SanMlguel Pure Foods - San Miguel PureFoods

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SanMlguel
Pure Foods
April 15, 2011
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.,
which we filed with the Securities and Exchange Commission today.
Very truly yours,
/JAA-L--_~
ALE~;~'iA
ri~GSON TRILLANA
Corporate Secretary
A Company of
San Miguel Pure Foods Company,
Inc.
23rd Fir.. The JMT Corporate Condominium. ADB Avenue
1605 Ortigas Center, Pasig City, Metro Manila, Philippines
Tel. No.: (632) 702·5000
Website: www.sanmiguelpuretoods.com.ph
SANMIGUEL
CORPORATION
COVER SHEET
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S. E. C. Registration Number
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(Company’s Full Name)
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(Business Address: No. Street City/Town/Province)
ALEXANDRA B. TRILLANA
(632) 702-5000
Contact Person
Company Telephone Number
1
Month
Day
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A
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
-----------------------------------------------------------------------------------------------------------To be accomplished by SEC Personnel concerned
____________________________
File Number
LCU
____________________________
Document I. D.
Cashier
-----------------STAMPS
-----------------Remarks = pls. Use black ink for scanning purposes
REPUBLIC OF THE PHILIPPINES)
MANDALUYONG CITY
) S.S.
UNDERTAKING
The Chairman of San Miguel Pure Foods Company, Inc. (the "Company") is currently
out of the country, and as such will not be able to sign the Company's SEC Form 17-A for the
year ending December 31, 2010 (SEC Form 17-A). The undersigned as Corporate Secretary
of the Company, hereby undertakes to submit the Company's notarized SEC Form 17-A with
the signature of the Company's Chairman and Chief Executive Officer as soon as he arrives in
the country and amend the Company's SEC Form 17-A accordingly.
IN WITNESS WHEREOF, we have hereunto signed these presents this 13th day of
April 2011 at Mandaluyong City.
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ALEXAND~GSON
TRILLANA
Corporate Secretary
SUBSCRIBED AND SWORN to before me on
her Passport as follows:
Alexandra B. Trillana
Doe. No. (~~ ~;
Page No. 3;:.1
Book No.
)X
Series of 2011.
APR 1 3 2011
, affiant exhibiting to me
Passport No.
Issue Date
Place of Issue
EA0009733
December 4, 2009
Manila
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SEC Number
File Number
______________________________________________________
SAN MIGUEL PURE FOODS COMPANY, INC. and
SUBSIDIARIES
________________________________________
(Company’s Full Name)
JMT Corporate Condominium
ADB Avenue, Ortigas Center, Pasig City
_____________________________________
(Company’s Address)
702-5000
______________________________________
(Telephone Number)
December 31
______________________________________
(month & day)
SEC Form 17-A Annual Report
______________________________________
Form Type
_______________________________
Amendment Designation (if applicable)
December 31, 2010
_______________________________________
Period Ended Date
___________________________________________________
(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, 2010
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, or Sec. 4 and 8 of the
RSA
Title of Each Class
Number of Shares of Stock Outstanding
and Debt Outstanding
(As of December 31, 2010
Common - P 10 par value
166,667,096
Total Liabilities
P25,300,091,254.00
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 or Section 11 of the RSA and RSA Rule 11(a)-1 thereunder and Sections
26 and 141 of The Corporation Code of the Philippines during the preceding 12
months:
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, 2010 and March 31, 2011 were P112,487,200 and P258,720,560,
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, franchising (Smokey’s) 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 San Miguel Corporation (SMC) and partnerships with major
international companies like United States-based Hormel Foods International Corporation (“Hormel
Foods”) and Singapore-based Super Coffee Corporation Pte Ltd (SCCPL) and Penderyn Pte Ltd
(“Penderyn”) 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 Performance attached hereto as
Annex “D”.
Major developments in the Company are also discussed in the said Management’s Discussion and
Analysis of Financial Position and Performance, and in Note 11 (Investments and Advances), Note 14
(Intangible Assets), Note 18 (Long-term Debt) and Note 19 (Equity) of the Audited Consolidated
Financial Statements, attached hereto as Annex “E”.
On January 20, 2011, the Securities and Exchange Commission (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 (the “Preferred Shares Offer”).
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 under the terms of the Preferred Shares Offer.
On February 11, 2011, the Company’s Board of Directors approved the terms of the Preferred Shares
Offer, a summary of which is set out below.
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SMPFC, through its underwriters and selling agents, offered 15,000,000 cumulative, non-voting, nonparticipating and non-convertible preferred shares with 5-year maturity 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 Board. Optional redemption of the preferred shares prior
to the fifth (5th) year from issuance date was provided under certain conditions, subject to the
amendment of the Articles of Incorporation of the Company. 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 10-year PDST-F rate prevailing on the optional
redemption date plus 3.33% per annum.
The offering was fully subscribed and paid. On March 3, 2011, the Company’s 15,000,000 preferred
shares with par value of P10.00 per share were issued and listed on the PSE.
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 Meats businesses, the San Miguel Food Shop
franchising operations, 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 Basic
Meats businesses are likewise being served by the Feeds business.
b) Poultry and Fresh Meats business - The year 2010 saw the merger of
Monterey Foods Corporation (“Monterey”) with SMFI, with the latter as the
surviving corporation. Monterey’s Fresh Meats business was folded into
SMFI’s Poultry business following the said merger. The business engages in
poultry operations and sells live birds, frozen and fresh chilled birds, and cutups. 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) San Miguel Food Shop - engages in franchising operations, established
primarily to showcase the San Miguel Group’s food and beverage products
and to further enhance consumer awareness. There are four (4) outlets
operating as at December 31, 2010.
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 (CKAG) were transferred to SMFI. Just like SMC’s CKAG, SMIS is
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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.

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. The production of jellies and
desserts is currently outsourced to third party tollers after its subsidiary-toller, Sugarland
Corporation, ceased its tolling operations in February 2008.

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 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 markeing 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. GFS
also handles the Smokey’s hotdog bar, San Mig Café restaurant, and Outbox food-to-go
stall/cart franchising operations.
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
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 Pure Foods (Vn) Co., Ltd. (SMPFVN), 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 SMPFVN.

SMPFC Capital Investments, Limited - is a 100%-owned subsidiary of SMPFC
incorporated in the Cayman Islands in November 2010. It has no commercial operations
to date.

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 2010,
2009 and 2008 follow:
Sales
Operating income
Total Assets
2010
P 79,269,760
5,901,769
47,518,089
( in 000’s )
2009
P 75,042,967
4,637,624
40,175,873
2008
P 71,075,925
1,842,611
37,002,031
Percentage of Sales Contributed by Export Sales
Information as to the relative contribution of the operating segments to total sales is as follows:
Sales
Agro-Industrial
Value-Added Meats
Milling
Others
TOTAL
2010
P 79,269,760
(in 000’s)
2009
P 75,042,967
2008
P 71,075,925
65.98%
14.55%
9.03%
10.44%
100.00%
65.39%
14.97%
9.97%
9.67%
100.00%
63.29%
16.27%
11.53%
8.91%
100.00%
The consolidated revenues include P1,157.4 million or about 1.46% in export sales of the Company’s
several businesses.
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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.
To ensure product availability at all times, Poultry and Monterey maintain a combined 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. GFS, meanwhile, takes care of selling Poultry, SMMI, PF-Hormel,
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 five national and numerous regional feed mill companies that include
Univet Nutrition and Animal Health Care Co., Universal Robina Corporation (URC), Purina/Cargill,
General Milling Corporation (GMC), Cheil Jedang, Selecta and other 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 population. 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
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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 is generally
attracting more new entrants as a result of frequent occurrences of supply shortages and high prices
over the last few years. Moreover, it 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 a common practice among the big market players is
the contract breeding and toll dressing arrangements. In terms of promotional activities, the most
popular schemes employed by poultry retailers are bundling with another push product or a
complementary item and product samplings. Also being offered on a regular basis is the granting of
discounts. SMFI Poultry’s competitive advantages lie in the areas of breed management, growing
efficiencies, sales and distribution network, and customer care.
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, who 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 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 low profit margins for both flour millers and dealers/distributors.
Although the volume brought by the entry in the Philippine flour market of other international and
regional flour producers in recent years have been generally sporadic, it still drew intense competition
among market players. 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 leader in the hotdog
market and is one of the leading players in the canned goods market. Other players in the valueadded 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. In recent years, PF-Hormel experienced increased competition from both
established local players, which are employing aggressive pricing and promotion schemes, and from
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new entrants to the market. The business responded to this competition by increasing its below-theline spending on promotions for its value-added meats businesses, as well as introducing new product
lines. It also employed a strategy of launching fighter brands and engaging in extensive advertising
and promotion for its key brands to maintain its leadership position. To further improve its position
in the market, PF-Hormel capitalized on its extensive distribution network, brand equity and high
quality image, technology link with joint venture partner Hormel Foods and effective promotions and
advertising. Noted trends in the industry are the consumers’ preference for smaller size and lowerpriced brands and the growing demand for healthy products, i.e., low sodium, low fat and no MSG
(monosodium glutamate). Still found effective in pushing sales are product innovations, sponsorships
of 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), and cheese, ready-todrink 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 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, lowpriced, 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 and Alaska as the major players
with Magnolia following suit. Selecta, Nestle and Magnolia, on the other hand, are considered the
big players in the ice cream industry.
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 with its sugar-free line leading the sugarfree coffee mix category. The coffee industry, composed of instant coffee, coffee mixes and readyto-drink coffee, is still dominated by Nestle who is the market leader in almost all coffee subcategories. Next in line, based on AC Nielsen’s survey, is Tridharma Marketing Corp., maker of
Kopiko. Other market players 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.
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.
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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 Noble Resources S.A. and 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 Cobb Vantress Inc. and Aviagen
Group, both of which are agribusiness firms based in U.S.A.
The feeds requirements of SMFI’s Fresh Meats business are served by SMFI’s Feeds business.
SMMI’s Flour business imports more than 20% of its wheat requirements from U.S.A.-based
Columbia Grains International and Canada-based The Canadian Wheat Board.
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 AMF
(anhydrous milk fat), from Fonterra (SEA) Pte Limited (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.
Except for SMFI’s Fresh Meats business and SMSCCI whose feeds requirements and coffee mixes,
as the case may be, are provided solely by SMFI’s Feeds business, and SCCPL and SCML,
respectively, 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.
Except for PF-Hormel, Magnolia and SMSCCI, and GFS, whose sales through SMIS and Jollibee,
respectively, account for more than 20% of their total businesses, the Company’s other subsidiaries
are not dependent on any single customer. This gives the businesses flexibility in managing their
sales activities.
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Transactions with and/or Dependence on related parties
The Group, in its regular course of business, transact with related parties. These transactions, which
include the purchase/sale of goods and services, are further discussed in the foregoing section on
Purchase of Raw Materials and Supplies and further in Note 28 (Related Party Disclosures) of the
Audited Consolidated Financial Statements attached hereto as Annex “E”.
Patents, Trademarks, Copyrights, Licenses
All marks 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 can result in a material adverse effect on the Company and its
significant subsidiaries’ business or financial position.
Research and Development
Total amount spent by the Company and its significant subsidiaries on research and development for
the years 2010, 2009 and 2008 were P 51.3 million, P 55.7 million and P 52.1 million, respectively.
As a percentage of net sales revenues, spending on research and development in each of the last three
years translates to barely 0.1%.
Cost of Compliance with Environmental Laws
The Company and its subsidiaries incurred about P 25.5 million in expenses for environmental
compliance. 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”.
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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 27 (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 comes up with new exciting products, improves product propositions and packaging,
and redefines the manner of product distribution.
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.
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Financial Risks
For the various financial risks, please refer to Note 31 (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 and a butter, margarine and cheese plant. Its Fresh Meats and Poultry
operations, including the poultry dressing operation, however, are partly 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 584.3 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 (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 or affiliates 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
During a special meeting of the shareholders of the Company held on November 3, 2010, the
shareholders approved the following corporate actions:
a.
The reclassification of 40,000,000 authorized and unissued common shares of the Company
into non-voting, cumulative and non-participating preferred shares with a par value of P10.00
per share;
b.
The issuance of preferred shares with a total issue size of up to P40 billion, under terms and
conditions determined by Management;
c.
The amendment of the Company’s Articles of Incorporation to reflect item (a) and the denial
of pre-emptive rights of shareholders for the issuance in item (b);
d.
The listing of the preferred shares at the appropriate exchanges; and
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e.
The participation by the Company in high-yielding investments pursued by SMC such as but
not limited to power-related activities, water and other utilities, and infrastructure, in
accordance with the provisions of Section 42 of the Corporation Code.
There were present in person or by proxy throughout the meeting, approximately 83.10% of the
outstanding capital stock of the Company. No shareholder present or represented at the meeting
voted against or withheld his vote on any of the corporate actions presented for approval. Thus,
shareholders representing more than two-thirds of the outstanding capital stock of the Company
approved all the foregoing corporate actions.
On December 23, 2010, the SEC approved the above-mentioned amendment to the Articles of
Incorporation of the Company.
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:
Quarter
1st
2nd
3rd
4th
2009
Class A
High
Low
55.00
50.00
-
Class B
High
Low
-
2010
Common2
High
300.00
350.00
800.00
Low
91.00
250.00
320.00
The closing price of the Company’s common shares as at December 30, 2010 was P 800.00 per share.
The Company had approximately 124 common shareholders as at December 31, 2010. Common
shares outstanding as at December 31, 2010 is 166,667,096.
2
The SEC approved the de-classification of the Company’s common shares on April 12, 2010.
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The top 20 stockholders of the Company as at December 31, 2010 are as follows:
No. of Shares
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Stockholder Name
San Miguel Corporation
PCD Nominee Corporation (Filipino)
PFC ESOP/ ESOWN Account
Ortigas, Cecille Y.
Chua, Ramon, L.
Ramos, Jorge
Ortigas, Ana Maria de Olondriz
De Ocampo, Pacifico
Garcia, Antonio G.
Pendarvis, William
PCD Nominee Corporation (Non-Filipino)
Buendia, Honesto
Quijano, Teodoro
Reyes, Principe P.
Senga, Maxima A.
Fernan, Francis
Buendia, Honesto B.
Sugcang, Josefa L.
Avellana, Jose
Metcalf, Peter F.
Common
166,526,487
50,351
22,975
19,374
6,538
5,868
4,688
3,665
2,910
2,489
1,650
1,198
1,198
1,198
1,106
1,038
997
899
831
628
% vs
Outstanding
Shares
99.91564%
0.03021%
0.01378%
0.01162%
0.00392%
0.00352%
0.00281%
0.00220%
0.00175%
0.00149%
0.00099%
0.00072%
0.00072%
0.00072%
0.00066%
0.00062%
0.00060%
0.00054%
0.00050%
0.00038%
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.
No dividend declarations, nor cash dividend payouts, took place in 2009.
Description of the securities of the Company may be found in Note 19 (Equity) of the Audited
Consolidated Financial Statements, attached hereto as Annex “E”.
As stated in Note 19 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.
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 San Miguel Corporation 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 San Miguel Corporation of 47,479,602 Common Class “A”
shares and 23,385,476 Common Class “B” shares in exchange for shares of San Miguel Corporation
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 as earlier discussed, the SEC approved the Company’s Registration Statement
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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.
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
The Audited Consolidated Financial Statements (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”.
Item 8. Information on Independent Accountant and Other Related Matters
A. External Audit Fees and Services
The accounting firm of Manabat Sanagustin & Company, CPAs served as the Company’s external
auditors for fiscal year 2010. Manabat Sanagustin & Company has been the Company’s external
auditors since 2007.
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 2009 and 2010
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.
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.
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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, 75, is the Chairman 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, 57, 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. He is also the Chairman and Chief Executive Officer of Petron Corporation, ViceChairman of Manila Electric Company; Chairman of Liberty Telecoms Holdings Inc., Philippine
Diamond Hotel & Resort, Inc., Philippine Oriental Realty Development, Inc., Atea Tierra
Corporation and Cyber Bay Corporation; 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, 62, 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 Committee. He also holds the following positions: Vice Chairman of
San Miguel Foods, Inc. and San Miguel Mills, Inc.; President of Magnolia Inc., The PurefoodsHormel Company, Inc. and San Miguel Super Coffeemix Co., Inc.; Chairman and President of
Sugarland Corporation and Star Dari, Inc.; Chairman of San Miguel Pure Foods (Vn) Co., Ltd. and
Philippine Prime Meat Marketing Corporation; Director of San Miguel Foods & Beverage
International Limited (BVI), San Miguel Pure Foods Investment (BVI) Ltd., San Miguel Pure Foods
International, Limited (BVI) and SMPFC Capital Investments, Limited (Cayman Islands); and
President Commissioner of PT San Miguel Pure Foods Indonesia.
Menardo R. Jimenez, Filipino, 78, 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
following positions: President and Chief Executive Officer of Albay-Agro Industrial Development
Corporation; Chairman and President of Fibers Trading, Inc.; Chairman of United Coconut Planters
Bank, Unicapital Securities, Inc., Unicapital, Inc., Unicapital Finance & Investments, Inc., Television
International Corporation, Pac Rim Realty Development Corporation, Opticolors, Inc., Nuvoland
Philippines, Inc., M.A. Jimenez Enterprise, Inc., Meedson Properties Corporation, Majent Agro
Industrial Corporation, Majent Management & Development Corporation, Farmville Holdings
Corporation, and Desoland Corporation; Director and Chairman of Coffee Bean and Tea Leaf
Philippines and CBTL Holdings, Inc.; Director of CCC Insurance Corporation, Cunickel Mining &
Industrial Corporation, Mabuhay Philippines Satellite Corporation and Pan-Phil Aqua Culture
Corporation; and Consultant of First Metro Investment Corporation.
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Cancio C. Garcia, Filipino, 73, 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
Compensation Committee and Nominations 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, 59, 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, 68, has been an Independent Director of the Company since August
12, 2010, and is the Chairman of the Nominations 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., Ginebra San Miguel Inc., Anchor Insurance Brokerage Corporation,
Liberty Telecoms Holdings, Inc., San Miguel Properties, Inc. and Terbo Concept, Inc. He is also an
Independent Non-Executive Director of San Miguel Brewery Hong Kong Limited.
Plaridel M. Abaya, Filipino, 77, 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, 65, 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).
Zenaida M. Postrado, Filipino, 55, 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., Star Dari, Inc.,
Sugarland Corporation and Philippine Prime Meat Marketing Corporation; Treasurer of San Miguel
Foods, Inc. and San Miguel Super Coffeemix Co., Inc.; Commissioner of PT San Miguel Pure Foods
Indonesia; and Director of SMPFC Capital Investments, Limited (Cayman Islands). She was a
former General Manager (2005) of The Purefoods-Hormel Company, Inc.
Ma. Soledad E. Olives, Filipino, 51, 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. and Philippine
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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, 37, is the Corporate Secretary of the Company (since
September 15, 2010). She is also the General Counsel of the Company; and Corporate Secretary of
San Miguel Foods, Inc., San Miguel Mills, Inc., Magnolia, Inc., Sugarland 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, 60, 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, 51, is the President of San Miguel Foods, Inc. and Head of the
Agro-Industrial Cluster of the Company, which comprises the poultry, fresh meats and feeds
businesses of San Miguel Foods, Inc. She is also Director and President of Philippine Prime Meat
Marketing Corporation. She was previously General Manager of San Miguel Foods, Inc.’s Poultry
Business (April 2004-January 2010).
Eliezer O. Capacio, Filipino, 55, is the Vice President and Division Human Resources Manager 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 members of the Board of Directors shall be
elected by a plurality vote of the subscribed capital stock at the annual meeting, for a term of one (1)
year and until the election and qualification of their successors. At least two (2) directors shall be
residents of the Philippines, and all of them should be stockholders of record of the Company.
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.
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Family Relationships
There are no family relationships up to the fourth civil degree either by consanguinity or affinity
among the directors, executive officers, or nominees for election as directors.
Parent Company
As at December 31, 2010, the Company is 99.9156% owned by San Miguel Corporation.
Involvement in Certain Legal Proceedings
None of the directors, nominees for election as director and key executive officers of the Company
have been involved in any legal proceeding, including without limitation being the subject of any (a)
bankruptcy petition, (b) conviction by final judgment in a criminal proceeding, domestic or foreign,
or a pending 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 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 latest 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 following table summarizes the aggregate compensation paid or accrued 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:
NAME
YEAR
SALARY
BONUS
OTHERS
TOTAL
Total Compensation of
the President and
Senior Officers (the
most highly
compensated officers of
the Company)3
2011
(estimated)
P 46.8
Million
P 11.6
Million
P 8.0
Million
P 66.4
Million
2010
P 42.2
Million
P 23.0
Million
P 10.8
Million
P 76.0
Million
2009
P 40.6
Million
P 8.7
Million
P 10.3
Million
P 59.6
Million
3 The President and senior officers of the Company are as follows: (for 2011) Francisco S. Alejo III, Zenaida
M. Postrado, Florentino C. Policarpio, Rita Imelda B. Palabyab and Ma. Soledad E. Olives; and (for 2010 and
2009) Francisco S. Alejo III, Zenaida M. Postrado, Rolando A. Cabredo, Florentino C. Policarpio and Rita
Imelda B. Palabyab.
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NAME
All other officers and
directors as a group
unnamed
TOTAL
YEAR
SALARY
BONUS
OTHERS
TOTAL
2011
(estimated)
P143.8
Million
P 50.7
Million
P 44.2
Million
P238.7
Million
2010
P131.0
Million
P 61.6
Million
P 46.9
Million
P239.5
Million
2009
P127.3
Million
P 32.2
Million
P 47.1
Million
P206.6
Million
2011
(estimated)
P190.6
Million
P 62.3
Million
P 52.2
Million
P305.1
Million
2010
P173.2
Million
P 84.6
Million
P 57.7
Million
P315.5
Million
2009
P167.9
Million
P 40.9
Million
P 57.4
Million
P266.2
Million
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 were no other arrangements pursuant to which any of the Directors was compensated or is to be
compensated, directly or indirectly, during the last fiscal year, and the ensuing fiscal year.
There were no employment contracts between the Company and a named executive officer.
There were neither compensatory plans nor arrangements with respect to a named executive officer.
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Item 11. Security Ownership of Certain Beneficial Owners and Management
Owners of record of more than 5% of the Company’s voting securities as at December 31, 2010 are as
follows:
Title of
Class
Name, Address of
Record Owner and
Relationship with
Issuer
Common
San Miguel
Corporation4
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
166,667,096
Percent
99.9156%
4
The Board of Directors of San Miguel Corporation (“SMC”) authorizes anyone 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, Francis H. Jardeleza, 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, and Virgilio S. de Guzman.
23
+
The following are the number of shares of the Company’s capital stock (all of which are voting
shares) owned of record by the Chairman, key officers of the Company and directors as at
December 31, 2010:
Title of
Class
Common
(Class “A”)
Common
(Class “A”)
Common
(Class “A”)
Common
(Class “A”)
Common
(Class “A”)
Common
(Class “A”)
Common
(Class “A”)
Common
(Class “A”)
Common
(Class “A”)
Name of Owner
Citizenship
Eduardo M. Cojuangco, Jr.
