This Prospectus is being displayed on the website to make the Prospectus accessible to more

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Philippine Stock Exchange makes no representation as to the completeness of the Prospectus
and disclaims any liability whatsoever for any loss arising from or in reliance in whole or in part
on the contents of the Prospectus.
IMPORTANT NOTICE
You must read the following disclaimer before continuing. The following disclaimer applies to the
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Nothing in this electronic transmission constitutes an offer to sell or a solicitation of an offer to buy
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United States and may not be offered, sold, resold, transferred or delivered, directly or indirectly,
within the United States except pursuant to an applicable exemption from the registration
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CONFIRMATION OF YOUR REPRESENTATION: IN ORDER TO BE ELIGIBLE TO VIEW
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YOU HAVE CONFIRMED THAT YOU AND THE PERSON, IF ANY, FOR WHOSE ACCOUNT
YOU ARE ACTING, ARE LOCATED OUTSIDE OF THE UNITED STATES (WITHIN THE
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If you have gained access to this transmission contrary to the foregoing restrictions, you will be
unable to purchase any of the securities described therein.
This document has been made available to you in electronic form. You are reminded that documents
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responsibility whatsoever in respect of any difference between the document distributed to you in
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You are responsible for protecting against viruses and other destructive items. Your receipt of this
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D&L INDUSTRIES, INC.

(incorporated with limited liability in the Republic of the Philippines)
Primary offer of 1,071,429,000 common shares at an Offer Price of P4.30 per common share,
with an over-allotment option of up to 160,714,000 common shares, to be listed and traded on
the First Board of The Philippine Stock Exchange, Inc.

International Underwriter and Bookrunner

Maybank Kim Eng Securities Pte Ltd

Domestic Lead Underwriter and Issue Manager

Maybank ATR Kim Eng Capital Partners, Inc.

Participating Domestic Underwriters

Abacus Capital and

Investment Corporation

SB Capital Investment
Corporation

BDO Capital & Investment

Corporation

The date of this Prospectus is November 26, 2012

D&L Industries, Inc.

#65 Industria Street,
Quezon City 1110
Philippines
Telephone Number: +63-2-635-0680
Website: http://www.dnl.com.ph/
This Prospectus relates to the offer and sale on a primary basis of 1,071,429,000 common shares (the
Firm Offer, and such shares, the Firm Shares), par value P1.00 per share (the Shares), of D&L
Industries, Inc., a corporation organized under Philippine law (together with its subsidiaries, OleoFats Incorporated, First in Colours, Incorporated, D&L Polymers & Colours, Inc. and Aero-Pack
Industries, Inc., and its associate company Chemrez Technologies, Inc., the Company). The
Shares will be listed and traded on the First Board of The Philippine Stock Exchange, Inc. The Firm
Shares will be offered at a price of P4.30 per Firm Share (the Offer Price). The determination of the
Offer Price is further discussed on page 45 of this Prospectus and is based on a book-building process
and discussions between the Company, Maybank Kim Eng Securities Pte Ltd (the International
Underwriter) and Maybank ATR Kim Eng Capital Partners, Inc. (the Domestic Lead Underwriter).
A total of 3,571,428,995 Shares will be outstanding after the Firm Offer. The Firm Shares will
represent approximately 30.0% of the issued and outstanding capital stock of the Company after
completion of the Offer.
The total proceeds to be raised by the Company from the sale of the Firm Shares will be
approximately P4,607.1 million. The net proceeds to be raised by the Company from the sale of
the Firm Shares (after deduction of estimated fees and expenses) will be approximately P4,397.8
million (assuming no exercise of the Over-allotment Option (as defined below)). The Company
intends to use the net proceeds from the Firm Offer for acquisitions and investments, payment of
financial obligations and general corporate purposes. For a more detailed discussion of the
Companys proposed use of proceeds, see Use of Proceeds on page 42 of this Prospectus. The
Selling Shareholder (as defined herein) will receive all proceeds from the sale of the Optional
Shares (as defined below), while the Company will not receive any of such proceeds.
The International Underwriter and Domestic Lead Underwriter will receive a transaction fee from
the Company based on a percentage of the gross proceeds from the sale of the Offer Shares (as
defined below). This is inclusive of the amounts to be paid to Bancpros & Associates (the
Financial Advisor), other participating underwriters and selling agents, where applicable. For a
more detailed discussion on the fees to be received by the International Underwriter and Domestic
Lead Underwriter, see Use of Proceeds on page 42 of this Prospectus.
Each holder of Shares will be entitled to such dividends as may be declared by the Companys
Board of Directors (the Board), provided that any stock dividend declaration requires the
approval of shareholders holding at least two-thirds of the Companys total outstanding capital
stock. The Corporation Code of the Philippines, Batas Pambansa Blg. 68 (the Philippine
Corporation Code), has defined outstanding capital stock as the total shares of stock issued,
whether paid in full or not, except treasury shares. The Company has adopted a dividend policy of
declaring at least 25% of its prior years consolidated net income as a dividend in favor of its
stockholders of record date to be determined by the Board, to be paid from the Companys
available unrestricted retained earnings. This dividend shall be payable in cash, stock or property,
or a combination of the three, as may be determined by the Board and subject to applicable laws,
rules and regulations. The dividend payout rate is based on recommendation by the Board and is
subject to periodic review and revision, which depends on the Companys operating expenses,
implementation of business plans, working capital requirements, cash flow position and capital
expenditure requirements, among other factors. Please see a more detailed discussion of the
Companys dividend policy under Dividends and Dividend Policy on page 44 of this Prospectus.

750,000,300 Firm Shares (the Institutional Offer Shares) are being offered and sold outside the
United States by the International Underwriter in offshore transactions in reliance on Regulation S
(Regulation S) under the United States Securities Act of 1933, as amended (the U.S. Securities
Act) (the Institutional Offer).
321,428,700 Firm Shares (the PSE and LSI Offer Shares) are being offered in the Philippines to
all of the trading participants of the Philippine Stock Exchange (PSE) (the PSE Trading
Participants) and to local small investors (the LSIs) under the Local Small Investors Program in
the Philippines (the PSE and LSI Offer). PSE and LSI Offer Shares not taken up by the PSE
Trading Participants and the LSIs shall be distributed by the Domestic Lead Underwriter to its
respective clients or to the general public. PSE and LSI Offer Shares not taken up by the PSE
Trading Participants, the Domestic Lead Underwriters clients or the general public shall be
purchased by the Domestic Lead Underwriter.
In any case, the amount of Offer Shares to be made available to the PSE Trading Participants and
LSIs will be at least 20% and 10%, respectively, of the Firm Shares.
Jadel Holdings, Co., Inc. (the Selling Shareholder) has granted Maybank ATR Kim Eng Capital
Partners, Inc., in its role as stabilizing agent (the Stabilizing Agent), an option exercisable in
whole or in part from and including the date of listing and when trading of the Shares commences
on the PSE (the Listing Date) and ending on the date 30 calendar days from and including the
Listing Date to purchase up to an additional 160,714,000 Shares at the Offer Price (the Optional
Shares), on the same terms and conditions as the Firm Shares as set forth in this Prospectus,
solely to cover over-allotments, if any (the Over-Allotment Option). The Firm Shares and the
Optional Shares are referred to as the Offer Shares, and the offer of the Offer Shares is referred
to as the Offer. The Optional Shares will be sold as part of the Institutional Offer. See Plan of
Distribution on page 156 of this Prospectus.
All of the Shares issued and to be issued pursuant to the Offer have, or will have, identical rights
and privileges. The Shares may be owned by any person or entity regardless of citizenship or
nationality, subject to the nationality limits under Philippine law.
The allocation of the Firm Shares between the PSE and LSI Offer and the Institutional Offer is
subject to adjustment. In the event of an under-application in the Institutional Offer and a
corresponding over-application in the PSE and LSI Offer, Firm Shares in the Institutional Offer
may be reallocated to the PSE and LSI Offer. If there is an under-application in the PSE and LSI
Offer and if there is a corresponding over-application in the Institutional Offer, Firm Shares in the
PSE and LSI Offer may be reallocated to the Institutional Offer. The reallocation shall not apply in
the event of over-application in both the PSE and LSI Offer and the Institutional Offer.
The listing of the Offer Shares is subject to the approval of the PSE. An application to list the
Offer Shares as well as the rest of the Shares was approved on November 14, 2012. Such an
approval for listing is permissive only and does not constitute a recommendation or endorsement
by the PSE or the Philippine Securities and Exchange Commission (the Philippine SEC) of the
Shares.
Before making an investment decision, prospective investors should carefully consider the risks
associated with an investment in the Shares. These risks include:
risks relating to the Company and its businesses;
risks relating to the Philippines;
risks relating to the Offer and the Shares; and

ii

 risks relating to certain statistical information in this Prospectus.

See the section entitled Risk Factors beginning on page 26 of this Prospectus, which, while not
intended to be an exhaustive enumeration of all risks, must be considered in connection with a
purchase of the Offer Shares.
ALL REGISTRATION REQUIREMENTS HAVE BEEN MET AND ALL INFORMATION
CONTAINED HEREIN IS TRUE AND CURRENT.
The Offer Shares are offered subject to the receipt and acceptance of any order by the Company
and subject to the Companys right to reject any order in whole or in part. It is expected that the
Offer Shares will be delivered in book-entry form against payment thereof to the Philippine
Depository and Trust Corporation (the PDTC) on or about December 12, 2012.

By:
(original signed)

John L. Lao
President and Chief Executive Officer

iii

No representation is made by the Company, the Selling Shareholder, the International Underwriter or
the Domestic Lead Underwriter regarding the legality of an investment in the Offer Shares under any
legal, investment or similar laws or regulations. The contents of this Prospectus are not investment,
legal or tax advice. Prospective investors should consult their own counsel, accountant and other
advisors as to legal, tax, business, financial and related aspects of a purchase of the Offer Shares. In
making any investment decision regarding the Offer Shares, prospective investors must rely on their
own examination of the Company and the terms of the Offer, including the merits and risks involved.
THE OFFER SHARES ARE BEING OFFERED ON THE BASIS OF THIS PROSPECTUS ONLY.
ANY DECISION TO PURCHASE THE OFFER SHARES MUST BE BASED ONLY ON THE
INFORMATION CONTAINED HEREIN.
The Offer Shares have not been and will not be registered under the U.S. Securities Act and are not
being offered or sold in the United States. The Offer Shares may be subject to certain transfer
restrictions as described herein.
No person has been authorized to give any information or to make any representations other than
those contained in this Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company, the Selling Shareholder, the International
Underwriter or the Domestic Lead Underwriter. This Prospectus does not constitute an offer to sell or
the solicitation of an offer to purchase any securities other than the Offer Shares or an offer to sell or
the solicitation of an offer to purchase such securities by any person in any circumstances in which
such offer or solicitation is unlawful. Neither the delivery of this Prospectus nor any sale of the Offer
Shares offered hereby shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company since the date hereof or that the information contained herein is
correct as of any time subsequent to the date hereof.
The distribution of this Prospectus and the offer and sale of the Offer Shares in certain jurisdictions
may be restricted by law. The Company, the Selling Shareholder, the International Underwriter and
the Domestic Lead Underwriter require persons into whose possession this Prospectus comes to
inform themselves about and to observe any such restrictions. This Prospectus does not constitute an
offer of, or an invitation to purchase, any of the Offer Shares in any jurisdiction in which such offer or
invitation would be unlawful. Each prospective purchaser of the Offer Shares must comply with all
applicable laws and regulations in force in any jurisdiction in which it purchases, offers, sells or
resells the Offer Shares or possesses and distributes this Prospectus and must obtain any consents,
approvals or permissions required for the purchase, offer, sale or resale by it of the Offer Shares under
the laws, rules and regulations in force in any jurisdiction to which it is subject or in which it makes
such purchases, offers, sales or resales, and none of the Company, the Selling Shareholder, the
International Underwriter and the Domestic Lead Underwriter shall have any responsibility therefor.
In connection with the Offer, the Stabilizing Agent or any person acting on its behalf may over-allot
Offer Shares or effect transactions with a view to supporting the market price of the Offer Shares at a
level higher than that which might otherwise prevail for a limited period after the Listing Date.
However, there is no assurance that the Stabilizing Agent (or any person acting on behalf of the
Stabilizing Agent) will undertake stabilization activities. Any stabilization activities may begin on or
after the Listing Date and, if begun, may be ended at any time, but must end no later than 30 calendar
days from and including the Listing Date. Any stabilization activities shall be done in compliance
with all applicable laws, regulations and rules. The total number of Offer Shares which the Stabilizing
Agent or any agent of it may buy to undertake any stabilizing activities shall not exceed 15% of the
aggregate number of the Firm Shares.
The Company and the Selling Shareholder reserve the right to withdraw the offer and sale of Offer
Shares at any time, and the International Underwriter and the Domestic Lead Underwriter reserve
the right to reject any commitment to subscribe for the Offer Shares in whole or in part and to allot
to any prospective purchaser less than the full amount of the Offer Shares sought by such

iv

purchaser. If the Offer is withdrawn or discontinued, the Company shall subsequently notify the
Philippine SEC and the PSE. The International Underwriter, the Domestic Lead Underwriter and
certain related entities may acquire for their own account a portion of the Offer Shares.
CONVENTIONS WHICH APPLY TO THIS PROSPECTUS
In this Prospectus, unless otherwise specified or the context otherwise requires, all references to
the D&L Industries are to D&L Industries, Inc. on an unconsolidated basis. All references to the
Company are to D&L Industries, Inc. and its consolidated subsidiaries, Oleo-Fats Incorporated,
First in Colours, Incorporated, D&L Polymers & Colours, Inc. and Aero-Pack Industries, Inc., and
its associate company Chemrez Technologies, Inc. All references to the Philippines are
references to the Republic of the Philippines. All references to the Government or the National
Government are to the national government of the Philippines. All references to the BSP are
references to Bangko Sentral ng Pilipinas, the central bank of the Philippines. All references to
United States or U.S. are to the United States of America. All references to Philippine peso,
Pesos and P are to the lawful currency of the Philippines, and all references to U.S. dollars
and U.S.$ are to the lawful currency of the United States. The Company publishes its financial
statements in Pesos.
This Prospectus contains translations of certain Peso amounts into U.S. dollar amounts at specified
rates solely for the convenience of the reader. These translations should not be construed as
representations that the Peso amounts represent such U.S. dollar amounts or could be, or could
have been, converted into U.S. dollars at the rates indicated or at all. Unless otherwise indicated,
all translations from Pesos to U.S. dollars have been made at a rate of P41.907 = U.S.$1.00, the
closing spot rate quoted on the Philippine Dealing System on July 31, 2012. On November 15,
2012, the closing spot rate quoted on the Philippine Dealing System was P41.112 = U.S.$1.00. See
Exchange Rates for further information regarding the rates of exchange between the Peso and the
U.S. dollar.
BASIS FOR CERTAIN MARKET DATA
Certain statistical information and forecasts in this Prospectus relating to the Philippines and other
data used in this Prospectus were obtained or derived from internal surveys, market research,
governmental data, publicly available information and/or industry publications. Industry publications
generally state that the information they contain has been obtained from sources believed to be
reliable. However, there is no assurance that such information is accurate or complete. Similarly,
internal surveys, industry forecasts, market research, governmental data, publicly available
information and/or industry publications have not been independently verified by the Company, the
International Underwriter or the Domestic Lead Underwriter and may not be accurate, complete, upto-date, balanced or consistent with other information compiled within or outside the Philippines.
PRESENTATION of Financial information
The Companys financial statements are reported in Pesos and are prepared based on its
accounting policies, which are in accordance with the Philippine Financial Reporting Standards
(PFRS) issued by the Financial Reporting Standards Council of the Philippines. PFRS include
statements named PFRS and Philippine Accounting Standards, and Philippine Interpretations from
International Financial Reporting Interpretations Committee.
The pro-forma condensed consolidated financial information for the Company as of and for the
years ended December 31, 2009, 2010 and 2011 and the seven months ended July 31, 2011 and
2012, included in this Prospectus, was derived from the separate historical financial statements of
D&L Industries, each of its subsidiaries and Chemrez Technologies, Inc., also included in this
Prospectus, adjusted to give pro-forma effect to (i) acquisition of a controlling interest in Oleo-Fats
Incorporated and a non-controlling interest in Aero-Pack Industries, Inc., First in Colours, Inc. and

D&L Polymer and Colours, Inc., resulting in the Company having 100% ownership of these entities;
and (ii) the Companys divestment of a controlling interest in FIC Marketing Co. and D&L Powder
Coating, Inc., as if all such transactions occurred on January 1, 2009, and prepared in accordance with
the Companys assumptions which are described in the notes to the pro-forma condensed consolidated
financial statements and reviewed by Isla Lipana & Co., a PwC member firm (Isla Lipana), in
accordance with Philippine Standards on Assurance Engagements 3000 - Assurance Engagements
Other than Audits or Reviews of Historical Financial Information (PSAE 3000) and SEC
Memorandum Circular No. 2 Series of 2008, Guidelines on Reporting and Attestation of Pro-Forma
Financial Information (SEC Memo 2-2008) issued by the Philippine Securities and Exchange
Commission.
The historical amounts in the pro-forma condensed consolidated financial statements as of and for the
seven months ended July 31, 2011 and 2012, and as of and for the years ended December 31, 2009,
2010 and 2011 are derived from the separate historical financial statements of D&L Industries, each
of its subsidiaries and Chemrez Technologies, Inc., which were audited by Isla Lipana in accordance
with Philippine Standards on Auditing (PSA) and prepared in accordance with Philippine
Accounting Standards 34 Interim Financial Reporting (PAS 34) and Philippine Financial
Reporting Standards (PFRS), except for the Companys separate financial statements as of and for
the years ended December 31, 2009 and 2010, which were audited by another accountant, Armando T.
Llovido.
Figures in this Prospectus have been subject to rounding adjustments. Accordingly, figures shown in
the same item of information may vary, and figures which are totals may not be an arithmetic
aggregate of their components.
The Companys fiscal year begins on January 1 and ends on December 31 of each year.
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements that are, by their nature, subject to significant
risks and uncertainties. These forward-looking statements include, without limitation, statements
relating to:
known and unknown risks;
uncertainties and other factors that may cause the Companys actual results, performance or
achievements to be materially different from any future results; and
performance or achievements expressed or implied by forward-looking statements.
Such forward-looking statements are based on numerous assumptions regarding the Companys
present and future business strategies and the environment in which the Company will operate in
the future. Important factors that could cause some or all of the assumptions not to occur or cause
actual results, performance or achievements to differ materially from those in the forward-looking
statements include, among other things:
the Companys ability to successfully implement its strategies;
the Companys ability to anticipate and respond to market trends;
the Companys ability to successfully manage its growth;
the condition of and changes in, the Philippine, Asian or global economies;
any future political instability in the Philippines;

vi

 the Companys ability to secure additional financing;

changes in interest rates, inflation rates and the value of the Peso against the U.S. dollar and
other currencies;
changes in laws, rules and regulations, including tax laws and licensing requirements, in the
Philippines; and
competition in the Philippine food ingredients; colorants and plastic additives; oleochemicals,
resins and powder coatings; and aerosol industries.
Additional factors that could cause the Companys actual results, performance or achievements to
differ materially from forward-looking statements include, but are not limited to, those disclosed
under Risk Factors and elsewhere in this Prospectus. These forward-looking statements speak
only as of the date of this Prospectus. The Company, the Selling Shareholder, the International
Underwriter and the Domestic Lead Underwriter expressly disclaim any obligation or undertaking
to release, publicly or otherwise, any updates or revisions to any forward-looking statement
contained herein to reflect any change in the Companys expectations with regard thereto or any
change in events, conditions, assumptions or circumstances on which any statement is based.
This Prospectus includes statements regarding the Companys expectations and projections for
future operating performance and business prospects. The words believe, plan, expect,
anticipate, estimate, project, intend and similar words identify forward-looking statements.
In addition, all statements other than statements of historical facts included in this Prospectus are
forward-looking statements. Statements in the Prospectus as to the opinions, beliefs and intentions
of the Company accurately reflect in all material respects the opinions, beliefs and intentions of its
management as to such matters as of the date of this Prospectus, although the Company gives no
assurance that such opinions or beliefs will prove to be correct or that such intentions will not
change. This Prospectus discloses, under the section Risk Factors and elsewhere, important
factors that could cause actual results to differ materially from the Companys expectations. All
subsequent written and oral forward-looking statements attributable to the Company or persons
acting on behalf of the Company are expressly qualified in their entirety by the above cautionary
statements.

vii

Table of Contents
Page
GLOSSARY OF TERMS......................................................................................................... 1
SUMMARY ............................................................................................................................. 8
SUMMARY OF THE OFFER ............................................................................................... 15
SUMMARY FINANCIAL INFORMATION ......................................................................... 22
RISK FACTORS ................................................................................................................... 26
EXCHANGE RATES ............................................................................................................ 41
USE OF PROCEEDS............................................................................................................. 42
DIVIDENDS AND DIVIDEND POLICY.............................................................................. 44
DETERMINATION OF THE OFFER PRICE........................................................................ 45
CAPITALIZATION AND INDEBTEDNESS ........................................................................ 46
DILUTION ............................................................................................................................ 47
SELECTED FINANCIAL INFORMATION .......................................................................... 49
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ............................................................................................... 53
BUSINESS ............................................................................................................................ 75
REGULATORY AND ENVIRONMENTAL MATTERS .................................................... 110
INDUSTRY ......................................................................................................................... 118
BOARD AND SENIOR MANAGEMENT .......................................................................... 125
PRINCIPAL SHAREHOLDERS AND SELLING SHAREHOLDER .................................. 131
RELATED PARTY TRANSACTIONS ............................................................................... 133
DESCRIPTION OF THE SHARES ..................................................................................... 135
THE PHILIPPINE STOCK MARKET ................................................................................. 143
PHILIPPINE FOREIGN EXCHANGE REGULATIONS .................................................... 155
PLAN OF DISTRIBUTION................................................................................................. 156
LEGAL MATTERS ............................................................................................................. 161
INDEPENDENT AUDITORS ............................................................................................. 162
INDEX TO FINANCIAL STATEMENTS ........................................................................... F-1

GLOSSARY OF TERMS
In this Prospectus, unless the context otherwise requires, the following terms shall have the meanings
set forth below.
TERMS RELATED TO THE OFFER
Aero-Pack .................................................

Aero-Pack Industries, Inc.

Applicant ..................................................

A person, whether natural or juridical, who seeks to

subscribe for the Offer Shares

Application................................................

An application to subscribe for Offer Shares pursuant to

the Offer

BIR ...........................................................

Philippine Bureau of Internal Revenue

Board ........................................................

Board of Directors of the Company

BSP ...........................................................

Bangko Sentral ng Pilipinas, the Philippine Central

Bank

Chemrez ....................................................

Chemrez Technologies, Inc., listed on the PSE under

the symbol COAT

Company ...................................................

D&L Industries, Inc. and its consolidated subsidiaries,

Oleo-Fats Incorporated, Aero-Pack Industries, Inc.,
First in Colours, Incorporated and D&L Polymers &
Colours, Inc., and its affiliate Chemrez Technologies,
Inc. (including its subsidiary, Chemrez, Inc.)

D&L Industries .........................................

D&L Industries, Inc. on an unconsolidated basis

DLPC ........................................................

D&L Polymers & Colours, Inc.

DOE ..........................................................

The Philippine Department of Energy

Domestic Lead Underwriter .......................

Maybank ATR Kim Eng Capital Partners, Inc.

FIC............................................................

First in Colours, Incorporated

Financial Advisor ......................................

Bancpros & Associates

Firm Offer .................................................

The offering for sale of the Firm Shares on, and subject
to, the terms and conditions stated herein

Firm Shares ...............................................

1,071,429,000 Shares being sold on a primary basis

pursuant to the Firm Offer

Government ..............................................

The Government of the Republic of the Philippines

Institutional Offer ......................................

The offer for sale of the Institutional Offer Shares

outside of the U.S. in offshore transactions in reliance
on Regulation S

Institutional Offer Shares ...........................

750,000,300 of the Offer Shares being offered for sale

pursuant to the Institutional Offer

Isla Lipana & Co. ......................................

Isla Lipana & Co., a member firm

PricewaterhouseCoopers International Limited

Lao Family ................................................

Dean L. Lao, Leon L. Lao, Alex L. Lao, Yin Yong Lao,

John L. Lao and their relatives within the fourth degree
of consanguinity

of

International Underwriter ..........................

Maybank Kim Eng Securities Pte Ltd

LSI ............................................................

A local small investor, i.e. a subscriber who is willing

to subscribe to a minimum board lot or whose
subscription does not exceed P25,000

Metro Manila ............................................

the metropolitan area comprising the cities of Caloocan,

Las Pias, Makati, Malabon, Mandaluyong, Manila,
Marikina, Muntinlupa, Navotas, Paraaque, Pasay,
Pasig, Pateros, Quezon City, Valenzuela, Taguig and
San Juan, which together comprise the National
Capital Region and are commonly referred to as
Metro Manila

NSCB........................................................

Philippine National Statistics Coordination Board

Offer .........................................................

the offering for sale of the Offer Shares pursuant to the

PSE and LSI Offer and the Institutional Offer on, and
subject to, the terms and conditions stated herein

Offer Price ................................................

P4.30, the price per Offer Share at which the Offer

Shares are to be purchased pursuant to the Offer

Offer Shares ..............................................

The Firm Shares and the Optional Shares

Oleo-Fats ..................................................

Oleo-Fats Incorporated

Optional Shares .........................................

Up to 160,714,000 Shares to be sold upon exercise of

the Over-Allotment Option

Over-Allotment Option..............................

The option exercisable in whole or in part from and

including the Listing Date and ending on the date 30
calendar days from and including the Listing Date to be
granted by the Selling Shareholder to Maybank ATR
Kim Eng Capital Partners Inc., to require the Selling
Shareholder to sell the Optional Shares

PAS...........................................................

Philippine Accounting Standards

PCD ..........................................................

Philippine Central Depository

PCD Nominee ...........................................

PCD Nominee Corporation, a corporation wholly

owned by the PDTC

PDS...........................................................

The Philippine Dealing System

PDTC ........................................................

The Philippine Depository and Trust Corporation, the

central securities depositary of, among others, securities
listed and traded on the PSE

Pesos or P..................................................

The lawful currency of the Philippines

PEZA

Philippine Economic Zone Authority

PFRS.........................................................

Philippine Financial Reporting Standards

Philippine Corporation Code .....................

Corporation Code of the Philippines, Batas Pambansa

Blg. 68

Philippine Renewable Energy Act .............

Republic Act. No. 9513, or the Renewable Energy Act

of 2008

Philippine SEC ..........................................

The Philippine Securities and Exchange Commission

Philippines ................................................

Republic of the Philippines

PSA...........................................................

Philippine Standards on Auditing

PSE ...........................................................

The Philippine Stock Exchange, Inc.

PSE and LSI Offer .....................................

The offer for sale of the PSE and LSI Offer Shares to be
made in the Philippines

PSE and LSI Offer Shares .........................

321,428,700 of the Offer Shares being offered pursuant

to the PSE and LSI Offer

PSE Trading Participants ...........................

Duly licensed securities brokers who are trading

participants of the PSE

Regulation S ..............................................

Regulation S under the U.S. Securities Act

SCCP ........................................................

Securities Clearing Corporation of the Philippines

Selling Shareholder ...................................

Jadel Holdings Co., Inc.

Shares .......................................................

the common shares of par value P1.00 each of the

Company

SRC ..........................................................

Securities Regulation Code of the Philippines (RA

8799) and its implementing rules, as amended

Stabilizing Agent .......................................

Maybank ATR Kim Eng Capital Partners, Inc., in its

role as stabilizing agent, whereby it may engage in
stabilization activities relating to any over-allotment of
Shares from the Selling Shareholder for a period
beginning on or after the First Closing Date but
extending no later than 30 days from and including the
Listing Date

U.S. or United States .................................

United States of America

U.S.$ or U.S. dollar ...................................

The lawful currency of the United States

U.S. Securities Act ....................................

The United States Securities Act of 1933, as amended

OTHER TERMS AND ABBREVIATIONS

acid degumming ........................................

A process wherein crude oil is mixed with phosphoric

acid in a dynamic high shear mixer; a degumming
reaction then takes place in a degumming tank, after
which caustic acid may be used to remove excess
phosphoric acid and gums are removed in a centrifugal
separator

additive .....................................................

Materials added in minor amounts to basic resins or

compounds to improve a polymers performance during
processing, or tailor a polymers performance
capabilities for end use.

aerosol.......................................................

A liquid substance, as a disinfectant or deodorant,

sealed in a metal container under pressure with an inert
gas or other activating agent and released as a spray or
foam through a push-button valve or nozzle

AMF .........................................................

Anhydrous milk fat; a product that must contain at least

99.8% milk fat and be made from fresh cream or butter

amide ........................................................

Non-ionic surfactants used as a foam booster and foam

stabilizer in soaps, detergent and shampoos

amphoteric ................................................

Capable of functioning as an acid as well as a base

betaine.......................................................

Mild foaming amphoteric surfactants known to give

better cleaning performance for hair shampoos

biodiesel ....................................................

A vegetable oil- or animal fat-based diesel fuel

consisting of long-chain alkyl (methyl, propyl or ethyl)
esters

bleaching ...................................................

The action of further removing colouring matter from

an oil or fat usually after the neutralising process

bleaching earth ..........................................

An absorbent clay that removes coloring from oils

CAGR .......................................................

Compound annual growth rate

caustic solution ..........................................

Any corrosive chemical solution that can burn or

otherwise destroy materials

chromatography.........................................

A set of laboratory techniques for the separation of

mixtures

CIP............................................................

Clean-in-place, a method of cleaning the interior

surfaces of pipes, vessels, process equipment, filters
and associated fittings, without disassembly

CME .........................................................

Coconut methyl ester, also known as Coco-Biodiesel,

formed through a reaction of coconut oil and methanol,
and used as a diesel fuel or enhancer

coconut oil ................................................

An oil high in saturated fat made by pressing the

coconut meat (copra), which is used in frying, as an
ingredient in many packaged goods, and as a liquid
biofuel

colorant .....................................................

Something added to something else to cause a change in

color, such as dyes, pigments or paint

crude oil ....................................................

An oil obtained from a natural source, before any

refining process has taken place or after only partial
refining

deodorization.............................................

The final process in the refining of oils and fats, which

involves the removal of all odoriferous compounds
remaining after the neutralising and bleaching
operations have been carried out

emulsion....................................................

A mixture of two liquids which do not normally mix

achieved by dispersing one liquid in the other liquid;
examples include vinaigrettes, milk and mayonnaise

ester ..........................................................

Any of a class of organic compounds that react with

water to produce alcohols and organic or inorganic
acids

extrusion ...................................................

A process used to create objects of a fixed, crosssectional profile

fat..............................................................

A mixture of triglycerides which is solid at normal

temperatures

glycerin .....................................................

Colorless, odorless, viscous liquid widely used in

pharmaceutical formulations

GMP .........................................................

Good manufacturing practice

HACCP .....................................................

Hazard analysis and critical control point

hydrogenation ...........................................

A process by which oils and fats that contain

unsaturated fatty acids have these changed to saturated
acids by combination with hydrogen, raising the
melting point

I.M.I. ........................................................

Incoming Materials Inspection

IMS ...........................................................

Integrated Management Systems

ISO ...........................................................

International Organization for Standardization

interesterification.......................................

A process by which fatty acids have been moved from

one triglyceride molecule to another. This is generally
done to modify the melting point, slow rancidification
and create an oil more suitable for deep frying or
making margarine with good taste and low saturated fat
content

m2 .............................................................

Square meter

MTPA .......................................................

Metric tons per annum

OHSAS .....................................................

The
internationally
recognized
standard
for
occupational health and safety management systems

olein ..........................................................

The liquid portion of an oil or fatty acid mixture which

has been separated either by fractionation or pressing

oleochemical .............................................

Chemicals derived from plant oils

palm kernel oil ..........................................

An edible plant oil high in saturated fat derived from

the kernel of the oil palm

palm oil .....................................................

The reddish-orange oil derived from the pulp of the

fruit of the African palm tree, containing a very high

percentage of saturated fat
polyethylene ..............................................

The most common plastic; a polymer that is pliable and

moldable above a certain temperature, and return to a
solid state when cooled.

polymer .....................................................

A natural or synthetic compound of high molecular

weight consisting of up to millions of repeated linked
simple molecule units, often used in the manufacturing
of plastics

polymer emulsion ......................................

The process of enabling large molecules built up chiefly

from a large number of similar units bonded together
(polymers) to remain in suspension dispersed evenly
within a solvent even though they are too large to
actually dissolve in the solvent

polypropylene ...........................................

A thermoplastic polymer used in a wide variety of

applications including packaging and labelling, plastic
parts, etc.

powder coating ..........................................

Protective materials applied to metal and other surfaces

through an electrostatic coating process to provide
resistance against heat, weather, UV light and certain
chemicals

rapeseed (canola) oil ..................................

An oil expressed from rapeseeds, which contains more

monounsaturated fat than any other oil except for olive
oil

RBD ..........................................................

Refined, bleached and deodorized

resin ..........................................................

Polymerized or chemically modified substances which

are manufactured in accordance with a variety of
technical specifications to suit specific industry uses,
end-user applications, and customer requirements

RoHS ........................................................

Restrictions on hazardous substances

saturated fat ...............................................

A fat that has no double bonds between the individual

carbon atoms of the fatty acid chain, thus is fully
saturated with hydrogen atoms; it comes mainly from
animal sources as well as certain vegetables and is
typically solid at room temperature

shortening .................................................

