Document 6524675

COVER SHEET
9 1 7 0
SEC Registration Number
U N I V E R S A L
R O B I N A
C O R P O R A T I O N
A N D
S U B S I D I A R I E S
(Company’s Full Name)
1 1 0
E .
R o d r i g u e z
a n ,
Q u e z o n
A v e n u e ,
B a g u m b a y
C i t y
(Business Address: No. Street City/Town/Province)
Mr. Gerry N. Florencio
671-2935; 635-0751; 671-3954
(Contact Person)
(Company Telephone Number)
0 9
3 0
1 7 - A 1
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Day
(Form Type)
Month
(Fiscal Year)
Day
(Annual Meeting)
(Secondary License Type, If Applicable)
Dept. Requiring this Doc.
Amended Articles Number/Section
Total Amount of Borrowings
Total No. of Stockholders
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STAMPS
Remarks: Please use BLACK ink for scanning purposes.
SECURITIES AND EXCHANGE COMMISSION
SEC FORM 17-A1
ANNUAL REPORT PURSUANT TO SECTION 17
OF THE SECURITIES REGULATION CODE AND SECTION 141
OF THE CORPORATION CODE OF THE PHILIPPINES
1. For the fiscal year ended
September 30, 2005
2. SEC Identification Number 9170
3. BIR Tax Identification No. 000-400-016-000
4. Exact name of issuer as specified in its charter Universal Robina Corporation
5. Quezon City, Philippines
Province, Country or other jurisdiction of incorporation or organization
6. Industry Classification Code:
(SEC Use Only)
7. 110 E. Rodriguez Ave. Bagumbayan, Quezon City
Address of principal office
1110
Postal Code
8. 671-2935;635-0751;671-3954
Issuer's telephone number, including area code
9. Not Applicable
Former name, former address, and former fiscal year, if changed since last report.
10. Securities registered pursuant to Sections 8 and 12 of the SRC, or Sec. 4 and 8 of the RSA
Title of Each Class
Number of Shares of Common Stock
Outstanding and Amount of Debt
Common Shares, P1.00
Par value
1,686,479,549 shares
11. Are any or all of these securities listed on the Philippine Stock Exchange.
Yes [ / ]
No [ ]
12. Check whether the issuer:
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 twelve (12) months (or for such
shorter period that the registrant was required to file such reports);
Yes [ / ]
No [ ]
b) has been subject to such filing requirements for the past ninety (90) days.
Yes [ / ]
No [ ]
13. State the aggregate market value of the voting stock held by non-affiliates of the registrant.
The aggregate market value of the voting stock held by non-affiliates is P3,050,036,504.
APPLICABLE ONLY TO ISSUERS INVOLVED IN
INSOLVENCY/SUSPENSION OF PAYMENTS PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
14. Check whether the issuer has filed all documents and reports required to be filed by Section 17 of
the Code subsequent to the distribution of securities under a plan confirmed by a court or the
Commission.
Not Applicable
DOCUMENTS INCORPORATED BY REFERENCE
If any of the following documents are incorporated by reference, briefly describe them and
identify the part of SEC Form 17-A into which the document is incorporated:
a) Any annual report to security holders;
None
b) Any proxy or information statement filed pursuant to SRC Rule 20 and
17.1(b);
None
c) Any prospectus filed pursuant to SRC Rule 8.1-1
None
TABLE OF CONTENTS
Page No.
PART I - BUSINESS AND GENERAL INFORMATION
Item 1
Business
1
Item 2
Properties
12
Item 3
Legal Proceedings
13
Item 4
Submission of Matters to a Vote of Security Holders
13
PART II - OPERATIONAL AND FINANCIAL INFORMATION
Item 5
Market for Registrant’s Common Equity and
Related Stockholder Matters
13
Management’s Discussion and Analysis or
Plan of Operation
15
Item 7
Financial Statements
26
Item 8
Changes in and Disagreements with Accountants and
Financial Disclosure
26
Item 6
PART III - CONTROL AND COMPENSATION INFORMATION
Item 9
Directors and Executive Officers of the Registrant
27
Item 10
Executive Compensation
32
Item 11
Security Ownership of Certain Beneficial Owners
and Management
33
Certain Relationships and Related Transactions
34
Item 12
PART IV - CORPORATE GOVERNANCE
Item 13
Corporate Governance
34
PART V - EXHIBITS AND SCHEDULES
Item 14
(a) Exhibits
(b) Reports on SEC Form 17-C (Current Report)
34
35
SIGNATURES
36
INDEX TO FINANCIAL STATEMENTS AND
SUPPLEMENTARY SCHEDULES
38
INDEX TO EXHIBITS
95
PART I – BUSINESS AND GENERAL INFORMATION
Item 1.
Business
Universal Robina Corporation (URC) is one of the largest branded food product companies in the
Philippines and has a growing presence in other Asian markets. It was founded in 1954 when Mr.
John Gokongwei, Jr. established Universal Corn Products, Inc., a cornstarch manufacturing plant in
Pasig. The Company is involved in a wide range of food-related businesses, including the
manufacture and distribution of branded consumer foods, production of hogs and day-old chicks,
manufacture of animal and fish feeds, glucose and veterinary compounds, flour milling, and sugar
milling and refining. The Company is the market leader in snack foods, candies, chocolates, biscuits,
day-old chicks, and fish feeds.
No material reclassifications, merger, consolidation, or purchase or sale of significant amount of assets
(not ordinary) were made in the past three years. The Company’s financial condition has remained
solid in the said period.
The Company operates its food business through operating divisions and wholly or majority-owned
subsidiaries that are organized into three core business segments: branded consumer foods, agroindustrial products and commodity food products.
Branded consumer foods (BCF), including our packaging division, is the Company’s largest segment
contributing about 77.1% of revenues for the fiscal year ended September 30, 2005. Established in the
1960s, the Company’s branded consumer foods division manufactures and distributes a diverse mix of
snack, chocolate, candy, biscuit, bakery, beverage, noodles and pasta and tomato-based products. The
manufacture, distribution, sales and marketing activities for the Company’s consumer food products
are carried out mainly through the Company’s branded consumer foods group consisting of snack
foods, beverage and grocery divisions, although the Company conducts some of its branded consumer
foods operations through its wholly-owned or majority-owned subsidiaries and joint venture
companies (i.e. Hunt-URC and Nissin-URC). The Company established URC-Packaging Division to
engage in the manufacture of polypropylene films for packaging companies. The bi-axially oriented
polypropylene plant (BOPP), located in Batangas, began commercial operation in June 1998. URC
also formed Food Service and Industrial Division that supply BCF products in bulk to certain
institutions like hotels, restaurants, and schools.
The majority of the Company’s branded consumer foods business is conducted in the Philippines. In
2000, the Company began to expand its BCF business more aggressively into other Asian markets,
primarily through its subsidiary, URC International and its subsidiaries in China: Tianjin Pacific Foods
Co. Ltd., Shanghai Peggy Foods Co. Ltd., Xiamen-Tongan Pacific Foods Co. Ltd., Panyu Peggy
Foods Co. Ltd. and URC Hongkong Co. Ltd. (formerly Hongkong Peggy Snack Foods Co. Ltd.); in
Malaysia: URC Snack Foods (Malaysia) Sdn. Bhd. (formerly Pacific World Sdn. Bhd.) and Ricellent
Sdn. Bhd.; in Thailand: URC (Thailand) Co. Ltd. (formerly Thai Peggy Foods Co. Ltd.); in
Singapore: URC Foods (Singapore) Pte. Ltd. (formerly Pan Pacific Snacks Pte. Ltd.) and in 2002, in
Indonesia: PT URC Indonesia. In 2005, the Company started operations in Vietnam through its
subsidiary URC Vietnam Company Ltd. The Asian operations contributed about 22.7% of the
Company’s revenues for the fiscal year ended September 30, 2005.
-2The Company has a strong brand portfolio created and supported through continuous product
innovation, extensive marketing and experienced management. Its brands are household names in the
Philippines and a growing number of consumers across Asia are purchasing the Company’s branded
consumer food products.
The Company’s agro-industrial products segment operates three divisions, which engage in hog and
poultry farming (Robina Farms or “RF”), the manufacture and distribution of animal feeds, glucose
and soya products (Universal Corn Products or “UCP”), and the production and distribution of animal
health products (Robichem). This segment contributed approximately 12.5% of the net sales in fiscal
year 2005.
The Company’s commodity food products segment engages in sugar milling and refining through its
subsidiaries, Universal Robina Sugar Milling Corporation (URSUMCO), its division, Cagayan Robina
Sugar Milling Corporation (CARSUMCO), and Southern Negros Development Corporation
(SONEDCO), and flour milling through URC Flour division. In fiscal 2005, the segment contributed
approximately 10.4% of aggregate net sales.
The Company is a core subsidiary of JG Summit Holdings, Inc. (JGSHI), one of the largest
conglomerates listed in the Philippine Stock Exchange based on total net sales. JGSHI has substantial
interests in property development, hotel management, textiles, banking and financial services,
telecommunications, petrochemicals, air transportation and business interests in other sectors,
including power generation, printing, and insurance.
The percentage contribution to the Company’s revenues for each of the three years in the period ended
September 30, 2003, 2004 and 2005 by each of the Company’s principal product categories is as
follows:
Branded Consumer Foods
Agro-Industrial Products
Commodity Food Products
For the fiscal years ended September 30
2003
2004
2005
77.0%
75.5%
77.1%
13.0
13.4
12.5
11.1
10.4
10.0
100.0%
100.0%
100.0%
The geographic percentage distribution of the Company’s revenues for each of the three years in the
period ended September 30, 2003, 2004 and 2005 is as follows:
Philippines
ASEAN
China
For the fiscal years ended September 30
2003
2004
2005
80.7%
77.7%
77.3%
17.9
21.0
21.2
1.3
1.5
1.4
100.0%
100.0%
100.0%
-3Customers
None of the Company’s businesses is dependent upon a single customer or a few customers that a loss
of anyone of them would have a material adverse effect on the Company. The Company has no single
customer that is based upon existing orders will account for 20.0% or more of the Company’s total
sales.
Distribution, Sales and Marketing
The Company has developed an effective nationwide distribution chain and sales network that it
believes provide its competitive advantage. The Company sells its branded food products primarily to
supermarkets, as well as directly to top wholesalers, large convenience stores and two types of subdistributors, large scale trading companies and independent business managers which in turn sell its
products to other small retailers and downline markets through the Company’s Grandslam Program, an
innovative distribution scheme for downscale accounts, which enabled URC Philippines to solidify its
presence in sari-sari stores and groceries, effectively locking out competitors in the consumer foods
segment in the Philippines. The Company’s branded consumer food products are distributed to
approximately 80,000 outlets in the Philippines and sold through its direct sales force, regional
distributors and independent business managers. URC intends to enlarge its distribution network
coverage in the Philippines by increasing the number of retail outlets that its regional sales force and
distributors directly service. By deploying larger and financially stronger regional distributors over the
next two years, URC plans to increase the number of outlets serviced directly from 80,000 to 120,000
outlets. URC also plans to increase the product focus of its distribution network by ensuring that
relevant products are targeted towards appropriate retail outlets.
The branded consumer food products are generally sold by the Company either direct from delivery
vans to small retail outlets or by traveling salesman to wholesalers or supermarkets, and regional
distributors with delivery subsequently being undertaken by third party road carriers. Direct delivery
sales are normally made on cash basis, while 15- to 30-day credit terms are extended to wholesalers,
supermarkets and regional distributors.
The Company believes that its emphasis on marketing, product innovation and quality, and strong
brand equity has played a key role in its success in achieving leading market shares in the different
categories where it competes. The Company has dedicated substantial resources to advertising and
promotion campaigns and market research, spending on average 8% of its branded consumer food
division’s net sales per year. These expenditures are made to maintain or improve a brand’s market
share or to introduce a new product. In addition to introducing new products, URC has embarked on
branding initiatives that involve organized advertising campaigns to differentiate its products and
further expand market share. In particular, URC recently launched Jack and Jill as a master umbrella
brand in order to enhance customer recognition of its products. URC devotes significant expenditures
to support advertising and branding, both in the Philippines and in its overseas markets, including
funding for advertising campaigns such as television commercials and radio and print advertisements,
as well as promotions for new product launches.
-4Competition
The BCF business is highly competitive and competition varies by country, product category and
segment. The Company believes that the principal competitive factors include price, taste, quality,
convenience, brand recognition and awareness, advertising and marketing, availability of products and
ability to get its product widely distributed. Generally, the Company faces competition from both
local and multinational companies in all of its markets. Major competitors in the market segments in
which it competes include, in the Philippines, Liwayway Manufacturing Corp., Columbia Foods
International, General Milling Corporation, Republic Biscuit Corporation, Suncrest Foods Inc., Del
Monte Phil. Inc., and Monde Nissin Corporation, Nestle Philippines Inc., San Miguel Pure Foods
Company Inc. and Kraft Foods Inc., and internationally, Procter & Gamble, Effem Foods/Mars Inc.,
Lotte Group, Perfetti Van Melle Group, Mayora Inda PT, Calbee Group, Apollo Food, Frito-Lay,
Nestlé S.A., Cadbury Schweppes plc, Groupe Danone S.A. and Kraft Foods International.
Competition in the Philippine food and beverage industry is expected to increase in the future with
increased liberalization of trade by the Philippine government and the predicted accompanying growth
in imports due to the World Trade Organization (WTO) and ASEAN Free Trade Area (AFTA). Under
the WTO, tariff rates on food and agricultural items are being decreased and import quotas are being
eliminated among member countries, including the Philippines. AFTA is a free trade area formed by
10 southeast asian countries, including the Philippines. Under the AFTA, tariffs on manufactured
goods, including processed agricultural products, are being minimized or eliminated over a 15-year
period starting from January 1, 1993, and non-tariff barriers will be subsequently phased out.
The day-old chicks market is cyclical, very competitive and principally domestic. The Company
believes that the principal competitive factors are chick quality, supply dependability, price, low
mortality rates, feed conversion efficiency and growth rates for broiler chicks. For layer chicks,
competitive factors are productivity and disease resistance. The Company’s principal competitor is
STS Corp. and Math Agro for broiler chicks and Bounty Farms, Inc. for layer chicks.
The live hog market is highly fragmented, competitive and principally domestic. The Company
believes that the principal competitive factors are quality, reliability of supply, price and proximity to
market. The Company’s principal competitors are San Miguel Corp. (Monterey and Purefoods) and
Foremost Farms, Inc. The main competition is from backyard raisers who supply 70%-80% of the
total pork requirement in the country. If tariffs are reduced, the Company believes that there will be
minimal competition from imported pork because prices of imported pigs are significantly higher as a
result of higher feed costs in their countries of origin.
The commercial animal feed market is highly fragmented and its products compete primarily with
domestic feed producers. As of September 30, 2005, there were 700 registered feed mills in the
Philippines, 50% of which sell commercial feeds. URC believes the principal competitive factors are
quality and price. The Company’s principal competitors are B-Meg and Purina Philippines, Inc. A
number of multinationals including Cargill, CJ and Sun Jun of Korea, are also key players in the
market.
-5The animal health products market is highly competitive. The market is dominated by multinationals
and the Company is one of only a few Philippine companies in this market. The Company’s principal
competitors are Pfizer, Inc., Univet Pharmaceuticals Ltd., and Merial Limited, a company jointly
owned by Merk and Co., Inc. and Aventis. S.A. The Company believes that the principal competitive
factors are price, product effectiveness, quality and veterinary services.
Enhancement and development of New Products
The Company intends to continuously introduce innovative new products, product variants and line
extensions in the snackfoods (snacks, biscuits, candies, chocolates and bakery), beverage and grocery
(instant noodles, tomato-based) segments. In the last two fiscal years, the Company has introduced
105 products.
The Company also plans to selectively enter and expand its presence in segments of the Philippine
beverage market through the addition of branded beverage products designed to capture market share
in niches that complement its existing branded snack food product lines. In fiscal year 2004, the
Company has launched water and flavored drinks in PP cup format and tea-based beverages in PET
bottles. URC plans to launch energy drinks and additional tea-based beverages, also in PET bottles in
fiscal year 2006.
Raw Materials
A wide variety of raw materials are required in the manufacture of the Company’s food products,
including corn, wheat, flour, sugar, glucose and potatoes, some of which are purchased domestically
and some of which the Company imports. The Company imports all of its wheat supplies and
substantially all of its palm oil and flavors and a large portion of its milk. For its international
operations, the Company primarily imports potatoes and flavors. The Company also obtains a major
portion of its raw materials from its agro-industrial and commodity food products divisions, such as
glucose, flour and sugar. Flexible packaging materials are purchased both locally and from abroad
(Korea and Japan), while Tetra-pak packaging is purchased from Singapore. The Company’s policy is
to maintain a number of suppliers for its raw and packaging materials to ensure a steady supply of
quality materials at competitive prices. However, the prices paid for raw materials generally reflect
external factors such as weather conditions, commodity market fluctuations, currency fluctuations and
the effects of government agricultural programmes. In the past year, the Company has experienced
higher prices for certain core raw materials including wheat and cooking oils. While the Company has
increased the prices of certain products to reflect the increased price of raw materials, it has not been
able to pass through the full extent of such increases. In response to these developments, the
Company realigned its resources to improve its operational efficiencies. This strategy includes
manufacturing its products in countries where the raw materials are available at the lowest cost.
For its day-old chicks business, the Company requires a number of raw materials, including parent
stock for its layer chicks, grandparent stock for its broiler chicks and medicines and other nutritional
products. The Company purchases the parent stock for its layer chicks from Hubbard ISA SAS in
Canada and from Hy-Line International in the United States under exclusive distribution agreements
for the Philippines. The Company purchases the grandparent stock for its broiler chicks from Hubbard
ISA SAS in France under an exclusive distribution agreement for the Philippines. The Company
-6purchases a significant amount of the vitamins, minerals, antibiotics and other medications and
nutritional products used for its day-old chicks business from its Robichem division. The Company
purchases vaccines from various suppliers, including Merial, Intervet Philippines, Inc. and Boehringer
Ingelheim GmbH.
For its live hog business, the Company requires a variety of raw materials, primarily imported
breeding stocks. The Company purchases all of the feeds it requires from its Universal Corn Products
division and substantially all of the minerals and antibiotics for its hogs from its Robichem
Laboratories division. The Company purchases vaccines, medications and nutritional products from a
variety of suppliers based on the strengths of their products. Ample water supply is also available in
its farms locations. The Company maintains approximately one month of inventory of its key raw
materials.
For its animal health products, the Company requires a variety of antibiotics and vitamins, which it
acquires from suppliers in Europe and China. URC maintains approximately 90 days of inventory. For
its commercial animal feed products, the Company requires a variety of raw materials, including corn,
soya bean products, wheat, bran and pollard and fish meal. Starch and soya bean seeds, on the other
hand, are required for its liquid glucose and soya bean products, respectively. The Company
purchases corn locally from corn traders and internationally from suppliers in China and the United
States. The Company imports soya bean seeds from suppliers in the United States. For its liquid
glucose, the Company also requires solvents. The Company imports starch from a number of
suppliers, primarily in Vietnam and Thailand. The Company purchases solvents for use in the
manufacture of its soya products locally from Shell Chemicals Philippines, Inc. and Exxon-Mobil
Petroleum & Chemical Holdings Inc. The Company maintains approximately two months’ physical
inventory and one month’s in-transit inventory for its imported raw materials and approximately one
month’s inventory for its local raw materials.
The Company obtains sugar cane from local farmers. Competition for sugar cane supply is very
intense and is a critical success factor for its sugar business. Additional requirements for the sugar
cane milling process are either purchased locally or imported.
The Company generally purchases wheat, the principal raw material for its flour milling and pasta
business, through forward contracts with suppliers in the United States and Canada.
The Company maintains a number of suppliers for its raw materials to ensure a steady supply of
quality materials at competitive prices. The Company believes that alternative sources of supplies of
the raw materials that it uses are readily available. The Company’s policy is to maintain
approximately 30 to 45 days of inventory.
Patents, Trademarks, Licenses, Franchises, Concessions or Labor Contract
The Company owns a substantial number of trademarks registered with the Bureau of Trademarks of
the Philippine Intellectual Property Office. In addition, certain of its trademarks have been registered
in other Asian countries in which it operates. These trademarks are important in the aggregate because
brand name recognition is a key factor in the success of many of the Company’s product lines. In the
Philippines, a certificate of registration of a trademark is effective for an initial 10-year period, which
period may be terminated earlier or renewed for 10-year periods thereafter.
-7The Company also uses brand names under licences from third parties. These licensing arrangements
are generally renewable based on mutual agreement. The Company’s licensed brands include:
Swiss Miss milk shakes and cocoa mix for sale in the Philippines;
Nissin’s Cup Noodles instant noodles for sale in the Philippines; and
Hunt’s tomato and pork and bean products for sale in the Philippines.
Intellectual property licences are subject to the provisions of the Philippine Intellectual Property Code.
The Company’s licensing agreements are registered with the Philippine Intellectual Property Office.
The former Technology Transfer Registry of the Bureau of Patents, Trademarks and Technology
Transfer Office issued the relevant certificates of registration for licensing agreements entered into by
URC prior to January 1998. These certificates are valid for a 10-year period from the time of
issuance. After the Intellectual Property Code of the Philippines (R.A. No. 8293) became effective in
January 1998, technology transfer agreements, as a general rule, are no longer required to be registered
with the Documentation, Information and Technology Transfer Bureau of the Intellectual Property
Office, but the licensee may apply to the Intellectual Property Office for a certificate of compliance
with the Intellectual Property Code to confirm that the licensing agreement is consistent with the
provisions of the Intellectual Property Code. In the event that the licensing agreement is found by the
Intellectual Property Office to be not in compliance with the Intellectual Property Code, the licensor
may obtain from the Intellectual Property Office a certificate of exemption from compliance with the
cited provision. URC has obtained certificates of registration for its licensing agreements with NissinURC and Hunt-URC. The Company was also able to renew both its licenses for another term.
Regulatory Overview
As manufacturer of consumer food and commodity food (flour) products, the Company is required to
guarantee that the products are pure and safe for human consumption, and that the Company conforms
to standards and quality measures prescribed by the Bureau of Food and Drug.
The Company’s sugar mills are licensed to operate by the Sugar Regulatory Administration. The
Company renews its sugar milling licenses at the start of every crop year.
All of the Company’s feed products have been registered with and approved by the Bureau of Animal
Industry, an agency of the Department of Agriculture which prescribes standards, conducts quality
control test of feed samples, and provides technical assistance to farmers and feed millers.
Some of the Company’s projects, such as the sugar mill and refinery and poultry and hog farm
operations, certain snacks products and BOPP packaging, are registered with the Board of Investments
(BOI) which allows the Company certain fiscal incentives.
Effects of Existing or Probable Governmental Regulations on the Business
The Company operates its businesses in a highly regulated environment. These businesses depend
upon licenses issued by government authorities or agencies for their operations. The suspension or
revocation of such licenses could materially and adversely affect the operation of these businesses.
-8Research and Development
The Company develops new products and variants of existing product lines, researches new processes
and tests new equipment on a regular basis in order to maintain and improve the quality of the
Company’s food products. In the Philippine operations alone, about =
P16.2 million was spent for
research and development activities for fiscal year 2005 and approximately =
P14.1 million and
=
P19.2 million for fiscal years 2004 and 2003, respectively.
The Company has research and development staff for its branded consumer foods and packaging
divisions of approximately 84 people located in its research and development facility in Metro Manila.
The Company also has research and development staff in each of its manufacturing facilities. In
addition, the Company hires experts from all over the world to assist its research and development
staff. The Company conducts extensive research and development for new products, line extensions
for existing products and for improved production, quality control and packaging as well as
customising products to meet the local needs and tastes in the international markets. The Company’s
commodity foods division also utilises this research and development facility to improve their
production and quality control. The Company also strives to capitalise on its existing joint ventures to
effect technology transfers.
The Company has dedicated research and development staff for its agro-industrial business of
approximately six persons. Its researchers are continually exploring advancements in breeding and
farming technology. The Company regularly conducts market research and farm-test all of its
products.