Filipino
Total No. of
Shares
1 (r)
Ramon S. Ang
Filipino
1 (r)
Cancio C. Garcia
Filipino
1 (r)
Plaridel M. Abaya
Filipino
1 (r)
Carmelo L. Santiago
Filipino
1 (r)
Mario C. Garcia
Filipino
1 (r)
Menardo R. Jimenez
Filipino
1 (r)
Jose T. Pardo
Filipino
1 (r)
Francisco S. Alejo III
Filipino
1 (r)
The aggregate number of shares owned of record by the Chairman, key officers and directors as a
group as at December 31, 2010 is nine (9) shares or approximately 0.0000054% of the Company’s
outstanding capital stock.
The aggregate number of shares owned by all officers and directors as a group as at
December 31, 2010 is nine (9) shares or approximately 0.0000054% of the Company’s outstanding
capital stock.
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 11 (Investments and Advances) and Note 28 (Related Party Disclosures) of the Audited
Consolidated Financial Statements of the Company attached hereto as Annex “E”.
24
+
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. The Company observes an arm’s length policy in its dealings with related parties.
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.
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. The Compliance Officer has certified that, for
2010, the Company has substantially adopted all the provisions of the Manual as prescribed by SEC
Memorandum Circular No. 2, Series of 2002.
In this connection, in 2010, 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 attended by its Board
of Directors and senior management.
Pursuant to its commitment to good governance and business practice, the Company continues to
review and strengthen its policies and procedures, 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 2010 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”.
25
+
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
Mandaluyong on
APR 1 3 2011 ,2011.
By:
~~~~~/
EDUARDO M. COJUANGCO,
Chairman
FRANCISCO
President
JR.
/}LL_
I"
AtE~~.
ZEN
A M. POSTRADO
Division Chief Finance Officer
S. A~EJMII
-t:::tL
TRILLANA
Corporate Secretary
\
MVA
AB. CAPITO
Comptroller
SUBSCRIBED AND SWORN to before me thi~PR
me their Passports, as follows:
NAME
Francisco S. Alejo III
Zenaida M. Postrado
Alexandra B. Trillana
Maria Evarisa B. Capito
PageNo.~
Doe. No.
BookNo.~;
Series of 20 11.
--9;1;
PASSPORT
NO.
XX-0861508
XX-4870820
EA-0009733
UU-0952679
1 3 21Y1y
of __
, 2011 affiants exhibiting to
EXPIRY DATE
PLACE OF ISSUE
Manila
Manila
Manila
Manila
April 3, 2013
October 19,2014
December 3, 2014
March 27,2012
,MARY ROSE S. TA.'l
Commission No, 0252- i I
Notary Public f,>r~' .,d 1:C1y0~g City
i\';"' _31. 2.117
SMC. 40 S~J)~,L""t -1, \\(~. ~.( •...' iJOr:g City
o..:
1\.,\
rrn No,.O(lSC2·1',.
Lifeumc
Member
''''',
I
~
J ....•-
I
t
t, n \ 11, ~~
u'i~9;
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!\-L!l.:" l "I
lJ \ 'V-. J J
+
Annex “A”
San Miguel Pure Foods Company, Inc. and Subsidiaries
List of Products and/or Services as of December 31, 2010
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
Monterey Meatshop



Fresh Meats Primals (Pork, Beef, Lamb)
Fresh Meats Individual Portion Cubes (Pork, Beef, Lamb)
Ready-to-Cook Marinated Meats or Timplados (Pork, Beef, Lamb)
27
+
Hungry Juan











Roast Pork & Chicken
Crispy Chikinini
Pork BBQ
Fried Chicken
Chicken Isaw
Chicken Proven
Porkchop
Chorizo de Cebu
Sisig
Liempo
Beef Tapa Toppings
FEEDS
Animal & Aquatic Feeds

Hog Feeds
o B-MEG Premium Hog Feeds
o B-MEG Dynamix Hog Feeds
o Pureblend Hog Feeds
o B-MEG Expert Hog Feeds
o Bonanza Hog Pellets
o Jumbo Hog Mash
o Jumbo Hog Feeds
o Maton Hog Feeds
o Jumbo Hog Economix

Poultry Feeds
o B-MEG Premium Layer
o Pureblend Layer
o B-MEG Expert Layer
o B-MEG Layer (Regular)
o PBXcellent Layer
o B-MEG Premium Broiler
o Pureblend Broiler
o B-MEG Broiler (Regular)
o B-MEG Integra

Duck Feeds
o B-Meg Duck Layer Pellet
o Pureblend Premium DLP
o Pureblend DLP

Gamefowl Feeds
o B-Meg Derby Ace
o B-Meg Alertone
28
+

Aquatic Feeds
o B-MEG Super Premium Floating 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 Floating Feeds
o B-MEG Prize Catch Slow Sinking Feeds
o B-MEG Nutrifloat
o B-MEG CE-90
o Pinoy Sinking Feeds
o Pinoy Floating Feeds
Animal Heath Care Veterinary Medicines

Antibacterial - Water Soluble
o Amoxicillin 20%
o Cephalexin 20%
o Chlortetracycline 25%
o Cotrimoxazole 48%
o Doxycycline 20%
o Lincomycin + Spectinomycin

Supplement - Water Soluble
o Electrolytes
o Paracetamol
o Multivitamins
o Multivitamins + Amino Acids
o Vitamin B (Broiler)
o Vitamin B (Breeder)

Dewormer - Water Soluble
o Levamisole 20%

Disinfectant
o Gluta-Quat

Injectibles
o Norotyl LA
o Alamycin LA
o Multivitamins
o Iron-Vet

First Pulse D
San Miguel Mills, Inc.
Hard Wheat Flour







Emperor Premium Bread Flour
King
Emperor
Monarch
Count
Pacific
Silver Dragon
29
+
Soft Wheat Flour



Queen
Countess
Red Dragon
Specialty Flour






Baron All-Purpose Flour
Baron Siopao Flour
Princess Cake Flour
Dutchess Cake Flour
Golden Wheat Whole Wheat Flour (Complete, Course & Fine)
Fine Wheat Bran
Customized Flour







Harina de Pan de Sal
Royal Premium Noodle Flour
Royal Special Noodle Flour
Prince Miki Flour
Prince Noodle Flour
Prince Wrapper Flour
Nutri-Flour High Gluten Flour
Premixes




Mix’ n Bake
o Brownie Mix
o Cookie Mix
o Crinkle Mix
o Muffin Mix
o Pan de Sal Mix
o Butter Cake 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 Baking & Noodle Making
30
+
The Purefoods-Hormel Company, Inc.
REFRIGERATED MEATS
Hotdogs






Purefoods Tender Juicy Hotdog (Classic, Jumbo, Kingsize, Cocktail, Cheesedog)
Purefoods Beefies Hotdog (Classic, Jumbo, Lots A Cheese)
Purefoods Chick’N Tasty Chicken Hotdog (Classic, Jumbo, Cheese)
Purefoods Premium Franks (German, Beef, Cheese)
Purefoods Star Hotdog (Regular, Jumbo, Footlong)
Vida Hotdog (Classic, Jumbo)
Sliced Hams



Purefoods Sweet Ham
Purefoods Cooked Ham
Vida Ham
Whole Hams








Purefoods Fiesta Ham
Purefoods Tasty Ham
Purefoods Jamon de Bola
Purefoods Hamon con Keso
Purefoods Chinese-Cooked Ham
Purefoods Brick Ham
Purefoods Pear Shaped Ham
Iberico Jamon Royale
Bacons





Purefoods Honey Cured Bacon
Purefoods Maple Flavored Bacon
Purefoods Lean N Mean Bacon
Hormel Bacon
Vida Bacon
Battered, Breaded & Fried


Purefoods Chicken Fun Nuggets
Purefoods Porkchoplets
Monterey Line


Monterey Vigan Longanisa
Monterey Sisig (Filipino Favorites)
Ready-to-Cook Magnolia Line

Magnolia Golden Crispy (Classic)
GROCERY PRODUCTS
Corned Meats




Purefoods Corned Beef
Purefoods Chunkee Corned Beef
Purefoods Carne Norte
Ulam King Corned Beef
31
+
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 – Meaty Asado
Ulam King – Meaty Caldereta
Ulam King – Meaty Lechon Paksiw
Ulam King – Meaty Menudo
Ulam King – Meaty Mechado
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!
Magnolia Spreadable
Refrigerated Margarine



Dari Crème (Classic, Buttermilk) and Dari Crème Lite
Buttercup
Baker’s Best
Non-Refrigerated Margarine




Star Margarine (Classic, Sweet Blend, Garlic, Mantekeso)
Delicious Margarine
Magnolia Lite Magnolia
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, Edam) – Seasonal
Magnolia Cheese Sauce (Food Service)
Sharp-flavored Melting Cheese (Food Service)
32
+
JELLY SNACKS AND DESSERTS





JellYace Fruiteez
JellYace Bites
JellYace Snackers
JellYace Suki Pack
Magnolia Best Fruits Jam (Strawberry, Pineapple, Apple Cinnamon, Pink Guava, Mango)
MILK





Magnolia Chocolait
Magnolia Chocolait Choco Magic (Mocha, Melon, Strawberry)
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)
SALAD AIDS

Magnolia Real Mayonnaise (Food Service)
ICE CREAM
Bulk Ice Cream




Magnolia Classic (Vanilla, Chocolate, Mocca, Strawberry, Ube, Mango)
Magnolia Gold Label (Double Dutch, Rocky Road, Cookies N’ Cream, Dulce de Leche, Creamy Halohalo, Macapuno Ube Swirl, Buko Salad Royale, Quezo Primero, Choco Chip Cookie Dough, Coffee
Vienna and Buttery Sweet Corn)
Magnolia Chocolait Ice Cream
Magnolia No Sugar Added (Vanilla, Chocolate, Cafe Latte)
Frozen Novelties






Magnolia Spinner (Chocolate, Vanilla)
Magnolia Party Cups (Vanilla, Chocolate, Ube and Mango)
Magnolia Sweetie Bites (Cookie Craze, Cheesy Bits)
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
33
+
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-Beauty, Pro-Slim & Pro-Power
Great Food Solutions (GFS)
Value-Added Meats/Poultry











Primo D’ Italian TM Pizza Topping Line
Sizzlers TM Sausage Links and Patties Line
Deli Ready TM Sliced Deli Meats Line
Tender Cuts TM Product Line
SPAM Chubs and Slices
Fast N’ Easy Prepared Meals and Cuts
Purefoods TM Foodservice Product line
Purefoods TM Foodservice Meatballs, Chickenballs, Burgerballs, and Corned Beef Balls
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
GFS Commissary Products






Heat n’ Serve “Cook Express”
Breaded, Battered and Fried
Patties
Marinated Value-Added Meats
Sauces and Dips
Ready-to-Eat Snacks
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
34
+
P.T. San Miguel Pure Foods Indonesia
REFRIGERATED MEATS
Bakso (Meat Balls)




Farmhouse (Beef, Chicken)
Vida (Beef)
Vida Saving (Beef)
Purefoods Choice (Beef)
Sausages






Farmhouse (Beef Cocktail, Beef Frankfurter, Beef Weiner, Beef, Chicken, Fried Beef, Jumbo, Hot &
Spicy)
FunKidz Chubbies (Cheese)
Gusto (Pork Breakfast, Pork Cabanosi, Pork Cocktail, Pork Hotdog)
Purefoods Choice (Beef, Chicken, Jumbo, Hot & Spicy, Black Pepper Beef Sausage, Beef Weiner)
Vida (Franks, Beef Weiner, Beef, Chicken, Fried)
Vida Saving (Beef)
Cold Cuts



Farmhouse (Beef Pepperoni, Chicken Roll, Garlic Salami, Smoked Beef)
Gusto (Cooked Ham, Back Bacon, Gammon Ham, Smoked Ham, Smoked Pork Loin, Streaky Bacon)
Purefoods Choice (Chicken Chunk)
Luncheon Burger




Farmhouse (Beef, Chicken, Cheese Burger)
Purefoods Choice (Beef, Chicken)
Vida (Beef, Mini Burger)
Vida Saving (Beef)
Value Added


Farmhouse Corned Beef
FunKidz Nuggies
Services

Customization
San Miguel Pure Foods VN Co., Ltd
Feeds Business



Hog Feeds
Poultry Feeds
Aquatic Feeds
Live Pigs
Fresh Meats


Pork
Beef
35
+
Value Added Meats






Bacon
Ham
Sausages
Traditional Meats
Pate
Mixed Cuts
36
+
Annex “B”
Number of Employees of San Miguel Pure Foods Company, Inc. and its Subsidiaries
As at December 31, 2010
Level
Union
Expiration of CBA
Headcount
(Economic)
Rank and File
PF-HORMEL
PHCAMEU- Independent
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)
November 30, 2011
15
June 30, 2013
June 30, 2011
June 30, 2013
51
42
114
July 31, 2011
39
July 31, 2011
February 28, 2011
60
104
December 31, 2010
144
December 31, 2010
636
SMPFVN
Trade Union Foundation of
SMPFVN
Non-Unionized/Exempt
Total Rank & File
Supervisors
Managers
Executives
TOTAL
1,980
3,185
222
218
51
3,676
37
+
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 Marikina Plant
Processed Meats Cavite Plant
Mabini Flourmill
Tabangao Flourmill
Pampanga Poultry Dressing Plant
Cebu Poultry Dressing Plant
Davao Poultry Dressing Plant
Feeds Spent Drying and Rendering Plant
Laguna Feedmill
Tarlac Feedmill
B-Meg Pangasinan Plant
Isabela Feedmill
Bataan Feedmill
Feeds Spent Grain Drying Plant
General Santos Feedmill
Cagayan de Oro Feedmill
Bukidnon Feedmill
Magnolia Plant
Cabuyao Poultry Plant
Monterey Fresh Meats Plant
Processed Meats Indonesia Plant
Bin Duong Feedmill and Farm
Processed Meats Vietnam Plant
JP Rizal St., Bo. San Roque, Marikina City
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
Brgy. Malitlit, Sta. Rosa, Laguna
Luisita Industrial Park, San Miguel, Tarlac City
Km. 189, Brgy. Bued, Binalonan, Pangasinan
Brgy. Soyung, Echague, Isabela
Mindanao Avenue, cor 10th Avenue, BEZ, Mariveles, Bataan
SMC Complex, Highway, Mandaue City, Cebu
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
Banay-banay, Cabuyao, Laguna
Governor’s Drive, Langkaan, Dasmariñas, Cavite
Jl. Raya Bogor Km. 37 Sukamaju, Cilodong, 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
Calamias Hog Farm
Lipa Hog Farm
San Miguel Farm
Sumilao 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
Matabac, Sinaliw & Kaytitinga, Alfonso, Cavite
Lot No. 2489, Quilo, Ibaan, Batangas
Brgy. Guyong, Sta. Maria, Bulacan
Bo. San Luis, Cauayan, Isabela
Matinao, Polomolok, South Cotabato
Tulay na Patpat, Ibaan, Batangas
Barrio San Jose Patay, Lipa, Batangas
Pulong Bayabas, San Miguel, Bulacan
San Vicente, Sumilao, Bukidnon
38
+
Address
FARMS/ HATCHERIES/ COLD STORAGE
San Pablo Poultry Farm
Processed Meats Fairview Cold Storage
Otis Warehouse
San Rafael, San Pablo, Laguna
34 Consul St., Fairview Park Subdivision, Fairview, Quezon City
Mendiola Ext., Otis, Pandacan, Manila
B. Leased Properties
MANUFACTURING PLANTS/ FARM
B-Meg Pangasinan Plant (lot only)
Bataan Feedmill (lot only)
Pampanga Poultry Dressing Plant (lot only)
Great Food Solutions Commissary
Orion Experimental Training Farm (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
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
Prifoods Corporation
Brgy. Paciano, Calamba, Laguna
San Pascual Warehouse
San Pascual, Batangas
Poultry
Pampanga
RRK Building, Jose Abad Santos Ave., Dolores, City of San
Fernando, Pampanga
Accell Warehouse
Lagundi, Mexico, Pampanga
Pangasinan
Brgy. San Vicente, San Jacinto, Pangasinan
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
114 East Science Drive, Laguna Techno Park, Biñan, Laguna
Quezon
Brgy. Lagalag, Tiaong, Quezon
Albay
Brgy. Anislag, Daraga, Albay
Bohol
Albur Dressing Plant, Eastern Poblacion, Alburquerque, Bohol
Pavia Warehouse
19 B San Jose St., Cogon Dist., Tagbilaran City
Bacolod
Door 3 & 4, VCY Center, Hilado Extension, Kamagong St.,
Bacolod City
Dumaguete
North Road Hi-way, Dumaguete City, Negros Occidental
LTE Transport Warehouse
Dumaguete City, Negros Occidental
San Roberto Warehouse
Hacienda Maquina, Silay City, Negros Occidental
Tacloban
Robledo Compound, Real St., Brgy. Campitik, Palo, 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
Zamboanga
Door #2, Nuño Bldg, MCLL Highway, Guiwan, Zamboanga City
Cagayan de Oro
3rd Flr, HBL Bldg., Gusa, Cagayan de Oro City
Bukidnon
Gellor Bldg., Propia St., Malaybalay City
Ozamis
Mialin, Clarin, Misamis Occidental
Butuan
Km 9, Tag-ibo, Butuan City
39
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Address
WAREHOUSE/ SALES & ADMINISTRATION OFFICES
Feeds
Cebu Office
Ground Flr., GSMI Bldg., Subangdaku, Mandaue City
Bacolod Sales Office
JA Building, San Patricio, Banago, Bacolod City
Cagayan de Oro Sales Office
3rd Flr HBL Bldg., Gusa, Cagayan de Oro City
Bukidnon
Jose Un Bldg., Malaybalay City
Butuan Sales Office
Brgy. 23, Langihan Road, Butuan City
Tacoma
Tacoma & 2nd St., Port Area, Manila
Fairview Warehouse
Commonwealth Ave., Fairview, Quezon City
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
Loma de Gato, Marilao, Bulacan
Intercity Warehouse
Bocaue, Bulacan
Plaridel BMEG Warehouse
Plaridel, Bulacan
Fieldman Warehouse
Brgy. Poblacion, Bacnotan, La Union
Alejo Sim
Nancayasan, Urdaneta City and Villasis, Pangasinan
William Sim
Nancayasan, Urdaneta, Pangasinan
Juan Mataragnon
San Juan, Bautista, Tarlac City
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
PKS Shipping
Sitio Tawagan, Tayud Consolacion, Cebu
San Miguel Shipping and Lighterage
Looc, Mandaue City, Cebu
Rocksun Warehouse
Marasbaras, Tacloban 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.
Tayud, Consolacion, Cebu
Juanito Uy Real Estate
No. 30 Quezon St., Iloilo City
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
BUDEX Warehouse
Malaybalay, Bukidnon
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., Paknaan, Mandaue City. Cebu
Iloilo Office
F. Palmares St., Passi City, Iloilo
Bukidnon Live Operations Office
Gellor Bldg., Propia St., Malaybalay City
Great Food Solutions
Cebu Office
PSO Bldg., SMC Complex, Highway, Tipolo, Mandaue City
Cagayan de Oro Office
3rd Flr HBL Bldg., Gusa Natl Highway, Cagayan de Oro City
Davao Office
Km. 9 Coaco Road, Bo. Pampanga, Lanang, Davao City
40
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Address
WAREHOUSE/ SALES & ADMINISTRATION OFFICES
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
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
Alwana Compound, Cugman, Cagayan de Oro City
Davao Office
Door #6 Plug Holding Cmpd., R. Castillo St., Agdao, Davao
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
San Miguel Pure Foods 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
Ha Noi Sales Office
116 Thanh Liet, Thanh Tri, Ha Noi
COLD STORAGE/ REEFER VANS
Poultry
Vifel Ice Plant and Cold Storage Inc.
Staples Food Corp.
Estrella Ice Plant and Cold Storage
Diaz Dressing Plant
Kenwood Construction
Lolim Dressing Plant
ARS Dressing Plant
IP4
New Vreed Dressing Plant
Integrated Meat and Poultry Processing, Inc.
North Bay Blvd., Navotas, Metro Manila
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
Purok 5, Brgy. Rizal, Santiago City, Isabela
Brgy. Garit, Echague, Isabela
Brgy. Mangan-vaca, Subic, Zambales
Brgy. Tumalo, Hermosa, Bataan
41
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Address
COLD STORAGE/ REEFER VANS
Poultry
Kayabe Ice Plant and Cold Storage
Poltyrade Sales and Services, Inc.
SG Farms
IP3
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
Quest Blast Freezing and Cold Storage Corp.
Big Blue Logistics
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 Cold Storage
Davao Fresh Foods Corporation
Sirawan Ice Plant
Polar Bear Corporation
Fresh Meats
Royal Cargo Combined Logistics Inc.
Koldstor Centre Philippines, Inc.
Icon Reefer Corp.
METS Logistics, Inc.
Urdaneta Slaughterhouse
Supreme Aqua Resources Corporation
Sunpride Foods, Inc.
Big Blue Logistic Corporation
3G Logistics and Storage, Inc.
Purefoods-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
Jentec D. C. Corp.
Barako Distribution Corporation
UTS Logistics & Distribution Co., Inc.
Royal Cargo Combined Logistics, Inc.
Big Blue Logistics Corporation
Lagundi, Mexico, Pampanga
Lagundi, Mexico, Pampanga
San Simon, Pampanga
Brgy. Lagalag, Tiaong, Quezon
GIC Compound, Brgy. Tagbong, Pili, Camarines Sur
Brgy. Anislag, Daraga, Albay
Brgy. Bocohan, Lucena City
San Jose, Lipa City
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
Brgy. Canduman, Mandaue City, Cebu
Brgy. Paknaan, 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
Tambler, General Santos City
Km. 20 Los Amigos, Tugbok, Davao City
Sirawan, Toril, Davao City
Phividec, Tagoloan, Misamis Oriental & Davao Fishing Port
Complex, Toril, Davao City
Emilio Aguinaldo Hi-way, Salitran1, Dasmariñas, Cavite
Anabu Hills Industrial Estate, Anabu I-C, Imus, Cavite
Unit 526 5F Valero Plaza Building, Salcedo Village, Makati City
Barrio Bancal, Carmona, Cavite
Bo. Anonas, Urdaneta, Pangasinan
17 Justice Romualdez St., Tacloban City
SFI Bldg., S.E. Jayme St., Pakna-an, Mandaue City, Cebu
S. E. Jayme St., Paknaan, Mandaue City, Cebu
Hernan Cortes St., Tipolo, Mandaue City
C-3 Road cor. North Bay Blvd., Navotas, Metro Manila
San Roque, Sto. Tomas, Batangas
Anabu Hills Industrial Estate, Anabu I-C, Imus, Cavite
Barrio Bancal, Carmona, Cavite
Lawang Bato, East Canumay, Valenzuela, Bulacan
Luis St., San Miguel, Pasig
2F Photokina Bldg., 117 West Ave., Bungad, Quezon City
Suite 101 Alpap II Bldg., Trade St. cor. Investments Dr.,
Madrigal B, Muntinlupa City
RCC Building, Sta. Aqueda Ave., Pascor Drive, Parañaque City
Zuellig Ave., North Reclamation Area, Subangdaku, Mandaue
42
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Address
COLD STORAGE/ REEFER VANS
Magnolia
Koldstor Centre Philippines, Inc.