A hydrogenated vegetable oil that prevents crosslinkage between gluten molecules, allowing for the
production of crumbly pastries

SoC ...........................................................

Substances of concern; chemical substances that have

an impact on the environment and human health

specialty fats..............................................

Substitutes for other types of fats such as cocoa butter,

milk fat, butter, etc.

spectrophotometer .....................................

An instrument which measures the amount of light of a

specified wavelength which passes through a medium

stearin .......................................................

A colorless, odorless, tasteless ester of glycerol and

stearic acid found in most animal and vegetable fats and
used in the manufacture of soaps, candles, metal

polishes and adhesives

surfactant ..................................................

A compound which lowers the surface tension of a

liquid, the tension between two liquids or between a
liquid and a solid. Surfactants may be used to produce
detergents, wetting agents, foaming agents and
dispersants, among other products

tensile strength ..........................................

The maximum stress that a material can withstand

while being stretched or pulled before necking, which is
when the specimens cross-section starts to significantly
contract

thermogravimetric analyzer .......................

three-piece can ..........................................

A quality control device used to analyze certain of the

Companys products to determine changes in weight in
relation to a temperature program in a controlled
atmosphere
Cans made up of 1) a bottom lid; 2) a cylindrical body;
and 3) a top lid or covering, are generally accepted as
more versatile than two-piece cans. Three-piece cans
are typically used for a range of insect control products
and home and personal care, among others

tinting........................................................

The process of adding color tinge

tintometer ..................................................

A precision instrument for comparing tints or colors

with those used as arbitrary standards

transesterification ......................................

The chemical process of exchanging the organic group

of an ester with the organic group of an alcohol

trans fat .....................................................

Also known as trans-fatty acids, made by adding

hydrogen to vegetable oil through a process called
hydrogenation, which makes the oil less likely to spoil.
Trans fat has been recognized as one of the unhealthiest
fats, being known to raise cholesterol levels

two-piece can ............................................

Cans which comprise a body (wherein the bottom and

cylindrical body constitute a single piece of metal) and
one covering lid, are often used for food and beverages,
such as canned goods, soft drinks and beer

UL ............................................................

Underwriters Laboratory, an independent, not-for-profit

product safety testing and certification organization

unsaturated fat ...........................................

A fat or fatty acid in which there is at least one double

bond within the fatty acid chain; unsaturated fat
molecules contain somewhat less energy (i.e., fewer
calories) than an equivalent amount of saturated fat and
comes mainly from vegetables and plants

SUMMARY
The following summary is qualified in its entirety by, and is subject to, the more detailed information
and financial statements, including notes thereto, appearing elsewhere in this Prospectus. Capitalized
terms not defined in this summary are defined in the Glossary of Terms, Risk Factors,
Business or elsewhere in this Prospectus.
OVERVIEW
The Company is a dynamic industrial group in the Philippines with diversified operations in the
manufacture and sale of food ingredients; colorants and plastic additives and compounds;
oleochemicals, resins and powder coatings, and aerosol products. The Company produces hundreds of
variants on its products and focuses its nearly 50 years of expertise on designing innovative,
customized and specialty product solutions for its customers, who in turn produce a variety of brandname consumer products across a range of diverse industries such as food and beverages, oil and gas,
personal and home care products, and industrial and commercial manufacturing. The Company
believes its strong research and development capabilities have allowed it to introduce numerous
market-leading products in the Philippines. The Company has also leveraged its long-standing and
proven track record and expertise into collaborative partnerships with its key customers, which
facilitates greater product customization. Based on its internal data and data derived from its
customers, the Company believes it is the market leader for each of its primary product categories in
the Philippine market.
The Company is principally a holding company which derives the majority of its income from its
subsidiaries and associates which are engaged in four principal business lines, as set out below:
Food ingredients The Company, operating through its subsidiary Oleo-Fats, manufactures a line
of industrial fats and oils, specialty fats and oils, and culinary and other specialty food ingredients.
The Company contract manufactures and provides its food ingredients products to most of the
leading food manufacturers and quick-service restaurant chains in the Philippines, and also
produces food safety solutions such as cleaning and sanitation agents for various customers;
Colorants and plastics additives The Company, operating through its subsidiaries FIC and DLPC,
manufactures a line of pigment blends, color and additive masterbatches and engineered polymers
for a wide range of applications, introducing a number of products into the Philippine market and
expanding into the export of certain products overseas. The Companys products add properties
such as precise coloring, reduced friction or increased resistance to degradation for plastics used in
consumer goods, appliances and outdoor furniture;
Oleochemicals, resins and powder coatings The Company, operating through its affiliate
Chemrez and its subsidiary Chemrez, Inc., manufactures CME, also known as coco-biodiesel,
using the Philippines first continuous-process methyl ester plant. The Company also manufactures
other oleochemicals or chemicals derived from vegetable oils, resins such as polystyrene, acrylic
emulsions and polyester; and a line of powder coatings; and
Aerosols The Company, operating through its subsidiary Aero-Pack, manufactures three-piece
aerosol cans and components and provides aerosol contract filling and compounding services. The
Company also toll manufactures a range of related products, including insect control, industrial
maintenance chemicals, and home and personal care products, among others.
For the year ended December 31, 2011, the Companys pro-forma consolidated revenues amounted to
P12.8 billion and pro-forma consolidated profit before income taxes was P1.3 billion, compared to
pro-forma consolidated revenues of P9.9 billion and P9.2 billion and pro-forma consolidated profit
before income taxes of P857.6 million and P191.1 million in 2010 and 2009, respectively,

representing a CAGR between 2009 and 2011 of 18.4% in consolidated revenues and 157.9% in
consolidated profit before income taxes. For the seven months ended July 31, 2012, the Companys
consolidated revenues were P6.8 billion and estimated consolidated profit before income taxes was
P804.8 million, compared to consolidated revenues of P7.6 billion and consolidated profit before
income taxes of P934.8 million for the seven months ended July 31, 2011, a decrease of 10.5% in
consolidated revenues and 13.9% in consolidated profit before income taxes.
COMPETITIVE STRENGTHS
The Company believes that it possesses the following principal strengths enabling it to compete
effectively in its businesses:
Focus on innovation and development of specialty products
Operating in technology-intensive businesses, the Company focuses a significant portion of its
resources on product innovation, using its experience, expertise and research and development
capabilities to constantly supplement, update and improve its product portfolio. As a result, the
Company believes that it has been able to introduce a number of innovative products into the
Philippine market, many of which are used by a number of key clients. For example, through its food
ingredients business, the Company introduced an innovative vegetable oil which substitutes for the
fatty acid profile of breast milk, allowing for the production of proprietary substitutes for milk
products, as well as a hydrogenated lauric oil used to produce ice cream at lower cost compared with
imported milk fat. Moreover, in 1997, through its colorants and plastic additives business the
Company responded to feedback by certain customers with respect to their production processes by
formulating and introducing a line of purging compounds into the market. These products
immediately improved operational efficiency by significantly reducing the turnaround times in which
a customer could re-use its production lines for a different product. The Company has built on this
successful launch and now sells these purging compounds to a wider range of customers. The
Company has also introduced a number of innovative aerosol products, including a line of scented,
non-greasy interior and exterior automotive and motorcycle dressings and an environmentallyfriendly diesel fuel line cleaner. The Company believes that its ability to innovate new products adds
value to its customers processes and diversify the Companys revenue streams give it a significant
competitive advantage.
Advanced technical expertise for custom production
The Company believes its extensive experience and commitment to research and development has
allowed it to build its technical expertise, with the technologies it uses being among the most
advanced in Asia. The Company believes it has been able to leverage this considerable technical
expertise and knowhow to adjust and tailor its products according to its customers precise
specifications and requirements. Moreover, as a result of its experience and advanced production
processes, the Company has the ability to respond quickly to requests for high-quality customized
products, notably as set out below.
Food ingredients. Customized product development currently accounts for a significant
portion of Oleo-Fats revenue. It has diversified manufacturing capabilities that enables it to
transform food ingredients into customized products, such as infusing various fats and oils
with special flavors in large volumes to suit the recipe and franchise distribution requirements
of the largest quick-service restaurant chains. Its comprehensive packing lines and logistics
system also enable it to serve large industrial customers buying in bulk as well as traditional
trade customers that purchase in smaller packaging such as cartons and sachets. Other
customized products include flavored specialty vegetable oils which mimic certain animal fats
and cater to specific religious and mandated health requirements, customized chocolate
coatings to replace imports used in ice cream production, and customized ice cream mixes to
lower production costs for certain novelty desserts.

Colorants and plastic additives. The Company upgrades its equipment for its colorants and
additives business on a regular basis, as required by technological advances in the industry.
The Company utilizes these new technologies to enhance its ability to customize its plastics
products to ensure precise color, the required mechanical and thermal properties, as well as
other requested properties such as tensile strength, impact resistance, processing speed,
flammability and heat resistance.
Oleochemicals, resins and powder coatings. The Company ensures that it remains at the
technological forefront for product development and application testing through its
comprehensive analytical and applications laboratory. This allows the Company to customize
certain products, such as resins and oleochemicals, in close technical collaboration with local,
regional and multinational clients.
Aerosols. The Company believes it is the first and only Philippine company to design and
develop customized aerosol products focusing on home care, personal care and maintenance
chemicals. The Company also supplies three-piece aerosol cans and components, which
comprise the majority of aerosol product requirements in the Philippines and globally. The
Companys experience and technical expertise allows it to typically produce a diverse range of
products based on its customers requirements. Customized products include a brake and parts
cleaner, an aerosol wound spray designed to treat injured cattle and livestock, an insect spray
designed for direct sales and a line of automatic air fresheners and disinfectants with
customized scents designed for interiors such as malls and wash rooms.
In addition, by continually leveraging the latest technology across its business processes, the
Company believes it has developed a reputation for quality and efficiency, and has also been able to
reduce its production costs, resulting in a significant competitive advantage. The Company has
established a state-of-the-art analytical laboratory which throughout the years, has significantly
enhanced its capability in the research, design and development of new products and in the reverse
engineering of existing products. In August 2009, this lab was awarded a Certificate of Accreditation
as an ISO 17025 Chemical Testing Lab by the Department of Trade and Industrys Philippine
Accreditation Office, attesting to its high-quality facilities and employees. The Company has
continuously upgraded this and its other application laboratories to allow it to continuously seek and
implement innovations across the Companys entire product design and development cycle.
Strong track record resulting in long-term collaborative relationships
The Company has nearly five decades of operating history in the Philippines, offering high quality
products and services which have established it as a leader in its businesses and has resulted in a
customer base comprising some of the largest Philippine and multinational corporations. More
importantly, the Company believes that its experience and track record have enabled it to foster longstanding and collaborative relationships with most of its major customers, some of whom the
Company has served for nearly 50 years. Due mainly to its proven track record, the Companys key
customers have shown a willingness to commit time and resources to collaborate with the Company
on product development and operational improvements. As a result, the Company often works in
tandem with its major customers to identify issues in their respective businesses, and then formulate
and develop new products or product solutions to address these concerns. In addition, to bolster these
relationships, the Company often supports its sales efforts to customers with after-sales services such
as on-site trouble-shooting, which further strengthens its key relationships. The Company believes
that these strong relationships have been a key driver of its growth over the past years, allowing it to
steadily increase the products sold to long-standing customers, as well as presenting numerous crossselling opportunities across its product portfolio to such customers. In addition, the Company believes
its strong relationships help it retain the loyalty of such key customers, which is difficult to replicate,
presenting a significant barrier to entry against potential competitors.

10

Experienced management team with a proven track record

The Companys management team is comprised of knowledgeable and experienced industry experts
with a proven track record in chemicals and related industries. The Companys senior management
members have an average of over 40 years of industry experience. The Companys production plants
and research and development facility are staffed by technicians and senior engineers with significant
skills and experience in operating production facilities and product development, respectively. Many
of the Companys executive officers hold publicly-recognized industry organization posts, and enjoy
wide recognition throughout the industry. The Company believes its experienced management team
has been a key to its past success and will continue to contribute to its future growth.
Streamlined corporate structure and organization to maximize efficiency and reduce costs
The Company has adopted a flat organizational structure across D&L Industries, its subsidiaries and
associates, with D&L Industries providing numerous shared services at a centralized level to its
subsidiaries and associates, including management, research & development, product development,
warehousing and logistics, among others. This structure not only helps the Company monitor costs
with respect to these services, but also to act dynamically and make quick decisions to respond to
changes in market conditions. Compared to other competitors with more hierarchical organizational
structures, the Company believes that it derives substantial synergies and efficiencies from its
structure, allowing it a significant competitive advantage. For example, the Company believes that its
well-developed logistics platform allows it to effectively supervise inventory management at its seven
on-site warehouses at its production facilities. Moreover, the Companys integrated handling, storage
and delivery facilities allow it to more efficiently manage its distribution capabilities across its
businesses.
Well-positioned to benefit from industry trends and increasing demand for environmentally
friendly products
The continued growth of the Philippine economy has resulted in both a rise in consumer spending and
an expansion of the service sector. This rapid growth has led to an expansion of the industries in
which the Companys customers operate, such as those related to food and beverage, quick-service
restaurants, packaging, furniture and other household products. According to data from the National
Statistics Coordination Board (NSCB), as derived from GDP, total Philippine personal consumption
expenditures increased from approximately P3,731 billion in 2008 to approximately P4,195 billion in
2011, representing a CAGR of 4.0%. Total expenditures in the food and non-alcoholic beverages
sector also increased significantly from approximately P1,558 billion in 2008 to approximately
P1,765 billion in 2011, representing a CAGR of 4.3%. Similarly, expenditures in the hotel and
restaurant industry increased from approximately P146 billion in 2008 to approximately P171 billion
in 2011, representing a CAGR of 5.5%, while expenditures for furnishing, household equipment and
household maintenance increased from P215 billion to P238 billion in the same period, representing a
CAGR of 3.5%. The Company believes it is well-positioned to capture the opportunities such industry
trends have presented due to its leading position in its respective businesses.
In addition, the Company believes the demand for certain of its products will further increase in light
of the increasing focus on the implementation of environmental protection policies by the Philippine
government and other governments. For example, the Government passed Republic Act 9367, known
as the Biofuels Act of 2006, which mandates that all diesel fuel contain biodiesel, a main product of
the Companys oleochemicals business, at a concentration of 2% from 2009. The Government is
considering increasing this mandate to 5%, which the Company believes will increase the market and
Chemrezs corresponding market share.

11

Centralized location and strong logistics platform

The Companys plants are strategically located within easy reach of suppliers and customers. Its
foods ingredients plant is located at Mercury Drive, Quezon City, within the vicinity of several food
manufacturing and warehousing facilities. The Companys refined vegetable oils and fractionated oils
processing plant and tank are located in Sta. Ana, Manila, which is accessible by barge through the
Pasig River, a main river that traverses through Metro Manila. The Company utilizes a fleet of six
barges with a total capacity of 10,000 MT. The DLPC plastics facility is located at the PEZA zone in
Canlubang, Laguna, where several of its clients are located. The FIC plant, Aero-Pack and Chemrez
plants are all located in Bagumbayan, Quezon City which is centrally accessible. This common
centralized location allows the Company timely and cost-effective deliveries of both raw materials
from suppliers and the Companys products to customers. The Company owns and maintains a fleet
of 42 road tankers with a total capacity of over 1,000 MT.
Refined vegetable oils storage capacity provides protection against pricing volatility
The Companys MRI tank farm and Mercury Plant have an aggregate capacity of 33,000 MT of
vegetable oil, the largest rated capacity in the Philippines. During the past few years, the prices of
certain vegetable oils in the global market have experienced periods of volatility. The storage
capacity of the Company allows it to physically hedge its vegetable oil purchases, making larger
purchases when prices decrease, and reducing purchases when prices increase. This allows the
Company to competitively price its products and maintain customer satisfaction.
BUSINESS STRATEGIES
Maintain market leading positions in its respective markets and businesses
The Company intends to maintain its market leading positions in the industries in which it operates by
leveraging its existing long-term relationships with its customers and research and development
capabilities to produce tailor-made solutions that meet each customers evolving needs. The
Company believes that relationships will continue to be the key driver in developing business
opportunities and increasing sales. It intends to increase training for specialized marketing teams for
each of its business lines to better market the Companys design and research and development
capabilities. The Company intends to maintain close contact with its customers and seeks to
understand their businesses better in order to offer them a marketable range of products, as well as
potentially cross-sell other Company products.
Continuously innovate to develop new or more efficient products
The Company intends to continuously innovate to develop and introduce new or more efficient
customized and specialty products for its customers. Utilizing its considerable experience and track
record in its businesses, along with its technical expertise and research and development resources,
the Company intends to keep abreast of technological advancements and process improvements and
integrate and apply these to its operations. The Company also intends to take advantage of its strong
relationships with its large key customers by taking and utilizing the valuable feedback from the
customers to develop new customized products to anticipate and meet their requirements. The
Company believes that paying close attention to advances in the market and constantly seeking to
innovate and develop new or more efficient products is key in its businesses.
Capitalize on the growing Philippine domestic markets
Many of the end-use products which contain the Companys products are marketed to middle-class
consumers. The Company believes that the Philippine middle class will continue to grow, increasing
demand for added value products such as specialty foods and a variety of consumer goods. Such
retail consumer demand will in turn increase demand for the Companys products, such as food

12

ingredients, engineered polymers, oleochemicals and aerosol products. In particular, the Company
expects demand for household items produced by its aerosol business line, such as household insect
control products, air fresheners, furniture polish and personal care products to increase significantly
with the increase in household consumers disposable income.
Philippine GDP grew by 6.6% in 2007 and by 4.2% in 2008, driven by consumption and investment
spending. According to data from the NSCB, while GDP growth slowed to 1.1% in 2009 due in large
part to the global financial crisis, it grew at a robust 7.6% in 2010 and by 3.9% in 2011. This
generally upward trend has continued in 2012, with GDP growth of 6.4% being registered in the first
three months of 2012 resulting from increased Government spending, robust private consumption and
growing exports.
The Company believes it is well positioned to benefit from the expected economic growth of the
Philippines in both the industrial and consumer sectors. The Company plans to meet the increased
demand through a number of strategies, including increased capital expenditures for plant expansion,
research and development to create new product lines and improve production processes, and
increased marketing campaigns to bring attention to the Companys various products such as
attendance of technical marketing trade shows.
Economic growth will also drive demand for energy, which the Company believes will result in
increased sales of biodiesel, a major product of Chemrez. The Philippine governments policy of
encouraging green energy and energy independence should also contribute to increased demand for
biodiesel from Chemrez.
Continue to improve business and production processes
The Company intends to improve the efficiency of its management and production processes by
maintaining a flat management structure, an integrated, centralized research and development
platform and committing sufficient capital to equipment upgrades and related training. The Company
will ensure that senior management is apprised of trends in the Companys various industries and
works with production teams to adopt the newest technologies to maintain a competitive advantage as
well as enhance the Companys reputation as a market leader. The Company intends to periodically
reassess its management techniques and production processes for areas of improvement, as well as
continually seek more cost-effective sources of raw materials and more efficient operating and
production models. The Company will devote research and development resources to maximize the
production value of newly adopted equipment and make incremental improvements to such
equipment. Adequate resources will be devoted to training production staff and marketing staff.
Pursue international expansion opportunities
The Company intends to continue to expand sales in its various industries to the international market
by expanding sales to current customers that use the Companys products in the Philippines to include
the affiliates and operations of such companies in foreign markets. The Company also intends to
increase its visibility internationally through the increased use of agents and by participating in
industry exhibitions abroad and entering into strategic alliances with established manufacturers and
marketers in select foreign markets.
In 2006 the Company established D&L Polymers & Colors, Inc. (DLPC) specifically to increase
international sales for its colorants, engineered polymers and additives products. Foreign sales as a
percentage of total sales for the Companys colorants and plastic additives business increased from
38% in 2009 to 49% in 2011 and the Company expects foreign sales to be a significant driver for
future growth in this business segment. The Company intends to use the international network DLPC
has built to possibly expand the Companys other businesses as well.

13

RISKS OF INVESTING
Before making an investment decision, investors should carefully consider the risks associated with
an investment in the Shares. These risks include:
Risks relating to the Company and its businesses;
Risks relating to the Philippines;
Risks relating to the Offer and the Shares; and
Risks relating to certain statistical information in this Prospectus.
CORPORATE INFORMATION
The Company is a Philippine corporation with its registered office and principal executive offices
located at #65 Industria Street, Bagumbayan, Quezon City 1110, Philippines. The Companys
telephone number is +63-(2) 635-0680 and its fax number is +63-(2) 635-0696. Its corporate website
is www.dnl.com.ph. The information on the Companys website is not incorporated by reference into,
and does not constitute part of, this Prospectus.

14

SUMMARY OF THE OFFER

Issuer .......................................................

D&L Industries, Inc., a corporation organized under

Philippine law. The trading symbol shall be DNL.

Selling Shareholder ..................................

Jadel Holdings Co., Inc.

International Underwriter .........................

Maybank Kim Eng Securities Pte Ltd

Domestic Lead Underwriter ......................

Maybank ATR Kim Eng Capital Partners, Inc.

The Offer .................................................

Offer of 1,071,429,000 Firm Shares to be issued and

offered by the Company and up to 160,714,000 Optional
Shares.

Institutional Offer .....................................

750,000,300 Offer Shares are being offered and sold

outside the United States in offshore transactions in
reliance on Regulation S.

PSE and LSI Offer ....................................

321,428,700 Shares are being offered in the PSE and

LSI Offer in the Philippines at the Offer Price. Out of
the PSE and LSI Offer, 214,285,800 Shares are being
allocated to all of the PSE Trading Participants at the
Offer Price and 107,142,900 Shares being allocated at
the Offer Price to LSIs. Each PSE Trading Participant
shall initially be allocated 1,611,000 Offer Shares and
subject to reallocation as may be determined by the PSE.
Based on the initial allocation for each trading
participant 1,611,000 Offer Shares, there will be a total
of 22,800 residual Offer Shares to be allocated as may
be determined by the PSE. Each LSI applicant may
subscribe up to a maximum of 5,000 Offer Shares at the
Offer Price. PSE and LSI Offer Shares not taken up by
the PSE Trading Participants and the LSIs shall be
distributed by the Domestic Lead Underwriter to its
respective clients or to the general public. PSE and LSI
Offer Shares not taken up by the PSE Trading
Participants, the Domestic Lead Underwriters clients or
the general public shall be purchased by the Domestic
Lead Underwriter.

Eligible Investors .....................................

The PSE and LSI Offer Shares may be purchased by any

natural person of legal age residing in the Philippines
regardless of nationality, or any corporation, association,
partnership, trust account, fund or entity residing in and
organized under the laws of the Philippines and/or
licensed to do business in the Philippines, regardless of
nationality, subject to our right to reject an Application
or reduce the number of our Firm Shares applied for
subscription.

15

The Institutional Offer Shares are initially being offered

and sold to persons outside the United States in reliance
on Regulation S. Subscription to, and purchase of, the
Firm Shares in certain jurisdictions may be restricted by
law. Foreign investors interested in subscribing or
purchasing the Firm Shares should inform themselves of
the applicable legal requirements under the laws and
regulations of the countries of their nationality,
residence or domicile, and as to any relevant tax or
foreign exchange control laws and regulations affecting
them personally. Foreign investors, both corporate and
individual, warrant that their purchase of the Firm
Shares will not violate the laws of their jurisdiction and
that they are allowed to acquire, purchase and hold the
Firm Shares.
Offer Price ...............................................

P4.30 per Offer Share. The Offer Price was determined

based on a book-building process and discussions
between the Company, the International Underwriter
and the Domestic Lead Underwriter.

Over-Allotment Option.............................

The Selling Shareholder has granted the Stabilizing

Agent an option, exercisable in whole or in part, to
purchase up to 160,714,000 Optional Shares at the Offer
Price, on the same terms and conditions as the Firm
Shares as set out in this Prospectus, solely to cover overallotments, if any. The Over-Allotment Option is
exercisable from and including 30 days after the Listing
Date. See Plan of DistributionThe Over-Allotment
Option.

Transfer Restrictions ................................

The Institutional Offer Shares are initially being offered

and sold outside the United States in offshore
transactions in reliance on Regulation S. See Plan of
DistributionThe Institutional Offer.

Use of Proceeds ........................................

See Use of Proceeds for details of how the total net

proceeds are expected to be applied.

Minimum Subscription .............................

Each application must be for a minimum of 1,000 Firm

Shares, and thereafter, in multiples of 1,000 Firm
Shares. Applications for multiples of any other number
of Shares may be rejected or adjusted to conform to the
required multiple, at the Companys discretion.

Reallocation .............................................

The allocation of the Firm Shares between the PSE

and LSI Offer and the Institutional Offer is subject to
adjustment. In the event of an under-application in the
Institutional Offer and a corresponding overapplication in the PSE and LSI Offer, Firm Shares in
the Institutional Offer may be reallocated to the PSE
and LSI Offer. If there is an under-application in the
PSE and LSI Offer and if there is a corresponding
over-application in the Institutional Offer, Firm Shares

16

in the PSE and LSI Offer may be reallocated to the

Institutional Offer. The reallocation shall not apply in
the event of over-application in both the PSE and LSI
Offer and the Institutional Offer.
Lock-up ....................................................

The PSE rules require an applicant company to cause its

existing shareholders owning at least 10% of the
outstanding shares of the Company not to sell, assign or
in any manner dispose of their shares for a period of 180
days after the listing of the shares. A total of
273,900,000 Shares held by Jadel Holdings Co., Inc.,
will be subject to such 180 day lock-up. See Plan of
DistributionLock-Up.
In addition, if there is any issuance of shares or
securities such as private placements, assets for shares
swap or a similar transaction or instruments which lead
to issuance of shares or securities such as convertible
bonds, warrants or a similar instrument that are
completed within 180 days prior to the start of the offer
period, and the transaction price is lower than the Offer
Price in the initial public offering, all such shares or
securities shall be subject to a lock-up period of at least
365 days from full payment of such shares or securities.
To implement this lock-up requirement, the PSE
requires the applicant company to lodge the shares with
the PDTC through a Philippine Central Depository
(PCD) participant for the electronic lock-up of the
shares or enter into an escrow agreement with the trust
department or custodian unit of an independent and
reputable financial institution. A total of 2,178,799,995
Shares, held by Dean L. Lao, Leon L. Lao, Alex L. Lao,
Yin Yong L. Lao, John L. Lao, LBL Industries, Inc.,
Jadel Holdings Co., Inc., SmartWorks Trading Co. Inc.,
Allvee United, Inc., Jadana Inc., CEE Industries Inc.,
Prime Spin Inc., Filemon T. Berba, Jr. and Cesar B.
Bautista, will be subject to such 365 day lock-up. See
Plan of DistributionLock-Up.
In addition to the lock-up obligations required by the
PSE, each of the Company, the Selling Shareholder,
Dean L. Lao, Leon L. Lao, Alex L. Lao, Yin Yong L.
Lao, John L. Lao and LBL Industries, Inc. has agreed
with the International Underwriter and the Domestic
Lead Underwriter that, other than in connection with the
Over-Allotment Option and the issuance of stock
dividends, for a period of 180 days after the Listing
Date, none of the Company, the Selling Shareholder,
Dean L. Lao, Leon L. Lao, Alex L. Lao, Yin Yong L.
Lao, John L. Lao and LBL Industries, Inc. nor any
person acting on their behalf will, without the prior
written consent of the International Underwriter and the
Domestic Lead Underwriter, issue, offer, sell, contract to
sell, pledge or otherwise dispose of (or publicly

17

announce any such issuance, offer, sale or disposal of)

any Shares or securities convertible or exchangeable into
or exercisable for Shares or warrants or other rights to
purchase Shares or any security or financial product
whose value is determined directly or indirectly by
reference to the price of the Shares, including equity
swaps, forward sales and options.
Listing and Trading ..................................

The Offer Shares are expected to be listed on the PSE

under the symbol DNL. See Description of the
Shares. All of the Offer Shares are expected to be listed
on the PSE on or about December 12, 2012. Trading of
the Shares that are not subject to lock-up is expected to
commence on the same date.

Dividends .................................................

The Company is authorized to declare dividends. A cash

dividend declaration requires approval from the Board.
A stock dividend declaration requires the further
approval of shareholders representing not less than twothirds of the Companys outstanding capital stock.
Dividends may be declared only from available
unrestricted retained earnings. The Company has
adopted a dividend policy of declaring at least 25% of its
prior years consolidated net income as a dividend in
favor of its stockholders of record date as determined by
the Board. See Dividends and Dividend Policy.

Refunds for the PSE and LSI Offer ...........

In the event that the number of Offer Shares to be

received by an Applicant, as confirmed by the Domestic
Lead Underwriter, is less than the number covered by its
Application, or if an Application is rejected by the
Company, then the Domestic Lead Underwriter shall
refund, without interest, within five banking days from
the end of the offer period, all or a portion of the
payment corresponding to the number of Offer Shares
wholly or partially rejected. All refunds shall be made
through the Domestic Lead Underwriter or selling agent
with whom the Applicant has filed the Application, at
the Applicants risk.

Registration and Lodgment of Shares with

PDTC .......................................................

Registration of Foreign Investments .........

The Offer Shares are required to be lodged with the

PDTC. The Applicant may request to receive stock
certificates evidencing such Applicants investment in
the Offer Shares through his/her broker after the Listing
Date. Any expense to be incurred by such issuance of
certificates shall be borne by the Applicant.
The Bangko Sentral ng Pilipinas (BSP) requires that
investments in shares of stock funded by inward
remittance of foreign currency be registered with the
BSP if the foreign exchange needed to service capital
repatriation or dividend remittance will be sourced from
the Philippine banking system. The registration with the

18

BSP of all foreign investments in the Offer Shares shall

be the responsibility of the foreign investor. See
Philippine Foreign Exchange Regulations.
Tax Considerations ...................................

Procedure for Application for the PSE and

LSI Offer ....................................

See Philippine Taxation for further information on the

Philippine tax consequences of the purchase, ownership
and disposal of the Offer Shares.

Application forms and signature cards may be obtained

from the Domestic Lead Underwriter or from any
participating PSE Trading Participants. Applicants shall
complete the application form, indicating all pertinent
information such as the applicants name, address,
taxpayers identification number, citizenship and all
other information as may be required in the application
form. Applicants shall undertake to sign all documents
and to do all necessary acts to enable them to be
registered as holders of Offer Shares. Failure to
complete the application form may result in the rejection
of the application.
If the applicant is a corporation, partnership or trust
account, the Application must be accompanied by the
following documents:

A certified true copy of the applicants latest articles

of incorporation and by-laws and other constitutive
documents (each as amended to date) duly certified
by its corporate secretary;

A certified true copy of the applicants Philippine

SEC certificate of registration duly certified by its
corporate secretary; and

A duly notarized corporate secretarys certificate

setting forth the resolution of the applicants board of
directors or equivalent body authorizing the purchase
of the Firm Shares indicated in the Application,
identifying the designated signatories authorized for
the purpose, including his or her specimen signature,
and certifying to the percentage of the applicants
capital or capital stock held by Philippine Nationals.
Foreign corporate and institutional applicants who
qualify as Eligible Investors, in addition to the
documents listed above, are required to submit in
quadruplicate, a representation and warranty stating that
their Application will not violate the laws of their
jurisdictions of incorporation or organization, and that
they are allowed, under such laws, to acquire, purchase
and hold the Firm Shares.

19

Payment Terms for the PSE and LSI

Offer .....................................................

The purchase price must be paid in full in Pesos upon

the submission of the duly completed and signed
application form and signature card together with the
requisite attachments.
Payment for the Offer Shares shall be made either by: (i)
a personal or corporate check drawn against an account
with a BSP authorized bank at any of its branches
located in Metro Manila; or (ii) a managers or cashiers
check issued by an authorized bank.
All checks should be made payable to D&L Industries,
Inc. IPO, crossed Payees Account Only, and dated
the same date as the application.
The applications and the related payments will be
received at any of the offices of the Domestic Lead
Underwriter or the selling agents.

Acceptance or Rejection of Applications

for the PSE and LSI
Offer .. ............................

Expected Timetable ..................................

Application to Subscribe forms are subject to

confirmation by the Domestic Lead Underwriter and the
final approval of the Company. The Company and the
Domestic Lead Underwriter reserve the right to accept,
reject or scale down the number and amount of Offer
Shares covered by any application. The Company and
the Domestic Lead Underwriter have the right to
reallocate available Offer Shares in the event that the
Offer Shares are insufficient to satisfy the total
applications received. The Offer Shares will be allotted
in such a manner as the Company and the Domestic
Lead Underwriter may, in their sole discretion, deem
appropriate, subject to distribution guidelines of the
PSE. Applications with checks dishonored upon first
presentation and Application to Subscribe forms
which do not comply with terms of the Offer will be
automatically rejected. Notwithstanding the acceptance
of any Application to Subscribe forms, the actual
subscription of the Offer Shares by the applicant will be
effective only upon the listing of the Offer Shares at the
PSE.
The timetable of the Offer is expected to be as follows:
Pricing and allocation of
the Institutional Offer
Shares ...............................
Notice of final Offer Price
to SEC and PSE ................

20

November 26, 2012

November 26, 2012

PSE Trading Participants

Commitment Period ..........
November 28 to
December 3, 2012
Local Small Investors
Offer Period ......................
Domestic Lead
Underwriters Offer
Period. ..............................
PSE and LSI Offer
Settlement Date .................
Institutional Offer
Settlement Date .................
Listing Date and
commencement of trading
on the PSE.........................