The Company also has a diagnostic laboratory that enables it to perform its own serology tests. The
Company offers its laboratory services directly to other commercial farms and Robichem Laboratories
provides certain of its laboratory services at a minimal cost as a service to some of its customers.
Transactions with Related Parties
The largest shareholders, JG Summit Holdings, Inc., is one of the largest conglomerates listed on the
Philippine Stock Exchange based on total net sales. JG Summit provides the Company with certain
corporate center services including corporate finance, corporate planning, procurement, human
resources, legal and corporate communications. JG Summit also provides the Company with valuable
market expertise in the Philippines as well as intra-group synergies. See Note 16 to Consolidated
Financial Statements for transactions with other affiliates.
Costs and Effects of Compliance with Environmental Laws
The operations of the Company are subject to various laws enacted for the protection of the
environment, including the Pollution Control Law (R.A. No. 3931, as amended by P.D. 984), the Solid
Waste Management Act (R.A. No. 9003), the Clean Air Act (R.A. No. 8749), the Environmental
Impact Statement System (P.D. 1586) and the Laguna Lake Development Authority (LLDA) Act of
1966 (R.A. No. 4850). The Company believes that it has complied with all applicable environmental
-9laws and regulations, an example of which is the installation of wastewater treatments in its various
facilities. Compliance with such laws has not had, and in the Company’s opinion, is not expected to
have, a material effect upon the Company’s capital expenditures, earnings or competitive position. As
of September 30, 2005, the Company has invested about =
P333.3 million in wastewater treatment in its
facilities in the Philippines.
Employees and Labor
As of September 30, 2005, the number of permanent full time employees engaged in the Company’s
respective businesses is 6,613 and are deployed as follows:
Business
Company or Division
Branded consumer foods . . . . . .
BCF, Nissin-URC, Hunt-URC
Packaging Division, URC Hotloops, URCICL
Agro-industrial products
Agribusiness . . . . . . . . . . . . . .
Livestock feeds, corn
products, & vegetable
oil . . . . . . . . . . . . . . . . .
Veterinary compounds . . . . .
Commodity food products
Sugar . . . . . . . . . . . . . . . . .
Flour . . . . . . . . . . . . . . . . . . .
Number
3,982
Robina Farms
942
UCP
367
Robichem
102
URSUMCO, SONEDCO, CARSUMCO
CMC
912
308
6,613
Of the above, 1,874 are managerial and administrative staff. As at the same date, approximately 8,308
contractual and agency employees are engaged in the Company’s businesses. The Company does not
anticipate any substantial increase in the number of its employees in 2006.
For most of the companies and operating divisions, collective bargaining agreements between the
relevant representatives of the employees’ union and the subsidiary or divisions are in effect. The
collective bargaining agreements generally cover a five-year term with a right to renegotiate the
economic provisions of the agreement after three years, and contain provisions for annual salary
increases, health and insurance benefits, and closed-shop arrangements. The collective bargaining
agreements are with 19 different unions. For fiscal 2005, three collective bargaining agreements were
signed and concluded with the URC Administration Union, the CMC Monthlies Union and the UCP
Dailies Union.
The Company believes that good labor relations generally exist throughout the Company’s
subsidiaries and operating divisions.
The Company has established non-contributory retirement plan covering all of the regular employees
of URC. The plan provides retirement, separation, disability and death benefits to its members. The
Company, however, reserves the right to change the rate and amounts of its contribution at anytime on
account of business necessity or adverse economic conditions. The funds of the plan are administered
and managed by the trustees. Retirement costs charged to operations, including amortization of past
service cost, amounted to =
P13.8 million in fiscal year 2005.
- 10 Risks
The major business risks facing the Company and its subsidiaries are as follows:
1) Competition
The Company and its subsidiaries face competition in all segments of its businesses both in the
Philippine market and in international markets where it operates. The Philippine food industry in
general is highly competitive. Although the degree of competition and principal competitive factors
vary among the different food industry segments in which the Company participates, the Company
believes that the principal competitive factors include price, product quality, brand awareness and
loyalty, distribution network, foreign competition, proximity of distribution outlets to customers,
product variations and new product introductions. (See page 3, Competition, for more details)
The Company’s ability to compete effectively includes continuous efforts in sales and marketing of its
existing products, development of new products and cost rationalization.
2) Financial Market
The Company has foreign exchange exposure primarily associated with fluctuations in the value of the
Peso against the U.S. dollar and other foreign currencies. The substantial majority of the Company’s
revenues are denominated in Pesos, while certain of its expenses, including debt service and raw
material costs, are denominated in U.S. dollars or based on prices determined in U.S. dollars. In
addition, the majority of the Company’s debt is denominated in foreign currencies. Prudent fund
management is employed to minimize effects of fluctuations in interest and currency rates.
3) Raw Materials
The Company’s production operations depend upon obtaining adequate supplies of raw materials on a
timely basis. In addition, its profitability depends in part on the prices of raw materials since a portion
of the Company’s raw material requirements are imported including packaging materials. To mitigate
these risks, alternative sources of raw materials are used in the Company’s operations. (See page 5,
Raw Materials, for more details)
4) Food Safety Concerns
The Company’s business could be adversely affected by the actual or alleged contamination or
deterioration of certain of its flagship products, or of similar products produced by third parties. A
risk of contamination or deterioration of its food products exists at each stage of the production cycle,
including the purchase and delivery of food raw materials, the processing and packaging of food
products, the stocking and delivery of the finished products to its customers, and the storage and
display of finished products at the points of final sale. The Company conducts extensive research and
development for new products, line extensions, for existing products and for improved production,
quality control and packaging as well as customizing products to meet the local needs and tastes in the
international markets for its food business. For its agro-industrial business, its researchers are
- 11 continually exploring advancements in breeding and farming technology. The Company regularly
conducts market research and farm-test all of its products. Moreover, the Company ensures that the
products are safe for human consumption, and that the Company conforms to standards and quality
measures prescribed by regulatory bodies such as Bureau of Food and Drug, Sugar Regulatory
Administration, Bureau of Animal Industry, and Department of Agriculture.
5) Mortalities
The Company’s agro-industrial business is subject to risks of outbreaks of various diseases. The
Company faces the risk of outbreaks of hoof-and mouth disease, which is highly contagious and
destructive to susceptible livestock such as hogs and avian influenza or bird flu for its chicken farming
business. These diseases and many other types could result to mortality losses. Disease control
measures were adopted by the Company to minimize and manage this risk.
6) Intellectual Property Rights
Approximately 77% of the Company’s net sales and services in fiscal year 2005 were from its branded
consumer food group. The Company has put considerable efforts to protect the portfolio of
intellectual property rights, including through trademark registrations. Security measures are
continuously taken to protect its patents, licenses and proprietary formulae against infringement and
misappropriation.
Weather and Catastrophe
Severe weather condition may have an impact on some aspects of the Company’s business, such as its
sugar cane milling operations due to reduced availability of sugar cane. Weather condition may also
affect the Company’s ability to obtain raw materials and the cost of those raw materials. Moreover,
Philippines has experienced a number of major natural catastrophes over the years including typhoons,
droughts, volcanic eruptions, and earthquakes. The Company and its subsidiaries continually maintain
sufficient inventory level to neutralize any shortfall of raw materials from major suppliers whether
local or imported.
8) Environmental Laws and Other Regulations
The Company is subject to numerous environmental laws and regulations relating to the protection of
the environment and human health and safety, among others. The nature of the Company’s operations
will continue to subject it to increasingly stringent environmental laws and regulations that may
increase the costs of operating its facilities above currently projected levels and may require future
capital expenditures. The Company is continually complying with environmental laws and
regulations, such as the wastewater treatment plants as required by the Department of Environment
and Natural Resources, to lessen the effect of these risks.
The Company shall continue to adopt what it considers conservative financial and operational policies
and controls to manage the various business risks it faces.
- 12 Item 2.
Properties
The Company operates the following manufacturing/farm facilities located in the following:
Location (Number of facilities)
Pasig City (4)
Libis, Quezon City (1)
Canlubang, Laguna (1)
Mandaue City, Cebu (2)
Luisita, Tarlac (1)
Davao City, Davao (3)
San Fernando, Pampanga (2)
Dasmariñas, Cavite (2)
Cagayan de Oro (1)
Antipolo, Rizal (3)
Taytay, Rizal (1)
Teresa, Rizal (2)
Angono, Rizal (1)
San Miguel, Bulacan (2)
Novaliches, Quezon City (1)
Manjuyod, Negros Oriental (1)
Piat, Cagayan (1)
Kabankalan, Negros Occidental (2)
Simlong, Batangas (1)
Calamba, Laguna (1)
Bukidnon (1)
Samutsakhorn Industrial Estate,
Samutsakhorn, Thailand (1)
Pasir Gudang, Johor, Malaysia (1)
Shiqiao Town, Guandong, China (1)
Xiamen, Fujian, China (1)
Tianjin Economic Development Area,
Tianjin, China (1)
Shanghai, China (1)
Industrial Town, Indonesia (1)
VSIP, Bin Duong Province,
Vietnam (1)
Type of Facility
Owned/Rented
Condition
Branded consumer food
plants, feedmills and flourmill
Branded consumer food plant
Branded consumer food plant
Branded consumer food plant,
poultry farm and feedmill
Branded consumer food plant
Branded consumer food plant
(idle) and flourmill
Branded consumer food plants
Branded consumer food plants
Branded consumer food plant
Poultry; and
Veterinary medicine plant
Poultry farm
Poultry and piggery farms
Poultry farm
Poultry and piggery farms
Piggery farm
Sugar mill
Sugar mill
Sugar mill
BOPP plant
Branded consumer food plant
White Potato Project
Branded consumer food plant
Owned
Good
Owned
Owned
Owned
Good
Good
Good
Owned
Owned
Good
Good
Owned
Owned
Owned
Rented
Good
Good
Good
Good
Rented
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Rented
Owned
Owned
Good
Good
Good
Good
Good
Good
Good
Good
Good
Good
Good (Idle)
Good
Branded consumer food plant
Branded consumer food plant
Branded consumer food plant
Branded consumer food plant
Owned
Owned
Owned
Owned
Good
Good
Good (Idle)
Good (Idle)
Branded consumer food plant
Branded consumer food plant
Branded consumer food plant
Owned
Owned
Owned
Good
Good
Good
- 13 The Company intends to expand the production and distribution of the branded consumer food
products internationally through the addition of manufacturing facilities located in geographically
desirable areas, especially in the ASEAN countries, the realignment of the production to take
advantage of markets that are more efficient for production and sourcing of raw materials, and
increased focus and support for exports from the manufacturing facilities to other markets. It also
intends to enter into alliances with local raw material suppliers and distributors.
Sugar mill facilities in Kabankalan, Negros Occidental with net book value of P97.3 million and P73.3
million in 2005 and 2004, respectively, were used to secure the loan from Philippine Sugar
Corporation. (See Note 15, Long-term Debt, to the Consolidated Financial Statements for more
details)
Annual lease payment for Calamba plant for fiscal year 2005 amounted to P8.8 million pesos. Lease
contract is renewable annually. Farm facilities in Taytay, Rizal and Antipolo, Rizal owned by an
affiliate, on the other hand, are rent-free.
Item 3.
Legal Proceedings
The Company is subject to lawsuits and legal actions in the ordinary course of its business. The
Company or any of its subsidiaries is not a party to, and its properties are not the subject of, any
material pending legal proceedings that could be expected to have a material adverse effect on the
Company’s financial position or results of operations.
Item 4.
Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal
year covered by this report.
PART II - OPERATIONAL AND FINANCIAL INFORMATION
Item 5.
Market for Registrant’s Common Equity and Related Stockholder Matters
Market Information
The principal market for URC’s common equity is the Philippine Stock Exchange. Sales prices of the
common stock follow:
Low
High
Fiscal Year 2005
Oct. to Dec. 2004
=
P10.00
=
P9.10
Jan. to Mar. 2005
12.75
9.30
Apr. to Jun. 2005
17.25
12.00
Jul. to Sep. 2005
17.75
15.75
- 14 -
Fiscal Year 2004
Oct. to Dec. 2003
Jan. to Mar. 2004
Apr. to Jun. 2004
Jul. to Sep. 2004
=
P5.90
6.60
7.00
9.00
=
P5.00
5.30
6.20
6.20
As of January 10, 2006, the latest trading date prior to the completion of this annual report, sales
prices of the common stock is at =
P20.25 and =
P20.0, respectively for high and low.
The number of shareholders of record as of September 30, 2005 was approximately 1,357. Common
shares outstanding as of September 30, 2005 were 1,686,479,549.
List of Top 20 Stockholders of Record
September 30, 2005
Name of Stockholders
JG Summit Holdings, Inc.
Express Holdings, Inc.
PCD Nominee Corporation (Non-Filipino)
Robinsons Supermarket Corporation
PCD Nominee Corporation (Filipino)
Elizabeth Y. Gokongwei &/or John Gokongwei, Jr.
Litton Mills, Inc.
Marcia Gokongwei Sy &/or Elizabeth Gokongwei
Hope Gokongwei Tang &/or Elizabeth Gokongwei
Faith Gokongwei Ong &/or Elizabeth Gokongwei
Lisa Yu. Gokongwei &/or Elizabeth Gokongwei
Robina Gokongwei Pe &/or Elizabeth Gokongwei
Flora Ng Siu Kheng
Eng Si Co Lim
Pua Yok Bing
Consolidated Robina Capital Corporation
Gilbert U. Du &/or Fe Socorro R. Du
Cely C. Reaport &/or Senen C. Reaport
Lily Cristina G. Ngochua
Pan Malayan Management & Investment Corporation
JG Summit Capital Services Corporation
Shipside, Inc.
Calvin Chua
Eloisa Tantuco
Catalino S. Ngochua
Pablo Son Keng Po
Number of
Shares Held
1,232,301,488
219,904,990
151,071,041
49,911,556
19,248,156
2,156,000
1,945,595
500,000
500,000
500,000
500,000
500,000
330,000
300,000
273,900
220,000
163,900
132,000
132,000
124,080
111,100
110,000
110,000
105,600
74,800
74,360
Percent to Total
Outstanding
73.07%
13.04
8.96
2.96
1.14
0.13
0.12
0.03
0.03
0.03
0.03
0.03
0.02
0.02
0.02
0.01
0.01
0.01
0.01
0.01
0.01
0.01
0.01
0.01
0.00
0.00
1,681,300,566
99.69%
- 15 Recent Sales of Unregistered Securities
Not applicable. All shares of the Company are listed on the Philippine Stock Exchange.
Dividends
The Company paid dividends as follows:
For fiscal year 2005, cash dividend of =
P0.30 per share was declared to all stockholders of record as of
June 3, 2005 and paid on June 29, 2005.
For fiscal year 2004, cash dividend of =
P0.30 per share was declared to all stockholders of record as of
June 3, 2004 and paid on June 29, 2004.
For fiscal year 2003, cash dividend of =
P0.30 per share was declared to all stockholders of record as of
June 20, 2003 and paid on July 14, 2003.
Item 6.
Management’s Discussion and Analysis or Plan of Operation
The following discussion should be read in conjunction with the accompanying consolidated financial
statements and notes thereto, which form part of this Report. The consolidated financial statements
and notes thereto have been prepared in accordance with the accounting principles generally accepted
in the Philippines.
Results of Operations
Fiscal Year 2005 Compare to Fiscal Year 2004
Universal Robina Corporation (URC) posted a consolidated net sales and services of =
P30.9 billion for
the fiscal year ended September 30, 2005, a 13.3% increase over the same period last year. The
principal reasons for this increase were as follows:
•
Net sales in URC’s branded consumer foods segment, including the packaging division,
increased by P3.2 billion, or 15.7%, to P23.8 billion in fiscal 2005 from P20.5 billion recorded
in fiscal 2004. This increase was primarily due to a 14.8% increase in net sales from URC’s
international operations, principally Thailand, Indonesia, Malaysia and China, and a 16.1%
increase in net sales from URC’s domestic operations. URC’s domestic branded consumer
food operations benefited from increased sales of beverage products, as well as increased sales
volumes of its products in core categories such as snacks, candy, chocolate, noodle and biscuit
segments which were supported by strong exports. Sales in Thailand benefited primarily from
strong sales of biscuits and wafers produced at its new biscuit plant in Thailand. Increased
sales in China were driven by candies and snacks, and sales in Indonesia by snacks.
- 16 -
•
Net sales in URC’s agro-industrial segment amounted to P3.9 billion in fiscal 2005, an
increase of P222.7 million or 6.1% from P3.7 billion recorded in fiscal 2004. This increase in
net sales was due primarily to URC’s animal feeds business, which reported an increase in net
sales of 16.7% to P1.6 billion in fiscal 2005 from P1.3 billion recorded in fiscal 2004 as a
result of higher sales volume and selling prices.
•
Net sales in URC’s commodity foods segment increased by P167.8 million, or 5.5%, to
P3.2 billion in fiscal 2005 from P3.0 billion recorded in fiscal 2004. The principal reason for
the increase was increased net sales from URC’s flour business. Net sales of flour increased
by 12.7% due to increased sales volume, which was offset by a decrease of 14.0% in net sales
of sugar. The decrease in net sales of sugar in fiscal 2005 was due to an increase in the
proportion of sugar sold within URC for internal consumption, as URC does not recognize
such intercompany sales as net sales on a consolidated basis.
URC’s cost of sales and services consist primarily of raw and packaging materials costs,
manufacturing costs and direct labor costs. Costs of sales and services increased by P2.6 billion, or
12.6%, to P22.9 billion in fiscal 2005 from P20.4 billion recorded in fiscal 2004. This increase
resulted principally from increased sales volumes and generally higher costs for many major raw
materials and packaging materials used in snacks, candies, chocolates, biscuits and flour products,
such as coffee, wheat and potatoes, and major raw materials for animal feeds such as soya and for our
BOPP films such as resin. The increased cost of raw materials reflected the general increase in many
commodity prices during this period while the increased cost of packaging materials reflected the
increased price of many oil-based products during this period.
URC’s gross profit increased by P1.1 billion, or 15.4%, to P7.9 billion in fiscal 2005 from P6.9 billion
recorded in fiscal 2004, as the increase in net sales was greater than the increase in cost of sales.
URC’s gross profit as a percentage of net sales increased marginally to 25.7% in fiscal 2005 from
25.2%in fiscal 2004.
URC’s operating expenses consist primarily of salaries, wages and other staff costs, advertising and
promotion costs, freight and other selling expenses, depreciation, repairs and maintenance expenses
and other administrative expenses. Operating expenses increased P654.0 million, or 13.6%, to
P5.5 billion in fiscal 2005 from P4.8 billion recorded in fiscal 2004. This increase resulted primarily
from the following factors:
•
an increase in freight and other selling expenses which increased by P218.5 million, or 17.7%,
to P1.5 billion in fiscal 2005 from P1.2 billion recorded in fiscal 2004 due to higher volumes
of exports and increased freight rate charges associated with higher fuel prices;
•
an increase in salaries, wages and other staff costs (which increased by P225.4 million, or
29.4%, to P991.8 million in fiscal 2005 from P766.4 million in fiscal 2004) due to hiring of
new employees in connection with expansion of URC’s international operations, particularly
in China and Vietnam, and the hiring of a dedicated beverage products sales force in the
Philippines; and
- 17 -
•
increased advertising and promotion costs both from URC’s domestic and international
operations,
which offset a P180.7 million, or 42.6%, decrease in depreciation, repairs and maintenance expenses
to P243.5 million in fiscal 2005 from P424.2 million recorded in fiscal 2004 resulting from certain
plant, property and equipment becoming fully depreciated in fiscal 2005.
As a result of the above factors, income from operations increased by P405.2 million, or 19.7%, to
P2.5 billion in fiscal 2005 from P2.1 billion recorded in fiscal 2004, and income from operations as a
percentage of net sales increased slightly to 8.0% in fiscal 2005 from 7.5% recorded in fiscal 2004.
URC’s income from operations by segment was as follows:
•
Income from operations in URC’s branded consumer foods segment, including the packaging
division, increased to P949.3 million in fiscal 2005 from P898.4 million recorded in fiscal
2004. Though the increase in income from domestic operations was 21.2% to P1.3 billion
from P1.1 billion, this was trimmed down by higher operating losses incurred by URC’s
international operations, which increased from an operating loss of P165.5 million in fiscal
2004 to an operating loss of P340.1 million in fiscal 2005. The higher operating loss in
international operations was primarily a result of higher manpower costs from the hiring of
new employees and increased costs associated with greater advertising and promotional
activity for new products and introduction of Jack and Jill megabrand.
•
Income from operations in URC’s agro-industrial segment increased by P56.1 million to
P524.4 million in fiscal 2005 from P468.3 million in fiscal 2004 due to greater net sales from
URC’s animal feeds business and improved gross margin as a result of higher selling prices.
•
Income from operations in URC’s commodity foods segment increased by P298.5 million, or
43.3%, to P987.2 million in fiscal 2005 from P688.7 million in fiscal 2004 due to increased
net sales from flour products which was principally driven by volume increase.
Other income (charges) - net consists primarily of investment income, interest and other financing
charges, equity in net earnings of associate companies, as well as other miscellaneous income and
expenses. URC realized other income of P289.7 million in fiscal 2005 compared to other charges of
P256.2 million in fiscal 2004. The principal reasons for this shift from a net charge position to a net
income position were an increase in investment income, equity in net earnings of unconsolidated
associate companies and other net income, offset by higher interest and finance charges. Specifically:
•
URC’s investment income consists of interest income from cash and cash equivalents and
temporary investments. Investment income increased by 32.6% to P1.9 billion in fiscal 2005
from P1.4 billion in fiscal 2004. This increase was due in part to the additional interest income
from investing a significant portion of the proceeds of U.S.$200 million of guaranteed notes
issued in January 2005 in temporary investments. In addition, URC earned higher returns in
fiscal 2005 on its cash time deposits.
- 18 -
•
URC’s principal investments accounted for under the equity method were its joint ventures:
Hunt Universal Robina Corporation, or (“Hunt-URC”) and Robinsons Land Corporation.
Equity in net earnings of investees increased to P244.6 million in fiscal 2005 from
P184.8 million recorded in fiscal 2004 due mainly to higher equity in net earnings from
investment in Robinsons Land Corporation as a result of higher income of Robinsons Land
Corporation.
•
Others - net consists of, among other things, amortization of deferred charges, foreign
exchange gains or losses, gain on sale of certain property and equipment and other expenses,
such as severance pay to retired employees, net of other income. In fiscal 2005, URC had
other net income of P250.9 million compared to other net charges of P331.7 million in fiscal
2004 due to recovery in market value of marketable securities and gain on sale of temporary
investments and fixed assets in fiscal 2005.
•
Interest and other financing charges consists of interest expense. Interest and other financing
charges increased by 36.6%, to P2.1 billion in fiscal 2005 from P1.5 billion recorded in fiscal
2004 due primarily to the additional interest payable on the U.S.$200 million of guaranteed
notes issued in January 2005, coupled with the increase in the amount of interest payable on
URC’s foreign currency-denominated indebtedness due to depreciation in fiscal 2005 in the
exchange rate of the peso to other foreign currencies.
URC recognized a net provision from income tax in fiscal 2005 of P470.8 million compared to a net
benefit from income tax of P10.2 million in fiscal 2004. The increase in provisioning for current
income tax was mainly due to a combination of higher taxable income resulting from increased gross
income, particularly from URC’s sugar business, and the expiration of an exemption from income tax
on URC’s sales in Thailand in fiscal 2005. The increase in provisioning for deferred income tax was
due to an increase in unrealized gain on excess of market value over cost of URC’s hog stocks.
Minority interests represents primarily the share in net loss (income) attributable to minority
shareholders of the following subsidiaries of URC: URC International, URC’s direct subsidiary in
which it holds approximately a 77.0% economic interest, Nissin-Universal Robina Corporation
(“Nissin-URC”), URC’s 65.0%-owned subsidiary and Southern Negros Development Corporation,
URC’s 94.0%-indirectly owned subsidiary. Minority interests in net loss of subsidiaries was
P124.6 million in fiscal 2005 compared to P66.2 million recorded in fiscal 2004. The increase in
minority interests in fiscal 2005 reflects the increase in loss from URC International.