Royal Cargo Combined Logistics Inc.
San Miguel Pure Foods Indonesia
PT Haga Jaya Kemasindo Sarana
Tiga Raksa Satria
PT. Sewu Segar Nusantara
Joko P
DEPOTS
Great Food Solutions
Bacolod
Iloilo
Cagayan de Oro
Davao
San Miguel Integrated Sales
Novaliches
Dagupan
Pampanga
Naga
Cebu
Tacloban
Bacolod
Iloilo
Cagayan de Oro
Davao
CONVENIENCE STORES/ FOOD STALLS
Food Shop Outlets
San Miguel Corporation Head Office Complex
Redemptorist
NAIA 3
DMIA
Anabu Hills Industrial Estate, Anabu I-C, Imus, Cavite
Emilio Aguinaldo Hi-way, Salitran1, Dasmariñas, Cavite
Jl. Raya Bogor Km. 37 Sukamaju, Cilodong
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
Zone 2 Calong Calong, Airport Subd., Bacolod City
Fishing Port, Tanza, Iloilo City
Door 4 Alwana Business Park, Cugman, Cagayan de Oro City
Km. 6 Amon Building, Lanang, Davao City
Plastic City Compound , Brgy. Canumay, Valenzuela City
AB Hernandez East, Dagupan City
Gloria I, Sindalan, San Fernando, Pampanga
Olivan Compound, Concepcion Pequeña, Naga City
SMC-SL Compound, Ouano Wharf, Brgy. Looc, and G. Ouano
St. Brgy. Opao, Mandaue City
Brgy. 99 Diit, Maharlika Highway, Tacloban City
William Lines Warehouse, Magsaysay cor. Araneta Sts.,
Singcang, Bacolod City
YK Marine Bldg., Iloilo Fishing Port Complex, Brgy. Tanza,
Bay-bay, Iloilo City
Door 4 Misco Compound, Alwana Business Park, Cugman,
Cagayan de Oro City and Zone 1 Igpit, Opol, Misamis Oriental
Door 6 Plug Holding Compound Inc., R. Castillo St., Agdao and
Purok 9, Km. 20, Brgy. Tibungco, Davao City
40 San Miguel Avenue, Mandaluyong City
83 Redemptorist Rd., Baclaran, Parañaque City
International Departure Wing, Ninoy Aquino International
Airport Terminal 3, Pasay City
Diosdado Macapagal International Airport Passenger Terminal
Building, Clark Freeport Zone, Pampanga
43
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Annex “D”
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND
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, 2010. The following discussion should be read in conjunction with the attached
audited consolidated statements of financial position of the Group as at December 31, 2010 and 2009,
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, 2010. All necessary adjustments to
present fairly the Group’s consolidated financial position as at December 31, 2010 and the financial
performance and cash flows for the year ended December 31, 2010 and for all the other periods
presented, have been made.
I.
BASIS OF PREPARATION
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 asset is measured as the net total of the fair value of the plan assets,
less unrecognized actuarial gains and the present value of the defined benefit
obligation; and
agricultural produce are measured at fair value less estimated costs to sell at the point
of harvest.
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.
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 Interpretation Committee (IFRIC), issued by the Financial Reporting
Council (FRSC).
Philippine
Philippine
Financial
Standards
44
+
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. Accordingly, the
Group changed its accounting policies in the following areas:
Adopted Effective 2010
The Group has adopted the following PFRS starting January 1, 2010 and accordingly, changed its
accounting policies to conform with these PFRS:

Revised PFRS 3, Business Combinations (2008), effective for annual periods beginning on
or after July 1, 2009, incorporates the following changes that are likely to be relevant to the
Group’s operations:
-
The definition of a business has been broadened, which is likely to result in more
acquisitions being treated as business combinations.
Contingent consideration is measured at fair value, with subsequent changes therein
recognized in profit or loss.
Transaction costs, other than share and debt issue costs, are expensed as incurred.
Any pre-existing interest in the acquiree is measured at fair value with the gain or loss
recognized in profit or loss.
Any non-controlling interest is measured at either fair value, or at its Any proportionate
interest in the identifiable assets and liabilities of the acquiree, on a transaction-bytransaction basis.
The Group applied Revised PFRS 3 (2008) in the acquisition of SMPFI Limited, through
SMPFIL.

Revised PAS 27, Consolidated and Separate Financial Statements (2008), effective for
annual periods beginning on or after July 1, 2009, requires accounting for changes in
ownership interests by the Company in a subsidiary, while maintaining control, to be
recognized as an equity transaction. When the Company loses control of a subsidiary, any
interest retained in the former subsidiary will be measured at fair value with the gain or loss
recognized in profit or loss.

Amendments to PAS 39, Financial Instruments: Recognition and Measurement - Eligible
Hedged Items, provide for the following: a) new application guidance to clarify the existing
principles that determine whether specific risks or portions of cash flows are eligible for
designation in a hedge relationship; and b) additional application guidance on qualifying
items; assessing hedge effectiveness; and designation of financial items as hedged items.
The amendments are effective for annual periods beginning on or after July 1, 2009.
45
+

Philippine Interpretation IFRIC 17, Distributions of Non-cash Assets to Owners, provides
guidance on the accounting for non-reciprocal distributions of non-cash assets to owners
acting in their capacity as owners. It also applies to distributions in which the owners may
elect to receive either the non-cash asset or a cash alternative. The liability for the dividend
payable is measured at the fair value of the assets to be distributed. The interpretation is
effective for annual periods beginning on or after July 1, 2009.

Improvements to PFRSs 2008 - Amendments to PFRS 5, Noncurrent Assets Held for Sale
and Discontinued Operations, specify that if an entity is committed to a plan to sell a
subsidiary, then it would classify all of that subsidiary’s assets and liabilities as held for sale
when the held for sale criteria in paragraphs 6 to 8 of PFRS 5 are met. This applies
regardless of the entity retaining an interest (other than control) in the subsidiary.
Disclosures for discontinued operations are required by the parent when a subsidiary meets
the definition of a discontinued operation. The amendments are effective for annual periods
beginning on or after July 1, 2009.

Amendments to PFRS 2, Share-based Payment: Group Cash-settled Share-based Payment
Transactions, clarify the scope of PFRS 2, that an entity that receives goods or services in a
share-based payment arrangement must account for those goods or services no matter which
entity in the group settles the transaction, and regardless of whether the transaction is equitysettled or cash-settled; and the interaction of PFRS 2 and other standards, that in PFRS 2, a
“group” has the same meaning as in PAS 27, Consolidated and Separate Financial
Statements, that is, it includes only a parent and its subsidiaries. The amendments are
effective for annual periods beginning on or after January 1, 2010.

Improvements to PFRSs 2009, contain 15 amendments to 12 standards. The improvements
are generally effective for annual periods beginning on or after January 1, 2010. The
following are the said improvements or amendments to PFRS:
-
PFRS 2, Share-based Payment: Group Cash-settled Share-based Payment Transactions
and PFRS 3, Business Combinations (2008). The amendments clarify that business
combinations as defined in PFRS 3 (2008) are outside the scope of PFRS 2,
notwithstanding that they may be outside the scope of PFRS 3 (2008). Therefore business
combinations among entities under common control and the contribution of a business
upon the formation of a joint venture will not be accounted for under PFRS 2.
-
PAS 38, Intangible Assets. The amendments clarify that: (i) an intangible asset that is
separable only together with a related contract, identifiable asset or liability is recognized
separately from goodwill together with the related item; and (ii) complementary
intangible assets with similar useful lives may be recognized as a single asset. The
amendments also describe valuation techniques commonly used by entities when
measuring the fair value of intangible assets acquired in a business combination for
which no active market exists.
-
Philippine Interpretation IFRIC 9, Reassessment of Embedded Derivatives. The
International Accounting Standards Board (IASB) amended the scope of IFRIC 9 so that
embedded derivatives in contracts acquired in business combinations as defined in PFRS
3 (2008), joint venture formations and common control transactions remain outside the
scope of IFRIC 9.
46
+
-
Philippine Interpretation IFRIC 16, Hedges of a Net Investment in a Foreign Operation.
The amendments remove the restriction that prevented a hedging instrument from being
held by a foreign operation that itself is being hedged.
-
PFRS 5, Noncurrent Assets Held for Sale and Discontinued Operations. The amendments
clarify that the required disclosures for noncurrent assets (or disposal groups) classified
as held for sale or discontinued operations are specified in PFRS 5.
-
PFRS 8, Operating Segments. The amendments clarify that segment information with
respect to total assets is required only if such information is regularly reported to the
chief operating decision maker.
-
PAS 1, Presentation of Financial Statements. The amendments clarify that the
classification of the liability component of a convertible instrument as current or
noncurrent is not affected by terms that could, at the option of the holder of the
instrument, result in settlement of the liability by the issue of equity instruments.
-
PAS 7, Statement of Cash Flows. The amendments clarify that only expenditures that
result in the recognition of an asset can be classified as a cash flow from investing
activities.
-
PAS 17, Leases. The IASB deleted guidance stating that a lease of land with an indefinite
economic life normally is classified as an operating lease, unless at the end of the lease
term title is expected to pass to the lessee. The amendments clarify that when a lease
includes both the land and building elements, an entity should determine the
classification of each element based on paragraphs 7 - 13 of PAS 17, taking account of
the fact that land normally has an indefinite economic life.
-
PAS 36, Impairment of Assets. The amendments clarify that the largest unit to which
goodwill should be allocated is the operating segment level as defined in PFRS 8 before
applying the aggregation criteria of PFRS 8.
-
PAS 39, Financial Instruments: Recognition and Measurement. The amendments
provide: (i) additional guidance on determining whether loan prepayment penalties result
in an embedded derivative that needs to be separated; (ii) clarify that the scope exemption
in PAS 39 paragraph 2(g) is restricted to forward contracts, i.e. not options, between an
acquirer and a selling shareholder to buy or sell an acquiree that will result in a business
combination at a future acquisition date within a reasonable period normally necessary to
obtain any required approvals and to complete the transaction; and (iii) clarify that the
gains or losses on a cash flow hedge should be reclassified from other comprehensive
income to profit or loss during the period that the hedged forecast cash flows impact
profit or loss.
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 and improvements were included in the
consolidated financial statements, where applicable.
47
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II. FINANCIAL PERFORMANCE
2010 vs 2009
SMPFC and subsidiaries ended the year with consolidated revenues reaching record level high 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 SMPFVN 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 last year.
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 CKAG from SMC in May 2009 likewise contributed to the increase
in selling and administrative expenses. CKAG, now known as 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
PF-Hormel’s retirement of certain fixed assets that were completely damaged by a typhoon.
Other income (charges) - net contrasted that of last year 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.
48
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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 that of last year’s level.
The recently-combined Poultry Business of SMFI and Fresh Meats Business of Monterey led the
Group in terms of revenue contribution as it posted 9% and 4% increase in volume and revenue,
respectively. Operating income, on the other hand, registered a double-digit growth versus 2009 level.
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 last year. 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 last year, The 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 last year 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 last year on account of better margins.
Dairy & Others
Revenue of the Dairy, Fats and Oils Business under Magnolia was 3% higher than last year’s level as
butter, cheese and cooking oil categories recorded improvements in sales turnover. However, the onetime payment of retirement benefits 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 previous year. On
the other hand, Magnolia’s ice cream products posted 15% and 16% growth in volume and revenue,
respectively.
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 last year as
49
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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.
2009 vs 2008
Amidst a global economic downturn in 2009, SMPFC proved its resiliency as it ended the year with a
record-breaking performance. Consolidated revenues reached P 75 billion, a 6% growth or P 4 billion
increase from 2008 level. Poultry, Basic Meats and Dairy businesses registered double-digit year-onyear revenue growth due to better prices as well as higher volume generated through sustained
marketing and selling activities and improved distribution network. The Group maintained market
leadership in most of its categories in spite of a challenging business environment.
The growth in the Group’s sales turnover, combined with cost breaks in raw material prices enjoyed
by some businesses, continuous operational efficiency improvements and cost reduction initiatives
resulted in improved margins, thus the 30% surge in gross profit versus 2008.
The Group likewise started to reap the benefits of its efforts initiated in prior years of addressing
operating expenses as increase in selling and administrative expenses was tempered at 4%.
Decrease in banks’ interest rates, combined with lower average level of borrowings for working
capital requirements, resulted in the drop of interest expense and financing charges by 10% from
2008’s level.
Interest income rose by 27% 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 (loss) on sale of property and
equipment in the consolidated statements of income, increased versus same period in 2008 on account
of the continuous rationalization of existing food shop outlets of SMFI and due to SMMI’s write
down of leasehold improvements following the change in management’s intention on its branded
business.
Other charges - net significantly dropped on account of unrealized gain on derivatives in 2009 due to
favorable foreign exchange rates versus unrealized loss on derivatives in 2008.
The Group’s remarkable overall performance driven by cost breaks in major raw materials,
operational efficiency improvements, as well as effective cost management, resulted in income before
income tax and net income growing by five (5) times and seventeen (17) times more, respectively,
versus same period in 2008.
Income tax expense was similarly higher by 152% due to increase in taxable income.
Net income attributable to equity holders of the Parent Company increased significantly versus 2008
level due to better combined performances of subsidiaries where SMPFC holds significant ownership.
On the other hand, profit recorded by a subsidiary where non-controlling stockholders hold stake
declined, thus, the 14% drop in net income attributable to non-controlling interests.
50
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Business Highlights:
Agro-Industrial
In spite of continued contraction in the hog industry, SMFI’s Feeds Business managed to register
volume almost at par with 2008 and posted a modest revenue growth of 1% on account of the strong
performance of the business’ premium segments. Business-initiated cost reduction and efficiency
improvement programs likewise helped temper the effects of increasing costs of some raw materials,
particularly soybean meal and corn. The use of alternative raw materials and energy sources resulted
in substantial savings contributing to the record-high operating profits registered by the Feeds
Business.
SMFI’s Poultry Business, which consistently accounts for the biggest share in the Group’s revenue,
posted a 16% increase in sales revenue driven by an 8% volume growth and favorable selling prices.
Continuous efforts to improve operational efficiencies and reduce costs helped in achieving a doubledigit profit improvement over the same period in 2008.
The Fresh Meats Business (Monterey) registered a turnaround in operating profits due to the
implementation of cost reduction initiatives and the improvements made on the distribution network
and operational efficiencies. Amidst hog industry contraction, volume and revenue grew by 16% and
15%, respectively, as Monterey was able to take advantage of market demand with available supply
due to capacity expansions undertaken in 2009 and in prior years.
Value-Added
The Value-Added or Processed Meats Business under PF-Hormel experienced a very tough year as
volume and revenue fell short by 7% and 2%, respectively, versus same period in 2008. Aside from
contending with tight competition and market contraction, production capacity constraints resulting
from the untimely shutdown of its Marikina Plant in the last quarter of 2009 following the damage
caused by typhoon Ondoy, adversely affected the business unit’s profitability. Increase in costs of
major raw materials and overhead likewise contributed to dampened profits of the business.
Milling
The Company’s Flour Business under SMMI likewise registered operating profit growth versus 2008
due to better margins despite a challenging business environment brought about by the threat posed
by the influx of cheaper flour imports. Volumes grew by 8%, however, revenues declined by 7% due
to downward adjustments in flour’s selling prices influenced by lower global wheat prices and
decrease in freight costs.
Dairy & Others
The Dairy, Fats and Oils Business, under Magnolia registered a turnaround in operating profits due to
improved operational efficiencies and cost breaks from most of its strategic raw materials. Revenue
reached P 5.3 billion, 10% better than 2008 level due to better volume performance of Magnolia’s
milk, ice cream and most of its breadfill categories.
SMSCCI sales declined from 2008’s level. Operating income, however, improved versus same
period in 2008 due to managed fixed cost spending.
51
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GFS, the foodservice division of the Company, registered an operating income slightly better than
2008 due to improved revenues and lower operating costs. Total number of outlets served went up
from 9,417 in 2008 to 9,456 in 2009.
III. FINANCIAL POSITION
2010 vs 2009
The commendable operating performance of SMPFC is similarly reflected on the Company’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 Securities and Exchange Commission (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 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, is still pending with the Bureau of Internal Revenue (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 SMPFI Limited for US$18.6 million. SMPFI Limited
owns 100% of 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
52
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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 is
intended to pay off, among others, the SMPFVN 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 P3,200.0 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 as at
December 31, 2010. As discussed in Note 35 of the 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
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 (Issue Date) 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 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 P1,000.0 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-
53
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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
SMPFVN 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 nonvoting, 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 year-end.
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 acquisition of SMPFVN.
Derivative assets grew mainly due to higher number of wheat options outstanding by year-end 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 during the year.
Property, plant and equipment - net, noncurrent biological assets - net and goodwill - net grew versus
same period last year mainly due to the inclusion of SMPFVN in the consolidation.
The substantial increase in intangible assets - net is mainly attributed to the purchase of food-related
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 during the year and the utilization of
deferred tax benefits from a subsidiary’s net operating loss carry-over (NOLCO).
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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 SMPFVN.
The 32% drop in deferred tax liabilities resulted from a subsidiary’s reversal of unrealized gains
brought about by the settlement of matured prior and current year’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 inclusion of SMPFVN in the consolidation.
Changes in retained earnings and non-controlling interests are primarily on account of the income
earned in 2010, net of dividends declared during the year.
2009 vs 2008
SMPFC’s remarkable operating performance in 2009 resulted in improved overall financial position,
as current ratio and debt to equity ratio registered at 1.30:1 and 1.28:1, respectively, from 1.20 and
1.47, respectively, in 2008. Total equity increased from P15.0 billion to P17.6 billion while total
asset base rose from P37.0 billion to P40.2 billion or a growth of 9%.
Below were the major developments in 2009:
INVESTMENTS IN SUBSIDIARIES
In April 2009, Monterey, a majority-owned subsidiary of SMPFC, acquired the subscription rights of
certain individuals in Highbreed Livestock Corporation (HLC), a Philippine company engaged in
livestock farming, processing, selling meat products (mainly pork and beef) and leasing of properties.
As such, HLC became a subsidiary of Monterey and was consolidated into SMPFC through
Monterey. On June 22, 2009, the respective BOD and stockholders of Monterey and HLC approved
the merger of HLC into Monterey, with Monterey as the surviving corporation. The consideration of
the assignment of the subscription, net of the effect of the merger, amounted to P6.25 million. The
SEC approved the merger on October 22, 2009. The Bureau of Internal Revenue (BIR) confirmed the
tax-free merger of HLC into Monterey in its Certification No. S40-052-2009 dated
December
18, 2009.
RELATED PARTY
On May 1, 2009, the transfer of the receivables, inventories and fixed assets of SMC’s CKAG to
SMFI was completed, for a total consideration of P2,352.5 million. CKAG was a unit of SMC
engaged in the business of selling and distributing various products of some companies within the
SMC Group, including SMPFC’s subsidiaries, to modern trade customers.
55
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Analysis of Financial Position Accounts
Cash and cash equivalents grew by 42% compared to 2008 level mainly due to higher cash sales
during December and the integration of SMC’s CKAG unit into the Group.
The 16% increase in trade and other receivables - net was mainly due to integration of SMC’s CKAG
unit and the insurance claims booked by a subsidiary to cover damages caused by a typhoon.
Current biological assets declined by 14% due to lower volume of growing hogs and poultry
livestock.
The 32% increase in derivative assets is primarily attributed to the higher value of outstanding
purchase orders that are to be settled using third currencies and the favorable foreign exchange rate at
valuation date.
Prepaid expenses and other current assets rose by 53% due to the increase in the level of creditable
input and withholding taxes for application against future tax liabilities. The integration of CKAG
into the Group also contributed to the increase.
Investment properties - net went up by 51% due to additional foreclosed properties in 2009.
The 15% surge in noncurrent biological assets - net was due to the increase in the volume of
Monterey and SMFI Poultry’s breeding stocks coupled with higher growing costs.
The increase in deferred tax assets by 11% was largely due to the recognition of tax asset on future
benefit from the tax loss position of a subsidiary in 2009.
Retirement and other noncurrent assets increased by 66% due to a subsidiary’s reclassification of
certain machinery and equipment considered as idle assets from property, plant and equipment to
other noncurrent assets following the change in management’s intention on its branded business.
Better operating cash flows of most subsidiaries enabled the Group to partially settle their short- term
borrowings, thus, the decrease in notes payable by 24%.
Trade payables and other current liabilities registered a 29% increase primarily due to the integration
of SMC’s CKAG unit into the Group and the acquisition by Monterey of HLC.
Income tax payable was significantly higher versus 2008 level mainly on account of the Group’s
positive performance resulting in additional income tax.
Deferred tax liabilities increased by 67% due to the effect of the recognition of tax liability on
unrealized gains on certain derivative financial instruments.
Retirement liability went up by 134% due to the recognition of higher provision for pension costs for
2009.
The 31% drop in cumulative translation adjustments is primarily due to the appreciation of
Indonesia’s rupiah against the Philippine peso.
The change in retained earnings is primarily on account of the income earned in 2009.
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IV. SOURCES AND USES OF CASH
A brief summary of cash flow movements is shown below:
2010
December 31
2009
2008
(In Millions)
Net cash flows provided by (used in) operating
activities
Net cash flows used in investing activities
Net cash flows provided by (used in) financing
activities
P 4,816
(2,038)
316
P 5,536
(1,518)
(2,850)
(P
77)
( 1,510)
3,027
Net cash provided by (used in) operations basically consists 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:
2010
December 31
2009
2008
(In Millions)
Acquisitions of intangible assets
Acquisitions 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
(P 338)
(581)
(39)
108
(1,188)
(P 23)
(651)
39
(883)
(P
33)
(594)
11
(894)
Net cash provided by (used in) financing activities included the following:
2010
December 31
2009
2008
(In Millions)
Net availments (payments) of notes payable
Proceeds from availments of long-term
debt
(P 4,184)
4,500
(P 2,850)
-
P 3,027
-
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V. ADDITIONAL INFORMATION ON UNAPPROPRIATED RETAINED EARNINGS
The following items are not available for declaration as dividends:
December 31
2009
2010
(In Millions)
Accumulated equity in net earnings of subsidiaries
(included in the unappropriated retained earnings
balance)
Treasury stock
Property dividend in SMPFC’s retained earnings
P
5,408
P 3,355
182
-
182
1,645*
* Certificate of Approval of Property Dividend Declaration issued by SEC in December 2010
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 periods indicated below.
KPI
December 2010
December 2009
Liquidity:
Current Ratio
1.57
1.30
Solvency:
Debt to Equity Ratio
1.14
1.28
Profitability:
Return on Average
Stockholders’ Equity
22.43%
18.64%
As at December 2010
As at December 2009
5.51%
5.63%
7.45%
4.17%
5.58%
6.18%
KPI
Operating Efficiency:
Volume Growth
Revenue Growth
Operating Margin
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The manner by which the Group calculates the above indicators is as follows:
KPI
Current Ratio
Debt to Equity Ratio
Return on Average
Stockholders’ Equity
Volume Growth
Revenue Growth
Operating Margin
Formula
Current Assets
Current Liabilities
Total Liabilities (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
Sum of all Businesses’ Revenue at Prior Period Prices
-1
Prior Period Net Sales
Current Period Net Sales
-1
Prior Period Net Sales
Income from Operating Activities
Net Sales
VII. OTHER MATTERS
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.