November 28 to
December 5, 2012

December 6, 2012

December 5, 2012

December 12, 2012

December 12, 2012

The dates included above are subject to the approval of

the PSE and the Philippine SEC, market and other
conditions, and may be changed.
Risks of Investing .....................................

Before making an investment decision, prospective

investors should carefully consider the risks associated
with an investment in the Offer Shares. Certain of these
risks are discussed in the section entitled Risk Factors
and include: risks relating to the Company and its
businesses, risks relating to the Philippines, risks relating
to the Offer and the Offer Shares and risks relating to
certain statistical information in this Prospectus.

21

SUMMARY FINANCIAL INFORMATION

The following tables set forth summary pro-forma condensed consolidated financial information for
the Company and should be read in conjunction with the auditors reports, the Companys pro-forma
condensed consolidated financial statements, including the notes thereto included elsewhere in this
Prospectus, and the section entitled Managements Discussion and Analysis of Financial Condition
and Results of Operations. The summary pro-forma condensed consolidated financial information
presented below as of and for the seven months ended July 31, 2011 and 2012, and as of and for the
years ended December 31, 2009, 2010 and 2011 was derived from the historical separate financial
statements of D&L Industries, each of its subsidiaries and Chemrez Technologies, Inc., adjusted to
give pro-forma effect to the Companys (i) acquisition of controlling interest in Oleo-Fats
Incorporated and non-controlling interest in Aero-Pack Industries, Inc., First in Colours, Inc. and
D&L Polymer and Colours, Inc,. resulting in the Company owning 100% of these entities; and (ii) the
Companys divestment of controlling interest in FIC Marketing Co, and D&L Powder Coating, Inc.
as if such transaction occurred on January 1, 2009, and prepared in accordance with the Companys
assumptions which are described in the notes to the pro-forma condensed consolidated financial
statements and reviewed by Isla Lipana & Co., a PwC member firm (Isla Lipana), in accordance
with Philippine Standards on Assurance Engagements 3000 - Assurance Engagements Other than
Audits or Reviews of Historical Financial Information (PSAE 3000) and Memorandum Circular No. 2
Series of 2008, Guidelines on Reporting and Attestation of Pro-Forma Financial Information (SEC
Memo 2-2008) issued by the Philippine Securities and Exchange Commission.
The historical amounts in the pro-forma condensed consolidated financial information are derived
from the historical separate financial statements of D&L Industries, each of its subsidiaries and
Chemrez Technologies, Inc., which were audited by Isla Lipana and prepared in accordance with
Philippine Standards on Auditing (PSA) and prepared in accordance with Philippine Accounting
Standards 34 Interim Financial Reporting (PAS 34) and Philippine Financial Reporting Standards
(PFRS), except for D&L Industries separate financial statements as of and for the years ended
December 31, 2010 and 2009 which were audited by Armando T. Llovido.
The pro-forma adjustments are based upon available information and certain assumptions that the
Company believes are reasonable under the circumstances. The summary pro-forma condensed
consolidated financial information does not purport to represent what the consolidated results of
operations of the Company would actually have been had the acquisition and divestment of ownership
interests in fact occurred on January 1, 2009, nor do they purport to project the consolidated results
of operations of the Company for any future period or date. Furthermore, the translation of peso
amounts to U.S. dollars is provided for convenience only. For additional information regarding
financial information presented in this Prospectus, see Presentation of Financial and Other
Information.

22

Pro-Forma Condensed Consolidated Statements of Total Comprehensive Income

For the years ended December 31,

2009

2010

2011

(P in millions)
(audited)

For the seven months ended July 31,

2011
(U.S.$ in
millions)(1)

2011

2012

(P in millions)

(unaudited)

2012
(U.S.$ in
millions)(1)

(unaudited)

Revenues ......................................................... 9,153.5

9,947.2

12,834.5

306.3

7,572.4

6,764.5

161.4

Cost of sales and services ............................... (8,632.6)

(8,724.0)

(11,128.4)

(265.5)

(6,471.6)

(5,751.0)

(137.2)

520.9

1,223.2

1,706.1

40.8

1,100.8

1,013.5

24.2

Expenses, net ................................................... (483.0)

(530.1)

(535.6)

(12.8)

(273.5)

(264.9)

(6.3)

Equity share in net income .............................

153.2

164.5

100.6

2.4

107.5

56.2

1.3

Profit before income tax ...............................

191.1

857.6

1,271.1

30.4

934.8

804.8

19.2

Gross profit ....................................................

Income tax expense ................................

Profit for the period ................................

34.8

(156.7)

(274.1)

(6.5)

(191.4)

(163.7)

(3.9)

225.9

700.9

997.0

23.9

743.4

641.1

15.3

(19.9)

(0.5)

0.5

33.4

0.8

225.9

700.9

977.1

23.4

743.9

674.5

16.1

Other comprehensive income

Fair value adjustment on
available-for-sale financial
assets, net of tax ................................
Total comprehensive income for
the period ........................................................

Notes:
(1) The translations from pesos to U.S. dollars have been made on the basis of the BSP Rate on July 31, 2012 of P41.907 = U.S.$1.00. See
Exchange Rates on page 41 of this Prospectus.

23

Pro-Forma Condensed Consolidated Statements of Financial Position

For the seven months ended

For the years ended December 31,
2009

2010

2011

(P in millions)
(audited)

July 31,

2011
(U.S.$ in
millions)(1)
(unaudited)

2012
(P in millions)

2012
(U.S.$ in
millions)(1)

(unaudited)

ASSETS
Current Assets
Cash and cash equivalents ..........................

248.6

688.3

972.4

23.2

1,444.8

34.5

Receivables, net .........................................

1,444.3

1,726.9

1,725.0

41.2

1,215.0

29.0

Due from related parties ............................

408.3

76.2

229.0

5.5

158.3

3.8

Dividends receivable .................................

54.2

1.3

Loans receivable ........................................

11.0

0.3

11.0

0.3

Inventories, net ...........................................

1,405.9

1,373.4

2,035.1

48.6

1,978.8

47.2

Prepayments and other current assets .......

586.1

609.0

670.9

16.0

525.8

12.5

Total Current Assets ....................................

4,093.2

4,473.8

5,643.4

134.8

5,387.9

128.6

Noncurrent Assets
Available-for-sale financial assets ............

21.0

21.0

51.0

1.2

84.4

2.0

Investments in an associate ........................

1,377.7

1,491.0

1,527.6

36.5

1,529.6

36.5

Property, plant and equipment ..................

912.3

1,247.3

1,501.0

35.8

1,607.7

38.4

Deferred income tax assets, net .................

97.3

15.7

14.3

0.3

4.2

0.1

Other non-current assets .............................

15.8

16.7

16.8

0.4

26.1

0.6

Total Noncurrent Assets ..............................

2,424.1

2,791.7

3,110.7

74.2

3,252.0

77.6

Total Assets ....................................................

6,517.3

7,265.5

8,754.1

209.0

8,639.9

206.2

LIABILITIES AND EQUITY

Current Liabilities
Trade payable and other liabilities ............

681.2

573.6

790.3

18.9

525.9

12.5

Due to related parties .................................

2,259.2

1,666.1

1,643.8

39.2

1,461.6

34.9

Dividends payable ......................................

25.0

0.6

231.3

5.5

Income tax payable ....................................

2.4

1.4

8.0

0.2

8.3

0.2

Borrowings .................................................

2,490.9

3,052.0

3,347.6

79.9

3,127.7

74.6

Total Current Liabilities ..............................

5,433.7

5,293.1

5,814.7

138.8

5,354.8

127.7

6.2

0.2

Noncurrent Liabilities
Deferred income tax liabilities, net ...........
Retirement benefit obligations ..................

28.3

41.2

31.2

0.7

29.0

0.7

Total Liabilities .............................................

5,462.0

5,334.3

5,845.9

139.5

5,390.0

128.6

Share capital ................................................

146.2

321.2

321.2

7.7

1,000.0

23.9

Deposit for future stock subscription.........

187.5

4.5

Fair value reserves ......................................

(19.9)

(0.5)

13.5

0.3

(76.4)

(76.4)

(76.5)

(1.8)

(76.5)

(1.8)

Equity

Other charges to equity (loss on sale of

investments) ..................................................
Retained earnings:
Appropriated ............................................

360.0

510.0

510.0

12.2

Unappropriated ........................................

625.5

1,176.4

2,173.4

51.9

2,125.4

50.7

Total Equity ...................................................

1,055.3

1,931.2

2,908.2

69.5

3,249.9

77.6

Total Liabilities and Equity ........................

6,517.3

7,265.5

8,754.1

209.0

8,639.9

206.2

24

Notes:
(1) The translations from pesos to U.S. dollars have been made on the basis of the BSP Rate on July 31, 2012 of P41.907 = U.S.$1.00. See
Exchange Rates on page 41 of this Prospectus.

Pro-Forma Condensed Consolidated Statements of Cash Flows

For the seven months ended
For the years ended December 31,
2009

2010

2011

July 31,
2011
(U.S.$ in
millions)(1)

(P in millions)

2011

2012

(P in millions)

2012
(U.S.$ in
millions)(1)

Net cash flows provided by operating

activities ...........................................................

825.9

260.4

478.1

11.4

65.5

1,067.7

25.5

(408.7)

(407.8)

(369.6)

(8.8)

(262.2)

(185.9)

(4.4)

(542.9)

601.2

189.4

4.5

142.1

(407.5)

(9.7)

(6.9)

(14.0)

(13.9)

(0.3)

20.8

(1.9)

(132.6)

439.8

284.0

6.8

(33.8)

472.4

11.4

Net cash flows used in investing

activities ...........................................................
Net cash flows provided by / (used in)
financing activities ..........................................
Effect of foreign exchange rate
changes on cash ................................................
Net increase (decrease) in cash and
cash equivalents .............................................

Notes:
(1) The translations from pesos to U.S. dollars have been made on the basis of the BSP Rate on July 31, 2012 of P41.907 = U.S.$1.00. See
Exchange Rates on page 41 of this Prospectus.

Selected Pro-Forma Condensed Consolidated Financial Ratios

For the years ended December
31,
2009
2010
2011

Liquidity ratio(1) ...............................................................................

Debt-to-equity ratio(2) ........................................................................
Assets-to-equity ratio(3) ....................................................................
Earnings per share (P)(4) ....................................................................

0.75
5.18
6.18
0.13

__________
Notes:
(1) Total current assets divided by total current liabilities.
(2) Total debt divided by total equity.
(3) Total assets divided by total equity.
(4) Net income after tax (attributable to parent company) divided by outstanding shares.

25

0.85
2.76
3.76
0.40

0.97
2.01
3.01
0.57

For the seven months

ended July 31,
2011
2012

0.42

1.01
1.66
2.66
0.37

RISK FACTORS
An investment in the Offer Shares involves a number of risks. The price of securities can and
does fluctuate, and any individual security is likely to experience upward or downward
movements and may even become valueless. There is an inherent risk that losses may be
incurred rather than profit made as a result of buying and selling securities. Past
performance is not a guide to future performance and there may be a large difference
between the buying price and the selling price of the Offer Shares. Investors should
carefully consider all the information contained in this Prospectus, including the risk
factors described below, before deciding to invest in the Offer Shares. The occurrence of any
of the following events, or other events not currently anticipated, could have a material
adverse effect on the Companys business, financial condition and results of operations and
cause the market price of the Offer Shares to decline. All or part of an investment in the
Offer Shares could be lost.
The risk factors are generally ordered from most important to less important. The means
by which the Company intends to address the risk factors discussed herein are principally
presented under the captions Business beginning on page 75, Managements Discussion
and Analysis of Financial Condition and Results of Operations beginning on page 53 and
Industry beginning on page 118 of this Prospectus. This risk factor discussion does not
purport to disclose all of the risks and other significant aspects of investing in the Offer
Shares. Investors should undertake independent research and study the trading of
securities before commencing any trading activity. Investors should seek professional
advice regarding any aspect of the securities such as the nature of risks involved in the
trading of securities, and specifically those of high-risk securities. Investors may request
publicly available information on the Shares and the Company from the Philippine SEC.
RISKS RELATING TO THE COMPANY AND ITS BUSINESSES
Substantially all of the Companys business activities are conducted in the Philippines and all of
its assets are located in the Philippines, which exposes the Company to risks associated with the
Philippines, including the performance of the Philippine economy.
Historically, the Companys businesses have derived substantially all of their revenues and profits
from sales of their products in the Philippines and the Companys businesses are highly dependent on
the state of the Philippine economy. Demand for, and prevailing prices of, the Companys main
products, such as food ingredients (including specialty fats and oils); colorants and plastics additives;
oleochemicals, resins and powder coatings, and aerosol products, which are materials used in various
consumer products sold in the Philippines, are directly or indirectly related to the strength of the
Philippine economy and the overall levels of business activity in the Philippines. A majority of the
Companys products are used in a range of food and beverage products, household materials, and
other consumer goods which are discretionary consumer products, and demand for these products and
services tends to decline during economic downturns when consumers disposable income declines.
As a result of the Asian financial crisis that began in 1997, the Philippine economy generally went
through a period of downturn in the late 1990s. This downturn was further exacerbated during 2000 to
2001 by the political crisis resulting from the impeachment proceedings against, and the subsequent
resignation of, former President Joseph Estrada. Moreover, the Philippine economy was also
negatively affected by the global financial downturn caused by the general slowdown of the global
economy in 2008 and 2009, and global economic uncertainty persists in light of issues in the
Eurozone which have had an effect on global economic sentiment. There is no assurance that there
will not be a recurrence of an economic slowdown in the Philippines. Factors that may adversely
affect the Philippine economy include:

26

 decreases in business, industrial, manufacturing or financial activity in the Philippines or in the

global market;
scarcity of credit or other financing, resulting in lower demand for products and services provided
by companies in the Philippines or in the global market;
exchange rate fluctuations;
a prolonged period of inflation or increase in interest rates;
changes in the Governments taxation policies;
a re-emergence of Severe Acute Respiratory Syndrome (commonly known as SARS) or avian
influenza (commonly known as the bird flu) or the emergence of another similar disease in the
Philippines or in other countries in Southeast Asia;
natural disasters, including typhoons, earthquakes, fires, floods and similar events;
political instability, terrorism or military conflict in the Philippines, other countries in the region or
globally; and
other regulatory, political or economic developments in or affecting the Philippines.
There is a degree of uncertainty regarding the economic and political situation in the Philippines. This
uncertainty could have adverse effects on the Companys business, financial condition and results of
operations. See Risks Relating to the Philippines.
The Companys profitability and cash flows could deteriorate materially if it fails to keep up
with technological innovation.
The Companys profitability will depend on, among other things, its ability to make process
improvements in the manufacturing of its products and its ability to continue to produce customized
and specialty products, as well as introduce new products for its customers. As the Company
competes with other products and technologies, it is required to be innovative to satisfy its customers
demands.
The Companys product innovation is focused on the ability to adapt and customize its products to
meet the changing needs of its customers, as well as improving the technology and efficiency with
which it manufactures its products. Some of its competitors may be more capable of advances in
product and technology development and anticipating and responding to market trends and
developments. Also, some of its competitors, especially global companies operating in its core
businesses, may have greater financial resources than the Company and may increase their
competitiveness relative to the Company by investing more in process improvements or in research
and development activities with respect to its key products, which may negatively impact the
Companys business. In addition, since innovation is also fostered by the support of external partners
such as research institutions, universities and other independent institutions, competitors operating in
markets with stronger or a larger number of clusters of such institutions and industry players may
have an advantage over the Company. Moreover, there can be no guarantee that certain of the
Companys customers, particularly those involved in the food, plastics and packaging industries
which develop rapidly with technological advancements, will be able to respond with consumer
products that meet changing market preferences, which may negatively affect their production and
correspondingly result in reduced demand for the Companys products.

27

Product development and engineering requires significant investment. There can be no assurance that
the Companys product development and engineering efforts will continue to deliver innovative and
competitive products that will translate into sales to customers. If it fails to keep pace with the
evolving technological innovations in its markets, this may have a material adverse effect on its
business, financial condition, results of operations and cash flows.
The Companys business may be negatively affected by variances in raw material costs, any
inability to retain or replace the Companys key suppliers, unexpected supply shortages or
supply chain disruptions.
The Companys margins are largely a function of the relationship between the prices that the
Company is able to charge for its products and the costs of the raw materials and other inputs it
requires to produce these products. The primary raw materials upon which the Company depends in
production of its respective products include vegetable oils, monomers, polymers and other chemicals.
The prices of the raw materials that the Company purchases from third party suppliers tend to be
cyclical and highly variable, and represent a substantial portion of the Companys operating expenses.
The availability and price of these raw materials are influenced by factors that the Company cannot
control, such as market conditions, general global economic prospects, production capacity in the
markets, production constraints on the part of the Companys suppliers, fluctuations in oil or other
commodity prices, infrastructure failures, political conditions, weather conditions, regulations and
other factors.
In addition, the raw materials that the Company requires may be unavailable in adequate quantities at
commercially reasonable terms in the future. Operational interruptions resulting from supply
shortages of certain raw materials can significantly affect the Companys profitability. If any of the
Companys suppliers is subject to a major production disruption or is unable to meet its obligations
under existing supply agreements, the Company may be forced to pay higher prices to obtain the
necessary raw materials and the Company may not be able to increase the prices of its finished
products. Furthermore, any late deliveries of strategic raw materials may cause delays in the
completion of certain of the Companys products or product components.
The Companys supply arrangements typically provide for market-based pricing. The Company
attempts to match key raw material price increases with corresponding product price increases and the
majority of the Companys contracts provide for pass-through of cost increases. However, the
Companys ability to pass on increases in the cost of raw materials to its customers is, to a large
extent, dependent upon the Companys contractual relationships and market condition. As a result, the
Company may not be able to raise product prices immediately or at all, and may not be able to pass on
the entire cost increase to its customers. Any inability to pass on increases in raw materials costs to
the Companys customers would have a negative effect on its cash flows. In addition, although the
Company passes through changes in raw materials pricing to its customers under most of its contracts
on a monthly basis, in certain instances the pricing is adjusted on a quarterly basis. The Companys
raw materials prices are set monthly, and to the extent the Companys pass-throughs to its customers
are adjusted quarterly, the Companys cash flows are subject to certain degree of variability. In
addition, some of the Companys customers may from time to time take advantage of fluctuating
prices by building inventories when they expect product prices to increase and reducing inventories
when they expect product prices to decrease. Any increase in raw material prices that the Company
may not be able to pass on to its customers or interruptions in supply could increase pressure on the
Companys margins and reduce its cash flows, which could materially adversely affect the
Companys business, financial condition and results of operations.

28

The Companys facilities, which are located primarily in a single area, are subject to operating
risks.
The Companys facilities are subject to hazards inherent in manufacturing and related use, storage,
transportation and disposal of raw materials, products and wastes, including but not limited to:
facility leaks and ruptures;
fires and explosions;
accidents;
mechanical failures;
unplanned production or power outages (including blackouts);
unpermitted discharges or releases of toxic or hazardous substances or gases;
other environmental risks; and
sabotage or terrorist attacks.
These hazards can cause personal injury and loss of life, catastrophic damage to, or destruction of,
property and equipment and environmental contamination or other damage, and may result in a
suspension of operations and the imposition of civil or criminal penalties. In addition, except for
DLPCs primary production facility and Oleo-Fats oil refinery and tank farm in Sta. Ana, Manila, all
of the Companys manufacturing and production facilities are located in the same general area in
Quezon City. As a result, the Company is subject to significant risks associated with companies with
facilities located in a single area. For example, if Quezon City is experiences floods due to strong
rains or unplanned power outages, the Companys facilities may not be able to function, which may
have a material adverse effect on the Companys operations. Moreover, the Companys main facilities
are located in a residential and commercial area in Quezon City, and any hazards the Company is
subject to may affect the residents and other enterprises in the area as well.
Any loss or shutdown over an extended period of any of the Companys major operating facilities as a
result of any of the above mentioned factors could have a material adverse effect on the Companys
business, financial condition and results of operations.
The Company is effectively controlled by the Lao Family and their interests may differ
significantly from the interests of other shareholders.
Through direct and indirect interests, the Lao Family effectively controls the Company and its
subsidiaries. Mr. Dean A. Lao, Jr., Mr. Vincent D. Lao, Mr. Lester A. Lao and Mr. Alvin D. Lao,
along with other second-generation members of the Lao Family, serve in various capacities as
directors of the boards and officers of D&L Industries and its subsidiaries, along with Chemrez. These
positions allow the Lao Family to control shareholder decisions and exercise significant control over
board decisions in D&L Industries, each of its subsidiaries and Chemrez.
There can be no assurance that the respective businesses or activities of other Lao Family-related
companies will not compete with the Companys businesses or activities in the future. In addition,
certain Lao Family-controlled companies have significant commercial transactions with D&L
Industries or its subsidiaries. The interests of the Lao Family may differ significantly from the
Companys interests or the interests of other shareholders, and there can be no assurance that the Lao

29

Family will exercise influence over the Company in a manner that is in the best interests of the
Companys other shareholders. See Related Party Transactions.
The Company has significant levels of related party transactions.
A significant part of the businesses undertaken by the Company is conducted by companies owned or
controlled by the Lao Family. The operations of certain companies owned and controlled by the Lao
Family are interdependent. These related transactions include those described under Related Party
Transactions and in the notes to the Companys pro-forma consolidated financial statements
appearing elsewhere in this Prospectus. Aggregate amounts due to related parties from the Company
amounted to P2.3 billion, P1.7 billion, P1.6 billion and P1.5 million for the years ended December 31,
2009, 2010 and 2011, and the seven months ended July 31, 2012, respectively. In addition, the
Company expects that in the future, the Lao Family companies may continue to enter into transactions
with each other as well as other companies directly or indirectly controlled by or associated with the
Lao Family. These transactions may involve conflicts of interest which, although not contrary to law,
may be detrimental to the Company. Conflicts of interest that may arise between the Lao Family and
the Company in a number of areas relating to the Companys businesses include:
major business combinations involving the Company, including transfers of Lao Family-affiliated
companies into the Company or other affiliates, or transfers of assets of the Company to other Lao
Family affiliates;
plans to develop the respective businesses of the Company; and
business opportunities that may be attractive to both the Lao Family and the Company.
In particular, certain of the Companys businesses have contractual arrangements with companies
controlled by the Lao Family. For example, a majority of the land on which the facilities for the
Companys various businesses are situated is owned by real estate holding companies of the Lao
Family, for which the Company pays rent. Aggregate rental expenses by the Company on these lease
arrangements amounted to P115.5 million, P152.7 million, P155.8 million and P88.5 million for the
years ended December 31, 2009, 2010 and 2011, and the seven months ended July 31, 2012,
respectively. Such interdependence of the Company with certain affiliates may mean that any material
adverse change in the Company, or in any of the companies which are controlled by the Lao Family,
could adversely affect the results of operations of the Companys businesses.
The Company is highly dependent on certain directors, members of management and key
employees.
The Companys directors and members of its senior management have been an integral part of its
success and the success of its subsidiaries, and the experience, knowledge, business relationships and
expertise that would be lost should any such persons depart could be difficult to replace and may
result in a decrease in the Companys operating efficiency and financial performance. Members of the
Lao Family, such as Mr. Dean L. Lao and his brothers, Mr. Leon L. Lao, Mr. Alex L. Lao, Mr. Yin
Yong L. Lao and Mr. John L. Lao, all of whom have key board and executive positions in the
Company, its subsidiaries and Chemrez; Mr. Dean A. Lao, Jr., Managing Director of Chemrez; Alvin
D. Lao, Executive Vice President and Chief Financial Officer; Lester A. Lao, Managing Director of
FIC and DLPC; and Vincent D. Lao, Managing Director of Oleo-Fats, fill certain key executive
positions and the Company may not be successful in attracting and retaining executive talent to
replace these family members should they depart. These members of the Lao family have all served in
various executive and Board positions over the Companys history. If the Company loses the services
of any such person and is unable to fill any vacant key executive or management positions with
qualified candidates, the Companys business and results of operations may be adversely affected.

30

Moreover, the Companys success depends in significant part upon the continued service and
successful recruitment of key members of its research and development teams responsible for
introducing new customized products and making process improvements in the Companys product
manufacturing. The loss of one or more of key members of the Companys personnel or the failure to
attract and retain additional key personnel, could have a material adverse impact on the Companys
business, financial condition, results of operations and cash flow.

The Company may be unable to implement its business and other strategies.
The Companys future financial performance and success largely depend on the Companys ability to
implement its business strategies successfully. There can be no assurance that the Company will
successfully implement the business strategies described in this Prospectus or those to be developed
by its management, or that implementing these strategies will sustain or improve and not harm its
results of operations in targeted sectors. The Companys business strategies are based on assumptions
about future demand for its current products and the new products and applications it is developing, as
well as on its continuing ability to produce its products profitably. The Companys ability to
implement its business strategies depends on, among other things, its ability to finance its operations
and product development activities, maintain high quality and efficient manufacturing operations,
relocate and close certain manufacturing facilities with minimal disruption to its operations, respond
to competitive and regulatory changes, access quality raw materials in a cost-effective and timely
manner, and retain and attract highly-skilled technical, managerial, marketing and finance personnel.
The Company may be unable to implement on a timely basis its other business strategies, including
translating its research and development efforts into new customized or specialty products, in
accordance with its plans or at all. For example, the costs involved in implementing its research and
development strategies may be significantly greater than it currently anticipates. Any failure to
develop, revise or implement its business strategies in a timely and effective manner could have a
material adverse effect on its business, financial condition, results of operations and cash flows.
The Companys business and operations are subject to business interruption risks due to the
actions of third parties.
Due to the nature of its business, the Company is at risk of business interruption due to the actions of
third parties. For example, many of its suppliers and major customers have operations that are also
subject to environmental and health and safety risks associated with their production processes and
operations. Any future incidents affecting the Companys suppliers and customers may result in
significant regulatory actions, fines and other penalties, including restrictions, prohibitions or
sanctions on their operations, and could impair their ability to perform their contracts with the
Company or could otherwise subject the Company to liability, all of which could have a material
adverse effect on its business, reputation, financial condition and results of operations. In addition, if
any of the Companys facilities experience damage due to any number of hazards caused by third
parties, the Companys operations may be adversely affected.
The Companys primary businesses are in very competitive industries, which could limit the
Companys ability to maintain or increase its market share and maintain profitability.
Each of the Companys primary business segments is subject to considerable competition. In all of its
industries, the Company competes against regional, multinational and Philippine manufacturers. In
certain of its industries, the Company competes against suppliers and customers of its products. Some
existing or potential competitors may have substantially greater financial and other resources than the
Company, which may allow them to undertake more aggressive marketing and to react more quickly
and effectively to changes in the markets and in consumer preferences. With respect to competition

31

regionally in particular, potential implementation of a zero tariff regime by the Government on

imports by 2015 pursuant to the Association of Southeast Asian Nations (ASEAN) Free Trade
Agreement may also result in more regional players entering the Philippine market to compete with
the Company, significantly reducing the Companys cost advantages and profitability, as well as
further increasing competition.
In addition, the entry of new competitors into any of the Companys primary business segments could
reduce the Companys sales and profit margins. Moreover, certain products similar or identical to the
Companys products may be smuggled into the Philippines, and these may be sold at prices lower
than the Companys products, reducing the market share for these products. See Smuggling of
competing products may adversely affect the Companys financial performance. Any increase in the
level of competition within any of the Companys business segments could adversely affect the
Companys business, financial condition and results of operations.
The Company may be adversely affected by its continued compliance with, and any changes in,
safety, health and environmental laws and regulations.
The operations of the Companys businesses are subject to a broad range of safety, health and
environmental laws and regulations. These laws and regulations impose controls on chemical, air and
water discharges, on the storage, handling, discharge and disposal of waste, as well as other aspects of
the operations of each of the Companys businesses. The Company has incurred, and the Company
expects it will continue to incur, operating costs to comply with such laws and regulations. In addition,
the Company has made and expects to continue to make capital expenditures on an ongoing basis to
comply with safety, health and environmental laws and regulations. The discharge of hazardous
substances or other pollutants into the air, soil or water and the production of primary ingredients used
in the sale of food and beverages that do not comply with relevant health regulations may cause the
Company to be liable to third parties, the Government or to the local government units with
jurisdiction over the areas where the Companys facilities are located. The Company may be required
to incur costs to remedy the damage caused by such action or pay fines or other penalties for noncompliance.
In addition, many of the Companys sites and facilities have a history of industrial chemical
processing, storage and related activities, and may currently be subject to engineering or institutional
controls or restrictions or may become subject to such controls or restrictions in the future. The
Company may be required to investigate and remediate contamination at or migrating from these sites
and facilities, as well as properties the Company formerly owned, leased or operated.
Safety, health and environmental laws and regulations in the Philippines have been increasingly
stringent and it is possible that these laws and regulations will become significantly more stringent in
the future. The adoption of new safety, health and environmental laws and regulations, new
interpretations of existing laws, increased governmental enforcement of environmental laws or other
developments in the future may require additional capital expenditures or the incurrence of additional
operating expenses in order to comply with such laws and to maintain current operations. Furthermore,
if the measures implemented by the Company to comply with these new laws and regulations are not
deemed sufficient by the Government, compliance costs may significantly exceed current estimates. If
the Company fails to meet safety, health and environmental requirements, it may also be subject to
administrative, civil and criminal proceedings initiated by the Government, as well as civil
proceedings by environmental groups and other individuals, which could result in substantial fines
and penalties against the Company, as well as orders that could limit or halt its operations.
The Company cannot predict what safety, health and environmental legislation or regulations will be
amended or enacted in the future, how existing or future laws or regulations will be enforced,
administered or interpreted, or the amount of future expenditures that may be required to comply with
these environmental laws or regulations or to respond to environmental claims. There can be no

32

assurance that the Company will not become involved in future litigation or other proceedings or be
held responsible in any such future litigation or proceedings relating to safety, health and
environmental matters in the future, the costs of which could be material. The introduction or
inconsistent application of, or changes in, laws and regulations applicable to the Companys
businesses could have a material adverse effect on the Company, its financial condition and results of
operations. See Regulatory and Environmental Matters.

The Companys business could be adversely affected by regulation of its products.

The Company uses and manufactures certain hazardous chemicals, food ingredients used in making a
range of consumer food products, as well as other products, all of which are subject to regulation by
many national, provincial and local governmental authorities. In order to obtain regulatory approval of
certain new products and production processes, the Company must, among other things, demonstrate
to the relevant authorities that the product is safe for its intended uses and that it is capable of
manufacturing the product in accordance with applicable regulations. The process of seeking
approvals can be time consuming and subject to unanticipated and significant delays. Approvals may
not be granted to it on a timely basis, or at all. Any delay in obtaining, or any failure to obtain or
maintain, these approvals would adversely affect its ability to introduce new products and to generate
revenue from those products. In addition, some of these licenses and permits are subject to periodic
renewal. Failure to obtain or maintain any of these permits and licenses could have a material adverse
effect on its business and prospects. New laws and regulations may be introduced in the future that
could result in additional compliance costs, seizures, confiscation, recall or monetary fines, any of
which could prevent or inhibit the development, distribution and sale of its products.
The Company derives a substantive portion of its food ingredients revenues from a small
number of customers.
The Company customers comprise large multinational and domestic corporations, as well as smalland medium-sized businesses and other retailers; expectedly, the Companys largest customers
account for a sizeable portion of the revenues for the Companys respective businesses. Particularly
with respect to its food ingredients business, for the seven months ended July 31, 2012, Oleo-Fats top
three largest customers, all comprising large corporate manufacturers, accounted for approximately
20%, 15% and 8%, respectively, of Oleo-Fats revenues for the period, or approximately 15%, 11%
and 6%, respectively, of the Companys consolidated revenues for the period. There can be no
assurance that these significant customers will maintain the levels of their food ingredients purchases
with the Company, or at all. If one or more of these significant customers reduced its purchases from
the Company, or changed suppliers completely, there could be a material adverse effect on the
Companys financial condition and results of operation.
D&L Industries has limited operations of its own and is dependent on the payment of
management fees and dividends by its subsidiaries and associate companies for revenue.
As it is principally a holding company with limited operations of its own, D&L Industries will
depend, to a significant extent, upon the receipt of management fees and dividends from its
subsidiaries and associate companies to meet its overhead expenses and to make dividend payments to
shareholders. The ability of D&L Industries subsidiaries and associate companies to pay dividends to
their shareholders (including D&L Industries) is subject to their respective performance and cash flow
requirements, and to applicable law, regulations and restrictions contained in any debt instruments of
such subsidiaries, associate companies and joint venture partnerships, if any. No assurance can be
given that D&L Industries will have sufficient cash flow from dividends to satisfy its obligations, or
that its subsidiaries and associate companies will pay dividends at all. Moreover, further issues of

33

equity interests by subsidiaries and associate companies of D&L Industries could dilute its interest in
such entities.
Members of the Company may be liable for damages based on product liability claims.
Many of the Companys products constitute key components or ingredients of its customers products.
The sale of these products, therefore, involves the risk of product liability claims, including those
arising out of the use of, or exposure to, such products. In addition to certain Company products
which have hazardous properties, other products of the Company, such as specialty fats and oils,
require specialized handling procedures due to their nature and capacity for spoilage. Furthermore, its
coloring, biodiesel and aerosol products have widespread end uses in a variety of consumer industries,
including food and beverage, health & beauty and household products. A successful product liability
claim or series of claims against the Company could have a material adverse effect on its business,
financial condition or results of operations. In particular, the Company could be required to increase
its debt or divert resources from other investments in its business in order to discharge any such
claims.
Negative publicity against food products high in artificial trans fats and oils in general may
adversely affect the Company.
Negative publicity regarding food products high in artificial fats and oils, such as trans fat,
particularly in the context of healthier food consumption, could adversely affect public perception of
the Companys products. For example, in recent years, the food industry both in the Philippines and
internationally has generally seen increased demand for healthier food product options, such as lowcalorie foods, non-fat products and organically produced offerings. In addition, increased publicity
with respect to the health and safety risks in relation to consumption of foods high in fat and oils, such
as increased risk of heart or blood pressure problems or obesity, may affect consumers view of highfat foods in general, many of which include specialty fats and oils produced by the Company as key
ingredients. Any material shift in the publics perception of the food products which contain the
Companys products could result in a material adverse effect to the Companys business, financial
condition and results of operations.
Smuggling of competing products may adversely affect the Companys financial performance.
Certain raw materials and products in the nature of commodities similar or identical to the Companys
products may be smuggled into the Philippines. These smuggled products may be manufactured at
lower costs and may be sourced from jurisdictions where the controls imposed on such products are
less stringent. In addition, these smuggled products are subjected to the proper taxes and duties, and
thus may be sold in the market at lower prices than the corresponding products of the Company,
which could result in decreased market share for the Companys products. There can be no assurance
that the smuggling of competing materials by third parties will not increase, and any continued or
increased smuggling could have a material adverse effect on the Companys results of operations and
financial condition.
The Company is subject to certain risks related to litigation filed by or against it, and adverse
results may harm the Companys business.
The Company cannot predict with certainty the cost of defense, the cost of prosecution or the ultimate
outcome of litigation and other proceedings filed by or against it, including remedies or damage
awards, and adverse results in any litigation and other proceedings may materially harm its business.
Litigation and other proceedings may include, but are not limited to, actions relating to intellectual
property, commercial arrangements, environmental, health and safety, labor and employment or other
harm resulting from the actions of individuals or entities outside of its control. In the case of
intellectual property litigation and proceedings, adverse outcomes could include the cancellation,

34

invalidation or other loss of material intellectual property rights used in the Companys business and
injunctions prohibiting its use of business processes or technology that are subject to third party
patents or other third party intellectual property rights. Litigation based on environmental matters or
exposure to hazardous substances in the workplace or from the Companys products could result in
significant liability to the Company. Adverse outcomes could have a material adverse effect on its
business. See Business Legal Proceedings.