Net income increased by P528.8 million, or 28.2%, to P2.4 billion in fiscal 2005 from P1.9 billion in
fiscal 2004 as a result of the factors discussed above.
URC generated an EBITDA (earnings before interest, taxes, depreciation and amortization) of P7.0
billion for the current fiscal year 2005, 24.5% more than =
P5.6 billion it had in fiscal year 2004.
The Company will continue to expand its regional operations and domestically firm up its leadership
in its core categories and has again set an aggressive target on the ensuing year to maintain its
dominance in the Philippine market as well as in the ASEAN regional market.
- 19 The Company is not aware of any material off-balance sheet transactions, arrangements, and
obligations (including contingent obligations), and other relationship of the Company with
unconsolidated entities or other persons created during the reporting period that would have a
significant impact on the Company’s operations and/or financial condition.
Fiscal Year 2004 Compared to Fiscal Year 2003
Universal Robina Corporation (URC) registered a consolidated net sales and services of P27.2 billion
for the fiscal year ended September 30, 2004, a 16.3% increase over the same period last year despite
highly competitive environment and depressed economic condition marked by political and security
concerns. Revenue growth was led again by the solid performance of its core business, Branded
Consumer Foods (BCF) business, particularly its expanding international operations in Southeast Asia,
and improved revenues of its Agro-industrial and Commodity foods businesses, notably farms and
sugar businesses, respectively.
The Company’s gross margin improved by 13.5% to P6.9 billion compared to the same period last
year of P6.0 billion. Income from operations likewise went up by 38.2% to P2.1 billion from P1.5
billion last year due to significant increase in sales, which covered for the slight increase in operating
expenses. Operating expenses increased by 5.5% to P4.8 billion as a result of expanding regional
operations and sustained marketing activities.
As a result of better performance of all business segments, net income for fiscal year 2004 climbed to
P1.9 billion, a remarkable 32.6% increase over P1.4 billion recorded last year. Consequently, earnings
per share was P1.11, better than last year’s P0.84.
The Branded Consumer Foods (BCF) business unit, including the packaging division, posted a net
sales and services value growth of 13.9 % to P20.5 billion compared to the same period last year of
P18.0 billion. This was attributed to URC International revenue growth of 34.4% and the continued
strength of the Company’s products in core categories such as snacks, candy, chocolate, noodle and
biscuit segments complemented by strong exports.
The Company expects a continued strong performance of the Branded Consumer Foods in the
domestic front and ASEAN region as well, with new and exciting product launches, intensive
marketing and advertising efforts and extensive distribution network.
The Agro-industrial business unit reported a net sales of P3.7 billion, 20.0% higher than last year. The
increase in net sales resulted from improvement in prices of feeds and farm products, and higher
volume sold by the farm business.
URC’s Commodity Foods business unit generated a net sales of P3.0 billion, 29.7% higher compared
to last year of P2.3 billion. The increase was due to higher selling prices of flour products and higher
volume sold by the flour and sugar businesses.
Cost of sales and services increased by P3 billion or 17.3% to P20.4 billion from P17.4 billion last
year. The increase was due to higher sales volume and costs of major raw and packaging materials
used in our snacks, candies, chocolates, biscuits and flour and feed products.
- 20 Other income (charges) - net was P(256.2) million for the current fiscal year compared to P(93.5)
million the previous fiscal year. Variance was caused mainly by recording of foreign exchange losses.
Provision for income tax this year was substantially lower due to higher non-taxable income and
recognition of benefit from deferred income tax on provision for impairment losses on idle fixed
assets, unrealized foreign exchange losses, provision for doubtful accounts, among others.
Minority interest in net loss of subsidiaries was P66.2 million or P20.0 million lower from last year’s
P86.2 million due to improvement in results of operations of subsidiaries.
URC generated an EBITDA (earnings before interest, taxes, depreciation and amortization and other
non-cash items) of P5.6 billion for the current fiscal year 2004, 16.5% more than =
P4.8 billion it had in
fiscal year 2003.
The Company will continue to expand its regional operations and domestically firm up its leadership
in its core categories and has again set an aggressive target on the ensuing year to maintain its
dominance in the Philippine market as well as in the ASEAN regional market.
The Company is not aware of any material off-balance sheet transactions, arrangements, and
obligations (including contingent obligations), and other relationship of the Company with
unconsolidated entities or other persons created during the reporting period that would have a
significant impact on the Company’s operations and/or financial condition.
Fiscal Year 2003 Compared to Fiscal Year 2002
Universal Robina Corporation (URC) reported a consolidated net sales and services of P23.4 billion
for the fiscal year ended September 30, 2003, a 10.7% increase over the same period last year despite
the depressed economic conditions prevailing in the region and highly competitive environment.
Revenue growth was spearheaded by the solid performance of its core business Branded Consumer
Foods Group, particularly its international operations in Southeast Asia. In addition, the Company’s
agro-industrial and commodity food group operations likewise posted a modest increase in revenue.
The Company’s gross margin improved by 10.0% to P6.0 billion compared to the same period last
year of P5.5 billion. However, income from operations was lower by 14.7% to P1.5 billion due to
higher operating expenses. Operating expenses increased by 21.5% to P4.6 billion as a result of
expanding regional operations and sustained marketing activities.
Net income for fiscal year 2003 is up by 12.7% to P1.4 billion from last year’s P1.3 billion resulting in
earnings per share of P0.84 better than last year’s P0.74.
The Branded Consumer Foods (BCF) business unit, including the packaging division, posted a net
sales and services value growth of 13.5 % to P18.0 billion compared to the same period last year. This
was attributed to URC’s regional snacks food revenue growth of 37.6% and the continued strength of
the Company’s products in core categories such as snacks, candy, chocolate and biscuit segments
complemented by strong exports.
- 21 The Company expects a continued strong performance of the Branded Consumer Foods in the
domestic front and ASEAN region as well, with new and exciting product launches and intensive
marketing and advertising efforts.
The agro-industrial business unit reported net sales of P3.0 billion, the same level as last year. The
increase in net sales of the feeds business as a result of a 20.1% volume growth was offset by lower
sales volume and prices of farm products.
URC’s commodity food business unit generated net sales of P2.3 billion, 4.0% higher compared to the
last year of P2.2 billion. The increase was due to a 20.8% volume growth of sugar business and better
prices of flour products.
Cost of sales and services increased by P1.7 billion or 10.9% to P17.4 billion from P15.7 billion last
year. The increase was due to higher sales volume, cost of major raw and packaging materials used in
our snacks, candies, chocolates, biscuits and flour products and animal feeds and higher hog mortality.
Other income (charges) - net was P(93.5) million for the current fiscal year compared to P(207.5)
million the previous fiscal year. Lower other charges – net was due to recognition of increase in value
of temporary investments, recovery in value of marketable securities and higher unrealized foreign
exchange gain.
Provision for income tax this year was substantially lower due to higher non-taxable income and
recognition of benefit from deferred income tax.
The Company will continue to expand its regional operations and domestically firm up its leadership
in its core categories and has again set an aggressive target on the ensuing year to maintain its
dominance in the Philippine market as well as in ASEAN regional market.
Financial Condition
The Company’s financial position remained strong. URC is highly liquid having a current ratio of
4.6:1 as of September 30, 2005 from 2.9:1 as of September 30, 2004. Financial debt to equity ratio
went up to 1.1:1 versus 0.7:1 as of September 30, 2004.
Total assets amounted to P54.7 billion, up by 26.5% from P43.2 billion as of September 30, 2004.
Book value per share improved to P14.31 from P13.18 as at September 30, 2005.
The Company’s cash requirements generally have been funded through cash flow from operations.
The net cash flow provided by operating activities for the fiscal year ended September 30, 2005
amounted to P2.3 billion. On the other hand, net cash used in investing activities for the period
amounted to P12.5 billion primarily to fund acquisitions of property, plant and equipment and
temporary investments net of proceeds from sale of property, plant and equipment and receipt of
dividends. Net cash provided by financing activities was P8.9 billion, which was substantially from
the issuance of $200 million 8.25% guaranteed notes due 2012 net of payments for short and longterm loans and cash dividends. The Company does not anticipate any liquidity problems that may
arise in the near future as it enjoys a healthy financial position.
- 22 The additional investment in property, plant and equipment amounting to P3.6 billion was used
primarily in the construction of layered cake project, snacks, biscuit, candy lines in Rosario, Bagongilog, Pampanga, and Cavite, PET Bottles project in Calamba, Laguna, expansion of sugar refinery in
Negros, manufacturing facilities in Malaysia and Thailand and construction of new manufacturing
plant in Vietnam.
The Company budgeted about P5.6 billion for capital expenditures (including maintenance capex) and
investment for fiscal year 2006 which consist of the following:
•
•
•
P3.4 billion for continued expansion of the Branded Consumer Foods operations primarily in a
multi-product beverage line in PET bottles in the Philippines as well as international markets
(China and ASEAN countries) particularly Vietnam;
P1.7 billion for the expansion of the raw milling capacity and new refinery in SONEDCO, the
additional manufacturing machinery and equipment; and
P317.1 million for additional manufacturing facilities for URC’s agro-industrial division.
No assurance can be given that the Company’s capital expenditures plan will not change or that the
amount of capital expenditures for any project or as a whole will not increase in future years from
current expectations.
As of September 30, 2005, the Company is not aware of any events that will trigger direct or
contingent financial obligation that is material to the Company, including any default or acceleration
of an obligation.
- 23 Material Changes in the 2005 Financial Statements
(Increase/Decrease of 5% or more versus 2004)
Income statements – Year ended September 30, 2005 versus Year ended September 30, 2004
13.3% increase in sales and services was principally due to the following:
The Branded Consumer Foods (BCF) business unit, including the packaging division, reported sales
and services value growth of 15.7% to P23.8 billion compared to prior fiscal year. This was attributed
to a 16.1% increase in net sales from URC’s domestic operations and 14.8% increase in net sales of
URC International operations, principally from Thailand, Indonesia, Malaysia and China. URC’s
domestic branded consumer food operations benefited from the continued strength, in terms of
increased sales, of its products in core categories such as snacks, candy, chocolate, noodle, biscuit and
beverage segments which were supported by strong exports sales.
The Company’s Agro-industrial business unit posted net sales of P3.9 billion, up by 6.1% from prior
fiscal year. URC’s animal feeds business reported an increase in net sales of 16.7% to P1.6 billion in
fiscal 2005 from P1.3 billion recorded in fiscal 2004 as a result of higher sales volume. Robina Farms
division, on the other hand, has maintained its net sales at P2.3 billion in fiscal 2005.
URC’s Commodity Foods business unit registered net sales and services of P3.2 billion, higher by
5.5% compared to prior fiscal year of P3.0 billion. This was attributed to 12.7% increase in net sales
of URC’s flour business due to higher sales volume, partially offset by a decrease of 14.0% in net
sales of sugar as a result of lower sales volume.
12.6% increase in cost of sales and services
This increase resulted principally from increased sales volume, higher costs for imported raw materials
and packaging materials used in snacks, candies, chocolates, biscuits, and flour products and an
increase in costs of certain major raw materials for animal feeds such as soya and for our BOPP films
such as resin. The increased cost of raw materials reflected the general increase in many commodity
prices during this period including wheat and cooking oils while the increased cost of packaging
materials reflected the increased price of many oil-based products during this period.
13.6% increase in operating expenses
This was primarily due to extensive advertising and promotion activities by the Branded Consumer
Foods business unit and increase in freight and other selling expenses due to higher volume of sales,
strong exports, and upward adjustment in freight rate.
Increase in other income (charges) – net
Due to increase in investment income, gain on sale of fixed assets and bond investments, and increase
in equity earnings from affiliates and recovery in value of marketable securities.
Increase in provision for income tax
Due to higher taxable income and recognition of deferred income tax liability.
88.2% increase in minority interest in net loss of subsidiaries
Due to higher net loss incurred by subsidiaries.
- 24 Balance sheets – September 30, 2005 versus September 30, 2004
58.4% decrease in cash and cash equivalents
Due to lower money market placements that were used to pay short-term loans.
79.1% increase in temporary investment – net
Due to additional acquisitions of debt securities.
18.4% increase in marketable securities
Due to recovery in market values of securities held.
15.0% increase in receivables – net
Due to higher trade receivables as a result of increase in sales, advances to suppliers, and accrued
interest receivable.
15.6% increase in inventories – net
Primarily due to increase in finished good, and raw and packaging material inventories, relative to
higher production capacity, higher cost of imported raw materials compounded by Philippine peso
depreciation relative to U.S. dollar and increase in market value of hog stock.
19.2% increase in other current assets
Due to increase in deferred off-milling cost of sugar and other prepaid expenses.
10.7% increase in property, plant and equipment
Primarily due to additional investments, specifically in a new production line for the C2 brand teabased beverage and expanded sugar production facilities in the Philippines, a new snack production
facility in Vietnam and a new biscuit production line in Thailand.
Increase (decrease) in deferred income tax asset and deferred tax liability
URC had net deferred income tax assets as at September 30, 2004, which changed to net deferred
income tax liabilities as at September 30, 2005. The increase in net deferred income tax liabilities was
primarily due to an increase in unrealized gain on excess of market value over cost of URC’s hog
stocks during fiscal 2005 and reversal of provision for impairment of assets.
9.9% decrease in other assets – net
Due to amortization of goodwill and deferred expenses.
36.0% decrease in loans payable
Due to repayment of short-term loans.
43.6% increase in due to affiliated companies
Due to additional advances from affiliates.
Increase in income tax payable
Due to higher taxable income and expiration of exemption from income tax of URC’s sales in
Thailand in fiscal year 2005.
- 25 89.0% increase in long term debt (including current portion)
Due to issuance of US$200 million, 8.25% guaranteed notes due 2012.
13.3% decrease in minority interests in consolidated subsidiaries
Mainly due to higher net loss incurred by a foreign subsidiary.
15.1% increase in retained earnings
Mainly due to income earned during the fiscal year offset by cash dividends paid.
The Company’s key performance indicators are employed across all businesses. Comparisons are then
made against internal target and previous period’s performance. The Company and its significant
subsidiaries’ top five (5) key performance indicators are as follows: (in Million PhPs)
Universal Robina Corporation (Consolidated)
Revenues
EBIT
EBITDA
Net Income
Total Assets
FY 2005
30, 858
2,461
7,028
2,404
54,712
FY 2004
27,233
2,055
5,640
1,876
43,248
Index
113
120
124
128
126
FY 2005
1,910
523
730
467
2,241
FY 2004
1,379
188
407
118
1,886
Index
139
278
179
396
119
FY 2005
588
586
1,269
908
3,427
FY 2004
948
946
1,732
1,377
4,776
Index
62
62
73
66
72
Universal Robina Sugar Milling Corporation
Revenues
EBIT
EBITDA
Net Income
Total Assets
Universal Robina (Cayman), Ltd.
Revenues
EBIT
EBITDA
Net Income
Total Assets
- 26 -
URC Philippines, Limited
Revenues
EBIT
EBITDA
Net Income (Loss)
Total Assets
FY 2005
644
619
2,032
619
27,850
FY 2004
581
564
1,191
564
14,224
Index
111
110
169
110
196
FY 2005
853
39
84
37
925
FY 2004
716
21
75
25
628
Index
119
186
112
148
148
Nissin – URC
Revenues
EBIT
EBITDA
Net Income
Total Assets
Revenues of Universal Robina (Cayman), Ltd. and URC Philippines, Ltd. represent financial revenues
shown under other income (charges) in the consolidated statements of income.
Majority of the above key performance indicators were within targeted levels.
Item 7.
Financial Statements
The consolidated financial statements and schedules listed in the accompanying Index to Financial
Statements and Supplementary Schedules (page 38) are filed as part of this Form 17-A (pages 40
to 94).
Item 8.
Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure
None.
- 27 -
PART III - CONTROL AND COMPENSATION INFORMATION
Item 9. Directors and Executive Officers of the Registrant
Position
Age
Citizenship
79
Filipino
Director, Chairman and Chief Executive Officer James L. Go
66
Filipino
Director, President and Chief Operating Officer Lance Y. Gokongwei
38
Filipino
Director, Vice President
Patrick Henry C. Go
35
Filipino
Director
Frederick D. Go
36
Filipino
Director
Johnson Robert G. Go, Jr.
40
Filipino
Independent Director
Wilfrido E. Sanchez
68
Filipino
Independent Director
Robert G. Coyiuto, Jr.
54
Filipino
Independent Director
Oscar S. Reyes
59
Filipino
Executive Vice President
Bienvenido S. Bautista
58
Filipino
Executive Vice President
Patrick O. Ng
62
Filipino
Senior Vice President – Chief Financial Officer Eugenie M.L. Villena
57
Filipino
Senior Vice President – Corporate Controller
Constante T. Santos
57
Filipino
Vice President – Controller
Geraldo N. Florencio
53
Filipino
Vice President – Treasurer
Jeanette U. Yu
53
Filipino
Corporate Secretary
Rosalinda F. Rivera
35
Filipino
Director, Chairman Emeritus
Name
John Gokongwei, Jr.
All of the above directors have served their respective offices since May 5, 2005. There are no
directors who resigned or declined to stand for re-election to the board of directors since the date of
the last annual meeting of stockholders for any reason whatsoever.
Messrs. Wilfrido E. Sanchez, Robert G. Coyiuto, Jr. and Oscar S. Reyes are the independent directors
of the Company.
- 28 The Directors of the Company are elected at the annual stockholders’ meeting to hold office until the
next succeeding annual meeting and until their respective successors have been elected, appointed or
shall have been qualified.
Officers are appointed or elected annually by the Board of Directors at its first meeting following the
Annual Meeting of Stockholders, each to hold office until the corresponding meeting of the Board of
Directors in the next year or until a successor shall have been elected, appointed or shall have
qualified.
All of the above directors and officers have no involvement in any pending legal proceedings during
the past five (5) years.
A brief description of the directors and executive officers’ business experience and other directorships
held in other reporting companies are provided as follows:
John Gokongwei, Jr. founded URC in 1954 and has been the Chairman Emeritus of URC effective
January 1, 2002. He had been Chairman of the Board until his retirement and resignation from this
position effective December 31, 2001. He continues to be a member of URC’s Board and is the
Chairman Emeritus of JG Summit and certain of its subsidiaries. He also continues to be a member of
the Executive Committee of JG Summit. He is currently the Chairman of the Gokongwei Brothers
Foundation, Inc., Deputy Chairman and Director of United Industrial Corporation, Ltd. and Singapore
Land, Ltd., and a director of JG Summit Capital Markets Corporation, Digital Telecommunications
Phils., Inc., Oriental Petroleum and Minerals Corporation, First Private Power Corporation and
Bauang Private Power Corporation. He is also a non-executive director of A. Soriano Corporation and
Philex Mining Corporation. Mr. Gokongwei received a Master’s degree in Business Administration
from De La Salle University and attended the Advanced Management Program at Harvard Business
School.
James L. Go is the Chairman and Chief Executive Officer of URC. He had been President and Chief
Executive Officer and was elected to his current position effective January 1, 2002 upon the
resignation of Mr. John Gokongwei, Jr. as Chairman. He is also the Chairman and Chief Executive
Officer of JG Summit and as such, he heads the Executive Committee of JG Summit. He is currently
the Chairman and Chief Executive Officer of Robinsons Land Corporation (“RLC”), JG Summit
Petrochemical Corporation, Manila Midtown Hotels and Land Corporation, Litton Mills, Inc., CFC
Corporation, Universal Robina Sugar Milling Corporation, Southern Negros Development
Corporation, Robinsons, Inc., and Oriental Petroleum and Minerals Corporation (“OPMC”). He is also
the President and a Trustee of the Gokongwei Brothers Foundation, Inc. and a director and Vice
Chairman of Digital Telecommunications Phils., Inc. He is also a director of First Private Power
Corporation, Bauang Private Power Corporation, OPMC, Cebu Air, Inc., Panay Electric Co., United
Industrial Corp., Ltd., Singapore Land, Ltd., Marina Center Holdings, Inc. and JG Summit Capital
Markets Corporation. He received a Bachelor of Science degree and a Master of Science degree in
Chemical Engineering from the Massachusetts Institute of Technology. Mr. James L. Go is a brother
of Mr. John Gokongwei, Jr. and joined URC in 1964.
- 29 Lance Y. Gokongwei is the President and Chief Operating Officer of URC. He had been Executive
Vice President and was elected President and Chief Operating Officer effective January 1, 2002 upon
the resignation of Mr. James L. Go as President. He is also President and Chief Operating Officer of
JG Summit, RLC, JG Summit Petrochemical Corporation and Litton Mills, Inc. He is also the
President and Chief Executive Officer of Cebu Air, Inc. and Digital Telecommunications Phils., Inc.,
Chairman of Robinsons Savings Bank, President of Digital Information Technology Services, Inc.,
Vice Chairman of JG Summit Capital Markets Corporation, and a director of OPMC, United Industrial
Corporation, Ltd., and Singapore Land, Ltd. He is also trustee, secretary and treasurer of Gokongwei
Brothers Foundation, Inc. He received a Bachelor of Science degree in Economics and a Bachelor of
Science degree in Applied Science from the University of Pennsylvania. Mr. Lance Y. Gokongwei is
the son of Mr. John Gokongwei, Jr. and joined URC in 1988.
Patrick Henry C. Go is a director and Vice President of URC. He is also a director of JG Summit,
RLC, CFC Corporation, JG Cement Corporation, Robinsons Savings Bank and JG Summit
Petrochemical Corporation where he is also First Vice President for Sales and Marketing. He is a
trustee of the Gokongwei Brothers Foundation, Inc. He received a Bachelor of Science degree in
Management from the Ateneo de Manila University and attended a General Manager Program at
Harvard Business School. Mr. Patrick Henry C. Go is a nephew of Mr. John Gokongwei, Jr.
Frederick D. Go has been a director of URC since June 2001. He is the Executive Vice President and
a director of RLC and is the Chief Operating Officer of its Commercial Centers, High Rise Buildings,
Housing and Land Development and Hotels divisions. He serves as a director of Big R Stores,
Robinsons Convenience Store, and Robinsons Recreation Corporation and is a director of RLC, JG
Summit Petrochemical Corporation, Robinsons Savings Bank, CFC Corporation, Robinsons
Handyman, Inc., Robinsons Venture Corporation, Robinsons-Abenson Appliances Corporation, and
the Philippine Retailers Association. He received a Bachelor of Science degree in Management
Engineering from the Ateneo de Manila University. Mr. Frederick D. Go is Mr. John Gokongwei, Jr.’s
nephew.
Johnson Robert G. Go, Jr. was elected director of the Company on May 5, 2005. He is the Business
Unit General Manager of Litton Mills, Inc., the textile manufacturing business of JG Summit. He is
also a director of Robinsons Land Corporation, Robinsons Savings Bank and CFC Corporation. He is
also the Business Unit Group Head of Robinsons Convenience Stores, Inc. He was elected director of
JG Summit on August 18, 2005 and was elected trustee of the Gokongwei Brothers Foundation, Inc.
on September 1, 2005. He received a Bachelor of Arts degree in Interdisciplinary Studies (Liberal
Arts) from the Ateneo de Manila University. He is a nephew of Mr. John Gokongwei, Jr.
Wilfrido E. Sanchez has been an independent director of URC since 1995. Mr. Sanchez is also a
director of Philippine Education Trust Plan, Inc., Transnational Plans, Inc., Dolphin Ship
Management, Inc., Adventure International Tours, Inc., Transnational Diversified Group, Inc.,
Transnational Diversified Corporation, Magellan Capital Holdings Corporation, Center for Leadership
& Change, Inc., House of Investment, Inc., Omico Corporation, Amon Trading Corporation, Grepalife
Asset Management Corporation, Grepalife Fixed Income Corporation, and JVR Foundation.
- 30 Robert G. Coyiuto, Jr. has been an independent director of URC since October 28, 2002. He is also an
independent director of RLC. He is Chairman of Prudential Guarantee & Assurance, Inc., PGA Cars,
Inc., and Nissan North Edsa, and Vice-Chairman of First Guarantee Life Assurance Company, Inc. He
is also President and Chief Operating Officer of Oriental Petroleum and Minerals Corporation and
President of PGA Sompo Japan Insurance, Inc. He is Chairman of Pioneer Tours Corporation and a
director of Canon Marketing (Philippines) Inc. and Destiny Financial Plans.
