are carried forward when their future recoverability can reasonably be regarded as
assured. Any expenditure carried forward is amortized in line with the expected future
sales from the related project.
The carrying amount of development costs is reviewed for impairment annually when the
related asset is not yet in use. Otherwise, this is reviewed for impairment when events or
changes in circumstances indicate that the carrying amount may not be recoverable.
- 24 -
Retirement Costs
The Company and majority of its subsidiaries have separate funded, noncontributory
retirement plans, administered by their respective trustees, covering their respective
permanent employees. Retirement costs are actuarially determined using the projected
unit credit method. This method reflects service rendered by employees up to the date of
valuation and incorporates assumptions concerning employees’ projected salaries.
Retirement cost includes current service cost, interest cost, expected return on plan
assets, amortization of unrecognized past service costs, recognition of actuarial gains and
losses, effect of asset limit and effect of any curtailments or settlements. Past service cost
is recognized as an expense on a straight-line basis over the average period until the
benefits become vested. If the benefits are already vested immediately following the
introduction of, or changes to the plan, past service cost is recognized immediately as an
expense. Actuarial gains and losses are recognized as income or expense when the net
cumulative unrecognized actuarial gains and losses at the end of the previous reporting
year exceed the greater of 10% of the present value of the defined benefit obligation and
the fair value of plan assets at that date. These gains or losses are recognized over the
expected average remaining working lives of the employees participating in the plan.
The transitional liability as at January 1, 2005, the date of adoption of PAS 19, Employee
Benefits, is recognized as an expense over five years from date of adoption.
The defined benefit liability is the aggregate of the present value of the defined benefit
obligation and actuarial gains and losses not recognized, reduced by past service costs not
yet recognized and the fair value of plan assets out of which the obligations are to be
settled directly. If such aggregate is negative, the resulting asset is measured at the lower
of such aggregate or the aggregate of cumulative unrecognized net actuarial losses and
past service cost and the present value of any economic benefits available in the form of
reductions in the future contributions to the plan.
If the asset is measured at the aggregate of cumulative unrecognized net actuarial losses
and past service costs and the present value of any economic benefits available in the
form of reductions in the future contributions to the plan, net actuarial losses of the
current period and past service costs of the current period are recognized immediately to
the extent that they exceed any reduction in the present value of those economic benefits.
If there is no change or an increase in the present value of the economic benefits, the
entire net actuarial losses of the current period and past service costs of the current period
are recognized immediately. Similarly, net actuarial gains of the current period after the
deduction of past service costs of the current period exceeding any increase in the present
value of the economic benefits stated above are recognized immediately if the asset is
measured at the aggregate of cumulative unrecognized net actuarial losses and past
service costs and the present value of any economic benefits available in the form of
reductions in the future contributions to the plan. If there is no change or a decrease in
the present value of the economic benefits, the entire net actuarial gains of the current
period after the deduction of past service costs of the current period are recognized
immediately.
Foreign Currency
Foreign Currency Translations
Transactions in foreign currencies are translated to the respective functional currencies of
Group entities at exchange rates at the dates of the transactions. Monetary assets and
liabilities denominated in foreign currencies at the reporting date are retranslated to the
functional currency at the exchange rate at that date. The foreign currency gain or loss on
monetary items is the difference between amortized cost in the functional currency at the
beginning of the year, adjusted for effective interest and payments during the year, and
the amortized cost in foreign currency translated at the exchange rate at the reporting
date.
- 25 -
Non-monetary assets and liabilities denominated in foreign currencies that are measured
at fair value are retranslated to the functional currency at the exchange rate at the date
that the fair value was determined. Non-monetary items in a foreign currency that are
measured in terms of historical cost are translated using the exchange rate at the date of
the transaction. Foreign currency differences arising on retranslation are recognized in
profit or loss, except for differences arising on the retranslation of AFS financial assets, a
financial liability designated as a hedge of the net investment in a foreign operation that
is effective, or qualifying cash flow hedges, which are recognized in other comprehensive
income.
Foreign Operations
The assets and liabilities of foreign operations, including goodwill and fair value
adjustments arising on acquisition, are translated to Philippine peso at exchange rates at
the reporting date. The income and expenses of foreign operations, excluding foreign
operations in hyperinflationary economies, are translated to Philippine peso at average
exchange rates for the period.
Foreign currency differences are recognized in other comprehensive income, and
presented in the foreign currency translation reserve (CTA - translation reserve) in
equity. However, if the operation is not a wholly-owned subsidiary, then the relevant
proportionate share of the translation difference is allocated to the non-controlling
interests. When a foreign operation is disposed of such that control, significant influence
or joint control is lost, the cumulative amount in the translation reserve related to that
foreign operation is reclassified to profit or loss as part of the gain or loss on disposal.
When the Group disposes of only part of its interest in a subsidiary that includes a
foreign operation while retaining control, the relevant proportion of the cumulative
amount is reattributed to non-controlling interests. When the Group disposes of only part
of its investment in an associate that includes a foreign operation while retaining
significant influence , the relevant proportion of the cumulative amount is reclassified to
profit or loss.
When the settlement of a monetary item receivable from or payable to a foreign operation
is neither planned nor likely in the foreseeable future, foreign exchange gains and losses
arising from such a monetary item are considered to form part of a net investment in a
foreign operation and are recognized in other comprehensive income, and presented in
the “CTA - translation reserve” in equity.
Taxes
Current Tax. Current tax is the expected tax payable or receivable on the taxable income
or loss for the year, using tax rates enacted or substantively enacted at the reporting date,
and any adjustment to tax payable in respect of previous years.
Deferred Tax. Deferred tax is recognized in respect of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes and the
amounts used for taxation purposes. Deferred tax liabilities are recognized for all taxable
temporary differences, except:

where the deferred tax liability arises from the initial recognition of goodwill or of an
asset or liability in a transaction that is not a business combination and, at the time of
the transaction, affects neither the accounting profit nor taxable profit or loss; and

with respect to taxable temporary differences associated with investments in
subsidiaries, associates and interests in joint ventures, where the timing of the
reversal of the temporary differences can be controlled and it is probable that the
temporary differences will not reverse in the foreseeable future.
- 26 -
Deferred tax assets are recognized for all deductible temporary differences, carryforward
benefits of unused tax credits - Minimum Corporate Income Tax (MCIT) and unused tax
losses - 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
the carryforward benefits of MCIT and NOLCO can be utilized, except:

where the deferred tax asset relating to the deductible temporary difference arises
from the initial recognition of an asset or liability in a transaction that is not a
business combination and, at the time of the transaction, affects neither the
accounting profit nor taxable profit or loss; and

with respect to deductible temporary differences associated with investments in
subsidiaries, associates and interests in joint ventures, deferred tax assets are
recognized only to the extent that it is probable that the temporary differences will
reverse in the foreseeable future and taxable profit will be available against which the
temporary differences can be utilized.
The carrying amount of deferred tax assets is reviewed at each reporting 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 tax asset to be utilized. Unrecognized deferred tax assets
are reassessed at each reporting date and are recognized to the extent that it has become
probable that future taxable profit will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply
in the year 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 reporting date.
Current tax and deferred tax are recognized in profit or loss except to the extent that it
relates to a business combination, or items recognized directly in equity or in other
comprehensive income.
Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right
exists to set off current tax assets against current tax liabilities and the deferred taxes
relate to the same taxable entity and the same taxation authority.
Value-added Tax (VAT).
amount of VAT, except:
Revenues, expenses and assets are recognized net of the

where the tax incurred on a purchase of assets or services is not recoverable from the
taxation authority, in which case the tax is recognized as part of the cost of
acquisition of the asset or as part of the expense item as applicable; and