The Company relies on third party contractors for certain services.

The Company relies on independent contractors, such as transportation and distribution services
providers, for its businesses, and selects these independent contractors taking into consideration
factors such as the contractors experience, financial and distribution resources and network, any
previous relationship with the Company, reputation for quality and track record. Although the
Companys personnel actively monitor the services of such independent contractors, there can be no
assurance that the services rendered by any of its providers will always comply with the Companys
schedules, or match its strict quality standards. These service providers may also experience financial
or other difficulties, which could result in the Company having to secure the services of alternative
providers, and there is no assurance that the Company will be able to easily find suitable alternatives
of the same quality, if at all. Any of these factors could materially and adversely affect the Companys
business, financial condition and results of operations.
The Company may be subject to unionization, work stoppages, slowdowns or increased labor
costs.
The Company has a non-unionized workforce. If its employees unionize, it could result in demands
that may increase the Companys operating expenses and adversely affect its profitability. If the
Companys employees were to unionize and the Company were unable to reach agreement on the
terms of their collective bargaining agreement or the Company were to experience widespread
employee dissatisfaction, it could be subject to work slowdowns or stoppages. In addition, the
Company may be subject to disruptions by organized labor groups protesting its non-union status.
Any of these events would be disruptive to the Companys operations and could harm its business.
For further details, see Business Employees.
RISKS RELATING TO THE PHILIPPINES
Any political instability in the Philippines may adversely affect the Companys business, results
of operations or financial condition.
The Philippines has from time to time experienced political and military instability. Under the
previous administration, allegations of corruption and other misconduct brought about a series of
public protests and failed military uprisings. The May 2010 elections brought in the administration of
President Benigno S. Aquino III. Despite high popularity ratings, strong congressional and military
support and a persistent anti-corruption campaign, there is no assurance that political stability in the
country will be maintained. Leadership change and shifting political alliances could alter national and
local political dynamics and result in changes of policies and priorities. In addition, organized armed
threats from communist insurgents and Muslim separatists persist in certain parts of the country. Any
of these political risks could materially and adversely affect the Companys business, financial
condition or results of operations.

35

Acts of terrorism, clashes with separatist groups and violent crimes could destabilize the
country and could have a material adverse effect on the Companys business and financial
condition.
The Philippines has been subject to a number of terrorist attacks since 2000. In recent years, the
Philippine army has also been in conflict with the Abu Sayyaf organization, which has ties to the alQaeda terrorist network, and has been identified as being responsible for certain kidnapping incidents
and other terrorist activities particularly in the southern part of the Philippines. Moreover, isolated
bombings have taken place in the Philippines in recent years, mainly in cities in that part of the
country. On January 25, 2011, a bomb was detonated on a bus in the northern city of Makati, Metro
Manila, killing five persons. Although no one has claimed responsibility for these attacks, it is
believed that the attacks are the work of various separatist groups, possibly including the Abu Sayyaf
organization. An increase in the frequency, severity or geographic reach of these terrorist acts could
destabilize the Philippines, and adversely affect the countrys economy.
The Government of the Philippines and the Armed Forces of the Philippines (AFP) have clashed
with members of several separatist groups seeking greater autonomy, including the Moro Islamic
Liberation Front (MILF) and the New Peoples Army. On October 19, 2011, 19 AFP troops were
killed in a firefight with MILF members in the southern Philippines. On December 16, 2011, five AFP
soldiers were killed in a clash with New Peoples Army members. These continued conflicts between
the Government and separatist groups could lead to further injuries or deaths by civilians and
members of the military, which could destabilize parts of the country and adversely affect the
countrys economy.
There have also been a number of violent crimes in the Philippines, including the August 2010
incident involving the hijacking of a tour bus carrying 25 Hong Kong tourists in Manila, which
resulted in the deaths of eight tourists. High profile violent crimes have, in the past, had a material
adverse effect on investment and confidence in, and the performance of, the Philippine economy.
The occurrence of natural catastrophes could adversely affect the Companys business,
financial condition or results of operations.
The Philippines has experienced a number of major natural catastrophes over the years, including
typhoons, floods, volcanic eruptions and earthquakes, some of which have materially disrupted and
adversely affected the Companys business operations. There can be no assurance that natural
catastrophes will not materially disrupt the Companys business operations in the future, or that the
Company is fully capable to deal with these situations with respect to all the damages and economic
losses resulting from these catastrophes.
Investors may face difficulties enforcing judgments against members of the Company.
It may be difficult for investors to enforce judgments against members of the Company obtained
outside of the Philippines. In addition, all of the Directors and officers of the Company are residents
of the Philippines, and all or a substantial portion of the assets of such persons are located in the
Philippines. As a result, it may be difficult for investors to effect service of process upon such
persons, or to enforce against them judgments obtained in courts or arbitral tribunals outside the
Philippines predicated upon the laws of jurisdictions other than the Philippines.
The Philippines is party to the United Nations Convention on the Enforcement and Recognition of
Arbitral Awards, though it is not party to any international treaty relating to the recognition or
enforcement of foreign judgments. Nevertheless, the Philippine Rules of Civil Procedure provide that
a judgment or final order of a foreign court is, through the institution of an independent action,
enforceable in the Philippines as a general matter, unless there is evidence that: (i) the foreign court
rendering judgment did not have jurisdiction; (ii) the judgment is contrary to the laws, public policy,

36

customs or public order of the Philippines; (iii) the party against whom enforcement is sought did not
receive notice; or (iv) the rendering of the judgment entailed collusion, fraud, or a clear mistake of
law or fact.
The sovereign credit ratings of the Philippines may adversely affect the Companys business.
As of July 31, 2012, the Philippines does not have an investment grade rating for its sovereign debt.
The sovereign credit ratings of the Government directly and adversely affect companies resident in the
Philippines as international credit rating agencies issue credit ratings by reference to that of the
sovereign. No assurance can be given that Moodys, Standard & Poors or any other international
credit rating agency will not downgrade the credit ratings of the Government in the future and,
therefore, of Philippine companies. Any of such downgrades could have an adverse impact on the
liquidity in the Philippine financial markets, the ability of the Government and Philippine companies,
the Company, to raise additional financing and the interest rates and other commercial terms at which
such additional financing is available.
Volatility in the value of the Peso against the U.S. Dollar and other currencies could adversely
affect the Companys business.
The Philippine Peso has recently appreciated in value as compared to the U.S. Dollar, along with
other Asian currencies. As of November 15, 2012, the Peso has appreciated by 6.2% to P41.112 per
U.S.$1.00 from P43.810 per U.S.$1.00 at the end of 2011.
Because the Peso has been appreciating in the recent past, the BSP may intervene in the foreign
exchange market to curb the negative effects of a strong currency. Reduced risk appetite for emerging
market assets could also result in a decline in value of the Peso as investors move their portfolios out
of emerging markets. Intervention in the currency markets as well as changes in demand for the Peso
could result in volatility in the value of the Peso against the U.S. Dollar and other currencies.
Corporate governance and disclosure standards in the Philippines may be less stringent than
those in other countries.
There may be less publicly available information about Philippine public companies than is regularly
made available by public companies in certain other countries. Philippine SEC and PSE requirements
with respect to corporate governance standards may also be less stringent than those applicable in
certain other jurisdictions. Many other countries require significantly more independent directors.
Further, rules against self-dealing and those protecting minority stockholders may be less stringent or
developed in the Philippines. Such potentially lower standards in certain areas of disclosure and
corporate governance may materially and adversely affect the interests of the Companys
stockholders, particularly those of minority stockholders.
Overseas stockholders may find it more difficult than Philippine stockholders to exercise their
voting rights at the Companys stockholders meetings.
There are no provisions under Philippine law or under the Companys by-laws that will limit the
exercise by foreign holders of their voting rights of the Shares. However, there are practical,
geographic and logistical limitations on foreign holders ability to receive notice of regular or special
meetings of the Companys stockholders on a timely basis. All stockholders of record may attend the
Companys stockholder meetings in person or by proxy. The SRCs implementing rules require the
Company to send all stockholders of record notice of the annual meeting at least two weeks before the
meeting unless (and this also applies to special meetings) the Company has already distributed an
information statement and proxy form (in case of proxy solicitation) relating to a stockholders
meeting at least 15 business days before the stockholders meeting. There can be no assurance that
foreign stockholders will receive such notices in a timely manner or at all.

37

Stockholders may be subject to limitations on minority stockholders rights.

The obligation under Philippine law of majority shareholders and directors with respect to minority
shareholders may be more limited than those that are available in certain other countries, such as the
United States or United Kingdom. Consequently, minority shareholders may not be able to protect
their interests under current Philippine law to the same extent as in certain other countries.
Batas Pambansa Bilang 68, also known as the Corporation Code of the Philippines (the Philippine
Corporation Code), provides for minimum minority shareholders protection in certain instances
wherein a vote by the shareholders representing at least two-thirds of the Companys outstanding
capital stock is required. The Philippine Corporation Code also grants shareholders an appraisal right
allowing a dissenting shareholder to require the corporation to purchase his shares in certain instances.
Derivative actions, while permitted under the Philippine Corporation Code and governed by the
Interim Rules of Procedure Governing Intra-Corporate Controversies (A.M. No. 01-2-04-SC), are
rarely brought on behalf of Philippine companies. Accordingly, there can be no assurance that legal
rights or remedies of minority shareholders will be the same, or as extensive, as those available in
other jurisdictions or sufficient to protect the interests of minority shareholders.
Overseas stockholders may be subject to restrictions or repatriation of Pesos received with
respect to the Shares.
Under BSP regulations, as a general rule, Philippine residents may freely dispose of their foreign
exchange receipts and foreign exchange may be freely sold and purchased outside the Philippine
banking system. There are restrictions on the sale and purchase of foreign exchange within the
Philippine banking system. In particular, a foreign investment must be registered with the BSP if
foreign exchange needed to service the repatriation of capital and the remittance of dividends, profits
and earnings which accrue thereon is sourced from the Philippine banking system. See Philippine
Foreign Exchange Regulations.
The Government has, in the past, instituted restrictions on the conversion of Pesos into foreign
currency and the use of foreign exchange received by Philippine residents to pay foreign currencydenominated obligations. The Monetary Board of the BSP, with the approval of the President of the
Philippines, has statutory authority during a foreign exchange crisis or in times of national emergency
to suspend temporarily or restrict sales of foreign exchange, to require licensing of foreign exchange
transactions or to require delivery of foreign exchange to BSP or its designee. The Company is not
aware of any pending proposals by the Government relating to such restrictions. Any restrictions
imposed in the future pursuant to such statutory authority could adversely affect the ability of the
Company to source foreign currency to comply with its foreign currency-denominated obligations and
adversely affect the ability of investors to repatriate foreign currency upon sale of the Shares or
dividends or distributions relating to them.
RISKS RELATING TO THE OFFER AND THE OFFER SHARES

38

The market price of securities can and does fluctuate. The Shares have not been publicly traded
and the relative volatility and illiquidity of the Philippine securities market may substantially
limit investors ability to sell the Shares at a suitable price or at a time they desire.
The market price of securities can and does fluctuate, and it is impossible to predict whether the price
of the Shares will rise or fall. An individual security may experience upward or downward
movements, and may even lose all its value. There is an inherent risk that losses may be incurred
rather than profit made as a result of buying and selling securities. There may be a substantial
difference between the buying price and the selling price of such securities. Trading prices of the
Shares will be influenced by, among other things, the Companys financial position, results of
operations, and political, economic and other factors.
Prior to the Offer, there has been no public market for the Shares in the Philippines. The Philippine
securities markets are substantially smaller, less liquid, and more volatile than major securities
markets in the United States and other jurisdictions, and are not as highly regulated or supervised as
some of these other markets. The Offer Price was determined by the Company in consultation with
the International Underwriter and the Domestic Lead Underwriter, and could differ significantly from
the price at which the Offer Shares will trade subsequent to completion of the Offer.
There can be no assurance that even after the Offer Shares have been approved for listing on the PSE,
an active trading market for the Shares will develop or be sustained after the Offer, or that the Offer
Price will correspond to the price at which the Shares will trade in the Philippine public market
subsequent to the Offer. There is no assurance that investors will be able to sell Shares at prices or at
times deemed appropriate.
Future sales of Shares in the public market could adversely affect the prevailing market price of
the Shares and shareholders may experience dilution in their holdings.
In order to finance the expansion of the Companys business and operations, the Board will consider
the funding options available to them at the time, which may include the issuance of new Shares. If
additional funds are raised through the issuance of new equity or equity-linked securities by the
Company other than on a pro rata basis to existing shareholders, the percentage ownership of the
shareholders may be reduced, shareholders may experience subsequent dilution and/or such securities
may have rights, preferences and privileges senior to those of the Offer Shares.
Further, the market price of the Shares could decline as a result of future sales of substantial amounts
of the Shares in the public market or the issuance of new Shares, or the perception that such sales,
transfers or issuances may occur. This could also materially and adversely affect the prevailing market
price of the Shares or the Companys ability to raise capital in the future at a time and at a price it
deems appropriate.
The PSE rules require an applicant company to cause its existing shareholders owning at least 10% of
the outstanding shares of the Company not to sell, assign or in any manner dispose of their shares for
a period of 180 days after the listing of the shares. To implement this lock-up requirement, the PSE
requires the applicant company to enter into an escrow agreement with the trust department or
custodian unit of an independent and reputable financial institution for the physical lock-up of the
shares. The Selling Shareholder is covered by this lock-up requirement. After the lapse of the lock-up
period, the Company, the Selling Shareholder, and the escrow agent will cause the lodgement of the
shares previously locked-up with the PDTC through a PCD Participant in compliance with the rules
on lodgement of the securities of the PSE.
Except for such restrictions, there is no restriction on the Companys ability to issue Shares or the
ability of any of the Companys shareholders to dispose of, encumber or pledge, their Shares, and
there can be no assurance that the Company will not issue Shares or that such shareholders will not
dispose of, encumber or pledge, their Shares.

39

The Company may be unable to pay dividends on the Shares.

There is no assurance that the Company can or will declare dividends on the Shares in the future.
Future dividends, if any, will be at the discretion of the Board and will depend upon the Companys
future results of operations and general financial condition, capital requirements, its ability to receive
dividends and other distributions and payments from its subsidiaries, foreign exchange rates, legal,
regulatory and contractual restrictions, loan obligations, including loan obligations of its subsidiaries,
and other factors the Board may deem relevant.
The Offer Shares are subject to restrictions on transfer.
The Offer Shares are being offered and sold only outside the United States in compliance with
Regulation S, and may be transferred or resold in the United States only in transactions registered
under or exempt from registration under the Securities Act and applicable state securities laws. These
restrictions on transfer may materially limit the ability of any holder of the Offer Shares to transfer the
Offer Shares in the United States.

RISKS RELATING TO THE PRESENTATION OF INFORMATION IN THIS PROSPECTUS

Certain statistical information and forecasts in this Prospectus relating to the Philippine food
ingredients, colorants and plastic additives, oleochemicals, resins and powder coatings, and aerosol
industries and other data used in this Prospectus were obtained or derived from third parties, internal
surveys, market research, governmental data, publicly available information and/or industry
publications. Industry publications generally state that the information they contain has been obtained
from sources believed to be reliable. However, there is no assurance that such information is accurate
or complete. Similarly, third party information, internal surveys, industry forecasts and market
research have not been independently verified by the Company and may not be accurate, complete,
up-to-date, balanced or consistent with other information compiled within or outside the Philippines.

40

EXCHANGE RATES
The Philippine Dealing System (PDS), a computer network supervised by the BSP, through
which the members of the Bankers Association of the Philippines effect spot and forward currency
exchange transactions, was introduced in 1992. The PDS was adopted by the BSP as a means to
monitor foreign exchange rates. The BSP Rate is the closing spot rate for the purchase of
U.S. dollars with Pesos, which is quoted on the PDS and published in the BSPs Reference
Exchange Rate Bulletin and major Philippine financial press on the following business day. On
November 15, 2012, the BSP Rate was P41.112 = U.S.$1.00.
The following table sets forth certain information concerning the PDS Rate between the Peso and
the U.S. dollar for the periods and dates indicated, expressed in Pesos per U.S.$1.00:
Peso/U.S. dollar exchange rate
Year
2007........................................................................
2008........................................................................
2009........................................................................
2010........................................................................
2011........................................................................
2012
January.................................................................
February ...............................................................
March...................................................................
April.....................................................................
May......................................................................
June......................................................................
July ......................................................................
August..................................................................
September ............................................................
October ................................................................
November (through November 15)........................

Period end
41.401
47.485
46.356
43.885
43.928

Average(1)
46.148
44.475
47.637
45.248
43.313

High(2)
49.156
49.984
49.056
46.983
44.585

Low(3)
41.142
40.360
45.947
42.516
41.955

42.946
42.864
43.000
42.436
43.451
42.283
41.907
42.315
41.880
41.263
41.112

43.619
42.661
42.857
42.700
42.851
42.776
41.905
42.045
41.749
41.452
41.143

44.246
43.038
43.061
42.934
43.796
43.630
42.276
42.352
42.178
41.818
41.245

42.859
42.193
42.503
42.436
42.166
42.137
41.630
41.758
41.454
41.210
41.065

____________
Notes:
(1)
(2)
(3)

Simple average of daily closing exchange rates for the period.

Highest closing exchange rate for the period.
Lowest closing exchange rate for the period.

Source: Reference Exchange Rate Bulletin, Treasury Department of the BSP.

41

USE OF PROCEEDS
The Company intends to use the net proceeds from the Firm Offer for acquisitions and investments,
payment of financial obligations and for general corporate purposes. Further details on the proposed
use of proceeds are as follows:
Amounts
(P millions)
P2,200
P1,498
P700
P4,398

Use of Proceeds
Acquisitions and investments........................................................
Payment of financial obligations ...................................................
General corporate purposes ..........................................................
Net Proceeds ...............................................................................

Percentage (%)
50%
34%
16%
100%

The Company intends to allot approximately P2.2 billion of the net proceeds from the Firm Offer for
investments to improve its productivity and quality assurance systems, including approximately
P200 million for IT systems upgrades and investments, and approximately P300 million for the
purchase of additional production and technical equipment within the next 18 to 24 months. The
Company is also evaluating several potential acquisitions to expand its operations and product
offerings, but no definite timeline for such purchases has yet been decided.
The Company intends to use approximately P1.5 billion of the net proceeds from the Firm Offer for
the settlement of certain of promissory notes. These promissory notes, which have a term of one
year and bear interest at a rate of 50 basis points above the lowest prevailing borrowing rate of the
Company, include the following:
Payee

Amount (P millions)

Jadel Holdings, Inc.

386.7

Cahaya Inc.

498.0

Individual stockholders

107.1

Total

991.7

Due date

Purpose of financial obligation

On or before
July 26, 2013

Share acquisition of FIC and

Aero-Pack

On or before
July 26, 2013
On or before
July 26, 2013

Share acquisition of OFI

Share acquisitions of FIC, DLPC,
Aero-Pack and Oleo-Fats

The Company intends to use approximately P0.5 billion of the net proceeds from the Firm Offer to
fully retire other outstanding bank loans held by the Company, including the following:

Creditor / Type of Facility

Principal Amount
(P millions)

Yearly
interest
rate

Purpose of
the Loan

Bank of the Philippine Islands / short

term loan

350.0

3.85%

Working Capital

China Bank / short term loan

100.0

3.75%

Working Capital

57.0

4.00%

Working Capital

Equitable PCI (BDO) / short term loan

Total

507.0

42

For further information relating to these outstanding bank loans, see Note 12 to the Companys proforma condensed consolidated financial information for the seven months ended July 31, 2012.
The Company expects to use the remaining P0.7 billion in net proceeds from the Firm Offer for
general corporate purposes, particularly working capital requirements such as the financing of
inventory and receivables. See Business for further discussions on the proposed use of proceeds.
The proposed use of proceeds described above represents a best estimate of the use of the net
proceeds of the Firm Offer based on the Companys current plans and expenditures. The actual
amount and timing of disbursement of the net proceeds from the Firm Offer for the various projects
and other uses stated above will depend on various factors which include, among others, changing
market conditions or new information regarding the cost or feasibility of the Companys expansion
projects. The Companys cost estimates may change as it develops its plans, and actual costs may be
different from its budgeted costs, including due to changes in the exchange rate between the
Philippine Peso and the U.S. dollar. To the extent that the net proceeds from the Firm Offer are not
immediately applied to the above purposes, the Company will invest the net proceeds in short term
demand deposits and/or money market instruments. If there is any material deviation from or
adjustment to the planned use of proceeds, the Company will secure the approval of its Board, inform
its shareholders and make the appropriate disclosures to the Philippine SEC and the PSE.
Based on the Offer Price, the Company estimates that the total proceeds from the Firm Offer, total expenses
for the Firm Offer and the net proceeds from the Firm Offer will be:
Total proceeds from the Firm Offer
Expenses
Underwriting and selling fees for the Firm Shares ................................................................
Taxes to be paid by the Company ..........................................................................................................
Philippine SEC registration, filing and research fees .............................................................................
PSE listing and processing fee ................................................................................................
Estimated professional fees (including legal, accounting, and financial advising fees) ...............
Out-of-pocket expenses ..........................................................................................................................
Total expenses ................................................................................................................................
Net proceeds from the Firm Offer .............................................................................................

(P in millions)
4,607.1
121.2
51.4
2.6
14.8
16.8
2.5
209.3
4,397.8

In the event of any deviation or adjustment in the planned use of proceeds, the Company shall inform
its shareholders, the SEC and the PSE in writing at least 30 days before such deviation or adjustment
is implemented. Any material or substantial adjustments to the use of proceeds, as indicated above,
should be approved by the Companys Board of Directors and disclosed to the PSE. In addition, the
Company shall submit via the PSEs Online Disclosure System the following disclosure to ensure
transparency in the use of proceeds:
(i)

Any disbursements made in connection with the planned use of proceeds from the
Offer;
(ii) Quarterly Progress Report on the application of the proceeds from the Offer on or
before the first 15 days of the following quarter;
(iii) Annual summary of the application of the proceeds on or before January 31 of
the following year; and
(iv) Approval by the Companys Board of Directors of any reallocation on the
planned use of proceeds.
The Company shall submit an external auditors certification on the accuracy of the information
reported by it to the PSE in its quarterly and annual reports as required in items (ii) and (iii) above.

43

DIVIDENDS AND DIVIDEND POLICY

The Company is authorized under Philippine laws to declare dividends, subject to certain
requirements. These requirements include, for example, that the Board is authorized to declare
dividends only from its distributable retained earnings, calculated based on existing regulations.
Dividends may be payable in cash, shares or property, or a combination of the three, as the Board
shall determine. A cash or property dividend declaration does not require any further approval
from shareholders. The declaration of stock dividends is subject to the approval of shareholders
holding at least two-thirds of the Companys outstanding capital stock. The Board may not declare
dividends which will impair its capital.
The Company has adopted a dividend policy of declaring at least 25% of its prior years
consolidated net income as a dividend in favor of its stockholders of record date to be determined
by the Board, to be paid from the Companys available unrestricted retained earnings. This
dividend shall be payable in cash, stock or property, or a combination of the three, as may be
determined by the Board and subject to applicable laws, rules and regulations. The dividend
payout rate is based on recommendation by the Board and is subject to periodic review and
revision, which depends on the Companys operating expenses, implementation of business plans,
working capital requirements, cash flow position and capital expenditure requirements, among
other factors.
The Company declared cash dividends amounting to P60 million on November 20, 2009. The
Company did not declare dividends for its common shares for the years ended December 31, 2010 and
2011. On June 27, 2012, the Board approved the declaration of stock dividends amounting to P678.8
million from its unrestricted retained earnings as of December 31, 2011. Consequently, on August 28,
2012, the Board approved the declaration of both cash and stock dividends to stockholders as of
September 3, 2012 amounting to P863.4 million and P750 million, respectively; the cash and stock
dividends were each paid on September 3, 2012.
On June 27, 2012, Oleo-Fats, FIC, DLPC and Aero-Pack declared cash dividends amounting to P245
million, P235.6 million, P190.5 million and P26.3 million, respectively, in favor of their stockholders
of record as of August 28, 2012. D&L Industries plans to use the dividends it expects to receive as
shareholder of these subsidiaries to offset funds used for the cash dividend it paid on September 3,
2012.

44

DETERMINATION OF THE OFFER PRICE

The Offer Price was determined through a book-building process and discussions between the
Company, the International Underwriter and the Domestic Lead Underwriter. Since the Company
and the Shares have not been listed on any stock exchange, there is no market information for the
Shares and there has been no market price for the Shares derived from day-to-day trading.
The factors that were considered in determining the Offer Price were, among others, the level of
demand from institutional investors, overall market conditions at the time of launch and the market
price of listed comparable companies. The Offer Price may not have any correlation to the actual
book value of the Offer Shares.

45

CAPITALIZATION AND INDEBTEDNESS

The following table sets forth the Companys pro-forma consolidated liabilities, equity and
capitalization as of July 31, 2012, and as adjusted to reflect the sale of the Offer Shares.
The table should be read in conjunction with the Companys pro-forma consolidated financial
statements and the notes thereto, included in this Prospectus beginning on page F-1. Other than as
described below, there has been no material change in the Companys capitalization since July 31,
2012.
As of July 31, 2012
Actual
As Adjusted(1)
(P in
(P in
(U.S.$ in
(U.S.$ in
millions)
millions)(2)
millions)
millions)(2)
(Unaudited)
Short-term debt
Borrowings...............................................
Total short-term debt .................................
Equity
Share capital .............................................
Additional paid in capital ..........................
Deposit for future stock subscription .........
Fair value reserves ....................................
Other charges to equity .............................
Retained earnings
Appropriated .......................................
Unappropriated ....................................
Total equity.................................................
Total short-term debt and capitalization ...

3,127.7
3,127.7

74.6
74.6

3,127.7
3,127.7

74.6
74.6

1,000.0
187.5
13.5
(76.5)

23.9
4.5
0.3
(1.8)

3,571.4(3)
3,326.3(4)
13.5
(76.5)

85.2
79.4
0.3
(1.8)

2,125.4
3,249.9
6,377.6

50.7
77.6
152.2

512.0
7,346.7
10,474.4

12.2
175.3
249.9

Notes:
(1)

As adjusted for payment by the Company of (i) the cash and stock dividends to stockholders declared on August 28, 2012 amounting
to P863.4 million and P750 million, respectively, and (ii) payment to the Company of the proceeds of the Offer.

(2)

The translations from pesos to U.S. dollars have been made on the basis of the BSP Rate on July 31, 2012 of P41.907 = U.S.$1.00. See
Exchange Rates on page 41 of this Prospectus.

(3)

Also includes the increase in the Companys authorized capital stock to 4,000,000,000 shares effective on August 31, 2012.

(4)

After deduction of IPO related expenses amounting to P209.3 million.

46

DILUTION
Through the Firm Offer, the Company will offer 1,071,429,000 Firm Shares to the public from the
authorized and unissued common stock of the Company.
The Firm Shares will be sold at the Offer Price, which will be substantially higher than the adjusted
book value per share of the outstanding Shares, which will result in an immediate material dilution of
the new investors equity interest in the Company. The book value attributable to the Companys
common shareholders, based on the Companys unaudited pro-forma consolidated financial
statements as of July 31, 2012, was P3,250 million, while the book value per share was P3.25. The
book value attributable to the Companys common shareholders represents the amount of the
Companys total equity attributable to equity holders of the Company. The Companys book value per
share is computed by dividing the book value attributable to the Companys common shareholders by
the equivalent number of common shares outstanding.
Dilution in Pro-forma book value per share to investors of the Offer Shares represents the
difference between the Offer Price and the pro-forma book value per share immediately following
the completion of the Firm Offer. The pro-forma book value per share immediately following the
completion of the Firm Offer represents the Book value per share as of July 31, 2012 after giving
effect to the equity transactions subsequent to July 31, 2012 and the Firm Offer.
After giving effect to an increase in the Companys total equity attributable to common
shareholders and the related increase in outstanding common shares to reflect (i) payment of the
declared stock dividends on June 27, 2012 amounting to P678.8 million from its unrestricted
retained earnings as of December 31, 2011; and (ii) the payment of cash and stock dividends to
stockholders approved by the Board on August 28, 2012, amounting to P863.4 million and P750
million, respectively, the adjusted total book value attributable to common shareholders amounted
to P2,949 million while the adjusted book value per share amounted to P1.18.
After giving effect to an increase in the Companys total equity attributable to common
shareholders and the related increase in outstanding common shares to reflect the receipt of the net
proceeds of approximately P4,397.8 million from its sale of 1,071,429,000 Firm Shares pursuant to
the Firm Offer based on the Offer Price, the Companys book value attributable to equity holders
of the Company will be approximately P7,346.7 million, or P2.06 per Share. This represents an
immediate increase in book value of P0.88 per share to existing shareholders and an immediate
dilution of P2.24 per Share to investors of the Offer Shares.
The following table illustrates dilution on a per Share basis based on the Offer Price in the Firm
Offer of 1,071,429,000 Firm Shares:
Offer Price ................................................................................................................................ P4.30
Book Value per Share as of July 31, 2012 ....................................................................................P3.25
Difference in Offer Price and Book Value per Share as of
P1.05
July 31, 2012...............................................................................................................................
Pro-forma Book Value per Share after the equity transactions subsequent to July 31, 2012 but P1.18
before the Firm Offer...................................................................................................................
Pro-forma Book Value per Share immediately following the completion of the Firm Offer ...........P2.06
Dilution in Pro-forma in Book Value per Share to Investors of the Offer Shares ...........................P2.24

The following table sets forth the shareholdings and percentage of Shares outstanding of existing and
new shareholders of the Company immediately after completion of a Firm Offer of 1,071,429,000
Shares (assuming no exercise of the Over-Allotment Option):

47

Shares
Number
Existing Shareholders ................................................................................................
2,339,285,995
New investors ................................................................................................
1,232,143,000
Total ............................................................................................................................
3,571,428,995

48

%
65.5
34.5
100.0

SELECTED FINANCIAL INFORMATION

The following tables set forth selected pro-forma condensed consolidated financial information for
the Company and should be read in conjunction with the auditors reports, the Companys pro-forma
condensed consolidated financial statements, including the notes thereto included elsewhere in this
Prospectus, and the section entitled Managements Discussion and Analysis of Financial Condition
and Results of Operations. The selected pro-forma condensed consolidated financial information
presented below as of and for the seven months ended July 31, 2011 and 2012, and as of and for the
years ended December 31, 2009, 2010 and 2011 was derived from the historical consolidated
financial statements of D&L Industries, each of its subsidiaries and Chemrez Technologies, Inc.,
adjusted to give pro-forma effect to the Companys (i) acquisition of controlling interest in Oleo-Fats
Incorporated and non-controlling interest in Aero-Pack Industries, Inc., First in Colours, Inc. and
D&L Polymer and Colours, Inc., resulting in the Company owning 100% of these entities; and (ii) the
Companys divestment of controlling interest in FIC Marketing Co, and D&L Powder Coating, Inc.
as if such transaction occurred on January 1, 2009, and prepared in accordance with the Companys
assumptions which are described in the notes to the pro-forma condensed consolidated financial
statements and reviewed by Isla Lipana & Co., a PwC member firm (Isla Lipana), in accordance
with Philippine Standards on Assurance Engagements 3000 - Assurance Engagements Other than
Audits or Reviews of Historical Financial Information Review of Interim Financial Information
(PSAE 3000) and Memorandum Circular No. 2 Series of 2008, Guidelines on Reporting and
Attestation of Pro-Forma Financial Information (SEC Memo 2-2008) issued by the Philippine
Securities and Exchange Commission.
The historical amounts in the pro-forma condensed consolidated financial information are derived
from the historical separate financial statements of D&L Industries, each of its subsidiaries and
Chemrez Technologies, Inc., which were audited by Isla Lipana and prepared in accordance with
Philippine Standards on Auditing (PSA) and prepared in accordance with Philippine Accounting
Standards 34 Interim Financial Reporting (PAS 34) and Philippine Financial Reporting Standards
(PFRS), except for D&L Industries separate financial statements as of and for the years ended
December 31, 2010 and 2009 which were audited by Armando T. Llovido.
The pro-forma adjustments are based upon available information and certain assumptions that the
Company believes are reasonable under the circumstances. The selected pro-forma condensed
consolidated financial information does not purport to represent what the consolidated results of
operations of the Company would actually have been had the acquisition and divestment of ownership
interests in fact occurred on January 1, 2009, nor do they purport to project the consolidated results
of operations of the Company for any future period or date. Furthermore, the translation of peso
amounts to U.S. dollars is provided for convenience only. For additional information regarding
financial information presented in this Prospectus, see Presentation of Financial and Other
Information.