Oscar S. Reyes has been an independent director of URC since October 28, 2002. He was also a
member of the advisory board of JG Summit Holdings, Inc. from August 2001 up to March 28, 2005
and is a director/adviser of Pilipinas Shell Petroleum Corporation as well as other major corporations.
He was Country Chairman and Chief Executive Officer of various Shell companies in the Philippines
after holding various positions in the institution worldwide. He was Chairman of the Philippine
Institute of Petroleum, Inc. and Director and Treasurer of the Management Association of the
Philippines, trustee of Philippine Business for Social Progress, Philippine Business for the
Environment and Asia-Europe Foundation of the Phils., Inc. He was the United Nations National
Ambassador for HIV-AIDS in the Philippines.
Bienvenido S. Bautista was appointed Executive Vice President of URC on April 1, 2004. He is also
Managing Director of the URC branded consumer food group in the Philippines. Prior to joining URC,
he was Chairman of Kraft Foods Philippines and Vice President and Area Director of Kraft Foods
International in South/Southeast Asia. He was formerly President of San Miguel Brewing Philippines
and of San Miguel Food Group, President and General Manager of Kraft General Foods Phil.,
Corporate Marketing Director of Wyeth Philippines, Inc., President and General Manager of PT
Warner Lambert Indonesia, and National Sales Director - Pharmaceuticals of Pfizer, Inc. He was the
first Asian and first Filipino to be appointed as Chair of the Jakarta International School (1986-87) and
in 1994 he was awarded the Agora Award for “Excellence in Marketing Management” by the
Philippine Marketing Association. Mr. Bautista received his degree of Bachelor of Science in
Economics from the Ateneo de Manila University. He received his Master’s degree in Business
Management from, and majored in Marketing and Finance at, the Ateneo Graduate School of
Business.
Patrick O. Ng is an Executive Vice President of URC. He is also managing director of URC
International Co. Ltd., URC Asean Brands Company Limited, Hongkong China Foods Company
Limited, and a director of URC Hong Kong Ltd., Panyu Peggy Foods Co. Ltd., Shanghai Peggy Foods
Co. Ltd. and Tianjin Pacific Foods Co. Ltd. Mr. Ng joined URC in 1967 and has held various
positions in the JG Group including as Vice President of the manufacturing division of CFC
Corporation and Vice President and General Manager of Litton Mills, Inc. He received a Bachelor of
Science degree in Engineering from the Ateneo de Manila University.
Eugenie M.L. Villena is the Senior Vice President — Chief Financial Officer of URC. She is also
Senior Vice President and Chief Financial Officer — Treasurer of JG Summit. Prior to joining URC in
1980, she worked for Bancom Development Corporation, Philippine Pacific Capital Corporation and
Pacific Basin Securities, Co., Inc. She is a member of the Financial Executives Institute of the
Philippines. She received her Bachelor of Science degree in Business Administration and Master’s
degree in Business Administration from the University of the Philippines.
- 31 Constante T. Santos is the Senior Vice President — Corporate Controller of URC. He is also Senior
Vice President — Corporate Controller of JG Summit. Prior to joining URC in 1986, he practiced
public accounting with SyCip, Gorres, Velayo & Co. in the Philippines and Ernst & Whinney in the
United States. He is a member of the Philippine Institute of Certified Public Accountants. Mr. Santos
received his Bachelor of Science degree in Business Administration from the University of the East
and attended the Management Development Program at the Asian Institute of Management.
Geraldo N. Florencio is the Vice President — Controller of URC. Prior to joining URC in 1992, he
practiced public accounting with SyCip, Gorres, Velayo & Co. in the Philippines. He is a member of
the Philippine Institute of Certified Public Accountants. Mr. Florencio received a Bachelor of Science
degree in Business Administration from the Philippine School of Business Administration. He also
attended the Management Development Program at the Asian Institute of Management.
Jeanette U. Yu is the Vice President — Treasurer of URC. She is also the Treasurer of JG Summit
Petrochemical Corporation. Prior to joining URC in 1980, she worked for AEA Development
Corporation and Equitable Banking Corporation. Ms. Jeanette U. Yu received her Bachelor of Science
degree in Marketing from St. Theresa’s College in Quezon City.
Rosalinda F. Rivera was appointed Corporate Secretary of URC on May 22, 2003 and has been
Assistant Corporate Secretary since May 2002. She is also Corporate Secretary of JG Summit, RLC,
JG Summit Petrochemical Corporation, CFC Corporation and JG Cement Corporation. Prior to joining
URC, she was a Senior Associate at Puno and Puno Law Offices. She received a Juris Doctor degree
from the Ateneo de Manila University School of Law and a Master of Law degree in International
Banking from the Boston University School of Law. She was admitted to the Philippine Bar in 1995.
The members of the Company’s board of directors and executive officers can be reached at the address
of its registered office at 110 E. Rodriguez Avenue, Bagumbayan, Quezon City, Philippines.
Involvement in Certain Legal Proceedings of Directors and Executive Officers
None of the members of the Board of Directors and Executive Officers of the Company are involved
in the any criminal, bankruptcy or insolvency investigations or proceedings.
Family Relationships
Mr. James L. Go is a brother of Mr. John Gokongwei, Jr. while Mr. Lance Y. Gokongwei is his son.
Mr. Patrick Henry C. Go, Mr. Frederick D. Go and Mr. Johnson Robert G. Go, Jr. are the nephews of
Mr. John Gokongwei, Jr.
- 32 -
Item 10.
Executive Compensation
The following summarizes certain information regarding compensation paid or accrued during the last
two (2) fiscal years and to be paid in the ensuing fiscal year to the Company’s Directors and Executive
Officers:
Salary
Estimated - FY2006
Bonus
Other
Actual
Total
2005
2004
Chairman of the Board and
four most highly
compensated Executive
Directors/Officers
All officers and directors as a
group unnamed
=
P26,031,551
=
P300,000
=
P90,000
=
P26,421,551
=
P24,433,288
=
P23,961,171
65,061,728
600,000
210,000
65,871,728
60,802,341
57,132,323
The following are the five (5) highest compensated directors and/or executive officers of the
Company: 1. Director, Chairman Emeritus – John Gokongwei, Jr.; 2. Director, Chairman and Chief
Executive Officer – James L. Go; 3. Director, President and Chief Operating Officer – Lance Y.
Gokongwei; 4. Executive Vice President, - Bienvenido S. Bautista; and 5. Executive Vice President –
Patrick Ng.
Standard Arrangements
There are no standard arrangements pursuant to which directors of the Company are compensated, or
are to be compensated, directly or indirectly, for any services provided as a director for the last
completed fiscal year and the ensuing year.
Other Arrangements
There are no other arrangements pursuant to which directors of the Company are compensated, or are
to be compensated, directly or indirectly, for any services provided as a director for the last completed
fiscal year and the ensuing year.
- 33 -
Item 11.
(1)
Security Ownership of Certain Beneficial Owners and Management
Security Ownership of Certain Record and Beneficial Owners
As of September 30, 2005, URC knows no one who beneficially owns in excess of 5% of URC’s
common stock except as set forth in the table below.
Name and Address
of record/beneficial owner
Title of
Class
Name of beneficial owner
and relationship with record
owner
Amount and nature
of record/beneficial
ownership (“r”or“b”)
Citizenship
Percent
of class
Common
JG Summit Holdings,Inc. 1
43/F, Robinsons Equitable-PCI
Tower ADB Avenue corner Poveda
Street, Pasig City
(See Note 1)
1,232,301,488 (r)
Filipino
73.07%
Common
Express Holdings, Inc.2
43/F, Robinsons Equitable-PCI
Tower ADB Avenue corner Poveda
Street, Pasig City
(See Note 2)
219,904,990 (r)
Filipino
13.04%
Common
PCD Nominee Corporation 3(NonFilipino) G/F Makati Stock
Exchange Bldg.
6767 Ayala Ave., Makati City
(See Note 3)
151,071,041 (r)
Non-Filipino
8.96%
(2)
Security Ownership of Management
Title of Class
Common
Common
Common
Common
Common
Common
Common
Common
Common
Common
Name of beneficial owner
John Gokongwei, Jr.
James L. Go
Lance Y. Gokongwei
Bienvenido S. Bautista
Patrick Henry C. Go
Frederick D. Go
Johnson Robert G. Go, Jr.
Robert Coyiuto, Jr.
Wilfrido E. Sanchez
Oscar S. Reyes
Position
Director, Chairman Emeritus
Director, Chairman & CEO
Director, President & COO
Executive Vice President
Director, Vice President
Director
Director
Director (Independent)
Director (Independent)
Director (Independent)
Amount & nature
of beneficial
ownership
2,156,001
1
1
3,300
39,600
10,001
1
1
1
1
Citizenship
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
% to Total
Outstanding
0.13%
*
*
*
*
*
*
*
*
*
*
1
As of September 30, 2005, Mr. John Gokongwei, Jr., Chairman Emeritus of JG Summit Holdings, Inc. (JGSHI), holds 1,875,481,099 shares representing
27.6% of the total outstanding shares of the said Corporation. The Chairman and the President are both empowered under the By-Laws of JGSHI to vote any
and all shares owned by JGSHI, except as otherwise directed by the Board of Directors. The incumbent Chairman and Chief Executive Officer and President
and Chief Operating Officer of JGSHI are Mr. James L. Go and Mr. Lance Y. Gokongwei, respectively.
2
Express Holdings, Inc. is a wholly owned subsidiary of JG Summit Holdings, Inc. Under the By-Laws of Express Holdings, Inc., the President is authorized to
represent the corporation at all functions and proceedings. The incumbent President of Express Holdings, Inc. is Mr. Lance Y. Gokongwei.
3
PCD Nominee Corporation, a wholly owned subsidiary of Philippine Central Depository, Inc. (“PCD”), is the registered owner of the shares in the books of
the Corporation’s transfer agent in the Philippines. The beneficial owners of such shares are PCD’s participants, who hold the shares on their behalf, and their
clients. PCD is a private company organized by the major institutions actively participating in the Philippine capital markets to implement an automated
book-entry system of handling securities transactions in the Philippines. Out of this account, “The Hongkong and Shanghai Banking Corp. Ltd. -Clients’
Acct.” holds for various trust accounts 132,237,825 shares representing 7.84% of the Corporation’s outstanding capital stock as of September 30, 2005. The
securities are voted by the trustee’s designated officers who are not known to the Corporation.
*
less than 0.01%
- 34 -
(3)
Voting Trust Holders of 5% or more
There are no persons holding more than 5% of a class under a voting trust or similar agreement.
Item 12.
Certain Relationships and Related Transactions
The Company, in its regular conduct of business, had engaged in transactions with its major
stockholder, JG Summit Holdings, Inc. and its affiliated companies. See Note 16 (Related Party
Transactions) of the Notes to Consolidated Financial Statements (page 66) in the accompanying
Audited Financial Statements filed as part of this Form 17-A.
PART IV – CORPORATE GOVERNANCE
Item 13.
Corporate Governance
Adherence to the principles and practices of good corporate governance, as embodied in its Corporate
Governance Manual, has been reinforced by continuous improvement by the Company in order to
implement good governance and management practices.
The Board of Directors has approved its Corporate Governance Compliance Evaluation System in late
2003 in order to check and assess the level of compliance of the Company with leading practices on
good corporate governance as specified in its Corporate Governance Manual and pertinent SEC
Circulars. The System likewise highlights areas for compliance improvement and actions to be taken.
One of the system’s output is the Annual Corporate Governance Compliance Evaluation Form
submitted to the SEC and PSE on or before January 30 of every year starting with calendar year 2003.
Likewise, URC has consistently striven to raise its level of reporting to adopt and implement
prescribed international Accounting Standards.
PART V - EXHIBITS AND SCHEDULES
Item 14.
(a)
Exhibits and Reports on SEC Form 17-C
Exhibits - See accompanying Index to Exhibits (page 95)
The following exhibit is filed as a separate section of this report:
(18) Subsidiaries of the Registrant
The other exhibits, as indicated in the Index to Exhibits are either not applicable to the Company
or require no answer.
(b) Reports on SEC Form 17-C
- 35 -
UNIVERSAL ROBINA CORPORATION
LIST OF CORPORATE DISCLOSURES/REPLIES TO SEC LETTERS
UNDER SEC FORM 17-C
APRIL 1, 2005 TO SEPTEMBER 30, 2005
DATE OF DISCLOSURE
DESCRIPTION
May 5, 2005
May 5, 2005
May 5, 2005
Declaration of Cash Dividends
Election of Directors
Stockholders’ Approval of the Amendments to the Amended
By-Laws of Universal Robina Corporation (URC)
Election of Officers
Acquisition by an Officer of URC Shares
Disclosure on the Filing of an Application with the
Philippine Stock Exchange for the Listing of 49,871,556
Common Shares of URC which were Issued to Robinsons
Supermarket Corporation as a result of a property-for-share
swap transaction
Annual Certification as to the Attendance of the Board of
Directors during the Board Meetings
May 5, 2005
June 23, 2005
September 13, 2005
September 26, 2005
- 38 -
UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES
FORM 17- A, Item 7
Page No.
Consolidated Financial Statements
Statement of Management’s Responsibility for Financial Statements
Report of Independent Auditors
Consolidated Balance Sheets as of September 30, 2005 and 2004
Consolidated Statements of Income for each of the three years in the
period ended September 30, 2005
Consolidated Statements of Changes in Stockholders’ Equity for each of
the three years in the period ended September 30, 2005
Consolidated Statements of Cash Flows for each of the three years
in the period ended September 30, 2005
Notes to Consolidated Financial Statements
39
40
41
42
43
44
46
Supplementary Schedules
Report of Independent Auditors on Supplementary
Schedules
A. Marketable Securities - (Current Marketable Equity Securities
and Other Short-Term Cash Investments)
B. Amounts Receivable from Directors, Officers, Employees,
Related Parties and Principal Stockholders (Other than Affiliates)
C. Non-Current Marketable Equity Securities, Other Long-Term
Investments in Stock, and Other Investments
D. Indebtedness to Unconsolidated Subsidiaries and Affiliates
E. Property, Plant and Equipment
F. Accumulated Depreciation
G. Intangible Assets - Other Assets
H. Long-Term Debt
I. Indebtedness to Affiliates and Related Parties (Long-Term Loans
from Related Companies)
J. Guarantees of Securities of Other Issuers
K. Capital Stock
______
84
85
86
87
88
89
90
91
92
93
**
94
* Not applicable per section 1(b) (xii), 2(e) and 2 (I) of SRC Rule 68
** These schedules, which are required by Section 4(e) of SRC Rule 68, have been omitted because they are either not
required, not applicable or the information required to be presented is included/shown in the related URC & Subsidiaries’
consolidated financial statements or in the notes thereto.
- 41 -
UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30
2005
2004
ASSETS
Current Assets
Cash and cash equivalents (Notes 4 and 16)
Temporary investments - net (Notes 2 and 5)
Marketable securities - at market (Notes 2 and 6)
Trade and other receivables - net (Notes 2, 7 and 16)
Due from affiliated companies (Note 16)
Inventories - net (Notes 2 and 8)
Other current assets (Note 9)
Total Current Assets
Noncurrent Assets
Investments and advances (Notes 2 and 10)
Property, plant and equipment - net (Notes 2, 11 and 17)
Deferred income tax - net (Notes 2 and 25)
Other assets - net (Note 12)
Total Noncurrent Assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Loans payable (Notes 2 and 13)
Accounts payable and accrued expenses (Notes 14 and 16)
Trust receipts and acceptances payable (Note 8)
Due to affiliated companies (Note 16)
Income tax payable
Current portion of long-term debt (Notes 2 and 15)
Total Current Liabilities
Noncurrent Liabilities
Deferred income tax - net (Notes 2 and 25)
Long-term debt - net of current portion (Notes 2 and 15)
Total Noncurrent Liabilities
Minority Interests in Consolidated Subsidiaries
Stockholders’ Equity
Capital stock (Notes 17 and 25)
Additional paid-in capital
Deposits on future stock subscriptions (Notes 17 and 25)
Cumulative translation adjustments (Notes 2 and 17)
Retained earnings (Notes 2 and 18)
Total Stockholders’ Equity
P
=930,303,344
21,753,976,562
896,641,788
3,849,423,174
356,382,031
6,672,701,120
267,399,248
34,726,827,267
=
P2,237,278,463
12,143,020,441
757,385,456
3,346,380,700
353,672,552
5,774,089,468
224,272,707
24,836,099,787
1,831,925,876
1,779,943,951
17,184,214,864 15,520,784,949
–
36,095,850
969,030,423
1,075,400,580
19,985,171,163 18,412,225,330
P
=54,711,998,430 =
P43,248,325,117
P
=2,219,274,415
3,138,766,050
1,229,056,178
477,744,763
125,741,036
372,891,534
7,563,473,976
=
P3,469,007,663
3,073,806,052
1,221,676,801
332,777,177
45,556,142
320,161,156
8,462,984,991
175,121,631
21,897,308,402
22,072,430,033
29,635,904,009
948,579,793
–
11,464,930,247
11,464,930,247
19,927,915,238
1,093,649,532
1,686,479,549
1,686,479,549
6,843,501,476
6,843,501,476
26,043,533
26,043,533
1,064,556,292
1,062,297,225
14,506,933,778 12,608,438,564
24,127,514,628 22,226,760,347
P
=54,711,998,430 =
P43,248,325,117
See accompanying Notes to Consolidated Financial Statements.
*SGVMC107496*
- 42 -
UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
2005
NET SALES AND SERVICES
(Notes 3 and 16)
Years Ended September 30
2004
2003
P
=30,858,352,367
=
P27,233,200,563
=
P23,414,734,363
22,938,523,860
20,372,853,630
17,371,895,968
GROSS PROFIT
7,919,828,507
6,860,346,933
6,042,838,395
OPERATING EXPENSES (Notes 16, 20, 21
and 22)
5,458,909,661
4,804,877,386
4,555,050,657
INCOME FROM OPERATIONS
2,460,918,846
2,055,469,547
1,487,787,738
1,908,880,098
244,623,123
1,439,276,063
184,764,758
980,456,992
41,262,628
(2,114,784,811)
(1,548,580,869)
(1,150,241,552)
250,998,443
289,716,853
(331,668,989)
(256,209,037)
35,014,744
(93,507,188)
2,750,635,699
1,799,260,510
1,394,280,550
259,557,329
211,217,481
470,774,810
109,907,979
(120,142,526)
(10,234,547)
160,197,714
(93,852,357)
66,345,357
2,279,860,889
1,809,495,057
1,327,935,193
124,578,190
66,180,040
86,203,002
P
=2,404,439,079
=
P1,875,675,097
=
P1,414,138,195
P
=1.43
=
P1.11
=
P0.84
COST OF SALES AND SERVICES
(Notes 2, 3, 16, 19, 21 and 22)
OTHER INCOME (CHARGES)
Investment income (Notes 2, 5, 6 and 16)
Equity in net earnings of investees (Note 10)
Interest and other financing charges (Notes 2, 13,
and 15)
Others income (charges) - net (Notes 15, 16, 21
and 24)
INCOME BEFORE INCOME TAX AND
MINORITY INTEREST
PROVISION FOR (BENEFIT FROM) INCOME
TAX (Note 25)
Current
Deferred
INCOME BEFORE MINORITY INTERESTS
IN NET LOSS OF SUBSIDIARIES
MINORITY INTERESTS IN NET LOSS
OF SUBSIDIARIES
NET INCOME
Earnings Per Share (Note 26)
See accompanying Notes to Consolidated Financial Statements.
*SGVMC107496*
- 43 -
UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS’ EQUITY
2005
Years Ended September 30
2004
2003
CAPITAL STOCK (Notes 17 and 26)
Preferred stock - =
P1 par value
Authorized - 2,000,000 shares
Issued - none
Common stock - =
P1 par value
Authorized - 1,998,000,000 shares
Issued - 1,686,479,549 shares in 2005, 2004
and 2003
Balance at beginning of year
Issuances during the year
Balance at end of year
P
=–
=
P–
=
P–
1,686,479,549
–
1,686,479,549
1,686,479,549
–
1,686,479,549
1,636,607,993
49,871,556
1,686,479,549
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of year
Additions during the year
Balance at end of year
6,843,501,476
–
6,843,501,476
6,843,501,476
–
6,843,501,476
6,668,951,032
174,550,444
6,843,501,476
26,043,533
–
26,043,533
26,043,533
–
26,043,533
1,062,297,225
2,259,067
1,064,556,292
1,028,044,149
34,253,076
1,062,297,225
784,271,643
243,772,506
1,028,044,149
3,000,000,000
–
3,000,000,000
3,000,000,000
–
3,000,000,000
–
3,000,000,000
3,000,000,000
9,608,438,564
2,404,439,079
8,238,707,332
1,875,675,097
10,330,513,002
1,414,138,195
DEPOSITS ON FUTURE STOCK
SUBSCRIPTIONS (Note 17)
Balance at beginning of year
Application of deposit and share issuances
Balance at end of year
CUMULATIVE TRANSLATION
ADJUSTMENTS
Balance at beginning of year
Changes during the year
Balance at end of year
RETAINED EARNINGS (Notes 2 and 18)
Appropriated
Balance at beginning of year
Appropriation during the year
Balance at end of year
Unappropriated
Balance at beginning of year
Net income
Cash dividends - =
P0.30 per share in 2005,
2004 and 2003
Appropriation for plant expansion
Balance at end of year
(505,943,865)
–
11,506,933,778
14,506,933,778
P
=24,127,514,628
(505,943,865)
–
9,608,438,564
12,608,438,564
=
P22,226,760,347
250,465,533
(224,422,000)
26,043,533
(505,943,865)
(3,000,000,000)
8,238,707,332
11,238,707,332
=
P20,822,776,039
See accompanying Notes to Consolidated Financial Statements.
*SGVMC107496*
- 44 -
UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
2005
CASH FLOWS FROM OPERATING
ACTIVITIES
Income before income tax and minority interest
Adjustments for:
Depreciation, amortization and impairment loss
(Note 21)
Unrealized gain on excess of market value over
cost of hog stocks (Note 19)
Net unrealized foreign exchange loss (gain)
Investment income
Interest expense and other financing charges
Amortizations of:
Goodwill and debt issuance costs
(Notes 20 and 24)
Pre-operating expenses
Equity in net earnings of investees (Note 10)
Recovery in value of marketable securities
(Notes 6 and 24)
Recovery in value of temporary investments
and options (Note 24)
Loss (gain) on:
Reacquisition of long-term debt
Sale of property and equipment
Sale of temporary investments
Operating income before working capital
changes
Decrease (increase) in:
Receivables (Note 7)
Inventories (Note 8)
Other current assets (Note 9)
Increase (decrease) in:
Accounts payable and accrued expenses
Trust receipts
Due to affiliated companies
Cash generated from operations
Interest received
Income taxes paid
Interest paid
Net cash provided by operating activities
Years Ended September 30
2004
2003
P
=2,750,635,699
=
P1,799,260,510
=
P1,394,280,550
1,843,595,350
2,056,873,685
2,012,539,570
(340,923,379)
(192,920,860)
(1,908,880,098)
2,114,784,811
(124,677,393)
195,018,771
(1,439,276,063)
1,548,580,869
(73,622,090)
(291,493,310)
(980,456,922)
1,150,241,552
194,563,136
–
(244,623,123)
168,695,990
–
(184,764,758)
154,563,745
43,289,088
(41,262,628)
(141,767,093)
(33,667,018)
(59,178,570)
(351,551,359)
(362,226,465)
(264,661,992)
–
(66,441,653)
(64,033,979)
–
(4,300,029)
199,903,608
3,592,437,452
3,819,421,707
(216,666)
(3,829,973)
–
3,040,192,354
(296,972,571)
(557,688,273)
(43,126,541)
(491,318,464)
(1,041,361,705)
18,439,376
29,267,567
(276,052,162)
(35,073,872)
(143,522,830)
7,379,377
144,967,586
2,703,474,200
1,702,810,195
(179,372,435)
(1,906,301,983)
2,320,609,977
758,166
932,602,669
(159,695,676)
3,078,846,073
1,461,014,597
(120,677,660)
(1,545,336,643)
2,873,846,367
(599,105,470)
289,074,132
258,410,452
2,706,713,001
808,484,195
(221,264,972)
(1,028,137,447)
2,265,794,777
(Forward)
*SGVMC107496*
- 45 -
2005
CASH FLOWS FROM INVESTING
ACTIVITIES
Acquisitions of property, plant and equipment
(Note 11)
Proceeds from sale of property and equipment
Decrease (increase) in:
Temporary investments
Marketable securities
Due from affiliated companies
Investments and advances (Note 10)
Other assets (Note 12)
Acquisition of subsidiary - net of cash acquired
(Note 28)
Dividends received (Note 10)
Net cash provided by (used in) investing activities
CASH FLOWS FROM FINANCING
ACTIVITIES
Availments of:
Short-term borrowings
Long-term debt
Payments of:
Short-term borrowings
Long-term debt
Cash dividends
Increase (decrease) in minority interest in
consolidated subsidiaries
Net cash provided by (used in) financing activities
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS
Years Ended September 30
2004
2003
(P
=3,646,648,409)
208,282,311
(P
=2,279,020,790)
43,112,925
(P
=2,663,793,663)
59,386,653
(9,195,370,783)
–
(2,709,479)
78,021,541
(61,426,274)
3,081,574,852
6,393,019
(4,722,698)
(542,064,902)
128,876,865
(7,776,507,474)
(548,770,000)
256,378,837
144,006,389
(111,015,836)
–
114,619,657
(12,505,231,436)
(19,761,966)
19,999,943
434,387,248
–
79,022,975
(10,561,292,119)
–
11,132,000,000
–
–
270,283,488
7,378,751,348
(1,249,733,248)
(478,226,060)
(505,943,862)
(641,424,579)
(874,864,610)
(505,943,865)
(20,491,549)
8,877,605,281
(624,894)
(2,022,857,948)
51,388,159
7,194,479,130
(1,307,016,178)
1,285,375,667
(1,101,018,212)
EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS
–
–
(505,943,865)
41,059
806,128
45,264,330
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR
2,237,278,463
951,096,668
2,006,850,550
CASH AND CASH EQUIVALENTS AT
END OF YEAR
P
=930,303,344
=2,237,278,463
P
=951,096,668
P
See accompanying Notes to Consolidated Financial Statements.