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.
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.
There were no known trends, demands, commitments, events or uncertainties that will have a material
impact on the Group’s liquidity.
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.
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 34 (b)
of the Audited Consolidated Financial Statements. No material contingencies and any other events or
transactions exist that are material to an understanding of the current interim period.
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, 2010.
59
ANNEX E
STATEMENT OF MANAGEMENT RESPONSIBILITY
CONSOLIDATED FINANCIAL STATEMENTS
FOR
-
SanMlguel
Pure Foods
The management of San Miguel Pure Foods Company, Inc. is responsible for all information
and representations contained in the consolidated financial statements which comprise the
consolidated statements of financial position as at December 31, 2010 and 2009, and the
consolidated
statements of income, consolidated
statements of comprehensive
income,
consolidated statements of changes in equity and consolidated statements of cash flows for each
of the three years in the period ended December 31, 2010. The financial statements have been
prepared in conformity with Philippine Financial Reporting Standards and reflect amounts that
are based on the best estimates and informed judgment of management with an appropriate
consideration to rnateriality.
In this regard, management maintains a system of accounting and reporting which provides for
the necessary internal controls to ensure that transactions are properly authorized and recorded,
assets are safeguarded against unauthorized use or disposition and liabilities are recognized. The
management likewise discloses to the Company's Audit Committee and to its external auditors:
(i) all signi ficant deficiencies in the design or operation of internal controls that could adversely
affect its ability to record, process, and report financial data; (ii) material weaknesses in the
internal controls; and (iii) any fraud that involves management or other employees who exercise
significant roles in internal controls.
The Board of Directors reviews the consolidated financial statements before such statements are
approved and submitted to the stockholders of the Company.
Manabat Sanagustin & Co., the independent auditors appointed by the stockholders, has
examined the consolidated financial statements in accordance with Philippine Standards on
Auditing and has expressed its opinion on the fairness of presentation upon completion of such
examination, in its report to the Board oC Directors and the stockholders.
C
u
M. Cojuangc
rrrnan of the Boan
Cl)I\~oJ~
Francisco
President
~ ~
S. Alejo III
ACKNOWLEDGMENT
REPUBLIC OF THE PHILIPPINES)
Mandaluyong
City
) S.S.
MAR 1 5 2011
Before me, a Notary Public for and in Mandaluyong
______
2011, personally appeared:
Eduardo M. Cojuangco, Jr.
Zenaida M. Postrado
City this
day of
Passport No.
Expiry Date/Place Issued
XX-1347206
XX-4870820
June 5, 2013 / 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 notarial seal at the date and place
first above written.
~
Doc. No. ---:;.,1---Page No. __ ...".....
__
Book No. _-,,=L=-' __
Series of 2011.
ALEXAND~BENGSON
Commission No. O~90-l1
Notary Public tor Mandaluyong City
Until Dec. 31.2012
SMC, 40 San Mig);c! Ave.• I\tandaluyong City
F·,I' ',;., 4'959
m'
::'... ' .. : "::11 ~; Mandaluyong City
UJI .'0. <S'+'o~(,~,
Oi/04II1; Makati City
COVER SHEET
1 1 8 4 0
S.E.C. Registration Number
S A N
M I G U E L
C O M P A N Y ,
P U R E
I N C .
F O O D S
A N D
S U B S I D I A R I E S
(Company's Full Name)
J M T
C o r p o r a
A D B
A v e n u e
P a s
i g
C i
,
t
e
C o n d o m i n i u m
O r
t
i g a s
C e n t
e r
t y
(Business Address : No. Street Company / Town / Province)
Ms. Zenaida M. Postrado
705-5000
Contact Person
1 2
3 1
Month
Day
Company Telephone Number
A A F S
FORM TYPE
0 5
1 3
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
To be accomplished by SEC Personnel concerned
File Number
LCU
Document I.D.
Cashier
STAMPS
Remarks = pls. use black ink for scanning purposes.
Foreign
SAN MIGUEL PURE FOODS COMPANY, INC. AND
SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010, 2009 and 2008
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 - net
Biological assets
Derivative assets
Prepaid expenses and other current assets
Total Current Assets
Noncurrent Assets
Investment properties - net
Property, plant and equipment - net
Biological assets - net
Intangible assets
Goodwill - net
Deferred tax assets
Other noncurrent assets
Total Noncurrent Assets
Note
2010
2009
6, 31, 32
4, 7, 28, 31, 32
4, 8, 28
9
31, 32
10
P7,041,345
7,760,271
12,123,435
3,266,564
107,633
1,765,748
32,064,996
P3,950,346
9,023,953
11,804,099
2,524,510
47,070
1,245,674
28,595,652
4, 12
4, 13, 28
4, 9
4,14
4, 15
4, 26
4, 13, 27, 31, 32
113,018
9,106,083
1,479,251
3,425,510
416,310
599,891
313,030
15,453,093
108,065
8,294,593
1,285,125
167,562
170,792
1,219,676
334,408
11,580,221
P47,518,089
P40,175,873
LIABILITIES AND EQUITY
Current Liabilities
Notes payable
Trade payables and other current liabilities
Income tax payable
Total Current Liabilities
16, 31, 32
17, 31, 32
P5,172,538
15,145,969
162,159
20,480,666
P8,816,090
12,667,086
466,920
21,950,096
Noncurrent Liabilities
Long-term debt - net of debt issue costs
Deferred tax liabilities
Other noncurrent liabilities
Total Noncurrent Liabilities
18, 31, 32
26
27, 31, 32
4,460,807
271,074
87,544
4,819,425
399,040
181,487
580,527
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
19
1,708,748
5,821,288
18,219
(92,492)
11,773,185
(182,094)
19,046,854
3,171,144
22,217,998
P47,518,089
See Notes to the Consolidated Financial Statements.
1,454,510
5,821,288
18,219
(48,278)
8,181,278
(182,094)
15,244,923
2,400,327
17,645,250
P40,175,873
SAN MIGUEL PURE FOODS COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
(Amounts in Thousands, Except Per Share Data)
Note
2010
2009
2008
20, 28
P79,269,760
P75,042,967
P71,075,925
21, 28, 34
63,291,086
61,447,996
60,609,663
15,978,674
13,594,971
10,466,262
22, 28
(10,076,905)
(8,957,347)
(8,623,651)
INTEREST EXPENSE AND
OTHER FINANCING
CHARGES
16, 18, 25
(359,415)
(751,042)
(830,914)
105,488
69,141
54,323
(32,612)
(24,663)
2,815
97,866
(88,968)
REVENUES
COST OF SALES
GROSS PROFIT
SELLING AND
ADMINISTRATIVE
EXPENSES
INTEREST INCOME
6, 25
GAIN (LOSS) ON SALE OF
PROPERTY AND
EQUIPMENT
OTHER INCOME
(CHARGES) - Net
25
INCOME BEFORE INCOME
TAX
INCOME TAX EXPENSE
NET INCOME
26
Attributable to:
Equity holders of the Parent Company
Non-controlling interests
Basic and Diluted Earnings Per
Share Attributable to Equity
Holders of the Parent
Company
See Notes to the Consolidated Financial Statements.
29
(451,279)
5,713,096
3,842,092
617,556
1,654,207
P4,058,889
1,183,625
P2,658,467
468,870
P148,686
P3,846,145
212,744
P4,058,889
P2,596,963
61,504
P2,658,467
P77,194
71,492
P148,686
P23.08
P15.58
P0.46
SAN MIGUEL PURE FOODS COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
(Amounts in Thousands)
Note
NET INCOME
NET GAIN (LOSS) ON
EXCHANGE DIFFERENCES
ON TRANSLATION OF
FOREIGN OPERATIONS
2010
P4,058,889
2009
P2,658,467
2008
P148,686
(41,603)
16,147
1,544
NET GAIN (LOSS) ON CASH
FLOW HEDGES
32
-
11,196
(11,196)
INCOME TAX BENEFIT
(EXPENSE)
32
-
(3,359)
3,359
(2,954)
2,434
NET GAIN (LOSS) ON
AVAILABLE-FOR-SALE
FINANCIAL ASSETS
INCOME TAX BENEFIT
(EXPENSE)
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.
295
(44,262)
(243)
26,175
502
(50)
(5,841)
P4,014,627
P2,684,642
P142,845
P3,801,931
212,696
P4,014,627
P2,619,101
65,541
P2,684,642
P70,967
71,878
P142,845
SAN MIGUEL PURE FOODS COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
(Amounts in Thousands)
Capital
Stock
(Note 19)
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
At December 31, 2010
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
At December 31, 2009
Forward
P1,454,510
-
Additional
Paid-in
Capital
(Note 19)
P5,821,288
-
Attributable to Equity Holders of the Parent Company
Cumulative Translation
Adjustments
Fair
Retained
Revaluation Translation
Hedging
Value
Earnings
(Note 19)
Surplus
Reserve
Reserve
Reserve
P18,219
-
P6,269
Total
(P182,094)
P15,244,923
(P54,547)
P -
(41,555)
-
-
-
-
-
-
(2,659)
-
(44,214)
3,846,145
-
-
-
-
-
(2,659)
-
-
-
(41,555)
-
-
(2,659)
-
254,238
P1,708,748
P5,821,288
P18,219
(41,555)
(P96,102)
P -
P1,454,510
P5,821,288
P18,219
(P66,657)
(P7,837)
P8,181,278
Treasury
Stock
(Note 19)
3,846,145
(41,555)
Noncontrolling
Interests
Total
Equity
P2,400,327
P17,645,250
(48)
(48)
212,744
(41,603)
(2,659)
(44,262)
4,058,889
(2,659)
3,846,145
(254,238)
P3,610 P11,773,185
(P182,094)
3,801,931
P19,046,854
212,696
4,014,627
738,121
738,121
(180,000)
(180,000)
P3,171,144 P22,217,998
P4,078
(P182,094)
P12,625,822
P2,334,786
P14,960,608
P5,584,315
-
-
-
12,110
-
-
-
-
12,110
4,037
16,147
-
-
-
-
7,837
-
-
-
7,837
-
7,837
-
-
-
-
-
2,191
-
2,191
-
-
-
12,110
-
7,837
-
2,191
-
2,596,963
-
22,138
2,596,963
4,037
61,504
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
P1,454,510
P5,821,288
P18,219
(P54,547)
P -
-
(P182,094)
-
2,191
At January 1, 2008
Net gain on exchange differences on
translation of foreign operations
Net loss on cash flow hedges, net of
tax
Net gain on available-for-sale
financial assets, net of tax
Other comprehensive income (loss)
Net income for the year
Total comprehensive income (loss)
for the year
Addition in non-controlling interests
At December 31, 2008
Capital
Stock
(Note 19)
P1,454,510
Additional
Paid-in
Capital
(Note 19)
P5,821,288
Attributable to Equity Holders of the Parent Company
Cumulative Translation
Adjustments
Fair
Retained
Revaluation Translation
Hedging
Value
Earnings
(Note 19)
Surplus
Reserve
Reserve
Reserve
P18,219
(P67,815)
P P3,626
P5,507,121
Treasury
Stock
(Note 19)
(P182,094)
Noncontrolling
Interests
Total
Equity
Total
P12,554,855
P2,255,287
P14,810,142
386
1,544
-
-
-
1,158
-
-
-
-
1,158
-
-
-
-
(7,837)
-
-
-
(7,837)
-
(7,837)
-
-
-
1,158
-
(7,837)
-
452
452
-
77,194
-
452
(6,227)
77,194
386
71,492
452
(5,841)
148,686
(7,837)
(P7,837)
452
P4,078
77,194
P5,584,315
70,967
P12,625,822
71,878
7,621
P2,334,786
142,845
7,621
P14,960,608
P1,454,510
See Notes to the Consolidated Financial Statements.
P5,821,288
P18,219
1,158
(P66,657)
(P182,094)
SAN MIGUEL PURE FOODS COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
(Amounts in Thousands)
2010
2009
2008
P5,713,096
P3,842,092
P617,556
23
1,926,403
1,704,508
1,553,510
25
359,415
751,042
830,914
25
25
(245,624)
(105,488)
114,935
(69,141)
733,126
(54,323)
Note
CASH FLOWS FROM
OPERATING ACTIVITIES
Income before income tax
Adjustments for:
Depreciation and amortization
Interest expense and other
financing charges
Other charges net of loss (gain)
on derivative transactions
Interest income
Impairment loss on land and
other noncurrent assets - net
Impairment loss on investment
properties
Decline in value of investments
Loss (gain) on sale of property
and equipment, investment
properties and idle assets
Operating income before
working capital changes
Allowance for impairment losses
on receivables and inventory
losses
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
(used in) operating activities
Forward
25
5,426
53,873
-
12
-
3,114
-
5,359
16,783
32,612
24,663
(2,815)
7,685,840
6,425,086
3,700,110
150,043
193,192
115,039
1,417,967
(161,056)
(284,278)
(1,349,470)
(26,575)
407,911
(453,178)
(430,237)
108,713
(1,798,537)
6,556,801
(337,871)
1,706,284
6,926,191
(569,452)
179,884
1,384,801
(629,043)
(1,488,791)
85,732
(872,252)
51,720
(878,758)
45,639
4,815,871
5,536,207
(114,304)
(1,996,485)
(608,156)
(77,361)
Note
CASH FLOWS FROM
INVESTING ACTIVITIES
Acquisitions of property, plant
and equipment
Acquisitions of intangible assets
Acquisition of a subsidiary net of
cash received
Decrease (increase) in:
Biological assets
Other noncurrent assets
Proceeds from sale of property
and equipment
Net cash flows used in investing
activities
CASH FLOWS FROM
FINANCING ACTIVITIES
Net availments (payments) of
notes payable
Proceeds from availments 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 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.
2010
13
14
(P581,073)
(338,278)
11
(38,615)
(1,090,640)
(97,693)
107,942
2009
(P651,422)
(23,132)
458
(1,023,292)
140,484
39,127
2008
(P593,908)
(33,528)
(972,614)
78,935
11,330
(2,038,357)
(1,517,777)
(1,509,785)
(4,183,986)
(2,850,290)
3,026,709
4,500,000
316,014
(2,529)
(2,850,290)
-
3,026,709
-
3,090,999
1,168,140
1,439,563
3,950,346
2,782,206
1,342,643
P7,041,345
P3,950,346
P2,782,206
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.
The accompanying consolidated financial statements were authorized for issue by the
Board of Directors (BOD) on March 9, 2011.
2. Basis of Preparation
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 asset is measured as the net total of the fair value of the plan
assets, less unrecognized actuarial gains and the present value of the defined
benefit obligation; 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.
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 Interpretation Committee (IFRIC), issued by the Financial Reporting
Standards Council (FRSC).
Basis of Consolidation
The consolidated financial statements include the accounts of the Company and the
following subsidiaries:
San Miguel Mills, Inc. (SMMI)
Magnolia, Inc. and subsidiary (Magnolia)
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)
Monterey Foods Corporation (Monterey)(a)
RealSnacks Mfg. Corp. (RealSnacks)(b)
San Miguel Pure Foods International, Limited (SMPFIL)(c)
[including San Miguel Pure Foods Investment (BVI)
Limited (SMPFI Limited) and subsidiary, 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
Philippines
British Virgin
Islands
Cayman
Islands
Percentage of
Ownership
2009
2010
100.00 100.00
100.00 100.00
99.97 100.00
75.00 75.00
70.00 70.00
60.00 60.00
97.68
100.00 100.00
100.00 100.00
100.00
-
(a) Merged with SMFI starting September 1, 2010 (Note 11).
(b) Incorporated in April 2004 and has not yet started commercial operations.
(c) Incorporated in February 2007.
(d)Consolidated with SMPFC through SMPFIL starting August 1, 2010 (Note 11).
(e) Incorporated in November 2010 and has not yet started commercial operations.
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 (Note 11) in 2010 and in
Monterey, PTSMPFI, SMSCCI and PF-Hormel in 2009.
-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.
Accordingly, the Group changed its accounting policies in the following areas:
Adopted Effective 2010
The Group has adopted the following PFRS starting January 1, 2010 and accordingly,
changed its accounting policies to conform with these PFRS:

Revised PFRS 3, Business Combinations (2008), effective for annual periods
beginning on or after July 1, 2009, incorporates the following changes that are likely
to be relevant to the Group’s operations:
-
The definition of a business has been broadened, which is likely to result in more
acquisitions being treated as business combinations.
Contingent consideration is measured at fair value, with subsequent changes
therein recognized in profit or loss.
Transaction costs, other than share and debt issue costs, are expensed as incurred.
Any pre-existing interest in the acquiree is measured at fair value with the gain or
loss recognized in profit or loss.
Any non-controlling interest is measured at either fair value, or at its
proportionate interest in the identifiable assets and liabilities of the acquiree, on a
transaction-by-transaction basis.
The Group applied Revised PFRS 3 (2008) in the acquisition of SMPFI Limited,
through SMPFIL (Note 11).

Revised PAS 27, Consolidated and Separate Financial Statements (2008), effective
for annual periods beginning on or after July 1, 2009, requires accounting for
changes in ownership interests by the Company in a subsidiary, while maintaining
control, to be recognized as an equity transaction. When the Company loses control
of a subsidiary, any interest retained in the former subsidiary will be measured at fair
value with the gain or loss recognized in profit or loss.

Amendments to PAS 39, Financial Instruments: Recognition and Measurement Eligible Hedged Items, provide for the following: a) new application guidance to
clarify the existing principles that determine whether specific risks or portions of
cash flows are eligible for designation in a hedge relationship; and b) additional
application guidance on qualifying items; assessing hedge effectiveness; and
designation of financial items as hedged items. The amendments are effective for
annual periods beginning on or after July 1, 2009.

Philippine Interpretation IFRIC 17, Distributions of Non-cash Assets to Owners,
provides guidance on the accounting for non-reciprocal distributions of non-cash
assets to owners acting in their capacity as owners. It also applies to distributions in
which the owners may elect to receive either the non-cash asset or a cash alternative.
The liability for the dividend payable is measured at the fair value of the assets to be
distributed. The interpretation is effective for annual periods beginning on or after
July 1, 2009.
-3-

Improvements to PFRSs 2008 - Amendments to PFRS 5, Noncurrent Assets Held for
Sale and Discontinued Operations, specify that if an entity is committed to a plan to
sell a subsidiary, then it would classify all of that subsidiary’s assets and liabilities as
held for sale when the held for sale criteria in paragraphs 6 to 8 of PFRS 5 are met.
This applies regardless of the entity retaining an interest (other than control) in the
subsidiary. Disclosures for discontinued operations are required by the parent when a
subsidiary meets the definition of a discontinued operation. The amendments are
effective for annual periods beginning on or after July 1, 2009.

Amendments to PFRS 2, Share-based Payment: Group Cash-settled Share-based
Payment Transactions, clarify the scope of PFRS 2, that an entity that receives goods
or services in a share-based payment arrangement must account for those goods or
services no matter which entity in the group settles the transaction, and regardless of
whether the transaction is equity-settled or cash-settled; and the interaction of
PFRS 2 and other standards, that in PFRS 2, a “group” has the same meaning as in
PAS 27, Consolidated and Separate Financial Statements, that is, it includes only a
parent and its subsidiaries. The amendments are effective for annual periods
beginning on or after January 1, 2010.

Improvements to PFRSs 2009, contain 15 amendments to 12 standards. The
improvements are generally effective for annual periods beginning on or after
January 1, 2010. The following are the said improvements or amendments to PFRS:
-
PFRS 2, Share-based Payment: Group Cash-settled Share-based Payment
Transactions and PFRS 3, Business Combinations (2008). The amendments
clarify that business combinations as defined in PFRS 3 (2008) are outside the
scope of PFRS 2, notwithstanding that they may be outside the scope of PFRS 3
(2008). Therefore business combinations among entities under common control
and the contribution of a business upon the formation of a joint venture will not
be accounted for under PFRS 2.
-
PAS 38, Intangible Assets. The amendments clarify that: (i) an intangible asset
that is separable only together with a related contract, identifiable asset or
liability is recognized separately from goodwill together with the related item;
and (ii) complementary intangible assets with similar useful lives may be
recognized as a single asset. The amendments also describe valuation techniques
commonly used by entities when measuring the fair value of intangible assets
acquired in a business combination for which no active market exists.
-
Philippine Interpretation IFRIC 9, Reassessment of Embedded Derivatives. The
International Accounting Standards Board (IASB) amended the scope of IFRIC 9
so that embedded derivatives in contracts acquired in business combinations as
defined in PFRS 3 (2008), joint venture formations and common control
transactions remain outside the scope of IFRIC 9.
-
Philippine Interpretation IFRIC 16, Hedges of a Net Investment in a Foreign
Operation. The amendments remove the restriction that prevented a hedging
instrument from being held by a foreign operation that itself is being hedged.
-
PFRS 5, Noncurrent Assets Held for Sale and Discontinued Operations. The
amendments clarify that the required disclosures for noncurrent assets (or
disposal groups) classified as held for sale or discontinued operations are
specified in PFRS 5.
-4-
-
PFRS 8, Operating Segments. The amendments clarify that segment information
with respect to total assets is required only if such information is regularly
reported to the chief operating decision maker.
-
PAS 1, Presentation of Financial Statements. The amendments clarify that the
classification of the liability component of a convertible instrument as current or
noncurrent is not affected by terms that could, at the option of the holder of the
instrument, result in settlement of the liability by the issue of equity instruments.
.
PAS 7, Statement of Cash Flows. The amendments clarify that only expenditures
that result in the recognition of an asset can be classified as a cash flow from
investing activities.
-
-
PAS 17, Leases. The IASB deleted guidance stating that a lease of land with an
indefinite economic life normally is classified as an operating lease, unless at the
end of the lease term title is expected to pass to the lessee. The amendments
clarify that when a lease includes both the land and building elements, an entity
should determine the classification of each element based on paragraphs 7 - 13 of
PAS 17, taking account of the fact that land normally has an indefinite economic
life.
-
PAS 36, Impairment of Assets. The amendments clarify that the largest unit to
which goodwill should be allocated is the operating segment level as defined in
PFRS 8 before applying the aggregation criteria of PFRS 8.
-
PAS 39, Financial Instruments: Recognition and Measurement. The amendments
provide: (i) additional guidance on determining whether loan prepayment
penalties result in an embedded derivative that needs to be separated; (ii) clarify
that the scope exemption in PAS 39 paragraph 2(g) is restricted to forward
contracts, i.e. not options, between an acquirer and a selling shareholder to buy
or sell an acquiree that will result in a business combination at a future
acquisition date within a reasonable period normally necessary to obtain any
required approvals and to complete the transaction; and (iii) clarify that the gains
or losses on a cash flow hedge should be reclassified from other comprehensive
income to profit or loss during the period that the hedged forecast cash flows
impact profit or loss.
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 and improvements were
included in the consolidated financial statements, where applicable.
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, 2010, 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 2013
consolidated financial statements 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.