49

Pro-Forma Condensed Consolidated Statements of Total Comprehensive Income

For the years ended December 31,

2009

2010

2011

(P in millions)
(audited)

For the seven months ended July 31,

2011
(U.S.$ in
millions)(1)

2011

2012

(P in millions)

(unaudited)

2012
(U.S.$ in
millions)(1)

(unaudited)

Revenues ......................................................... 9,153.5

9,947.2

12,834.5

306.3

7,572.4

6,764.5

161.4

Cost of sales and services ............................... (8,632.6)

(8,724.0)

(11,128.4)

(265.5)

(6,471.6)

(5,751.0)

(137.2)

520.9

1,223.2

1,706.1

40.8

1,100.8

1,013.5

24.2

Expenses, net ................................................... (483.0)

(530.1)

(535.6)

(12.8)

(273.5)

(264.9)

(6.3)

Equity share in net income .............................

153.2

164.5

100.6

2.4

107.5

56.2

1.3

Profit before income tax ...............................

191.1

857.6

1,271.1

30.4

934.8

804.8

19.2

Gross profit ....................................................

Income tax expense ................................

Profit for the period ................................

34.8

(156.7)

(274.1)

(6.5)

(191.4)

(163.7)

(3.9)

225.9

700.9

997.0

23.9

743.4

641.1

15.3

(19.9)

(0.5)

0.5

33.4

0.8

225.9

700.9

977.1

23.4

743.9

674.5

16.1

Other comprehensive income

Fair value adjustment on
available-for-sale financial
assets, net of tax ................................
Total comprehensive income for
the period ........................................................

Notes:
(1) The translations from pesos to U.S. dollars have been made on the basis of the BSP Rate on July 31, 2012 of P41.907 = U.S.$1.00. See
Exchange Rates on page 41 of this Prospectus.

50

Pro-Forma Condensed Consolidated Statements of Financial Position

For the seven months ended

For the years ended December 31,
2009

2010

2011

(P in millions)
(audited)

July 31,

2011
(U.S.$ in
millions)(1)
(unaudited)

2012
(P in millions)

2012
(U.S.$ in
millions)(1)

(unaudited)

ASSETS
Current Assets
Cash and cash equivalents ..........................

248.6

688.3

972.4

23.2

1,444.8

34.5

Receivables, net .........................................

1,444.3

1,726.9

1,725.0

41.2

1,215.0

29.0

Due from related parties ............................

408.3

76.2

229.0

5.5

158.3

3.8

Dividends receivable .................................

54.2

1.3

Loans receivable ........................................

11.0

0.3

11.0

0.3

Inventories, net ...........................................

1,405.9

1,373.4

2,035.1

48.6

1,978.8

47.2

Prepayments and other current assets .......

586.1

609.0

670.9

16.0

525.8

12.5

Total Current Assets ....................................

4,093.2

4,473.8

5,643.4

134.8

5,387.9

128.6

Noncurrent Assets
Available-for-sale financial assets ............

21.0

21.0

51.0

1.2

84.4

2.0

Investments in an associate ........................

1,377.7

1,491.0

1,527.6

36.5

1,529.6

36.5

Property, plant and equipment ..................

912.3

1,247.3

1,501.0

35.8

1,607.7

38.4

Deferred income tax assets, net .................

97.3

15.7

14.3

0.3

4.2

0.1

Other non-current assets .............................

15.8

16.7

16.8

0.4

26.1

0.6

Total Noncurrent Assets ..............................

2,424.1

2,791.7

3,110.7

74.2

3,252.0

77.6

Total Assets ....................................................

6,517.3

7,265.5

8,754.1

209.0

8,639.9

206.2

LIABILITIES AND EQUITY

Current Liabilities
Trade payable and other liabilities ............

681.2

573.6

790.3

18.9

525.9

12.5

Due to related parties .................................

2,259.2

1,666.1

1,643.8

39.2

1,461.6

34.9

Dividends payable ......................................

25.0

0.6

231.3

5.5

Income tax payable ....................................

2.4

1.4

8.0

0.2

8.3

0.2

Borrowings .................................................

2,490.9

3,052.0

3,347.6

79.9

3,127.7

74.6

Total Current Liabilities ..............................

5,433.7

5,293.1

5,814.7

138.8

5,354.8

127.7

6.2

0.2

Noncurrent Liabilities
Deferred income tax liabilities, net ...........
Retirement benefit obligations ..................

28.3

41.2

31.2

0.7

29.0

0.7

Total Liabilities .............................................

5,462.0

5,334.3

5,845.9

139.5

5,390.0

128.6

Share capital ................................................

146.2

321.2

321.2

7.7

1,000.0

23.9

Deposit for future stock subscription.........

187.5

4.5

Fair value reserves ......................................

(19.9)

(0.5)

13.5

0.3

(76.4)

(76.4)

(76.5)

(1.8)

(76.5)

(1.8)

Equity

Other charges to equity (loss on sale of

investments) ..................................................
Retained earnings:
Appropriated ............................................

360.0

510.0

510.0

12.2

Unappropriated ........................................

625.5

1,176.4

2,173.4

51.9

2,125.4

50.7

Total Equity ...................................................

1,055.3

1,931.2

2,908.2

69.5

3,249.9

77.6

Total Liabilities and Equity ........................

6,517.3

7,265.5

8,754.1

209.0

8,639.9

206.2

51

Notes:
(1) The translations from pesos to U.S. dollars have been made on the basis of the BSP Rate on July 31, 2012 of P41.907 = U.S.$1.00. See
Exchange Rates on page 41 of this Prospectus.

Pro-Forma Condensed Consolidated Statements of Cash Flows

For the seven months ended
For the years ended December 31,
2009

2010

2011

July 31,
2011
(U.S.$ in
millions)(1)

(P in millions)

2011

2012

(P in millions)

2012
(U.S.$ in
millions)(1)

Net cash flows provided by operating

activities ...........................................................

825.9

260.4

478.1

11.4

65.5

1,067.7

25.5

(408.7)

(407.8)

(369.6)

(8.8)

(262.2)

(185.9)

(4.4)

(542.9)

601.2

189.4

4.5

142.1

(407.5)

(9.7)

(6.9)

(14.0)

(13.9)

(0.3)

20.8

(1.9)

(132.6)

439.8

284.0

6.8

(33.8)

472.4

11.4

Net cash flows used in investing

activities ...........................................................
Net cash flows provided by / (used in)
financing activities ..........................................
Effect of foreign exchange rate
changes on cash ................................................
Net increase (decrease) in cash and
cash equivalents .............................................

Notes:
(1) The translations from pesos to U.S. dollars have been made on the basis of the BSP Rate on July 31, 2012 of P41.907 = U.S.$1.00. See
Exchange Rates on page 41 of this Prospectus.

Selected Pro-Forma Condensed Consolidated Financial Ratios

For the years ended December
31,
2009
2010
2011

Liquidity ratio(1) ...............................................................................

Debt-to-equity ratio(2) ........................................................................
Assets-to-equity ratio(3) ....................................................................
Earnings per share (P)(4) ....................................................................

0.75
5.18
6.18
0.13

__________
Notes:
(1)

Total current assets divided by total current liabilities.

(2)

Total debt divided by total equity.

(3)

Total assets divided by total equity.

(4)

Net income after tax (attributable to parent company) divided by outstanding shares.

52

0.85
2.76
3.76
0.40

0.97
2.01
3.01
0.57

For the seven months

ended July 31,
2011
2012

0.42

1.01
1.66
2.66
0.37

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS
The following discussion of the Companys recent financial results should be read in conjunction with
the auditors reports and the Companys pro-forma condensed consolidated financial statements and
notes thereto contained in this Prospectus and the section entitled Summary Financial Information.
The pro-forma condensed consolidated financial information as of and for the seven months ended
July 31, 2012 and 2011, and as of and for the years ended December 31, 2009, 2010 and 2011 and
included in this Prospectus was derived from the historical separate financial statements of D&L
Industries, each of its subsidiaries and Chemrez Technologies, Inc., adjusted to give pro-forma effect
to the Companys (i) acquisition of controlling interest in Oleo-Fats Incorporated and noncontrolling interest in Aero-Pack Industries, Inc., First in Colours, Inc. and D&L Polymer and
Colours, Inc., giving the Company 100% interest in these entities; and (ii) divestment of controlling
interest in FIC Marketing Co, and D&L Powder Coating, Inc. as if these transactions occurred on
January 1, 2009, and prepared in accordance with the Companys assumptions which are described
in the notes to the pro-forma condensed consolidated financial statements and reviewed by Isla
Lipana in accordance with Philippine Standards on Assurance Engagements 3000 - Assurance
Engagements Other than Audits or Reviews of Historical Financial Information (PSAE 3000) and
SEC Memorandum Circular No. 2 Series of 2008, Guidelines on Reporting and Attestation of ProForma Financial Information (SEC Memo 2 -2008) issued by the Philippine Securities and Exchange
Commission.
This discussion contains forward-looking statements and reflects the current views of the Company
with respect to future events and financial performance. Actual results may differ materially from
those anticipated in these forward-looking statements as a result of certain factors such as those set
forth in the section entitled Risk Factors and elsewhere in this Prospectus.
OVERVIEW
The Company is a dynamic industrial group in the Philippines with diversified operations in the
following principal business lines:
Food ingredients The Company, operating through Oleo-Fats, manufactures a line of industrial
fats and oils, specialty fats and oils, and culinary and other specialty food ingredients. The
Company contract manufactures and provides its food ingredients products to most of the leading
food manufacturers and quick-service restaurant chains in the Philippines, and also produces food
safety solutions such as cleaning and sanitation agents for various customers;
Colorants and plastics additives The Company, operating through its subsidiaries FIC and DLPC,
manufactures a line of pigment blends, color and additive masterbatches and engineered polymers
for a wide range of applications, introducing a number of products into the Philippine market and
expanding into the export of certain products overseas. The Companys products add properties
such as precise coloring, reduced friction or increased resistance to degradation for plastics used in
consumer goods, appliances and outdoor furniture;
Oleochemicals, resins and powder coatings The Company, operating through its affiliate
Chemrez and its subsidiary Chemrez, Inc., manufactures CME, also known as coco-biodiesel,
using the Philippines first continuous-process methyl ester plant. The Company also manufactures
other oleochemicals or chemicals derived from vegetable oils, resins such as polystyrene, acrylic
emulsions and polyester; and a line of powder coatings; and
Aerosols The Company, operating through Aero-Pack, manufactures three-piece aerosol cans
and components and provides aerosol contract filling and compounding services. The Company

53

also toll manufactures a range of related products, including insect control, industrial maintenance
chemicals, and home and personal care products, among others.
For the year ended December 31, 2011, the Companys pro-forma consolidated revenues amounted to
P12.8 billion and pro-forma consolidated profit before income taxes was P1.3 billion, compared to
pro-forma consolidated revenues of P9.9 billion and P9.2 billion and pro-forma consolidated profit
before income taxes of P857.6 million and P191.1 million in 2010 and 2009, respectively,
representing a CAGR between 2009 and 2011 of 18.4% in consolidated revenues and 157.9% in
consolidated profit before income taxes. In the seven months ended July 31, 2012, the Companys
consolidated revenues were P6.8 billion and estimated consolidated profit before income taxes was
P804.8 million, compared to consolidated revenues of P7.6 billion and consolidated profit before
income taxes of P934.8 million in the seven months ended July 31, 2011, a decrease of 10.5% in
consolidated revenues and 13.9% in consolidated profit before income taxes.
FACTORS AFFECTING THE COMPANYS RESULTS OF OPERATIONS
Philippine macroeconomic conditions and trends
Since the Companys customers are predominantly located in the Philippines, comprising leading
Philippine manufacturers, consumer goods companies and retailers, the Companys operations have
been substantially affected, and the Company expects that it will continue to be affected, by
Philippine macroeconomic conditions. Demand for, and prevailing prices of, food, personal care, and
other consumer products are directly related to the strength of the Philippine economy, including
overall growth levels and the amount of business activity in the Philippines. The global contraction in
the capital and credit markets in 2008 and its impact on the Philippine economy had increased the
level of economic uncertainty, and many companies reported declines in revenues and profits in 2009
resulting from the general economic downturn.
Some of the end-use products, such as automobiles, appliances and furniture, which are made using
the Companys products are discretionary consumer products, and demand for these products tends to
decline during economic downturns when consumers disposable income declines. With the sale of
other consumer staples such as fast food and snack food products, for which demand tends to remain
constant, certain of the Companys major products may be less affected by periods of economic
downturn. Overall, however, any deterioration in the Philippine economy may adversely affect
consumer sentiment and lead to a contraction in demand for the Companys products.
The financial crisis affected the Companys operations in 2009, resulting in general declines in market
demand and consequent lower profits across the Companys businesses. Despite this, the Company
recorded generally stable financial results in 2009. As the Philippines emerged from the financial
crisis, the Company demonstrated stronger financial performance in 2010, 2011 and the first six
months of 2012.
Supply and Prices of Raw Materials
The Company depends on raw materials sourced from third parties to produce a majority of its
products. For example, production of the Companys fats products requires various types of oils,
which are sourced primarily from the Philippines, although certain of the Companys requirements are
sourced from Europe and elsewhere in the Southeast Asian region. The Company also entirely
imports its requirements of petroleum products from abroad. These and other raw materials are
subject to price volatility caused by a number of factors, including changes in global supply and
demand, weather conditions and governmental controls. The prices of these commodities to the
Company are also affected by the Philippine pesos relative strength against other currencies,
primarily the U.S. dollar and the Euro. In recent years, the prices of certain raw materials, primarily
commodities such as food oils, petrochemical products and other basic materials, have been

54

increasing. The ability to obtain raw materials is also affected by a number of other factors beyond the
Companys control, including interruptions in production by suppliers, decisions by suppliers to
allocate raw materials to other purchasers and the availability and cost of transportation. Price
increases for the Companys raw materials have driven up production costs and adversely affected the
Companys operating margins, and this trend could continue. For example, prices for coconut oil and
crude palm oil, two key raw materials used in the production of certain of the Companys food
ingredients, increased significantly from early 2010 to early 2011, reaching nearly U.S.$2,500 and
U.S.$1,500 per metric tonne, respectively. The Company has only limited hedges against commodity
prices and, to the extent it does hedge, any such hedging activity may not work as planned. Price
fluctuations have been mitigated to some extent by the Company through its contracts with suppliers
and customers which lock in certain raw materials prices and selling prices.
Improvements in Process and Materials Technology in relation to the Companys Businesses
The Company constantly engages in centralized research and development for the reduction of
production costs, the improvements of its processes and the adherence of its products with global
advances in technology with respect to their specific industries. For example, with respect to its
oleochemicals and aerosols businesses, the Company believes it has been able to improve on materials
and processes initially sourced from overseas developers and manufacturers to produce more efficient
products. In addition, improved processes in the Companys food ingredients business and its
colorants and plastics additives business have significantly reduced the Companys costs.
Capacity of the Companys manufacturing facilities
The number and volume of products that the Company is able to produce is affected by the
manufacturing capacity of the Companys facilities. For the year ended December 31, 2011, the
Company recorded approximately 65-68% utilization at Oleo-Fats, 60-70% utilization at FIC and
DLPC, 45-70% utilization at Chemrez and 60% utilization at Aero-Pack. The capacity utilization of
the Companys facilities is affected primarily by the near-term anticipated demand for the Companys
products.
For example, although the Company has plans to further enhance its manufacturing capacity and
efficiency moving forward, if demand for the Companys products lessen, then the significant capital
expenditures necessary for such enhancements may not be easily recovered. In addition, the Company
may be unable to continue to add capacity and meet demand for new products quickly if demand
grows to levels that are greater than anticipated. On the other hand, the Companys efficiency and
scale of operations would also be affected if low or decreased demand for the Companys products
result in material underutilization of the Companys facilities, especially in light of the Companys
expansion plans.
If the Company is not properly able to gauge the demand for its products over the near- to mediumterm, then the Company may be adversely affected. Overestimation of demand may result in wasted
capital expenditures if the Company is unable to maintain its facilities at desired utilization levels. On
the other hand, if the Company is not able to meet the demands of its customers, they may switch to
other suppliers which would affect the Companys market share and business reputation and could
adversely affect the Companys revenues. Moreover, lower utilization rates on some production lines
may also affect the Companys margins, even when many other production lines record high
utilization rates, as there may be insufficient revenues to cover the Companys recoded amortization
costs for its facilities and equipment.
Currency fluctuations
Substantially all of the Companys sales are denominated in Philippine pesos. Certain of its significant
costs, such as purchases of raw materials and process equipment are denominated in United States

55

dollars. Some of its other costs, which are incurred in Philippine pesos, can also be affected by
fluctuations in the exchange rate between the Philippine peso and U.S. dollars. For example, prices of
certain petroleum-based products in the Philippines are based on the United States dollar price of oil.
A weaker Philippine peso may also place upward pressure on oils prices if it makes it economical for
domestic producers to export their product at international market prices. As a result, movements in
the exchange rate between Philippine pesos and other currencies, in particular United States dollars,
can have a significant effect on the Companys results of operations. See Market Risk Currency
Exchange Rates.
SIGNIFICANT ACCOUNTING POLICIES
Critical accounting policies are those that are both (i) relevant to the presentation of the Companys
financial condition and results of operations and (ii) require managements most difficult, subjective
or complex judgments, often as a result of the need to make estimates about the effect of matters that
are inherently uncertain. As the number of variables and assumptions affecting the possible future
resolution of the uncertainties increase, those judgments become even more subjective and complex.
To provide an understanding of how the Companys management forms its judgments about future
events, including the variables and assumptions underlying its estimates, and the sensitivity of those
judgments to different circumstances, the Company has identified the critical accounting policies
discussed below. While the Company believes that all aspects of the Companys financial statements
should be studied and understood in assessing its current and expected financial condition and results
of operations, the Company believes that the following critical accounting policies warrant particular
attention. For more information, see Note 3 to the Companys pro-forma condensed consolidated
financial information for the years ended December 31, 2009, 2010 and 2011, and as of and for the
seven months ended July 31, 2011 and 2012.
Revenues
Revenue comprises the fair value of the consideration received or receivable for the sale of goods and
services in the ordinary course of the Companys activities. Revenue is shown net of value-added tax,
returns, rebates and discounts.
The Company recognizes revenue when the amount of revenue can be reliably measured, it is
probable that future economic benefits will flow into the entity, collectability of the related receivable
is reasonably assured, and specific criteria have been met for each of the Companys business
activities as described below. The amount of revenue is not considered to be reliably measured until
all contingencies relating to the sale have been resolved.
Revenue is recognized as follows:
Sale of goods
Sale of goods are recognized when the Company has delivered the products to the customer and there
is no unfulfilled obligation that could affect the acceptance of the products. Delivery does not occur
until the products have been shipped to the specific location, the risk of obsolescence and loss have
been transferred to the customer, and either the customer has accepted the products in accordance with
the sales contract, the acceptance provisions have lapsed, or the Company has objective evidence that
all criteria for acceptance have been satisfied.
Service fees
Service fees from technical, logistics, administrative and executive management service agreements
are recognized when the service has been completed and rendered in accordance with the provision of
relevant agreements.

56

Service income
Service income from rental, lighterage and throughput is recognized when services have been
rendered and accepted by the related parties which coincide with invoicing.
Dividend income
Dividend income is recognized when the right to receive payment is established.
Interest income
Interest income from cash in banks, which is presented net of final taxes paid or withheld, is
recognized on a time-proportion basis using the effective interest method.
Other income

All other income items are recognized when earned.

Receivables
Trade receivables arising from regular sales with an average credit term of 30 to 90 days are recorded
at fair value plus transaction cost, which approximates invoice value, less any provision for
impairment.
Other receivables are recognized initially at fair value and subsequently measured at amortized cost
using effective interest method, less any provision for impairment.
An individual and collective provision for impairment of receivables is established when there is
objective evidence that the Company or its subsidiaries will not be able to collect all amounts due
according to the original terms of receivables. Significant financial difficulties of the debtor,
probability that the debtor will enter bankruptcy or financial reorganization, and default or
delinquency in payments are considered as indicators that the receivable is impaired. The amount of
the provision is the difference between the assets carrying amount and the present value of estimated
future cash flows, discounted at the effective interest rate. The carrying amount of the asset is reduced
through the use of an allowance account and the amount of the loss is recognized in the provision for
impairment of receivables in the statement of total comprehensive income within selling and
marketing costs.
The Company first assesses whether objective evidence of impairment exists individually for
receivables that are individually significant, and collectively for receivables that are not individually
significant. If the Company determines that no objective evidence of impairment exists for an
individually assessed receivable, whether significant or not, it includes the asset in a group of
financial assets with similar credit risk characteristics and collectively assesses them for impairment.
Receivables that are individually assessed for impairment and for which an impairment loss is or
continues to be recognized are not included in a collective assessment of impairment.
When a receivable is uncollectible, it is written off against the provision account for receivables.
Receivables and its related provision for impairment are written off when the Company or any of its
subsidiaries has determined that the receivable is uncollectible as they have already exerted all
collection efforts, including filing a legal case. Bad debts written off are specifically identified by the
Companys marketing department after exhausting all collection efforts (i.e. sending demand letters
and legal notice of default to customers), and is approved by the respective product manager and
subsequently by the Board of Directors. Write offs represent the release of previously recorded
provision from the allowance account and credited to the related receivable account following the

57

Groups assessment that the related receivable will no longer be collected after all collection efforts
have been exhausted.
Subsequent recoveries of amounts previously written-off are credited against the provision account in
the statement of total comprehensive income. Reversals of previously recorded impairment provision
are credited in the statement of total comprehensive income based on the result of managements
update assessments, considering available facts and changes in circumstances, including but not
limited to results of recent discussions and arrangements entered into with customers as to the
recoverability of receivable at reporting date.
Inventories
Inventories are stated at the lower of cost and net realizable value (NRV). The cost of finished
goods inventories is determined on the basis of standard costs which are adjusted at periodic intervals
and which approximate actual manufacturing cost. The cost of raw materials is determined using the
weighted average and specific identification method. Inventories in transit are valued at invoice cost
including related importation costs. NRV is the estimated selling price in the ordinary course of
business, less applicable variable selling and distribution expenses. Provision for inventory losses and
obsolescence is provided, when necessary, based on managements review of inventory turnover and
projected future production demands.
The Companys carrying amount of inventories is stated at cost amounting to P1,978.8 million as of
July 31, 2012 (compared to a carrying amount of P2,035.1 million as of December 31, 2011), which is
lower than their net realizable value (estimated selling price less variable selling expenses) amounting
to P2,290.2 million as of July 31, 2012 (compared to a carrying amount of P2,289.2 million as of
December 31, 2011).
Provision for inventory losses is established for slow moving, obsolete, defective and damaged
inventories based on physical inspection and management evaluation. Inventories and its related
provision for impairment are written off when the Company has determined that the related inventory
is already obsolete and damaged. Write offs represent the release of previously recorded provision
from the allowance account and credited to the related inventory account following the disposal of the
inventories. Destruction of the obsolete and damaged inventories is made in the presence of regulatory
agencies.
Reversals of previously recorded impairment provisions are credited against the provision account in
the statement of total comprehensive income based on the result of managements update assessment,
considering available facts and circumstances, including but not limited to net realizable value at the
time of disposal.
Inventories are derecognized when sold or otherwise disposed of.
Trade Payable and Other Liabilities
Trade payable and other liabilities are obligations to pay for goods or services that have been acquired
in the ordinary course of business from suppliers.
Trade payable and other liabilities are recognized in the period in which the related money, goods or
services are received or when a legally enforceable claim against the Company is established or when
the corresponding assets or expenses are recognized. These are classified as current liabilities if
payment is due within one year or less (or in the normal operating cycle of the business if longer). If
not, they are presented as non-current liabilities.
Trade payable and other liabilities are recognized initially at fair value and subsequently measured at
amortized cost using effective interest method.

58

Leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor
are classified as operating leases. Payments made under operating leases are charged to the statement
of total comprehensive income on a straight-line basis over the period of the lease.
When the Company and its subsidiaries enter into an arrangement, comprising a transaction or a series
of related transactions, that does not take the legal form of a lease but conveys a right to use an asset
or is dependent on the use of a specific asset or assets, the Company assesses whether the arrangement
is, or contains, a lease. The Company does not have such arrangements during and at the end of each
reporting period.

RESULTS OF OPERATIONS
Revenues
The Company generates revenues primarily from sales of its food ingredients, colorants and plastics
additives and aerosols products through its subsidiaries Oleo-Fats, FIC and Aero-Pack, respectively.
The Company, operating through D&L Industries, derives management fees from its provision of
management services to other affiliates, such as LBL Industries, Inc., Consumer Care Products, Inc.,
FIC Tankers, Inc. and FIC Marketing Co., Inc.
Segment Breakdown
The following table presents a breakdown of the Companys revenues, cost of sales and gross profit
by respective business for the periods indicated:
For the seven months
ended July 31,

For the years ended December 31,

2009

2010

2011

2011

2012

(unaudited)
(in millions of Pesos)
Revenues
Sales
Food ingredients .......................
Colorants and plastic additives ..
Aerosols ...................................
Management and Administrative(1) ...
Eliminations(2) .................................

7,219.8
1,705.8
161.8
634.6
(568.5)

7,471.6
2,267.7
239.3
485.8
(517.2)

10,267.8
2,255.3
285.3
551.7
(525.6)

6,166.8
1,228.4
161.9
342.6
(327.3)

4,998.0
1,568.4
194.3
284.2
(280.4)

Total Revenues ...............................

9,153.5

9,947.2

12,834.5

7,572.4

6,764.5

Cost of Sales and Services

Food ingredients ......................
Colorants and plastic additives .
Aerosols ..................................
Management and Administrative(1) ..
Eliminations(2) ................................
Total Cost of Sales and Services .....

(7,201.2)
(1,417.8)
(134.8)
(429.8)
551.0
(8,632.6)

(6,826.2)
(1,911.2)
(194.1)
(249.0)
456.5
(8,724.0)

(9,272.3)
(1,852.0)
(223.0)
(228.3)
447.2
(11,128.4)

(5,461.2)
(1,017.0)
(126.4)
(145.3)
278.3
(6,471.6)

(4,444.3)
(1,241.6)
(143.5)
(153.6)
232.0
(5,751.0)

Gross Profit
Food ingredients ......................
Colorants and plastic additives .
Aerosols ..................................
Management and Administrative(1) ..

18.6
288.0
27.0
204.8

645.4
356.5
45.2
236.8

995.5
403.3
62.3
323.4

705.6
211.4
35.5
197.3

553.7
326.8
50.8
130.6

59

Eliminations(2) ................................
Gross Profit ...................................

(17.5)
520.9

(60.7)
1,223.2

(78.4)
1,706.1

(49.0)
1,100.8

(48.4)
1,013.5

Notes:
(1)

Other income comprises management service fees derived by the Company from providing management service to its affiliates.

(2)

Eliminations comprise management service fees billed to subsidiaries and sales of goods and services between subsidiaries.

Equity share in net income

The Companys equity share in net income represents its share in the net income of Chemrez,
proportionate to its approximate 34% ownership stake as of the date of this Prospectus.
Costs and Expenses
Cost of sales and services
The Companys cost of sales and services comprise the cost of raw materials used for the Companys
businesses, factory overhead expenses such as rental, employee costs, depreciation and amortization,
supplied, delivery charges, fuels and oils and communication and utilities expenses.
Expenses
The Companys classifies its expenses into the following:

Selling and Marketing Expenses comprising delivery charges, employee costs, outside
services, transportation and travel, losses on writeoffs of receivables, representation expenses
and advertising and promotion expenses, among others;

Administrative expenses comprising taxes, licenses and permits, utilities, supplies, bank
charges, professional fees and depreciation and amortization, among others;

Other Income comprising foreign exchange gains or losses, interest income and dividend
income, among others; and

Finance costs comprising interest expense.

Income tax expense

The Companys income tax expense comprises the income taxes accrued and/or paid by the Company
and its respective subsidiaries.
Seven months ended July 31, 2012 compared with seven months ended July 31, 2011

The following comparison of the Companys results of operations is based on the Companys
reviewed pro-forma consolidated financial statements.
Revenues
For the seven months ended July 31, 2012, the Company recorded revenues of P6,764.5 million,
which was 10.7% lower than revenues of P7,572.4 million for the seven months ended July 31, 2011.
The decrease was mainly attributable to a decrease in sales from the Companys food ingredients
business, which more than offset an increase in the Companys sales from its colorants and plastic
additives and aerosol businesses.

60

Food ingredients. For the seven months ended July 31, 2012, the Companys food ingredients
segment recorded revenues of P4,998.0 million, which was 19.0% lower than revenues of
P6,166.8 million for the seven months ended July 31, 2011. The decrease was mainly
attributable to lower sales volumes as a result of lower sales of coconut oil to affiliates, as
well as lower food prices in the Philippines and globally as a result of economic concerns in
Europe.
Colorants and plastic additives. For the seven months ended July 31, 2012, the Companys
colorants and plastic additives segment recorded revenues of P1,568.4 million, which was
27.7% higher than revenues of P1,228.4 million for the seven months ended July 31, 2011.
The increase was mainly attributable to an increase in sales regionally, particularly with
respect to sales to Japan, as Japanese manufacturers and consumers began to recover from the
effects of the tsunami in 2011. The increase was also attributable to the 2011 flooding in
Thailand, which caused some customers to place orders with the Company and other
Philippine manufacturers of colorants and plastics additives, instead of with Thai
manufacturers.
Aerosols. For the seven months ended July 31, 2012, the Companys aerosols segment
recorded revenues of P194.3 million, which was 20.0% higher than revenues of P161.9
million for the seven months ended July 31, 2011. The increase was mainly attributable to
higher demand, as the generally improving Philippine economy enabled consumers to spend
more on discretionary items such as aerosol products. The higher demand also resulted in the
Company being able to charge higher prices for its aerosol products, further improving its
margins. These increased revenues also resulted from the introduction of new non-aerosol
products to the Companys portfolio, such as insect control products and cleaning products.
Cost of sales and services
For the seven months ended July 31, 2012, the Companys cost of sales and services were P5,751.0
million, which was 11.1% lower than cost of sales and services of P6,471.6 million for the seven
months ended July 31, 2011. The decrease was mainly attributable to lower demand in the Companys
food ingredients business, which offset increases in the cost of sales and services for the Companys
colorants and plastic additives and aerosols businesses.
Food ingredients. For the seven months ended July 31, 2012, the cost of sales and services
related to the Companys food ingredients segment was P4,444.3 million, which was 18.6%
lower than cost of sales and services of P5,461.2 million for the seven months ended July 31,
2011. The decrease was mainly attributable to the general decrease in sales, as well as raw
materials and food prices during the period, particularly with respect to refined vegetable oils,
whose prices had significantly increased in the first six months of 2011.
Colorants and plastic additives. For the seven months ended July 31, 2012, the cost of sales
and services related to the Companys colorants and plastic additives segment was P1,241.6
million, which was 22.1% higher than cost of sales and services of P1,017.0 million for the
seven months ended July 31, 2011. The increase was mainly attributable to increased
purchases of raw materials in line with the increased demand and sales of the Companys
products.
Aerosols. For the seven months ended July 31, 2012, the cost of sales and services related to
the Companys aerosols segment was P143.5 million, which was 13.5% higher than the cost
of sales and services of P126.4 million for the seven months ended July 31, 2011. The

61

increase was mainly attributable to the increased demand for the Companys aerosol products,
which resulted in greater raw material requirements.
Gross Profit
For the seven months ended July 31, 2012, the Companys gross profit was P1,013.5 million, which
was 7.9% lower than gross profit of P1,100.8 million for the seven months ended July 31, 2011 and
representing a gross margin of 15.0%, compared to a gross margin of 14.5% for the seven months
ended July 31, 2011. The Companys higher gross margin was attributable to greater profitability in
each of its businesses, despite generally lower sales in food ingredients.
Food ingredients. For the seven months ended July 31, 2012, the gross profit of the
Companys food ingredients segment was P553.7 million, which was 21.5% lower than gross
profit of P705.6 million for the seven months ended July 31, 2011. For the seven months
ended July 31, 2012, the Companys gross margin on food ingredients was 11.1%, compared
to a gross margin of 11.4% for the seven months ended July 31, 2011. The increase in gross
margin was mainly attributable to lower sales of lower-margin vegetable oil products.
Colorants and plastic additives. For the seven months ended July 31, 2012, the gross profit
related to the Companys colorants and plastic additives segment was P326.8 million, which
was 54.6% higher than the gross profit of P211.4 million for the seven months ended July 31,
2011. For the seven months ended July 31, 2012, the Companys gross margin was 20.8%,
compared to a gross margin of 17.2% for the seven months ended July 31, 2011. The increase
in gross margin was mainly attributable to continued development of higher-margin products
and higher regional demand.
Aerosols. For the seven months ended July 31, 2012, the gross profit related to the
Companys aerosols segment was P50.8 million, which was 43.1% higher than gross profit of
P35.5 million for the seven months ended July 31, 2011. For the seven months ended July 31,
2012, the Companys gross margin was 26.1%, compared to a gross margin of 21.9% for the
seven months ended July 31, 2011. This increase in gross margin was mainly attributable to
the more higher-margin products being added in the Companys portfolio, as well as higher
regional demand.
Expenses, net
For the seven months ended July 31, 2012, the Companys net expenses were P264.9 million, which
was 3.1% lower than net expenses of P273.5 million for the seven months ended July 31, 2011. The
decrease was mainly attributable to lower finance costs on payments of interest on the Companys
borrowings due to lower interest rates, as well as foreign exchange gains as a result of the
appreciation of the peso. These increases more than offset increases of 10.7% and 13.8% in selling
and marketing expenses and administrative expenses, respectively, in the period.
Equity share in net income
For the seven months ended July 31, 2012, the Companys equity share in the net income of its
associates was P56.2 million, a 47.7% decrease from the P107.5 million recorded for the seven
months ended July 31, 2011, as Chemrezs net income likewise decreased due to lower sales of
Chemrez biodiesel and resins for the period as a result of increasing competition. These offset
Chemrezs increased sales revenues from powder coating products that resulted from both higher
prices and increased demand.