*SGVMC107496*
- 46 -
UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Corporate Information
Universal Robina Corporation (referred herein as the “Parent Company” or “URC”) is a stock
corporation organized under the laws of the Philippines and is a publicly listed company resulting
from the public offering of its common stock in March 1994. The Company is a core subsidiary
of J.G. Summit Holdings, Inc. (“JGSHI”), one of the largest diversified conglomerates in the
Philippines. The registered office address of URC is 110 E. Rodriguez Avenue, Bagumbayan,
Quezon City, Philippines. The average number of employees of the Parent Company, its
subsidiaries and associates (collectively referred to herein as “the Group”) was 6,613 in 2005 and
7,038 in 2004.
Certain operations of the Group are registered with the Board of Investments (BOI) as pioneer and
nonpioneer activities. As a registered enterprise, the Group is subject to some requirements and is
entitled to avail of incentives provided for under the Agriculture Investments Act (Presidential
Decree (P.D.) No. 1159), Investment Incentives Act (Republic Act (R.A.) No. 5186), Export
Incentives Act (R.A. No. 6135), as amended, and Omnibus Investments Code of 1987 (Executive
Order No. 226).
The operations of the Group are regulated by certain laws. The production, sale, distribution and
advertisement of food products is regulated by the Philippine Bureau of Food and Drugs, which
implements the Consumer Act of the Philippines (R.A. No. 7394) and the Foods, Drugs, Devices
and Cosmetics Act (R.A. No. 3720). The Consumers Act and the Foods, Drugs, Devices and
Cosmetics Act prescribe the minimum guidelines for safety and quality of food and food products
and minimum branding and labeling requirements for the same. The Philippine Bureau of Animal
Industry implements the Livestock and Poultry Feed Act (R.A. No. 1556 as amended by P.D. 7)
and regulates the importation and breeding of livestock, such as poultry and hogs.
The principal activities of the Group are described in Note 3.
2. Summary of Significant Accounting Policies
Basis of Financial Statement Preparation
The consolidated financial statements have been prepared in conformity with accounting
principles generally accepted in the Philippines (Philippine GAAP), under the historical cost
convention method, except for derivative financial instruments and temporary investments which
are stated at market, and hog market stock which is stated at market value less mortality
allowance.
The accounting policies have been consistently applied in all periods presented.
The consolidated financial statements are presented in Philippine Pesos.
*SGVMC107496*
- 47 -
Use of Judgments and Estimates
The consolidated financial statements are prepared in conformity with Philippine GAAP which
requires management to make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. The estimates and assumptions used
in the accompanying 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.
Principles of Consolidation
The consolidated financial statements as of September 30, 2005 and 2004 and for each of the
three years in the period ended September 30, 2005 comprise the financial statements of the
Parent Company and its subsidiaries directly and indirectly owned by the Parent Company. The
financial statements of the subsidiaries are prepared for the same reporting year as the Parent
Company using consistent accounting policies.
All intra-group balances, transactions, income and expenses and profits and losses resulting from
intra-group transactions, are eliminated in full.
Subsidiaries are fully consolidated from the date of acquisition, being the date on which the
Group obtains control, and continue to be consolidated until the date that such control ceases.
URC Confectionery Corporation (URCCC) has been consolidated from the date of acquisition
(see Note 10).
The subsidiaries directly and indirectly owned by the Parent Company follow:
Investee Companies
CFC Corporation
Universal Robina (Cayman), Ltd.
URC Philippines, Limited
Universal Robina Sugar Milling
Corporation (URSUMCO)
Southern Negros Development
Corporation (SONEDCO)
CFC Clubhouse, Incorporated (formerly
CFC Keebler, Incorporated)
CFC Clubhouse Property, Inc. (formerly
CFC Keebler Property, Inc.)
URC International Co. Ltd. (URCICL)
Hong Kong China Foods Co., Ltd.
URC Asean Brands Co., Ltd.
URC Hong Kong Company Limited
(formerly Hong Kong Peggy Snacks
Foods Co., Limited)
Tianjin Pacific Foods Manufacturing Co.,
Ltd.
Shanghai Peggy Foods Co., Ltd.
Country of
Incorporation
Philippines
Cayman Islands
British Virgin Islands
Percentage of Ownership
Direct
Indirect
100
–
100
–
100
–
Philippines
100
–
Philippines
–
94
Philippines
100
–
Philippines
British Virgin Islands
British Virgin Islands
British Virgin Islands
100
77
–
–
–
–
77
77
Hong Kong
–
–
100
China
China
–
100
100
(Forward)
*SGVMC107496*
- 48 -
Investee Companies
Xiamen Tongan Pacific Food Co., Ltd.
URC Foods (Singapore) Pte. Ltd.
(formerly Pan Pacific Snacks Pte.
Ltd.)
URC (Thailand) Co., Ltd. (formerly Thai
Peggy Foods Co. Ltd.)
Panyu Peggy Foods Co., Ltd.
URC Snack Foods (Malaysia) Sdn. Bhd.
(formerly Pacific World Sdn. Bhd.)
Ricellent Sdn. Bhd.
PT URC Indonesia
URC Vietnam Co., Ltd.
Nissin - URC
URCCC
Country of
Incorporation
China
Percentage of Ownership
Direct
Indirect
–
100
Singapore
–
100
Thailand
China
–
–
100
90
Malaysia
Malaysia
Indonesia
Vietnam
Philippines
Philippines
–
–
–
–
65
100
91.52
54.03
100
100
–
–
Changes in Accounting Policies
In recent years, the Philippine Accounting Standards Committee (ASC) has been adopting the
International Accounting Standards (IAS) issued by the International Accounting Standards
Committee (IASC) with no local equivalent standards and has been replacing existing local
standards.
The International Accounting Standards Board (IASB) has assumed from the IASC the
responsibility for setting IAS. The standards issued by the IASB are designated as International
Financial Reporting Standards (IFRS). Upon its adoption, the IASB also adopted the IAS issued
by the IASC. The IASB carried on improvements in certain IAS in preparation for the full
adoption of IFRS effective January 1, 2005.
The ASC has renamed the new standards Philippine Accounting Standards (PAS) and Philippine
Financial Reporting Standards (PFRS), to correspond with the adopted IAS and IFRS of the
IASB. ASC standards were previously designated as Statements of Financial Accounting
Standards (SFAS).
New Accounting Standards
• PFRS 1, First Time Adoption of PFRS
• PFRS 3, Business Combinations, PAS 36 (revised) Impairment of Assets and PAS 38
(revised) Intangible Assets
• PFRS 5, Noncurrent Assets Held for Sale and Discontinued Operations
• PAS 19, Employee Benefits
• PAS 21, The Effects of Changes in Foreign Exchange Rates
• PAS 32, Financial Instruments: Disclosure and Presentation
• PAS 39, Financial Instruments: Recognition and Measurement
• PAS 41, Agriculture
*SGVMC107496*
- 49 -
The Group will adopt these new accounting standards beginning October 1, 2005 and the
principal effects of these changes in accounting policies are discussed below:
PFRS 1, First Time Adoption of PFRS
PFRS 1 requires an entity to comply with each PFRS effective at the reporting date for its first
PFRS financial statements. The Group will adopt PFRS for these consolidated financial
statements as of and for each of the three years ending September 30, 2006. The Group will also
restate the comparative amounts as of and for each of the two years ended September 30, 2006
except for the following courses of action that will be taken as allowed under PFRS 1:
•
Business combinations, goodwill and impairment
The Group will elect not to apply PFRS 3, Business Combinations, retrospectively to past
business combinations that occurred before the date of transition to PFRS.
•
Current rate method in the translation of foreign operations
The Group will adjust to zero the currency translation adjustments previously recognized in
the translation of the financial statements of foreign operations. The adjustment will increase
the retained earnings account at the date of transition to PFRS.
•
Post retirement benefits - Defined benefit schemes
The Group will not recognize cumulative actuarial gains or losses using the “corridor
approach” that will result from the measurement of such schemes in accordance with PAS 19,
Employee Benefits, at the date of transition. Instead, the Group will recognize all cumulative
actuarial gains and losses at the date of transition to PFRS.
• Classification and measurement of financial instruments
The Group will apply PAS 32 and PAS 39 to financial instruments outstanding as of October 1,
2005 only and the resulting cumulative effect upon adoption of these standards on prior years
will be charged to the October 1, 2005 retained earnings, as allowed by the Philippine SEC.
PAS 19, Employee Benefits
PAS 19 prescribes the accounting and disclosures by employers for employee benefits (including
short-term employee benefits, post-employment benefits, other long-term employee benefits and
termination benefits). The standard requires that short-term employee benefits shall be
recognized as an expense on the period in which the employee has rendered service to the
Company. For post-employment benefits classified as defined benefit plans, the standard requires
(a) the use of the projected unit credit method to measure a company’s obligations and costs;
(b) he determination of the present value of defined benefit obligations and the fair value of any
plan assets with sufficient regularity; and (c) the recognition of a specific portion of net
cumulative actuarial gains and losses when the net cumulative amount exceeds 10% of the greater
of the present value of the defined benefit obligation and 10% of the fair value of the plan assets,
but also permits the immediate recognition of these actuarial gains and losses.
*SGVMC107496*
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PAS 21, The Effects of Changes in Foreign Exchange Rates
Upon the adoption of PAS 21, the Group will adjust previously recorded undepreciated
capitalized foreign exchange losses, net of exchange losses that qualify as borrowing costs and
accumulated depreciation, against beginning retained earnings, to the extent that such capitalized
amounts do not meet the conditions for capitalization under the new accounting standard, and
prior years’ consolidated financial statements will have to be restated.
Also, PAS 21 requires that any goodwill arising on the acquisition of a foreign operation and any
fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition
are now treated as assets and liabilities of the foreign operation and translated at the closing rate.
Exchange differences from any translation of consolidated foreign operations which use a
currency other than the functional currency of the Parent Company are taken directly and shown
as a separate component within the stockholders’ equity in the consolidated balance sheets and
consolidated statements of changes in stockholders’ equity. The translation adjustments are
derecognized only upon disposal of the foreign operations. In addition, goodwill acquired in a
business combination prior to October 1, 2005 and fair value adjustments arising on that
acquisition are deemed to be assets and liabilities of the Parent Company.
PAS 32, Financial Instruments: Disclosure and Presentation
PAS 32 covers the disclosure and presentation of all financial instruments. This standard requires
more comprehensive disclosures about a company’s financial instruments, whether recognized or
unrecognized in the financial statements. New disclosure requirements include terms and
conditions of financial instruments used, types of risks associated with both recognized and
unrecognized financial instruments (market risk, price risk, credit risk, liquidity risk, and cash
flow risk), fair value information of both recognized and unrecognized financial assets and
financial liabilities, and other financial risk management policies and objectives. This standard
also requires financial instruments to be classified as liabilities or equity in accordance with their
substance and not their legal form. It also provides strict offsetting rules for financial assets and
liabilities.
PAS 39, Financial Instruments: Recognition and Measurement
PAS 39 establishes the accounting and reporting standards for recognizing and measuring
financial assets and financial liabilities. This standard requires a financial asset or financial
liability to be recognized at cost, which is the fair value of the consideration given (in case of an
asset) or received (in the case of a liability). Subsequent to initial recognition, financial assets
will be measured at their fair values, except for loans and receivables and held-to-maturity
investments, which are measured at cost or amortized cost using the effective interest rate method.
Financial liabilities are subsequently measured at cost or amortized cost, except for liabilities
classified as “at fair value through profit and loss” and derivatives, which are measured at fair
value.
PAS 39 also covers the accounting for derivative instruments. This standard has expanded the
definition of a derivative instrument to include derivatives (derivative-like provisions) embedded
in nonderivative contracts. Under this standard, every derivative instrument is recorded in the
balance sheet as either an asset or liability measured at its fair value. Derivatives that are not
designated and do not qualify as hedges are adjusted to fair value through income. If the
*SGVMC107496*
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derivative is designated and qualifies as a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives are either offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings, or recognized in equity until the hedged item is
recognized in earnings.
As allowed by the Philippine Securities and Exchange Commission (SEC), the adoption of
PAS 39 will not result in the restatement of prior period financial statements. The cumulative
effect of adopting this standard will be charged to the retained earnings at October 1, 2005.
PAS 41, Agriculture
PAS 41 prescribes the accounting treatment, financial statement presentation, and disclosures
related to agricultural activities. Agricultural activity is the management by an entity of the
biological transformation of living animals or plants (biological assets) for sale, into agricultural
produce, or into additional biological assets. PAS 41 also prescribes, among other things, the
accounting treatment for biological assets during the period of growth, degeneration, production,
and procreation, and for the initial measurement of agricultural produce at the point of harvest. It
requires measurement at fair value less estimated point-of-sale costs from initial recognition of
biological assets up to the point of harvest, other than when fair value cannot be measured reliably
on initial recognition. Agricultural produce is to be measured at its fair value less estimated
point-of-sale costs at the point of harvest.
PFRS 3, Business Combinations, PAS 36, Impairment of Assets and PAS 38, Intangible Assets
Under PFRS, 3 the amortization of goodwill acquired in a business combination is prohibited.
Instead, goodwill is to be tested annually, or more frequently, if events or changes in
circumstances indicate that the asset might be impaired.
PFRS 5, Noncurrent Assets Held for Sale and Discontinued Operations
PFRS 5 specifies the accounting for assets held for sale and the presentation and disclosure of
discontinued operations. It requires assets that meet the criteria to be classified as held for sale to
be measured at the lower of carrying amount and fair value less costs to sell, and the depreciation
on such assets to cease. Furthermore, assets that meet the criteria to be classified as held for sale
should be presented separately on the face of the balance sheet and the results of discontinued
operations to be presented separately in the statement of income.
Adoption of the above accounting standards will involve changes in accounting policies.
Accordingly, these changes will result to the restatement of the comparative consolidated
financial statements in accordance with the transitional provisions of PFRS 1 (except for those
standards where the Group will avail of the optional exemptions). The increasing (decreasing)
effects if such restatement on the consolidated financial statements of the Group for the years
*SGVMC107496*
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ended September 30, 2003, 2004 and 2005 and as of September 30, 2005 upon adoption of these
new accounting standards with effect from October 1, 2005 are estimated to be as follows:
Stockholders’ Equity
Net Income
(As of September 30, (For the year ended
2005, 2004, 2003) September 30, 2005)
(Unaudited)
PAS 19 - Employee Benefits
PAS 21 - The Effects of Changes in Foreign Exchange Rates,
net of tax effect
PAS 39 - Financial Instruments: Recognition and Measurement
PAS 41 - Agriculture, net of tax effect
PFRS 3 - Business Combinations, PAS 36 - Impairment of Assets
and PAS 38 - Intangible Assets
In Thousand Pesos (‘000)
=
P392,484
(P
=14,893)
–
–
(321)
(187,052)
–
96,326
–
=
P301,758
–
(P
=15,214)
The above estimated increasing (decreasing) effects of restating the consolidated financial
statements of the Group upon the adoption of the new accounting standards are based on
information currently available to the Group. The actual increasing (decreasing) effects may be
determined only when the full conversion to PFRS is completed and reflected in the audited
financial statements of the Group as of and for the year ended September 30, 2006.
The Group will also adopt on October 1, 2005 the following revised accounting standards:
•
PAS 1, Presentation of Financial Statements, provides a framework within which an entity
assesses how to present fairly the effects of transactions and other events; provides the base
criteria for classifying liabilities as current or noncurrent; prohibits the presentation of income
from operating activities and extraordinary items as separate line items in the consolidated
statements of income; and specifies the disclosures about key sources of estimation,
uncertainty and judgments that management has made in the process of applying the entity’s
accounting policies. It also requires changes in the presentation of minority interest in the
consolidated balance sheets and consolidated statements of income.
•
PAS 2, Inventories, reduces the alternatives for measurement of inventories by disallowing
the use of the last in, first out formula. Moreover, the revised accounting standard does not
permit foreign exchange differences arising directly on the recent acquisition of inventories
invoiced in a foreign currency to be included in the cost of inventories.
•
PAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, removes the
concept of fundamental error and the allowed alternative to retrospective application of
voluntary changes in accounting policies and retrospective restatement to correct prior period
errors. It defines material omission or misstatements, and describes how to apply the concept
of materiality when applying accounting policies and correcting error.
•
PAS 10, Events After the Balance Sheet Date, provides a limited clarification of the
accounting for dividends declared after the balance sheet date.
*SGVMC107496*
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•
PAS 16, Property, Plant and Equipment, provides additional guidance and clarification on
recognition and measurement of items of property, plant and equipment. It also provides that
each part of an item of property, plant and equipment with a cost that is significant in relation
to the total cost of the item shall be depreciated separately. It also requires measurement of
an item of property, plant and equipment acquired in exchange for a nonmonetary asset or a
combination of monetary and nonmonetary assets at fair value, unless the exchange
transaction lacks commercial substance. Under the previous version of the standard, an entity
measured such an acquired asset at fair value unless the exchanged assets were similar.
Following additional guidelines from PAS 16, the Group will recognize, if any, the initial
settlement of the net present value of legal and constructive obligations associated with the
retirement of a tangible long-lived asset that resulted from the acquisition, construction or
development and the normal operation of a long-lived asset in the period in which it is
incurred. The related asset retirement costs are capitalized as part of the carrying amount of
the corresponding property, plant and equipment which are being depreciated on a straightline basis over the useful lives of the related assets or the contract periods, whichever is
lower.
•
PAS 17, Leases, provides a limited revision to clarify the classification of a lease of land and
buildings and prohibits expensing of initial direct costs in the financial statements of the
lessors.
•
PAS 24, Related Party Disclosures, provides additional guidance and clarity in the scope of
the standard, the definitions and disclosures for related parties. It also requires disclosure of
the compensation of key management personnel by benefit type.
•
PAS 27, Consolidated and Separate Financial Statements, reduces alternatives in accounting
for investments in subsidiaries in the separate financial statements of a parent, venturer or
investor. This standard also requires strict compliance with adoption of uniform accounting
policies and requires the parent company to make appropriate adjustments to the subsidiary’s
financial statements to conform them to the parent’s accounting policies for reporting like
transactions and other events in similar circumstances. The equity method of accounting will
no longer be allowed in the separate financial statements.
•
PAS 28, Investments in Associates, reduces alternatives in accounting for investments in
associates in the separate financial statements of an investor. Investments in associates will
be accounted for either at cost or in accordance with PAS 39 in the separate financial
statements. Equity method of accounting will no longer be allowed in the separate financial
statements. PAS 28 also requires strict compliance with adoption of uniform accounting
policies and requires the investor to make appropriate adjustments to the associate’s financial
statements to conform them to the investor’s accounting policies for reporting like
transactions and other events in similar circumstances.
•
PAS 31, Interests in Joint Ventures, reduces the alternatives in accounting for interests in
joint ventures in the separate financial statements of a venturer. Interests in joint ventures are
accounted for either at cost or in accordance with PAS 39 in the separate financial statements.
Equity method of accounting is no longer allowed in the separate financial statements.
*SGVMC107496*
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•
PAS 33, Earnings Per Share, prescribes principles for the determination and presentation of
earnings per share for entities with publicly traded shares, entities in the process of issuing
ordinary shares to the public, and entities that calculate and disclose earnings per share. This
standard also provides additional guidance in computing earnings per share, including the
effects of mandatorily convertible instruments and contingently issuable shares, among
others.
•
PAS 36, Impairment of Assets, establishes frequency of impairment testing for certain
intangibles and provides additional guidance on the measurement of an asset’s value in use.
•
PAS 38, Intangible Assets, provides additional clarification on the definition and recognition
of certain intangibles. Moreover, this revised accounting standard requires that an intangible
asset with an indefinite useful life should not be amortized but will be tested for impairment
by comparing its recoverable amount with its carrying amount annually and whenever there is
an indication that the intangible asset may be impaired.
The adoption of the above revised accounting standards will not have a material effect on the
Group’s financial statements. Additional disclosures shall be made in the notes to the
consolidated financial statements, where applicable.
Revenue Recognition
Revenue is recognized to the extent that is probable that the economic benefits will flow to the
Group and the revenue can be reliably measured. The following specific recognition criteria must
also be met before revenue is recognized:
Sale of Goods
Revenue from sale of goods is recognized when the goods are shipped to the buyer. The revenues
are measured at the fair value of the consideration received or receivable, net of any trade
discounts, prompt payment discounts and volume rebates.
Rendering of Services
Service fees from tolling activities are recognized as revenue when the related services have been
rendered.
Interest
Interest income is recognized as the interest accrues, taking into account the effective yield on the
asset.
Dividends
Dividend income is recognized when the shareholders’ right to receive the payment is established.
Rental Income
Rental income is accounted for on a straight-line basis over the lease term.
*SGVMC107496*
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Cash Equivalents and Temporary Investments
The Group considers temporary cash investments that are readily convertible to known amounts
of cash with original maturities of three months or less and that are subject to an insignificant risk
of change in value to be cash equivalents. Long-term debt securities which the Group does not
intend to hold to maturity are classified as temporary investments and are stated at market.
Marketable Securities
Marketable securities are carried at the lower of aggregate cost or market value determined at
balance sheet date. The amount by which aggregate cost exceeds market value is included in the
determination of net income for the period. Realized gains and losses from the sale of marketable
securities are included in income for the period.
The cost of marketable securities used for determining the gain or loss on the sale of such
securities is computed using the average method.
Trade Receivables
Trade receivables are recognized and carried at original invoice amount less an allowance for any
doubtful accounts. Allowance for doubtful accounts is maintained at a level considered adequate
to provide for potential uncollectible receivables. The level of this allowance is evaluated by
management on the basis of factors that affect the collectibility of the accounts. A review of the
age and status of receivables, designed to identify accounts to be provided with allowance, is
made on a continuous basis. Doubtful accounts are written off when collectibility is highly
remote.