-5-
The Group will adopt the following new or revised standards, amendments to standards
and interpretations in the respective effective dates:

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 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 PFRSs 2010 contain 11 amendments to 6 standards and 1
interpretation, of which only the following are applicable to the Group.
-
PFRS 3, Business Combinations (2008). The amendments: (i) 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); (ii) 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 (iii) 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. These amendments are effective
for annual periods beginning on or after July 1, 2010. Early application is
permitted and is required to be disclosed.
-6-
-
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. Early application is permitted.
-
PFRS 1, First -time Adoption of PFRS. The amendments: (i) clarify that PAS 8,
Accounting Policies, Changes in Accounting Estimates and Errors, is not
applicable to changes in accounting policies occurring during the period covered
by an entity’s first PFRS financial statements; (ii) introduce guidance for entities
that publish interim financial information under PAS 34, Interim Financial
Reporting and change either their accounting policies or use of the PFRS 1
exemptions during the period covered by their first PFRS financial statements;
(iii) extend the scope of paragraph D8 of PFRS 1 so that an entity is permitted to
use an event-driven fair value measurement as deemed cost for some or all of its
assets when such revaluation occurred during the reporting periods covered by its
first PFRS financial statements; and (iv) introduce an additional optional deemed
cost exemption for entities to use the carrying amounts under previous GAAP as
deemed cost at the date of transition to PFRS for items of property, plant and
equipment or intangible assets used in certain rate-regulated activities. The
amendments are effective for annual periods beginning on or after
January 1, 2011. Early application is permitted and is required to be disclosed.
-
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 financial instruments. In addition, the IASB amended and
removed existing disclosure requirements. The amendments are effective for
annual periods beginning on or after January 1, 2011. Early application is
permitted and is required to be disclosed.
-
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. Early
application is permitted.
-
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. Early application is permitted and is required to be disclosed.
-
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. Early application is permitted and
is required to be disclosed.
None of the above amendments is expected to have a significant effect on the
consolidated financial statements of the Group.
-7-

Disclosures - Transfers of Financial Assets (Amendments to PFRS 7), require
additional disclosures about transfers of financial assets. The amendments require
disclosure of information that enables users of 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.

PFRS 9, Financial Instruments (2009) was issued as the first phase of the PAS 39
replacement project. The chapters of the standard released in 2009 only related to the
classification and measurement of financial assets. 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 contractual cash flow
characteristics of the financial asset. In October 2010, a new version of PFRS 9
Financial Instruments (2010) was issued which now includes all the requirements of
PFRS 9 (2009) without amendment. The new version of PFRS 9 also incorporates
requirements with respect to the classification and measurement of financial
liabilities and the derecognition of financial assets and financial liabilities. The
guidance in PAS 39 on impairment of financial assets and hedge accounting
continues to apply. The new standard is effective for annual periods beginning on or
after January 1, 2013. PFRS 9 (2010) supersedes PFRS 9 (2009). However, for
annual periods beginning before January 1, 2013, an entity may elect to apply
PFRS 9 (2009) rather than PFRS 9 (2010).
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 will be
mandatory for the Group’s 2013 consolidated financial statements and could change the
classification and measurement of financial assets.
The Group will assess the impact of the new or revised standards, amendments to
standards and interpretations on the consolidated financial statements upon adoption on
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 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.
-8-
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 use is made of data which are not observable, the difference
between the transaction price and model value is only recognized in the consolidated
statements of income when the inputs become observable or when the instrument is
derecognized. For each transaction, the Group determines the appropriate method of
recognizing the ‘Day 1’ 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 or
reclassified under this category through the fair value option, 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.
-9-
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 P107.6 million and P47.1 million
as at December 31, 2010 and 2009, respectively (Note 32).
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 with original maturities of three months or less and 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 6 and 7).
The combined carrying amounts of financial assets under this category amounted to
P14,801.6 million and P12,974.3 million as at December 31, 2010 and 2009, respectively
(Note 32).
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 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.
- 10 -
As at December 31, 2010 and 2009, the Group has no investments accounted for under
this category.
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 P11.2 million
and P13.8 million as at December 31, 2010 and 2009, respectively (Note 32).
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 17).
The carrying amounts of financial liabilities under this category amounted to P3.1 million
and P13.4 million as at December 31, 2010 and 2009, respectively (Note 32).
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 16, 17, 18 and 32).
- 11 -
The combined carrying amounts of financial liabilities under this category amounted to
P24,779.1 million and P21,469.8 million as at December 31, 2010 and 2009, respectively
(Note 32).
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 charged
against current operations.
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, 2010 and 2009, 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.
- 12 -
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 affect profit or loss.
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, 2010 and 2009, the Group has no outstanding derivatives accounted
for as cash flow hedges.
Net Investment Hedge. As at December 31, 2010 and 2009, 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 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.
- 13 -
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.
- 14 -
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
- 15 -
Net realizable value of finished goods and 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
- 16 -
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 recognized 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.
- 17 -

Intangible Assets Acquired in a Business Combination
The cost of intangible assets acquired in a business combination at the date of
acquisition is its fair value determined using discounted cash flows expected to be
derived from the use of the assets.
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 are recognized in
profit or loss consistent with the function of the intangible asset.

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 above-mentioned 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.
- 18 -
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.
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 - 50
5
3 - 50
The remaining useful lives, residual values and depreciation method are reviewed and
adjusted, if appropriate, periodically 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.
Fully depreciated assets are retained in the accounts until they are no longer in use and no
further depreciation is credited or charged to current operations.
- 19 -
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. 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 financial year-end.
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 expenditure is incurred. The useful lives of intangible
assets are assessed to be either finite or indefinite.
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.
- 20 -
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 to be indefinite
because 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, 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.
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
- 21 -
the time value of money and, where appropriate, the risks specific to the liability. Where
discounting is used, the increase in the provision due to the passage of time is recognized
as interest expense. Where the Group expects a provision to be reimbursed, the
reimbursement is recognized as a separate asset but only when the receipt of the
reimbursement is virtually certain. 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.
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 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.
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. 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.
- 22 -
Rent. Revenue from investment properties is recognized on a straight-line basis over the
term of the lease. Rent income is included as part of other income.
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 charged to operations 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.
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.
Group as Lessee. Finance leases which transfer to the Group substantially all the risks
and benefits incidental to ownership of the leased property, are capitalized at the
inception of the lease at the fair value of the leased property or, if lower, at the present
value of the minimum lease payments. Lease payments are apportioned between the
finance charges and reduction of the lease liability so as to achieve a constant rate of
interest on the remaining balance of the liability. Finance charges are reflected in profit
or loss.
Leased asset is depreciated over its estimated useful life. However, if there is no
reasonable certainty that the Group will obtain ownership by the end of the lease term,
the asset is depreciated over the shorter of the estimated useful life of the asset and the
lease term.
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.
- 23 -
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.
Retirement Costs
The Company and majority of its subsidiaries have separate funded, noncontributory
retirement plans, administered by the 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.
- 24 -
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 end of the
year.
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 equity
investments, 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 are translated to
Philippine peso at 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.
- 25 -
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 assets and liabilities are measured at the amount expected to be
recovered from or paid to the taxation authorities. The tax rates and tax laws used to
compute the amount are those that are enacted or substantively enacted at reporting date.
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 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.
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, 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.
- 26 -
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). Revenues, expenses and assets are recognized net of the amount
of VAT, except:

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.
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. 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.
Basic and Diluted Earnings Per Share (EPS)
Basic and diluted EPS is computed by dividing the net income for the period attributable
to equity holders of the 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 5 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,
Operating Segments 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 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.
- 27 -
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
amounts reported in the consolidated financial statements at the reporting date. However,
uncertainty about these 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.
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 Leases. 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 operations amounted to P771.1 million, P669.1 million and
P662.5 million in 2010, 2009 and 2008, respectively (Notes 21 and 22).
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 34).
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
- 28 -
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 P682.4 million and P633.9 million as
at December 31, 2010 and 2009, respectively. The carrying amounts of trade and other
receivables amounted to P7,760.3 million and P9,024.0 million as at December 31, 2010
and 2009, respectively (Note 7).
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 allowance for inventory losses amounted to P188.0 million and P150.0 million as at
December 31, 2010 and 2009, respectively. The carrying amounts of inventories as at
December 31, 2010 and 2009 amounted to P12,123.4 million and P11,804.1 million,
respectively (Note 8).
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, 2010 and 2009 amounted to P40.7 million and
P62.7 million, respectively (Note 8).
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. The 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 liabilities are presented in Note 32.
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.
- 29 -
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.
Accumulated depreciation and impairment losses of investment properties and property,
plant and equipment amounted to P8,399.7 million and P7,683.4 million as at
December 31, 2010 and 2009, respectively. Investment properties and property, plant and
equipment, net of accumulated depreciation and impairment losses, amounted to
P9,219.1 million and P8,402.7 million as at December 31, 2010 and 2009, respectively
(Notes 12 and 13).
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 P288.7 million and
P280.9 million as at December 31, 2010 and 2009, respectively (Note 12).
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 P69.6 million and P77.4 million as at
December 31, 2010 and 2009, respectively (Note 14).
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, 2010 and 2009 amounted to
P416.3 million and P170.8 million, respectively (Note 15).
The carrying amounts of trademarks and brand names, and formulas and recipes
amounted to P3,355.9 million and P90.1 million as at December 31, 2010 and 2009,
respectively (Note 14).
- 30 -
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 P599.9 million and P1,219.7 million as at
December 31, 2010 and 2009, respectively (Note 26).
Impairment of Non-financial Assets. PFRS requires that an impairment review be
performed on investments and advances, property, plant and equipment, investment
properties, biological assets, other intangible assets with definite 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 and idle assets
amounted to P59.0 million and P53.9 million as at December 31, 2010 and 2009,
respectively. The aggregate amount of noncurrent biological assets, investment
properties, property, plant and equipment, goodwill and other intangible assets, and idle
assets amounted to P14,658.3 million and P10,207.2 million as at December 31, 2010
and 2009, respectively (Notes 9, 12, 13, 14 and 15).
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 27 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.
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.
- 31 -
The Group has a net cumulative unrecognized actuarial gain amounting to P229.4 million
and P119.5 million as at December 31, 2010 and 2009, respectively (Note 27).
Asset Retirement Obligation. Determining asset retirement obligation requires estimation
of the cost of dismantling property 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, 2010 and 2009.
5. 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.
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.
- 32 -
Operating Segments
Financial information about reportable segments follows:
2010
Agro-Industrial
2009
2008
Value-Added Meats
2009
2008
2010
2010
Milling
2009
2008
Total Reportable Segments
2009
2008
2010
(In Millions)
2010
Others
2009
2008
2010
Eliminations
2009
2008
2010
Consolidated
2009
2008
Revenue
External
Inter-segment
P52,300
258
P49,069
711
P44,981
379
P11,534
3
P11,234
47
P11,566
1
P7,155
505
P7,482
447
P8,199
485
P70,989
766
P67,785 P64,746
1,205
865
P8,281
169
P7,258
233
P6,330
370
P (935)
P (1,438)
P (1,235)
P79,270
-
P75,043 P71,076
-
Total revenue
P52,558
P49,780
P45,360
P11,537
P11,281
P11,567
P7,660
P7,929
P8,684
P71,755
P68,990 P65,611
P8,450
P7,491
P6,700
(P935)
(P1,438)
(P1,235)
P79,270
P75,043 P71,076
P3,299
P3,085
P1,601
P772
P489
P626
P1,574
P752
(P36)
P5,645
P310
P333
(P266)
P55
(P118)
(P1)
P6,010
(188)
5
(142)
5
(1)
13
(88)
6
(113)
4
(315)
69
(704)
48
(747)
35
(44)
36
(47)
21
(84)
19
-
2
(1)
(19)
-
(31)
(8)
8
(2)
(10)
3
-
83
(166)
-
Result
Segment operating result*
Interest expense and other
financing charges
Interest income
Gain (loss) on sale of
property and equipment
Other income (charges) net
Income tax benefit
(expense)
Net income
Other Information
Segment assets
Goodwill
Intangible assets
Deferred tax assets
(248)
51
20
(96)
(896)
(428)
37
4
2
(720)
(492)
26
(66)
5
6
(50)
7
(86)
108
(93)
(183)
(525)
(189)
(74)
(85)
2
(477)
(220)
P2,191
(8)
(435)
(24)
16
(89)
(1,562)
(1,014)
(499)
(89)
(166)
20
P2,640
P553
P187
P147
(P397)
P34,469 P32,428
289
156
-
P13,228
1,612
3,266
-
P10,053
1,367
-
P4,760
1,367
-
14
111
P4,326
-
(7)
-
(8)
(33)
(25)
8
P1,924
(831)
54
3
(8)
(10)
10
(1,654)
(1,184)
(532)
(469)
(P129)
(P7)
P4,059
P2,658
P149
(P5,079)
(1,196)
(122)
-
(P5,904)
(1,196)
(122)
-
(P1,609)
(1,196)
-
P43,076
416
3,426
600
P47,518
P40,176 P37,002
(P5,050)
-
(P5,820)
-
(P1,529)
-
P15,233
5,173
162
271
4,461
P12,849
8,816
467
399
-
P25,300
P22,531 P22,041
P2,130
P1,980
P530
P580
P146
P223
P1,110
P514
(P200)
P3,820
P23,017
10
-
P21,588
4
-
P18,493
3
-
P7,786
272
-
P9,376
285
-
P9,277
153
-
P4,124
-
P3,505
-
P4,658
-
P34,927
282
-
P6,796
-
P9,075
-
P6,746
-
P1,868
-
P1,339
-
P1,535
-
P1,011
-
P785
-
P845
-
P9,675
-
P11,199
-
P9,126
-
P10,608
-
P7,470
-
P2,331
-
P312
P266
P259
P151
P210
P170
P13
P57
P87
P476
P533
P516
P105
P118
P78
P -
P -
P -
P581
P651
P594
1,357
-
1,124
-
1,034
-
255
-
286
46
241
-
118
51
143
8
133
-
1,730
51
1,553
54
1,408
-
196
-
152
3
146
5
-
-
-
1,926
51
1,705
57
1,554
5
P52
Consolidated total
liabilities
Capital expenditures
Depreciation and
amortization
Impairment losses
(751)
69
(4)
(3)
Consolidated total assets
Segment liabilities
Notes payable
Income tax payable
Deferred tax liabilities
Long-term debt
P4,541
(359)
105
* Including realized mark-to-market gains (losses) on commodity derivatives presented as part of “Other Charges - Net” in the consolidated statements of income.
- 33 -
P38,618 P35,579
171
171
167
156
1,220
1,096
P9,928
11,666
209
238
-
6. Cash and Cash Equivalents
This account consists of:
2010
P1,865,181
5,176,164
P7,041,345
Cash on hand and in banks
Short-term placements
2009
P3,240,212
710,134
P3,950,346
Cash in banks earn interest at the respective bank deposit rates. Short-term placements
are made for varying periods of up to three months depending on the immediate cash
requirements of the Group, and earn interest at the respective short-term placement rates.
7. Trade and Other Receivables
This account consists of:
Note
28
28
Trade receivables
Amounts owed by related parties
Insurance claims
Tax certificates receivable
Others
Less allowance for impairment losses
2010
P7,309,630
166,795
76,149
68,028
822,114
8,442,716
682,445
P7,760,271
2009
P7,323,462
254,376
1,037,546
101,189
941,282
9,657,855
633,902
P9,023,953
Trade receivables are non-interest bearing and are generally on 30-day term.
Insurance claims include the value of certain inventories and property, plant and
equipment damaged by a typhoon in 2009.
“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:
2010
P633,902
63,051
(14,508)
P682,445
Balance at beginning of year
Charge for the year
Write off of amounts
Reversal of unused amounts
Balance at end of year
- 34 -
2009
P610,887
113,762
(84,771)
(5,976)
P633,902
As at December 31, the aging of receivables are as follows:
Gross Amount
2009
2010
P6,211,094
P5,197,755
1,227,642
1,058,538
100,653
228,923
545,023
104,826
1,742,547
1,683,570
P9,657,855
P8,442,716
Current
Past due 1-30 days
Past due 31-60 days
Past due 61-90 days
Past due over 90 days
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.
8. 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
2010
2009
P3,425,034
P3,081,429
7,603,604
119,984
974,813
8,572,674
72,450
77,546
P12,123,435
P11,804,099
The cost of finished goods and goods in process amounted to P3,557.4 million and
P3,168.3 million as at December 31, 2010 and 2009, respectively. The cost of raw
materials, feeds and feed ingredients amounted to P7,659.2 million and P8,635.8 million
as at December 31, 2010 and 2009, respectively.
Finished goods and goods in process include net unrealized gain of P40.7 million and
P62.7 million on fair valuation of agricultural produce as at December 31, 2010 and
2009, respectively. The fair value of agricultural produce less costs to sell, which formed
part of finished goods inventory, amounted to P416.2 million and P287.0 million as at
December 31, 2010 and 2009, respectively, with corresponding costs at point of harvest
amounting to P375.5 million and P224.3 million, respectively.
- 35 -
9. Biological Assets
This account consists of:
Current:
Growing stocks
Goods in process
Noncurrent:
Breeding stocks - net
2010
2009
P2,558,947
707,617
3,266,564
P2,309,139
215,371
2,524,510
1,479,251
P4,745,815
1,285,125
P3,809,635
The amortization of breeding stocks charged to operations amounted to P1,048.3 million,
P854.1 million, and P736.9 million in 2010, 2009, and 2008, respectively (Note 23).
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:
2010
2009
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
P3,953,076
680,972
P6,039,451
-
13,100,490
10,754,056
(413,768)
(4,694,298)
(17,407,999)
(933,003)
(29,284)
5,010,242
13,390,866
9,061,227
(533,373)
(5,345,293)
(15,957,185)
(2,702,617)
3,953,076
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
143,441
44,816
1,048,343
(37,198)
(933,003)
(1,972)
264,427
1,991,067
854,130
(2,701,756)
143,441
Net book value
P4,745,815
P3,809,635
The Group harvested approximately 392.2 million and 348.1 million kilograms of grown
broilers in 2010 and 2009, respectively, and 0.35 million and 0.68 million heads of
marketable hogs and cattle in 2010 and 2009, respectively.
- 36 -
10. Prepaid expenses and other current assets
This account consists of:
2010
P650,227
868,234
247,287
P1,765,748
Prepaid income tax
Input tax
Others
2009
P470,580
568,598
206,496
P1,245,674
“Others” include prepaid insurance, advance payments and deposits, and prepayments for
various operating expenses.
11. Investments and Advances
Investments in Subsidiaries
The following are the developments relating to the Company’s investments in
subsidiaries in 2010 and 2009:
a) SMFI and Monterey
i.
In August 2010, the Securities and Exchange Commission (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 September 1, 2010. SMFI’s request for confirmation of the taxfree merger, filed in September 2010, is still pending with the Bureau of Internal
Revenue (BIR) as at March 9, 2011.
ii. Prior to Monterey’s merger with SMFI, Monterey acquired in April 2009 the
subscription rights of certain individuals in Highbreed Livestock Corporation
(HLC), a Philippine company engaged in livestock farming, processing, selling
meat products (mainly pork and beef) and leasing of properties. As such, HLC
became a subsidiary of Monterey and was consolidated into SMPFC through
Monterey. On June 22, 2009, the respective BOD and stockholders of Monterey
and HLC approved the merger of HLC into Monterey, with Monterey as the
surviving corporation. The consideration of the assignment of the subscription,
net of the effect of the merger, amounted to P6.25 million. The SEC approved
the merger on October 22, 2009. The BIR confirmed the tax-free merger of HLC
into Monterey in its Certification No. S40-052-2009 dated December 18, 2009.
The fair value of the identifiable assets and liabilities of HLC at acquisition date
were as follows:
Note
Cash and cash equivalents
Trade and other receivables - net
Prepaid expenses and other current assets
Property, plant and equipment - net
Deferred tax assets
Trade payables and other current liabilities
Net assets transferred
- 37 -
13
P458
14,983
13,139
925,854
18,647
(966,831)
P6,250
iii. 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.
iv. 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 San Miguel Foods and Beverage International Limited
[SMFBIL]) in SMPFI Limited for US$18.6 million. SMPFI Limited owns 100% of
SMPFVN. Pursuant to the Sale and Purchase Agreement between SMFBIL and
SMPFIL, 10% of the purchase price was paid in July 2010 and the balance of
US$ 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 17). As discussed in Note 19, the proceeds of SMPFC’s preferred shares
offering is intended to pay off, among others, the SMPFVN acquisition, through
SMPFIL. The preferred shares offering took place in February 2011 (Note 35).
The unaudited financial information relative to the acquisition of the 51% interest in
SMPFI Limited as at July 30, 2010 were as follows:
Note
Cash and cash equivalents
Receivables and other current assets
Inventories - net
Property, plant and equipment - net
Other noncurrent assets
Accounts payables and accrued expenses
Other noncurrent liabilities
Non-controlling interests
Net assets
Goodwill arising on acquisition
Total consideration
15
P46,645
279,154
352,406
954,349
719,278
(939,636)
(3,026)
(813,121)
596,049
256,550
P852,599
c) SMMI
In October 2010, the BOD and stockholders of SMMI authorized SMMI to raise
funds of up to P5.0 billion to fund any expansion or any investment in new
businesses by SMMI and for other general corporate purposes.
- 38 -
d) Magnolia
In February 2009, the SEC approved the application of Magnolia for the increase in
its authorized capital stock. Following SEC’s approval, 283,687,943 Magnolia shares
of stock were issued to SMPFC in exchange for the Company’s deposit for future
stock subscription of P400.0 million in 2008.
e) SCIL
SCIL, a Cayman Islands company, was incorporated in November 2010 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 is a wholly-owned subsidiary of the Company and has
not yet started operations as at December 31, 2010.
Investments in 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.
12. Investment Properties
The movements in investment properties follow:
Land and
Land
Improvements
Cost:
Balance at January 1, 2009
Additions
Balance at December 31, 2009
Additions
Disposals
Balance at December 31, 2010
P75,688
39,593
115,281
8,027
(2,933)
120,375
Accumulated depreciation:
Balance at January 1, 2009
Additions
Balance at December 31, 2009
Additions
Balance at December 31, 2010
Accumulated impairment losses:
Balance at January 1, 2009
Additions
Balance at December 31, 2009 and 2010
Buildings and
Improvements
P2,865
2,865
2,865
Total
P78,553
39,593
118,146
8,027
(2,933)
123,240
-
1,467
141
1,608
141
1,749
1,467
141
1,608
141
1,749
5,359
3,114
8,473
-
5,359
3,114
8,473
Net book value:
Balance at December 31, 2010
P111,902
P1,116
P113,018
Balance at December 31, 2009
P106,808
P1,257
P108,065
The fair value of investment properties as at December 31, 2010 and 2009 amounted to
P288.7 million and P280.9 million, respectively, determined based on valuations
performed either by independent appraisers or by the credit management group of the
Company.