62

Income tax expense

For the seven months ended July 31, 2012, the Companys income tax expense was P163.7 million,
which was 14.5% lower than the P191.4 million recorded for the seven months ended July 31, 2011.
The decrease was mainly attributable to the increased proportion of sales from DLPC, the Companys
PEZA-registered enterprise whose sales are subject to an income tax holiday. The Companys
effective tax rate for the seven months ended July 31, 2012 was 20.3%, compared to the standard
corporate tax rate of 30%.
Profit for the period
As a result of the foregoing, the Companys profit for the seven months ended July 31, 2012 was
P641.1 million, which was 13.8% lower than the P743.4 million recorded for the seven months ended
July 31, 2011.
Year ended December 31, 2011 compared with year ended December 31, 2010
Revenues
For the year ended December 31, 2011, the Company recorded revenues of P12,834.5 million, which
was 29.0% higher than revenues of P9,947.2 million for the year ended December 31, 2010. The
increase was mainly attributable to a substantial increase in sales of the Companys food ingredients
business.
Food ingredients. For the year ended December 31, 2011, the Companys food ingredients
segment recorded revenues of P10,267.8 million, which was 37.4% higher than revenues of
P7,471.6 million for the year ended December 31, 2010. The increase was mainly attributable
to a significant increase in commodities and food prices for the year, which translated into
increased revenues of the Companys food ingredient products, particularly refined vegetable
oils. The Companys food ingredient sales also benefited from increased volumes resulting
from increased production capacities as the Company commenced production at its new
Mercury production facility in Quezon City, as well as from more directed marketing efforts.
Colorants and plastic additives. For the year ended December 31, 2011, the Companys
colorants and plastic additives segment recorded revenues of P2,255.3 million, which was
0.5% lower than revenues of P2,267.7 million for the year ended December 31, 2010. The
decrease was mainly attributable to lower revenues from the Companys key customers
regionally, particularly in Japan, where companies and the general economy were
significantly affected by the tsunami of March 2011. The Companys sales of color
masterbatches domestically were also affected as retailers began to move away from using
plastic bags in certain cities and municipalities. These results were partially offset by
increased orders as a result of the 2011 flooding in Thailand, as customers sourced
requirements from the Company instead of from Thai manufacturers.
Aerosols. For the year ended December 31, 2011, the Companys aerosols segment recorded
revenues of P285.3 million, which was 19.2% higher than revenues of P239.3 million for the
year ended December 31, 2010. The increase was mainly attributable to higher demand for
the Companys aerosol products in line with the growing Philippine economy, as well as
continued development of new higher-margin products.

63

Cost of sales and services

For the year ended December 31, 2011, the Companys cost of sales and services were P11,128.4
million, which was 27.6% higher than cost of sales and services of P8,724.0 million for the year
ended December 31, 2010. The increase was mainly attributable to higher cost of sales and services in
the Companys food ingredients and aerosol businesses.
Food ingredients. For the year ended December 31, 2011, the cost of sales and services
related to the Companys food ingredients segment was P9,272.3 million, which was 35.8%
higher than cost of sales and services of P6,826.2 million for the year ended December 31,
2010. The increase was mainly attributable to higher sales volumes and higher global prices
for the Companys main food ingredient raw materials, particularly refined vegetable oils,
whose price significantly increased in the first six months of 2011.
Colorants and plastic additives. For the year ended December 31, 2011, the cost of sales and
services related to the Companys colorants and plastic additives segment was P1,852.0
million, which was 3.1% lower than cost of sales and services of P1,911.2 million for the year
ended December 31, 2010. The decrease was mainly attributable to the lower demand for the
Companys products during the year as a result of natural disasters in the region.
Aerosols. For the year ended December 31, 2011, the cost of sales and services related to the
Companys aerosols segment was P223.0 million, which was 14.9% higher than cost of sales
and services of P194.1 million for the year ended December 31, 2010. The increase was
mainly attributable to the continually increasing demand for the Companys aerosol products.
Gross Profit
For the year ended December 31, 2011, the Companys gross profit was P1,706.1 million, which was
39.5% higher than gross profit of P1,223.2 million for the year ended December 31, 2010,
representing a gross margin of 13.3% for the year ended December 31, 2011 and a gross margin of
12.3% for the year ended December 31, 2010. The increase was mainly attributable to increased sales
in the Companys food ingredients business and greater profitability in the colorants and plastic
additives business.
Food ingredients. For the year ended December 31, 2011, the gross profit of the Companys
food ingredients segment was P995.5 million, which was 54.2% higher than gross profit of
P645.4 million for the year ended December 31, 2010. This represented a gross margin of
9.7% for the year ended December 31, 2011, higher than the gross margin of 8.6% for the
year ended December 31, 2010. These increases in gross profit and gross margin were mainly
attributable to the purchase of raw materials at lower prices in early 2011, prior to significant
price increases later in the year.
Colorants and plastic additives. For the year ended December 31, 2011, the gross profit
related to the Companys colorants and plastic additives segment was P403.3 million, which
was 13.1% higher than the gross profit of P356.5 million for the year ended December 31,
2010. This represented a gross margin of 17.9% for the year ended December 31, 2011,
higher than the gross margin of 15.7% for the year ended December 31, 2010. The increases
in gross profit and gross margin were mainly attributable to the decrease in cost of sales and
services for the year, resulting primarily from the purchase of raw materials in early 2011 at
lower prices than later in the year.
Aerosols. For the year ended December 31, 2011, the gross profit related to the Companys
aerosols segment was P62.3 million, which was 37.8% higher than gross profit of P45.2

64

million for the year ended December 31, 2010. This represented a gross margin of 21.8% for
the year ended December 31, 2011, higher than the gross margin of 18.9% for the year ended
December 31, 2010. These increases in gross profit and gross margin resulted primarily from
higher-margin products being added to the Companys portfolio.
Expenses, net
For the year ended December 31, 2011, the Companys net expenses were P535.6 million, which was
1.0% higher than net expenses of P530.1 million for the year ended December 31, 2010. The increase
was mainly attributable to a 14.1% increase in selling and marketing expenses for the year, which
offset a 21.3% decrease in the Companys finance costs from its borrowings for the year due to more
favorable interest rate movements.
Equity share in net income
For the year ended December 31, 2011, the Companys equity share in the net income of its associates
was P100.6 million, which was 38.8% lower than the P164.5 million recorded for the year ended
December 31, 2010. The decrease was mainly attributable to lower sales of Chemrezs products
during the year, particularly biodiesel products.
Income tax expense
For the year ended December 31, 2011, the Companys income tax expense was P274.1 million,
which was 74.9% higher than the P156.7 million recorded for the year ended December 31, 2010. The
increase was mainly attributable to an 83.0% increase in income taxes paid by the Companys food
ingredients business, from P99.2 million in 2010 to P181.5 million in 2011. The Companys effective
tax rate for the year ended December 31, 2011 was 21.6%, compared to the standard corporate tax rate
of 30%.
Profit for the period
As a result of the foregoing, the Companys profit for the year ended December 31, 2011 was P997.0
million, which was 42.2% higher than the P700.9 million recorded for the year ended December 31,
2010.
Year ended December 31, 2010 compared with year ended December 31, 2009
Revenues
For the year ended December 31, 2010, the Company recorded revenues of P9,947.2 million, which
was 8.7% higher than revenues of P9,153.5 million for the year ended December 31, 2009. The
increase was mainly attributable to substantial increases in sales of the Companys colorants and
plastic additives and aerosols products.
Food ingredients. For the year ended December 31, 2010, the Companys food ingredients
segment recorded revenues of P7,471.6 million, which was 3.5% higher than revenues of
P7,219.8 million for the year ended December 31, 2009. The increase was mainly attributable
to increased demand for food ingredients during the year; however, the slow rate of growth
was impeded by capacity constraints for food ingredients production, as the Companys new
production facilities were still not completed.
Colorants and plastic additives. For the year ended December 31, 2010, the Companys
colorants and plastic additives segment recorded revenues of P2,267.7 million, which was

65

32.9% higher than revenues of P1,705.8 million for the year ended December 31, 2009. The
increase was mainly attributable to the commencement of operations at the Companys new
plastic compounding production facility in Canlubang, Laguna, which led to greater
production capacity.
Aerosols. For the year ended December 31, 2010, the Companys aerosols segment recorded
revenues of P239.3 million, which was 47.9% higher than revenues of P161.8 million for the
year ended December 31, 2009. The increase was mainly attributable to the addition by the
Company of certain new key clients for its aerosol business as well as general sales growth
for existing products, with the increased demand allowing it to charge higher prices for its
products.
Cost of sales and services
For the year ended December 31, 2010, the Companys cost of sales and services were P8,724.0
million, which was 1.1% higher than cost of sales and services of P8,632.6 million for the year ended
December 31, 2009. The increase was mainly attributable to increases in raw materials costs for the
Companys aerosol and colorants and plastic additives businesses, which offset lower cost of sales
and services in food ingredients.
Food ingredients. For the year ended December 31, 2010, the cost of sales and services
related to the Companys food ingredients segment was P6,826.2 million, which was 5.2%
lower than cost of sales and services of P7,201.2 million for the year ended December 31,
2009. The decrease was mainly attributable to the Company increased use of coal (compared
to more expensive bunker fuel) as fuel for its production facilities, as well as a decrease in the
raw materials purchased by the Company as a result of generally lower demand and sales.
Colorants and plastic additives. For the year ended December 31, 2010, the cost of sales and
services related to the Companys colorants and plastic additives segment was P1,911.2
million, which was 34.8% higher than cost of sales and services of P1,417.8 million for the
year ended December 31, 2009. The increase was mainly attributable to higher requirements
for raw materials as a result of increased production in 2010.
Aerosols. For the year ended December 31, 2010, the cost of sales and services related to the
Companys aerosols segment was P194.1 million, which was 44.0% higher than cost of sales
and services of P134.8 million for the year ended December 31, 2009. The increase was
mainly attributable to higher raw material requirements in line with the Companys higher
sales of its aerosol products.
Gross Profit
For the year ended December 31, 2010, the Companys gross profit was P1,223.2 million, which was
134.8% higher than gross profit of P520.9 million for the year ended December 31, 2009, primarily
due to the expansion and increased profitability of the Companys food ingredients business. The
Companys gross margin for the year ended December 31, 2010 was 12.3% and 5.7% for the year
ended December 31, 2009.
Food ingredients. For the year ended December 31, 2010, the gross profit of the Companys
food ingredients segment was P645.4 million, which was 3,369.9% higher than gross profit of
P18.6 million for the year ended December 31, 2009. This represented a gross margin of 8.6%
for the year ended December 31, 2010, higher than the gross margin of 0.3% for the year
ended December 31, 2009. The increase in gross profit was mainly attributable to increased
sales and the Companys food ingredients facilities coming into full operation, while the

66

increase in gross margin was mainly attributable to higher average sales prices across the
market in 2010 compared with 2009.
Colorants and plastic additives. For the year ended December 31, 2010, the gross profit
related to the Companys colorants and plastic additives segment was P356.5 million, which
was 23.8% higher than the gross profit of P288.0 million for the year ended December 31,
2009. This represented a gross margin of 15.7% for the year ended December 31, 2010, lower
than the gross margin of 16.9% for the year ended December 31, 2009. The decrease in gross
margin was mainly attributable to increased startup costs associated with DLPCs Laguna
plant, which began operations in 2010.
Aerosols. For the year ended December 31, 2010, the gross profit related to the Companys
aerosols segment was P45.2 million, which was 67.4% higher than gross profit of P27.0
million for the year ended December 31, 2009. This represented a gross margin of 18.9% for
the year ended December 31, 2010, higher than the gross margin of 16.7% for the year ended
December 31, 2009. This increase in gross margin resulted primarily from the introduction of
new higher-margin products.
Expenses, net
For the year ended December 31, 2010, the Companys net expenses were P530.1 million, which was
9.8% higher than net expenses of P483.0 million for the year ended December 31, 2009. The increase
was mainly attributable to a 35.3% increase in selling and marketing expenses from P189.0 million in
2009 to P255.7 million in 2010 resulting from higher delivery charges and employee costs resulting
from the Companys higher sales volumes, which was offset by a 25.5% reduction in finance costs for
the year.
Equity share in net income
For the year ended December 31, 2010, the Companys equity share in the net income of its associates
was P164.5 million, which was 7.4% higher than the P153.2 million recorded for the year ended
December 31, 2009. The increase was mainly attributable to higher revenues recorded by Chemrez in
2010, although this was offset by lower sales volumes resulting from increased competition as well as
generally higher cost of sales, which affected Chemrezs margins.
Income tax expense
For the year ended December 31, 2010, the Companys income tax expense was P156.7 million, a
reversal from a net income tax credit of P34.8 million recognized for the year ended December 31,
2009. The reversal from an income tax credit to an income tax expense was mainly attributable to
utilization of a net operating loss carryover from 2009, which was partially offset by the Companys
electing to use the optional standard deduction of 40% of the Companys gross income for purposes
of calculating its income tax due. The Companys effective tax rate for the year ended December 31,
2010 was 18.3%, compared to the standard corporate tax rate of 30%.
Profit for the period
As a result of the foregoing, the Companys profit for the year ended December 31, 2010 was P700.9
million, which was 210.3% higher than the P225.9 million recorded for the year ended December 31,
2009.

67

INDEBTEDNESS
The Companys borrowings generally comprise unsecured short-term loans from local banks with an
average maturity of one month to one year. These borrowings bear average annual interest rates
ranging from 3% to 4%, subject to monthly repricing. As of July 31, 2012, the Companys borrowings
amounted to P3,127.7 million. As of the date of this Prospectus, the Company had no long-term
indebtedness outstanding.
FINANCIAL CONDITION
Financial position as of July 31, 2012 compared with December 31, 2011
Assets
Current assets. Cash and cash equivalents increased by 48.6% from P972.4 million as of December
31, 2011 to P1,444.8 million as of July 31, 2012. This increase was primarily due to increased
collections from sales during the period. Net receivables decreased by 29.6% from P1,725.0 million
as of December 31, 2011 to P1,215.0 million as of July 31, 2012, mainly due to improved
collection efforts, which reduced receivables. Receivables from related parties decreased by 30.9%
from P229.0 million as of December 31, 2011 to P158.3 million as of July 31, 2012. The decrease
was attributable to collections of advances from related parties, which reduced receivables.
Net inventories slightly decreased to P1,978.8 million as of July 31, 2012 from P2,035.1 million as of
December 31, 2011. This decrease in inventories was primarily due to a decrease in the level of raw
materials inventories and inventories in transit.
Prepayment and other current assets amounted to P525.8 million as of July 31, 2012, a decrease of
21.6% from P670.9 million at December 31, 2011. The decrease was mainly a result of a decrease in
the level of advances to suppliers, input value-added tax (VAT) and creditable withholding taxes.
Noncurrent assets. Investment in associates increased slightly from P1,527.6 million as of December
31, 2012 to P1,529.6 million as of July 31, 2012. Property, plant and equipment increased by 7.1%
from P1,501.0 million as of December 31, 2011 to P1,607.7 million as of July 31, 2012. This increase
in property plant and equipment was primarily due to acquisitions during the period amounting to
P195.7 million, partially offset by recognized depreciation expenses amounting to P79.3 million and
disposals amounting to P9.7 million during the period. Meanwhile, the cost of fully depreciated fixed
assets still in use by the Company and its subsidiaries amounted to P142 million as of July 31, 2012
(compared to P116 million as of December 31, 2011).
Liabilities
Trade payable and other liabilities decreased by 33.5% from P790.3 million as of December 31, 2011
to P525.9 million as of July 31, 2012, mainly as a result of the settlement of liabilities during the
period. Amounts due to related parties similarly decreased by 11.1% from P1,643.8 million as of
December 31, 2011 to P1,461.6 million as of July 31, 2012. This decrease was attributable to the
settlement of advances from related parties amounting to P182.1 million.
Borrowing decreased by 6.6% to P3,127.7 million as of July 31, 2012, from P3,347.6 million as of
December 31, 2011. This decreased resulted from the net settlement of short term borrowings
amounting to P194.5 million.
Total noncurrent liabilities, including deferred tax liability and employee retirement benefits,
increased by 12.8% from P31.2 million as of December 31, 2011 to P35.2 million as of July 31, 2012.

68

This increase was primarily due to an increase in deferred tax liabilities amounting to P6.1 million,
arising mainly from temporary differences in unrealized foreign exchange gains.
Equity
Share capital increased from P321.2 million at December 31, 2011 to P1,000.0 million as of July 31,
2012, as a result of stock dividends declared and issued on June 27, 2012 and June 29, 2012. Deposits
for future stock subscriptions increased to P187.5 million as of July 31, 2012, compared to nil as of
December 31, 2011. The increase in deposits was due to the related increase in the Companys
application to increase its authorized capital stock to four billion shares, which was approved by the
Philippine SEC on August 31, 2012.
The unappropriated portion of retained earnings decreased slightly from P2,173.4 million in 2011 to
P2,125.4 million as of July 31, 2012. The appropriated portion of retained earnings decreased to nil,
from P510.0 million in 2011, as a result of the Boards approval to release the funds and to use the
funds to declare dividends.
Financial position as of December 31, 2011 compared with December 31, 2010
Assets
Current assets. Cash and cash equivalents increased by 41.3% from P688.3 million as of December
31, 2010 to P972.4 million as of December 31, 2011. This increase was primarily a result of increased
sales during the year ended December 31, 2011, which increased net income and collections from
sales.
Net receivables decreased slightly to P1,725.0 million as of December 31, 2011, from P1,726.9
million as of December 31, 2010. The portion of receivables due to related parties increased by
200.5% from P76.2 million in 2010 to P229.0 million as of December 31, 2011, mainly as a result of
increased advances to related parties.
Net inventories increased by 48.2% from P1,373.4 million in 2010 to P2,035.1 million as of
December 31, 2011. This increase was attributable to a higher level of inventories purchased during
the year ended December 31, 2011. Prepayment and other current assets amounted to P670.9 million
as of December 31, 2011, an increase of 10.2% from P609.0 million in 2010, mainly resulting from an
increase in the level of deposits with suppliers from inventory purchases and increased input VAT.
Noncurrent assets. Investment in associates increased by 2.5% from P1,491.0 million in 2010 to
P1,527.6 million as of December 31, 2011, primarily due to increased equity share in net income
earned during the year ended December 31, 2011, partially offset by dividends earned of P64.1
million. Property, plant and equipment increased by 20.3% from P1,247.3 in 2010 to P1,501.0 as of
December 31, 2011. This increase was attributable to acquisitions amounting to P386.6 million during
the year ended December 31, 2011, partially offset by realized depreciation expenses amounting to
P132.8 million.
Liabilities
Trade payables and other liabilities increased by 37.8% to P790.3 million as of December 31, 2011, as
compared to P573.6 million in 2010. This increase was attributable to increased trade payables
resulting from increased inventory purchases during December 2011. Payments due to related parties
registered a slight decrease from P1,666.1 million in 2010 to P1,643.8 million as of December 31,
2011.

69

Borrowings increased by 9.7% from P3,052.0 million in 2010 to P3,347.6 million as of December 31,
2011. The increase resulted from net loan availments during the year ended December 31, 2011
amounting to P280 million.
Total noncurrent liabilities decreased by 24.3% from P41.2 million in 2010 to P31.2 million as of
December 31, 2012, primarily due to decreased retirement benefit obligations amounting to P10
million.
Equity
Share capital registered no change between the end of 2010 and 2011.
Unappropriated retained earnings increased by 84.8% from P1,176.4 million in 2010 to P2,173.4
million as of December 31, 2011. This increase resulted from net income of P977 million earned
during the year ended December 31, 2011.
Financial position as of December 31, 2010 compared with December 31, 2009
Assets
Current assets. Cash and cash equivalents increased by 176.9% from P248.6 million in 2009 to
P688.3 million as of December 31, 2010. The increase was attributable to increased sales during the
year ended December 31, 2010 which contributed to increased net income and collections from sales.
Net receivables increased by 19.6% from P1,444.3 million in 2009 to P1,726.9 million as of
December 31, 2010, mainly due to higher sales during the year ended December 31, 2010. However,
the portion of receivables due from related parties decreased by 81.3% to P76.2 million as of
December 31, 2010, from P408.3 million in 2009. This decrease was a result of decreased
intercompany sales during the year ended December 31, 2010.
Inventories decreased by 2.3% from P1,405.9 million in 2009 to P1,373.4 million as of December 31,
2010, primarily due to a decrease in the level of raw material purchases during the year ended
December 31, 2010. Prepayment and other current assets increased by 3.9% from P586.1 million in
2009 to P609.0 million as December 31, 2010, mainly as a result of an increase in the level of
creditable withholding taxes during the year ended December 31, 2010, partially offset by decreased
advances to suppliers for inventory purchases.
Noncurrent assets. Investment in associates increased to P1,491.0 million as of December 31, 2010,
an increase of 8.2% from P1,377.7 million in 2009. Property, plant and equipment increased by 36.7%
from P912.3 million in 2009 to P1,247.3 million as of December 31, 2010, primarily as a result of
acquisitions amounting to P488.7 million during the year ended December 31, 2010, partially offset
by disposals and realized depreciation expenses amounting to P153.7 million.
Liabilities
Trade payable and other liabilities decreased by 15.8% from P681.2 million in 2009 to P573.6 million
as of December 31, 2010. This decrease resulted from reduced raw material purchases during the year
ended December 31, 2010.
Amounts due to related parties decreased by 26.3% from P2,259.2 million in 2009 to P1,666.1 million
as of December 31, 2010. The decrease was attributable to increased payments to related parties
during the year ended December 31, 2010.

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Borrowings were P3,052.0 million as of December 31, 2010, an increase of 22.5% compared to
P2,490.9 million in 2009. The increase was due to net loan availments during the year ended
December 31, 2010 amounting to P567 million.
Total noncurrent liabilities increased by 45.6% to P41.2 million as of December 31, 2010, from P28.3
million in 2009, mainly as a result of an increase in retirement benefit obligations amounting to P12.8
million.
Equity
Share capital increased by 119.7% from P146.2 million in 2009 to P321.2 million as of December 31,
2010. This increase resulted from the issuance of additional shares during the year ended December
31, 2010 amounting to P175 million.
The appropriated share of retained earnings increased by 41.7% from P360.0 million in 2009 to
P510.0 million as of December 31, 2010, as a result of an appropriation of P150 million earmarked
for the settlement of short term borrowings. Similarly, the unappropriated portion of retained earnings
increased by 88.1% from P625.5 in 2009 to P1,176.4 as of December 31, 2010. The increase in
unappropriated retained earnings was attributable to net income earned during the year ended
December 31, 2010 amounting P700.9 million, offset by appropriations made to retained earnings
amounting to P150 million.
LIQUIDITY AND CAPITAL RESOURCES
The Companys principal liquidity requirements are for purchases of raw materials and equipment,
working capital requirements as well as for capital expenditures such as for the establishment of new
and the upgrading of existing production facilities, including the addition of new and specialized
production lines. The Companys primary sources of liquidity are cashflow from operations and
additional capital infusions. For the years ended December 31, 2009, 2010 and 2011, the Company
believed that its cash flows from operations have generally been sufficient for its liquidity
requirements, although for the years ended December 31, 2009, 2010 and 2011, the Company had a
working capital deficit as a result of using short-term debt for its long-term capital investments. The
Company expects to address its liquidity and long-term growth requirements moving forward,
including any working capital deficiencies and payments of borrowings, through a portion of the
proceeds from the Offer, and is also considering replacing a portion of its short-term borrowings with
long-term indebtedness.
The table below sets out the Companys cash flows for the years ended December 31, 2009, 2010 and
2011, as well as for the seven months ended July 31, 2011 and 2012.
For the seven
months ended July
31,

For the years ended December 31,

2009

2010

2011

2011

2012

(unaudited)
(in millions of Pesos)

Net cash flows provided by

operating activities ..........................
Net cash flows (used for) investing
activities .........................................
Net cash flows (used for) provided
by financing activities .....................
Effect of foreign exchange rate
changes on cash ..............................

825.9

260.4

478.1

65.5

1,067.7

(408.7)

(407.8)

(369.6)

(262.2)

(185.9)

(542.9)

601.2

189.4

142.1

(407.5)

(6.9)

(14.0)

(13.9)

20.8

(1.9)

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Net increase (decrease) in cash and

cash equivalents ..............................

(132.6)

439.8

284.0

(33.8)

472.4

Net cash flows from operating activities

The Companys net cash flows from operating activities for the seven months ended July 31, 2012
were P1,067.7 million, mainly reflecting cash received from operations, as well as receivables. The
Companys net cash flows from operating activities in 2011 were P478.1 million. This primarily
reflects cash from operations, which offset trade payables and interest expense payable during the
year. In 2010, the Companys net cash flows from operating activities were P260.4 million, reflecting
cash from operations and amounts due from related parties during the year, which offset chargeable
depreciation and interest expense payable in 2010. In 2009, the Companys net cash flows from
operating activities for the year ended December 31, 2009 were P825.9 million.
Net cash flows used in investing activities
The Companys net cash flows used in investing activities for the seven months ended July 31, 2012
were P185.9 million, comprising investments in property, plant and equipment, which offset an
increased investment in Chemrez and proceeds from the disposal of certain property. In 2011, the
Companys net cash flows used in investing activities were P369.6 million, reflecting acquisitions of
property and equipment, which mainly comprised the establishment of Oleo-Fats Punta, Sta. Ana,
Manila facility, and the divestment by the Company of a portion of its investment in an associate. The
Companys net cash flows used in investing activities in 2010 were P407.8 million, primarily
comprising acquisitions of property and equipment for the establishment of Oleo-Fats Mercury plant,
and a divestment of a portion of the Companys investments in subsidiaries and associates. In 2009,
net cash flows used in investing activities were P408.7 million. This primarily reflects acquisitions of
property and equipment, notably the establishment of DLPCs plant in Laguna, and additions to the
Companys investments in subsidiaries and associates, which offset dividends received from
investments during the year.
Net cash flows from (used in) financing activities
The Companys net cash flows used in financing activities for the seven months ended July 31, 2012
were P407.5 million. This primarily reflects payments of borrowings and dividends for the period,
which offset the amount of borrowings received as well as cash received from additional subscriptions
to the Companys stock. In 2011, the Companys net cash flows from financing activities were P189.4
million, as proceeds received from borrowings were only partially offset by payments of principal and
interest for the year. The Companys net cash flows from financing activities in 2010 were P601.2
million, reflecting proceeds from borrowings of P1,828.9 million for the year, as well as cash received
for additional subscriptions to the Companys stock. In 2009, net cash flows used in financing
activities were P542.9 million, comprising payments of borrowings and interest for the period.
CAPITAL EXPENDITURES
The Company has made significant capital expenditures to improve operation, reduce costs and
maintain the performance of and upgrade its major equipment and facilities. A table setting out the
Companys capital expenditures for each of its businesses for the periods indicated is set out below.

72

For the seven

months ended July
31,

For the years ended December 31,

2009

2010

2011

2011

2012

(unaudited)
(in millions of Pesos)

Food Ingredients .............................

Colorants and plastic additives ........
Aerosols .........................................
Management and administrative ......
TOTAL ..........................................

382.6
46.0
2.6
41.5
472.7

419.6
23.7
9.8
35.5
488.6

318.3
21.6
8.1
38.5
386.5

244.3
8.8
6.4
29.4
288.9

160.5
14.5
4.7
16.0
195.7

The Company has budgeted aggregate capital expenditures of P290.6 million for 2012.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The Companys contractual obligations and commitments by maturity are set out below:

Loans Payable ........................................

Trust Receipt Payable .............................
Accounts Payable and Accrued Expenses
Other current Liabilities..........................
Total ......................................................

Contractual Obligations and Commitments as of July 31,

2012
Payments Due by Period
Total
2012
2013-2016
After 2016
(in millions of Pesos)
3,078.2
1,000.0
2,078.2

49.5
49.5

488.7
488.7

1,711.1
719.4
991.7

5,327.5

2,257.6

3,069.9

OFF-BALANCE SHEET ARRANGEMENTS

As of July 31, 2012, the Company had no material off-balance sheet arrangements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to various types of market risks in the ordinary course of business, including
currency exchange rate risk, commodity price risk and interest rate risk.
Exchange Rate Risk
The Companys foreign currency exchange rate risk exposure results primarily from certain of its
business transactions denominated in foreign currencies. The Company uses a combination of natural
hedges, with U.S. dollar revenue from exports providing a partial hedge against U.S. dollardenominated raw material expenses, and derivative instruments to manage its exchange rate risk
exposure.
Commodity Price Risk
The Companys commodity price risk exposure results primarily from the use of commodities as raw
materials and fuel in its production processes. The Company enters into various commodity derivative
transactions to manage the Companys commodity price risk exposure, including swaps, futures,
options and forwards. The Company enters into commodity swaps, futures and options primarily to

73

manage the price risks of fuel oil. The Company makes commodity forward purchases of a variety of
commodities. The prices of the commodity forwards are generally fixed through direct agreements
with suppliers or by reference to a commodity price index.
Interest Rate Risk
The Companys main exposure to market risk for changes in interest rates relates primarily to its
interest-bearing loans and borrowings. As of July 31, 2012, 100% of the Companys borrowings bore
interest at rates which are subject to monthly repricing. The Company hedges its exposure to
fluctuations in interest rates primarily by including an option to convert floating rate interest rates to
fixed rates.