Inventories
Inventories are valued at the lower of cost and net realizable value except for hog market stocks
and by products. Net realizable value (NRV) is the estimated selling price in the ordinary course
of business, less estimated costs of completion and the estimated costs necessary to make the sale.
In determining NRV, the Group considers any adjustment necessary for obsolescence, which is
provided 100% for nonmoving items. Costs incurred in bringing each product to its present
location and condition are accounted for as follows:
Finished goods, work-inprocess, raw materials,
containers and packaging
materials
- cost is determined using the average method; finished goods and
work-in-process include direct materials and labor, and a
proportion of manufacturing overhead costs based on actual
goods processed and produced
Spare parts and supplies
- cost is determined using the average method
Materials in transit
- cost is determined using the specific identification method
Hog market stocks are measured at market values less mortality allowance. The market values are
determined based on market prices of hog stocks of similar age, breed and genetic merit.
*SGVMC107496*
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Investments
Investments in an associate and interests in a joint venture are accounted for under the equity
method of accounting. An associate is an entity in which the Group has significant influence and
which is neither a subsidiary nor a joint venture (JV) of the Group. A JV is an entity not being a
subsidiary nor an associate in which the Group exercises joint control together with one or more
venturers.
Under the equity method, the investments in an associate and interests in a joint venture are
carried in the consolidated balance sheets at cost plus post-acquisition changes in the Group’s
share of net assets of the associate and JV.
The consolidated statements of income reflect the Group’s share in the results of operations of the
associate and JV. Unrealized gains or losses arising from transactions with its associate and JV
are eliminated to the extent of the Group’s interest in the associate and JV. Where there has been
a change recognized directly in the associate’s equity, the Group recognizes its share of any
change and discloses this, when applicable, in the consolidated statements of changes in equity.
After application of the equity method, the Group determines whether it is necessary to recognize
any additional impairment loss with respect to the Group’s net investment in the associate and
interest in JV.
The reporting dates of the associate and joint venture and the Group are identical and the
associate’s and joint venture’s accounting policies conform to those used by the Group for like
transactions and events in similar circumstances.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation and amortization
and accumulated provision for impairment loss, if any. Cost includes interest and other financing
charges on borrowed funds used to finance the acquisition of property, plant and equipment to the
extent incurred during the period of construction/installation.
The initial cost of property, plant and equipment consists of the purchase price, including import
duties, taxes and any directly attributable costs of bringing the assets to their working condition
and location for their intended use. Expenditures incurred after the fixed assets have been put
into operation, such as repairs and maintenance and overhaul costs, are normally charged to
income in the period in which the costs are incurred. In situations where it can be clearly
demonstrated that the expenditures have resulted in an increase in the future economic benefits
expected to be obtained from the use of an item of property, plant and equipment beyond its
originally assessed standard of performance, the expenditures are capitalized as an additional cost
of property, plant and equipment.
Leasehold improvements are amortized over the shorter of their useful lives or the corresponding
lease terms.
*SGVMC107496*
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The estimated useful lives of the assets follow:
Land improvements
Buildings and improvements
Machinery and equipment
Transportation equipment
Furniture, fixture and equipment
Years
20
10-30
10
5
5
The useful life and depreciation and amortization method are reviewed periodically to ensure that
the period and method of depreciation and amortization are consistent with the expected pattern
of economic benefits from items of property, plant and equipment.
Assets under construction are stated at cost. This includes costs of construction, plant and
equipment and other direct costs. Borrowing costs that are directly attributable to the
construction of plant and equipment are capitalized during the construction period. Assets under
construction are transferred to the related property, plant and equipment account when the
construction or installation and related activities necessary to prepare the plant and equipment for
their intended use are complete and the plant and equipment are ready for service. Assets under
construction are not depreciated until such time as the relevant assets are completed and put into
operational use.
The carrying values of property, plant and equipment are reviewed for impairment when events or
changes in circumstances indicate the carrying values may not be recoverable. If any such
indication exists and where the carrying values exceed the estimated recoverable amounts, the
assets or cash-generating units are written down to their recoverable amounts. The recoverable
amount of property, plant and equipment is the greater of net selling price and value in use. 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 are recognized in the consolidated statements of income.
An item of property, plant and equipment is derecognized upon disposal or when no future
economic benefits are expected from its use or disposal. Any gain or loss arising on
derecognition of the asset (calculated as the difference between the net disposal proceeds and the
carrying amount of the asset) is included in income for the year.
Borrowing Costs
Borrowing costs generally are expensed as incurred. Interest and other related financing charges
on borrowed funds used to finance the acquisition of property, plant and equipment to the extent
incurred during the period of construction are capitalized as part of the cost of property, plant and
equipment. The capitalization of these borrowing costs as part of the cost of property, plant and
equipment (a) commences when the expenditures and borrowing costs are being incurred during
the construction and related activities necessary to prepare the property for its intended use are in
progress; (b) is suspended during extended periods in which active development is interrupted;
and (c) ceases when substantially all the activities necessary to prepare the property for its
*SGVMC107496*
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intended use are complete. These costs are amortized using the straight-line method over the
estimated useful lives of the related property.
If the carrying amount of the asset exceeds its recoverable amount, an impairment loss is
recorded.
Foreign Currency Translation
Transactions denominated in foreign currencies are recorded in Philippine Pesos based on the
exchange rate prevailing at the transaction date. Foreign currency-denominated monetary assets
and liabilities are translated to Philippine Pesos at exchange rates prevailing at the balance sheet
dates. Foreign exchange differentials between transaction rate and rate at settlement date or
balance sheet date of foreign currency-denominated monetary assets or liabilities are credited or
charged to current operations, except (1) those pertaining to foreign currency-denominated
monetary liabilities related to the acquisition of property and equipment which are added to or
deducted from the carrying amount of the related property account to the extent that the adjusted
carrying amount of the asset does not exceed the lower of replacement cost and the amount
recoverable from the use or sale of the asset; and (2) those pertaining to restatement of foreign
currency-denominated investments in subsidiaries which are presented as cumulative translation
adjustments under the Stockholders’ Equity section of the consolidated balance sheets and
consolidated statements of changes in stockholders’ equity.
Financial statements of consolidated foreign subsidiaries that are integral to the Group’s
operations are translated as if the transactions of the foreign operation had been those of the
Group. At each balance sheet date, foreign currency monetary items are translated using the
closing rate, nonmonetary items which are carried at historical cost are translated using the
historical rate as of the date of acquisition and non monetary items which are carried at fair value
are translated using the exchange rate that existed when the values were determined. Income and
expense items are translated at the exchange rates on the dates of the transactions. Resulting
exchange differentials are recognized in the consolidated statement of income.
Financial statements of foreign consolidated subsidiaries that are not integral to the Group’s
operations are translated at year-end exchange rates with respect to balance sheet accounts, and at
the average exchange rates for the year with respect to the statement of income accounts.
Resulting translation differentials are included in equity (under cumulative translation
adjustments). On disposal of a foreign entity, accumulated exchange differentials are recognized
in the consolidated statements of income as a component of the gain or loss on disposal of
investments.
The functional and presentation currency of the Group (except for foreign subsidiaries) is the
Philippine Peso. Upon adoption of PAS 21, The Effects of Changes in Foreign Exchange Rates,
the Group will determine the applicable functional currency of the foreign subsidiaries.
*SGVMC107496*
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Based on initial assessment, the functional currency of the foreign subsidiaries may be as follows:
Subsidiaries
Universal Robina (Cayman), Ltd.
URC Philippines, Limited
URC International Co. Ltd.
Hong Kong China Foods Co. Ltd.
URC Asean Brands Co. Ltd.
URC Hong Kong Company Limited (formerly Hong
Kong Peggy Snacks Foods Co., Limited)
Tianjin Pacific Foods Manufacturing Co., Ltd.
Shanghai Peggy Foods Co., Ltd.
Xiamen Tongan Pacific Food Co., Ltd.
URC Foods (Singapore) Pte. Ltd. (formerly Pan Pacific
Snacks Pte. Ltd.)
USURC (Thailand) Co., Ltd. (formerly Thai Peggy
Foods Co. Ltd.)
Panyu Peggy Foods Co., Ltd.
URC Snack Foods (Malaysia) Sdn. Bhd. (formerly
Pacific World Sdn. Bhd.)
Ricellent Sdn. Bhd.
PT URC Indonesia
URC Vietnam Co., Ltd.
Country of
Incorporation
Cayman Islands
British Virgin Islands
British Virgin Islands
British Virgin Islands
British Virgin Islands
Functional
Currency
US Dollars
US Dollars
US Dollars
US Dollars
US Dollars
Hong Kong
China
China
China
HK Dollars
Yuan
Yuan
Yuan
Singapore
Singapore Dollars
Thailand
China
Thai Baht
Yuan
Malaysia
Malaysia
Indonesia
Vietnam
Malaysian Ringgit
Malaysian Ringgit
Indonesia Rupiah
Vietnam Dong
Upon adoption of PAS 21, as at the reporting date, the assets and liabilities of foreign subsidiaries
are translated into the presentation currency of the Group at the rate of exchange ruling at the
balance sheet date, and its income and expenses are translated at the weighted average exchange
rate for the year. The exchange differences arising on translation are taken directly to a separate
component of equity as cumulative translation adjustments. On disposal of a subsidiary, the
deferred cumulative amount of translation adjustments recognized in equity relating to the
disposed subsidiary shall be recognized in the consolidated statements of income.
As allowed under PFRS 1, the Group will adjust to zero the currency translation adjustments
previously recognized in the translation of the financial statements of foreign operations upon
adoption of the PAS 21.
Pre-milling Costs
URSUMCO and its subsidiary, SONEDCO, use the sugar crop year as the basis for revenue and
expense recognition in its operations. Off-milling costs incurred during the year, which are
applicable to the next crop year, are deferred and will be charged to production costs when regular
milling for the next crop year commences. The crop year begins and ends on July 1 and June 30,
respectively.
*SGVMC107496*
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Goodwill
The excess of the acquisition cost over the Group’s interest in the fair value of the net identifiable
assets acquired of a subsidiary or associate as at the date of the exchange transaction is recorded
as goodwill and recognized as an asset in the balance sheet. With respect to an investment in
associate, goodwill is included in the carrying amount of the investment. Goodwill is carried at
cost less accumulated amortization. Goodwill is amortized on a straight-line basis over a ten-year
period. Goodwill is reviewed for impairment when events or changes in circumstances indicate
that the carrying value may not be recoverable.
Software Acquisition Costs
Costs incurred to acquire computer software (not an integral part of its related hardware) and
bring it to its intended use are capitalized as intangible assets. These costs are amortized over the
estimated useful life of the computer software ranging from 3 to 5 years. A gain or loss arising
from derecognition of an software acquisition costs is measured as the difference between the net
disposal proceeds and the carrying amount of the asset and is recognized in the consolidated
statements of income when the asset is derecognized.
Debt Issuance Costs
Issuance, underwriting and other related expenses incurred in connection with the issuance of the
long-term debts, have been deferred and amortized on a straight-line basis over the lives of the
corresponding debt securities issued. Unamortized debt issuance costs are offset against the
carrying value of the related debt securities in the consolidated balance sheets.
When the related debt securities are retired, the related unamortized debt issuance costs at the
date of retirement are charged against current operations.
Income Tax
Deferred income tax is provided, using the balance sheet liability method, on all temporary
differences at the balance sheet date between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes.
Deferred income tax liabilities are recognized for all taxable temporary differences, including
asset revaluations. Deferred income tax assets are recognized for all deductible temporary
differences, carryforward of unused tax credits from excess minimum corporate income tax
(MCIT) and unused tax losses, to the extent that it is probable that taxable profit will be available
against which the deductible temporary differences and carryforward of unused tax credits from
MCIT and unused tax losses can be utilized. Deferred income tax, however, is not recognized
when it arises from the initial recognition of an asset or liability in a transaction that is not a
business combination and, at the time of the transaction, affects neither the accounting profit nor
taxable profit or loss.
The carrying amount of deferred income tax assets is reviewed at each balance sheet date and
reduced to the extent that it is no longer probable that sufficient taxable profit will be available to
allow all or part of the deferred income tax assets to be utilized.
Deferred income tax assets and liabilities are measured at the tax rate that is expected to apply to
the period when the asset is realized or the liability is settled, based on tax rates (and tax laws)
that have been enacted or substantively enacted at the balance sheet date.
*SGVMC107496*
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Leases
Leases where the lessor retains substantially all the risks and benefits of ownership of the asset
are classified as operating leases. Operating lease payments are recognized as an expense in the
consolidated statements of income on a straight-line basis over the lease term.
Pension Cost
The Group has a funded, noncontributory defined benefit retirement plan, administered by
trustees, covering their permanent employees. Retirement costs are actuarially determined using
the projected unit credit method. This method reflects services rendered by employees up to the
date of valuation and incorporates assumptions concerning employees’ projected salaries.
Retirement costs include current service cost plus amortization of past service cost, experience
adjustments and changes in actuarial assumptions over the expected average remaining working
lives of the covered employees.
Advertising Expenses
Advertising expenses are charged against current operations as incurred.
Earnings Per Share
Earnings per share is calculated by dividing net income by the weighted average number of
common shares outstanding during the year, including fully paid but unissued shares and common
stock equivalents as of the end of the year, after giving retroactive effect for any stock dividends
(Note 26).
Segment Reporting
The Group’s operating businesses for management purposes are organized into three major
operating businesses (branded consumer food products, agro-industrial products, and commodity
food products) which comprise the bases on which the Group reports its primary segment
information.
The Group’s operating businesses are organized and managed separately according to the nature
of the products and services provided, with each segment representing a strategic business unit
that offers different products and serves different markets. Financial information on business and
geographical segments is presented in Note 3.
Provisions
A provision is recognized only 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. Provisions are reviewed at
each balance sheet date and adjusted to reflect the current best estimate. If the effect of the time
value of money is material, provisions are determined by discounting the expected future cash
flows at a pre-tax rate that reflects current market assessment of the time value of money and,
where appropriate, the risks specific to the liability. Where discounting is used, the increase in
the provision due to the passage of time is recognized as an interest expense.
*SGVMC107496*
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Contingencies
Contingent liabilities are not recognized in the consolidated financial statements. They are
disclosed unless the possibility of an outflow of resources embodying economic benefits is
remote. A contingent asset is not recognized in the consolidated financial statements but disclosed
when an inflow of economic benefits is probable.
Subsequent events
Post year-end events that provide additional information about the Group’s position at the balance
sheet date (adjusting events), are reflected in the consolidated financial statements. Post year-end
events that are not adjusting events are disclosed in the notes when material.
3. Segment Information
SFAS 31/IAS 14, Segment Reporting, requires that a public business enterprise report financial
and descriptive information about its reportable segments. Generally, financial information is
required to be reported on the basis that it is used internally for evaluating segment performance
and deciding how to allocate resources to segments.
The primary segment reporting format is determined to be business segments as the Group’s risks
and rates of return are affected predominantly by differences in the products and services
produced. Secondary information is reported geographically. The operating businesses are
organized and managed separately according to the nature of the products and services provided,
which each segment representing a strategic business unit that offers different products and serves
different markets.
URC derives its revenues from the following reportable segments:
•
Branded consumer food products - manufactures and distributes a diverse mix of snack
foods, instant coffee products, instant noodles, chocolates, soft and hard candies, biscuits,
pasta, tomato-based products and ready-to-drink beverages. This segment also includes the
packaging division which manufactures bi-axially polypropylene films primarily used in
packaging.
•
Agro-industrial products - engages in hog and poultry farming, manufactures and distributes
animal feeds and soya products and manufactures and distributes animal health products.
•
Commodity food products - engages in sugar milling and refining, and flour milling.
The Group generally accounts for inter-segment sales and transfers as if the sales or transfers
were to third parties at current market prices. Inter-segment sales and transfers were eliminated in
the consolidated statements of income.
The Group’s geographical segments are based on the location of the Group’s assets. Sales to
external customers disclosed in geographical segments are based on the geographical location of
its customers.
*SGVMC107496*
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Business Segments
The financial information about the operations of these business segments is summarized as
follows (in thousands):
2005
Net sales and services
Segment results (income from operations)
Segment assets
Investments and advances
Other supplementary businesses*
Segment liabilities
Other supplementary businesses*
Branded
=
P23,783,623
=
P949,328
=
P21,559,405
–
–
=
P21,559,405
=
P5,304,898
–
=
P5,304,898
AgroIndustrial
=
P3,873,941
=
P524,428
=
P3,325,589
–
–
=
P3,325,589
=
P797,110
–
=
P797,110
Commodity
=
P3,200,788
=
P987,163
=
P4,611,224
–
–
=
P4,611,224
=
P1,525,615
–
=
P1,525,615
Other segment information:
Capital expenditure
Total
=
P30,858,352
=
P2,460,919
=
P29,496,218
1,831,926
23,383,854
=
P54,711,998
=
P7,627,623
22,008,281
=
P29,635,904
=
P3,646,648
2004
Net sales and services
Segment results (income from operations)
Segment assets
Investments and advances
Other supplementary businesses*
Segment liabilities
Other supplementary businesses*
Branded
=
P20,548,955
=
P898,444
=
P19,368,173
–
–
=
P19,368,173
=
P4,184,969
–
=
P4,184,969
AgroIndustrial
=
P3,651,274
=
P468,328
=
P2,545,690
–
–
=
P2,545,690
=
P666,514
–
=
P666,514
Commodity
=
P3,032,972
=
P688,698
=
P4,426,743
–
–
=
P4,426,743
=
P1,671,505
–
=
P1,671,505
Other segment information:
Capital expenditure
Total
=
P27,233,201
=
P2,055,470
=
P26,340,606
1,910,462
14,997,257
=
P43,248,325
=
P6,522,988
13,404,927
=
P19,927,915
=
P2,279,021
2003
Net sales and services
Segment results (income from operations)
Segment assets
Investments and advances
Other supplementary businesses*
Segment liabilities
Other supplementary businesses*
Other segment information:
Capital expenditure
Branded
=
P18,035,150
=
P1,033,338
=
P17,928,537
–
–
=
P17,928,537
=
P4,894,778
–
=
P4,894,778
AgroIndustrial
=
P3,041,704
=
P19,982
=
P2,516,489
–
–
=
P2,516,489
=
P543,049
–
=
P543,049
Commodity
=
P2,337,880
=
P434,468
=
P3,638,601
–
–
=
P3,638,601
=
P826,895
–
=
P826,895
Total
=
P23,414,734
=
P1,487,788
=
P24,083,627
1,260,371
17,217,061
=
P42,561,059
=
P6,264,722
14,313,106
=
P20,577,828
=
P2,663,794
*SGVMC107496*
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Geographical segments
The financial information about the operations of these geographical segments is summarized as
follows (in thousands):
2005
Net sales and services
Segment results (income from operations)
Segment assets
Investments and advances
Other supplementary businesses*
Segment liabilities
Other supplementary businesses*
Domestic
=
P23,867,558
=
P2,801,047
=
P18,783,296
–
–
=
P18,783,296
=
P1,176,623
–
=
P1,176,623
Foreign
=
P6,990,794
(P
=340,128)
=
P10,712,922
–
–
=
P10,712,922
=
P6,451,000
–
=
P6,451,000
Other segment information:
Capital expenditure
Total
=
P30,858,352
=
P2,460,919
=
P29,496,218
1,831,926
23,383,854
=
P54,711,998
=
P7,627,623
22,008,281
=
P29,635,904
=
P3,646,648
2004
Net sales and services
Segment results (income from operations)
Segment assets
Investments and advances
Other supplementary businesses*
Segment liabilities
Other supplementary businesses*
Domestic
=
P21,145,345
=
P2,221,004
=
P18,214,805
–
–
=
P18,214,805
=
P4,519,347
–
=
P4,519,347
Foreign
=
P6,087,856
(P
=165,534)
=
P8,125,801
–
–
=
P8,125,801
=
P2,003,641
–
=
P2,003,641
Other segment information:
Capital expenditure
Total
=
P27,233,201
=
P2,055,470
=
P26,340,606
1,910,462
14,997,257
=
P43,248,325
=
P6,522,988
13,404,927
=
P19,927,915
=
P2,279,021
2003
Net sales and services
Segment results (income from operations)
Segment assets
Investments and advances
Other supplementary businesses*
Segment liabilities
Other supplementary businesses*
Other segment information:
Capital expenditure
Domestic
=
P18,885,771
=
P1,737,974
=
P16,631,488
–
–
=
P16,631,488
=
P4,017,098
–
=
P4,017,098
Foreign
=
P4,528,963
(P
=250,186)
=
P7,452,139
–
–
=
P7,452,139
=
P2,247,624
–
=
P2,247,624
Total
=
P23,414,734
=
P1,487,788
=
P24,083,627
1,260,371
17,217,061
=
P42,561,059
=
P6,264,722
14,313,106
=
P20,577,828
=
P2,663,794
* These include assets and liabilities of corporate and other businesses, including offshore institutions.
The foreign segment includes operations located in Indonesia, Malaysia, Thailand, Singapore,
Vietnam and China.
*SGVMC107496*
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4. Cash and Cash Equivalents
This account consists of:
Cash on hand
Cash in banks
Cash equivalents
2005
P
=62,223,777
443,195,958
424,883,609
P
=930,303,344
2004
=
P55,629,148
412,728,211
1,768,921,104
=
P2,237,278,463
Cash in banks earns interest at the respective bank deposit rates. Cash equivalents are made for
varying periods of up to three months and earn interest at the respective short-term deposit rates.
Due to the short-term nature of such transactions, the carrying value approximates the fair value
of the cash equivalents.
5. Temporary Investments
This account represents investments in foreign and domestic securities, public debt securities with
a net market value of =
P21,754.0 million in 2005 and =
P12,143.0 million in 2004.
There are certain sold put options on marketable securities with an aggregate notional amount of
US$25 million in 2003. The net mark-to-market value loss on these options amounted to
=
P21.4 million in 2003 and this loss is included in the consolidated net income for the year ended
2003. This is included in the “Other charges” account in the statements of income. The total
mark-to-market value of outstanding sold put options as of September 30, 2003 amounted to
=
P59.4 million. There were no sold put options in 2005 and 2004.
Total interest income received on these investments amounted to =
P1,764.7 million,
=
P1,349.4 million and =
P877.3 million for the years ended September 30, 2005, 2004 and 2003,
respectively.
6. Marketable Securities
This account consists of:
Marketable securities - at cost
Allowance for decline in value
Marketable securities - at market
2005
P
=901,458,648
(4,816,860)
P
=896,641,788
2004
=
P901,458,648
(144,073,192)
=
P757,385,456
Dividend income derived from marketable securities for the years ended September 30, 2005,
2004 and 2003 amounted to =
P41.53 million, =
P40.08 million and =
P17.78 million, respectively.
These are included under “Investment income” account in the statements of income.
*SGVMC107496*
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7. Trade and Other Receivables
This account consists of:
Trade
Interest receivable
Advances to supplier
Other receivables
Less allowance for doubtful accounts
2005
P
=2,801,338,039
619,807,782
341,200,173
544,124,961
4,306,470,955
457,047,781
P
=3,849,423,174
2004
=
P2,469,080,047
413,737,879
259,526,803
503,016,860
3,645,361,589
298,980,889
=
P3,346,380,700
Trade receivables are non interest-bearing and are generally on 30-90 days’ term. The interest
receivable pertains mainly to interest income earned on money market placements and temporary
investments.
Total receivables from related parties as of September 30, 2005 and 2004 amounted to
=
P34.5 million and =
P7.9 million, respectively. These are included in the trade receivables account.
The other receivables account with the corresponding allowance for doubtful accounts consists of
the following:
Advances to officers, employees and suppliers
Claims receivable
Other receivables
Less allowance for doubtful accounts
2005
P
=122,255,508
17,594,351
404,275,102
544,124,961
131,428,322
P
=412,696,639
2004
=
P79,638,111
22,032,935
401,345,814
503,016,860
55,816,155
=
P447,200,705
2005
2004
P
=1,237,537,219
94,166,963
2,006,916,066
69,099,327
775,114,133
659,644,073
=
P1,167,594,473
83,336,699
1,884,768,285
95,739,932
631,418,586
674,861,554
8. Inventories
This account consists of:
Inventories carried at cost:
Finished goods
Goods in process
Raw materials
Poultry stock
Containers and packaging materials
Spare parts and supplies
(Forward)
*SGVMC107496*
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Less allowance for inventory write-down
Inventories carried at NRV:
Hog market stock and by-products
Less allowance for mortalities
Materials in transit
2005
P
=4,842,477,781
44,336,788
4,798,140,993
2004
=
P4,537,719,529
57,757,245
4,479,962,284
772,978,676
27,389,735
745,588,941
1,128,971,186
P
=6,672,701,120
529,239,030
17,000,000
512,239,030
781,888,154
=
P5,774,089,468
The amount of write-down recognized as expense amounted to =
P23,362,900, =
P53,040,246 and
=
P10,703,276 in 2005, 2004 and 2003, respectively.