- 39 -
13. Property, Plant and Equipment
This account consists of:
Note
Land and
Buildings
Land
and
Improvements Improvements
Machinery
Equipment,
Furniture
and Others
Transportation
Equipment
Construction
in Progress
Total
Cost:
Balance at January 1, 2009
HLC balance
Additions
Disposals
Transfers, reclassifications
and others
Currency translation adjustments
11
Balance at December 31, 2009
SMPFIL balance as at
July 31, 2010
Additions
Disposals
Transfers, reclassifications
and others
Currency translation adjustments
11
P1,496,344
751,188
715
89,517
3,159
361,311
2,691
2,340,923
4,391,727
(24,023)
61,654
-
Balance at December 31, 2010
P4,050,351
102,210
2,108
(126,944)
2,378,554
P8,348,129
35
209,984
(225,864)
(228,462)
13,183
8,117,005
P506,203
13,015
(58,997)
P883,827
97,914
425,600
-
P15,284,854
951,347
651,422
(411,805)
10,914
2,462
(763,601)
925
473,597
644,665
15,967,917
2,016,849
581,073
(1,145,834)
1,364,516
11,744
(357,630)
603,920
149,311
(745,984)
35,051
883
(18,197)
13,362
419,135
-
520,779
(58,679)
488,823
(25,971)
(15,531)
(1,507)
(893,391)
(574)
183,197
5,872,457
8,587,104
474,296
1,651,793
14,873
183,601
(90,065)
-
4,868,931
8
543,099
(206,860)
-
454,369
23,911
(51,090)
-
(530,321)
22,420
162,334
(86,731)
17,495,608
Accumulated depreciation and
impairment losses:
Balance at January 1, 2009
HLC balance
Additions
Disposals
Impairment loss
Transfers, reclassification
and others
Currency translation adjustments
11
25
(2,960)
-
Balance at December 31, 2009
SMPFIL balance as at
July 31, 2010
Additions
Disposals
Reversal of impairment loss
Transfers, reclassification
and others
Currency translation adjustments
Balance at December 31, 2010
251,338
10,612
23,914
45,863
328,767
11
25
131
1,230
1,761,563
(59,740)
7,984
5,153,422
-
7,226,431
25,493
774,525
(348,015)
45,863
52
2,330
-
(62,517)
11,544
429,572
-
7,673,324
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)
-
291,869
2,254,800
5,395,902
446,954
8,389,525
Balance at December 31, 2010
P2,086,685
P3,617,657
P3,191,202
P27,342
P183,197
P9,106,083
Balance at December 31, 2009
P2,012,156
P2,630,164
P2,963,583
P44,025
P644,665
P8,294,593
Net Book Value:
Depreciation charged to operations amounted to P791.2 million in 2010, P774.5 million
in 2009 and P703.7 million in 2008 (Note 23). These amounts include annual
amortizations of capitalized interest amounting to P2.6 million in 2010 and 2009 and
P3.8 million in 2008.
Unamortized balance of capitalized interest as at
December 31, 2010, 2009 and 2008 amounted to P24.4 million, P27.0 million and
P29.5 million, respectively. No interest was capitalized in 2010 and 2009.
Transfers, reclassification and others in 2009 include net book value of certain property,
plant and equipment that were damaged by typhoon amounting to P215.8 million. In
addition, certain machinery and equipment with a book value of P189.1 million and
considered as idle assets, were reclassified to other noncurrent assets following the
change in management’s intention on its branded business (Note 25).
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.
- 40 -
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 and OP,
SMFI forwarded in November 2010 to the Sumilao farmers’ counsels the draft of the
Joint Manifestation and Motion for Dismissal for their concurrence. As at March 9, 2011,
finalization of the Joint Manifestation and Motion for Dismissal is still ongoing.
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 P888.6 million and P676.4 million in 2010 and 2009, respectively.
14. Intangible Assets
This account consists of:
2010
P3,298,353
57,591
69,566
P3,425,510
Trademarks and brand names
Formulas and recipes
Computer software and licenses - net
2009
P32,558
57,591
77,413
P167,562
The movements in intangible assets, including the effects of currency translation
adjustments, are as follows:
Trademarks
and Brand
Names
Cost:
Balance at January 1, 2009
Additions
Reclassifications
Balance at December 31, 2009
Additions
Disposals
Reclassifications
Currency translation adjustments
Balance at December 31, 2010
P32,558
32,558
3,200,000
68,751
(2,956)
3,298,353
Accumulated Depreciation:
Balance at January 1, 2009
Additions
Reclassifications
Balance at December 31, 2009
Additions
Disposals
Reclassifications
Balance at December 31, 2010
-
Net Book Value:
Balance at December 31, 2010
Balance at December 31, 2009
- 41 -
Others
Total
P192,397
23,132
3,238
218,767
18,278
(1,404)
3,326
238,967
P224,955
23,132
3,238
251,325
3,218,278
(1,404)
72,077
(2,956)
3,537,320
69,147
17,976
(3,360)
83,763
26,125
(1,404)
3,326
111,810
69,147
17,976
(3,360)
83,763
26,125
(1,404)
3,326
111,810
P3,298,353
P127,157
P3,425,510
P32,558
P135,004
P167,562
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 17) as
at December 31, 2010. As discussed in Note 35, the remaining balance was subsequently
settled by SMPFC on March 8, 2011.
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 Company assessed that there is no impairment loss in the value of trademarks and
brand names in 2010.
15. 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
11
2010
P170,792
256,550
(11,032)
P416,310
2009
P170,792
P170,792
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% and 12% to 13% in
December 31, 2010 and 2009, 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 2010
and 2009.
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.
- 42 -
Discount Rates. The Group uses the weighted average cost of capital as the discount
rates, which reflect 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 are 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.
16. Notes Payable
This account consists of:
Note
Peso-denominated
Foreign currency-denominated
31, 32
2010
P4,591,000
581,538
P5,172,538
2009
P8,811,190
4,900
P8,816,090
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 3.10% to 4.50% and 3.10% to 6.79% in 2010 and 2009, respectively. Interest
rates for foreign currency-denominated loans range from 3.56% to 16.50% and 12.08%
in 2010 and 2009, respectively.
Notes payable of the Group are not subject to covenants and warranties.
17. Trade Payables and Other Current Liabilities
This account consists of:
Note
Trade payables
Amounts owed to related parties
Non-trade payables
Others
11, 14, 28
2010
P4,029,868
4,960,654
4,818,343
1,337,104
P15,145,969
2009
P3,491,253
2,732,207
5,390,787
1,052,839
P12,667,086
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 P3.1 million and
P13.4 million as at December 31, 2010 and 2009, respectively (Note 31).
- 43 -
18. Long-term Debt
This account consists of:
2010
Unsecured term notes:
Peso-denominated:
Floating interest rate based on 3-month PDST-F
plus margin maturing in 2015
Fixed interest rate of 5.4885% maturing in 2015
Less Debt issue costs
P3,700,000
800,000
4,500,000
39,193
P4,460,807
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 (Issue Date) 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 will be used to fund any
expansion or any investment in new businesses by SMFI and for other general corporate
purposes.
The notes facility 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, 2010, SMFI is in compliance with the covenants of the notes facility
agreements.
The movements in debt issue costs are as follows:
2010
P39,597
(404)
P39,193
Additions
Amortizations
Balance at end of year
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 31.
- 44 -
19. Equity
The Parent Company’s capital stock, at P10 par value, consists of the following number
of shares as at December 31, 2010 and 2009:
Authorized shares:
Common
Preferred
Issued shares:
Common
2010
Capital
stock
Common
Class “A”
2009
Common
Class “B”
Total
206,000,000
40,000,000
246,000,000
95,128,000
95,128,000
50,872,000
50,872,000
146,000,000
146,000,000
170,874,854
95,049,129
50,401,979
145,451,108
The movements in the number of authorized common shares and issued and outstanding
common shares are as follows:
2010
Common
Preferred
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
146,000,000
100,000,000
(40,000,000)
206,000,000
40,000,000
40,000,000
2009
Common
146,000,000
146,000,000
145,451,108
25,423,746
170,874,854
4,207,758
-
145,451,108
145,451,108
4,207,758
166,667,096
-
141,243,350
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.
- 45 -
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 SMPFVN 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.
Treasury shares, totaling 4,207,758 common shares in 2010 and 2009, are carried at cost.
The Parent Company’s retained earnings as at December 31, 2010 and 2009 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 P5,408.0 million, P5,001.1 million
and P2,493.3 million in 2010, 2009 and 2008, respectively. Such amounts are not
available for declaration as dividends until declared by the respective investees.
20. Revenues
Revenue account consists of sales of goods and fair valuation adjustments on agricultural
produce. Total sales of goods amounted to P79,229.1 million, P74,979.9 million and
P71,077.9 million for the years ended December 31, 2010, 2009 and 2008, respectively.
The aggregate fair value less estimated costs to sell of agricultural produce harvested
during the year, determined at point of harvest, amounted to P23,700.8 million,
P25,826.8 million and P23,527.0 million for the years ended December 31, 2010, 2009
and 2008, respectively.
- 46 -
21. 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
34
23
24
30
2010
P56,747,681
1,736,689
1,655,135
937,653
654,802
361,648
193,208
1,004,270
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
2008
P54,050,525
1,626,949
1,315,729
922,063
1,002,888
326,397
190,396
1,174,716
P60,609,663
2010
P2,357,675
2,351,107
1,535,375
1,168,051
577,929
428,320
271,268
254,087
253,040
175,656
173,007
120,526
410,864
P10,076,905
2009
P1,894,268
2,151,367
1,287,044
1,269,644
497,992
238,219
221,855
245,808
243,129
173,107
202,428
125,392
407,094
P8,957,347
2008
P1,831,557
1,830,162
1,482,056
1,134,313
472,116
159,847
237,781
185,968
194,513
193,335
151,164
109,773
641,066
P8,623,651
22. Selling and Administrative Expenses
This account consists of:
Note
Freight, trucking and handling
Personnel expenses
Advertising and promotions
Contracted services
Rentals
Professional fees
Depreciation and amortization
Supplies
Taxes and licenses
Travel and transportation
Communication, light and water
Repairs and maintenance
Others
24
30
23
23. 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
2010
2009
2008
13
9
P590,261
1,048,343
16,531
1,655,135
P607,857
854,130
20,666
1,482,653
P551,438
736,922
27,369
1,315,729
13
200,919
70,349
271,268
166,668
55,187
221,855
152,215
85,566
237,781
P1,926,403
P1,704,508
P1,553,510
- 47 -
Others include amortization of containers, computer software and licenses, small tools
and equipment and investment properties amounting to P86.9 million, P75.9 million and
P112.9 million in 2010, 2009 and 2008, respectively.
24. Personnel Expenses
This account consists of:
Note
Salaries and allowances
Retirement costs
Other employee benefits
27
2010
P1,623,063
91,816
1,291,030
P3,005,909
2009
P1,576,024
238,627
1,199,154
P3,013,805
2008
P1,661,083
145,506
1,026,461
P2,833,050
The above amounts are distributed as follows:
Cost of sales
Selling and administrative
expenses
Note
21
2010
P654,802
2009
P862,438
2008
P1,002,888
22
2,351,107
P3,005,909
2,151,367
P3,013,805
1,830,162
P2,833,050
25. Interest Expense and Other Financing Charges, Interest Income and Other Income
(Charges)
These accounts consist of:
a. Interest expense and other financing charges
2010
P322,057
37,358
P359,415
Interest expense
Other financing charges
2009
P701,726
49,316
P751,042
2008
P774,597
56,317
P830,914
Amortization of debt issue costs in 2010 included in other financing charges
amounted to P0.4 million (Note 18).
Interest expense on short-term loans and long-term debt are as follows:
Notes payable
Long-term debt
Note
16
18
- 48 -
2010
P310,862
11,195
P322,057
2009
P701,726
P701,726
2008
P774,597
P774,597
b. Interest income
Money market placements
Cash in banks
2010
P47,847
57,641
P105,488
2009
P35,017
34,124
P69,141
2008
P27,479
26,844
P54,323
2010
P167,021
156
2009
P54,477
118
2008
(P388,327)
55
c. Other income (charges)
Note
Gain (loss) on derivatives
Dividend income
Foreign exchange gains
(losses) - net
Impairment loss - net
Research and development
costs
Others - net
31
(24,924)
(5,426)
(978)
(53,873)
(38,961)
P97,866
(88,712)
(P88,968)
5,943
(170)
(68,780)
(P451,279)
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
P45.6 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.
In 2009, the Group recognized provisions for impairment loss on land and idle assets
amounting to P45.9 million and P8.0 million, respectively.
26. 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
MCIT
Others
Deferred tax liabilities:
Unrealized mark-to-market gain
Accelerated depreciation
Others
- 49 -
2010
2009
P253,282
105,570
25,756
215,283
P599,891
P230,837
116,537
168,433
452,793
76,266
174,810
P1,219,676
P61,345
44,541
165,188
P271,074
P184,585
51,426
163,029
P399,040
b. The Group’s available NOLCO and MCIT as at December 31, 2009 were applied by
the concerned subsidiaries as deduction from taxable income and corporate income
tax due, respectively, in 2010.
c. The components of the income tax expense (benefit) consist of:
Current:
Corporate income tax
Final tax withheld on interest
and royalty income
Deferred
2010
2009
2008
P1,141,096
P1,112,770
P729,248
42,216
1,183,312
470,895
P1,654,207
17,542
1,130,312
53,313
P1,183,625
8,482
737,730
(268,860)
P468,870
d. The reconciliations between the statutory income tax rate on income before income
tax and non-controlling interests 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
Unused NOLCO and MCIT
Others - net
Effect of change in tax rate
Effective income tax rates
2010
30.00%
2009
30.00%
2008
35.00%
(0.08)
(0.97)
28.95%
(0.13)
1.10
(0.16)
30.81%
(8.80)
25.98
0.58
23.16
75.92%
27. 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, 2010. Valuations are obtained on a periodic basis.
Retirement costs charged by the Parent Company to operations amounted to P1.0 million,
P4.2 million and P7.3 million in 2010, 2009 and 2008, respectively, while those charged
by the subsidiaries amounted to P90.8 million, P234.4 million and P138.2 million in
2010, 2009 and 2008, respectively. The Group’s annual contribution to the retirement
plans consists of payments covering the current service cost and amortization of past
service liability.
- 50 -
The components of retirement costs recognized in profit or loss in 2010, 2009 and 2008
and the amounts recognized in the consolidated statements of financial position as at
December 31, 2010 and 2009 are as follows:
a. Retirement costs
Current service cost
Interest cost
Expected return on plan assets
Net actuarial loss (gain)
Past service cost
Effect of curtailment
Amortization of transitional
liability
Net retirement costs
Actual return (loss) on plan assets
2010
P108,060
201,428
(220,007)
(1,101)
206
3,230
2009
P131,158
262,237
(197,554)
(2,695)
192
(19,806)
2008
P96,730
137,847
(161,894)
7,535
193
-
P91,816
65,095
P238,627
65,095
P145,506
P318,479
P329,582
(P103,770)
The retirement costs are recognized in the following line items in the consolidated
statements of income:
Note
Cost of sales
Selling and administrative
expenses
24
2010
P32,764
2009
P16,724
2008
P32,010
59,052
P91,816
221,903
P238,627
113,496
P145,506
b. Retirement asset
Fair value of net plan assets
Present value of defined benefit obligation
Unrecognized actuarial gains
2010
P P -
2009
P94,058
(44,432)
(43,364)
P6,262
c. Retirement liability
Present value of defined benefit obligation
Fair value of net plan assets
Unrecognized:
Past service costs
Net actuarial gains
- 51 -
2010
P2,344,856
(2,488,970)
2009
P2,335,856
(2,229,645)
(594)
229,369
P84,661
(856)
76,132
P181,487
The movements in the present value of the defined benefit obligation are as follows:
2010
P2,380,288
201,428
108,060
127,550
(372,172)
(59,019)
(131,746)
90,467
P2,344,856
Balance at beginning of year
Interest cost
Current service cost
Transfer from other plans
Benefits paid
Actuarial gains
Transfer to other plans
Effect of curtailment
Balance at end of year
2009
P2,759,339
262,237
131,158
51,036
(564,308)
(228,625)
(36,134)
5,585
P2,380,288
The movements in the fair value of net plan assets are as follows:
2010
P2,323,703
220,007
180,580
127,550
(370,437)
(131,746)
98,472
40,841
P2,488,970
Balance at beginning of year
Expected return
Contributions by employer
Transfer from other plans
Benefits paid
Transfer to other plans
Actuarial gains
Effect of curtailment
Balance at end of year
2009
P2,396,143
197,554
145,145
51,036
(562,069)
(36,134)
132,028
P2,323,703
The major categories of plan assets as a percentage of the fair value of total plan assets
are as follows:
2009
22%
78%
2010
25%
75%
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:
2009
2010
6.77% to 8.50% 8.28% to 10%
10%
10%
8%
8%
Discount rate
Expected return on plan assets
Salary increase rate
The historical information for the current and previous four annual periods are as
follows:
2010
Present value of defined benefit
obligation
Fair value of net plan assets
Deficit (surplus) in the plan
Experience adjustments on plan
liabilities
Experience adjustments on plan assets
2009
2008
2007
2006
P2,344,856 P2,380,288 P2,759,339 P1,810,951 P1,596,744
2,488,970 2,323,703 2,396,143 1,649,977 1,489,585
(144,114)
56,585
363,196
160,974
107,159
(59,019)
98,472
(228,625)
132,028
9,888
(265,664)
173,538
39,413
141,002
194,020
- 52 -
The Group expects to contribute about P142.4 million to its defined benefit plans in
2011.
28. Related Party Disclosures
Transactions with related parties are made at normal market prices. For the years ended
December 31, 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.
Transactions with related parties and the related balances include the following:
Name of Company
SMC
SMC Shipping and Lighterage
Corporation
Relationship*
Ultimate Parent
Company
Affiliate
San Miguel Paper
Packaging Corporation
(formerly San Miguel Rengo
Packaging Corporation)
Affiliate
San Miguel Yamamura
Packaging Corporation
Affiliate
San Miguel International, Ltd.
and subsidiaries
Affiliate
Anchor Insurance Brokerage
Corporation
Affiliate
Ginebra San Miguel, Inc. and
Subsidiaries
San Miguel Properties, Inc.
SMITS, Inc. and a subsidiary
Affiliate
Affiliate
Affiliate
Nature of Transactions
Sales
Purchases
Trade and other
receivables
Trade payables and other
current liabilities
2010
2009
P2,833
335,135
P2,187,330
292,327
63,686
88,122
3,561,031
1,778,448
Sales
Purchases
Trade and other
receivables
Trade payables and other
current liabilities
1,439,092
135
240,927
9,902
14,380
382,368
409,074
Purchases
Trade and other
receivables
Trade payables and other
current liabilities
611
81,651
24
245
1,845
16,650
61
135,119
2,083
102,095
6,472
8,117
57,983
61,730
25
41,186
Sales
Purchases
Trade and other
receivables
Trade payables and other
current liabilities
Trade and other
receivables
Trade payables and other
current liabilities
Purchases
Trade and other
receivables
Trade payables and other
current liabilities
Sales
Purchases
Trade and other
receivables
Trade payables and other
current liabilities
Sales
Purchases
Trade and other
receivables
Trade payables and other
current liabilities
Sales
Purchases
Trade and other
receivables
Trade payables and other
current liabilities
Forward
- 53 -
735,614
9
4,471
49
116
585
144
120,127
241
1,314
472,815
50,151
68,739
49,558
62,612
51
120
-
165
230
33
395
51,712
116
18,347
1,523
854
97,261
121,126
Name of Company
Relationship*
Nature of Transactions
Star Dari, Inc.
Affiliate
Purchases
Trade and other
receivables
ArchEn Technologies, Inc.
Affiliate
Sales
Purchases
Trade and other
receivables
Trade payables and other
current liabilities
2010
2009
P -
P12,533
-
530
6,336
28
1,005
183
94
4,245
7,806
San Miguel Yamamura Asia
Corporation
Affiliate
Purchases
Trade payables and other
current liabilities
30,064
32,962
5,106
5,534
San Miguel Brewery Inc.
Affiliate
Sales
Purchases
Trade and other
receivables
Trade payables and other
current liabilities
16
26,870
2,748
716,471
24,406
23,943
25,090
250,097
Sales
Purchases
Trade and other
receivables
Trade payables and other
current liabilities
-
4,755
83,213
1,349
7,145
569
5,492
67
7
4,349
520
28
94
20
38,335
16,146
1,613
11,523
997
839
San Miguel Beverages, Inc.
San Miguel Distribution Co.,
Inc.
Mindanao Corrugated
Fibreboard,
Inc.
Affiliate
Affiliate
Sales
Purchases
Trade and other
receivables
Trade payables and other
current liabilities
Affiliate
Purchases
Trade payables and other
current liabilities
Philippine Breweries
Corporation
Affiliate
Trade payables and other
current liabilities
Petron Corporation**
Affiliate
Purchases
Trade and other
receivables
Trade payables and other
current liabilities
Others
Affiliates
Sales
Trade and other
receivables
Trade payables and other
current liabilities
17,304
-
7,854
-
36,988
-
50
54
419
178
115
611
* Affiliate refers to a company owned by SMC.
**New affiliate in 2010.
Certain related party transactions were discussed in Notes 11, 14 and 33. The following
are the other significant related party transactions entered into by the Company:
On May 1, 2009, the transfer of the receivables, inventories and fixed assets of SMC’s
Centralized Key Accounts Group (CKAG) to SMFI was completed, for a total
consideration of P2,352.5 million. CKAG was a unit of SMC engaged in the business of
selling and distributing various products of some companies within the SMC Group,
including SMPFC’s subsidiaries, to modern trade customers.
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
- 54 -
surviving corporation (Note 11), 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:
2010
P76,003
7,663
P83,666
Short-term employee benefits
Retirement costs
2009
P52,878
22,417
P75,295
2008
P44,053
13,267
P57,320
Several key management personnel of the Group were employees of SMC in 2008.
The compensation of key management personnel, which were paid and charged by SMC
to the Group as management fee, amounted to P2.7 million, P6.4 million and
P26.7 million in 2010, 2009 and 2008, respectively.
29. Basic and Diluted Earnings Per Share
Basic EPS is computed as follows:
Net income attributable to equity
holders of the Parent Company (a)
Common shares issued and outstanding
Stock dividends declared in 2010
including retroactive adjustments
Weighted average number of shares (b)
Basic EPS (a/b)
2010
2009
2008
P3,846,145
P2,596,963
P77,194
141,243,350
141,243,350
141,243,350
25,423,746
166,667,096
25,423,746
166,667,096
25,423,746
166,667,096
P23.08
P15.58
P0.46
As at December 31, 2010, 2009 and 2008, the Group has no dilutive debt or equity
instruments.
30. 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
2010
P237,203
160,431
406,787
P804,421
2009
P39,502
109,122
409,280
P557,904
Rent expense charged to operations amounted to P771.1 million, P669.1 million and
P662.5 million in 2010, 2009, and 2008, respectively (Notes 21 and 22).
- 55 -
31. 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
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.
- 56 -
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.
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 P37.0 million in 2010. 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.