74

BUSINESS
OVERVIEW
The Company is a dynamic industrial group in the Philippines with diversified operations in the
manufacture and sale of food ingredients; colorants and plastic additives and compounds;
oleochemicals, resins and powder coatings, and aerosol products. The Company produces hundreds of
variants on its products and focuses its nearly 50 years of expertise on designing innovative,
customized and specialty product solutions for its customers, who in turn produce a variety of brandname consumer products across a range of diverse industries such as food and beverages, oil and gas,
personal and home care products, and industrial and commercial manufacturing. The Company
believes its strong research and development capabilities has allowed it to introduce numerous
market-leading products in the Philippines. The Company has also leveraged its long-standing and
proven track record and expertise into collaborative partnerships with its key customers, which
facilitates greater product customization. Based on its internal data and data derived from its
customers, the Company believes it is the market leader for each of its primary product categories in
the Philippine market.
The Company is principally a holding company which derives the majority of its income from its
subsidiaries and associates which are engaged in four principal business lines, as set out below:
Food ingredients The Company, operating through its subsidiary Oleo-Fats, manufactures a line
of industrial fats and oils, specialty fats and oils, and culinary and other specialty food ingredients.
The Company contract manufactures and provides its food ingredients products to most of the
leading food manufacturers and quick-service restaurant chains in the Philippines, and also
produces food safety solutions such as cleaning and sanitation agents for various customers;
Colorants and plastics additives The Company, operating through its subsidiaries FIC and DLPC,
manufactures a line of pigment blends, color and additive masterbatches and engineered polymers
for a wide range of applications, introducing a number of products into the Philippine market and
expanding into the export of certain products overseas. The Companys products add properties
such as precise coloring, reduced friction or increased resistance to degradation for plastics used in
consumer goods, appliances and outdoor furniture;
Oleochemicals, resins and powder coatings The Company, operating through its affiliate
Chemrez and its subsidiary Chemrez, Inc., manufactures CME, also known as coco-biodiesel,
using the Philippines first continuous-process methyl ester plant. The Company also manufactures
other oleochemicals or chemicals derived from vegetable oils, resins such as polystyrene, acrylic
emulsions and polyester; and a line of powder coatings; and
Aerosols The Company, operating through its subsidiary Aero-Pack, manufactures three-piece
aerosol cans and components and provides aerosol contract filling and compounding services. The
Company also toll manufactures a range of related products, including insect control, industrial
maintenance chemicals, and home and personal care products, among others.
For the year ended December 31, 2011, the Companys pro-forma consolidated revenues amounted to
P12.8 billion and pro-forma consolidated profit before income taxes was P1.3 billion, compared to
pro-forma consolidated revenues of P9.9 billion and P9.2 billion and pro-forma consolidated profit
before income taxes of P857.6 million and P191.1 million in 2010 and 2009, respectively,
representing a CAGR between 2009 and 2011 of 18.4% in consolidated revenues and 157.9% in
consolidated profit before income taxes. For the seven months ended July 31, 2012, the Companys
consolidated revenues were P6.8 billion and estimated consolidated profit before income taxes was
P804.8 million, compared to consolidated revenues of P7.6 billion and consolidated profit before

75

income taxes of P934.8 million for the seven months ended July 31, 2011, a decrease of 10.5% in
consolidated revenues and 13.9% in consolidated profit before income taxes.
COMPETITIVE STRENGTHS
The Company believes that it possesses the following principal strengths enabling it to compete
effectively in its businesses:
Focus on innovation and development of specialty products
Operating in technology-intensive businesses, the Company focuses a significant portion of its
resources on product innovation, using its experience, expertise and research and development
capabilities to constantly supplement, update and improve its product portfolio. As a result, the
Company believes that it has been able to introduce a number of innovative products into the
Philippine market, many of which are used by a number of key clients. For example, through its food
ingredients business, the Company introduced an innovative vegetable oil which substitutes for the
fatty acid profile of breast milk, allowing for the production of proprietary substitutes for milk
products, as well as a hydrogenated lauric oil used to produce ice cream at lower cost compared with
imported milk fat. Moreover, in 1997, through its colorants and plastic additives business the
Company responded to feedback by certain customers with respect to their production processes by
formulating and introducing a line of purging compounds into the market. These products
immediately improved operational efficiency by significantly reducing the turnaround times in which
a customer could re-use its production lines for a different product. The Company has built on this
successful launch and now sells these purging compounds to a wider range of customers. The
Company has also introduced a number of innovative aerosol products, including a line of scented,
non-greasy interior and exterior automotive and motorcycle dressings and an environmentallyfriendly diesel fuel line cleaner. The Company believes that its ability to innovate new products adds
value to its customers processes and diversify the Companys revenue streams give it a significant
competitive advantage.
Advanced technical expertise for custom production
The Company believes its extensive experience and commitment to research and development has
allowed it to build its technical expertise, with the technologies it uses being among the most
advanced in Asia. The Company believes it has been able to leverage this considerable technical
expertise and knowhow to adjust and tailor its products according to its customers precise
specifications and requirements. Moreover, as a result of its experience and advanced production
processes, the Company has the ability to respond quickly to requests for high-quality customized
products, notably as set out below.
Food ingredients. Customized product development currently accounts for a significant
portion of Oleo-Fats revenue. It has diversified manufacturing capabilities that enables it to
transform food ingredients into customized products, such as infusing various fats and oils
with special flavors in large volumes to suit the recipe and franchise distribution requirements
of the largest quick-service restaurant chains. Its comprehensive packing lines and logistics
system also enable it to serve large industrial customers buying in bulk as well as traditional
trade customers that purchase in smaller packaging such as cartons and sachets. Other
customized products include flavored specialty vegetable oils which mimic certain animal fats
and cater to specific religious and mandated health requirements, customized chocolate
coatings to replace imports used in ice cream production, and customized ice cream mixes to
lower production costs for certain novelty desserts.
Colorants and plastic additives. The Company upgrades its equipment for its colorants and
additives business on a regular basis, as required by technological advances in the industry.
The Company utilizes these new technologies to enhance its ability to customize its plastics

76

products to ensure precise color, the required mechanical and thermal properties, as well as
other requested properties such as tensile strength, impact resistance, processing speed,
flammability and heat resistance.
Oleochemicals, resins and powder coatings. The Company ensures that it remains at the
technological forefront for product development and application testing through its
comprehensive analytical and applications laboratory. This allows the Company to customize
certain products, such as resins and oleochemicals, in close technical collaboration with local,
regional and multinational clients.
Aerosols. The Company believes it is the first and only Philippine company to design and
develop customized aerosol products focusing on home care, personal care and maintenance
chemicals. The Company also supplies three-piece aerosol cans and components, which
comprise the majority of aerosol product requirements in the Philippines and globally. The
Companys experience and technical expertise allows it to typically produce a diverse range of
products based on its customers requirements. Customized products include a brake and parts
cleaner, an aerosol wound spray designed to treat injured cattle and livestock, an insect spray
designed for direct sales and a line of automatic air fresheners and disinfectants with
customized scents designed for interiors such as malls and wash rooms.
In addition, by continually leveraging the latest technology across its business processes, the
Company believes it has developed a reputation for quality and efficiency, and has also been able to
reduce its production costs, resulting in a significant competitive advantage. The Company has
established a state-of-the-art analytical laboratory which throughout the years, has significantly
enhanced its capability in the research, design and development of new products and in the reverse
engineering of existing products. In August 2009, this lab was awarded a Certificate of Accreditation
as an ISO 17025 Chemical Testing Lab by the Department of Trade and Industrys Philippine
Accreditation Office, attesting to its high-quality facilities and employees. The Company has
continuously upgraded this and its other application laboratories to allow it to continuously seek and
implement innovations across the Companys entire product design and development cycle.
Strong track record resulting in long-term collaborative relationships
The Company has nearly five decades of operating history in the Philippines, offering high quality
products and services which have established it as a leader in its businesses and has resulted in a
customer base comprising some of the largest Philippine and multinational corporations. More
importantly, the Company believes that its experience and track record have enabled it to foster longstanding and collaborative relationships with most of its major customers, some of whom the
Company has served for nearly 50 years. Due mainly to its proven track record, the Companys key
customers have shown a willingness to commit time and resources to collaborate with the Company
on product development and operational improvements. As a result, the Company often works in
tandem with its major customers to identify issues in their respective businesses, and then formulate
and develop new products or product solutions to address these concerns. In addition, to bolster these
relationships, the Company often supports its sales efforts to customers with after-sales services such
as on-site trouble-shooting, which further strengthens its key relationships. The Company believes
that these strong relationships have been a key driver of its growth over the past years, allowing it to
steadily increase the products sold to long-standing customers, as well as presenting numerous crossselling opportunities across its product portfolio to such customers. In addition, the Company believes
its strong relationships help it retain the loyalty of such key customers, which is difficult to replicate,
presenting a significant barrier to entry against potential competitors.
Experienced management team with a proven track record
The Companys management team is comprised of knowledgeable and experienced industry experts
with a proven track record in chemicals and related industries. The Companys senior management

77

members have an average of over 40 years of industry experience. The Companys production plants
and research and development facility are staffed by technicians and senior engineers with significant
skills and experience in operating production facilities and product development, respectively. Many
of the Companys executive officers hold publicly-recognized industry organization posts, and enjoy
wide recognition throughout the industry. The Company believes its experienced management team
has been a key to its past success and will continue to contribute to its future growth.
Streamlined corporate structure and organization to maximize efficiency and reduce costs
The Company has adopted a flat organizational structure across D&L Industries, its subsidiaries and
associates, with D&L Industries providing numerous shared services at a centralized level to its
subsidiaries and associates, including management, research & development, product development,
warehousing and logistics, among others. This structure not only helps the Company monitor costs
with respect to these services, but also to act dynamically and make quick decisions to respond to
changes in market conditions. Compared to other competitors with more hierarchical organizational
structures, the Company believes that it derives substantial synergies and efficiencies from its
structure, allowing it a significant competitive advantage. For example, the Company believes that its
well-developed logistics platform allows it to effectively supervise inventory management at its seven
on-site warehouses at its production facilities. Moreover, the Companys integrated handling, storage
and delivery facilities allow it to more efficiently manage its distribution capabilities across its
businesses.
Well-positioned to benefit from industry trends and increasing demand for environmentally
friendly products
The continued growth of the Philippine economy has resulted in both a rise in consumer spending and
an expansion of the service sector. This rapid growth has led to an expansion of the industries in
which the Companys customers operate, such as those related to food and beverage, quick-service
restaurants, packaging, furniture and other household products. According to data from the NSCB, as
derived from GDP, total Philippine personal consumption expenditures increased from approximately
P3,731 billion in 2008 to approximately P4,195 billion in 2011, representing a CAGR of 4.0%. Total
expenditures in the food and non-alcoholic beverages sector also increased significantly from
approximately P1,558 billion in 2008 to approximately P1,765 billion in 2011, representing a CAGR
of 4.3%. Similarly, expenditures in the hotel and restaurant industry increased from approximately
P146 billion in 2008 to approximately P171 billion in 2011, representing a CAGR of 5.5%, while
expenditures for furnishing, household equipment and household maintenance increased from P215
billion to P238 billion in the same period, representing a CAGR of 3.5%. The Company believes it is
well-positioned to capture the opportunities such industry trends have presented due to its leading
position in its respective businesses.
In addition, the Company believes the demand for certain of its products will further increase in light
of the increasing focus on the implementation of environmental protection policies by the Philippine
government and other governments. For example, the Government passed Republic Act 9367, known
as the Biofuels Act of 2006, which mandates that all diesel fuel contain biodiesel, a main product of
the Companys oleochemicals business, at a concentration of 2% from 2009. The Government is
considering increasing this mandate to 5%, which the Company believes will increase the market and
Chemrezs corresponding market share.
Centralized location and strong logistics platform
The Companys plants are strategically located within easy reach of suppliers and customers. Its
foods ingredients plant is located at Mercury Drive, Quezon City, within the vicinity of several food
manufacturing and warehousing facilities. The Companys refined vegetable oils and fractionated oils
processing plant and tank are located in Sta. Ana, Manila, which is accessible by barge through the
Pasig River, a main river that traverses through Metro Manila. The Company utilizes a fleet of six

78

barges with a total capacity of 10,000 MT. The DLPC plastics facility is located at the PEZA zone in
Canlubang, Laguna, where several of its clients are located. The FIC plant, Aero-Pack and Chemrez
plants are all located in Bagumbayan, Quezon City which is centrally accessible. This common
centralized location allows the Company timely and cost-effective deliveries of both raw materials
from suppliers and the Companys products to customers. The Company owns and maintains a fleet
of 42 road tankers with a total capacity of over 1,000 MT.
Refined vegetable oils storage capacity provides protection against pricing volatility
The Companys MRI tank farm and Mercury Plant have an aggregate capacity of 33,000 MT of
vegetable oil, the largest rated capacity in the Philippines. During the past few years, the prices of
certain vegetable oils in the global market have experienced periods of volatility. The storage
capacity of the Company allows it to physically hedge its vegetable oil purchases, making larger
purchases when prices decrease, and reducing purchases when prices increase. This allows the
Company to competitively price its products and maintain customer satisfaction.
BUSINESS STRATEGIES
Maintain market leading positions in its respective markets and businesses
The Company intends to maintain its market leading positions in the industries in which it operates by
leveraging its existing long-term relationships with its customers and research and development
capabilities to produce tailor-made solutions that meet the customers evolving needs. The Company
believes that relationships will continue to be the key driver in developing business opportunities and
increasing sales. It intends to increase training for specialized marketing teams for each of its business
lines to better market the Companys design and research and development capabilities. The
Company intends to maintain close contact with its customers and seeks to understand their
businesses better in order to offer them a marketable range of products, as well as potentially crosssell other Company-produced products.
Continuously innovate to develop new or more efficient products
The Company intends to continuously innovate to develop and introduce new or more efficient
customized and specialty products for its customers. Utilizing its considerable experience and track
record in its businesses, along with its technical expertise and research and development resources,
the Company intends to keep abreast of technological advancements and process improvements and
integrate and apply these to its operations. The Company also intends to take advantage of its strong
relationships with its large key customers by taking and utilizing the valuable feedback from the
customers to develop new customized products to anticipate and meet their requirements. The
Company believes that paying close attention to advances in the market and constantly seeking to
innovate and develop new or more efficient products is key in its businesses.
Capitalize on the growing Philippine domestic markets
Many of the end-use products which contain the Companys products are marketed to middle-class
consumers. The Company believes that the Philippine middle class will continue to grow, increasing
demand for added value products such as specialty foods and a variety of consumer goods. Such
retail consumer demand will in turn increase demand for the Companys products, such as food
ingredients, engineered polymers, oleochemicals and aerosol products. In particular, the Company
expects demand for household items produced by its aerosol business line, such as household insect
control products, air fresheners, furniture polish and personal care products to increase significantly
with the increase in household consumers disposable income.
Philippine GDP grew by 6.6% in 2007 and by 4.2% in 2008, driven by consumption and investment
spending. According to data from the NSCB, while GDP growth slowed to 1.1% in 2009 due in large

79

part to the global financial crisis, it grew at a robust 7.6% in 2010 and by 3.9% in 2011. This
generally upward trend has continued in 2012, with GDP growth of 6.4% being registered in the first
three months of 2012 resulting from increased Government spending, robust private consumption and
growing exports.
The Company believes it is well positioned to benefit from the expected economic growth of the
Philippines in both the industrial and consumer sectors. The Company plans to meet the increased
demand through a number of strategies, including increased capital expenditures for plant expansion,
research and development to create new product lines and improve production processes, and
increased marketing campaigns to bring attention to the Companys various products such as
attendance of technical marketing trade shows.
Economic growth will also drive demand for energy, which the Company believes will result in
increased sales of biodiesel, a major product of Chemrez. The Philippine governments policy of
encouraging green energy and energy independence should also contribute to increased demand for
biodiesel from Chemrez.
Continue to improve business and production processes
The Company intends to improve the efficiency of its management and production processes by
maintaining a flat management structure, an integrated, centralized research and development
platform and committing sufficient capital to equipment upgrades and related training. The Company
will ensure that senior management is apprised of trends in the Companys various industries and
works with production teams to adopt the newest technologies to maintain a competitive advantage as
well as enhance the Companys reputation as a market leader. The Company intends to periodically
reassess its management techniques and production processes for areas of improvement, as well as
continually seek more cost-effective sources of raw materials and more efficient operating and
production models. The Company will devote research and development resources to maximize the
production value of newly adopted equipment and make incremental improvements to such
equipment. Adequate resources will be devoted to training production staff and marketing staff.
Pursue international expansion opportunities
The Company intends to continue to expand sales in its various industries to the international market
by expanding sales to current customers that use the Companys products in the Philippines to include
the affiliates and operations of such companies in foreign markets. The Company also intends to
increase its visibility internationally through the increased use of agents and by participating in
industry exhibitions abroad and entering into strategic alliances with established manufacturers and
marketers in select foreign markets.
In 2006 the Company established DLPC specifically to increase international sales for its colorants,
engineered polymers and additives products. Foreign sales as a percentage of total sales for the
Companys colorants and plastic additives business increased from 38% in 2009 to 49% in 2011 and
the Company expects foreign sales to be a significant driver for future growth in this business
segment. The Company intends to use the international network DLPC has built to possibly expand
the Companys other businesses as well.
HISTORY AND CORPORATE REORGANIZATION
The Company is a family-owned corporation established in 1963 by brothers Dean and Leon Lao as a
sole proprietorship and was the first company to offer custom-blended colorants to the Philippine
plastics industry. Initial operations comprised sourcing and supplying colorants and color matching
services to the Philippine plastics industry. In 1971, the Company incorporated and expanded into
manufacturing, marketing and distribution of colorants, chemicals and additives for plastics, paints
and inks. By 1985, the Company had expanded its operations to include food ingredients and

80

operated in various industries through divisions. The Company began a gradual restructuring in 1985,
placing its various operations into new subsidiaries of D&L Industries, and expanding and
modernizing its production capacities. Further details of each of these subsidiaries are provided
below:

Oleo-Fats During the Philippine currency crisis in the mid-1980s, the Company sought business
opportunities that were not reliant on imported raw materials. With coconut oil being the most
abundant raw material indigenous to the Philippines, the Company decided to look for products
which it could manufacture using coconut oil as a raw material, and in 1987, Oleo-Fats was
established. Oleo-Fats first batch-type chemical refining line was commissioned in that same year,
while its first continuous refining plant was commissioned in 1998. Oleo-Fats specialty food
ingredients business was introduced in 2006 to further boost growth and profitability, and OleoFats continues to develop new products and services serving the food industry to ensure
continuous growth.
FIC and DLPC While custom-blended colorants for plastics was the initial and primary business
of the Company when it was established in 1963, FIC was incorporated in 1988 for the
manufacture of color masterbatches, plastic additives and color compounds, while DLPC was
incorporated in 2006, as a PEZA-registered enterprise for the manufacture and export of these
same products, including specialty engineered polymers.
Chemrez in 1989, the Company spun-off its powder coating division into an affiliate company,
Corro-Coat, Inc., which listed on the PSE in 2000. In 2006, Corro-Coat, Inc. acquired through a
share exchange transaction Chemrez Inc., an affiliate company controlled by Dean and Leon Lao
and other members of the Lao family, which manufactured resins, oleochemicals and other
specialty chemicals, and also acquired from the Company oleochemical plant assets, including the
Philippines first continuous-process biodiesel plant, based on technology imported from Germany.
These business acquisitions were financed mainly from the additional offering of primary shares of
the Corro-Coat, Inc. in 2006, following an increase in its authorized capital from P1.0 billion to
P2.0 billion. As part of its branding strategy for its business diversification, Corro-Coat, Inc.
changed its name to Chemrez Technologies Inc. The Company currently owns 34.0% of Chemrez,
while other companies of the Lao Family own an additional shareholding of approximately 32.8%.
Aero-Pack The Company commenced operations with respect to aerosol products in 1976,
designing and developing customized aerosol products focusing on maintenance chemicals and
home and personal care products. Aero-Pack also supplies three-piece aerosol cans and
components, which comprise the majority of aerosol product requirements in the Philippines and
globally. The Company spun off this business when Aero-Pack was incorporated in 1989.
Beginning in 2012, the Company embarked on a general corporate reorganization, wherein ownership
of various companies owned by the Lao Family, such as Oleo-fats, FIC, DLPC and Aero-Pack were
fully consolidated into the Company. The reorganization, which was completed in July 2012, resulted
in the Oleo-Fats, FIC and Aero-Pack becoming wholly-owned subsidiaries of the Company, with
DLPC also being effectively wholly-owned by the Company.

81

ORGANIZATIONAL STRUCTURE
The following diagram shows the corporate structure of the Company as of the date of this
Prospectus. As of the date of this Prospectus, D&L Industries is approximately 85% owned by Jadel
Holdings, Co., Inc., which is wholly-owned by the Lao Family, with the remaining 15% being owned
by the Lao Family and LBL Industries, Inc.

Jadel Holdings
Co., Inc.

Lao Family& LBL

Industries, Inc.

85%

15%

D&L Industries, Inc.(1)

100%

Oleo-Fats
Incorporated

100%

100%

First in
Colours, Inc.

34%

Aero-Pack
Industries, Inc.

Chemrez
Technologies, Inc.

44.5%
55.5%
100%

D&L Polymer & Colours

Inc.

Chemrez Inc.

(1) D&L Industries, Inc. provides management services to its subsidiaries and affiliates, including executive management, administrative
support, logistics support and technical services. For more information, see Management and Administration.

OPERATIONS
The Company is a holding company, which primarily derives its revenues and income, and conducts
its operations in four major industries, through its subsidiaries and its PSE-listed associate company,
Chemrez. A table detailing the contribution of each of Oleo-Fats, FIC and Aero-Pack to the
Companys total revenues for the periods indicated, is set out below.
For the years ended December 31,
2009

2010

For the seven months ended July 31,

2011

2011

2012

(in millions of Pesos)

Business Group
Food Ingredients ...........
Colorants and plastic
additives .......................
Aerosol products ...........
Management and
administration(1) ............
Eliminations(2) ..............
Total ............................

7,219.8
1,705.8

7,471.6
2,267.7

10,267.8
2,255.3

6,166.8
1,228.4

4,998.0
1,568.4

161.8
634.6

239.3
485.8

285.3
551.7

161.9
342.6

194.3
284.2

(568.5)

(517.2)

(525.6)

(327.3)

(280.4)

9,153.5

9,947.2

12,834.5

7,572.4

6,764.5

(1) Management and administration revenues comprise management service fees received from other affiliates.
(2) Eliminations comprise management service fees billed to subsidiaries and sales of goods and services between subsidiaries.

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For the years ended December 31, 2009 and 2010 and 2011, and the seven months ended July 31,
2011 and 2012, the contribution of Chemrez to the Companys net income was P153.2 million,
P164.5 million, P100.6 million, P107.5 and P56.2 million, respectively. For the year ended December
31, 2011, approximately 82% of the Companys net sales were derived from products used for the
manufacturing of food and beverage end-use products, approximately 8% were used for automotive
products, approximately 4% were used for home and personal care products, approximately 1% were
used for appliances and approximately 1% were used for industrial products.
In terms of domestic and exports sales, for the year ended December 31, 2011, approximately 89% of
the Companys net sales were derived from domestic sales while approximately 11% were derived
from exports, with the majority of the Companys exports sold to customers in the Middle East, North
Africa and parts of Asia outside the Philippines. For the seven months ended July 31, 2012, the
Company recorded net export sales of P736.7 million, an increase of 11.0% from the same period in
2011.
Food ingredients
Overview
The Company, operating through its subsidiary Oleo-Fats, markets and distributes a line of industrial
and specialty food ingredients and oils. The Company believes that it is a leading manufacturer of
industrial fats and oils, specialty fats and oils and food ingredients in the Philippines. It serves
customers across the food and beverage industry, including the noodles and snack food, dairy and
culinary, food service, biscuits and confectionery and bakery segments, as well as domestic and
international quick-service restaurant chains. The Company also contract manufactures food
ingredient products for certain customers. The Companys product line has expanded to over 500
varieties of food ingredients, including specialty fats, dry and liquid mixes and specialty condiments,
primarily as a result of its ability to create customized products according to its customers
requirements. As a result, the Company derives more than 50% of its food ingredients revenue from
the manufacture and sale of customized products, which generally provide higher profit margins than
bulk items such as refined vegetable oils.
In addition to food ingredients and oils, the Company produces food safety solutions such as
customized cleaning and sanitation systems and services, designed and manufactured to provide
customized solutions to meet the needs of customers. All of the Companys food safety solutions are
supported by professional and technical services.
Products
The Company produces a broad range of more than 500 food ingredients and food safety products.
Specialty vegetable oils. Products include refined, bleached and deodorized palm oil, palm olein,
palm stearin, palm kernel oil and coconut oil.
Refined vegetable oils. Products include soybean oil, rapeseed oil, corn oil, sunflower oil and
customized oil blends. Sales of refined vegetable oils products comprised approximately 60% of
the Companys food ingredients sales for the year ended December 31, 2011.
Specialty fats. Products include margarines, confectionary fats, cocoa butter substitutes, milk fat
substitutes, creaming fats, ice cream fats, culinary fats, frying fats, shortenings and customized
fats. Sales of specialty fats and specialty vegetable oils products comprised approximately 35% of
the Companys food ingredients sales for the year ended December 31, 2011.
Specialty ingredients. Products include dry mixes such as flour mixes, culinary mixes, seasoning
mixes and soft serve ice cream mixes; liquid mixes such as chocolate coatings, chocolate blocks,

83

condensed milk, syrups and ripples, and chocolate fudge; and condiments such as real mayonnaise,
dressings, liquid seasoning, customized culinary sauces and dips. Sales of specialty ingredients
products comprised approximately 4% of the Companys food ingredients sales for the year ended
December 31, 2011.
Food safety products. Products include kitchen and food preparation cleaners, hand soaps and
sanitizers, surface sanitizers, maintenance cleaning and degreasing materials and heavy-duty cleanin-place (CIP) cleaners, dishwashing machine cleaners, all-purpose manual cleaners, and
housekeeping and room care products. Sales of food safety products comprised approximately
1% of the Companys food ingredients sales for the year ended December 31, 2011.
The Company markets these products primarily to a range of customers in the food industry, who
utilize these products for the manufacture of various consumer food items. These include snack foods
such as potato chips, corn chips, flour-based chips and instant noodles; dairy and culinary products
such as ice cream, filled milks, proprietary substitutes for milk products, yellow spreads and cheese
and culinary mixes; food service products such as french fries, fried chicken, donuts, pizza and
desserts; bakery and confectionary products such as cakes, biscuits, chocolates, soft candies and
cookies.
Production Process
Production of the Companys food ingredients products generally consists of three stages: 1) physical
oil refining and filling, 2) dry mixing and liquid compounding, and 3) fats and oils modification.
Summary flowcharts of the Companys main production processes appear below.
Physical Oil Refining and Filling

Pre-start-up
activities

Collect

Load Oil

Filter (polishing)

Acid Degumming

Deodorization

Bleaching

Drop tank

Filter

Final Filter
Polishing

Filter (polishing)

Storage

84

Dry Mixing and Liquid Compounding

Pre-start-up
activities

Load Ingredients

Compounding

Heating

Sheering

Cooling

Filtering / Packaging

85

Fats and Oils Modification

Raw Materials Receiving

Interesterification

Oil Physical Refining

Deodorization

Hydrogenation

Texturization

Blending

Packaging / Filling

The key processes in Oleo-Fats production include:

Physical Oil Refining a process wherein the use of caustic solution is omitted and the oil is
subjected to degumming, as necessary. This process is typically followed by bleaching,
filtration and deodorization;

Acid degumming a process wherein crude oil, prior to chemical or physical refining, is
treated with diluted phosphoric acid to remove phosphidates, waxes, pro-oxidants and other
impurities. In degumming, the impurities are converted to compounds insoluble in oil, which
are subsequently easily removed or separated by settling and/or filtration;

Bleaching - a process wherein oil is heated and maintained at the bleaching temperature in the
bleacher tank, under a vacuum. Bleaching earth mixture is fed into the bleacher through a
screw-type conveyor or through a hopper. Moisture and other impurities are adsorbed by the
bleaching earth. Afterwards, filtration is conducted to separate the oil and the spent bleaching
earth mixture. This process results in decoloration and purification of oil, in preparation for
deodorization;

Filtration - the separation method most often used for spent bleaching earth removal;
the
process of passing a fluid through a permeable filter material to separate the particles from the
fluid. Filter aids are usually used in pre-coating the filters for surface protection;

Deodorization - the final step in the refining of oils. Deodorization involves the use of steam
distillation under reduced pressure. Volatile compounds with undesirable odors and tastes can
be removed, resulting in an odorless product. The oil produced is referred to as refined oil

86

and is ready to be consumed or used for the manufacture of other products. A certain amount
of citric acid is often added during this step to render pro-oxidant metals such as iron or
copper inactive;

Hydrogenation - the process in which oil is treated with Hydrogen gas in the presence of a
catalyst (typically nickel) to decrease double bonds and increase saturated bonds (lowering
the degree of unsaturation) of fats and oils. This is the process of hardening or increasing
the melting point of fats/oils to be more suitable for a particular application;

Interesterification - the process in which the reaction of fatty acid esters in blended fats/oils
brings about rearrangement/interchange within triglycerides, in the presence of a catalyst
(typically sodium methylate) at certain temperature and conditions. This process produces a
new type of fat/oil with unique physical properties;

Blending the process of blending two or more different oils to attain the desired fatty acid
composition, melting point, and solid fat content, depending on the application;

Texturization the texturization process is a series of processes wherein the oil is passed
through various heat-exchanger working conditions to remove the heat of crystallization and
transformation, thus facilitating rapid formation of stable fat crystals.

Facilities and Production Capabilities

The Companys food ingredients products are manufactured in state-of-the-art food processing
facilities in Bagumbayan, Quezon City, and Punta, Sta. Ana, Manila, which operate under stringent
quality assurance and food safety standards and have an aggregate processing capacity of
approximately 300,000 metric tons per annum (MTPA). The facilities are capable of converting
crude vegetable oil feedstock to edible grade oils and fats, and have specialty products lines supported
with versatile packing systems such as a drumming facility, cartoning lines, tin filling and bottling
lines.
A table showing key aggregate operating statistics for the Companys food ingredients production
facilities for the year ended December 31, 2011 is set out below.
Facility
name

Mercury Plant
(Quezon City)

MRI Plant
(Manila)

Products Produced
Marine fats, refined vegetable oils,
hydrogenated oils, refrigerated
margarines, whipped cream,
chocolate coatings, shortening,
condensed milk, fudge, butter,
savory mixes, dairy and flour
based mixes, other specialty
ingredients
Refined vegetable oils, fractionated
oils

No. of
production
lines

Rated Capacity
(MTPA)

Capacity Utilization
(MTPA)

29

100,000

68%

200,000

65%(1)

(1) As of the date of this Prospectus, the Companys MRI food ingredients manufacturing facility at Punta, Sta. Ana, Manila is fully
operational, but certain support systems such as the facilitys network infrastructure, logistics, plant management, distribution,
warehousing, quality assurance, and finance and administration are expected to be operational before the end of the first quarter of 2013.
Moreover, applications for the relevant permits, licenses, and certifications are ongoing and expected to be completed by the start of the
second quarter of 2013.

The Company also has a fully equipped development lab and test kitchen in its processing facilities
which it uses to develop and test new products to further diversify existing major product lines or
create entirely new product lines. It also has a fully equipped quality assurance and microbiological

87

laboratory with advanced analytical equipment to ensure the quality and safety of raw materials and
finished goods as well as to ensure comprehensive traceability in case of product recalls.
Raw Materials and Suppliers
The Company requires a variety of raw materials for its food ingredient products, primarily vegetable
oils, palm oils, coconut oil and feedstocks for specialty oils. Palm kernel oil is used to make personal
care products such as creams, while traded vegetable oils, such as soybean, rapeseed, corn and
sunflower oil are used for a variety of products. The Company sources raw materials for its food
ingredients business from a total of 273 suppliers. The Companys suppliers of vegetable oils,
soybean, rapeseed, corn and sunflower oil, as well as feedstock for specialty oil blends, are located in
Southeast Asia and Europe. These raw materials are commodities readily available at market prices
from numerous local and international sources, and the Company has not and does not expect to
encounter any material difficulties in sourcing any of the raw materials required for its food ingredient
operations. The Company also sources packaging materials from a total of 129 third-party suppliers.
The Company is not dependent on a single or group of suppliers for its raw materials, packaging and
other supplies, and no supplier of the Companys food ingredient business accounted for greater than
5% of its aggregate cost of sales and services for the seven months ended July 31, 2012. To further
protect against volatility in commodities prices, the Company strategically enters into commodities
hedging transactions, and believes it has also fostered strategic alliances with its local and
international suppliers.
Competition
The Companys primary competitors in the Philippine food ingredients manufacturing business
include Cargill Philippines, Sime Darby Pilipinas Inc., Fuji Oil Co. Ltd., Goodman Fielder
International Philippines Inc., Wilmar International Ltd. and Caraga Oil Refining, Inc. For its food
safety solutions, the Companys competitors generally comprise multinational corporations. The
Company competes with competitors in the food ingredients business primarily on design and quality
of products. For the year ended December 31, 2011, based on internal estimates, the Company held an
approximate 50% share of the Philippine specialty oils, specialty fats and specialty ingredients
markets, respectively, as measured by total revenues.
The Company believes that its specialty food ingredient and oils business offers the most diverse and
comprehensive product portfolio in the Philippines, providing products to a broad spectrum of the
food and beverage industry. By providing customized production services and continually
introducing new products in response to customer requests and changing market conditions, the
Company believes it has been able to maintain healthy profit margins and a competitive advantage
over competitors that deal only in bulk goods, standard or commoditized products or a single product
or limited number of products.
In addition, the Companys ability to provide just-in-time delivery by leveraging the logistics services
of D&L Industries and the barging and terminal system operated by an affiliate company also provide
a competitive advantage over international companies.
Customers
The Company has a broad and diverse customer base, consisting of Philippine companies in a broad
range of industries, including the noodles and snack food, dairy and culinary, food service, biscuits
and confectionery and bakery segments, as well as domestic and international quick-service restaurant
chains and catering services.
For the seven months ended July 31, 2012, Oleo-Fats top ten customers purchased approximately
46,000 metric tons of food ingredients from Oleo-Fats, accounting for approximately 64% of its
revenues, with its three largest customers, which are all multinational companies, accounting for

88

approximately 20%, 15% and 8%, respectively, of Oleo-Fats revenues for the period. Many of the
Companys major customers maintain two suppliers, but designate one as the primary supplier and
place approximately 80% of their orders with that supplier. Oleo-Fats is often the primary supplier for
its major customers. A table indicating several of the Companys key food ingredients customers and
the end-products they produce from the Companys products is set out below.

Customer
name

Length of
relationship

San Miguel
Corp.

Product(s) purchased

End- products

15 years

Specialty fats blends,

vegetable oils

butter and margarine; cheese and cheese

spreads; ice cream

Universal
Robina Corp.

More than 20
years

Specialty fats blends,

shortenings, vegetable oils

biscuits; cookies; crackers; chocolate;

confectionary products; flour; corn-based
/ potato-based snack chips; coffee
creamer

Monde M.Y.
San Corporation

More than 20
years

Specialty fat blends,

shortenings, vegatable oils

instant noodles; biscuits; cookies;

crackers

Jollibee Foods
Corp.