As discussed in Note 2, the Group considers any adjustment necessary for obsolescence in
determining NRV.
Under the terms of the agreements covering liabilities under trust receipts totaling =
P1.23 billion in
2005 and =
P1.22 billion in 2004, certain inventories have been released to the Parent Company in
trust for the banks. The Parent Company is accountable to these banks for the trusteed
merchandise or their sales proceeds.
9. Other Current Assets
This account consists of:
Pre-milling costs
Prepaid insurance and other expenses
Deposits on purchases
Others
2005
P
=125,858,317
130,495,071
–
11,045,860
P
=267,399,248
2004
=
P97,592,867
72,251,381
53,366,081
1,062,378
=
P224,272,707
The pre-milling costs represent rehabilitation costs incurred by URSUMCO and its subsidiary,
SONEDCO, during the year which is applicable to the next crop year. These will be charged to
production costs when regular milling for the next crop year commences. The crop year begins
and ends on July 1 and June 30, respectively.
*SGVMC107496*
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10. Investments and Advances
This account consists of:
Acquisition cost:
Balance at beginning of year
Additions during the year
Cost of URCCC shares previously accounted
for under the equity method
Balance at end of year
Accumulated equity in net earnings (Note 18):
Balance at beginning of year
Equity in net earnings for the year
Accumulated equity in net losses of URCCC
previously accounted for under the equity
method
Dividends received
Balance at end of year
Advances
2005
2004
P
=1,197,593,846
–
=
P733,281,353
564,312,493
–
1,197,593,846
482,278,659
244,623,123
(100,000,000)
1,197,593,846
274,252,051
184,764,758
43,261,793
–
(19,999,943)
(114,619,657)
482,278,659
612,282,125
100,071,446
22,049,905
P1,779,943,951
P
=1,831,925,876 =
The Parent Company has equity interest in Hunt-Universal Robina Corporation (HURC), a joint
venture. The joint venture entity manufactures and distributes food products under the Hunt’s
brand name, which is under exclusive license to HURC in the Philippines.
URC also has an interest in Robinsons Land Corporation (RLC) where it exercises significant
influence (together with JGSHI and affiliates) over RLC’s financial and operating policies. In
2004, URC received, by way of assignment, shares of stock of RLC in full settlement for the
JGSHI notes that matured amounting to =
P564.3 million. This was accounted for at carrying
amounts since the transaction was between related parties namely, JGSHI, the transferor and
ultimate Parent Company, and URC, the transferee and subsidiary.
The percentage of ownership over the associate and joint venture follows:
Investee Companies
Robinsons Land Corporation (RLC)
Hunt-Universal Robina Corporation (HURC)
Country of
Incorporation
Philippines
Philippines
2005
19%
50%
2004
19%
50%
*SGVMC107496*
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Summarized financial information of investee companies that are accounted for under the equity
method follows:
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
HURC
2004
2005
=
P000
P
=000
238,153
213,747
3,066
3,463
(199,626)
(144,425)
–
–
2005
P
=000
5,396,654
20,789,018
(7,645,839)
(4,773,423)
RLC
2004
=
P000
3,465,821
18,226,456
(6,498,929)
(2,421,051)
Revenue
Costs and expenses
Net income
483,788
(438,351)
31,579
449,550
(400,762)
37,283
5,094,143
(3,676,470)
1,289,911
4,701,014
(3,428,400)
920,215
The advances include investments in allied undertakings outside the Philippines.
On December 23, 2003, a purchase and sale agreement was entered into by and between the
Parent Company and Joyco España for the Parent Company’s acquisition of the remaining 50%
interest in URCCC. URCCC was 50% owned by the Parent Company until December 23, 2003.
The results of URCCC have been included in the consolidated financial statements from the date
of acquisition. The acquisition cost amounted to =
P20.0 million.
11. Property, Plant and Equipment
The rollforward analysis of this account follows:
Furniture,
Land
(Note 17)
Land
Buildings and
Machinery and
Transportation
Fixture and
Construction
Equipment
Improvements
Improvements
Equipment
Equipment
Equipment
in Progress
in Transit
Total
=
P19,314,742,886 =
P1,385,017,013
=
P987,544,038
=
P525,195,846
=
P231,562,252
=
P29,174,777,406
105,820,156
48,720,141
463,279,379
3,646,648,409
–
–
Cost
At October 1, 2004
Additions
=
P860,053,707
=
P842,016,886 =
P5,028,644,778
15,761,266
405,254,036
487,254,657
Retirements/disposal
–
–
–
Reclassifications and others
–
–
875,814,973
1,247,270,922
–
At September 30, 2005
(3,241,789)
1,948,609,948
(292,041,883)
171,948,826
(25,036,750)
(71,818)
(68,462)
(9,263,509)
(120,249,524)
(317,150,451)
322,017,057
159,160
5,512,657,646
21,293,328,008
1,532,088,249
1,093,223,914
564,652,478
574,592,107
32,693,628,297
189,352,933
258,743,464
1,987,491,244
9,751,169,957
1,001,131,740
655,456,052
–
–
13,653,992,457
1,274,335,582
107,079,463
52,490,736
1,843,595,350
Accumulated Depreciation,
Amortization and
Impairment Loss
At October 1, 2004
Depreciation, amortization
and impairment loss
–
176,049,337
233,640,232
Retirements/disposal
(Note 21)
–
–
–
–
–
(151,139,684)
(24,113,852)
(56,257)
–
–
Reclassifications and others
–
–
552,354
138,388,562
48,081,989
112,514
–
–
At September 30, 2005
–
434,792,801
187,135,419
2,221,683,830
11,012,754,417
1,132,179,340
708,003,045
–
–
15,509,413,433
P
=875,814,973
P
=812,478,121 P
=3,290,973,816
P
=10,280,573,591
P
=399,908,909
P
=385,220,869
P
=564,652,478
P
=574,592,107
P
=17,184,214,864
=
P860,053,707
=
P583,273,422 =
P3,041,153,534
=
P9,563,572,929
=
P383,885,273
=
P332,087,986
=
P525,195,846
=
P231,562,252
=
P15,520,784,949
(175,309,793)
Net book value as of
September 30, 2005
Net book value as of
September 30, 2004
*SGVMC107496*
- 70 -
In 2004 and 2003, impairment losses amounting to =
P150.1 million and =
P374.0 million,
respectively, represent the write-down in the net book value of idle machinery and equipment
items to nil amounts in the branded segment. The impairment losses are included in the other
income (charges) account in the consolidated statements of income. The impairment losses were
determined using the net selling price as the net realizable value.
Depreciation and amortization charged to operations amounted to =
P1,843.6 million in 2005,
=
P1,906.8 million in 2004 and =
P1,368.5 in 2003.
As discussed in Note 2, PAS 21, The Effects of Changes in Foreign Exchange Rates, provides
restrictive conditions for the capitalization of foreign exchange losses. The net cumulative
capitalized foreign exchange losses amounted to =
P187.1 million, net of accumulated depreciation
of =
P100.9 million as of September 30, 2005 and =
P219.8 million, net of accumulated depreciation
of =
P69.1 million as of September 30, 2004. Upon the adoption of PAS 21 on October 1, 2005, the
Group will adjust previously recorded undepreciated capitalized foreign exchange losses against
beginning retained earnings and prior years’ consolidated financial statements will have to be
restated.
The change in property accounts, arising from restatements of foreign currency denominated
liabilities to exchange rate as at balance sheet date, resulted to an increase of =
P155.4 million in
2003. There are no capitalized foreign exchange losses in 2005 and 2004.
Borrowing costs capitalized as part of plant and machinery and equipment in the course of
construction amounted to =
P5.2 million in 2003. There are no capitalized borrowing costs in 2005
and 2004, as funds used for the construction of qualifying assets are sourced from internally
generated funds.
The total costs of fully depreciated property, plant and equipment that are still in use amounted to
=
P5,056.7 million as of September 30, 2005.
The Group has contractual commitments for the acquisitions of machinery and equipment with a
total contract value of =
P1,005.5 million as of September 30, 2005. These acquisitions are
intended for the expansion of the production capacities for the beverage and sugar businesses of
the Group.
12. Other Assets
This account consists of:
Goodwill - net
Miscellaneous deposits
Others - net of allowance for impairment
2005
P
=783,202,273
60,988,528
124,839,622
P
=969,030,423
2004
=
P957,142,218
60,438,823
57,819,539
=
P1,075,400,580
*SGVMC107496*
- 71 -
In March 2000, URCICL formed two-wholly owned subsidiaries namely Hong Kong China Foods
Co. Ltd. and URC Asean Brands Co. Ltd. These companies were incorporated in British Virgin
Islands. These two wholly-owned subsidiaries acquired majority ownership of certain companies
in the Asian region for approximately =
P2.8 billion. The excess of the acquisition cost over the
fair values of the net assets acquired resulted in goodwill. The unamortized goodwill arising from
these acquisitions has been translated at the applicable year-end exchange rate. The acquisition of
SONEDCO in 1988 also resulted in goodwill. As discussed in Note 2, the Group has elected not
to restate any business combinations that occurred before the date of transition to PFRS. Instead,
the carrying amount of these assets at transition date will be tested at least annually for
impairment.
The rollforward analysis of the goodwill account follows:
2005
Positive Goodwill
Cost:
Balance at beginning of the year
Translation adjustments
Balance at end of the year
Accumulated amortization:
Balance at beginning of the year
Amortization for the year
Translation adjustments
Balance at end of the year
Net book value of positive goodwill
Negative goodwill
Net goodwill
2004
P1,722,450,330
P
=1,763,538,477 =
41,088,147
(6,806,666)
1,763,538,477
1,756,731,811
769,658,052
167,838,005
(704,726)
936,791,331
819,940,480
(36,738,207)
P
=783,202,273
586,536,687
168,695,990
14,425,375
769,658,052
993,880,425
(36,738,207)
=
P957,142,218
13. Loans Payable
This account includes short-term clean loans obtained from local banks. Interest is based on
prevailing market rates. Interests on the loans are paid as they become due. Accrued interest
payable on the above loans amounted to =
P5.2 million and =
P35.3 million as of September 30, 2005
and 2004, respectively, and is shown as part of “Accrued expenses” under the “Accounts Payable
and Accrued Expenses” account in the consolidated balance sheets (see Note 14).
*SGVMC107496*
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14. Accounts Payable and Accrued Expenses
This account consists of:
Accounts payable - trade
Accrued expenses (Note 13)
Advances from stockholders (Note 16)
Customers’ deposits
Others
2005
P
=1,510,800,222
1,110,450,888
269,077,808
87,769,543
160,667,589
P
=3,138,766,050
2004
=
P1,557,843,919
1,082,557,220
269,893,010
54,532,429
108,979,474
=
P3,073,806,052
For terms and conditions relating to related parties, refer to Note 16.
Accounts payable-trade are noninterest-bearing and are normally settled on a monthly basis.
The details of the accrued expenses account follow:
Accrued advertising and promotions
Accrued interest expense
Accrued freight and handling costs
Others
2005
P
=482,511,664
462,899,960
51,112,026
113,927,238
P
=1,110,450,888
2004
=
P663,587,885
254,417,132
34,134,962
130,417,241
=
P1,082,557,220
Accrued expenses are normally settled monthly throughout the financial year.
15. Long-Term Debt
This account consists of:
2005
Foreign Currencies:
Balance of US$200 million, 8.25% Guaranteed
Notes Due 2012, interest payable on
January 20 and July 20 of each year
starting January 20, 2005
P
=11,202,000,000
Balance of US$125 million, 9% Guaranteed
Notes Due 2008, interest payable on
February 6 and August 6 of each year
starting August 6, 2003
7,001,250,000
Balance of US$100 million, 8 3/8% Guaranteed
Notes Due 2006, interest payable on June 19
and December 19 of each year
2,905,127,240
2004
=
P–
7,034,500,000
2,987,524,012
(Forward)
*SGVMC107496*
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Balance of loans from a foreign bank, payable
in 10 to 16 equal semi-annual amortization
Balance of loans from a foreign bank, payable
in 14 equal semi-annual amortization
Philippine Pesos:
Balance of restructured loans from Philippine
Sugar Corporation payable in 25 equal
annual amortizations
Balance of a five-year promissory note payable
in 6 semi-annual amortization with
remaining balance at maturity
Debt issuance costs
Less: Current portion
Long-term debt
Debt issuance costs
2005
2004
P
=364,000,841
=
P584,131,954
223,018,406
274,010,085
63,050,972
67,846,785
700,000,000
22,458,447,459
188,247,523
22,270,199,936
900,000,000
11,848,012,836
62,921,433
11,785,091,403
321,825,081
376,043,545
1,663,925
3,152,011
320,161,156
372,891,534
P11,464,930,247
P
=21,897,308,402 =
Guaranteed Notes Due 2012
On January 14, 2005, URC Philippines, Limited, a wholly owned subsidiary, issued
US$200 million, 8.25% Guaranteed Notes Due 2012 (Notes due 2012) guaranteed by the Parent
Company. Unless previously redeemed or purchased and cancelled, the Notes due 2012 will be
redeemed at their principal amount, plus accrued and unpaid interest, on January 20, 2012.
Underwriting fees and other expenses incurred in connection with the issuance of the Notes due
2012 have been deferred and are being amortized over the terms of the respective debt securities
issued. The unamortized balance of the related debt issuance costs amounted to =
P145.3 million as
of September 30, 2005.
Guaranteed Notes Due 2008
On February 5, 2003, URC Philippines, Limited, a wholly owned subsidiary, issued
US$125 million, 9% Guaranteed Notes Due 2008 (Notes due 2008) guaranteed by the Parent
Company. Unless previously redeemed or purchased and cancelled, the Notes due 2008 will be
redeemed at their principal amount, plus accrued and unpaid interest, on February 6, 2008.
Underwriting fees and other expenses incurred in connection with the issuance of the Notes due
2008 have been deferred and are being amortized over the terms of the respective debt securities
issued. The unamortized balance of the related debt issuance costs amounted to =
P40.4 million and
=
P58.6 million as of September 30, 2005 and 2004, respectively.
Guaranteed Notes Due 2006
On December 19, 1996, Universal Robina (Cayman) Ltd., a wholly owned subsidiary, issued
US$100 million, 8 3/8% Guaranteed Notes Due 2006 (Notes due 2006) guaranteed by the Parent
Company. Unless previously redeemed or purchased and cancelled, the Notes due 2006 will be
redeemed at their principal amount, plus accrued and unpaid interest, on December 19, 2006. The
*SGVMC107496*
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subsidiary reacquired US$12 million in 2004 and US$0.5 million in 2003 worth of the Notes due
2006 which resulted in a gain of =
P0.2 million in 2003. The gain on reacquisition of the Notes due
2006 is included in the “Other Income (Charges)” account in the 2003 consolidated statement of
income.
Underwriting fees and other expenses incurred in connection with the issuance of the Notes due
2006 have been deferred and are being amortized over the terms of the respective debt securities
issued. The unamortized balance of the related debt issuance costs amounted to =
P2.5 million and
=
P4.3 million as of September 30, 2005 and 2004, respectively.
Foreign Bank Loans
The Parent Company entered into two credit-term loan facilities with Bayerische Hypo-UND
Vereinsbank AG (Vereinsbank), Munich to finance the supply of certain property and equipment
for its biaxially-oriented polypropylene film plant. The details of the loans are as follows:
Line 1
2005
P
=–
2004
=
P167,239,495
Maturity Date
September 12, 2005
Line 2
364,000,841
416,892,459
April 30, 2008
P
= 364,000,841
=
P584,131,954
Total
Interest Rate
EURIBOR/USD
LIBOR ranging
from 2.954% to
4.061% per
annum
EURIBOR/USD
LIBOR ranging
from 2.822% to
4.257% per
annum
Interest Payment Date
March and September
October and April
These loans contain negative covenants that, among others, prohibit merger or consolidation with
other entities, dissolution, liquidation or winding-up except with any of its subsidiaries; prohibit
purchase or redemption of any issued shares or reduction of registered and paid-up capital or
distribution of assets resulting in capital base impairment.
The Parent Company also entered into credit-term loan facilities with Bayerische Hypo-UND
Vereinsbank AG (Vereinsbank), Munich to finance the supply of certain property and equipment
for its flour mill plant. The outstanding balance bears interest at floating rate based on USD
LIBOR plus certain margins per annum. This loan is payable in fourteen equal, consecutive,
semi-annual payments starting 6 months after the weighted average delivery period of all units or,
at the latest, starting 6 months after August 1, 2002, whichever date shall occur earlier, with the
last repayment installment due October 15, 2009. These loans contain negative covenants that,
among others, prohibit merger or consolidation with other entities, dissolution, liquidation or
winding-up except with any of its subsidiaries; prohibit purchase or redemption of any issued
shares or reduction of registered and paid-up capital or distribution of assets resulting in capital
base impairment.
The foreign bank loans amounting to $2,971,773 in 2004 for Line 1, and $6,498,855 in 2005 and
$7,407,997 in 2004 for Line 2 were converted using the September 30, 2005 and 2004 closing
rates of =
P56.010 to US$1 and =
P56.276 to US$1, respectively.
*SGVMC107496*
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Philippine Sugar Corporation
R.A. No. 7202 dated February 24, 1992 provided for, among others, the condonation of all
penalties and surcharges on loans granted to sugar producers from crop year 1974-1975 up to and
including 1984-1985. The guidelines for the implementation of R.A. No. 7202 was issued under
Executive Order No. 31 dated October 29, 1992, directing all government lending financial
institutions to write-off from their respective books the interest in excess of 12% yearly and all
penalties and surcharges due. Certain assets of a subsidiary with net book value of =
P97.3 million
and =
P73.3 million as of September 30, 2005 and 2004, respectively, are used to secure the loan.
The loan is payable in 25 equal annual amortization of =
P9.9 million and bears interest at 7.5% per
annum. Unpaid interest on the loan amounted to =
P3.5 million and =
P3.8 million as of
September 30, 2005 and 2004, respectively.
Five-Year Promissory Note
The Parent Company obtained a five-year loan from Metropolitan Bank and Trust Company,
payable in 6 semi-annual amortization of =
P100 million to commence on the 30th of the month
from draw date, with the remaining balance payable at maturity. The loan, which bears interest at
prevailing market rates, is used to finance capital expenditures relative to expansion of snackfood,
candy and biscuits operations of the branded consumer foods segment. The loan is collateralized
by negative pledge on certain assets. The loan agreement contains certain provisions which,
among others, impose negative covenants relating to the Parent Company’s ownership structure
and nature of business, merger or consolidation with another entity, and acquisition of its own
capital stock.
Total interest expense and other related charges on these long-term debts amounted to
=
P1,741.8 million, =
P1,044.9 million and =
P810.4 million for the years ended September 30, 2005,
2004 and 2003, respectively.
16. Related Party Disclosures
Transactions with related parties
The Group, in its regular conduct of business, has engaged in transactions with its major
stockholder, JGSHI, and its affiliated companies. These transactions principally consist of sales,
purchases and interest-bearing advances, at prevailing market rates, to and from these companies.
The following describes the transactions and related amounts which have been entered into with
related parties as of and for the years ended September 30, 2005, 2004 and 2003.
Sales to affiliated companies amounted to =
P460.9 million in 2005, =
P336.3 million in 2004 and
=
P284.2 million in 2003.
Other related party transactions include: (a) purchases of polypropylene resin for bi-axially
oriented polypropylene film amounting to =
P750.4 million, =
P795.7 million and =
P788.6 million for
the years ended September 30, 2005, 2004 and 2003, respectively, from JG Summit Petrochemical
Corporation (Petrochem); (b) power purchase amounting to =
P199.3 million, =
P99.1 million and
=
P108.2 million for the years ended September 30, 2005, 2004 and 2003, respectively, from Litton
*SGVMC107496*
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Mills, Inc. and Petrochem; (c) rental expenses of certain properties amounting to =
P19.5 million in
2005, =
P15.8 million in 2004 and =
P10.7 million in 2003 from JGSHI; and (d) rental income of
certain properties amounting to =
P32.6 million, =
P50.8 million, and =
P49.7 million for the years
ended September 30, 2005, 2004 and 2003, respectively, mostly from Digital
Telecommunications Philippines, Inc. (Digitel) (see Note 27).
JGSHI also provides the Group certain corporate services including corporate finance, corporate
planning, procurement, human resources, legal and corporate communications.
As of September 30, 2005 and 2004, the net due to (from) related parties amounted to =
P121.4
million and (P
=20.9) million, respectively. Outstanding balances as of year end are unsecured and
interest free. As of September 30, 2005 and 2004, the Group has not made any provision for
doubtful amounts owed by related parties. This assessment is undertaken each financial year
through examining the financial position of the related party and the market in which the related
party operates.
The Group also maintains savings and current accounts and time deposits with Robinsons Savings
Bank, an affiliated local commercial bank. The balances are as follows:
2005
P
=268,075
91,213,171
P
=91,481,246
Savings and current accounts
Short-term investments
2004
=
P228,482
59,189,000
=
P59,417,482
Loans from shareholders
As of September 30, 2005 and 2004, the Group has outstanding advances from stockholders of the
Group that amounted to =
P269.10 million and =
P269.90 million, respectively. The advances are
included in the “Accounts payable and accrued expenses” account in the consolidated balance
sheets which bears interest at prevailing market rates.
17. Capital Stock and Cumulative Translation Adjustments
Capital stock
The authorized preferred stock is 12% cumulative, nonparticipating, nonvoting and redeemable at
par upon dissolution and liquidation of the Parent Company. There are no issuances of preferred
stock.
On August 3, 2001, the Parent Company’s BOD approved the issuance of 55,659,008 shares to
JGSHI, Robinson’s Supermarket Corporation, and its major stockholder in exchange for two (2)
parcels of land and certain marketable securities, respectively, valued at =
P250,465,533. This is
reflected as “Deposits on future stock subscriptions” in the consolidated balance sheets. On June
19, 2003, the SEC approved the issuance of 49,871,556 shares for the two (2) parcels of land.
The remaining 5,787,452 shares are subject to the approval of the SEC.
*SGVMC107496*
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A reconciliation of the number of common shares outstanding follows:
Beginning of the year
Issuances during the year
End of the year
2004
=
P1,686,479,549
–
=
P1,686,479,549
2005
P
= 1,686,479,549
–
P
= 1,686,479,549
2003
=
P1,636,607,993
49,871,556
=
P1,686,479,549
Events After the Balance Sheet Date
On October 7, 2005, the BOD approved the increase in the authorized capital stock from
=
P2,000,000,000 divided into 1,998,000,000 common shares and 2,000,000 preferred shares both
at =
P1 par value per share to =
P3,000,000,000 divided into 2,988,000,000 common shares and
2,000,000 preferred shares both at =
P1 par value per share. On a special meeting of the
stockholders held on November 22, 2005, the stockholders also approved the above increase in
the authorized capital stock and the 15% stock dividends to all stockholders of record as of
January 14, 2006, which was subsequently approved by the SEC on December 16, 2005. On
December 19, 2005, the SEC authorized the issuance of 252,971,932 common shares with =
P1 par
value per share or P252,971,932 to cover the 15% stock dividends declared by the BOD and
ratified by the stockholders.
Cumulative translation adjustments
The cumulative translation adjustments account is used to record the exchange differences arising
from the translation of the financial statements of foreign subsidiaries.
18. Retained Earnings
Restriction
A portion of the retained earnings representing the undistributed earnings of the investee
companies amounting to approximately =
P7.3 billion in 2005, =
P5.6 billion in 2004 and
=
P3.5 billion in 2003 are not available for dividend declaration until received in the form of
dividends.