receivables and payables that are stated with the amount of tax included.
The net amount of tax recoverable from, or payable to, the taxation authority is included
as part of “Prepaid expenses and other current assets” or “Trade payables and other
current liabilities” in the consolidated statements of financial position.
Related Parties
Parties are considered to be related if one party has the ability, directly or indirectly, to
control the other party or exercise significant influence over the other party in making
financial and operating decisions. Parties are also considered to be related if they are
subject to common control or common significant influence. Related parties may be
individuals or corporate entities. Transactions between related parties are on an arm’s
length basis in a manner similar to transactions with non-related parties.
- 27 -
Basic and Diluted Earnings Per Common Share (EPS)
Basic and diluted EPS is computed by dividing the net income for the period attributable
to equity holders of the Parent Company by the weighted average number of issued and
outstanding common shares during the period, with retroactive adjustment for any stock
dividends declared.
Operating Segments
The Group’s operating segments are organized and managed separately according to the
nature of the products and services provided, with each segment representing a strategic
business unit that offers different products and serves different markets. Financial
information on operating segments is presented in Note 6 to the consolidated financial
statements. The Chief Executive Officer (the chief operating decision maker) reviews
management reports on a regular basis.
The measurement policies the Group used for segment reporting under PFRS 8 are the
same as those used in its consolidated financial statements. There have been no changes
from prior periods in the measurement methods used to determine reported segment
profit or loss. All inter-segment transfers are carried out at arm’s length prices.
Segment revenues, expenses and performance include sales and purchases between
operating segments. Such sales and purchases are eliminated in consolidation.
Contingencies
Contingent liabilities are not recognized in the consolidated financial statements. They
are disclosed in the notes to the consolidated financial statements unless the possibility of
an outflow of resources embodying economic benefits is remote. Contingent assets are
not recognized in the consolidated financial statements but are disclosed in the notes to
the consolidated financial statements when an inflow of economic benefits is probable.
Events After the Reporting Date
Post year-end events that provide additional information about the Group’s consolidated
financial position at reporting date (adjusting events) are reflected in the consolidated
financial statements. Post year-end events that are not adjusting events are disclosed in
the notes to the consolidated financial statements when material.
4. Significant Accounting Judgments, Estimates and Assumptions
The preparation of the Group’s consolidated financial statements in accordance with
PFRS requires management to make judgments, estimates and assumptions that affect the
application of accounting policies and amounts of assets, liabilities, income and expenses
reported in the consolidated financial statements at the reporting date. However,
uncertainty about these judgments, estimates and assumptions could result in outcome
that could require a material adjustment to the carrying amount of the affected asset or
liability in the future.
Judgments and estimates are continually evaluated and are based on historical experience
and other factors, including expectations of future events that are believed to be
reasonable under the circumstances. Revisions are recognized in the period in which the
judgments and estimates are revised and in any future period affected.
- 28 -
Judgments
In the process of applying the Group’s accounting policies, management has made the
following judgments, apart from those involving estimation, which have the most
significant effect on the amounts recognized in the consolidated financial statements:
Operating Lease Commitments - Group as Lessee. The Group has entered into various
lease agreements as a lessee. The Group has determined that the lessor retains all
significant risks and rewards of ownership of these properties which are leased out under
operating lease arrangements.
Rent expense charged to profit or loss amounted to P824.1 million, P771.1 million and
P669.1 million in 2011, 2010 and 2009, respectively (Notes 22, 23 and 31).
Determining Fair Values of Financial Instruments. Where the fair values of financial
assets and financial liabilities recognized in the consolidated statements of financial
position cannot be derived from active markets, they are determined using a variety of
valuation techniques that include the use of mathematical models. The Group uses
judgments to select from variety of valuation models and make assumptions regarding
considerations of liquidity and model inputs such as correlation and volatility for longer
dated financial instruments. The input to these models is taken from observable markets
where possible, but where this is not feasible, a degree of judgment is required in
establishing fair value.
Contingencies. The Group currently has several tax assessments and legal claims. The
Group’s estimate of the probable costs for resolution of these assessments and claims has
been developed in consultation with in-house as well as outside legal counsel handling
the prosecution and defense of these matters and is based on an analysis of potential
results. The Group currently does not believe that these tax assessments and legal claims
will have a material adverse effect on its consolidated financial position and consolidated
financial performance. It is possible, however, that future financial performance could be
materially affected by changes in the estimates or in the effectiveness of strategies
relating to these proceedings. No accruals were made in relation to these proceedings
(Note 35).
Estimates
The key estimates and assumptions used in the consolidated financial statements are
based upon management’s evaluation of relevant facts and circumstances as of the date
of the consolidated financial statements. Actual results could differ from such estimates.
Allowance for Impairment Losses on Trade and Other Receivables. Provisions are made
for specific and groups of accounts, where objective evidence of impairment exists. The
Group evaluates these accounts on the basis of factors that affect the collectibility of the
accounts. These factors include, but are not limited to, the length of the Group’s
relationship with the customers and counterparties, the customers’ current credit status
based on third party credit reports and known market forces, average age of accounts,
collection experience, and historical loss experience. The amount and timing of recorded
expenses for any period would differ if the Group made different judgments or utilized
different methodologies. An increase in allowance for impairment losses would increase
the recorded selling and administrative expenses and decrease current assets.
The allowance for impairment losses amounted to P522.4 million and P682.4 million as
at December 31, 2011 and 2010, respectively. The carrying amounts of trade and other
receivables amounted to P8,700.2 million and P7,760.3 million as at December 31, 2011
and 2010, respectively (Note 8).
- 29 -
Allowance for Inventory Losses. The Group provides an allowance for inventory losses
whenever net realizable value becomes lower than cost due to damage, physical
deterioration, obsolescence, changes in price levels or other causes.
Estimates of net realizable value are based on the most reliable evidence available at the
time the estimates are made of the amount the inventories are expected to be realized.
These estimates take into consideration fluctuations of price or cost directly relating to
events occurring after the reporting date to the extent that such events confirm conditions
existing at the reporting date. The allowance account is reviewed periodically to reflect
the accurate valuation in the financial records.
The carrying amounts of inventories as at December 31, 2011 and 2010 amounted to
P12,068.4 million and P12,123.4 million, respectively (Note 9). The allowance for
inventory losses amounted to P270.8 million and P187.9 million as at
December 31, 2011 and 2010, respectively.
Fair Value of Agricultural Produce. The Group determines the fair value of its
agricultural produce based on most recent market transaction price provided that there
has been no significant change in economic circumstances between the date of
transactions and reporting date. Costs to sell are estimated based on most recent
transaction and are deducted from the fair value in order to measure the fair value of
agricultural produce at the point of harvest.
Unrealized gain on fair valuation of agricultural produce included in the cost of
inventories as at December 31, 2011 and 2010 amounted to P69.1 million and
P40.7 million, respectively (Note 9).
Financial Assets and Financial Liabilities. The Group carries certain financial assets and
financial liabilities at fair value which requires extensive use of accounting estimates and
judgments. Significant components of fair value measurement were determined using
verifiable objective evidence (i.e., foreign exchange rates, interest rates, volatility rates).
The amount of changes in fair value would differ if the Group utilized different valuation
methodologies and assumptions. Any change in fair value of these financial assets and
financial liabilities would affect profit or loss and equity.
The fair values of financial assets and financial liabilities are discussed in Note 33.
Estimated Useful Lives of Investment Properties and Property, Plant and Equipment.
The Group estimates the useful lives of investment properties and property, plant and
equipment based on the period over which the assets are expected to be available for use.
The estimated useful lives of investment properties and property, plant and equipment are
reviewed periodically and are 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 assets.
In addition, estimation of the useful lives of investment properties and property, plant and
equipment is based on collective assessment of industry practice, internal technical
evaluation and experience with similar assets. It is possible, however, that future
financial performance could be materially affected by changes in estimates brought about
by changes in factors mentioned above. The amounts and timing of recorded expenses
for any period would be affected by changes in these factors and circumstances. A
reduction in the estimated useful lives of investment properties and property, plant and
equipment would increase recorded cost of sales and selling and administrative expenses
and decrease noncurrent assets.
- 30 -
Investment properties and property, plant and equipment, net of accumulated
depreciation and impairment losses, amounted to P8,879.2 million and P9,219.1 million
as at December 31, 2011 and 2010, respectively. Accumulated depreciation and
impairment losses of investment properties and property, plant and equipment amounted
to P9,175.6 million and P8,399.7 million as at December 31, 2011 and 2010, respectively
(Notes 13 and 14).
Fair Value of Investment Properties. The fair value of investment property presented for
disclosure purposes is based on market values, being the estimated amount for which the
property can be exchanged between a willing buyer and seller in an arm’s length
transaction, or based on a most recent sale transaction of a similar property within the
same vicinity where the investment property is located.
In the absence of current prices in an active market, the valuations are prepared by
considering the aggregate estimated future cash flows expected to be received from
leasing out the property. A yield that reflects the specific risks inherent in the net cash
flows is then applied to the net annual cash flows to arrive at the property valuation.
Estimated fair values of investment properties amounted to P336.3 million and
P288.7 million as at December 31, 2011 and 2010, respectively (Note 13).
Estimated Useful Lives of Intangible Assets. The useful lives of intangible assets are
assessed at the individual asset level as having either a finite or indefinite life. Intangible
assets are regarded to have an indefinite useful life when, based on analysis of all of the
relevant factors, there is no foreseeable limit to the period over which the asset is
expected to generate net cash inflows for the Group.
Intangible assets with finite useful life amounted to P299.9 million and P69.6 million as
at December 31, 2011 and 2010, respectively (Note 15).
Impairment of Goodwill, Trademarks and Brand Names, and Formulas and Recipes with
Indefinite Lives. The Group determines whether goodwill, trademarks and brand names,
and formulas and recipes are impaired at least annually. This requires the estimation of
the value in use of the cash-generating units to which the goodwill is allocated and the
value in use of the trademarks and brand names, and formulas and recipes. Estimating
value in use requires management to make an estimate of the expected future cash flows
from the cash-generating unit and from the trademarks and brand names, and formulas
and recipes and to choose a suitable discount rate to calculate the present value of those
cash flows.
The carrying amounts of goodwill as at December 31, 2011 and 2010 amounted to
P422.5 million and P416.3 million, respectively (Note 16).
The carrying amounts of trademarks and brand names, and formulas and recipes
amounted to P3,357.5 million and P3,355.9 million as at December 31, 2011 and 2010,
respectively (Note 15).
Acquisition Accounting. The Group accounts for acquired businesses using the
acquisition method of accounting which requires that the assets acquired and the
liabilities assumed be recognized at the date of acquisition at their respective fair values.
- 31 -
The application of the acquisition method requires certain estimates and assumptions
especially concerning the determination of the fair values of acquired intangible assets
and property, plant and equipment as well as liabilities assumed at the date of the
acquisition. Moreover, the useful lives of the acquired intangible assets, property, plant
and equipment have to be determined. Accordingly, for significant acquisitions, the
Group obtains assistance from valuation specialists. The valuations are based on
information available at the acquisition date.
The Group’s acquisitions resulted in the recognition of goodwill and other intangible
assets with finite lives. Total carrying amounts of goodwill and other intangible assets
with finite lives arising from business combinations amounted to P488.3 million and
P482.1 million as at December 31, 2011 and 2010, respectively (Notes 15 and 16).
Realizability of Deferred Tax Assets. The Group reviews its deferred tax assets at each
reporting date and reduces the carrying amount to the extent that it is no longer probable
that sufficient taxable profit will be available to allow all or part of the deferred tax asset
to be utilized. The Group’s assessment on the recognition of deferred tax assets on
deductible temporary difference and carry forward benefits of MCIT and NOLCO is
based on the projected taxable income in the following periods.
Deferred tax assets amounted to P502.7 million and P599.9 million as at
December 31, 2011 and 2010, respectively (Note 27).
Impairment of Non-financial Assets. PFRS requires that an impairment review be
performed on investments, property, plant and equipment, investment properties,
biological assets, other intangible assets with finite useful lives and idle assets when
events or changes in circumstances indicate that the carrying amount may not be
recoverable. For intangible assets with indefinite useful lives, impairment testing is
performed on an annual basis. Determining the recoverable amount of assets requires the
estimation of cash flows expected to be generated from the continued use and ultimate
disposition of such assets. While it is believed that the assumptions used in the
estimation of fair values reflected in the consolidated financial statements are appropriate
and reasonable, significant changes in these assumptions may materially affect the
assessment of recoverable amounts and any resulting impairment loss could have a
material adverse impact on the financial performance.
Accumulated impairment losses on property, plant and equipment, investment properties,
and idle assets amounted to P73.3 million and P67.5 million as at December 31, 2011
and 2010, respectively. The aggregate amount of noncurrent biological assets,
investments, investment properties, property, plant and equipment, goodwill and other
intangible assets, and idle assets amounted to P28,501.9 million and P14,658.3 million as
at December 31, 2011 and 2010, respectively (Notes 10, 12, 13, 14, 15 and 16).
Present Value of Defined Benefit Obligation. The present value of the retirement
obligations depends on a number of factors that are determined on an actuarial basis
using a number of assumptions. These assumptions are described in Note 28 to the
consolidated financial statements and include discount rate, expected return on plan
assets and salary increase rate. Actual results that differ from the assumptions are
accumulated and amortized over future periods and therefore, generally affect the
recognized expense and recorded obligation in such future periods.
The assumption of the expected return on plan assets is determined on a uniform basis,
taking into consideration the long-term historical returns, asset allocation and future
estimates of long-term investment returns.
- 32 -
The Group determines the appropriate discount rate at the end of each year. It is the
interest rate that should be used to determine the present value of estimated future cash
outflows expected to be required to settle the retirement obligations. In determining the
appropriate discount rate, the Group considers the interest rates on government bonds
that are denominated in the currency in which the benefits will be paid. The terms to
maturity of these bonds should approximate the terms of the related retirement liability.
Other key assumptions for retirement obligations are based in part on current market
conditions.
While it is believed that the Group’s assumptions are reasonable and appropriate,
significant differences in actual experience or significant changes in assumptions may
materially affect the Group’s retirement obligations.
The Group has a net cumulative unrecognized actuarial gain (loss) amounting to
(P326.1 million) and P229.4 million as at December 31, 2011 and 2010, respectively
(Note 28).
Asset Retirement Obligation. Determining asset retirement obligation requires estimation
of the cost of dismantling property, plant and equipment and other costs of restoring the
leased properties to their original condition. The Group determined that there are no
significant asset retirement obligations as at December 31, 2011 and 2010.
5. Investments in Subsidiaries
The following are the developments relating to the Company’s investments in
subsidiaries in 2011 and 2010:
a) Magnolia
In September 2011, Magnolia, a wholly-owned subsidiary of SMPFC, acquired the
subscription rights of certain individuals in GFDCC, a Philippine company engaged
in the toll manufacturing of ice cream products. As such, GFDCC became a
subsidiary of Magnolia and was consolidated into SMPFC through Magnolia.
The following summarizes the recognized amounts of assets acquired, liabilities
assumed and goodwill recognized at acquisition date:
Note
Assets
Cash and cash equivalents
Trade and other receivables and other current
assets
Property, plant and equipment - net and other
noncurrent assets
Liabilities
Trade payables and other current liabilities
Current maturities of long-term debt
Long-term debt - net of current maturities and
other noncurrent liabilities
Total identifiable net assets at fair value
Goodwill arising on acquisition
Total cash consideration transferred
- 33 -
P6,997
61,679
14
308,611
19
(22,367)
(25,000)
19
16
(231,282)
98,638
6,237
P104,875
b) SMMI
i.
In September 2011, SMMI formed GBGTC, a wholly-owned subsidiary with an
authorized capital stock of P2.0 billion. GBGTC is a Philippine company with
the primary purpose of providing and rendering general services connected with
and incidental to the operation and management of port terminals engaged in
handling and/or trading of grains, among others. In November 2011, following
the approval by the Securities and Exchange Commission (SEC) of the
incorporation of GBGTC, SMMI subscribed to 5,000,000 GBGTC shares for a
total subscription value of P500.0 million and paid an initial consideration
amounting to P125.0 million. As at December 31, 2011, GBGTC has not yet
started commercial operations.
ii. In October 2010, the BOD and stockholders of SMMI authorized SMMI to raise
funds of up to P5,000.0 million to fund any expansion or any investment in new
businesses by SMMI and for other general corporate purposes.
c) SCIL
In November 2010, SMPFC formed SCIL, a Cayman Islands company, as a whollyowned subsidiary of SMPFC with an authorized capital stock of US$50,000.00
divided into 50,000 shares with par value of US$1.00 per share. SCIL did not engage
in commercial operations until its dissolution on September 30, 2011 by virtue of the
Certificate of Dissolution issued to SCIL by the Registrar of Companies of the
Cayman Islands on August 3, 2011.
d) SMFI and Monterey
i.
In August 2010, the SEC approved the merger of Monterey into SMFI, with
SMFI as the surviving corporation, following the approvals of the merger by the
respective BOD and stockholders of Monterey and SMFI in June 2010 and
July 2010, respectively. The merger became effective on September 1, 2010.
SMFI’s request for confirmation of the tax-free merger, filed in September 2010,
is still pending with the Bureau of Internal Revenue (BIR) as at March 7, 2012.
ii. In July 2010, the SEC approved the application of Monterey for the increase in
its authorized capital stock. Following SEC’s approval, 22,500,000 Monterey
shares of stock were issued to SMPFC in exchange for the Company’s deposit
for future stock subscription of P450.0 million in 2008.
iii. In January 2008, SMFI executed a Deed of Assignment assigning its
16,457,310 shares in SMMI, then a 100%-owned subsidiary of SMFI, to SMPFC
effective December 28, 2007. The assignment is in accordance with SMFI’s
property dividend declaration of its SMMI shares in favor of the Company, as
approved by SMFI’s BOD in June 2007, subject to the necessary regulatory
approvals. In December 2010, the SEC approved the declaration of SMFI’s
16,457,310 shares in SMMI as property dividend in favor of the Company.
- 34 -
e) SMPFIL
In July 2010, the Company, through its wholly-owned subsidiary, SMPFIL, acquired
SMC’s 51% interest (through San Miguel Foods and Beverage International Limited
[SMFBIL]) in SMPFI Limited for US$18.6 million. SMPFI Limited owns 100% of
San Miguel Pure Foods (Vn) Co. Ltd. (SMPFVN). Pursuant to the Sale and Purchase
Agreement between SMFBIL and SMPFIL, 10% of the purchase price was paid in
July 2010 and the balance of US$16.8 million (P734.3 million as at December 31,
2010) shall be payable (i) upon change in controlling interest of SMPFIL to any third
person other than an affiliate or (ii) two years from July 30, 2010, subject to floating
interest rate based on one-year LIBOR plus an agreed margin after one year,
whichever comes first. The balance was recognized as part of the Company’s payable
to related parties in 2010 (Note 18).
In May 2011, SMPFC increased its investment in SMPFIL by an amount equivalent
to the 90% balance of the purchase price of SMPFVN acquired by SMPFIL from
SMFBIL. Subsequently, SMPFIL paid the remaining balance of the purchase price of
the Vietnam food business amounting to US$16.8 million.
As approved by the State Securities Commission of Vietnam on September 30, 2011,
SMPFVN was renamed to San Miguel Hormel (Vn) Co., Ltd.
The unaudited financial information relative to the acquisition of the 51% interest in
SMPFI Limited as at July 30, 2010 were as follows:
Note
Assets
Cash and cash equivalents
Trade and other receivables - net
Inventories
Property, plant and equipment - net
Other noncurrent assets
Liabilities
Trade payables and other current liabilities
Other noncurrent liabilities
Non-controlling interests
Total identifiable net assets
Goodwill arising on acquisition
Total cash consideration transferred
14
16
P46,645
279,154
352,406
954,349
719,278
(939,636)
(3,026)
(813,121)
596,049
256,550
P852,599
6. Segment Information
Operating Segments
The reporting format of the Group’s operating segments is determined by the Group’s
risks and rates of return which are affected predominantly by differences in the products
and services produced. The operating businesses are organized and managed separately
according to the nature of the products produced and services provided, with each
segment representing a strategic business unit that offers different products and serves
different markets.
- 35 -
The Group has three reportable segments, namely, Agro-industrial, Value-added Meats
and Milling. Management identified and grouped the operating units in its operating
segments with the objective of transforming the Group into a more rationalized and
focused organization. The structure aims to boost efficiencies across the Group and raise
effectiveness in defining and meeting the needs of consumers in innovative ways.
The Agro-industrial segment includes the integrated Feeds, Poultry and Basic Meats
operations. These businesses are involved in feeds production and in poultry and
livestock farming, processing and selling of poultry and meat products.
The Value-added Meats segment is engaged in the processing and marketing of
refrigerated and canned meat products.
The Milling segment is into manufacturing and marketing of flour products, premixes,
and flour-based products.
The non-reportable operating segments of the Group include dairy-based products,
breadfill, desserts, cooking oil, importation and marketing of coffee and coffee-related
products, and foreign operations which include hog farming, feeds production and sale of
fresh and processed meats by foreign subsidiaries.
Segment Assets and Liabilities
Segment assets include all operating assets used by a segment and consist principally of
operating cash, receivables, inventories, biological assets and property, plant and
equipment, net of allowances and impairment. Segment liabilities include all operating
liabilities and consist principally of wages, taxes currently payable and accrued liabilities.
Segment assets and liabilities do not include deferred income taxes.
Inter-segment Transactions
Segment revenues, expenses and performance include sales and purchases between
operating segments. Transfer prices between operating segments are set on an arm’s
length basis in a manner similar to transactions with third parties. Such transfers are
eliminated in consolidation.
Major Customer
The Group does not have a single external customer, sales revenue generated from which
amounted to 10% or more of the total revenues of the Group.
- 36 -
Operating Segments
Financial information about reportable segments follows:
Agro-Industrial
2010
2011
2009
Value-Added Meats
2010
2009
2011
2011
Milling
2010
2009
Total Reportable Segments
2010
2009
2011
(In Millions)
2011
Others
2010
2009
2011
Eliminations
2010
2009
Consolidated
2010
2011
2009
Revenue
External
Inter-segment
P56,982
870
P52,300
258
P49,069
711
P12,103
9
P11,534
3
P11,234
47
P8,354
641
P7,155
505
P7,482
447
P77,439
1,520
P70,989
766
P67,785
1,205
P12,152
155
P8,281
169
P7,258
233
P (1,675)
P (935)
P (1,438)
P89,591
-
P79,270
-
P75,043
-
Total revenue
P57,852
P52,558
P49,780
P12,112
P11,537
P11,281
P8,995
P7,660
P7,929
P78,959
P71,755
P68,990
P12,307
P8,450
P7,491
(P1,675)
(P935)
(P1,438)
P89,591
P79,270
P75,043
P2,370
P3,299
P3,085
P1,031
P772
P489
P1,867
P1,574
P752
P5,268
P5,645
P4,326
P923
P310
P333
(P118)
P6,231
P6,010
P4,541
Result
Segment operating result*
Interest expense and other
financing charges
Interest income
Equity in net earnings of an
associate
Gain (loss) on sale of
property and equipment
Other income (charges) net
Income tax expense
(364)
118
(248)
51
-
7
(119)
(601)
(428)
37
-
20
(96)
(896)
2
(720)
(188)
5
-
-
-
(50)
7
(13)
(286)
108
(189)
(93)
(74)
P718
P580
(4)
11
-
-
(1)
(19)
2
(477)
83
(220)
P514
(60)
(543)
(88)
6
(315)
69
-
-
(704)
48
-
-
-
-
(44)
36
270
-
-
-
-
-
(2)
(10)
-
-
(24)
(89)
16
(166)
-
-
P147
P40
P52
(31)
(8)
(192)
(1,430)
14
(1,562)
(8)
(1,014)
(221)
(314)
P3,400
P3,820
P2,640
P774
7
(47)
21
(142)
258
P187
(531)
394
(3)
(4)
(P129)
(751)
69
-
-
(33)
(25)
(413)
(1,744)
(10)
(1,654)
8
(1,184)
270
(7)
(359)
105
7
P2,658
P4,103
111
P3,846
213
P2,597
61
Net income
P4,214
P4,059
P2,658
P43,193
13,178
422
3,657
503
P43,076
416
3,426
600
P38,618
171
167
1,220
P60,953
P47,518
P40,176
P11,135
4,988
305
167
P15,233
5,173
162
271
P12,849
8,816
467
399
4,671
4,461
P21,266
P25,300
P1,271
P1,110
(389)
136
P4,059
Other Information
Segment assets
Investments
Goodwill
Intangible assets
Deferred tax assets
P146
(1)
13
P4,214
P1,411
P1,980
(66)
5
P55
Attributable to:
Equity holders of the Parent
Company
Non- controlling interests
Net income
P2,130
4
(21)
7
P40
P22,046
254
-
P23,017
10
-
P21,588
4
-
P8,434
257
-
P7,786
272
-
P9,376
285
-
P4,219
-
P4,124
-
P3,505
-
P34,699
511
-
P34,927
282
-
P34,469
289
-
P14,224
13,178
1,618
3,268
-
P13,228
1,612
3,266
-
P10,053
1,367
-
(P5,730)
(1,196)
(122)
-
(P5,079)
(1,196)
(122)
-
(P5,904)
(1,196)
(122)
-
P6,229
-
P6,796
-
P9,075
-
P1,689
-
P1,868
-
P1,339
-
P802
-
P1,011
-
P785
-
P8,720
-
P9,675
-
P11,199
-
P8,155
-
P10,608
-
P7,470
-
(P5,740)
-
(P5,050)
-
(P5,820)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Consolidated total assets
Segment liabilities
Notes payable
Income tax payable
Deferred tax liabilities
Long-term debt (including
current maturities) - net
of debt issue costs
-
-
-
Consolidated total
liabilities
Capital expenditures
Depreciation and
amortization
Impairment loss (reversal)
P79
P312
P266
P172
1,413
6
1,357
-
1,124
-
280
-
P151
255
(46)
P22,531
P210
P78
P13
P57
P329
P476
P533
P269
P105
P118
P -
P -
P -
P598
P581
P651
286
46
111
-
118
51
143
8
1,804
6
1,730
5
1,553
54
316
-
196
-
152
3
-
-
-
2,120
6
1,926
5
1,705
57
* Including realized mark-to-market gains (losses) on commodity derivatives presented as part of “Other income (charges) - net” in the consolidated statements of income.
- 37 -
7. Cash and Cash Equivalents
This account consists of:
2011
P2,138,658
2,794,060
P4,932,718
Cash on hand and in banks
Short-term investments
2010
P1,865,181
5,176,164
P7,041,345
Cash in banks earn interest at the respective bank deposit rates. Short-term investments
are made for varying periods of up to three months depending on the immediate cash
requirements of the Group, and earn interest at the respective short-term investment rates.
8. Trade and Other Receivables
This account consists of:
Note
Trade receivables
Amounts owed by related parties
Insurance claims
Tax certificates receivables
Others
29
Less allowance for impairment losses
2011
P7,797,318
151,446
231,333
68,770
973,717
9,222,584
522,367
P8,700,217
2010
P7,309,630
177,529
76,149
68,028
811,380
8,442,716
682,445
P7,760,271
Trade receivables are non-interest bearing and are generally on 30-day term.
Insurance claims pertain to the value of certain inventories and property, plant and
equipment damaged by typhoons.
“Others” consist of the following: advances to suppliers, contract growers and breeders,
receivables from employees, truckers and toll partners and deposits.
The movements in the allowance for impairment losses follow:
2011
P682,445
32,260
(192,338)
P522,367
Balance at beginning of year
Charge for the year
Amounts written off
Balance at end of year
2010
P633,902
63,051
(14,508)
P682,445
As at December 31, the aging of receivables is as follows:
Gross Amount
2010
2011
P5,197,755
P5,758,562
1,227,642
1,476,458
228,923
287,773
104,826
108,589
1,683,570
1,591,202
P8,442,716
P9,222,584
Current
Past due 1-30 days
Past due 31-60 days
Past due 61-90 days
Past due over 90 days
- 38 -
Various collaterals for trade receivables such as bank guarantees, time deposits and real
estate mortgages are held by the Group for certain credit limits.
The Group believes that the unimpaired amounts that are past due by more than 30 days
are still collectible, based on historic payment behavior and extensive analyses of the
underlying customer credit ratings. There are no significant changes in their credit
quality.
9. Inventories
This account consists of:
Finished goods and goods in process - at net
realizable value
Raw materials, feeds and feed ingredients - at net
realizable value
Factory supplies and others - at cost
Materials in transit - at cost
Total inventories at lower of cost and net
realizable value
2011
2010
P3,959,781
P3,425,034
7,710,755
97,912
299,933
7,603,604
119,984
974,813
P12,068,381
P12,123,435
The cost of finished goods and goods in process amounted to P4,182.6 million and
P3,557.4 million as at December 31, 2011 and 2010, respectively. The cost of raw
materials, feeds and feed ingredients amounted to P7,758.7 million and P7,659.2 million
as at December 31, 2011 and 2010, respectively.
Finished goods and goods in process include net unrealized gain of P69.1 million and
P40.7 million on fair valuation of agricultural produce as at December 31, 2011 and
2010, respectively. The fair value of agricultural produce less costs to sell, which formed
part of finished goods inventory, amounted to P752.8 million and P416.2 million as at
December 31, 2011 and 2010, respectively, with corresponding costs at point of harvest
amounting to P683.7 million and P375.5 million, respectively.
10. Biological Assets
This account consists of:
Current:
Growing stocks
Goods in process
Noncurrent:
Breeding stocks - net
2011
2010
P3,227,758
896,019
4,123,777
P2,558,947
707,617
3,266,564
1,811,570
P5,935,347
1,479,251
P4,745,815
The amortization of breeding stocks recognized in profit or loss amounted to
P1,186.4 million, P1,048.3 million and P854.1 million in 2011, 2010, and 2009,
respectively (Note 24).
- 39 -
Growing stocks pertain to growing broilers, hogs and cattle and goods in process pertain
to hatching eggs and carcass.
The movements in biological assets, including the effects of foreign exchange
adjustments are as follows:
Note
2011
2010
Cost:
Balance at beginning of year
SMPFIL balance as at July 31, 2010
Increase (decrease) due to:
Purchases
Production
Mortality
Sales
Harvest
Reclassifications
Currency translation adjustments
Balance at end of year
P5,010,242
-
P3,953,076
680,972
11,687,069
17,159,174
(476,886)
(6,087,325)
(19,989,363)
(1,010,125)
1,992
6,294,778
13,100,490
10,754,056
(413,768)
(4,694,298)
(17,407,999)
(933,003)
(29,284)
5,010,242
Accumulated amortization:
Balance at beginning of year
SMPFIL balance as at July 31, 2010
Additions
Disposals
Reclassifications
Currency translation adjustments
Balance at end of year
264,427
1,186,384
(81,518)
(1,010,125)
263
359,431
143,441
44,816
1,048,343
(37,198)
(933,003)
(1,972)
264,427
24
Net book value
P5,935,347
P4,745,815
The Group harvested approximately 420.9 million and 392.2 million kilograms of grown
broilers in 2011 and 2010, respectively, and 0.88 million and 0.35 million heads of
marketable hogs and cattle in 2011 and 2010, respectively.
11. Prepaid Expenses and Other Current Assets
This account consists of:
2011
P568,281
1,101,327
298,944
P1,968,552
Prepaid income tax
Input tax
Others
2010
P650,227
868,234
247,287
P1,765,748
“Others” include prepaid insurance, advance payments and deposits, and prepayments for
various operating expenses.
- 40 -
12. Investments
Investment in an Associate
This account consists of:
December 31
2011
Investment in an associate - at equity:
Acquisition cost
Accumulated equity in net earnings:
Equity in net earnings during the year
Dividends
Share in comprehensive income
P13,007,800
270,478
(100,455)
156
P13,177,979
In August 2011, SMPFC entered into a Share Purchase Agreement with SMC covering
the sale by the latter of its 5.2% shareholdings in Manila Electric Company (Meralco)
comprising of 59,090,909 common shares for a total consideration of P13.0 billion.
Capitalized transaction costs related to the acquisition of Meralco shares by SMPFC
amounted to P7.8 million.
The Company has determined that it has obtained significant influence over the financial
and operating policies of Meralco in conjunction with SMC and subsidiaries’ ownership
of 33.19% interest in Meralco. Accordingly, the Company applied the equity method of
accounting on its investment in shares of stock of Meralco.
The fair value of the Company’s investment in Meralco amounted to P14,477.3 million
as at December 31, 2011.
Investment in a Joint Venture
The Company’s application with the SEC for the dissolution of Philippine Nutrition
Technologies, Inc. (PNTI), a joint venture between the Company and the Great Wall
Group of Taiwan, was approved on May 27, 2010. As a result of the said dissolution, the
Company’s investment in PNTI amounting to P12.0 million was written off against its
allowance for decline in value of investment.
- 41 -
13. Investment Properties
The movements in investment properties follow:
Land and Land
Improvements
Cost:
December 31, 2009
Additions
Disposals
December 31, 2010
Additions
Reclassifications
December 31, 2011
P115,281
8,027
(2,933)
120,375
23,068
(1,018)
142,425
Accumulated depreciation:
December 31, 2009
Additions
December 31, 2010
Additions
December 31, 2011
Accumulated impairment losses:
December 31, 2010 and 2011
Buildings and
Improvements
P2,865
2,865
2,865
Total
P118,146
8,027
(2,933)
123,240
23,068
(1,018)
145,290
-
1,608
141
1,749
141
1,890
1,608
141
1,749
141
1,890
8,473
-
8,473
Net book value:
December 31, 2010
P111,902
P1,116
P113,018
December 31, 2011
P133,952
P975
P134,927
The fair value of investment properties as at December 31, 2011 and 2010 amounted to