Interest Rate Risk Table
As at December 31, 2010, the terms and maturity profile of the interest-bearing financial
instruments, together with its gross amounts, are shown in the following table:
<5 years
Fixed rate
Philippine peso-denominated
Interest rate
Floating rate
Philippine peso-denominated
Interest rate
P800,000
5.4885%
3,700,000
PDST-F for 3 months + margin
P4,500,000
- 57 -
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:
2009
2010
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 assets (liabilities)
US
Dollar
Peso
Equivalent
US
Dollar
Peso
Equivalent
US$1,641
11,478
P71,941
503,196
13,119
575,137
US$1,476
5,308
6,784
P68,191
245,230
313,421
13,265
581,538
106
4,900
26,902
790
40,957
1,179,383
34,634
1,795,555
3,932
627
4,665
181,658
28,965
215,523
US$2,119
P97,898
(US$27,838) (P1,220,418)
The Group reported net foreign exchange gains (losses) amounting to (P24.9 million),
(P1.0 million) and P5.9 million in 2010, 2009 and 2008, 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 as shown in the following table:
Peso to US Dollar
43.84
46.20
47.52
December 31, 2010
December 31, 2009
December 31, 2008
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.
- 58 -
The following table demonstrates 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, 2010 and 2009.
2010
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
(P1,641)
(11,478)
(P1,149)
(8,034)
(13,119)
13,265
P1 increase in the US dollar
exchange rate
Effect on
Effect on
Income before
Equity
Income Tax
(net of tax)
P1,641
11,478
P1,149
8,034
(9,183)
9,286
13,119
(13,265)
9,183
(9,286)
26,902
790
18,831
553
(26,902)
(790)
(18,831)
(553)
40,957
28,670
(40,957)
(28,670)
P27,838
P19,487
(P27,838)
(P19,487)
2009
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)
(P1,476)
(5,308)
(P1,033)
(3,716)
(6,784)
106
(4,749)
74
6,784
(106)
4,749
(74)
3,932
627
2,753
439
(3,932)
(627)
(2,753)
(439)
4,665
3,266
(4,665)
(3,266)
P2,119
P1,483
(P2,119)
(P1,483)
P1,476
5,308
P1,033
3,716
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.
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.
- 59 -
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, 2010 and 2009.
2010
Carrying Contractual
amount
cash flow
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
of financial position)
11,232
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
4,460,807
Other noncurrent
liabilities (excluding
retirement liability)
2,883
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
5,423,012
3,116
-
-
-
2,883
2,883
- 60 -
5,423,012
-
-
-
2009
Carrying
amount
Financial Assets
Cash and cash
equivalents
P3,950,346
Trade and other
receivables - net
9,023,953
Derivative assets
47,070
AFS financial assets
(included under “Other
noncurrent assets”
account in the
consolidated statements
of financial position)
13,761
Financial Liabilities
Notes payable
8,816,090
Trade payables and other
current liabilities
(excluding derivative
liabilities)
12,653,724
Derivative liabilities
(included under “Trade
payables and other
current liabilities”
account in the
consolidated statements
of financial position)
13,362
Contractual
cash flow
1year
or less
P3,950,346
9,023,953
47,070
13,761
> 1 year 2 years
>2 years 5 years
P3,950,346
P -
P -
P -
9,023,953
47,070
-
-
-
-
-
13,761
-
Over
5 years
8,833,169
8,833,169
-
-
-
12,653,724
12,653,724
-
-
-
13,362
13,362
-
-
-
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. The Group’s exposure to credit risk is influenced mainly
by the individual characteristics of each customer or counterparty. Thus, the Group has
established detailed credit policies under which each new customer is reviewed
individually for creditworthiness before standard payment and delivery terms and
conditions are implemented. 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 also 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. 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 recognizes provision for uncollectible accounts and 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.
- 61 -
Financial information on the Group’s maximum exposure to credit risk as at
December 31, 2010 and 2009, without considering the effects of collaterals and other risk
mitigation techniques, is presented below:
Note
6
7
32
32
Cash and cash equivalents
Trade and other receivables - net
Derivative assets
AFS financial assets
2010
P7,041,345
7,760,271
107,633
11,232
P14,920,481
2009
P3,950,346
9,023,953
47,070
13,761
P13,035,130
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.

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.
- 62 -
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.
The Group is not subject to regulatory-imposed capital requirements.
32. 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, 2010 and 2009:
2010
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
liabilities)
Derivative liabilities (included under
“Trade payables and other current
liabilities” account in the consolidated
statements of financial position)
Long-term debt
Other noncurrent liabilities (excluding
retirement liability)
2009
Carrying
Amount
Fair Value
P7,041,345 P7,041,345 P3,950,346 P3,950,346
9,023,953
9,023,953
7,760,271
7,760,271
47,070
47,070
107,633
107,633
11,232
11,232
13,761
13,761
5,172,538
5,172,538
8,816,090
8,816,090
15,142,853
15,142,853
12,653,724
12,653,724
3,116
4,460,807
3,116
4,489,490
13,362
-
13,362
-
2,883
2,883
-
-
- 63 -
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 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.
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, 2010, discount rates used range from 1.32% to 5.03%. 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
that are categorized into those accounted for as hedges and those that are not designated
as hedges are discussed below.
The Group, through SMC, enters into various currency and commodity derivative
contracts to manage its exposure on foreign currency and commodity price risk. The
portfolio is a mixture of instruments including futures and options.
Derivative Instruments Accounted for as Hedges
Cash Flow Hedge. In 2008, the Group had outstanding bought and sold options
designated as hedge of forecasted purchases of fuel oil requirements for 2009. These
options were exercised at various calculation dates in 2009 with specified quantities on
each calculation date.
As at December 31, 2010 and 2009, the Group has no outstanding commodity options
accounted for as cash flow hedge. However, the amount charged to profit or loss in 2009
amounted to P7.6 million.
These option contracts were used to hedge the commodity price risk of the Group’s
commitments. There was no ineffective portion on these hedges.
- 64 -
Other 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
various maturities in 2010 and 2011. As at December 31, 2010 and 2009, the notional
quantity allocated to the Group is 49,532 and 59,874 metric tons, respectively. The net
positive (negative) fair value of these options as at December 31, 2010 and 2009
amounted to P53.9 million and (P5.8 million), respectively.
Embedded Derivatives
The Group’s embedded derivatives include currency forwards embedded in non-financial
contracts. As at December 31, 2010 and 2009, the total outstanding notional amount of
such embedded currency forwards amounted to US$34.4 million and US$28.6 million,
respectively. These non-financial contracts consist mainly of foreign currencydenominated 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, 2010 and 2009, the net positive fair value of these embedded currency
forwards amounted to P50.6 million and P39.5 million, respectively.
For the years ended December 31, 2010, 2009 and 2008, the Group recognized
mark-to-market gains (losses) from freestanding and embedded derivatives amounting to
P167.0 million, P54.5 million and (P388.3 million), respectively.
Fair Value Changes on Derivatives
The net movements in fair value of all derivative instruments for the years ended
December 31, 2010 and 2009 are as follows:
Balance at beginning of year
Net changes in fair value of derivatives:
Designated as accounting hedges
Not designated as accounting hedges
Less fair value of settled instruments
Balance at end of year
2010
P33,708
2009
(P108,456)
167,021
200,729
96,212
P104,517
3,645
55,267
(49,544)
(83,252)
P33,708
Hedge Effectiveness Results
As at December 31, 2010 and 2009, the Group has no outstanding derivatives designated
as hedge.
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.
- 65 -
The table below analyzes financial instruments carried at fair value, by valuation method
as at December 31, 2010 and 2009. 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.
2010
Financial Assets
Derivative assets
AFS financial assets
Financial Liabilities
Derivative liabilities
Level 1
Level 2
Total
P53,907
1,557
P53,726
9,675
P107,633
11,232
3,116
3,116
Level 1
Level 2
Total
P4,863
4,048
P42,207
9,713
P47,070
13,761
10,698
2,664
13,362
-
2009
Financial Assets
Derivative assets
AFS financial assets
Financial Liabilities
Derivative liabilities
As at December 31, 2010 and 2009, 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.
The disclosure on fair value hierarchy is only presented for December 31, 2010 and 2009
as comparative information is not required in 2009, which was the first year of
application of the amended PFRS 7.
33. Employee Stock Purchase Plan
SMC offers shares of stocks to employees of SMC and its subsidiaries under the
Employee’s Stock Purchase Plan (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 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.
- 66 -
Expenses billed by SMC for share-based payments charged by the Group to operations
and included in “Selling and Administrative Expenses” amounted to P17.6 million,
P6.3 million and P5.5 million in 2010, 2009 and 2008, respectively.
34. 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 2010, 2009 and 2008 amounted to P3,971.0 million,
P3,137.9 million, and P2,663.8 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, 2010 and
2009 amounted to P10,074.1 million and P13,813.6 million, respectively.
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).
- 67 -
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.
35. Events After the Reporting Date
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 (i) 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, a summary of which 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 with 5-year maturity
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 Board. 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.
- 68 -
On March 8, 2011, the Company paid SMC the amount of P2,880.0 million representing
the 90% balance of the purchase price of the food-related brands and intellectual property
rights acquired in July 2010 (Note 14).
- 69 -
ANNEX E-1
E-1
IANNEX
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
PRC-BOA Registration No. 0003
SEC Accreditation No. 0004-FR-2
BSP Accredited
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 consolidated financial
statements of San Miguel Pure Foods Company, Inc. and Subsidiaries included in this Form 17-A
and have issued our report thereon dated March 9, 2011.
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 are the responsibility of the Company's management. These schedules
are presented for purposes of complying with the Securities Regulation Code 68.1 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
ILF
rtn~r\.
CPA LIcense No. 0045177
SEC Accreditation No. 0027-AR-2
Tax Identification No. 106-197-186
BIR Accreditation No. 08-001987-6-2010
Issued June 30, 2010; Valid until June 29, 2013
PTR No. 2639627MB
Issued January 3, 2011 at Makati City
March 9, 2011
Makati City, Metro Manila
Manabat
Sanaqusnn
&
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.
I
SAN MIGUEL PURE FOODS COMPANY, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND
SUPPLEMENTARY
SCHEDULES
DECEMBER 31,2010
A
- MARKET ABLE SECURITIES (CURRENT
MARKET ABLE EQUITY SECURITIES AND OTHER
SHORT-TERM CASH INVESTMENTS)
B
C
-
AMOUNTS RECEIVABLE FROM DIRECTORS,
OFFICERS, EMPLOYEES AND PRINCIPAL
STOCKHOLDERS (OTHER THAN ASSOCIATES)
Not applicable
- NONCURRENT MARKET ABLE EQUITY SECURITIES,
OTHER LONG-TERM INVESTMENTS IN STOCK
AND OTHER INVESTMENTS
D
- INDEBTEDNESS OF UNCONSOLIDA TED
SUBSIDIARIES AND ASSOCIATES
E
- PROPERTY, PLANT AND EQUIPMENT
F
- ACCUMULA TED DEPRECIATION
G
- INTANGIBLE ASSETS AND OTHER ASSETS
H
-
Not applicable
LONG-TERM DEBT
- INDEBTEDNESS TO RELATED PARTIES
Not applicable
J
- GUARANTEES OF SECURITIES OF OTHER ISSUERS
Not applicable
K
-
CAPITAL STOCK
SAN MIGUEL PURE FOODS COMPANY, INC. AND SUBSIDIARIES
SCHEDULE A - MARKETABLE SECURITIES (CURRENT MARKETABLE
SECURITIES AND OTHER SHORT-TERM CASH INVESTMENTS)
FOR THE YEAR ENDED DECEMBER 31,2010
Name of Issuing Entity
and Description of Each Issue
Short-term
placements
Number of
Shares or
Principal
Amount of Bonds
and Notes
EQUITY
Amount
Shown in the
Statement of Financial
Position
Value Based
on Market
Quotations at
Statement of
Financial
Position Date
Interest
Income
Received
and Accrued
P5,176,164,OOO
P5, 176, 164,000
P47,846,588
SAN MIGUEL PURE FOODS COMPANY, INe. and SUBSIDIARIES
SCHEDULE C - NONCURRENT MARKETABLE EQUITY SECURITIES,
DECEMBER 3 I, 2010
Beainnin
Name of Issuing
Entity
And Description of
Investment
At Fair Value"
Club Filipino
Club Strata, Inc.
Makati Sports Club,
Inc.
Meralco
Philippine Long
Distance Tel. Co.
Valle Verde
Country Club
Capitol Hills Golf
and Country Club
Alabang Country
Club
Golf Club Bogor
Raya
Insta Food
Fil-Estate Realty
Manila Southwoods
Sta. Elena Golf
Club
Tagaytay Highlands
Royal Tagaytay
Country Club
Piltel
SMPFIL
Total
Number of Shares
or Principal
Amount of Bonds
& Notes
OTHER LONG-TERM
Balance
INVESTMENTS
IN STOCKS AND OTHER INVESTMENTS
Additions
Amount in Pesos
Equity in
Earnings of
Investees for the
Period
-
Deductions
Others
Distribution of
Earnings by
Investees
P -
P -
-
-
-
550,000
6,411,594
-
-
-
648,425
-
250,000
-
-
-
27,000
-
1,000
-
1,050,000
-
-
388,527
450,000
350,000
280,000
-
P225,000
22,500
P
-
168,729
450,000
Endin
Others
tp25,000)
-
Number of
Shares or
Principal
Amount of
Bonds & Notes
Balance
Amount in Pesos
P200,000
22,500
Dividends
Received/
Accrued from
Investments
Not Accounted
for by the
Eouitv Method
P
-
500,000
4,055,120
-
817,154
-
150,000
-
-
28,000
-
-
1,500,000
-
318,500
450,000
280,000
200,000
-
(50,000)
(2,356,474)
(100,000)
-
-
-
-
-
(70,027)
(70,000)
(80,000)
2,150,000
700,000
-
-
-
(550,000)
(120,000)
1,600,000
580,000
-
70,000
95,460
92,928
-
(14,985)
(92,928)
450,000
80,475
-
-
-
PI3,761,434
• Incl uded under "Other noncurrent assets" in the 20 I0 audited financial statements.
-
-
380,000
P
-
P999,729
P
tp3,529,414)
P11,231,749
-
-
P -
SAN MIGUEL PURE FOODS COMPANY, INe. AND SUBSIDIARIES
SCHEDULE E - PROPERTY, PLANT AND EQUIPMENT
DECEMBER 31, 2010
COST
Land and improvements
Buildings and
improvements
Machinery, equipment,
furniture and others
Transportation equipment
Construction in progress
Total
Beginning
Balance
P2,340,922,513
San Miguel Pure
Foods
International,
Limited Balance
Julv 31, 2010
P -
Additions at Cost
P -
4,391,726,503
1,364,515,717
11,744,446
8,117,005,404
473,597,035
644,665,395
603,920,239
35,051,338
13,361,907
149,311,024
882,685
419,134,639
PI5,967,916,850
P2,0 16,849,20 I
P581,072,794
Disnosals
Transfers,
Rec1assifications
and
Others
Cumulative
Translation
Adjustments
(P24,023,124)
P61,654,018
(357,629,860)
520,779,601
(58,679,240)
5,872,457,167
(745,983,783)
(18,197,558)
(5)
488,823,194
(15,530,644)
(893,390,602)
(25,970,811)
(1,507,337)
(574,611)
8,587,105,267
474,295,519
183,196,723
PI62,335,567
(P86, 731,999)
P 17,495,608,083
(P 1,145,834,330)
P -
Ending Balance
P2,378,553,407
SAN MIGUEL PURE FOODS COMPANY, INC. AND SUBSIDIARIES
SCHEDULE F - ACCUMULATED DEPRECIATION
DECEMBER 31,2010
Accumulated Depreciation
Land and improvements
Buildings and Improvements
Machinery, equipment,
furniture and others
Transportation equipment
Total
Beginning
Balance
San Miguel Pure
Foods
International,
Limited Balance
July 31,2010
Additions at Cost
41328,766,543
1,761,562,280
41 545,325,309
4132,829,552
241,363,755
5,153,422,904
429,572,265
483,973,809
33,201,347
498,225,547
18,760,879
417,673,323,992
411,062,500,465
41791,179,733
Reversal of
Impairment Loss
(4145,862,981)
Disposals
Transfers,
Rec1assifications
and
Others
(11,868,037)
41291,868,505
2,254,799,895
(11,644,691)
(15,130,617)
(21,214,810)
(1,436,476)
5,395,903,061
446,954,093
(4139,830,983)
(1146,383,059)
418,389,525,554
(411,187,638)
-
(706,859,698)
.(18,013,305)
(411,005,401,613)
Ending Balance
41 (23,731,773)
(4122,676,971)
(257,851,639)
(1145,862,981)
Cumulative
Translation
Adjustments
SAN MIGUEL PURE FOODS COMPANY, INC. AND SUBSIDIARIES
SCHEDULE G - INTANGIBLE ASSETS AND OTHER ASSETS
DECEMBER 31, 2010
Description
Beginning Balance
Goodwill
Trademarks and brand names
Formulas and recipes
Computer software and
licenses
PI70,791,897
32,558,400
57,591,000
Total
P338,353,799
77,412,502
San Miguel Pure
Foods International,
Limited Balance
July 31, 2010
Additions at Cost
P 68,750,778
P256,549,88I
3,200,000,000
1168,750,778
Deductions
-
Charged to Costs and
Expenses
Charged to Other
accounts
P -
P -
-
-
-
18,278,295
(26,124,520)
-
P3,474,828,176
(P26,124,520)
P -
Other changes
additions/
(deductions)
(pI 1,032,097)
(2,956,539)
(P 13,988,636)
Ending Balance
11416,309,681
3,298,352,639
57,591,000
69,566,277
P3,841,819,597
SAN MIGUEL PURE FOODS COMPANY, INC. AND SUBSIDIARIES
SCHEDULE H - LONG-TERM
DEBT
DECEMBER 31, 2010
Tilleof
Issue
I
AgentlLender
I
Outstanding
Balance
I
Current
Portion of Debt
I
Transaction
Cost Current
I
Amount
Shown as
Current
I
Long-term
Noncurrent
Portion of Debt
I
Noncurrent
Transaction
Cost
I
Amount Shown
as Long-term
I
Current and
Long-term
I
Interest Rates
I Num~e~
of
I
Periedic
Installments
Interest
P
ayments
I Final
. Matunty.
Subsidiary
Unsecured term notes:
Peso denominated:
Floating
Banco de Oro Unibank, Inc.
China Banking Corporation
Fixed
1'1,500,000,000
I' -
I' -
I' -
1'1,500,000,000
(1'13,063,724)
1'1,486,936,276
1'1,486,936,276
1,200,000,000
1,200,000,000
(10,450,979)
1,189,549,021
1,189,549,021
Land Bank of the
Philippines
500,000,000
500,000,000
(4,354,575)
495,645,425
495,645,425
Maybank Philippines, Inc.
500,000,000
500,000,000
(4,354,575)
495,645,425
495,645,425
3,700,000,000
3,700,000,000
(32,223,853)
3,667,776,147
3,667,776,147
500,000,000
500,000,000
(4,355,659)
495,644,341
495,644,34 I
229,600,000
229,600,000
(2,000,119)
227,599,881
227,599,881
China Banking Corporation
- Trust Group as Trustee
53,500,000
53,500,000
(466,056)
53,033,944
China Bank Savings, Inc.
Trust as Trustee
16,900,000
16,900,000
(147,221)
800,000,000
800,000,000
1'4,500,000,000
Land Bank of the
Philippines
China Banking Corporation
Total Long-term Debt
1'4,500,000,000
I' -
I' -
I' -
3-month PDST-F
plus margin
3-month PDST-F
plus margin
3-month PDST-F
plus margin
3-month PDST-F
plus margin
Bullet
Quarterly
Dec 2015
Bullet
Quarterly
Dec 2015
Bullet
Quarterly
Dec 2015
Bullet
Quarterly
Dec 2015
5.4885%
Bullet
Quarterly
Dec 2015
5.4885%
Bullet
Quarterly
Dec 2015
53,033,944
5.4885%
Bullet
Quarterly
Dec 2015
16,752,779
16,752,779
5.4885%
Bullet
Quarterly
Dec 2015
(6,969,055)
793,030,945
793,030,945
(1'39,192,908)
1'4,460,807,092
1'4,460,807,092
SAN MIGUEL PURE FOODS COMPANY, INe. and SUBSIDIARIES
SCHEDULE K - CAPITAL STOCK
DECEMBER 31, 20 10
Description
Number of
Shares
Authorized
Number of
Shares
Outstanding
Treasury
Shares
Number of
Shares Issued
Number of Shares
Reserved for
Options, Warrants,
Conversions, and
Other Rights
Common Shares
Preferred Shares
206,000,000
40,000,000
170,874,854
4,207,758
166,667,096
-
-
-
Total
246,000,000
170,874,854
4,207,758
166,667,096
-
Number of Shares Held by
Directors,
Officers and
Employees
Affiliates
166,526,487
166,526,487
Others
9
9
140,600
140,600
SAN MIGUEL PURE FOODS COMPANY,
AGING OF ACCOUNTS RECEIV ABLE
AS OF DECEMBER 31. 2010
I.
AGING OF ACCOUNTS
INe. AND SUBSIDIARIES
RECEIV ABLE
Type of Receivable:
Total
Current
1-30 days
31-60 days
il7,313,042,868
586,837,291
iI4,730,655,412
Net Trade Receivable
6,726,205,577
4,730,655,412
1,147,757,661
B. Non-Trade
Less: Allowance
1,129,672,776
95,607,343
467,100,042
79,883,844
Net Non-Trade Receivable
1,034,065,433
467,100,042
il7,760,271,010
il5, 197 ,755,454
A. Trade
Less: Allowance
et Receivables
ill,147,757,661
-
-
-
ill ,227,641 ,505
Over 90 days
il61,995,677
2,509,789
187,371,030
59,485,888
600,935,586
41,160,765
42,830,197
498,697,928
95,607,343
-
79,883,844
61-90 days
ill 87,762,474
391,444
-
-
41,160,765
42,830,197
403,090,585
il228,531,795
il102,316,085
il1,004,026,171
Accounts Receivable Description
Trade Receivables arise from the ordinary course of business
Non - Trade Receivables consist mostly of deposits to/claims from suppliers, receivables from SMC subsidiaries
11.
and affiliates, and receivables from employees
Accounts Receivable Description
Type of Accounts Recei vable:
a.
Trade Receivables
Nature/Description
Ill.
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.
Magnolia, Inc. and Subsidiary
PT San Miguel Pure Foods Indonesia
San Miguel Pure Foods International Limited and Subsidiary
San Miguel Super Coffeemix Co .. Inc.
The Purefoods Honnel Company, Inc.
Great Food Solutions
b.
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.
Magnolia, Inc. and Subsidiary
PT San Miguel Pure Foods Indonesia
San Miguel Pure Foods International Limited and Subsidiary
San Miguel Super Coffeemix Co., Inc.
.
The Purefoods Honnel Company, Inc.
Great Food Solutions
120
89
130
133
138
158
128
80
days
days
days
days
days
days
days
days
il1,184,871,644
583,936,058
34
23
43
61
27
53
57
33
days
days
days
days
days
days
days
days
Every is" & 30th of the month
Upon demand
Annex “F”
San Miguel Pure Foods Company, Inc.
Reported SEC Form 17-C for 2010
Date
Reported
Subject
February 2,
2010
Please be informed that at the Regular Meeting of the Board of Directors of San
Miguel Pure Foods Company, Inc. (the “Corporation”) held on February 2, 2010,
the Board approved the following corporate actions:
(1) Acquisition of food-related brands and intellectual property rights from San
Miguel Corporation (“SMC”) at a purchase price of Php3.2 Billion Pesos.