Appropriation
In December 2003, the BOD approved the appropriation of retained earnings amounting to
=
P3.0 billion for plant expansion.
Dividends declared
The Parent Company’s BOD declared cash dividends in favor of all its stockholders as follows:
Date of declaration
Dividend per share
Total dividends
2005
May 5, 2005
=
P0.30
=
P505.9 million
2004
May 4, 2004
=
P0.30
=
P505.9 million
2003
May 22, 2003
=
P0.30
=
P505.9 million
*SGVMC107496*
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Policy on dividends
The Group intends to maintain an annual cash dividend payment ratio of 50% of the Group’s
consolidated net income from the preceding fiscal year, subject to the requirements of the
applicable laws and regulations and the absence of circumstances which may restrict the payment
of such dividends. The BOD may, at any time, modify such dividend payment ratio.
19. Cost of Sales and Services
This account consists of:
Raw materials used
Direct labor (Note 22)
Other manufacturing costs (Note 21
and 22)
Total manufacturing cost
Goods in process
Cost of goods manufactured
Finished goods
2005
P
= 16,636,710,759
669,759,560
2004
=
P15,020,126,478
760,571,580
2003
=
P12,421,538,161
582,202,880
5,712,826,551
23,019,296,870
(10,830,264)
23,008,466,606
(69,942,746)
P
= 22,938,523,860
4,935,263,213
20,715,961,271
(20,696,212)
20,695,265,059
(322,411,429)
=
P20,372,853,630
4,567,441,813
17,571,182,854
(32,431,416)
17,538,751,438
(166,855,470)
=
P17,371,895,968
20. Operating Expenses
This account consists of:
Personnel expense (Note 22)
Advertising and promotion
Freight and other selling expenses
Depreciation, impairment, repairs and
maintenance (Note 21)
Other administrative expenses
2005
P
= 991,826,040
1,838,916,104
1,453,400,399
2004
=
P766,433,261
1,741,969,942
1,234,915,048
2003
=
P940,129,589
1,637,790,242
1,008,432,447
243,501,008
931,266,110
P
= 5,458,909,661
424,173,251
637,385,884
=
P4,804,877,386
239,236,090
729,462,289
=
P4,555,050,657
Revenue Regulation (RR) No. 10-2002 defines expenses to be classified as EAR expenses and
sets a limit for the amount that is deductible for tax purposes. EAR expenses are limited to 0.5%
of net sales for sellers of goods or properties or 1% of net revenue for sellers of services. For
sellers of both goods or properties and services, an apportionment formula is used in determining
the ceiling on such expenses. Entertainment and representation (EAR) expenses amounted to
=
P14.6 million in 2005, =
P11.3 million in 2004 and =
P14.9 million in 2003.
*SGVMC107496*
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21. Depreciation, Amortization and Impairment Loss
Depreciation, amortization and impairment loss are distributed as follows:
Cost of sales and services
Operating expenses
Other charges (Note 23)
2005
P
= 1,513,518,513
151,957,986
178,118,851
P
= 1,843,595,350
2004
=
P1,404,500,544
397,032,084
255,341,057
=
P2,056,873,685
2003
=
P1,476,333,563
162,181,625
374,024,382
=
P2,012,539,570
2005
P
= 1,258,083,567
403,502,033
13,823,896
P
= 1,675,409,496
2004
=
P1,217,985,716
357,183,564
5,770,500
=
P1,580,939,780
2003
=
P1,160,408,427
341,072,235
79,523,654
=
P1,581,004,316
2004
=
P814,506,519
766,433,261
=
P1,580,939,780
2003
=
P640,874,727
940,129,589
=
P1,581,004,316
22. Personnel Expenses
Personnel expenses consist of:
Salaries, wages and other staff cost
Employee benefits
Retirement costs (Note 23)
The above amounts are distributed as follows:
Cost of sales and services
Operating expenses
2005
P
= 683,583,456
991,826,040
P
= 1,675,409,496
23. Retirement Costs
The Parent Company has a funded, noncontributory defined benefit retirement plan covering all
its regular employees. The plan provides retirement, separation, disability and death benefits to
its members. The Parent Company, however, reserves the right to discontinue, suspend or change
the rates and amounts of its contributions at any time on account of business necessity or adverse
economic conditions. The retirement fund is being administered and managed by certain
stockholders, as trustee.
As of April 1, 2003, the latest actuarial valuation computed under the projected unit credit cost
method, the present value of past service benefits amounted to =
P522.8 million. The fair value of
the fund assets amounted to =
P801.6 million. The principal assumptions used to determine
retirement benefits were an interest rate of 7% and average salary increases of 5.5% per annum.
Retirement costs charged to operations, including amortization of past service cost, amounted to
=
P13.8 million in 2005, =
P5.8 million in 2004 and =
P79.5 million in 2003.
*SGVMC107496*
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24. Other Income (Charges)
This account primarily consists of recovery (decline) in value of temporary investments and
marketable securities, dividend income and foreign exchange gains (losses). Impairment losses on
assets are also included under this account.
25. Income Tax
The significant components of the Parent Company’s deferred income tax assets and liabilities
represent the deferred income tax effects of the following:
Deferred tax assets:
Allowance for doubtful accounts
Provision for inventory write down
Allowance for mortality
Unamortized past service cost
Unrealized foreign exchange loss
Accrued retirement cost
Allowance for impairment (see Note 11)
Unrealized foreign exchange loss on loans
Deferred tax liabilities:
Unrealized profit on excess of market value over
cost of hog market stock
Undistributed income of foreign subsidiaries
Unamortized capitalized interest
Unrealized foreign exchange gain on advances
Others
Net deferred tax assets (liabilities)
2005
2004
P
=165,336,869
13,615,167
9,586,407
7,297,656
3,862,106
2,019,675
–
–
201,717,880
=
P103,458,108
9,248,152
5,440,000
6,672,142
6,286,290
–
150,861,468
20,663,022
302,629,182
119,323,183
218,750,000
15,394,083
–
23,372,245
376,839,511
(P
=175,121,631)
39,896,766
150,000,000
28,710,362
26,557,294
21,368,910
266,533,332
=
P36,095,850
The reconciliation of statutory income tax rate to effective income tax rate follows:
Statutory income tax rate
Additions (reductions):
Net income of foreign subsidiaries for which no
tax was provided
Equity in net earnings of investees not subject
to tax
Decline in value of marketable securities
Income entitled to tax holiday
Interest income subjected to final tax
Reduction in allowable interest expense
Interest income exempt from tax
Others
Effective income tax rate
2005
32.00%
(14.74)
(0.57)
(1.47)
(2.25)
(0.32)
0.04
(0.35)
4.77
17.11%
2004
32.00%
(30.61)
(1.15)
–
–
(0.14)
0.04
(0.07)
(0.64)
(0.57%)
2003
32.00%
(23.13)
(1.12)
–
(1.13)
(0.15)
0.05
(0.27)
(1.49)
4.76%
*SGVMC107496*
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26. Earnings Per Share
Earnings per share amounts were computed as follows:
Net income
Divide by the issued number of shares
2005
P
= 2,404,439,079
1,686,479,549
P
= 1.43
2004
=
P1,875,675,097
1,686,479,549
=
P1.11
2003
=
P1,414,138,195
1,686,479,549
=
P0.84
27. Commitments and Contingencies
The Group has contingent liabilities arising in the ordinary conduct of business which are either
pending decision by the courts or are being contested, the outcome of which are not presently
determinable. In the opinion of management and its legal counsel, the eventual liability under
these labor-related claims, if any, will not have a material or adverse effect on the Group’s
financial position and results of operations. The information usually required by SFAS 37/
IAS 37, Provisions, Contingent Liabilities and Contingent Assets, is not disclosed on the grounds
that it can be expected to prejudice the outcome of pending litigations.
Capital commitments
As of September 30, 2005, the Group had commitments of =
P1,005.5 million, principally relating
to the expansion and completion of sugar refinery and production lines for SONEDCO and
branded consumer food division, respectively. These commitments are for the acquisition of new
machinery plant and equipment items.
Operating lease commitments - Lessor
The Group has entered into a one-year renewable, noncancellable lease with Digitel covering land
and building where Digitel’s office spaces are located.
The minimum annual rental income under this operating lease amounts to =
P35.9 million.
28. BOI Incentives
Parent Company
Under the terms of their registrations with BOI, the Parent Company is entitled, among others, to
the following incentives:
a. Income tax holiday
b. Tax credits on taxes and duties on raw materials and supplies used in the manufacture of export
products and forming parts thereof;
c. Tax credit on domestic capital equipment;
d. Tax and duty-free importation of capital equipment;
e. Exemption from wharfage dues and any export tax, duty, impost and fees; and
f. Other non-fiscal incentives that maybe applicable.
*SGVMC107496*
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URSUMCO
The five (5) year income tax holiday under its old BOI registration as a new domestic producer of
refined sugar that was granted to URSUMCO in 1995, had expired in 2000. However, the
following incentives are still available to the Company under its old BOI registration:
a. Tax credits on taxes and duties on raw materials and supplies used in the manufacture of
export products and forming parts thereof;
b. Additional deduction from taxable income on wages subject to certain terms and conditions;
c. Exemption from wharfage dues and any export tax, duty impost and fees for ten (10) years
from date of registration;
d. Exemption from taxes and duties on imported spare parts and suppliers for certain producers
at least 70% of production; and
e. Other non-fiscal incentives that may be applicable.
In 2004, the URSUMCO applied for a new registration with the BOI as expanding producer of
refined sugar and molasses. The application for registration for the new activity was approved
and granted by the BOI in April 2004. Under the terms of its new registration, the URSUMCO is
entitled among others to the following incentives:
a. Income tax holiday for a period of three (3) years from April 2004 or actual start of
operations, whichever is earlier;
b. Tax credits on taxes and duties on raw materials and supplies used in the manufacture of
export products and forming parts thereof for ten (10) years from start of commercial
operations;
c. Additional deduction from taxable income on wages subject to certain terms and conditions;
d. Exemption from wharfage dues and any export tax, duty impost and fees for ten (10) years
from date of registration;
e. Exemption from taxes and duties on imported spare parts and suppliers for export producers
with Customs Bonded Manufacturing Warehouse exporting at least 70% of production; and
f. Importation of consigned equipment for a period of ten (10) years from date of registration.
SONEDCO
Under the terms of their registrations with BOI, the SONEDCO is entitled, among others, to the
following incentives:
a. Tax credit on capital equipment
b. Tax and duty-free importation of capital equipment
c. Tax credit for taxes and duties on raw materials used for its export products and forming part
thereof.
29. Supplementary Cash Flow Information
In 2004, the noncash investing activity pertains to receipt by way of assignment of RLC shares in
full settlement of the =
P564.3 million worth of JGSHI notes that matured.
*SGVMC107496*
- 83 -
In 2003, the noncash financing activity pertains to the full settlement of the issuances of shares of
stock through the application of deposits for future stock subscriptions amounting to
=
P224.4 million.
30. Reclassification of Accounts
In 2005, the debt issuance cost was presented net of the related debt securities. Accounts affected
in prior years’ consolidated financial statements have been reclassified to conform with the 2005
presentation.
31. Other Matter
Republic Act (RA) No. 9337
RA No. 9337 was recently enacted into law amending various provisions in the existing 1997
National Internal Revenue Code. Among the reforms introduced by the said RA, which became
effective on July 1, 2005, are as follows:
•
•
•
•
•
Increase in the corporate income tax rate from 32% to 35% with a reduction thereof to 30%
beginning January 1, 2009;
Grant of authority to the Philippine President to increase the 10% value added tax (VAT) rate
to 12%, effective January 1, 2006, subject to compliance with certain economic conditions;
Revise invoicing and reporting requirements for VAT;
Expand scope of transactions subject to VAT; and
Provide thresholds and limitations on the amounts of VAT credits that can be claimed.
Due to the enactment of the RA, the deferred tax asset as of September 30, 2005 was measured at
35%.
32. Approval of the Consolidated Financial Statements
The accompanying consolidated financial statements of the Group were authorized for issue by
the audit committee and the BOD on January 9, 2006.
*SGVMC107496*
- 84 -
- 85 UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIES
SCHEDULE A - MARKETABLE SECURITIES
(CURRENT MARKETABLE EQUITY SECURITIES AND
OTHER SHORT-TERM INVESTMENTS)
SEPTEMBER 30, 2005
Name of Issuing Entity and
Description of Each Issue
Temporary investments
Marketable securities
Number of
Shares or
Principal
Amount of Bonds
and Notes
Value Based
on Market
Quotations at
Balance Sheet
Date
Amount
Shown in the
Balance Sheet
Income
Received
and Accrued
P
21,753,976,562
P
21,753,976,562
P
1,764,739,009
P
21,753,976,562
P
21,753,976,562
P
1,764,739,009
P
896,641,788
P
896,641,788
P
41,526,253
P
896,641,788
P
896,641,788
P
41,526,253
- 86 UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIES
SCHEDULE B - ADVANCES TO OFFICERS AND EMPLOYEES
RECEIVABLE FROM DIRECTORS, OFFICERS, EMPLOYEES, RELATED
PARTIES AND PRINCIPAL STOCKHOLDERS (OTHER THAN RELATED PARTIES)
SEPTEMBER 30, 2005
Beginning
Name of Debtor
Total
Ending Balance
Balance
Additions
Collections
Current
Non-Current
Total
P
-
P
-
P
-
P
-
P
-
P
-
P
-
P
-
P
-
P
-
P
-
P
-
- 87 UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIES
SCHEDULE C - LONG-TERM INVESTMENTS IN SECURITIES
(NONCURRENT MARKETABLE EQUITY SECURITIES,
OTHER LONG-TERM INVESTMENTS IN STOCK,
AND OTHER INVESTMENTS)
SEPTEMBER 30, 2005
BEGINNING BALANCE
ADDITIONS
DEDUCTIONS
ENDING BALANCE
Number
Number
Shares
Equity in
of Principal
Name of Issuing Entity and
Description of Investment
Robinson's Land Incorporated
URC Confectionery Corp. (formerly Joyco - URC)
Total
Note:
Earnings (Losses)
Distribution of
Amount of
Amount in
of Investees
Earnings by
Bonds and Notes
Pesos
for the Period
435,747,367
HUNT- Universal Robina Corporation
Shares
P
1,400,000
1,607,553,488
10,000,000
447,147,367
Description of investments
P
72,319,017
1,679,872,505
Percentage of ownership
HUNT- Universal Robina Corporation
50%
Robinson's Land Corporation
19%
P
15,789,500
P
228,833,623
Others
244,623,123
Investees
P
-
P
-
-
(94,619,657)
Others
P
(20,000,000)
P
of Principal
P
(114,619,657)
P
Amount of
Amount in
Bonds and Notes
Pesos
-
435,747,367
P 1,741,767,454
-
1,400,000
68,108,517
-
10,000,000
-
447,147,367
Dividends
Received/accrued
from
Investments Not
Accounted for
by the Equity
Method
P
-
P 1,809,875,971
-
P
-
- 88 -
UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIES
SCHEDULE D - ADVANCES TO UNCONSOLIDATED
SUBSIDIARIES AND AFFILIATES
SEPTEMBER 30, 2005
Name of Affiliate
Hunt - Universal Robina Corporation
P
Digital Telecommunications Philippines., Inc.
Cebu Air, Inc.
Beginning
Ending
Balance
Balance
35,414,184
P
30,420,018
126,067,080
161,654,769
26,339,860
26,643,557
Robinsons Land Corporation
3,009,988
4,237,531
Cebu Pacific Manufacturing Corporation
9,703,494
10,138,027
Chic Centre Corp.
4,582,760
4,469,726
148,555,186
118,818,403
Others
P
See Note 16 to the Consolidated Financial Statements.
353,672,552
P
356,382,031
- 89 UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIES
SCHEDULE E - PROPERTY, PLANT AND EQUIPMENT
SEPTEMBER 30, 2005
Other ChangesClassification
Beginning
Additions at
Balance
Cost
Retirements
Additions
Ending
(Deductions)
Balance
Cost:
Land
P
Land improvements
860,053,707
P
842,016,886
Buildings and improvements
15,761,266
P
405,254,036
-
P
-
-
P
-
1,247,270,922
5,028,644,778
487,254,657
Machinery and equipment
19,314,742,886
1,948,609,948
292,041,883
322,017,057
21,293,328,008
Transportation equipment
1,385,017,013
171,948,826
25,036,750
159,160
1,532,088,249
Furniture, fixtures and equipment
987,544,038
105,820,156
71,818
(68,462)
1,093,223,914
Equipment in transit
231,562,252
463,279,379
-
(120,249,524)
574,592,107
Construction in progress
525,195,846
48,720,141
-
(9,263,509)
564,652,478
P
29,174,777,406
P
3,646,648,409
-
875,814,973
P
317,150,451
(3,241,789)
P
189,352,933
5,512,657,646
P
32,693,628,297
- 90 UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIES
SCHEDULE F - ACCUMULATED DEPRECIATION
SEPTEMBER 30, 2005
Description
Additions
Other Changes-
Beginning
Charged to Costs
Additions
Ending
Balance
and Expenses
(Deductions)
Balance
Retirements
Cost:
Land improvements
P
258,743,464
P
176,049,337
Buildings and improvements
1,987,491,244
233,640,232
Machinery and equipment
9,751,169,957
1,274,335,582
Transportation equipment
1,001,131,740
107,079,463
655,456,052
52,490,736
Furniture, fixtures and equipment
P 13,653,992,457
P
1,843,595,350
P
-
P
-
P
-
P
434,792,801
552,354
2,221,683,830
151,139,684
138,388,562
11,012,754,417
24,113,852
48,081,989
1,132,179,340
56,257
112,514
708,003,045
175,309,793
P
187,135,419
P
15,509,413,433
- 91 -
UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIES
SCHEDULE G - OTHER ASSETS
SEPTEMBER 30, 2005
Beginning
Balance
Description
Goodwill
Miscellaneous deposits
Others
Deductions/Amortizations
Charged to cost
Charged to
and expenses
Other accounts
Additions
at cost
P
957,142,218
60,438,823
57,819,539
P
-
P 167,838,005
-
P
-
P
1,075,400,580
P
-
P 167,838,005
P
-
Other ChangesAdditions
(deductions)
P
P
Ending
Balance
(6,101,940)
549,705
67,020,083
P
783,202,273
60,988,528
124,839,622
61,467,848
P
969,030,423
- 92 UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIES
SCHEDULE H - LONG-TERM DEBT
SEPTEMBER 30, 2005
Amount
Amount
Amount
Name of Issuer and
Authorized by
Shown as
Shown as
Type of Obligation
Indenture
Current
Long-Term
Total
Remarks
URC Philippines, Ltd. 8.25%
Guarantedd Notes Due 2012
$
200,000,000
$
125,000,000
P
-
P
11,202,000,000
P
11,202,000,000
See Note below
URC Philippines, Ltd. 9%
Guarantedd Notes Due 2008
Bayerische Vereinsbank AG
Euro
$
-
7,001,250,000
7,001,250,000
- do -
11,430,473
121,333,614
242,667,227
364,000,841
- do -
6,236,038
49,554,432
173,463,974
223,018,406
- do -
Philippine Sugar Corporation
-
5,155,499
57,895,473
63,050,972
- do -
Metrobank and Trust Co.
-
200,000,000
500,000,000
700,000,000
- do -
2,905,127,240
2,905,127,240
- do -
Universal Robina (Cayman), Ltd. 8 3/8%
Guaranteed Notes Due 2006
$
-
100,000,000
P
Less: Debt Issuance Cost
Note:
The terms, interest rate, collaterals and other relevant information
are shown in Note 15 to Consolidated Financial Statements.
376,043,545
P
22,082,403,914
P
22,458,447,459
3,152,011
185,095,512
188,247,523
372,891,534
21,897,308,402
22,270,199,936
- 93 -
UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIES
SCHEDULE I - ADVANCES FROM UNCONSOLIDATED
SUBSIDIARIES AND AFFILIATES
SEPTEMBER 30, 2005
Name of Affiliate
JG Summit Petrochemical Corp.
P
Hello Snack Foods
Beginning
Ending
Balance
Balance
-
P
46,162,434
Litton Mills, Inc.
4,353,006
-
-
76,304,923
Terai Industrial Corp.
23,575,656
Cebu Industrial and Mgt. Corp.
34,330,579
-
7,472,991
-
Westpoint Industrial Corp.
Pan Pacific Investment Co. Ltd.
Others
P
See Note 16 to the Consolidated Financial Statements.
28,731,925
216,458,206
215,433,895
4,777,311
152,921,014
332,777,177
P
477,744,763
- 94 UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIES
SCHEDULE K - CAPITAL STOCK
SEPTEMBER 30, 2005
Title of Issue
Number of
Shares
Authorized
Number of
Shares Issued
and
Outstanding
Number of
Shares Reserved
for Options, Warrants,
Conversions, and
Other Rights
Number of Shares Held By
Affiliates
Preferred stock - P1 par value
2,000,000
Common stock - P1 par value
1,998,000,000
Directors,
Officers
and
Employees
Others
2,670,908
179,413,912
None
1,686,479,549
1,504,394,729
- 95 -
UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS
Form 17-A
Page No.
No.
(3)
Plan of Acquisition, Reorganization, Arrangement,
Liquidation, or Succession
*
Instruments Defining the Rights of Security Holders,
Including Indentures
*
(8)
Voting Trust Agreement
*
(9)
Material Contracts
*
(10)
Annual Report to Security Holders, Form 17-Q or
Quarterly Report to Security Holders
*
(13)
Letter re Change in Certifying Accountant
*
(16)
Report Furnished to Security Holders
*
(18)
Subsidiaries of the Registrant
96
(19)
Published Report Regarding Matters Submitted
to Vote of Security Holders
*
(20)
Consent of Experts and Independent Counsel
*
(21)
Power of Attorney
*
(29)
Additional Exhibit
Letter re Disclosure Rules on
Executive Compensation
*
(5)
_______
* These Exhibits are either not applicable to the Company or require no answer.
- 96 -
EXHIBIT 18 SUBSIDIARIES OF THE REGISTRANT
Universal Robina Corporation has the following subsidiaries that are directly and indirectly
owned:
Country of
Percentage of Ownership
Investee Companies
Incorporation
Direct
Indirect
CFC Corporation
Philippines
100
–
Universal Robina (Cayman), Ltd.
Cayman Islands
100
–
URC Philippines, Limited
British Virgin Islands
100
–
Universal Robina Sugar Milling Corporation
(URSUMCO)
Philippines
100
–
Southern Negros Development Corporation
- do (SONEDCO)
–
94
CFC Clubhouse, Incorporated (formerly
CFC Keebler, Incorporated)
- do 100
–
CFC Clubhouse Property, Inc. (formerly
CFC Keebler Property, Inc.)
- do 100
–
URC International Co. Ltd. (URCICL)
British Virgin Islands
77
–
Hong Kong China Foods Co. Ltd.
–
77
- do URC Asean Brands Co. Ltd.
77
- do –
URC Hong Kong Company Limited
(formerly Hong Kong Peggy Snacks
Foods Co., Limited)
Hong Kong
–
100
Tianjin Pacific Foods Manufacturing Co.,
–
Ltd.
China
100
Shanghai Peggy Foods Co., Ltd.
- do –
100
Xiamen Tongan Pacific Food Co., Ltd.
- do –
100
URC Foods (Singapore) Pte. Ltd. (formerly
Pan Pacific Snacks Pte. Ltd.)
Singapore
–
100
URC (Thailand) Co., Ltd. (formerly Thai
Peggy Foods Co. Ltd.)
Thailand
–
100
Panyu Peggy Foods Co., Ltd.
China
–
90
URC Snack Foods (Malaysia) Sdn. Bhd.
(formerly Pacific World Sdn. Bhd.)
Malaysia
–
91.52
Ricellent Sdn. Bhd.
- do –
54.03
PT URC Indonesia
Indonesia
–
100
URC Vietnam Co., Ltd.
Vietnam
–
100
Nissin - Universal Robina Corporation
Philippines
65
–
URC Confectionery Corporation [(URCCC)
(formerly JOYCO-Universal Robina
Corporation)]
- do 100
–