P336.3 million and P288.7 million, respectively, determined based on valuations
performed either by independent appraisers or by the credit management group of the
Company.
- 42 -
14. Property, Plant and Equipment
This account consists of:
Note
Cost:
December 31, 2009
SMPFIL balance as at
July 31, 2010
Additions
Disposals
Transfers, reclassifications
and others
Currency translation adjustments
December 31, 2010
GFDCC balance as at
August 31, 2011
Additions
Disposals
Transfers, reclassifications
and others
Currency translation adjustments
P2,340,923
5
December 31, 2010
GFDCC balance as at
August 31, 2011
Additions
Disposals
Transfers, reclassification
and others
Impairment loss
Currency translation adjustments
December 31, 2011
(24,023)
61,654
2,378,554
5
-
P4,391,727
5
24
26
Transportation
Equipment
Construction
in Progress
Total
P8,117,005
P473,597
P644,665
P15,967,917
603,920
323,425
(745,984)
35,051
3,381
(18,197)
13,362
242,523
-
520,779
(58,679)
314,709
(25,971)
(18,029)
(1,507)
(716,779)
(574)
474,296
183,197
1,800
81,519
-
330,641
597,806
(95,688)
(134,936)
(57)
(415,426)
(3,398)
5,872,457
8,587,104
113,101
19,705
(30,190)
215,740
492,552
(43,367)
4,030
(22,131)
33,360
48
117,651
(2,366)
2,670
(391)
131,523
2,016,849
581,073
(1,145,834)
162,334
(86,731)
17,495,608
1,943,751
6,008,481
9,367,314
458,474
328,767
1,761,563
5,153,422
429,572
-
7,673,324
17,909,543
32,830
(22,677)
(45,863)
545,325
241,364
(257,852)
-
483,974
498,225
(706,859)
-
33,201
18,761
(18,014)
-
-
1,062,500
791,180
(1,005,402)
(45,863)
(1,188)
-
(11,868)
(23,732)
(11,645)
(21,215)
(15,130)
(1,436)
-
(39,831)
(46,383)
446,954
-
291,869
5
24
Machinery
Equipment,
Furniture
and Others
1,364,516
11,744
(357,630)
(434,171)
(632)
December 31, 2011
Accumulated depreciation and
impairment losses:
December 31, 2009
SMPFIL balance as at
July 31, 2010
Additions
Disposals
Reversal of impairment loss
Transfers, reclassification and
others
Currency translation adjustments
Land and
Buildings
Land
and
Improvements Improvements
33,341
-
2,254,800
5,395,902
8,389,525
2,180
232,373
(29,588)
20,182
567,392
(42,773)
13,675
(22,131)
-
22,362
846,781
(94,492)
5,800
(54)
(223)
(2,087)
(1,832)
(558)
-
(2,055)
5,800
(2,699)
325,210
2,465,511
5,938,393
436,108
-
9,165,222
December 31, 2010
P2,086,685
P3,617,657
P3,191,202
P27,342
P183,197
P9,106,083
December 31, 2011
P1,618,541
P3,542,970
P3,428,921
P22,366
P131,523
P8,744,321
Net Book Value:
Depreciation recognized in profit or loss amounted to P846.8 million in 2011,
P791.2 million in 2010 and P774.5 million in 2009 (Note 24). These amounts include
annual amortizations of capitalized interest amounting to P1.1 million in 2011 and
P2.6 million in 2010 and 2009. Unamortized balance of capitalized interest as at
December 31, 2011, 2010 and 2009 amounted to P23.3 million, P24.4 million, and
P27.0 million, respectively. No interest was capitalized in 2011 and 2010.
Certain parcels of land with net book value of P436.6 million, which are considered as
idle assets, were reclassified to “Other noncurrent assets” in 2011 following the change in
management’s intention on these assets.
As at December 31, 2011, the net book value of the idle assets amounted to
P553.2 million and P118.1 million, respectively.
- 43 -
Land and land improvements include a 144-hectare property in Sumilao, Bukidnon,
acquired by SMFI in 2002, which later became the subject of a petition for revocation of
conversion order filed by MAPALAD, a group of Sumilao farmers, with the Department
of Agrarian Reform (DAR), and appealed to the Office of the President (OP). Total
acquisition and development costs amounted to P37.4 million.
To settle the land dispute, a Memorandum of Agreement (MOA) was executed among
SMFI, MAPALAD, OP and DAR on March 29, 2008. The MOA provided for the release
of a 50-hectare portion of the property to qualified farmer-beneficiaries, and the transfer
of additional 94 hectares outside of the property to be negotiated with other Sumilao
landowners. Under the MOA, SMFI shall retain ownership and title to the remaining
portion of the property for the completion and pursuit of the hog farm expansion.
SMFI fully complied with all the provisions of the MOA in the last quarter of 2010. To
formally close the pending cases filed by MAPALAD with the Supreme Court (SC) and
OP, SMFI forwarded in November 2010 to the Sumilao farmers’ counsels the draft of the
Joint Manifestation and Motion for Dismissal of the cases pending with the SC and the
OP for their concurrence. Pursuant to the Joint Manifestation and Motion for Dismissal
dated March 3, 2011 filed by SMFI and NQSR Management and Development
Corporation, the original owner of the Sumilao property, the SC and the OP, in a
Resolution dated March 15, 2011 and in an Order dated April 6, 2011, respectively,
dismissed the appeal of MAPALAD on the DAR’s denial of their petition for the
revocation of the conversion order.
The cost of farm improvements, buildings, machinery and equipment and construction in
progress incurred for SMFI’s (formerly Monterey) hog farm expansion project situated in
Sumilao amounted to P906.2 million and P888.6 million in 2011 and 2010, respectively.
15. Other Intangible Assets
This account consists of:
Trademarks and brand names
Formulas and recipes
Computer software and licenses - net
- 44 -
2011
P3,299,938
57,591
299,855
P3,657,384
2010
P3,298,353
57,591
69,566
P3,425,510
The movements in other intangible assets, including the effects of currency translation
adjustments, are as follows:
Trademarks
and Brand
Names
Cost:
December 31, 2009
SMPFIL as at July 31, 2010
Additions
Disposals
Reclassifications
December 31, 2010
Additions
Reclassifications
December 31, 2011
P32,558
65,795
3,200,000
3,298,353
1,585
3,299,938
Accumulated Depreciation:
December 31, 2009
Additions
Disposals
Reclassifications
December 31, 2010
Additions
December 31, 2011
-
Others
Total
P218,767
18,278
(1,404)
3,326
238,967
248,805
487,772
P251,325
65,795
3,218,278
(1,404)
3,326
3,537,320
248,805
1,585
3,787,710
83,763
26,125
(1,404)
3,326
111,810
18,516
130,326
83,763
26,125
(1,404)
3,326
111,810
18,516
130,326
Net Book Value:
December 31, 2010
P3,298,353
P127,157
P3,425,510
December 31, 2011
P3,299,938
P357,446
P3,657,384
In July 2010, SMC and SMPFC entered into an Intellectual Property Rights Transfer
Agreement (Agreement) for the transfer to SMPFC of SMC’s food-related brands and
intellectual property rights at a purchase price of P3,200.0 million. Pursuant to the
Agreement, 10% of the purchase price was paid in July 2010 and the balance shall be
payable (i) upon change in controlling interest of SMPFC to any third person other than
an affiliate or (ii) two years from July 30, 2010, subject to floating interest rate based on
one-year PDSTF plus an agreed margin after one year, whichever comes first. The
balance was recognized as part of the Company’s payable to related parties (Note 18) as
at December 31, 2010. On March 8, 2011, the Company paid SMC the amount of
P2,880 million representing the 90% balance of the purchase price of the food-related
brands and intellectual property rights.
SMC and SMPFC engaged the services of Fortman Cline Capital Markets Limited
(FCCM) as financial adviser to perform a third party valuation of the food-related brands.
The purchase price was arrived at after taking into account the result of the independent
valuation study and analysis of FCCM.
The recoverable amount of the trademarks and brand names was determined based on a
valuation using cash flow projections covering a five-year period based on long range
plans approved by management and a discount rate applied to after tax cash flow
projections of 12%. Cash flows beyond the five-year period are extrapolated using a
constant growth rate determined per individual cash-generating unit. This growth rate is
consistent with the long-term average growth rate for the industry.
- 45 -
Management believes that any reasonably possible change in the key assumptions on
which the recoverable amount of trademarks and brand names is based would not cause
its carrying amount to exceed its recoverable amount.
The Company used the weighted average cost of capital as the discount rate, which
reflected management’s estimate of the risk. This is the benchmark used by management
to assess operating performance and to evaluate future investment proposals.
Management assessed that there is no impairment loss in the value of trademarks and
brand names in 2011 and 2010.
16. Goodwill
The movements in goodwill, including effects of currency translation adjustments, are as
follows:
Note
Balance at beginning of year
Additions
Currency translation adjustments
Balance at end of year
5
2011
P416,310
6,237
P422,547
2010
P170,792
256,550
(11,032)
P416,310
The recoverable amount of goodwill has been determined based on a valuation using
cash flow projections covering a five-year period based on long range plans approved by
management. Cash-flows beyond the five-year period are extrapolated using a constant
growth rate determined per individual cash-generating unit. This growth rate is consistent
with the long-term average growth rate for the industry. The discount rate applied to after
tax cash flow projections ranged from 12% to 14% for 2011 and 2010, respectively.
The discount rates also impute the risk of the cash-generating units compared to the
respective risk of the overall market and equity risk premium.
Management assessed that there is no impairment loss in the value of goodwill in 2011
and 2010.
Management believes that any reasonably possible change in the key assumptions on
which the recoverable amount is based would not cause its carrying amount to exceed its
recoverable amount.
The calculations of value in use are most sensitive to the following assumptions:
Gross Margins. Gross margins are based on average values achieved in the period
immediately before the budget period. These are increased over the budget period for
anticipated efficiency improvements. Values assigned to key assumptions reflect past
experience, except for efficiency improvement.
Discount Rates. The Group uses the weighted average cost of capital as the discount
rates, which reflects management’s estimate of the risk specific to each unit. This is the
benchmark used by management to assess operating performance and to evaluate future
investments proposals.
Raw Material Price Inflation. Forecast consumer price is obtained from indices during
the budget period from which raw materials are purchased. Value assigned to key
assumption is consistent with external sources of information.
- 46 -
17. Notes Payable
This account consists of:
Note
Peso-denominated
Foreign currency-denominated
32, 33
2011
P4,187,000
800,929
P4,987,929
2010
P4,591,000
581,538
P5,172,538
Notes payable mainly represent unsecured peso and foreign currency-denominated
amounts payable to local and foreign banks. Interest rates for peso-denominated loans
range from 3.80% to 4.75% and 3.10% to 4.50% in 2011 and 2010, respectively. Interest
rates for foreign currency-denominated loans range from 3.56% to 20.00% and 3.56% to
16.50% in 2011 and 2010, respectively.
Notes payable of the Group are not subject to covenants and warranties.
18. Trade Payables and Other Current Liabilities
This account consists of:
Note
Trade payables
Amounts owed to related parties
Non-trade payables
Others
5, 15, 29
2011
P4,106,595
1,202,210
4,195,943
1,514,129
P11,018,877
2010
P4,011,362
4,979,160
4,818,343
1,337,104
P15,145,969
Non-trade payables consist of freight payable, contract growers/breeders’ fees, tolling
fees, guarantee deposits, gift certificates payable and expenses payable.
“Others” include tax-related and payroll-related accruals, accrued interest payable,
dividends payable and derivative liabilities.
Derivative liabilities included under “Others” amounted to P28.7 million and
P3.1 million as at December 31, 2011 and 2010, respectively (Notes 32 and 33).
- 47 -
19. Long-term Debt
This account consists of the following unsecured peso-denominated term notes:
Floating interest rate based on 3-month PDST-F
plus margin maturing in 2015 (a)
Fixed interest rate of 5.4885% maturing in 2015 (a)
Floating interest rate based on 3-month PDST-R1
plus margin or BSP overnight rate plus margin,
whichever is higher, maturing in 2014 (b)
Less current maturities
2011
2010
P3,673,464
794,235
P3,667,776
793,031
203,750
4,671,449
25,000
P4,646,449
4,460,807
P4,460,807
a. In December 2010, SMFI offered for sale and subscription to the public Philippine
peso-denominated fixed rate and floating rate notes with principal amount of
P800.0 million and P3,700.0 million, respectively. Both types of notes have a term of
five years and one day beginning on December 10, 2010 and ending on
December 11, 2015. The fixed rate note has a fixed interest rate of 5.4885% per
annum while the floating rate note has a floating interest rate based on three-month
PDST-F plus an agreed margin. Proceeds from the issuance of the notes are intended
to fund any expansion or any investment in new businesses by SMFI and for other
general corporate purposes.
The movements in debt issue costs relative to the issuance of the unsecured
peso-denominated floating and fixed term notes by SMFI are as follows:
Note
Balance at beginning of year
Additions
Amortizations
Balance at end of year
26
2011
P39,193
341
(7,233)
P32,301
2010
P 39,597
(404)
P39,193
b. The amount represents an unsecured loan facility entered into by GFDCC with
Bank of Commerce amounting to P210.0 million. Proceeds of the loan were used to
finance the construction of an ice cream plant manufacturing facility.
Repayment Schedule
As at December 31, 2011, the annual maturities of GFDCC’s long-term debt are as
follows:
Year
2012
2013
2014
Gross Amount
P25,000
25,000
153,750
P203,750
- 48 -
The debt agreements contain, among others, covenants relating to the maintenance of
certain financial ratios, usage of proceeds, significant change in the nature of the
business, restrictions on loans and guarantees, disposal of a substantial portion of assets,
merger and consolidation, and payment of interests.
As at December 31, 2011 and 2010, the Group is in compliance with the covenants of the
debt agreements.
Contractual terms of the Group’s interest-bearing loans and borrowings and exposure to
interest rate, foreign currency and liquidity risks are discussed in Note 32.
20. Equity
The Parent Company’s capital stock, at P10 par value, consists of the following number
of shares as at December 31, 2011 and 2010:
Authorized shares:
Common
Preferred
Issued shares:
Common
Preferred
2011
2010
206,000,000
40,000,000
246,000,000
206,000,000
40,000,000
246,000,000
170,874,854
15,000,000
185,874,854
170,874,854
170,874,854
The movements in the number of authorized common and preferred shares and issued
and outstanding common and preferred shares are as follows:
Authorized shares:
Balance at beginning
of year
Increase in authorized
capital stock
Reclassification to
preferred shares
Balance at end of year
Issued and outstanding
shares:
Issued shares at
beginning of year
Issuances during the
year
Issued shares at end of
year
Less treasury shares
Issued and outstanding
shares at end of year
2010
Common
2011
Preferred
Common
206,000,000
40,000,000
146,000,000
-
100,000,000
-
206,000,000
40,000,000
(40,000,000)
206,000,000
Preferred
40,000,000
40,000,000
145,451,108
-
15,000,000
25,423,746
-
170,874,854
4,207,758
15,000,000
-
170,874,854
4,207,758
-
166,667,096
15,000,000
166,667,096
-
170,874,854
-
- 49 -
-
On February 2, 2010 and March 12, 2010, the Company’s BOD and stockholders,
respectively, approved the (i) de-classification of SMPFC’s common shares and increase
in SMPFC’s authorized capital stock by P1,000.0 million or 100,000,000 shares at
P10.00 par value, and (ii) declaration of 18% stock dividend based on the issued and
outstanding shares to be taken out of the proposed increase in authorized capital stock.
On April 12, 2010, the SEC approved SMPFC’s amendment to its Articles of
Incorporation for the de-classification of common shares.
On May 21, 2010, the SEC issued to SMPFC the Certificate for the Approval of Increase
of Capital Stock from 146,000,000 common shares to 246,000,000 common shares with
par value of P10.00 per share and the Certificate of Filing of Amended Articles of
Incorporation.
On July 6, 2010, the PSE approved the application of SMPFC to list additional
25,423,746 common shares, with a par value of P10.00 per share, to cover the 18% stock
dividend declaration to stockholders of record as at June 30, 2010. Stock dividend
distribution was made on July 26, 2010.
On September 15, 2010, Company’s BOD approved, among others, the:
(i) reclassification of up to 75,000,000 authorized and unissued common shares into
cumulative, non-participating, non-voting and non-convertible preferred shares with par
value of P10.00 per share; (ii) issuance of preferred shares with total issue size of up to
P50,000.0 million, part of the proceeds of which will be used to settle the Company’s
remaining 90% balance relating to the brands and SMHVN acquisitions from SMC;
(iii) listing of such preferred shares at the appropriate exchanges; and (iv) amendment of
the Company’s Articles of Incorporation to reflect the reclassification of such common
shares to preferred shares and the denial of pre-emptive rights of shareholders for the
proposed issuance of said preferred shares.
On November 3, 2010, the Company’s stockholders approved, among others, the:
(i) reclassification of the Company’s 40,000,000 authorized and unissued common shares
into non-voting, cumulative and non-participating preferred shares with par value of
P10.00 per share; (ii) issuance of such preferred shares and the listing thereof at the
appropriate exchanges; and (iii) amendment of the Company’s Articles of Incorporation
to reflect the reclassification of 40,000,000 common shares to preferred shares and the
denial of pre-emptive rights of shareholders for the proposed issuance of said preferred
shares (Amendment).
On December 23, 2010, the SEC approved the foregoing Amendment to the Articles of
Incorporation of the Company.
On January 20, 2011, the SEC favorably considered the Company’s Registration
Statement covering the registration of 15,000,000 preferred shares with a par value of
P10.00 per share.
On January 26, 2011, the PSE approved, subject to certain conditions, the application of
the Company to list up to 15,000,000 preferred shares with a par value of P10.00 per
share to cover the Company’s follow-on preferred shares offering at an offer price of
P1,000.00 per share and with a dividend rate determined by management on the dividend
rate setting date.
On February 10, 2011, the SEC issued the order for the registration of the Company’s
15,000,000 preferred shares with a par value of P10.00 per share and released the
Certificate of Permit to Offer Securities for Sale.
- 50 -
On February 11, 2011, the Company’s BOD approved the terms of the preferred shares
offer (Terms of the Offer) and the amendment of the Articles of Incorporation of the
Company to reflect the additional optional redemption features of the preferred shares, to
align with the Terms of the Offer. The stockholders of the Company approved the said
amendment during its annual meeting on May 13, 2011.
A summary of the Terms of the Offer is set out below.
SMPFC, through the underwriters and selling agents, offered 15,000,000 cumulative,
non-voting, non-participating and non-convertible preferred shares at an offer price of
P1,000.00 per share during the period February 14 to 25, 2011. The dividend rate was set
at 8% per annum with dividend payment dates on March 3, June 3, September 3 and
December 3 of each year calculated on a 30/360-day basis, as and if declared by the
BOD. The preferred shares are redeemable in whole or in part, in cash, at the sole option
of the Company, at the end of the 5th year from issuance date or on any dividend payment
date thereafter, at the price equal to the issue price plus any accumulated and unpaid cash
dividends. Optional redemption of the preferred shares prior to 5th year from issuance
date was provided under certain conditions (i.e., accounting, tax or change of control
events). Unless the preferred shares are redeemed by the Company on its 5th year
anniversary, the dividend rate shall be adjusted thereafter to the higher of the dividend
rate of 8% or the ten-year PDST-F rate prevailing on the optional redemption date plus
3.33% per annum.
On March 3, 2011, the Company’s 15,000,000 preferred shares with par value of P10.00
per share were listed with the PSE.
On June 2, 2011, the SEC issued the Certificate of Filing of Amended Articles of
Incorporation approving the additional redemption features of the preferred shares of the
Company.
On June 13, 2011, cash dividend of P3.00 per share was paid to all common shareholders
of record as of May 23, 2011.
On June 3, September 3, and December 3, 2011, cash dividends of P20.00 per share were
paid to all preferred shareholders of record as of May 23, August 26, and
November 23, 2011, respectively.
Treasury shares, totaling 4,207,758 common shares in 2011 and 2010, are carried at cost.
As at December 31, 2011, the Company has a total of 122 and 204 common and
preferred stockholders, respectively.
The Parent Company’s retained earnings as at December 31, 2011 and 2010 is restricted
in the amount of P182.1 million representing the cost of shares held in treasury.
The Group’s unappropriated retained earnings include the Company’s accumulated
equity in net earnings of subsidiaries amounting to P6,704.2 million, P5,408.0 million,
and P5,001.1 million in 2011, 2010 and 2009, respectively. Such amounts are not
available for declaration as dividends until declared by the respective investees.
- 51 -
21. Revenues
Revenue account consists of sales of goods and fair valuation adjustments on agricultural
produce. Total sales of goods amounted to P89,522.0 million, P79,229.1 million and
P74,979.9 million for the years ended December 31, 2011, 2010 and 2009, respectively.
The aggregate fair value less estimated costs to sell of agricultural produce harvested
during the year, determined at the point of harvest, amounted to P31,719.0 million,
P23,700.8 million and P25,826.8 million for the years ended December 31, 2011, 2010
and 2009, respectively.
22. Cost of Sales
This account consists of:
Inventories used
Freight, trucking and handling
Depreciation and amortization
Communication, light and water
Personnel expenses
Repairs and maintenance
Rentals
Others
Note
35
24
25
31
2011
P65,416,641
2,521,354
1,896,970
1,090,978
759,079
400,274
184,537
1,147,224
P73,417,057
2010
P56,704,734
1,736,814
1,655,135
939,074
686,949
362,319
194,037
1,012,024
P63,291,086
2009
P55,100,325
1,709,489
1,482,653
866,722
862,438
336,721
171,108
918,540
P61,447,996
2011
P2,603,459
2,254,591
1,479,563
1,224,360
639,538
306,577
256,173
243,248
223,463
179,978
170,155
102,132
348,892
P10,032,129
2010
P2,357,347
2,318,960
1,535,375
1,158,748
577,100
428,190
253,028
252,987
271,268
170,817
171,586
119,855
461,644
P10,076,905
2009
P1,894,268
2,151,367
1,287,044
1,269,644
497,992
238,219
243,129
245,808
221,855
173,107
202,428
125,392
407,094
P8,957,347
23. Selling and Administrative Expenses
This account consists of:
Note
Freight, trucking and handling
Personnel expenses
Advertising and promotions
Contracted services
Rentals
Professional fees
Taxes and licenses
Supplies
Depreciation and amortization
Travel and transportation
Communication, light and water
Repairs and maintenance
Others
25
31
24
- 52 -
24. Depreciation and Amortization
Depreciation and amortization are distributed as follows:
Cost of sales:
Property, plant and equipment
Biological assets
Others
Selling and administrative
expenses:
Property, plant and equipment
Others
Note
2011
2010
2009
14
10
P691,678
1,186,384
18,908
1,896,970
P590,261
1,048,343
16,531
1,655,135
P607,857
854,130
20,666
1,482,653
14
155,103
68,360
223,463
200,919
70,349
271,268
166,668
55,187
221,855
P2,120,433
P1,926,403
P1,704,508
Others include amortization of containers, computer software and licenses, small tools
and equipment and investment properties amounting to P87.3 million, P86.9 million and
P75.9 million in 2011, 2010 and 2009, respectively.
25. Personnel Expenses
This account consists of:
Note
Salaries and allowances
Retirement costs
Other employee benefits
28
2011
P1,742,824
40,578
1,230,268
P3,013,670
2010
P1,623,063
91,816
1,291,030
P3,005,909
2009
P1,576,024
238,627
1,199,154
P3,013,805
Personnel expenses are distributed as follows:
Cost of sales
Selling and administrative
expenses
Note
22
2011
P759,079
2010
P686,949
2009
P862,438
23
2,254,591
P3,013,670
2,318,960
P3,005,909
2,151,367
P3,013,805
- 53 -
26. Interest Expense and Other Financing Charges, Interest Income and Other Income
(Charges)
These accounts consist of:
a. Interest Expense and Other Financing Charges
2011
P494,491
36,481
P530,972
Interest expense
Other financing charges
2010
P322,057
37,358
P359,415
2009
P701,726
49,316
P751,042
Amortization of debt issue costs in 2011 and 2010 included in other financing
charges amounted to P7.2 million and P0.4 million, respectively (Note 19).
Interest expense on notes payable and long-term debt are as follows:
Notes payable
Long-term debt
2011
P289,637
204,854
P494,491
2010
P310,862
11,195
P322,057
2009
P701,726
P701,726
2011
P328,878
64,694
P393,572
2010
P47,847
57,641
P105,488
2009
P35,017
34,124
P69,141
Note
33
2011
(P28,137)
55
2010
P167,021
156
2009
P54,477
118
32
(59,803)
(5,800)
(230,011)
(P323,696)
Note
17
19
b. Interest Income
Short-term investments
Cash in banks
c. Other Income (Charges)
Gain (loss) on derivatives
Dividend income
Foreign exchange
losses - net
Impairment loss - net
Others - net
(24,924)
(5,426)
(38,961)
P97,866
(978)
(53,873)
(88,712)
(P88,968)
In 2009, the Group recognized provisions for impairment loss on land and idle assets
amounting to P45.9 million and P8.0 million, respectively.
Impairment loss - net in 2010 includes provision for impairment loss on idle assets
(shown under “Other noncurrent assets”) amounting to P51.3 million and the reversal
of the Group’s 2009 provision for impairment loss on land amounting to
P45.9 million, computed as the difference between the carrying amount of the assets
and their fair value based on reports by qualified property appraisers, less costs to
sell.
- 54 -
27. Income Taxes
a. The components of the Group’s deferred tax assets and liabilities as at December 31
are as follows:
Deferred tax assets:
Allowance for impairment losses on
receivables and inventories
Unamortized past service cost
Unrealized mark-to-market loss
NOLCO
Others
Deferred tax liabilities:
Unrealized mark-to-market gain
Accelerated depreciation
Others
2011
2010
P221,386
76,228
46,353
1,617
157,093
P502,677
P253,282
105,570
25,756
215,283
P599,891
P46,198
40,078
80,296
P166,572
P61,345
44,541
165,188
P271,074
b. The components of the income tax expense consist of:
Current:
Corporate income tax
Final tax withheld on interest
and royalty income
Deferred
2011
2010
2009
P1,616,155
P1,141,096
P1,112,770
120,842
1,736,997
7,381
P1,744,378
42,216
1,183,312
470,895
P1,654,207
17,542
1,130,312
53,313
P1,183,625
c. The reconciliations between the statutory income tax rates on income before income
tax and the Group’s effective income tax rates follow:
Statutory income tax rate
Additions to (reductions in) income tax
resulting from the tax effects of:
Interest income subjected to final tax
Equity in net earnings of an associate
Unused NOLCO and MCIT
Others - net
Effective income tax rates
2011
30.00%
2010
30.00%
2009
30.00%
(0.37)
(1.36)
1.010
29.28%
(0.08)
(0.97)
28.95%
(0.13)
1.10
(0.16)
30.81%
28. Retirement Plans
The Company and majority of its subsidiaries have funded, noncontributory retirement
plans covering all of their permanent employees. Contributions and costs are determined
in accordance with the actuarial studies made for the plans. Annual cost is determined
using the projected unit credit method. The Group’s latest actuarial valuation date is
December 31, 2011. Valuations are obtained on a periodic basis.
- 55 -
Retirement costs (benefit) recognized in profit or loss by the Company amounted to
(P0.27 million), P1.0 million and P4.2 million in 2011, 2010 and 2009, respectively,
while those charged by the subsidiaries amounted to P40.8 million, P90.8 million and
P234.4 million in 2011, 2010 and 2009, respectively. The Group’s annual contribution to
the retirement plans consists of payments covering the current service cost and
amortization of past service liability.
The components of retirement costs recognized in profit or loss in 2011, 2010 and 2009
and the amounts recognized in the consolidated statements of financial position as at
December 31, 2011 and 2010 are as follows:
Current service cost
Interest cost
Expected return on plan assets
Net actuarial gain
Past service cost
Effect of curtailment
Amortization of transitional liability
Net retirement costs
2011
P110,860
175,558
(242,217)
(722)
205
(3,106)
P40,578
2010
P108,060
201,428
(220,007)
(1,101)
206
3,230
P91,816
2009
P131,158
262,237
(197,554)
(2,695)
192
(19,806)
65,095
P238,627
Actual return on plan assets
P180,820
P318,479
P329,582
The retirement costs are recognized in the following line items in the consolidated
statements of income:
Note
Cost of sales
Selling and administrative
expenses
25
2011
P23,412
2010
P32,764
2009
P16,724
17,166
P40,578
59,052
P91,816
221,903
P238,627
The reconciliation of the assets and liabilities recognized in the consolidated statements
of financial position is as follows:
Note
Present value of defined benefit obligation
Fair value of plan assets
Unrecognized past service costs
Unrecognized net actuarial gain (loss)
Net retirement liabilities
4
2011
P2,977,220
2,536,179
441,041
(350)
(326,107)
P114,584
2010
P2,344,856
2,488,970
(144,114)
(594)
229,369
P84,661
The movements in the present value of the defined benefit obligation are as follows:
2011
P2,344,856
175,558
110,860
7,485
(133,714)
489,381
(17,206)
P2,977,220
Balance at beginning of year
Interest cost
Current service cost
Transfer from other plans
Benefits paid
Actuarial loss (gain)
Transfer to other plans
Effect of curtailment
Balance at end of year
- 56 -
2010
P2,380,288
201,428
108,060
127,550
(372,172)
(59,019)
(131,746)
90,467
P2,344,856
The movements in the fair value of plan assets are as follows:
2011
P2,488,970
242,217
7,687
7,485
(131,577)
(17,206)
(61,397)
P2,536,179
Balance at beginning of year
Expected return
Contributions by employer
Transfer from other plans
Benefits paid
Transfer to other plans
Actuarial gain (loss)
Effect of curtailment
Balance at end of year
2010
P2,323,703
220,007
180,580
127,550
(370,437)
(131,746)
98,472
40,841
P2,488,970
Plan assets consist of the following:
In Percentages
2010
2011
25.1
33.8
74.9
66.2
Stock trading portfolio
Fixed income portfolio
The overall expected rate of return is determined based on historical performance of
investments.
The principal actuarial assumptions used to determine retirement benefits are as follows:
In Percentages
2010
2011
6.8 to 8.5
5.5 to 6.5
8.0
8.0
10.0
9.0
Discount rate
Salary increase rate
Expected return on plan assets
The historical information for the current and previous four annual periods are as
follows:
2011
Present value of defined benefit
obligation
Fair value of plan assets
Deficit (excess) in the plan
Experience adjustments on plan
liabilities
Experience adjustments on plan assets
2010
2009
2008
2007
P2,977,220 P2,344,856 P2,380,288 P2,759,339 P1,810,951
2,536,179 2,488,970 2,323,703 2,396,143 1,649,977
441,041
(144,114)
56,585
363,196
160,974
489,381
(61,397)
(59,019)
98,472
(228,625)
132,028
9,888
(265,664)
173,538
39,413
The Group expects to contribute about P100.7 million to its defined benefit plans in
2012.
29. Related Party Disclosures
Transactions with related parties are made at normal market prices. For the years ended
December 31, 2011, 2010 and 2009 the Group did not provide any allowance for
impairment losses relating to amounts owed by related parties. An assessment is
undertaken at each financial year by examining the financial position of the related party
and the market in which the related party operates.
- 57 -
Transactions with related parties and the related balances include the following:
Year
Revenue
from
Related
Parties
Purchases
from
Related
Parties
Amounts
Owed by
Related
Parties
Amounts
Owed to
Related
Parties
Ultimate
Parent
Company
2011
2010
2009
P13,907
2,833
2,187,330
P670,729
335,135
292,327
P43,062
63,686
88,122
P545,723
3,561,031
1,778,448
SMC Shipping and Lighterage
Corporation
Affiliate
2011
2010
2009
135
1,248,044
1,439,092
240,927
174
9,902
14,380
231,853
382,368
409,074
San Miguel Paper
Packaging Corporation
(formerly San Miguel Rengo
Packaging Corporation)
Affiliate
2011
2010
2009
-
611
81,651
24
245
21
1,845
16,650
San Miguel Yamamura
Packaging Corporation
Affiliate
2011
2010
2009
61
2,083
127,771
135,119
102,095
7,068
6,472
8,117
51,560
57,983
61,730
San Miguel International, Ltd.
and subsidiaries
Affiliate
2011
2010
2009
-
-
25
41,186
1,509
735,614
9
Anchor Insurance Brokerage
Corporation
Affiliate
2011
2010
2009
-
974
4,471
49
191
116
585
320
144
241
Ginebra San Miguel, Inc. and
subsidiaries
Affiliate
2011
2010
2009
45
1,314
34,777
120,127
472,815
36,820
50,151
68,739
31,197
49,558
62,612
San Miguel Properties, Inc.
Affiliate
2011
2010
2009
51
390
120
-
195
165
230
33
395
SMITS, Inc. and a subsidiary
Affiliate
2011
2010
2009
116
131,369
51,712
18,347
1,349
1,523
854
138,649
97,261
121,126
Star Dari, Inc.
Affiliate
2009
-
12,533
530
-
ArchEn Technologies, Inc.
Affiliate
2011
2010
2009
-
15,933
6,336
1,005
294
183
94
6,824
4,245
7,806
6,241
5,106
5,534
Relationship
with Related
Parties
SMC
28
San Miguel Yamamura Asia
Corporation
Affiliate
2011
2010
2009
-
27,240
30,064
32,962
-
San Miguel Brewery, Inc.
Affiliate
2011
2010
2009
6,519
16
2,748
57,681
26,870
716,471
24,492
24,406
23,943
24,551
25,090
250,097
San Miguel Beverages, Inc.
Affiliate
2011
2010
2009
4,755
83,213
1,466
1,349
7,145
569
5,492
San Miguel Distribution Co.,
Inc.
Affiliate
2010
2009
-
67
4,349
520
28
94
20
Mindanao Corrugated
Fibreboard, Inc.
Affiliate
2011
2010
2009
-
Forward
- 58 -
7
8,929
38,335
16,146
-
61
1,613
11,523
Year
Revenue
from
Related
Parties
Philippine Breweries
Corporation
Affiliate
2011
2010
2009
P -
Petron Corporation**
Affiliate
2011
2010
17,736
-
SMC Global Power Holdings
Corporation and subsidiaries
Affiliate
2011
2010
3,887
11
Surewealth Realty Corporation
Affiliate
2011
-
635
Hormel Netherlands, BV
Shareholder
in a
Subsidiary
2011
2010
2009
-
-
18,838
10,734
5,703
Super Coffee Corporation Pte.
Ltd.
Shareholder
in a
Subsidiary
2011
2010
2009
-
-
-
Affiliate
2011
2010
2009
39
54
-
398
43
178
Relationship
with Related
Parties
Others
Purchases
from
Related
Parties
P -
Amounts
Owed by
Related
Parties
Amounts
Owed to
Related
Parties
P394
-
P 997
839
11,782
7,854
97,406
36,988
4,923
376
5,490
-
-
-
544,872
17,304
-
60,621
18,506
18,950
184
115
611
2011
P42,094 P2,869,344
P151,446 P1,202,210
2010
P2,960 P2,205,363
P177,529 P4,979,160
2009
P2,198,621 P2,074,890
P260,079 P2,751,157
* Affiliate refers to a company owned by SMC.
**New affiliate in 2010.
Certain related party transactions were discussed in Notes 12, 15, 19 and 34.The
following are the other significant related party transactions entered into by the
Company:
On December 28, 2004, SMC and Monterey executed a Trademark Licensing Agreement
(Agreement) with PF-Hormel to license the Monterey trademark for a period of 20 years
renewable for the same period for a royalty based on net sales revenue. The royalty fee
will apply only for as long as SMC and any of its subsidiaries own at least 51% of
PF-Hormel. In the event that the ownership of SMC and any of its subsidiaries is less
than 51%, the parties will negotiate and agree on the royalty fee on the license of the
Monterey trademark. As a result of the merger of Monterey into SMFI, with SMFI as the
surviving corporation (Note 5), all rights and obligations of Monterey under the
Agreement are automatically transferred to and vested in SMFI per applicable law and
following the provision in the Plan of Merger.
The compensation of the key management personnel of the Group, by benefit type,
follows:
2011
P83,439
3,403
P86,842
Short-term employee benefits
Retirement costs
2010
P76,003
7,663
P83,666
2009
P52,878
22,417
P75,295
The compensation of key management personnel, which were paid and charged by SMC
to the Group as management fee, amounted to P3.2 million, P2.7 million and
P6.4 million in 2011, 2010 and 2009, respectively.
- 59 -
30. Basic and Diluted Earnings Per Common Share
Basic EPS is computed as follows:
Net income attributable to equity
holders of the Parent Company
Dividends on preferred shares for the
year
Net income attributable to common
shareholders of the Parent
Company (a)
Common shares issued and outstanding
Stock dividends declared in 2010
including retroactive adjustments
Weighted average number of
common shares (b)
Basic earnings per common share
attributable to equity holders of
Parent Company (a/b)
2011
2010
2009
P4,102,505
P3,846,145
P2,596,963
993,333
-
-
P3,109,172
P3,846,145
P2,596,963
166,667,096
141,243,350
141,243,350
25,423,746
25,423,746
166,667,096
166,667,096
166,667,096
P18.65
P23.08
P15.58
-
As at December 31, 2011, 2010 and 2009, the Group has no dilutive equity instruments.
31. Operating Lease Agreements
The Group entered into various operating lease agreements. These non-cancellable
leases will expire in various years. All leases include a clause to enable upward revision
of the rental charge on an annual basis based on prevailing market conditions. The
minimum future rental payables under these operating leases as at December 31 are as
follows:
Within one year
After one year but not more than five
years
After five years
2011
P227,747
2010
P237,203
2009
P39,502
126,799
756,133
P1,110,679
160,431
406,787
P804,421
109,122
409,280
P557,904
Rent expense recognized in profit or loss amounted to P824.1 million, P771.1 million
and P669.1 million in 2011, 2010, and 2009, respectively (Notes 22 and 23).
32. Financial Risk Management Objectives and Policies
Objectives and Policies
The Group has significant exposure to the following financial risks primarily from its use
of financial instruments:





Interest Rate Risk
Foreign Currency Risk
Commodity Price Risk
Liquidity Risk
Credit Risk
- 60 -
This note presents information about the Group’s exposure to each of the foregoing risks,
the Group’s objectives, policies and processes for measuring and managing these risks,
and the Group’s management of capital.
The Group’s principal non-trade related financial instruments include cash and cash
equivalents, AFS financial assets, short-term and long-term loans, and derivative
instruments. These financial instruments, except derivative instruments, are used mainly
for working capital management purposes. The Group’s trade-related financial assets and
financial liabilities such as trade and other receivables, trade payables and other current
liabilities and other noncurrent liabilities arise directly from and are used to facilitate its
daily operations.
The Group’s outstanding derivative instruments such as commodity options are intended
mainly for risk management purposes. The Group uses derivatives to manage its
exposures to commodity price risks arising from the Group’s operations.
The BOD has the overall responsibility for the establishment and oversight of the
Group’s risk management framework. The BOD has established the Risk Management
Committee, which is responsible for developing and monitoring the Group’s risk
management policies. The committee reports regularly to the BOD on its activities.
The Group’s risk management policies are established to identify and analyze the risks
faced by the Group, to set appropriate risk limits and controls, and to monitor risks and
adherence to limits. Risk management policies and systems are reviewed regularly to
reflect changes in market conditions and the Group’s activities. The Group, through its
training and management standards and procedures, aims to develop a disciplined and
constructive control environment in which all employees understand their roles and
obligations.
The Group Audit Committee oversees how management monitors compliance with the
Group’s risk management policies and procedures, and reviews the adequacy of the risk
management framework in relation to the risks faced by the Group. The Group Audit
Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes
both regular and ad hoc reviews of risk management controls and procedures, the results
of which are reported to the Audit Committee.
The Group’s accounting policies in relation to derivatives are set out in Note 3 to the
consolidated financial statements.
Interest Rate Risk
Interest rate risk is the risk that future cash flows from a financial instrument (cash flow
interest rate risk) or its fair value (fair value interest rate risk) will fluctuate because of
changes in market interest rates. The Group’s exposure to changes in interest rates relates
primarily to the Group’s long-term borrowings. Borrowings issued at fixed rates expose
the Group to fair value interest rate risk. On the other hand, borrowings issued at variable
rates expose the Group to cash flow interest rate risk.
The Group manages its interest cost by using an optimal combination of fixed and
variable rate debt instruments. Management is responsible for monitoring the prevailing
market-based interest rate and ensures that the mark-up rates charged on its borrowings
are optimal and benchmarked against the rates charged by other creditor banks.
In managing interest rate risk, the Group aims to reduce the impact of short-term
fluctuations on the Group’s earnings. Over the longer term, however, permanent changes
in interest rates would have an impact on profit or loss.
- 61 -
The management of interest rate risk is also supplemented by monitoring the sensitivity
of the Group’s financial instruments to various standard and non-standard interest rate
scenarios. Interest rate movements affect reported equity in the following ways:



retained earnings arising from increases or decreases in interest income or
interest expense as well as fair value changes reported in profit or loss, if any;
fair value reserves arising from increases or decreases in fair values of AFS
financial assets reported as part of other comprehensive income; and
hedging reserves arising from increases or decreases in fair values of hedging
instruments designated in qualifying cash flow hedge relationships reported as
part of other comprehensive income.
The sensitivity to a reasonably possible 1% increase in the interest rates, with all other
variables held constant, would have decreased the Group’s profit before tax (through the
impact on floating rate borrowings) by P39.0 million and P37.0 million in 2011 and
2010, respectively. A 1% decrease in the interest rate would have had the equal but
opposite effect. These changes are considered to be reasonably possible given the
observation of prevailing market conditions in those periods. There is no impact on the
Group’s other comprehensive income.
- 62 -
Interest Rate Risk Table
As at December 31, 2011 and 2010, the terms and maturity profile of the interest-bearing financial instruments, together with the gross amounts, are shown in the
following tables:
December 31, 2011
Fixed rate
Philippine peso-denominated
Interest rate
Floating rate
Philippine peso-denominated
Interest rate
December 31, 2010
<1 Year
P -
1-<2 Years
>2-<3 Years
P -
P -
25,000
3-month PDST-R1 plus
margin or BSP overnight
rate plus margin, whichever
is higher
25,000
3-month PDST-R1 plus
margin or BSP overnight
rate plus margin,
whichever is higher
153,750
3-month PDST-R1 plus
margin or BSP overnight
rate plus margin, whichever
is higher
P25,000
P25,000
P153,750
<1 Year
1-<2 Years
>2-<3 Years
>3-<4 Years
>4-<5 Years
Total
P800,000
5.4885%
P -
P800,000
3,700,000
-
3,903,750
P4,500,000
P -
P4,703,750
>3-<4 Years
>4-<5 Years
Total
3-month PDST-F +margin
Fixed rate
Philippine peso-denominated
Interest rate
P -
P -
P -
P -
P800,000
5.4885%
P800,000
Floating rate
Philippine peso-denominated
Interest rate
-
-
-
-
3,700,000
3-month PDST-F
+margin
3,700,000
P -
P -
P -
P -
P4,500,000
P4,500,000
- 63 -
Foreign Currency Risk
The Group’s functional currency is the Philippine peso, which is the denomination of the
bulk of the Group’s revenues. The Group’s exposure to foreign currency risk results from
significant movements in foreign exchange rates that adversely affect the foreign
currency-denominated transactions of the Group. The Group’s risk management
objective with respect to foreign currency risk is to reduce or eliminate earnings volatility
and any adverse impact on equity. The Group enters into foreign currency hedges using
non-derivative instruments to manage its foreign currency risk exposure.
Information on the Group’s foreign currency-denominated monetary assets and liabilities
and their Philippine peso equivalents are as follows:
2010
2011
Assets
Cash and cash equivalents
Trade and other receivables
Liabilities
Notes payable
Trade payables and other current
liabilities
Other noncurrent liabilities
Net foreign currency-denominated
monetary liabilities
US
Dollar
Peso
Equivalent
US
Dollar
US$7,006
12,810
19,816
P307,143
561,590
868,733
US$1,641
11,478
13,119
P71,941
503,196
575,137
18,269
800,929
13,265
581,538
15,743
830
34,842
690,173
36,387
1,527,489
26,902
790
40,957
1,179,383
34,634
1,795,555
(US$15,026)
Peso
Equivalent
(P658,756) (US$27,838) (P1,220,418)
The Group reported net foreign exchange losses amounting to P59.8 million,
P24.9 million and P1.0 million in 2011, 2010 and 2009, respectively, with the translation
of its foreign currency-denominated assets and liabilities. These mainly resulted from the
movements of the Philippine peso against the US dollar during the year. Shown in the
following table are the foreign exchange rates as at statement of financial position dates.
Peso to US Dollar
46.20
43.84
43.84
December 31, 2009
December 31, 2010
December 31, 2011
The management of foreign currency risk is also supplemented by monitoring the
sensitivity of the Group’s financial instruments to various foreign currency exchange rate
scenarios. Foreign exchange movements affect reported equity in the following ways:



retained earnings arising from increases or decreases in unrealized and realized
foreign exchange gains or losses;
translation reserves arising from increases or decreases in foreign exchange gains
or losses recognized directly as part of other comprehensive income; and
hedging reserves arising from increases or decreases in foreign exchange gains or
losses of the hedged item and the hedging instrument.
- 64 -
The following tables demonstrate the sensitivity to a reasonably possible change in the
US dollar exchange rate, with all other variables held constant, of the Group’s profit
before tax (due to changes in the fair value of monetary assets and liabilities) and the
Group’s equity (due to translation of results and financial position of foreign operations)
as at December 31, 2011 and 2010.
2011
P1 Decrease in the US dollar
Exchange Rate
Effect on
Effect on
Income before
Equity
Income Tax (Net of Tax)
Cash and cash equivalents
Trade and other receivables
Notes payable
Trade payables and other
current liabilities
Other noncurrent liabilities
P1 Increase in the US dollar
Exchange Rate
Effect on
Effect on
Income before
Equity
Income Tax (Net of Tax)
(P1,344)
(3,873)
(P6,602)
(11,648)
P1,344
3,873
P6,602
11,648
(5,217)
(18,250)
5,217
18,250
-
18,269
-
(18,269)
1,830
-
15,193
830
(1,830)
-
(15,193)
(830)
1,830
34,292
(1,830)
(34,292)
(P3,387)
P16,042
P3,387
(P16,042)
2010
P1 Decrease in the US dollar
Exchange Rate
Effect on Income
Effect on
before
Equity
Income Tax (Net of Tax)
Cash and cash equivalents
Trade and other receivables
Notes payable
Trade payables and other
current liabilities
Other noncurrent liabilities
P1 Increase in the US dollar
Exchange Rate
Effect on
Effect on
Income before
Equity
Income Tax (Net of Tax)
(P158)
(2,753)
(P1,594)
(10,652)
P158
2,753
P1,594
10,652
(2,911)
(12,246)
2,911
12,246
1,208
26,540
(1,208)
(26,540)
-
13,265
790
-
(13,265)
(790)
1,208
40,595
(1,208)
(40,595)
(P1,703)
P28,349
P1,703
(P28,349)
Exposures to foreign exchange rates vary during the year depending on the volume of
overseas transactions. Nonetheless, the analysis above is considered to be representative
of the Group’s currency risk.
Commodity Price Risk
Commodity price risk is the risk that future cash flows from a financial instrument will
fluctuate because of changes in commodity prices. The Group, through SMC, enters into
various commodity derivatives to manage its price risks on strategic commodities.
Commodity hedging allows stability in prices, thus offsetting the risk of volatile market
fluctuations. Through hedging, prices of commodities are fixed at levels acceptable to
the Group, thus protecting raw material cost and preserving margins. For hedging
transactions, if prices go down, hedge positions may show mark-to-market losses;
however, any loss in the mark-to-market position is offset by the resulting lower physical
raw material cost.
- 65 -
SMC enters into commodity derivative transactions on behalf of the Group to reduce cost
by optimizing purchasing synergies within the SMC Group of Companies and managing
inventory levels of common materials.
The Group uses commodity futures and options to manage the Group’s exposures to
volatility in prices of certain commodities such as fuel oil, soybean meal and wheat.
Liquidity Risk
Liquidity risk pertains to the risk that the Group will encounter difficulty in meeting
obligations associated with financial liabilities that are settled by delivering cash or
another financial asset.
The Group’s objectives to manage its liquidity risk are as follows: (a) to ensure that
adequate funding is available at all times; (b) to meet commitments as they arise without
incurring unnecessary costs; (c) to be able to access funding when needed at the least
possible cost; and (d) to maintain an adequate time spread of refinancing maturities.
The Group constantly monitors and manages its liquidity position, liquidity gaps or
surplus on a daily basis. A committed stand-by credit facility from several local banks is
also available to ensure availability of funds when necessary.
The table below summarizes the maturity profile of the Group’s financial assets and
financial liabilities based on contractual undiscounted payments used for liquidity
management as at December 31, 2011 and 2010.
2011
Carrying Contractual
Amount Cash Flow
Financial Assets
Cash and cash
equivalents
P4,932,718
Trade and other
receivables - net
8,700,217
Derivative assets
31,869
AFS financial assets
(included under “Other
noncurrent assets”
account in the
consolidated statements
of financial position)
8,906
Financial Liabilities
Notes payable
4,987,929
Trade payables and other
current liabilities
(excluding derivative
liabilities)
10,990,164
Derivative liabilities
(included under “Trade
payables and other
current liabilities”
account in the
consolidated statements
of financial position)
28,713
Long-term debt
(including current
maturities) - net of debt
issue costs
4,671,449
Other noncurrent
liabilities (excluding
retirement liability)
1,466
1year > 1 Year or Less
2 Years
>2 Years 5 Years
Over
5 Years
P4,932,718
P4,932,718
P -
P -
P -
8,700,217
31,869
8,700,217
31,869
-
-
-
-
-
8,906
8,906
-
5,030,267
5,030,267
-
-
-
10,990,164
10,990,164
-
-
-
28,713
28,713
-
-
-
5,457,980
32,860
1,466
- 66 -
-
189,789
1,466
5,235,331
-
-
-
2010
Carrying
Amount
Financial Assets
Cash and cash
equivalents
P7,041,345
Trade and other
receivables - net
7,760,271
Derivative assets
107,633
AFS financial assets
(included under “Other
noncurrent assets”
account in the
consolidated statements
11,232
of financial position)
Financial Liabilities
Notes payable
5,172,538
Trade payables and other
current liabilities
(excluding derivative
liabilities)
15,142,853
Derivative liabilities
(included under “Trade
payables and other
current liabilities”
account in the
consolidated statements
of financial position)
3,116
Long-term debt - net of
debt issue costs
4,460,807
Other noncurrent
liabilities (excluding
retirement liability)
2,883
Contractual
Cash Flow
1year > 1 Year or Less
2 Years
>2 Years 5 Years
Over
5 Years
P7,041,345
P7,041,345
P -
P -
P -
7,760,271
107,633
7,760,271
107,633
-
-
-
-
-
11,232
11,232
-
5,250,284
5,250,284
-
-
-
15,142,853
15,142,853
-
-
-
3,116
3,116
-
-
-
5,423,012
-
-
2,883
-
2,883
5,423,012
-
-
-
Credit Risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a
financial instrument fails to meet its contractual obligations, and arises principally from
the Group’s trade receivables and investment securities. The Group manages its credit
risk mainly through the application of transaction limits and close risk monitoring. It is
the Group’s policy to enter into transactions with a wide diversity of creditworthy
counterparties to mitigate any significant concentration of credit risk. The Group has
regular internal control reviews to monitor the granting of credit and management of
credit exposures.
Trade and Other Receivables
The Group’s exposure to credit risk is influenced mainly by the individual characteristics
of each customer. However, management also considers the demographics of the Group’s
customer base, including the default risk of the industry and country in which customers
operate, as these factors may have an influence on the credit risk. The Group has no
significant concentration of the credit risk with any counterparty.
Goods are subject to retention of title clauses so that in the event of default, the Group
would have a secured claim. Where appropriate, the Group obtains collateral or arranges
master netting agreements.
The Group has established a credit policy under which each new customer is analyzed
individually for creditworthiness before the Group’s standard payment and delivery terms
and conditions are offered. The Group ensures that sales on account are made to
customers with appropriate credit history. The Group has detailed credit criteria and
several layers of credit approval requirements before engaging a particular customer or
counterparty. The Group’s review includes external ratings, when available, and in some
- 67 -
cases bank references. Purchase limits are established for each customer and are
reviewed on a regular basis. Customers that fail to meet the Group’s benchmark
creditworthiness may transact with the Group only on a prepayment basis.
The Group establishes an allowance for impairment that represents its estimate of
incurred losses in respect of trade and other receivables. The main components of this
allowance are a specific loss component that relates to individually significant exposures,
and a collective loss component established for groups of similar assets in respect of
losses that have been incurred but not yet identified. The collective loss allowance is
determined based on historical data of payment statistics for similar financial assets.
Investments
The Group recognizes provision for impairment losses based on specific and collective
impairment tests, when objective evidence of impairment has been identified either on an
individual account or on a portfolio level.
Financial information on the Group’s maximum exposure to credit risk as at
December 31, 2011 and 2010, without considering the effects of collaterals and other risk
mitigation techniques, is presented below:
Note
7
8
33
33
Cash and cash equivalents
Trade and other receivables - net
Derivative assets
AFS financial assets
2011
P4,932,718
8,700,217
31,869
8,906
P13,673,710
2010
P7,041,345
7,760,271
107,633
11,232
P14,920,481
The credit risk for cash and cash equivalents, derivative assets and AFS financial assets is
considered negligible, since the counterparties are reputable entities with high quality
external credit ratings.
The Group’s exposure to credit risk arises from default of counterparty. Generally, the
maximum credit risk exposure of receivables is its carrying amount without considering
collaterals or credit enhancements, if any. The Group has no significant concentration of
credit risk since the Group deals with a large number of homogenous trade customers.
The Group does not execute any credit guarantee in favor of any counterparty.
Financial and Other Risks Relating to Livestock
The Group is exposed to financial risks arising from the change in cost and supply of
feed ingredients and the selling prices of chicken, hogs and cattle and related products, all
of which are determined by constantly changing market forces of supply and demand,
and other factors. The other factors include environmental regulations, weather
conditions and livestock diseases for which the Group has little control. The mitigating
factors are listed below:

The Group is subject to risks affecting the food industry, generally, including risks
posed by food spoilage and contamination. Specifically, the fresh meat industry is
regulated by environmental, health and food safety organizations and regulatory
sanctions. The Group has put into place systems to monitor food safety risks
throughout all stages of manufacturing and processing to mitigate these risks.
Furthermore, representatives from the government regulatory agencies are present at
all times during the processing of dressed chicken, hogs and cattle in all dressing and
meat plants and issue certificates accordingly. The authorities, however, may impose
additional regulatory requirements that may require significant capital investment at
short notice.
- 68 -

The Group is subject to risks relating to its ability to maintain animal health status
considering that it has no control over neighboring livestock farms. Livestock health
problems could adversely impact production and consumer confidence. However,
the Group monitors the health of its livestock on a daily basis and proper procedures
are put in place.