(2) Acquisition by San Miguel Pure Foods International Ltd. (BVI), a wholly
owned subsidiary of SMPFC, of SMC’s 51% interest in San Miguel Pure
Foods investment Ltd. (SMPFIL) at book value.
(3) Declassification of SMPFC’s common shares.
(4) Increase of SMPFC’s authorized capital stock by Php 1
Billion (or 100
million shares at P10.00 par value).
(5) Declaration of 18% stock dividend based on the issued and outstanding shares
to be taken out of the increase in capital.
(6) Potential issuance of up to 75 Million new SMPFC shares to SMC or third
parties.
(7) Denial of pre-emptive rights for the subscription in item 6 above.
(8) Amendment of Articles of Incorporation to reflect items 3, 4, and above.
(9) Holding of Special Stockholders meeting on March 12, 2010 to (i) approve
items 3,4,5,6,7, and 8 (ii) ratification of issuance of common shares to SMC
for cash in 2005 and (iii) waiver of conduct of rights or public offering for
such shares by minority shareholders. The record date for the special
stockholders meeting is February 16, 2010. Closing of Books is from
February 17-18, 2010.
(10) Listing on the Philippine Stock Exchange of the stock dividends referred to in
item 5 and the shares to be issued pursuant to item 6 above.
March 12,
2010
Please be informed that at the Special Stockholders’ Meeting of San Miguel Pure
Foods Company, Inc. (the “Corporation”) held today, Mach 12, 2010, the following
corporate actions were approved:
(A) By shareholders representing at least two-thirds of the outstanding capital stock
of the Corporation:
1. De-classification of the Corporation’s common shares;
2. Increase in authorized capital stock by Php1 Billion (or 100 million shares
at Php10.00 per value per share);
3. Declaration of 18% stock dividends based on the issued and outstanding
shares of the Corporation to be taken out of the increase in capital stock;
4. Amendment of the Amended Articles of Incorporation to reflect the
declassification of common shares, increase in authorized capital stock
approved in (B) (5) below;
2
(B) By shareholders representing a majority of the outstanding capital stock of the
Corporation:
5. Potential issuance of up to 75 million new common shares out of the
increase in authorized capital stock, to San Miguel Corporation (SMC)
and/or third parties;
6. Ratification of issuance of common shares to SMC for cash in 2005; and
(C) By majority of the minority shareholders present or represented at the meeting:
7. Confirmation of waiver of the requirement to conduct a rights or public
offering for the shares issued to SMC under the private placement
transaction in 2005; and
8. Waiver of the requirement to conduct a rights or public offering for new
shares to be issued to SMC and/or third parties out of the increase in
authorized capital stock.
We also send herewith the attached Press Release entitled “SMPFC posts record
gains for 2009, which we have released to the press today, March 12, 2010.
March 30,
2010
Please be informed that at the Regular Meeting of the Board of Directors of San
Miguel Pure Foods Company Inc. (the “Corporation”) held on March 30, 2010, the
Board approved that the Stockholders’ Meeting of the Corporation will be held on
May 14, 2010. In this connection, the record date for the stockholders entitled to
vote at the said meeting is April 16, 2010, the stock and transfer books will be
closed from April 17 to April 21, 2010, the deadline for submission of proxies is on
April 28, 2010, and the validation of proxies shall be on May 5, 2010.
The Board also resolved that the cash dividend policy of the Corporation will
entitle holders of the Common Shares to receive annual cash dividends of
approximately 70% of the prior year's recurring net income, which is net income
calculated without respect to extraordinary events that are not expected to recur,
subject to applicable laws and regulations and based on the recommendation of the
Board of Directors. Such recommendation will take into consideration factors such
as the implementation of business plans, debt service requirements, debt covenant
restrictions, funding for new investments, major capital expenditure requirements,
appropriate reserves and working capital, among others. The cash dividend policy
may be modified by the Company's Board of Directors at any time.
April 14,
2010
Please be informed that San Miguel Pure Foods Company, Inc. (the “Corporation”)
received yesterday afternoon the approval of the Securities and Exchange
Commission (SEC) of the de-classification of the common shares of the
Corporation from 95,128,000 Common Class “A” shares and 50,872,000 Common
Class “B” shares, to 146,000,000 common shares, and the amendment of the
Amended Articles of Incorporation of the Corporation to reflect the said declassification, by virtue of the Certificate of Filing of Amended Articles of
Incorporation issued by the SEC on April 12, 2010.
In compliance with Section 8 of the Revised Disclosure Rules, the Corporation will
submit the following within two trading days from today:
3
(a)
SEC Certified True Copy of the Amended Articles of Incorporation of the
Corporation, a copy of which is transmitted herewith; and
(b) Detailed procedure to be undertaken by the Corporation in amending its stock
certificates.
April 16,
2010
Reply to PSE: This is further to our disclosure on April 14, 2010 regarding the
approval by the Securities and Exchange Commission (SEC) of the declassification of the common shares of San Miguel Pure Foods Company, Inc. (the
“Corporation”) (the “De-classification”), and in response to your memo dated April
15, 2010 requesting additional information on the De-classification.
a.
Reason/purpose of De-classification
The De-classification was carried out in line with the objective of the corporate
restructuring plan of San Miguel Corporation, the parent company of the
Corporation, to unlock the value of its operating subsidiaries, including the
Corporation, and prepare them for greater public/investor participation.
Prior to the De-classification, Class “A” common shares were transferable to
Philippine nationals only, while Class “B” common shares were transferable to any
person of any nationality. The De-classification removed this distinction, such that
holders of common shares shall enjoy the same rights and privileges as previously
granted to holders of Class “A” and Class “B” shares, except that all common
shares may now be transferred to any person of any nationality. In both cases
(whether before or after De-classification), no transfer of stock or interest that will
reduce the ownership and voting equity of Philippine nationals to less than the
required percentage of the capital stock under applicable law, shall be allowed or
permitted to be recorded in the books of the Corporation.
The De-classification will therefore allow holders of common shares in the
Corporation to freely transfer their shares, subject to applicable laws on nationality
requirements, thereby facilitating a broader investor base and greater public
participation in the Corporation.
b.
Effects on Capital Structure
Before De-classification
After Declassification
Issued
Shares
95,049,129 Class “A” shares
50,401,979 Class “B” shares
145,451,108 common
shares
94,663,673 Class “A” shares
46,579,677 Class “B” shares
141,243,350 common
shares
Outstanding
Shares
4
Listed
Shares
93,085,094 Class “A” shares
50,401,979 Class “B” shares
143,487,073 common
shares
385,456 Class “A” shares
3,822,302 Class “B” shares
4,207,758 common
shares
Treasury
Shares
c.
Procedure for Updating Stock Certificates
The Corporation intends to issue letters to be distributed to its shareholders not
later than April 21, 2010, together with the Definitive Information Statement for
the Annual Shareholders’ Meeting scheduled on May 14, 2010, informing them of
the De-classification. The shareholders will be requested to surrender their
certificates to Class “A” and/or Class “B” common shares, to the Corporation’s
stock transfer agent, SMC Stock Transfer Service Corporation, for cancellation and
issuance of new certificates to common shares in their names.
For lost or destroyed stock certificates, the following procedure in the Corporation
Code shall be followed for the issuance by the Corporation of new certificates in
lieu of those which have been lost, stolen or destroyed:
(1)The registered stockholder or his legal representative shall file with the
Corporation an Affidavit setting forth, if possible:
(i) the circumstances as to how the certificates were lost, stolen or destroyed;
(ii) the number of common shares in the Corporation represented by each
certificate;
(iii) the serial numbers of the certificates; and
(iv) other information and evidence that he may deem necessary.
(2) A notice of loss of the certificates should be published in a newspaper of
general circulation published in the place where the Corporation has its
principal office, once a week for three consecutive weeks, and an Affidavit
together with a copy of such notice of loss should be submitted to the
Corporation to evidence the said publication.
(3) Instead of waiting for one year, the stockholder may file a bond or other
security, running for a period of one year, for a sum and in such form and with
such sureties as may be satisfactory to the Board of Directors of the
Corporation, in which case a new certificate may be issued even before the
expiry of the one-year period.
(4) Notwithstanding the foregoing, if there is a pending contest regarding the
ownership of said certificate of stock, the issuance of the new certificate in lieu
thereof shall be suspended until final decision by the courts.
5
d.
Others
We transmit herewith the SEC Certified True Copy of the Amended Articles of
Incorporation of the Corporation.
May 14,
2010
Press Release entitled “SMPFC 1Q income grows six fold to P872 million”
May 14,
2010
Please be informed that at the Annual Stockholders' Meeting of San Miguel Pure
Foods Company, Inc. (the “Corporation”) held today, May 14, 2010, at the
Executive Dining Room, 2nd Floor SMC Head Office Complex, Mandaluyong City,
the following directors were duly elected:
1.
2.
3.
4.
5.
6.
7.
8.
9.
Eduardo M. Cojuangco, Jr.
Ramon S. Ang
Francisco S. Alejo III
Jose T. Pardo
Menardo R. Jimenez
Cancio C. Garcia
Romulo L. Neri
Jesusa Victoria Hernandez-Bautista
Mario C. Garcia
At the Organizational Board Meeting held also on the same date, the following bylaw officers were duly elected:
Eduardo M. Cojuangco, Jr.
Francisco S. Alejo III
Zenaida M. Postrado
Francis H. Jardeleza
Alexandra B. Trillana
- Chairman
- President
- Treasurer
- Corp. Secretary
- Asst. Corp. Secretary
The following Committee members were also elected:
Executive Committee
Eduardo M. Cojuangco, Jr. – Chairman
Ramon S. Ang
Francisco S. Alejo III
Cancio C. Garcia
Audit Committee
Cancio C. Garcia - Chairman
Menardo R. Jimenez
Jesusa Victoria Hernandez-Bautista
Romulo L. Neri
Ferdinand K. Constantino – Non Director Member
6
Executive Compensation
Menardo R. Jimenez - Chairman
Jesusa Victoria Hernandez-Bautista
Ferdinand K. Constantino – Non Director Member
Cancio C. Garcia
Nominations Committee
Jose T. Pardo – Chairman
Francisco S. Alejo III
Cancio C. Garcia
David S. Santos – Ex Oficio Member
May 17,
2010
Reply to PSE: We write with respect to the news article entitled “Purefoods sees
10-15% profit growth as Q1 income surges 6-fold” published in the May 15, 2010
issue of The Philippine Star.
We advise that the statements of Mr. Francisco S. Alejo III, President of the
Company, relating to the projected growth of the Company for 2010 and appearing
in the aforequoted article, are accurate.
June 17,
2010
This is further to our disclosure regarding the approval by the Securities and
Exchange Commission (SEC) of the increase in capital stock of San Miguel Pure
Foods Company, Inc. (the “Corporation”) from P1,460,000,000.00 to
P2,460,000,000.00.
Please be informed that the Corporation received this afternoon the approval of the
SEC for the issuance of 25,423,746 shares of the par value of P10.00 or
P254,237,460.00 to cover stock dividends declared by the Corporation’s Board of
Directors on February 2, 2010 and ratified by the stockholders representing at least
2/3 of the outstanding capital stock of the Corporation on March 12, 2010, and the
issuance of shares of stock to stockholders of record as of June 30, 2010.
Payment of the stock dividends shall be within eighteen (18) trading days from the
above said record date.
June 18,
2010
Reply to PSE: We write in response to the letter from the Surveillance Department
of the Exchange noting an unusual price movement in the trading of San Miguel
Pure Foods Company, Inc. (“PF”) shares at 10:39:44 a.m. today. We were advised
that the share price of PF increased from PhP200.00 to PhP300.00 per share.
As certified by the Company’s Division Chief Finance Officer, copy attached, the
Company is unaware of any information that could have triggered the unusual
movement in the trading of PF shares, other than as previously disclosed by the
Company to the Exchange.
June 22,
2010
We refer to our disclosure on the issuance by San Miguel Pure Foods Company,
Inc. (the “Company”) of 25,423,746 shares of the par value of P10.00 or
P254,237,460.00 to cover stock dividends to shareholders of record of the
7
Company as of June 30, 2010.
The payment of the stock dividends shall be made on July 26, 2010.
June 24,
2010
Reply to PSE: This is in response to your request for San Miguel Pure Foods
Company, Inc.’s (the “Company”) computation on the adjusted price and adjusted
issued and outstanding shares based on market data as of the end of trading period
today, in connection with the Company’s declaration of 18% stock dividends with
a record date of June 30, 2010 and ex-date of June 25, 2010.
Please see the following:
Adjusted Closing Price
= Previous Closing Price _____
1 + Rate of Stock Dividend (SD)
=
Php300.00
1.18%
=
Php254.00
Adjusted Outstanding Shares = Previous Outstanding
Shares x (1+SD)
August 12,
2010
=
141,243,350 x 1.18
=
166,667,153 shares
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
August 12, 2010.
Item 4. Resignation, Removal or Election of Registrant’s Directors or Officers
1. The Board elected Mr. Carmelo L. Santiago as member of the Board and
Independent Director vice Mr. Romulo L. Neri, who has divested to pursue other
endeavors.
Mr. Santiago, 67, is an Independent director of San Miguel Corporation (SMC)
since July 24, 2008, chairman of SMC’s Audit Committee and Member of SMC’s
Executive Committee, Executive Compensation Committee and Nomination and
Hearing Committee. He is an Independent Director of San Miguel Brewery Inc.,
Ginebra San Miguel, Inc., Anchor Insurance Brokerage Corporation, Liberty
Telecom Holdings, Inc., San Miguel Properties, Inc., and San Miguel Brewery
Hong Kong Limited; and Director of Terbo Concept. Mr. Santiago is the founder
and owner of several branches of Melo’s Restaurant and founder of Wagyu
Restaurant.
2. The Board also elected Mr. Ferdinand K. Contantino as member of the Board
vice Ms. Jesusa Victoria Hernandez-Bautista, who has been elected as a member of
the House of Representatives.
8
Mr. Constantino, 58, is Senior Vice President, Chief Finance Officer and Treasurer
of San Miguel Corporation. He also holds, among others, the following positions:
President of Anchor Insurance Brokerage Corporation; and a Director of San
Miguel Corporation (since May 21, 2010), San Miguel Brewery Inc., Ginebra San
Miguel, Inc., San Miguel yamamura Packaging Corporation and Bank of
Commerce. Mr. Constantino previously served San Miguel Corporation as Chief
Finance Officer of the San Miguel Beer Division (1999-2005) and as Chief
Finance Officer and Treasurer of San Miguel Brewery Inc. (2007-2009); Director
of San Miguel Pure Foods Company, Inc. (2008-2009) and San Miguel Properties,
Inc. (2001-2009); and Chief Finance Officer of Manila Electric Company (2009).
He has held directorships in various subsidiaries of San Miguel Corporation during
the last five years.
3. As a consequence of the above changes, the Board appointed (a) Mr. Carmelo
L. Santiago as a member of the Executive Compensation Committee vice Ms.
Jesusa Victoria Hernandez-Bautista and audit Committee vice Mr. Romulo L. Neri,
and (b) Mr. Jose T. Pardo as a member of the Audit Committee vice Ms. Jesusa
Victoria Hernandez-Bautista.
August 31,
2010
Please be informed that we received on Friday evening, August 27, 2010, the
approval by the Securities and Exchange Commission (SEC) of the merger of San
Miguel Pure Foods Company Inc.’s (SMPFC) subsidiaries Monterey Foods
Corporation (MFC) and San Miguel Foods, Inc. (SMFI), with SMFI being the
surviving corporation, by virtue of the Certificate of Filing of the Articles and Plan
of Merger issued by the SEC on August 19, 2010.
Pursuant to the Plan of Merger, the effective date of the merger shall be on
September 1, 2010, being the first date of the month immediately succeeding the
month when the SEC issued the above said Certificate approving the merger,
pursuant to Section 79 of the Corporation Code.
Prior to the merger, SMPFC owned 100% and 97.68% of the capital stock of SMFI
and MFC, respectively. The merger will result in SMFI being 99.97% owned by
SMPFC, with the balance being owned by MFC third party stockholders.
September 3,
2010
Item 4. Resignation, Removal or Election of Registrant’s Directors or Officers
The Company announces that Atty. Francis H. Jardeleza tendered tendered his
resignation as Corporate Secretary and Compliance Officer. This is in line with his
retirement as General Counsel of San Miguel Corporation, the Company’s parent
company. His resignation as the Company’s Corporate Secretary and as
Compliance officer will be effective upon the appointment of his successor by the
Company’s board of Directors at its next meeting.
September
15, 2010
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
September 15, 2010:
Item 4. Resignation, Removal or Election of Registrant's Directors or Officers
1.
The Board appointed Atty. Alexandra Bengson Trillana and Ms. Ma.
9
Soledad E. Olives as Corporate Secretary and Compliance Officer, respectively, of
the Company, vice Atty. Francis H. Jardeleza, who has resigned in view of his
retirement as General Counsel of San Miguel Corporation. Atty. Jardeleza, Ms.
Olives, and Atty. Trillana do not hold any shares in the Company.
Before her appointment as Corporate Secretary, Atty. Trillana was the Assistant
Corporate Secretary of the Company, a position she has held since April 26, 2004.
She is the General Counsel of the Company since January 1, 2010; Corporate
Secretary of San Miguel Foods Inc. since June 29, 2004, Magnolia Inc. since
September 29, 2005 and Sugarland Corporation since July 6, 2010; and Assistant
Corporate Secretary of The Purefoods-Hormel Company, Inc. since February 23,
2005, San Miguel Super Coffeemix Co., Inc. since February 21, 2005 and San
Miguel Mills, Inc. since July 6, 2010. She was previously Senior Manager for
Commercial Transactions in the Office of the General Counsel of San Miguel
Corporation (from 2005 to 2009).
Ms. Olives is the Vice President and Corporate Planning & Management Group
Services Manager of the Company since March 30, 2010. She is also a member of
the Board of Commissioners of PT San Miguel Pure Foods Indonesia since
November 20, 2009. She was a former member of the Board of Directors 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) and Planning Manager of San Miguel Foods, Inc. (from March 1,
2004 to May 15, 2005).
2.
As a consequence of the above change to the Corporate Secretary of the
Company, Atty. Trillana resigned as Assistant Corporate Secretary, and the Board
appointed Atty. Ma. Celeste Legaspi Ramos as Assistant Corporate Secretary of the
Company, vice Atty. Trillana. Atty. Ramos does not hold any shares in the
Company.
Atty. Ramos is the Associate General Counsel for Litigation of the Company since
January 1, 2010. She is also the Assistant Corporate Secretary of San Miguel
Foods, Inc. and Magnolia Inc., both since July 6, 2010. She was previously
Manager for Labor Litigation (from January to December 2009) and Legal Counsel
(from November 2005 to December 2008) in the Office of the General Counsel of
San Miguel Corporation.
Item 9. Other Events
3.
The Board approved the following corporate actions:
a. The Company’s fund-raising for expansion and participation in highyielding investments pursued by its parent company, such as but not
limited to power generation or transmission, water and other utilities, and
infrastructure.
b. The reclassification of up to 75 million common shares into non-voting,
cumulative and non-participating preferred shares, with other features to
be determined by Management (the “Preferred Shares”).
10
c.
The issuance of Preferred Shares with a total issue size of up to P50
billion, under terms and conditions to be determined by Management.
d. The issuance by San Miguel Foods Inc., San Miguel Mills, Inc., and other
subsidiaries with financial capability, of fixed rate long term bonds with
total issue size of P10 billion, more or less, under terms and conditions to
be determined by Management.
e. The amendment of the Company’s Articles of Incorporation to reflect item
(b) and the denial of pre-emptive rights of shareholders for the issuance in
item (c).
f. The listing of the Preferred Shares at the appropriate exchanges.
g. The holding of a Special Stockholders’ Meeting on October 29, 2010 to
approve items (a), (b), (c), (e) and (f). The record date for the
stockholders entitled to vote at the said meeting is September 29, 2010,
and the stock transfer books of the Company will be closed from
September 30 to October 1, 2010.
September
23, 2010
Please be advised that the special stockholders’ meeting of San Miguel Pure Foods
Company, Inc. shall be moved from October 29, 2010 to November 3, 2010, in
view of certain key officers not being available on the former date.
As previously disclosed, the record date for the stockholders entitled to vote at the
said meeting will still be on September 29, 2010, and the stock transfer books of
the Company will be closed from September 30 to October 1, 2010.
November 3,
2010
Item 9. Other Events
We disclose that in the Special meeting of the Stockholders of San Miguel Pure
Foods Company, Inc. (the “Company”) held on November 3, 2010, the
stockholders approved the following corporate actions:
a.
The reclassification of 40 million common shares into non-voting, cumulative
and non-participating preferred shares, with the features set out in the
Information Statement distributed to the stockholders prior to the meeting, as
well as other features determined by Management (the “Preferred Shares”).
b.
The issuance of Preferred Shares with a total issue size of up to P40 billion,
under terms and conditions determined by Management.
c.
The amendment of the Company’s Articles of Incorporation to reflect item (a)
and the denial of pre-emptive rights of shareholders for the issuance in item
(b).
d.
e.
The listing of the Preferred Shares at the appropriate exchanges.
The participation by the Company in high-yielding investments pursued by
San Miguel Corporation such as but not limited to power-related activities,
11
water and other utilities, and infrastructure, in accordance with the provisions
of Section 42 of the Corporation Code.
November
11, 2010
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
November 11, 2010.
Item 4. Resignation, Removal or Election of Registrant’s Directors or Officers
The Board elected Mr. Plaridel M. Abaya as member of the Board and Independent
Director vice Mr. Ferdinand K. Constantino, who resigned effective November 11,
2010 to focus on his other functions and responsibilities in the SMC Group.
Mr. Abaya is a Director of Grayline Services, Inc. (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 Representative (1995 – 2004), and served in the Philippine military for
over 30 years (until 1987).
December 7,
2010
We disclose that in the special meeting of the Board of Directors of San Miguel
Pure Foods Company, Inc. (respectively, the “Board” and the “Company”) held on
December 7, 2010, the Board approved the following corporate actions:
Item 9. Other Events
(a)
The public offer of up to 25 million new Preferred Shares with issue price,
dividend rate, payment and other terms determined by Management, subject
to approval by the Securities and Exchange Commission (SEC) of the
reclassification of a portion of the Company’s common shares to Preferred
Shares;
(b) The signing, execution and filing of the Registration Statement for the offer
with the SEC; and
(c)
December
20, 2010
The listing and filing of the listing application for the Preferred Shares to be
subscribed as a result of the offer with the Philippine Stock Exchange.
Reply to PSE: We write in reponse to your request for clarification of the news
article entitled “Pure Foods may raise up to P15B from share sale” published in the
December 17, 2010 issu of the BusinessWorld.
We confirm that San Miguel Pure Foods Company, Inc. (the “Company”) filed a
Registration Statement with the Securities and Exchange Commission (SEC) on
December 13, 2010, for the proposed offer of 15 million preferred shares at the
price of P1,000.00 per share, subject to the approval by the SEC of the
reclassification of a portion of its unissued common shares to preferred shares. The
Company has pending application with SEC to amend its Amended Articles of
Incorporation to reflect the reclassification of 40 million common shares to
preferred shares, approved by the Board of directors and stockholders of the
12
Company, as previously disclosed to the Exchange.