The livestock industry is exposed to risk associated with the supply and price of raw
materials, mainly grain prices. Grain prices fluctuate depending on the harvest
results. The shortage in the supply of grain will result in adverse fluctuation in the
price of grain and will ultimately increase the Group’s production cost. If necessary,
the Group enters into forward contracts to secure the supply of raw materials at
reasonable price.
Other Market Price Risk
The Group’s market price risk arises from its investments carried at fair value (AFS
financial assets). The Group manages its risk arising from changes in market price by
monitoring the changes in the market price of the investments.
Capital Management
The primary objective of the Group’s capital management is to ensure that it maintains a
strong credit rating and healthy capital ratios in order to support its businesses and
maximize shareholder value.
The Group manages its capital structure and makes adjustments, in the light of changes in
economic conditions. To maintain or adjust the capital structure, the Group may adjust
the dividend payment to shareholders, pay-off existing debts, return capital to
shareholders or issue new shares.
The Group defines capital as paid-in capital stock, additional paid-in capital and retained
earnings, both appropriated and unappropriated. Other components of equity such as
treasury stock and cumulative translation adjustments are excluded from capital for
purposes of capital management.
The BOD has overall responsibility for monitoring capital in proportion to risk. Profiles
for capital ratios are set in the light of changes in the Group’s external environment and
the risks underlying the Group’s business, operation and industry.
The Group monitors capital on the basis of debt-to-equity ratio, which is calculated as
total debt divided by total equity. Total debt is defined as total current liabilities and total
noncurrent liabilities, while equity is total equity as shown in the consolidated statements
of financial position.
There were no changes in the Group’s approach to capital management during the year.
- 69 -
33. Financial Assets and Financial Liabilities
The table below presents a comparison by category of carrying amounts and fair values
of the Group’s financial instruments as at December 31, 2011 and 2010:
2011
Carrying
Amount Fair Value
Financial Assets
Cash and cash equivalents
Trade and other receivables - net
Derivative assets
AFS financial assets (included under
“Other noncurrent assets” account in
the consolidated statements of
financial position)
Financial liabilities
Notes payable
Trade payables and other current
liabilities (excluding derivative
2010
Carrying
Amount
Fair Value
P4,932,718 P4,932,718 P7,041,345 P7,041,345
7,760,271
7,760,271
8,700,217
8,700,217
107,633
107,633
31,869
31,869
liabilities)
Derivative liabilities (included under
“Trade payables and other current
liabilities” account in the consolidated
statements of financial position)
Long-term debt (including current
maturities) - net of debt issue costs
Other noncurrent liabilities (excluding
retirement liability)
8,906
8,906
11,232
11,232
4,987,929
4,987,929
5,172,538
5,172,538
10,990,164
10,990,164
15,142,853
15,142,853
28,713
28,713
3,116
3,116
4,671,449
4,703,740
4,460,807
4,489,490
1,466
1,466
2,883
2,883
The following methods and assumptions are used to estimate the fair value of each class
of financial instruments:
Cash and Cash Equivalents and Trade and Other Receivables. The carrying amounts of
cash and cash equivalents and trade and other receivables approximate fair values
primarily due to the relatively short-term maturities of these financial instruments.
Derivatives. The fair values of forward exchange contracts are calculated by reference to
current forward exchange rates. In the case of freestanding currency and commodity
derivatives, the fair values are determined based on quoted prices obtained from their
respective active markets. Fair values for stand-alone derivative instruments that are not
quoted from an active market and for embedded derivatives are based on valuation
models used for similar instruments using both observable and non-observable inputs.
AFS Financial Assets. The fair values of publicly traded instruments and similar
investments are based on quoted market prices in an active market. For debt instruments
with no quoted market prices, a reasonable estimate of their fair values is calculated
based on the expected cash flows from the instruments discounted using the applicable
discount rates of comparable instruments quoted in active markets. Unquoted equity
securities are carried at cost less impairment.
Notes Payable and Trade Payables and Other Current Liabilities. The carrying amounts
of notes payable and trade payables and other current liabilities approximate fair values
due to the relatively short-term maturities of these financial instruments.
- 70 -
Long-term Debt and Other Noncurrent Liabilities. The fair value of interest-bearing
fixed-rate loans is based on the discounted value of expected future cash flows using the
applicable market rates for similar types of instruments as at reporting date. As at
December 31, 2011 and 2010, discount rates used range from 1.74% to 4.79% and 1.32%
to 5.03%, respectively. The carrying amounts of floating rate loans with quarterly interest
rate repricing approximate their fair values.
Derivative Financial Instruments
The Group’s derivative financial instruments according to the type of financial risk being
managed and the details of freestanding and embedded derivative financial instruments
are discussed below.
The Group, through SMC, enters into various commodity derivative contracts to manage
its exposure on commodity price risk. The portfolio is a mixture of instruments including
futures and options.
Derivative Instruments Not Designated as Hedges
The Group enters into certain derivatives as economic hedges of certain underlying
exposures. These include freestanding commodity options and embedded currency
forwards which are not designated as accounting hedges. Changes in fair value of these
instruments are accounted for directly in profit or loss. Details are as follows:
Freestanding Derivatives
Freestanding derivatives consist of various commodity options entered into by SMC on
behalf of the Group.
The Group had outstanding bought and sold options covering its wheat requirements with
notional quantities as at December 31, 2011 and 2010 of 47,083 and 49,532 metric tons,
respectively. These options can be exercised at various calculation dates in 2011 and
2012 with specified quantities on each calculation date. As at December 31, 2011 and
2010, the net positive (negative) fair value of these options amounted to (P5.2 million)
and P53.9 million, respectively.
As at December 31, 2011, the Group has outstanding bought and sold options covering
its soybean meal requirements with notional quantity of 7,439 metric tons. These options
can be exercised at various dates in 2012 with specified quantities on each calculation
date. As at December 31, 2011, the negative fair value of these options amounted to
P5.5 million. There were no outstanding options on the purchase of soybean meal as at
December 31, 2010.
Embedded Derivatives
The Group’s embedded derivatives include currency forwards embedded in non-financial
contracts. As at December 31, 2011 and 2010, the total outstanding notional amount of
such embedded currency forwards amounted to US$59.9 million and US$34.4 million,
respectively. These non-financial contracts consist mainly of foreign
currency-denominated purchase orders, sales agreements and capital expenditures. The
embedded forwards are not clearly and closely related to their respective host contracts.
As at December 31, 2011 and 2010, the net positive fair value of these embedded
currency forwards amounted to P13.7 million and P50.6 million, respectively.
For the years ended December 31, 2011, 2010 and 2009, the Group recognized
mark-to-market gains (losses) from freestanding and embedded derivatives amounting to
(P28.1 million), P167.0 million and P54.5 million, respectively (Note 26).
- 71 -
Fair Value Changes on Derivatives
The net movements in fair value of all derivative instruments for the years ended
December 31, 2011 and 2010 are as follows:
2011
P104,517
Balance at beginning of year
Net changes in fair value of derivatives:
Not designated as accounting hedges
(28,137)
76,380
73,224
P3,156
Less fair value of settled instruments
Balance at end of year
2010
P33,708
167,021
200,729
96,212
P104,517
Fair Value Hierarchy
Financial assets and financial liabilities measured at fair value in the consolidated
statements of financial position are categorized in accordance with the fair value
hierarchy. This hierarchy groups financial assets and financial liabilities into three levels
based on the significance of inputs used in measuring the fair value of the financial assets
and financial liabilities.
The table below analyzes financial instruments carried at fair value, by valuation method
as at December 31, 2011 and 2010. The different levels have been defined as follows:



Level 1: quoted prices (unadjusted) in active markets for identical assets or
liabilities;
Level 2: inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly or indirectly; and
Level 3: inputs for the asset or liability that are not based on observable market
data.
2011
Financial Assets
Derivative assets
AFS financial assets
Financial Liabilities
Derivative liabilities
Level 1
Level 2
Total
P2,107
6,530
P29,762
2,376
P31,869
8,906
10,309
18,404
28,713
Level 1
Level 2
Total
P53,907
1,557
P53,726
9,675
P107,633
11,232
3,116
3,116
2010
Financial Assets
Derivative assets
AFS financial assets
Financial Liabilities
Derivative liabilities
-
As at December 31, 2011 and 2010, the Group has no financial instruments valued based
on Level 3. During the year, there were no transfers between Level 1 and Level 2 fair
value measurements, and no transfers into and out of Level 3 fair value measurements.
- 72 -
34. Employee Stock Purchase Plan
SMC offers shares of stocks to employees of SMC and its subsidiaries under the ESPP.
Under the ESPP, all permanent Philippine-based employees of SMC and its subsidiaries
who have been employed for a continuous period of one year prior to the subscription
period will be allowed to subscribe at a price equal to the weighted average of the daily
closing market prices for three months prior to the offer period less 15% discount. A
participating employee may acquire at least 100 shares of stocks, subject to certain
conditions, through payroll deductions.
The ESPP requires the subscribed shares and stock dividends accruing thereto to be
pledged to SMC until the subscription is fully paid. The right to subscribe under the
ESPP cannot be assigned or transferred. A participant may sell his shares after the second
year from exercise date.
The ESPP also allows subsequent withdrawal and cancellation of participants’
subscriptions under certain terms and conditions.
Expenses billed by SMC for share-based payments recognized by the Group in profit or
loss and included in “Selling and Administrative Expenses” amounted to P34.6 million,
P17.6 million, and P6.3 million in 2011, 2010 and 2009, respectively.
35. Other Matters
a. Toll Agreements
The significant subsidiaries are into toll processing with various contract growers,
breeders, contractors and processing plant operators (collectively referred to as “the
Parties”). The terms of the agreements include the following, among others:

The Parties have the qualifications to provide the contracted services and have
the necessary manpower, facilities and equipment to perform the services
contracted.

Tolling fees paid to the Parties are based on the agreed rate per acceptable output
or processed product. The fees are normally subject to review in cases of changes
in costs, volume and other factors.

The periods of the agreement vary. Negotiations for the renewal of any
agreement generally commence six months before expiry date.
Total tolling expenses in 2011, 2010 and 2009 amounted to P4,709.2 million,
P3,971.0 million and P3,137.9 million, respectively.
b. Contingencies
The Group is a party to certain lawsuits or claims (mostly labor related cases) filed
by third parties which are either pending decision by the courts or are subject to
settlement agreements. The outcome of these lawsuits or claims cannot be presently
determined. In the opinion of management and its legal counsel, the eventual liability
from these lawsuits or claims, if any, will not have a material effect on the
consolidated financial statements.
c. Commitments
The outstanding capital and purchase commitments as at December 31, 2011 and
2010 amounted to P9,158.6 million and P10,094.1 million, respectively.
- 73 -
d. Registration with the Board of Investments (BOI)
Certain operations of consolidated subsidiaries are registered with the BOI as pioneer
and non-pioneer activities. As registered enterprises, these consolidated subsidiaries
are subject to some requirements and are entitled to certain tax and non-tax
incentives which are considered in the computation of the provision for income tax.
SMFI
SMFI was registered with the BOI on a non-pioneer status as a New Producer of
Animal Feeds for its Mariveles, Bataan plant and as a New Producer of Chicken
(Dressed) for its Orion, Bataan farm in August 2006 and July 2007, respectively.
Under the terms of SMFI’s BOI registration and subject to certain requirements as
provided in the Omnibus Code of 1987, SMFI is entitled to incentives which
included, among others, ITH for a period of four (4) years from January 2007 for
Animal Feeds and from October 2007 for Dressed Chicken (can be extended to
maximum of 8 years provided certain conditions are met).
SMFI’s (formerly Monterey) Sumilao Hog Project (Sumilao Project) was registered
with the BOI under Registration No. 2008-192, in accordance with the provisions of
the Omnibus Investment Code of 1987 on a pioneer status as New Producer of Hogs
on July 30, 2008. As a BOI-registrant, the Sumilao Project is entitled to incentives
which included, among others, income tax holiday (ITH) for a period of six (6) years,
extendable under certain conditions to eight (8) years, from February 2009 or actual
start of commercial operations, whichever is earlier, but in no case earlier than the
date of registration.
PF-Hormel
The existing registration of PF-Hormel with the BOI was made on May 18, 2006 in
accordance with the provisions of the Omnibus Investments Code of 1987 as a new
producer of processed meat products on a non-pioneer status. Under the terms of this
new registration, PF-Hormel is entitled to certain tax incentives, including income
tax holiday (ITH) for four years from July 2007, or from the actual start of
commercial operations, whichever comes first, but in no case earlier than the date of
registration.
PF-Hormel’s new registered activity with the BOI commenced commercial
operations in July 2007 and began to avail tax incentives since then.
e. Certain changes in prior year’s amounts were due to reclassifications for consistency
with the current period presentation. These reclassifications had no effect on the
reported results of operation for any period.
36. Events After the Reporting Date
On February 7, 2012, the Company’s BOD declared cash dividends to all preferred and
common shareholders of record as of February 21, 2012 amounting to P20.00 and P1.20
per share, respectively, payable on March 3, 2012.
- 74 -
ANNEX E-1
Manabat Sanagustin & Co., CPAs
The KPMG Center, 9/F
6787 Ayala Avenue
Makati City 1226, Metro Manila, Philippines
Telephone
Fax
Internet
E-Mail
+63 (2) 885 7000
+63 (2) 894 1985
www.kpmg.com.ph
[email protected]
Branches· Subic . Cebu . Bacolod . lIoilo
The Stockholders and Board of Directors
San Miguel Pure Foods Company, Inc.
JMT Corporate Condominium
ADB Avenue, Ortigas Center, Pasig City
We have audited in accordance with Philippine Standards on Auditing, the consolidated financial
statements of San Miguel Pure Foods Company, Inc. (the "Company") and Subsidiaries included
in the Form 17-A and have issued our report thereon dated March 7, 2012.
Our audit was made for the purpose of forming an opinion on the basic consolidated financial
statements taken as a whole. The schedules listed in the Index to Financial Statements and
Supplementary Schedules (A-H) are the responsibility of the Company's management. These
schedules are presented for purposes of complying with the Securities Regulation Code 68, As
Amended, and are not part of the basic consolidated financial statements. These schedules have
been subjected to the auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly state in all material respects the financial statements data
required to be set forth therein in relation to the basic consolidated financial statements taken as a
whole.
MANABAT SANAGUSTIN
& CO., CPAs
CPA License No. 0045177
SEC Accreditation No. 0027-AR-3, Group A, valid until January 4,2015
Tax Identification No. 106-197-186
BIR Accreditation No. 08-001987-6-2010
Issued June 30, 2010; valid until June 29, 2013
PTRNo.3174023MA
Issued January 2,2012 at Makati City
March 7, 2012
Makati City, Metro Manila
Manabat
Sanagustin
&
Co.,
CPAs,
a
Philippine
partnership and a member firm of the KPMG network of
independent member firms affiliated with KPMG International
Cooperative ("KPMG International"), a Swiss entity.
PRC-BOA Registration No. 0003, Group A, valid until December 31, 2013
SEC Accreditation No. 0004-FR-3, Group A, valid until November 22,2014
IC Accreditation No. F-004Q-R, Group A, valid until September 11, 2014
BSP Accredited, Group A, valid until December 17, 2014
ANNEX "E-1"
SAN MIGUEL PURE FOODS COMPANY, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND
SUPPLEMENTARY
SCHEDULES
DECEMBER 31, 2011
A
- FINANCIAL ASSETS
B
- AMOUNTS RECEIVABLE FROM DIRECTORS, OFFICERS,
EMPLOYEES, RELATED PARTIES AND PRINCIPAL STOCKHOLDERS
(OTHER THAN RELATED PARTIES)
C
NOT APPLICABLE
- AMOUNTS RECEIVABLE FROM RELATED PARTIES WHICH
ARE ELIMINATED DURING THE CONSOLIDATION OF FINANCIAL
STATEMENTS
D
- INTANGIBLE ASSETS - OTHER ASSETS
E
- LONG- TERM DEBT
F
- INDEBTEDNESS TO RELATED PARTIES
NOT APPLICABLE
G
- GUARANTEES OF SECURITIES OF OTHER ISSUERS
NOT APPLICABLE
H
- CAPITAL STOCK
SAN MIGUEL PURE FOODS COMPANY, INC. AND SUBSIDIARIES
SCHEDULE A - FINANCIAL ASSETS
DECEMBER 31,2011
(Amounts in Thousands, except No. of Shares Data)
Number of shares
or Principal Amount
of Bonds and Notes
Name of Issuing Entity I
Description of Each Issue
Cash and cash equivalents
Trade and other receivables - net
Derivative assets
Available-for-sale financial assets
*
This represents
net mark-ta-market
Amount
Shown in the
Statements of
Financial Position
P
134,673
134,673
gainsllosses
from derivative assets and derivative liabilities
that have matured during the year and those that are still outstanding
See Notes 32 and 33 of the Notes to the Consolidated
P
Financial Statements
as of year-end.
4,932,718
8,700,217
31,869
8,906
13,673,710
Value Based
on Market
Quotations at
Dec. 31, 2011
P
P
4,932,718 P
8,700,217
31,869
8,906
13,673,710 P
Income
Received
and Accrued
393,572
(28,137) *
55
365,490
SAN MIGUEL
ATTACHMENT
PURE FOODS
TO SCHEDULE
(Amounts
Beginning
No. of Shares
Amount
Financial
ASSETS
Data)
Ending
and
Amount
Amount of Bonds
and Notes
AddltlonslDlsposalsl
Equity
in Net
Valuation/CTA!
Reclassification
Earnings
During
the Year
Dividends
Received
No. of Shares
Amount
Balance
or Principal
of Bonds and
Percentage
of Ownership
Amount
Notes
Assets
San Miguel Pure Foods Company.
Club Filipino
Club Strata, Inc.
Makati Sports Club, Inc.
Philippine Long Distance
Valle Verde Country
Manila Electric Co.
FINANCIAL
DECEMBER 31, 2011
Thousands,
except No. of Shares
Addition
- No. of
Shares or Principal
Notes
Available-for-Sale
INC. AND SUBSIDIARIES
Balance
or Principal
of Bonds
in
COMPANY,
A's AVAILABLE-FOR-SALE
Inc.
Tei. Co.
Club
1
3
1
45.735
1
14.695
P
p
100
23
300
576
150
3.396
25
(50)
742
(20)
(3,247)
1 P
3
1
45,735
1
14,695
125
23
250
1,316
130
149
a
-do-do-do-do-do-
100
200
241
200
1,600
590
560
60
450
260
450
-do-do-do-do-do-do-do-do-do-do-do-
1,600
-do-
26
-do-
312
-do-
San Miguel Foods. Inc.
Club Filipino
Makati Sports Club. Inc.
Philippine Long Distance Tei. Co.
Manila Southwoods GoW & Country Club
Sta Elena GoW Club
Manila Electric Co.
Tagaytay Highland GoW and Country Club
Pi~el
Royal Tagaytay Country Club
Orchard GoW and Country Club
Insta Food
Magnolia.
Inc.
Alabang
Country
1
1
3,926
1
1
56.999
1
11.100
1
1
Club
The Pureloods-Hormel
Company. Inc.
Capitol Hills GoW and Country Club. Inc.
(a) percentage
Financial
01 ownership
(69)
1.500
300
3,926
1
1
1
11,100
1
1
319
Assets
is negligible
56,999
26
PT San Miguel Pure Foods Indonesia
GoW Club Bogor Raya
Total Available·for-Sale
1
1
100
200
241
200
1.600
659
560
60
450
260
450
134,673
P
11,232
(7)
______________
P
~(~2,~32~6~)
134,673 P
==_
8,906
SAN MIGUEL PURE FOODS COMPANY, INC. AND SUBSIDIARIES
SCHEDULE C - AMOUNTS RECEIVABLE FROM RELATED PARTIES WHICH ARE ELIMINATED
DURING THE CONSOLIDATION OF FINANCIAL STATEMENTS
DECEMBER 31,2011
(Amounts in Thousands)
BEGINNING
BALANCE
NAME OF RELATED PARTY
San Miguel Pure Foods Company, Inc.
San Miguel Foods, Inc.
San Miguel Mills, Inc. and subsidiary
The Purefoods-Hormel Company, Inc.
Magnolia, Inc. and subsidiaries
San Miguel Super Coffeemix Co., Inc.
P
344,209 P
947,321
153,930
2,676,943
1,026,681
105,926
5,255,010 P
ADDITIONS!
CTA1RECLASS!
OTHERS
677,804
5,430,898
1,136,177
14,179,549
7,079,210
785,780
29,289,418
AMTS COLLECTED!
CREDIT MEMO
P
P
(920,626) P
(5,141,388)
(1,153,629)
(13,453,987)
(7,339,812)
(789,415)
(28,798,857) P
AMOUNTS
WRITTEN OFF
TOTAL
P
P
101,387 P
1,236,831
136,478
3,402,505
766,079
102,291
5,745,571 P
CURRENT
101,387 P
1,236,831
136,478
3,402,505
766,079
102,291
5,745,571 P
ENDING
BALANCE
NONCURRENT
P
P
101,387
1,236,831
136,478
3,402,505
766,079
102,291
5,745,571
SAN MIGUEL PURE FOODS COMPANY, INC. AND SUBSIDIARIES
SCHEDULE D -INTANGIBLE ASSETS AND OTHER ASSETS
DECEMBER 31, 2011
(Amounts in Thousands)
Part A - Goodwill and Other Intangible Assets
Beginning
Balance
Description
Goodwill
416,310 12
Additionsl
Acquisition of Subsidiaries
Reclassificationsl
(Disposal)
Charged to Costs
and Expenses
Currency
Translation
Adjustment
Ending
Balance
422,547
6,237 12
Trademarks and Other Intangibles
Cost:
Trademarks and brand names
Software and Licenses
181,376
Formulas and recipes
Amortization
57,591
248,805
3,787,710
1,585
and Impairment Losses:
Software and Licenses
Net Book Value:
See Notes
430,181
248,805
57,591
3,537,320
Accumulated
3,299,938
1,585
3,298,353
4 15 and 16 of the Notes to the Consolidated
18,516
111,810
3,425,510P
Financial Statements
248,805P
1,585 P
(18,516)P ======12
130,326
===3~,6=5=7,~384=
SAN MIGUEL PURE FOODS COMPANY, INC. AND SUBSIDIARIES
SCHEDULE D -INTANGIBLE ASSETS AND OTHER ASSETS
DECEMBER 31,2011
(Amounts in Thousands)
Part B - Other Noncurrent Assets
Beginning
Balance
Description
Avai lable-for-sale financial assets
P-
11,232
P-
118,103
436,614
Others - net
183,695
5,819
313,030
See Notes 4, 14, 32 and 33 of the Notes to the Consolidated Financial Statements
442,433
Currency
Translation
Adjustment
P-
P-
Idle Assets - net
Other Changesl
Reclassificationsl
(Disposal)
Charged to
Cost and
Expenses
Additions I
Acquisition of
Subsidiaries
(1,430)
(1,430)
P-
(2,326)
Ending
Balance
P-
8,906
(60)
553,227
(75,596)
113,918
(75,656)
(2,326)
676,051
SAN
MIGUEL
PURE
FOODS
SCHEDULE
COMPANY,INC,
AND
E - LONG-TlERM
DEBT
DECEMBER
SUBSIDIARIES
31, 2011
(Amounts In Thousands)
OF ISSUE
Unsecured
AGENT
oes<Hienominated
term
I
Balance
LENDER
Transaction
Current
Portion of
Outstanding
TlT1.E
Long-term
Noncurr&nt Portion
Amount
Shown as
Cost
Current
Debt
Current
Non Current
Transaction
01 Debt
Amount
Shown as
Long-term
Cost
Current
and Long-term
INTEREST
RA TIES
POS1-R1
plus margin
Number of
Periodic
Installments
Interest
Payments
Maturlty
Quarterly
September-14
Final
notes:
swstdlarles
Magnolia Inc.
3-month
Bank of
Floating
p
Canm.erce
San M/quel Foods Inc.
Floating
BancoDeOroUnibank,
Inc.
Floating
ChinaBankingCofporation
Floating
land Bank of the Philippines
Floating
Maytlank
Phi'ppines,
203,750
Land
Chine
Fixed
China Banking Corporation-- Trust
Gr~
85 Trustee
Chine
Fixed
Trust
Corporation
Bank Savings,
P
25000
P
Long~enn
Debt
P
P
178,750
P
203,750
BSP ovemig,t rate
whicheveris hi~
(10,758)
1,489,242
1,489,242
3-month
POST-F
plus margin
1,200,000
(8,606)
1,191,394
1,191,394
3-month
POST·F
plus margin
500,000
500 000
3,700,000
000
(3,586)
496,414
496 414
(3,586)
496,414
3-month POST -F p4us margin
496,414
3-month
(26,536)
3,673,464
3,673,464
POST·F
a
plus margin,
1,500,000
ptus margin
Amortized
B<kt
B<kt
B<kt
!Met
Quarterly
December-15
Quarterly
December-15
Quarterly
December-15
Quarterly
Decembe<-15
500,000
500,000
(3,603)
496,397
496,397
5.4885%
oeceroee-ts
229,600
(1,655)
227,945
227,945
5.4885%
B<kt
B<kt
Quarterly
229,600
Quarterly
December-15
53,500
53,500
53,115
53,115
5.4885%
B<kt
Quarterly
December-15
5.4885%
B<kt
Quarterly
Oecember-1S
(385)
Inc.
85 Trustee
16,900
16,900
800 000
800,000
Total
--'-'-'="'178,750
1,200,000
500,000
Sank 01 the Phiippines
Banking
P
1,500,000
3700
Fixed
25,000
500,000
Inc.
Fixed
P
P
See Notes 19. 32 and 33 of the Notes to the Consoidated Financial Statemerts.
4,703,750
P
25,000
P
=_=..;.~
P
25,000
P
4,678,750
P
===~==,;;,.
(122)
16,778
(5,765)
794,235
(32,301)
P
4,646,449
16,778
794235
P
4,671,449
SAN MIGUEL PURE FOODS COMPANY,
SCHEDULE
INC. AND SUBSIDIARIES
H • CAPITAL
DECEMBER
STOCK
31, 2011
NUMBER OF SHARES HELD
NUMBER
DESCRIPTION
COMMON SHARES
PREFERRED
SHARES
See Note 20 of the Notes to the Consolidated
NUMBER
NUMBER
OF SHARES
OF SHARES
AUTHORIZED
ISSUED
206,000,000
170,874,854
40,000,000
15,000,000
246,000,000
185,874,854
Financial Statements.
NUMBER
OF SHARES
DIRECTORS,
TREASURY
OF SHARES
RESERVED
OFFICERS AND
SHARES
OUTSTANDING
FOR OPTIONS
4,207,758
166,667,096
RELATED PARTY
166,526,487
15,000,000
4,207,758
181,667,096
166,526,487
EMPLOYEES
OTHERS
9
140,600
34,570
14,965,430
34.579
15,106,030
SAN MIGUEL PURE FOODS COMPANY,
AGING OF ACCOUNTS RECEIVABLE
AS AT DECEMBER 31, 20 II
I.
AGING OF ACCOUNTS
INC. AND SUBSIDIARIES
RECEIVABLE
Type of Receivable:
Total
A. Trade
Less: Allowance
P7,826,159,318.91
493,655,545.23
Current
1-30 days
P62,677,1 77. 15
2,442,258.16
Over 90 days
5,184,713,489.01
1,361,084,329.34
171,354,188.84
60,234,918.99
555,116,847.50
PI73,362,407.03
2,008,218.19
PI ,042,424,061.72
487,307,214.22
7,332,503,773.68
B. Non-Trade
Less: Allowance
1,396,425,061.95
28,711 ,491.41
573,848,716.24
-
113,476,082.31
-
114,410,820.43
-
45,912,287.52
-
548,777,155.45
28,711,491.41
1,367,713,570.54
573,848,716.24
113,476,082.31
114,410,820.43
45,912,287.52
520,065,664.04
Receivable
P8,700,217,344.22
Net Receivables
Accounts Receivable
PI,474,560,411.65
P5, 758,562,205.25
PI06,147,206.51
P285,765,009.27
Description
Trade - Receivables arising from the ordinary course of business
Non - Trade - consist mostly of receivables from affiliates/SMC subsidiarieslreceivables
from employees and deposits/claims
from suppliers
Accounts Receivable Description
Type of Accounts Receivable:
a.
Trade Receivables
NaturelDescription
b.
Non-Trade
Receivables
Collection Period
Sales of fresh and processed meats, poultry, feeds, flour, cooking oils,
breadfill, desserts and dairy-based products and importation and
marketing of coffee and coffee-related products
San Miguel Foods, Inc. (including Monterey Foods Corporation)
San Miguel Mills, Inc. and subsidiary
Magnolia, Inc. and subsidiaries
PT San Miguel Pure Foods Indonesia
San Miguel Pure Foods International Limited
San Miguel Super Coffeemix Co., Inc.
The Purefoods-Horrnel Company, Inc.
Great Food Solutions
Ill.
61-90 days
PI,362,982,184.00
1,897,854.66
Net Trade Receivable
Net Non-Trade
11.
31-60 days
P5, 184,713,489.0 I
-
Advances to affiliates and company loans extended to employees
Employee loans and advances
Advances to Affiliates
Normal Operating Cycle
San Miguel Foods, Inc. (including Monterey Foods Corporation)
San Miguel Mills, Inc. and subsidiary
Magnolia, Inc. and subsidiaries
PT San Miguel Pure Foods Indonesia
San Miguel Pure Foods International Limited
San Miguel Super Coffeemix Co., Inc.
The Purefoods-Hormel Company, Inc.
Great Food Solutions
78 days
121 days
120 days
158 days
137 days
182 days
105 days
97 days
35
24
35
66
28
68
50
39
days
days
days
days
days
days
days
days
Every 15tl' & 30th ofthe month
Upon demand
PI ,075, 182,511.54
ANNEX E-2
Manabat Sanagustln & Co .• CPAs
Telephone
The KPMG Canter, 9/F
Fax
6787 Ayala Avenue
Makati City 1226. Metro Manila. Philippines
Internet
Branches·
E-Mail
+ 63 (2) 005 7000
+ 63 (2) 894 1985
www.kpmg.com.ph
[email protected]
Subic . Cebu . Bacolod . Iloilo
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
San Miguel Pure Foods Company, Inc.
JMT Corporate Condominium
ADB Avenue, Ortigas Center, Pasig City
We have audited in accordance with Philippine Standards on Auditing, the parent company
financial statements of San Miguel Pure Foods Company, Inc. (a subsidiary of San Miguel
Corporation) (the "Company") as at and for the year ended December 31, 2011, and have issued
our report thereon dated March 7, 20 J 2.
Our audit was made for the purpose of forming an opinion on the basic parent company financial
statements taken as a whole. The accompanying Schedule of ReconciIiation of Retained
Earnings Available for Dividend Declaration is the responsibility of the Company's management.
This supplementary information is presented for purposes of complying with the Securities
Regulation Code Rule 68, As Amended, and is not a required part of the basic parent company
financial statements. Such information has been subjected to the auditing procedures applied in
the audits of the basic parent company financial statements and, in our opinion, is fairly stated, in
all material respects, in relation to the basic parent company financial statements taken as a
whole.
MANABAT SANAGUSTIN & CO., CPAs
ILF
artner
PA-bee' e No. 004 77
SEC Accreditation No. 0027-AR-3, Group A, valid until January 4,2015
Tax Identification No. 106-197-186
BJR Accreditation No. 08-001987-6-2010
Issued June 30,2010; valid until June 29,2013
PTR No. 3174023MA
Issued January 2, 2012 at Makati City
March 7,2012
Makati City, Metro Manila
Manabat
SBn&gustin
partnership
Independent
eod
Cooperative
I"KPMG International"1.
8
&
Co.,
CPAs,
mombor
firm of the
[inm affiliated with
merrbor
8
Phirppino
KPMG flOl:'NOfK
of
KPMG International
e S;viss entity.
PRC·OOA Aegi5tJation No. 0003. Group A. velid unU Oecerrber 31,2013
SEC Ac.cfedilation No, 0001-FR-3. Group A. vald until Noverri>er 22.20J4
le Accreditation
No. F0040-R,
BSPAccredited,
OroopJ\
valid
Groop A, valid until Septerroer
until Decerreer
17. 2014
11. 2014
SAN MIGUEL PURE FOODS COMPANY, INC.
(a subsidiary of San Miguel Corporation)
JMT Corporate Condominium, ADB Avenue, Ortigas Center, Pasig City
SCHEDULE OF RECONCILIATION OF RET AINED EARNINGS AVAILABLE FOR
DIVIDEND DECLARATION
December 31, 2011
(Amounts in Thousands)
Unappropriated Retained Earnings, as adjusted to available for
dividend distribution, beginning
Add: Net income actually earned/realized
during the year
Net income for the year closed to Retained Earnings
Less: Non-actual/unrealized
P6,174,668
2,806,335
income net of tax
Cash dividends paid
1,400,001
527
Deferred tax assets
Sub-total
Net income actually earned/realized
1,400,528
during the year
TOTAL UNAPPROPRIATED
RETAINED EARNINGS
AVAILABLE FOR DIVIDEND DISTRIBUTION, END
1,405,807
P7,580,475
ANNEX E-3
Manebal Sanegustin & Co.• CPAs
The KPMG Cenler. 91f
6787 Avala Avenue
Makati City 1226, Metto Manila. PhWpplnes
Telephone
FalC
lntemet
E-Mail
+63 12) 886 7000
+6312) 894 1986
www.kpmg.com.ph
[email protected]
Branches· Sublc • Cebu . Bacolod . 110110
The Stockholders and Board of Directors
San Miguel Pure Foods Company. Inc.
JMT Corporate Condominium
ADB Avenue. Ortigas Center, Pasig City
We have audited in accordance with Philippine Standards on Auditing. the consolidated financial
statements of San Miguel Pure Foods Company, Inc. (the "Company") and have issued our report
there on dated March 7, 2012.
Our audit was made for the purpose of forming an opinion on the basic consolidated financial
statements taken as a whole. The tabular schedule of Philippine Financial Reporting Standards as
at December 31,2011 is the responsibility of the Company's management. The tabular schedule
is presented for purposes of complying with the Securities Regulation Code 68, As Amended,
and is not part of the basic consolidated financial statements. The tabular schedule has been
subjected to the auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly state in all material respects the financial statements data
required to be set forth therein in relation to the basic consolidated financial statements taken as a
whole.
MANABAT SANAGUSTIN & CO., epAs
CPA License No. 0045177
SEC Accreditation No. 0027-AR-3, Group A, valid until January 4, 2015
Tax Identification No. 106-197-186
BIR Accreditation No. 08-001987-6-20 I0
Issued June 30. 2010; valid until June 29. 2013
PTR No. 3174023MA
Issued January 2. 2012 at Makati City
March 7. 2012
Makati City. Metro Manila
""",bll
Slno;UIIln
"
Ca.. CPAI. ,
""i!#iN
1'1""'''11,,
.nd , •••••"..,., """ 01 \110 QlMG n.twort 01
Ind.po""".I
•••• rtt>e' f••••••IIfI!JItad wi1II QlMG Inlefl\t\icnol
c_
••• rQlMG InlelNliono!').,
$Wi•• "'1iIY.
PRC-BOA Ragi •••• tion •••••0003. G,oup A. _
.ntl Doeertt>e, 31. 2013
SECA<cr._
Na. 0004-fM. OfOllp A. VlIiCIuftldN••• "..,., 22.2014
IC __
No.~fl.O_A.VllidIrn1ilSepllrN>e'11.2014
BSP A«ndiled, 0_
A. voliCluntil 0e00rN>e' 17, 2014
Standards
Philippine Financial Reporting Standards (PFRS)
PFRS 1 First-time Adoption of Philippine Financial
Reporting Standards
PFRS 2 Share-based Payment
PFRS 3 Business Combinations
PFRS 4 Insurance Contracts
PFRS 5 Non-current Assets Held for Sale and
Discontinued Operations
PFRS 6 Exploration for and Evaluation of Mineral
Resources
PFRS 7 Financial Instruments: Disclosures
PFRS 8 Operating Segments
Philippine Accounting Standards (PAS)
PAS 1 Presentation of Financial Statements
PAS 2 Inventories
PAS 7 Statements of Cash Flows
PAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors
PAS 10 Events after Reporting Period
PAS 11 Construction Contracts
PAS 12 Income Taxes
PAS 16 Property, Plant and Equipment
PAS 17 Leases
PAS 18 Revenue
PAS 19 Employee Benefits
PAS 20 Accounting for Government Grants and
Disclosure of Government Assistance
PAS 21 The Effects of Changes in Foreign Exchange
Rates
PAS 23 Borrowing Costs
PAS 24 Related Party Disclosures
PAS 26 Accounting and Reporting by Retirement Benefit
Plans
PAS 27 Consolidated and Separate Financial Statements
PAS 28 Investments in Associates
PAS 29 Financial Reporting in Hyperinflationary
Economies
PAS 31 Interests in Joint Ventures
PAS 32 Financial Instruments: Presentation
PAS 34 Interim Financial Reporting
PAS 36 Impairment of Assets
PAS 37 Provisions, Contingent Liabilities and Contingent
Assets
PAS 38 Intangible Assets
PAS 39 Financial Instruments: Recognition and
Measurement
PAS 40 Investment Property
PAS 41 Agriculture
"Adopted", "Not adopted"
"Not applicable".
Not applicable
Adopted
Adopted
Not applicable
Not applicable
Not applicable
Adopted
Adopted
Adopted
Adopted
Adopted
Adopted
Adopted
Not applicable
Adopted
Adopted
Adopted
Adopted
Adopted
Not applicable
Adopted
Adopted
Adopted
Not applicable
Adopted
Adopted
Not applicable
Adopted
Adopted
Adopted
Adopted
Adopted
Adopted
Adopted
Adopted
Adopted
or
Standards
"Adopted", "Not adopted"
"Not applicable".
or
Philippine Interpretations from International Financial Reporting Interpretations Committee
(IFRIC)
Philippine Interpretation IFRIC -I Changes in Existing
Not applicable
Decornmissioning, Restoration and Similar Liabilities
Philippine Interpretation IFRIC - 2 Members' Share in
Not applicable
Co-operative Entities and Similar Instruments
Philippine Interpretation IFRIC - 4 Determining whether
Not applicable
an Arrangement contains a Lease
Philippine Interpretation IFRIC - 5 Rights to Interests
arising from Decommissioning, Restoration and
Not applicable
Environmental Rehabilitation Funds
Philippine Interpretation IFRIC - 6 Liabilities arising
from Participating in a Specific Market - Waste Electrical
Not applicable
and Electronic Equipment
Philippine Interpretation IFRIC - 7 Applying the
Restatement Approach under PAS 29 Financial Reporting
Not applicable
in Hyperinflationary Economies
Philippine Interpretation IFRIC -10 Interim Financial
Adopted
Reporting and Impairment
Philippine Interpretation IFRIC - 12 Service Concession
Not applicable
Arrangements
Philippine Interpretation IFRIC - 13 Customer Loyalty
Adopted
Programmes
Phllippine Interpretation IFRIC -14, Prepayments of a
Adopted
Minimum Funding Requirement
Philippine Interpretation IFRIC -16 Hedges of a Net
Not applicable
Investment in a Foreign Operation
Philippine Interpretation IFRIC - 17 Distributions of
Not applicable
Non-cash Assets to Owners
Philippine Interpretation IFRIC -18 Transfers of Assets
Not applicable
from Customers
Philippine Interpretation IFRIC -19 Extinguishing
Adopted
Financial Liabilities with Equity Instruments
SAN MIGUEL PURE FOODS COMPANY, INC. (SMPFC)
Preferred Shares Issuance
March 3, 2011
a) As disclosed in the final prospectus, SMPFC's gross and estimated net proceeds from the preferred
shares issuance amounted to P15.00 billion and P14.83 billion, respectively.
b) SMPFC's actual gross and net proceeds amounted to P15.00 billion and P14.83 billion, respectively.
c) The proceeds of the preferred shares issuance were used for the following:
Amount
(in billion)
Full payment offood-related brands and other intellectual property rights
acquired from ultimate parent, San Miguel Corporation (SMC) (Note 15 of
P2.88
the 2011 Consolidated SMPFC Audited Financial Statements)
Additional investment in wholly-owned subsidiary San Miguel Pure
Foods International, Limited (SMPFIL) equivalent to the balance on the
acquisition of San Miguel Hormel Vietnam by SMPFIL from San Miguel
Foods and Beverage International Limited (Note 5 of the 2011 Consolidated
0.72
SMPFC Audited Financial Statements)
Purchase of Manila Electric Company shares from SMC
(Note 12 of the 2011
Consolidated SMPFC Audited Financial Statements)
Total
d) The net proceeds amounting to P14.83 billion were fully utilized as at December 31,2011.
11.23
P14.83
[ ANNEX E-4
Manabat Sanagustln & Co., CPAs
The KPMG Center, 9IF
6787 Aysls Avenue
Maleeti City 1226, Metro Manila, Philippines
Telephone
Fax
Internet
E-Mail
+63 (2) 886 7000
+63 (2) 894 1986
www.lcpmg.com.ph
[email protected]
Branches· Subic . Cebu . Bacolod . lIoilo
The Stockholders and Board of Directors
San Miguel Pure Foods Company, Inc.
JMT Corporate Condominium
ADB A venue, Ortigas Center, Pasig City
We have audited in accordance with Philippine Standards on Auditing, the consolidated financial
statements of San Miguel Pure Foods Company, Inc. (the "Company") and have issued our report
thereon dated March 7, 2012.
Our audit was made for the purpose of forming an opinion on the basic consolidated financial
statements taken as a whole. The map of the conglomerate within which the Company belongs is
the responsibility of the Company's management. The map is presented for purposes of
complying with the Securities Regulation Code 68, As Amended, and is not part of the basic
consolidated financial statements. The map has been subjected to the auditing procedures applied
in the audit of the basic consolidated financial statements and, in our opinion. fairly state in all
material respects the financial statements data required to be set forth therein in relation to the
basic consolidated financial statements taken as a whole.
MANABAT
SANAGUSTIN
& CO., CPAs
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CPA License No. 0045177
SEC Accreditation No. 0027-AR-3, Group A, valid until January 4,2015
Tax Identification No. 106-197-186
BIR Accreditation No. 08-001987-6-2010
Issued June 30, 2010; valid until June 29, 2013
PTR No. 3174023MA
Issued January 2, 2012 at Makati City
March 7, 2012
Makati City, Metro Manila
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SAN MIGUEL PURE FOODS COMPANY, INC.
GROUP STRUCTURE
I
SAN MIGUEL
I
SAN MIGUEL PURE
FOODS COMPANY, INC.
I
99.92% III
51%
I
I
99.97%
100%
San Miguel Foods, Inc.
San Miguel Mills, Inc.
12)
I
Magnolia,
n
Inc.
I
(2)
Sugarland Corporation
I
12)
I
12)
100%
Golden Food Dairy & Creamery Corporation
60%
The Purefoods-
70%
San Miguel Super Coffeemix
100%
RealSnacks Mfg. Corp.
75%
PT San Miguel Pure Foods Indonesia
100%
San Miguel Pure Foods International,
Limited (BVI)
Hormel Company,
(2)
I
San Miguel Brewery Inc. and subsidiaries
n
Ginebra San Miguellnc.
H
San Miguel Packaging Group
n
I
Golden Bay Grain Terminal Corporation
~
100%
(21
I
CORPORATION
H
H
H
W
Petron Corporation
13)
and subsidiaries
14)
and subsidiaries
Telecommunications
(7)
Other Assets and Investments I')
Inc.12)
Co., Inc.12)
(2,9)
100%
San Miguel Hormel (Vn) Co., ltd.IV;.tn.m)
5.2%
(1)
1 Manila Electric CompanyllOI
Excluding issued and outstanding preferred shares
(2)
Incorporated in the Philippines
(3)
Group comprised of Brewery Properties Inc. (40%), Iconic Beverages, Inc. (100%) and San Miguel Brewing International Ltd. (100%)
(4)
Group comprised of San Miguel Yamamura Packaging Corporation (65%), San Miguel Yamamura Packaging International Limited (65%),
San Miguel Yamamura Asia Corporation (60%) and Mindanao Corrugated Fibreboard, Inc. (100%)
(5)
Power business comprised of SMC Global Power Holdings Corp. and subsidiaries (100%)
(6)
Infrastructure business comprised of Trans Aire Development Holdings Corp. (93%), Private Infra Dev Corporation (35%) and Universal
LRT Corporation (BVI) Limited (51%)
(7)
Telecommunications business comprised of Liberty Telecommunications Holdings, Inc. (41.48%), Bell Telecommunication Philippines, Inc.
(100%) and Eastern Telecommunications Philippines, Inc. (77.70%)
(8)
Other Assets and Investments comprised of San Miguel Properties Inc. (99.68%) and its associate Bank of Commerce (39.93%)
(9)
Incorporated in April 2004 and has not yet started commercial operations
(10) Associate of the Group
I
I
I
I')
"re Foods investment 1"'1, Limited
~"M'"''
I
I
Power IS)
Infrastructure
I
I
I
Annex “F”
San Miguel Pure Foods Company, Inc.
Reported SEC Form 17-C for 2011
Date
Reported
January 24,
2011
Subject
Item No. 4 Resignation of Director
The Company received on January 24, 2011 the resignation letter of Mr. Jose T.
Pardo. Mr. Pardo resigned as Director of the Company effective January 20, 2011, to
pursue other professional endeavors and interests.
February
11, 2011
We disclose that in the meeting of the Board of Directors of San Miguel Pure Foods
Company, Inc. (respectively, the “Board” and the “Company”) held on February 11,
2011:
Item 4. Resignation, Removal or Election of Registrant’s Directors or Officers
1. The Board accepted the resignation of Mr. Jose T. Pardo as Director of the
Company effective January 20, 2011 as previously reported, and elected Mr.
Leandro R. Mendoza as member of the Board vice Mr. Pardo effective
February 11, 2011.
Mr. Mendoza is a noted management practitioner and a distinguished
professional military officer. He was previously Executive Secretary to the
Office of the President, Chairman of the Anti-Terrorism Council, Presidential
Human Rights Council Commission, and Maritime and Oceanic Affairs (from
March 2010 to June 2010); Secretary of the Department of Transportation and
Communications (DOTC) and Chairman of the Boards of DOTC Attached
Agencies/Sectoral Offices and Corporations (from July 2002 to March 2010).
2. The Board appointed Mr. Carmelo L. Santiago as Member and Chairman of
the Nominations and Hearing Committee of the Company effective February
11, 2011, to fill-in the vacancy left upon the resignation of Mr. Jose T. Pardo.
Item 9. Other Events
3. The Board approved the following corporate actions:
a. The public offer of up to 15,000,000 unissued cumulative, non-voting,
non-participating, and non-convertible preferred shares of the Company
with a par value of P10.00 per share (the “Preferred Shares”) at the offer
or issue price of One Thousand Pesos (P1,000.00) per share, under the
terms and conditions attached hereto as Annex “A”.
b. Subject to the further approval of the shareholders of the Company at a
meeting duly called for the purpose:
(i) The amendment of the terms and features of the Preferred Shares
2
of the Company as reflected in its Articles of Incorporation to allow
for optional redemption of the Preferred Shares in whole but not in
part, at the price equal to the issue price plus any accumulated and
unpaid cash dividends, as follows:
(1) on the third anniversary from the issue date of the Preferred
Shares or on any dividend payment date thereafter; and
(2) at any prior to the fifth anniversary from the issue date of the
Preferred Shares if an accounting event, tax event or a change of
control event has occurred and is continuing; and
(ii) The amendment of Article Seventh of the Amended Articles of
Incorporation of the Company to reflect the foregoing.
March 3,
2011
March 8,
2011
Press Released entitled “SMPFC lists 15 million preferred shares”.
Item 9. Other Events
In compliance with the sworn Undertaking submitted by San Miguel Pure Foods
Company, Inc. (the “Corporation”) to the Philippine Stock Exchange in connection
with the follow-on offering of the Corporation’s preferred shares to the public (the
“Offer”), this is to report that the amount of Two Billion Eight Hundred Eighty
Million Pesos (P2,880,000,000.00) from the proceeds of the Offer, corresponding to
the 90% balance of the purchase price of the food-related brands and intellectual
property rights acquired by the Corporation from San Miguel Corporation (SMC) on
July 30, 2010, was disbursed to SMC on March 8, 2011, in full payment for such
food-related brands and intellectual property rights, in accordance with the planned
use of proceeds as set out in the Prospectus for the Offer.
March 9,
2011
Item 9. Other Events
Please be informed that at the Board of Directors of San Miguel Pure Foods
Company, Inc. (respectively, the “Board” and the “Company”) held on March 9,
2011, the Board declared that the Annual Stockholders’ Meeting of the Company will
be held on May 13, 2011.
In this connection:
(a) The record date for the stockholders entitled to vote at the said meeting is
April 15, 2011;
(b) The stock transfer books will be closed from April 16, 2011 to April 20,
2011;
(c) The deadline for submission of proxies is on April 27, 2011; and
(d) The validation of proxies will be on May 4, 2011.
May 9,
2011
Item 9. Other Events
In compliance with the sworn Undertaking submitted by San Miguel Pure Foods
Company, Inc.(the “Corporation”) to the Exchange in connection with the follow-on
offering of the Corporation’s preferred shares to the public (the “Offer”), this is to
3
inform the Exchange that the amount of United States Dollars: Sixteen Million Seven
Hundred Fifty Thousand Four hundred Eighty Five and 90/100 (US$16,750,485.90)
from the proceeds of the Offer, corresponding to the 90% balance of the purchase
price of the Vietnam food business acquired by San Miguel Pure Foods International,
Limited (SMPFIL) from San Miguel Foods and Beverage International Limited
(SMFBIL), was disbursed on May 9, 2011, in full payment of such Vietnam food
business, in accordance with the planned use of proceeds as set out in the prospectus
for the Offer.
SMPFIL is a wholly-owned subsidiary of the Corporation, while SMFBIL is a
wholly-owned subsidiary of San Miguel Corporation.
May 9,
2011
Item 9. Other Events
Please be informed that at the Meeting of the Board of Directors of San Miguel Pure
Foods Company, Inc. (respectively, the “Board” and the “Corporation”) held on May
9, 2011, the Board declared cash dividends to shareholders of the Company as
follows:
Preferred Shares
Amount:
Record Date:
Closing of Books:
Payment Date:
P20.00 per share
May 23, 2011
May 24 to 27, 2011
June 3, 2011
Common Shares
Amount:
Record Date:
Closing of Books:
Payment Date:
May 13,
2011
P3.00 per share
May 23, 2011
May 24 to 27, 2011
June 13, 2011
Please be informed that at the Annual Meeting of Shareholders (the “ASM”) and
Organizational Meeting of the Board of Directors (the “Board”) of San Miguel Pure
Foods Company, Inc. (the “Corporation”) both held on May 13, 2011:
Item 4. Resignation, Removal or Election of Registrant’s Directors or Officers
1. The following directors were duly elected at the ASM, with the respective
number of shares held by each in the Corporation:
Title of
Class
Eduardo M. Cojuangco, Jr.
Ramon S. Ang
Francisco S. Alejo III
Common
Preferred
Common
Common
Preferred
Amount and Nature Total
of Ownership
No. of
Shares
1 (Direct)
5,501
5,500 (Beneficial)
1 (Direct)
1
1 (Direct)
10,001
10,000 (Beneficial)
4
Menardo R. Jimenez
Cancio C. Garcia (Independent)
Mario C. Garcia
Carmelo L. Santiago (Independent)
Plaridel M. Abaya (Independent)
Leandro R. Mendoza
Common
Common
Common
Common
Common
Common
1 (Direct)
1 (Direct)
1 (Direct)
1 (Direct)
1 (Direct)
1 (Direct)
1
1
1
1
1
1
2. The following by-laws officers were duly elected at the Organizational
Meeting of the Board:
Eduardo M. Cojuangco, Jr.
Ramon S. Ang
Francisco S. Alejo III
Zenaida M. Postrado
Ma. Soledad E. Olives
Atty. Alexandra B. Trillana
Atty. Ma. Celeste L. Ramos
-
Chairman
Vice Chairman
President
Treasurer and CFO
Compliance Officer
Corporate Secretary
Assistant Corporate Secretary
Of such officers, the shareholdings of Messrs. Cojuangco, Ang and Alejo in
the Corporation are as mentioned above. The shareholdings of the other
named officers are as below provided:
Title of
Class
Zenaida M. Postrado
Ma. Soledad E. Olives
Alexandra Bengson Trillana
Ma. Celeste L. Ramos
Preferred
Preferred
Preferred
Preferred
Amount and Nature of Total No.
Ownership
Of
Shares
7,000 (Beneficial)
7,000
3,400 (Beneficial)
3,400
500 (Beneficial)
500
50 (Beneficial)
50
In the same meeting, the following were elected to the Board Committees of the
Corporation:
Executive Committee
Eduardo M. Cojuangco, Jr.
Ramon S. Ang
Francisco S. Alejo III
Cancio C. Garcia
-
Chairman
Audit Committee
Cancio C. Garcia
Menardo R. Jimenez
Carmelo L. Santiago
Leandro R. Mendoza
Ferdinand K. Constantino
-
Chairman
-
Non Director Member
5
Executive Compensation
Menardo R. Jimenez
Carmelo L. Santiago
Ferdinand K. Constantino
Cancio C. Garcia
-
Chairman
-
Non Director Member
Nominations Committee
Carmelo L. Santiago
Francisco S. Alejo III
Cancio C. Garcia
David S. Santos
-
Chairman
-
Ex Oficio Member
Item 9. Other Events
3. The following corporate actions were approved at the ASM by shareholders
representing at least 2/3 of the outstanding capital stock of the Corporation:
(a) The amendment of the terms and features of the preferred shares of the
Corporation as reflected in its Articles of Incorporation to allow for
optional redemption of the preferred shares in whole but not in part, at the
price equal to the issue price plus any accumulated and unpaid cash
dividends, as follows:
(i)
on the third anniversary from the issue date of the preferred
shares or on any dividend payment date thereafter; and
(ii)
at any time prior to the fifth anniversary from the issue date of
the preferred shares if an accounting event, tax event or a change
of control event has occurred and is continuing; and
(b) The amendment of the Articles of Incorporation of the Corporation to
reflect the foregoing.
May 13,
2011
Item 9. Other Events
Please see the attached press statement entitled “SMPFC delivers P1.1 billion 1Q
income, record performance for 2010.”
July 14,
2011
Item 9. Other Events
Please see the attached Quarterly Progress Report on the Application of Proceeds of
Preferred Shares Offer of San Miguel Pure Foods Company, Inc. for the Quarter
Ended June 30, 2011.
August 12,
2011
Item 9. Other Events
Please be informed that at the meeting of the Board of Directors of San Miguel Pure
Foods Company, Inc. (respectively, the “Board” and the “Company”) held on August
12, 2011:
6
(a)
The Board declared cash dividends to stockholders of preferred shares of
the Company as follows:
Amount:
Record Date:
Closing of books:
Payment Date:
August 16,
2011
P20.00 per share
August 26, 2011
August 27 to 31, 2011
September 3, 2011
(b)
The Board approved the acquisition by the Company of fifty nine million
ninety thousand nine hundred nine (59,090,909) shares of stock of Manila
Electric Company from San Miguel Corporation at Two Hundred Twenty
Pesos (P220.00) per share, or the total amount of Thirteen Billion Pesos
(P13,000,000,000.00), payable in accordance with such terms determined by
Management under a Share Purchase Agreement to be executed by the parties
for the purpose. The purchase price of the shares was determined based on the
average trading price thereof for the last six months, with a discount of 12%.
(c)
The Board approved the further amendment to the Amended Manual on
Corporate Governance of the Company to clearly define the functions of the
Chairman and Chief Executive Officer, and to add the express provision of
reports relating to the Company’s performance, position and prospects, and
reports required by law, as well as the provision by Management of adequate
and timely information to the Board. A copy of the Company’s further
Amended Manual on Corporate Governance, as approved by the Board, is
attached hereto, for reference. An original thereof, fully signed by both the
Chairman and the President of the Company, will be filed with the
Commission as soon as the President, who is currently on vacation leave,
returns to the country.
Item 9. Other Events
Please be advised that the Company disclosed to the Philippine Stock Exchange
(PSE) regarding the execution of a Share Purchase Agreement (the “SPA”) covering
the sale by SMC to the Company of fifty nine million ninety thousand nine hundred
nine (59,090,909) shares of stock of Manila Electric Company (the “Shares”) at Two
Hundred Twenty Pesos (P220.00) per Share.
The total purchase price of the Shares is Twelve Billion Nine Hundred ninety Nine
Million Nine Hundred Ninety Nine Thousand Nine Hundred Eighty Pesos
(P12,999,999,980.00) (the “Consideration”).
Payment of the Consideration in full was made upon the execution of the SPA.
In compliance with the sworn Undertaking submitted by the Company to the
Exchange in connection with the follow-on offering of the Company’s preferred
shares to the public (the “Offer”), this is to inform the Exchange that the amount of
Eleven Billion Two Hundred Twenty Seven Million Nineteen Thousand Two
Hundred Twenty Five Pesos and Eighty Nine Centavos (P11,227,019,225.89), which
is the amount remaining from the proceeds of the Offer, corresponding to a portion of
the Consideration, was disbursed to SMC today, in payment for the Shares. The
7
disbursement was made in accordance with the planned use of proceeds as set out in
the Prospectus for the Offer.
The balance of the Consideration, or the amount of One Billion Seven Hundred
Seventy Two Million Nine Hundred Eighty Thousand Seven Hundred Fifty Four
Pesos and eleven Centavos (P1,772,980,754.11), was disbursed to SMC out of
internally-generated funds of the Company.
October 14, Item 9. Other Events
2011
Please see the attached Quarterly Progress Report on the Application of Proceeds of
Preferred Shares Offer of San Miguel Pure Foods Company, Inc. for the Quarter
Ended September 30, 2011.
October 14, Item 9. Other Events
2011
Please be advised that the Company paid Seventy Thousand Pesos (Php70,000.00) to
the Securities and Exchange Commission (the “Commission”) today in connection
with the filing of the General Information Sheets of the Company for previous years.
The payment is in compliance with the Letter of the Commission dated October 4,
2011, a copy of which was received by the Company on October 11, 2011.
November
9, 2011
Item 9. Other Events
Please be informed that at the meeting of the Board of Directors of San Miguel Pure
Foods Company, Inc. (respectively, the “Board” and the “Company”) held on
November 9, 2011:
(a)
The Board declared cash dividends to stockholders of preferred
shares of the Company as follows:
Amount:
P20.00 per share
Record Date:
November 23, 2011
Closing of Books:
November 24 to 29, 2011
Payment Date:
December 3, 2011
(b)
The Board approved the creation and implementation of an internal
self-rating system intended to assess and improve the performance of the Board of
Directors in accordance with the Company’s Amended Manual on Corporate
Governance. The self-assessment shall be in the form of a questionnaire to be
accomplished by each member of the Board, covering the following areas: (i)
fulfillment of the Board’s key responsibilities; (ii) Board-Management relationship;
(iii) effectiveness of Board processes and meetings; and (iv) individual performance
of Board members.