18 years

Various flavored mixes,

flavored syrups, coffee
mixes, pancake mixes,
specialty frying fats

chicken; pancakes; desserts; french fries

Other key food ingredients customers include Unilever Philippines Inc., Nestle Philippines, Inc.,
Pfizer Nutritionals, Golden Arches (McDonalds), Krispy Kreme, Yulefest (KFC) and Castlemaine
(Mr Donut).
The Company has developed long-standing relationships with its key customers. These relationships
provide the Company with stability in off-take volumes. The Companys customers are based
primarily in the Philippines, which represented 95% of the Companys revenues derived from sales of
food ingredients and oils for the seven months ended July 31, 2012.
Colorants and Plastics Additives
Overview
The Company, through its subsidiaries FIC and DLPC, manufactures custom designed and formulated
pigment blends, color and additive masterbatches and engineered polymers for a wide range of
applications in the plastics industry. FIC focuses on the Philippine domestic market while DLPC
focuses primarily on the export market.
The Company believes it has the longest history in the Philippine plastics color and compound
industries, and its brand has been trusted by customers for nearly 50 years for their color concentrate
requirements for films, tapes, moldings, wires and cables, high-end fibers and other engineered
polymers. The Company at various times has entered into technical assistance agreements with select
international partners to increase its expertise in terms of research and development. For example,
through its arrangements with Nippon Pigment Singapore, the Company upgraded its management
and production processes and color and compounding technology to international standards through
training key employees and integrating processes for compound formulation, inspection, equipment
specifications, trouble shooting and quality control. Through collaboration with Janie Color Works of
Taiwan, the Company increased its expertise in pigment utilization and formulations.

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The Company works with its customers to create color products and solutions that best represent the
customers products in the market, with research showing that a products color and appearance are
key factors in a consumers buying decision and a critical element in the successful marketing of a
product. The state-of-the-art technology used by the Company has given its end-user customers a
broad range of color choices and forms.
The Company also provides additives for the plastics processed by their customers that enable
reduced production costs or add desirable features and properties to plastics. High oil prices in recent
years have increased production costs for plastics producers in terms of the procurement of plastic
resins and other raw materials and ancillary services such as transportation, utilities and packaging.
Appropriate filler additives can reduce production costs by substituting polymers with relatively inert
and inexpensive materials that make the end product cheaper by weight. Filler additives may also
increase the performance of a plastic by modifying its properties, as additives contribute a wide range
of properties to plastic products. For example, additives can lower the flammability of plastics used
in household items, reduce friction between plastic parts or increase a plastics resistance to
degradation caused by light sources for items such as outdoor furniture.
In addition to providing colorants or additives to customers for their own processing, the Company
also provides custom engineered polymers, or engineered polymers, designed to have the precise
color and properties required by the customer. Custom compounded products are delivered as plastic
pellets to the customers production plant for conversion into end-use products.
Products/Services
FIC and DLPC provide three categories of products/services namely: plastic color masterbatches,
plastics additives masterbatches and engineered polymers. Products, such as dry or liquid color
masterbatches, are provided directly to the client or bundled with services such as customized color
masterbatch formulation, toll and custom compounding and color matching. Other services provided
by the Company include color formula verification, color science training, application development,
and testing and laboratory work. The Company develops approximately 4,000 new product
formulations each year, reflecting its ability to customize products suited to its customers needs.
Plastic color masterbatches
Plastic color masterbatches are color pigments dispersed in a plastic base. The Company has
developed a unique set of fully dispersed and highly concentrated pigment preparations patterned after
the tinting system used successfully in the paint and coating industries.
The Company provides color compounding for various resins, including styrenic compounds such as
acrylonitrile butadiene styrene, polystyrene, polycarbonate and other variants; polyolefin compounds
such as polyethylene and polypropylene; and soft and rigid polyvinyl chloride (PVC) compounds.
The Company leverages its state-of-the-art analytical and testing equipment to provide color matching
services generally within a 24-hour period, which the Company believes is the most efficient
turnaround time in the Philippine market, and produces consistent color throughout the production
process.
Colormate is the Companys proprietary line of color concentrate. Colormate products can be used in
a wide range of resins. Applications include film and tapes, moldings, wires and cables and high-end
fibers. Colormate products include:
Color masterbatches. The Company uses state-of-the-art computer color matching hardware and
software to create standard or precise custom color masterbatches guaranteed to match the most
stringent specifications. The majority of the Companys work comprises engineering and
formulating custom masterbatches for specific applications and customer needs;

90

 Special effect masterbatches. Pearlescents, metallics, fluorescents, phosphorescents and marbles

are just a few special effect masterbatches available that can be tailor-made to meet various
customer preferences;
White masterbatches. Grades of up to 80% titanium dioxide loadings. Available in large volume
utility grades and high performance grades; and
Black masterbatches. Grades with up to 40% carbon black loadings in a wide range of resins are
available for low-cost to high-performance products.
Plastic additive masterbatches
For its plastic additive masterbatch products, the Company employs a process similar to polymer
color compounding to add various additive materials into a molten plastic base to produce a material
with a variety of desired qualities, such as a particular texture or strength.
BIOmate. BIOmate is the Companys proprietary mixture of prodegradant catalyst additives that
when added to conventional plastics such as polyethylene and polypropylene, makes them
decompose by oxidation and biodegradation. Typical applications for this product include carrier
bags or shopping bags, refuse sacks, aprons, garbage bags and bin liners, disposable gloves, plastic
sheeting for a variety of applications in agriculture and horticulture, bread bags, frozen food bags,
wrappers for cigarette packets and cartons, shrink-wrap, pallet-wrap and bubble-wraps.
Polymate. Polymate is the Companys proprietary line of additive concentrates designed to
enhance performance of conventional plastics such as polyethylene and polypropylene. Polymate
products include
o

Processing aids. These additives improve efficiency in the plastic products

manufacturing process by lowering the friction between the molten plastic and metal
surfaces of production equipment such as screws, barrels and dies, thus reducing
energy use, eliminating dye buildups and reducing back pressure; and by eliminating
melt fracture and thus generating less scrap material. Typical applications for these
additives include multi-layer packaging films like soap and detergent packaging,
diaper packaging and food packaging, as well as bottle molding;

Slip/anti-block agents. These additives reduce surface friction and the tendency of
thin films to adhere to each other. Typical applications for these additives include
bags, sheets used in lamination and multi-layer films in food packaging;

Antistatic agents. These additives prevent the build-up of static electricity in plastic
resins. Static electricity may create undesirable handling situations to plastic
processors because of plastics clinging and sticking, as well as dust and dirt
attraction. Furthermore, a sudden spark from static electricity might cause damage to
certain products or pose a fire or safety hazard. Typical applications for these
additives include electronic film packaging, powder bottles and caps and food
containers;

Ultraviolet (UV) stabilizers. These additives extend the service life of plastics by
inhibiting their degradation caused by light sources as well as protecting bottle
contents from UV damage. Typical applications for these additives include
greenhouse films, crates, outdoor furniture, baby lotion bottles, mouth wash bottles,
sacks and ropes;

91

Clarifying agents. These additives enable plastic processors to reduce haze and
enhance the clarity of polypropylene. A typical application for this additive includes
housewares, beverage cups and lids.

Purging compounds. These compounds reduce clean up time, resin waste and
electricity utilization. These compounds are typically used in plastics products
manufacturing, as well as in blow molding of bottles and injection molding of caps,
crates and appliances;

POLYMIX. POLYMIX is the Companys proprietary mineral filled polymer improver/modifier

intended for plastic film and bottle applications, and is mainly used by film and bottle converters
wanting to produce clean and opaque products at the highest efficiency while at the same time
reducing costs, since Polymix is priced lower than resins such as polyethylene and polypropylene.
POLYBLEND. POLYBLEND concentrates are the Companys proprietary specialty mineral
concentrates used in appliances, automobiles and outdoor furniture.
FRESHMATE. The Companys proprietary FRESHMATE additives include a range of additives
that, when added to conventional plastics such as polyethylene and polypropylene, create modified
atmospheric packaging, which retards the ripening of certain fruits and vegetables and thus reduces
spoilage. A typical application of these additives is mango box liners. FRESHMATE additives are
also used to create anti-microbial/anti-algae/anti-mold plastics which can protect finished products
from deterioration, discoloration and odors. Typical examples for this application include
agricultural films, barrier films, mats, household appliances, computer parts, packaging, pipes,
wires and cables, vinyl sheets, shower curtains and window profiles.
Engineered polymers
The Company manufactures a variety of custom engineered polymers, using a wide range of locally
and internationally available resins and compounds, additives, fillers and colorants, in addition to
various compounding technologies and expertise developed over the years, to create custom designed
and formulated polymers that customers use for extruding, forming or molding their products. Enduse products containing the Companys engineered polymers include soft and rigid PVC compounds
such as automotive wiring, building wires, bottle cap liners, semi-conductor packaging, rigid bottles
and building products; polyolefin compounds such corrugated tubing, indoor and outdoor furniture
and packaging film; and styrenic compounds commonly used in appliance casings and similar parts.
Bio-Plast is the Companys proprietary line of biodegradable compounds. Bio-Plast is a starch-based,
environmentally-friendly compound that is 100% biodegradable and can replace foamed polystyrene,
a non-biodegradable material, in manufacturing loose fillers or packing peanuts.
The Company also offers its customers toll compounding services. Toll compounding services
enables customers to offer specialty compounds branded with their own label. Customers may take
advantage of the Companys extensive engineering and manufacturing experience to handle
production and logistics, increasing their effective manufacturing capacity without incurring
expansion costs.
Production Process
The typical production process for compound and masterbatch production generally proceeds as
follows:

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Raw
Material
weighing

Mixing

Extrusion

Packaging

Warehousing

Compounding and masterbatch production consists of preparing plastic formulations by mixing and/or
blending polymers and additives in a molten state. Plastic compounding typically involves several
basic steps. Base polymer materials, most commonly polyethylene or polypropylene, are weighed and
heated to a molten state. Additives in the form of pellets, flakes, or powders are conveyed to a
container of the molten base polymer material. The mixture goes through a number of blending and
dispersion steps to incorporate these additives into the base material and achieve a homogeneous final
product. Processing may also include steps to reduce the chemical volatility of the material. Once all
processing steps are complete, the material is cooled and extruded into pellets, which are then
packaged for distribution or sale. Critical criteria, such as heat regulation and dispersive and
distributive mixing, must be monitored and controlled to ensure a quality end-product.
Equipment used in the production process include twin and single screw extruders, mixers, kneaders,
weighing scales and bagging lines. Other application equipment includes a filter value testing line, a
two-roll mill, an injection molding machine, HDPE and LDPE film lines and hot and cold press
testing machines.
Facilities and Production Capabilities
The Company operates two state-of-the-art facilities in the Philippines for the production of colorants
and plastics additives, located in Quezon City, Metro Manila and Laguna, south of Metro Manila,
respectively. Both facilities are leased long-term from related parties Chemrez Technologies, Inc. and
LBL Industries, Inc.
The Quezon City facility is located next to the Companys headquarters, and as such the Companys
colorants and plastics additives production and design teams have ready access to the Companys
shared research and development facilities, including certain state-of-the-art analysis and testing
equipment.
The Companys Laguna production facility has a gross lot area of 4.3 hectares. Situated in the fastgrowing Laguna region south of Metro Manila in a Philippine Economic Zone Authority (PEZA)
approved special economic zone, the Companys subsidiary DLPC is registered with PEZA as an
export-oriented manufacturing and services facility and as such currently enjoys certain tax and other
incentives from the Government, such as a four year income tax holiday ending in March 2014, but
extendable if certain criteria are met for another two-year period, after which the applicable income
tax will be 5% of DLPCs gross income. The Company believes this facility is not only well
positioned to cater to the export market but also to benefit from a current trend among international
manufacturers, particularly Japanese manufacturers, to establish manufacturing plants south of Metro
Manila.
A table setting out key aggregate operating statistics for the Companys colorants and plastics
additives production facilities for the year ended December 31, 2011.

Facility
name
DLPC

Location
Canlubang,
Laguna

Gross
floor
area
(m2)
20,000

No. of
production
Products produced
lines
Plastic colors and
additives,
14
engineered
polymers

93

Rated
Capacity
(MTPA)

Capacity
Utilization(1)

50,000

60%

Bagumbayan,
Quezon City

FIC
Note:
(1)

5,000

Plastic colors and

additives

10

10,000

70%

The rated capacities of DLPCs and FICs facilities are derived assuming three eight-hour shifts of operations.
DLPCs and FICs policy, however, is to operate their respective facilities for only two eight-hour shifts daily for
quality control purposes, resulting in a relatively low rate of capacity utilization.

Equipment
The Company has a variety of state-of-the-art equipment that it uses for product development and
quality control activities. The equipment includes color property analysis equipment such as a
spectrophotometer; mechanical and physical property testing equipment such as tensile testers, melt
flow index testers and durometer hardness testers; thermal property testing equipment such as
Metrastat heat stability testers, Geer aging ovens and brittleness testers; flammability testing
equipment such as a UL flame chamber and an oxygen index tester; electrical property testing
equipment such as a volume resistivity meter; and various analytical equipment, such as gas
chromatography, an atomic absorption spectrophotometer, a thermogravimetric analyzer, a Fourier
transform infrared spectrometer, an energy dispersive x-ray fluorescence spectrometer and
microscope image analysis system.
Raw Materials and Suppliers
The Companys primary raw materials for FICs and DLPCs products, which include pigments,
resins and other chemical additives, are procured from various local and international suppliers. The
major suppliers to the Companys colorants and plastics additives business include major
multinational companies such as LG International, Samsung, BASF, Dow Chemical, Exxon Mobil
and Honeywell, as well as regional players such as Janie Colors and Zhuhai Toyo Ink. No supplier of
the Company accounted for greater than 5% of its aggregate cost of sales and services for the seven
months ended July 31, 2012; the Companys top five suppliers accounted for approximately 2.0% of
FICs cost of sales and services for the seven months ended July 31, 2012.
Although it has generally good relationships with its existing suppliers, the Company believes that
alternative suppliers for its raw material requirements are readily available. In addition, the Company
has and will continue to purchase certain raw materials through spot purchases on the open market
from time to time. As a result of the general availability of these raw materials, the Company has not
and does not expect to encounter any material difficulties in sourcing any of the raw materials for the
operations of FIC and DLPC.
Competition
The Companys competitors in the engineered polymers sector primarily include Crown Asia
Compounders Corporation, Tosoh Corporation from Japan, Toyo Ink Group and other domestic and
regional importers; while its competitors in the colorants and additives sectors include approximately
ten domestic manufacturers and twelve importers, including Ampacet, PolyOne and Clariant. The
Company primarily competes in the colorants and plastic additives business on the basis of price,
quality and reliability. As of the year ended December 31, 2011, based on internal estimates, the
Company held an approximate 54% share of the Philippine colorants, plastics additives and
engineered polymers business, as measured by total revenues.
Customers
The Companys colorants and plastics additives business has a broad and diverse customer base,
consisting of over 500 companies in the Philippines and internationally, operating in a wide range of
industries, including food and beverage, household and personal care and electronics, among others.

94

The Companys top ten customers accounted for approximately 44.6% of the Companys combined
sales volume for the seven months ended July 31, 2012.
The Companys colorants and plastics additives customers are located across the Philippines and in
various regions around the world. The Company markets its products, either directly or through an
agent, in European countries such as Hungary, Italy and Slovenia; in the Americas in Brazil, Canada,
Guatemala, Mexico, Peru, and the United States; in the Middle East in Egypt, Lebanon and Turkey;
and in Asian Pacific countries such as Australia, China, Hong Kong, Indonesia, Japan, Korea,
Malaysia, Taiwan, Thailand and Vietnam.
For the year ended December 31, 2011, approximately 50% of the colorants and plastic additive
products sold by the Company were used in the manufacturing of automotive products; approximately
15% were used for packaging materials; approximately 13% were used for personal and home care
products; approximately 12% were used in food and beverage products; approximately 5% were used
for appliances and approximately 5% were used for industrial products. A table indicating some of the
Companys key customers for its colorants and plastics additives business, and the end-products
produced by its customers from the Companys products, is set out below.
Customer name
Sharp Philippines
Panasonic
Philippines
Sumitomo Electric
Wiring Systems
Yazaki
Corporation
San Miguel
Corporation
Universal Robina
Corporation

Length of relationship
16 years
16 years
21 years
24 years

Product(s) purchased
Plastic colors and
compounds
Plastic colors and
compounds
Plastic colors and PVC
compounds
Plastic colors and PVC
compounds

16 years
17 years

End- products
Electrical appliances
Electrical appliances
Automotive wiring
Automotive wiring

Engineered polymers

Bottle cap liners

Plastic colors

Food containers, bottle caps

Oleochemicals, Resins and Powder Coatings

Overview
The Companys affiliate Chemrez (and its subsidiary Chemrez, Inc.), manufactures and markets an
extensive line of oleochemicals (such as biodiesel), resins and powder coatings for both domestic and
export markets. Exports comprised approximately 17% and 20% of Chemrezs revenues in 2010 and
2011, respectively, and approximately 19% of Chemrezs revenues for the seven months ended July
31, 2012. Oleochemicals and resins-based products (comprising resins and powder coatings)
represented 43% and 57%, respectively, of Chemrezs consolidated revenues for 2011, and 40% and
60% of its revenues for the seven months ended July 31, 2012. As of the date of this Prospectus, the
Company owned approximately 34% of Chemrez, with an additional approximate 32.8% owned by
affiliates of the Lao Family. In addition, members of the Lao Family hold four of the seven seats on
Chemrezs board.
Products
Oleochemicals CME/biodiesel
The Company, through Chemrez, is a leading producer of CME or biodiesel (when used an additive to
diesel fuel) in the Philippines, in terms of installed capacity, according to the Philippine Department
of Energy (DOE). Chemrez markets its biodiesel under the brand name BioActiv. BioActiv is
mainly used as a diesel fuel additive and its marketable by-products include crude and refined
glycerin. Chemrezs CME facility and coconut oil-based biodiesel products are accredited by the

95

DOE, and the Philippine Board of Investments has recognized Chemrezs CME facility as a pioneer
facility. The Companys sales generated from biodiesel are entitled to an income tax holiday for a
period of six years from June 2007 as a result of its registration as a pioneer enterprise with the
Philippine Board of Investments (BOI). In September 2011, Chemrez transferred its biodiesel
segments registration with the BOI to that of a renewable energy developer that will allow it to avail
of incentives under the Philippine Renewable Energy Act. Under the Philippine Renewable Energy
Act, the Company can avail of a seven-year income tax holiday, exemption from value-added tax and
duty free importation of equipment and machinery, and the reduction of the applicable corporate
income tax after the expiry of the income tax holiday (set to expire in May 2013) to 10% of net
income.
Chemrez is also a major contributor to the National Biofuels Program under the Biofuels Act of 2006,
which mandates that all diesel fuel in the Philippines contain biodiesel at a concentration of 2%
beginning in 2009. As of the date of this Prospectus, the Government is considering increasing the
mandate to 5%. In anticipation of these prospective changes, Chemrez invested to increase the
capacity of its biodiesel plants in 2011 from 90,000 MTPA to 110,000 MTPA. See Facilities and
Production Capabilities.
Chemrez believes that its commitment to excellence in quality, delivery and cost competitiveness
enables it to continue to be a primary domestic biodiesel supplier of choice by oil companies and
institutional buyers. The extensive quality management systems of Chemrez and its investments in
logistics infrastructure and supply chain management were designed to help assure the continuous
bulk supply of compliant biodiesel to local oil companies and generate cost efficiencies that are
passed on to its customers. For the year ended December 31, 2011, approximately 43% of Chemrezs
revenues were derived from sales of its oleochemicals products.
Oleochemicals other
Other specialty oleochemical products of Chemrez include glycerin and other CME derivatives, which
are used mainly as surfactants or foaming agents for soaps, shampoo, lotions and detergents, and are
sold principally in the export markets. Chemrez has recently added sulfate-free products, body soap
and shampoo products to its product portfolio in response to changing market conditions. Chemrez is
responding to challenging market conditions by developing its CME export markets as well as new
product applications of CMEs. Chemrez has recently leveraged its pioneering process technology to
develop products that have high export potential, such as foam boosters and emulsifiers.
Chemrezs specialty oleochemical facility and products were likewise granted BOI registration as a
New Export Producer of oleochemical specialties and derivatives, enjoying incentives as a nonpioneer enterprise with a four-year income tax holiday, among others, without prejudice to upgrading
to a pioneer facility upon further evaluation.
Powder Coating, Resins and Other Products
Chemrez has over 30 years of experience and expertise in the manufacture and marketing of powder
coating, resins, and other specialty resin-based chemicals, having essentially pioneered the production
of powder coatings in the Philippines.
Powder coatings. Powder coatings are protective coating materials applied to metal and other
surfaces through an electrostatic coating process to provide resistance against heat, weather, UV
light and certain chemicals. They are used in home appliances, metal furniture, fixtures and
fittings, mechanical parts, tools and equipment and also in the construction industry. For the year
ended December 31, 2011, approximately 16% of Chemrezs revenues were derived from sales of
its powder coatings products.

96

 Resins. Resins are polymerized or chemically modified substances which are manufactured in
accordance with a variety of technical specifications to suit specific industry uses, end-user
applications, and customer requirements. They include polystyrene resins for the plastics industry,
polymer emulsions for the paint industry, and polyester resins for the construction, shipping, and
furniture industries. For the year ended December 31, 2011, approximately 35% of Chemrezs
revenues were derived from sales of its resins products.
o

Polystyrene. Polystyrene is an aromatic polymer made from the monomer

styrene, a liquid hydrocarbon that is manufactured from petroleum. Highly
commoditized, it is one of the most widely used plastics today, used to
manufacture such products as disposable cutlery, plastic models, compact disc
cases, packaging materials, insulation and foam drink cups. The end product is
delivered to customers in the form of plastic pellets. Raw materials comprise byproducts of crude oil refining and are sourced from overseas sources.

Polymer emulsions. Polymer emulsion refers to the process of enabling large

molecules built up from a number of similar units bonded together (a polymer)
to remain in suspension dispersed evenly within a solvent even though they are
too large to actually dissolve in the solvent. Polymer emulsion products include
paint and textile binders, paint additives and construction chemicals. Waterbased paints are a common end-user product, while a typical marketable byproduct is a cement modifier.

Polyester. Polyester is a category of polymers which contain the ester functional

group in their main chain. Chemrez produces unsaturated polyesters used to
manufacture a variety of resins for fiber reinforced plastics (primarily fiberglass)
and molded plastics, such as artificial stones and figures.

Other Products. Other specialty resin-based chemicals produced by Chemrez include resins and
additives. These products are used in industries such as paints and coatings, foam, textile, tape and
adhesives, construction, plastics, oleochemicals and fiber-reinforced plastics. Chemrez also
provides total product solutions to its customers, such as customized product formulation for
private label products.
Production Processes
Oleochemicals
Oleochemicals, such as CME, are produced from the refining and transesterification of coconut oil.
Initially, crude coconut oil undergoes physical refining to remove natural impurities and produce
refined, bleached and deodorized (RBD) coconut oil.
Afterwards, RBD coconut oil goes through a transesterification process in which RBD coconut oil is
reacted with methanol to produce CME and its by-product, glycerin.
CME can be further distilled and fractionated to produce several cuts of other methyl esters.
Fractionation of CME basically involves separating CME carbon chains to three different products
namely: short chain (C8-C10 esters), medium chain (C12-C14 esters), and long chain (C16-C18
esters) methyl esters. These fractionated methyl esters are used as raw materials to produce a wide
variety of specialized surfactants such as super amides and betaine.
The following diagrams outline the basic production process used in the Companys manufacture of
CME, methyl esters and specialty surfactants.

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Process for producing CME

Crude
Coconut
Oil

Oil
Refining
process

Transesterification
process

RBD
Coconut
Oil

Coco
Methyl
Ester

Process for fractionating methyl esters

Coco
Methyl
Ester

FractionationDistillation
Process

Fractionated
Methyl Ester

Process for producing specialty surfactants

Coco
Betaine
Fractionated
Methyl Ester

Amidation
Process
Super
Amides

Facilities and Production Capabilities

Chemrezs three production facilities are situated in Bagumbayan, Quezon City on a lot comprising an
aggregate land area of 57,011 m2 and with an aggregate gross floor area of 17,339 m2.. Chemrez
leases the land for its facilities from LBL Industries, Inc., a related party, except for the manufacturing
and warehousing facilities used in its powder coating operations, which Chemrez owns.
A table setting out key aggregate operating statistics for the Chemrezs oleochemicals and biodiesel
production facilities for the year ended December 31, 2011 is set out below.

Facility name
Oleochemicals
Facility
Resins Facility
Powder Coatings
Facility

Products produced
Amides, Methylesters,
Glycerides
Polystyrene, Emulsions,
Unsaturated Polyesters
Powder Coatings

98

No. of
production
lines

Rated
Capacity
(MTPA)

Capacity
Utilization

110,000

45%(1)

55,000

60%(2)

2,280

70%(2)

Notes:
(1)
(2)

This facilitys capacity was increased from 90,000 MTPA to 110,000 MTPA in 2011.
The rated capacities Chemrezs facilities are derived assuming three eight-hour shifts of operations. Chemrezs
policy is to operate its facilities for only two eight-hour shifts daily for quality control purposes, resulting in a
relatively low rate of capacity utilization.

The Company expanded its capacity for the oleochemicals and resins manufacturing facility to
increase production that would meet the projected increase in export demand. With the new capacity,
the marketing group is aggressively appointing agencies and distribution channels in Asia, Europe and
North America to widen its client base.
Raw Materials and Suppliers
Chemrezs primary raw materials for its products are set out below.
Oleochemicals
o

Coconut oil main ingredient from which fatty acids and glycerides are derived
to produce all oleochemicals;

Amines combined with coconut oil to produce foam boosters; and

Methanol combined with coconut oil to produce CME.

Monomers building blocks for all polymers;

Surfactants and catalysts initiate the polymerization of monomers to build

polymers; and

Epoxy and polyester resins impart a coatings performance and properties.

Resins

Powder Coatings
o

Pigments impart finished color and effects to coated surfaces.

These raw materials are sourced mainly from a large number of local and international suppliers. The
major suppliers to the Chemrezs business include Eastman Chemical Ltd., Itochu Corp. and Kolmar
Group AG. No supplier accounted for greater than 5% of Chemrezs aggregate cost of sales and
services for the seven months ended July 31, 2012, and Chemrez believes that alternative suppliers are
readily available for its raw material requirements. In addition, Chemrez has and will continue to
purchase certain raw materials through spot purchases on the open market from time to time. As a
result of the general availability of these raw materials, Chemrez has not and does not expect to
encounter any material difficulties in sourcing any of its required raw materials.
Competition
Chemrezs main competitors include importers and traders in oleochemicals, particularly biodiesel,
resins and powder coatings. Chemrez believes its primary competitors for these products in the
Philippines include CBH Incorporated, RI Chemical Corporation, Pacific Resins, Dow Chemicals and
BASF. Chemrez believes it supplied approximately 20% of the Philippines biodiesel requirements in
2011, according to data derived from the DOE. Chemrez primarily competes on the basis of price.

99

Chemrez believes it is also a market leader in the Philippine powder coatings and resins industries,
and has maintained its market leadership through competitive pricing, consistent quality and the
ability to offer product customization, as well as the provision of on-site after-sales technical support.
Chemrez also continues to invest in research and development to develop new powder coating and
resin products with improved and innovative features. Chemrez leverages its extensive market
knowledge gained through significant interaction with its customers and research and development
expertise to respond quickly to customer requirements and offer newer and better products.
Chemrez believes oleochemicals products, particularly resins and powder coatings, are often illegally
smuggled in the Philippines, evading tax and other regulatory and quality controls and sold at prices
below those of the Company and other legitimate manufacturers. The Company believes these illegal
smuggling activities have adversely impacted and may continue to adversely impact the Companys
competitive position and results of operations. See Risk Factors Smuggling of competing products
may adversely affect the Companys financial performance.
Customers
A table indicating some of Chemrezs key customers, and the end-products produced by its customers
is set out below.
Customer name

Length of
relationship

Product(s)
purchased

End- products

Petron Corporation

20 years

CME

Biodiesel fuel

Pacific Paint Inc.

(Boysen paints)

30 years

emulsions, colorants,
additives

Boysen house paints

Polyfoam-RGC
International Corp.

7 years

foam colorants

Uratex foam

Plastech Industrial
Corp.

21 years

polystyrene

Food packaging

Peerless Products Inc.

7 years

coco-amides

Champion detergents

For the year ended December 31, 2011, approximately 39% of products sold by Chemrez were used
in the manufacturing of oil and gas end-use products, approximately 14% were used for personal and
home care products, approximately 17% were used for plastics products, approximately 16% were
used for paint and coating products, approximately 6% were used for powder coating products and
approximately 8% were used for composite products.
Aerosols
Overview
The Company, operating through its subsidiary Aero-Pack, is the first and only company in the
Philippines to design and develop customized aerosol products focusing on maintenance chemicals
and home and personal care products. Aero-Pack also supplies three-piece aerosol cans and
components, which comprise the majority of aerosol product requirements in the Philippines and
globally. Aero-Pack also provides customized contract filling and formulations services.
The Company offers products with a wide range of applications, including insect control, industrial
maintenance chemicals, home and personal care products. The Company also produces, on a toll
manufacturing basis, non-aerosol products such as insecticides, liquid and gel disinfectants, cleaners,
polishers and liquid soaps.

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Products and Services

The Company offers a one-stop shop for customers, comprising supply of aerosol cans and
components, as well as formulating, compounding and filling services, as further set out below.
Homecare. Products include insect control sprays, furniture polish, air fresheners and
disinfectants, fabric fresheners, ironing aides, upholstery and carpet cleaners, and pan sprays.
Personal care. Products include body sprays, anti-perspirant sprays, deodorizing body sprays,
insect repellants, face mist, hair color, hair structuring sprays, disinfectant sprays, and gel and
mousse sprays.
Maintenance chemicals. Products include spray paints, brake cleaners, degreasers, penetrating oil,
mould release sprays (silicone and non-silicone), chain lubricants, chain grease, air conditioner
cleaners, automotive interior dressings, automotive interior dressings, automotive upholstery and
carpet cleaners, butane for lighters and portable stoves, air dusters, and contact cleaners.
Production Process
A summary of Aero-Packs typical production process for its aerosol products as set out below.

Materials
Preparation

Crimping
Gassing

Filling

QC

Delivery

QC

QC

Packing/
Tapping

Palletizing

QC

Leak
Test

QC

Batch
Numbering
g

QC

The initial phase of Aero-packs production process is materials preparation, wherein formulations,
raw materials and other components are inspected and quality controlled before filling into the aerosol
container. Propellant is then injected into the aerosol can, which is then tested for leaks. The resulting
product is then packed for delivery to the customer. Aero-pack conducts quality control checks at each
stage to ensure the performance of the product.

101

Facilities and Production Capabilities

The Companys aerosol products manufacturing facility is located in Quezon City, Metro Manila,
adjacent to the Companys management headquarters. It sits on a 1.2 hectare plot of land, which is
leased from LBL Industries, Inc., a related party, and has a gross floor area of approximately 12,000
m2. The facility has three automated filling production lines which allow for the filling of both aerosol
and non-aerosol products in containers of varying heights and diameters. The facility conforms with
German and U.S. quality standards. Each filling line can produce approximately 500,000 cans per
month, translating into an aggregate annual production capacity of approximately 18,000,000 pieces.
For the year ended December 31, 2011, the capacity utilization of Aero-Packs production facility was
approximately 60%.
The Companys aerosol products formulation and development activities generally take place at the
Companys own aerosol laboratory located at its plant site. The Company also uses various state-ofthe-art analytical equipment provided by D&L Industries.
Raw Materials and Suppliers
The Companys major suppliers are from Korea and Japan for the tinplates, Thailand and China for
the aluminum cans, and USA, Germany and China for the valves, spray caps and actuators. Solvents
and propellants are primarily sourced from major oil companies.
Competition
The Company is currently the largest Philippine toll manufacturer of household aerosol products; as
such it competes primarily with importers of finished aerosol products, and to a lesser extent with
much smaller Philippine aerosol manufacturers. The Company believes it is currently the market
leader in the Philippines for home care and personal care aerosol products.
Customers
A table indicating some of the Companys key customers for its aerosol business, and the endproducts produced by its customers from the Companys products, is set out below.
Customer name
Suyen Corporation
(Bench)
3-M Philippines, Inc.
Consumer Care Products,
Inc.
Neuman & Mueller, Phils.,
Inc.
Greencoil Marketing
Corporation
Global Winds Corporation
E.B. Creasy & Co. plc
Do It Marketing Co., Inc.

Length of relationship
14 years
7 years

End- products
Bench Body Sprays
3M Brake & Parts Cleaner
3M Penetrating Oil
Insect control products
Home care products
Automotive care products

5 years

7 years
Advanced Aerosol Multi-Insect Killer
13 years
Lion Tiger Insect Killer
6 years
Pest Off Insect Killer
5 years
Ninja Strike Cockroach Killer
5 years
Do It Aerosol Spray Paint

For the year ended December 31, 2011, approximately 41% of the aerosol products sold by the
Company were used in the manufacturing of personal care end-use products, approximately 23% were
used for homecare products and approximately 36% were used for maintenance products.

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MANAGEMENT AND ADMINISTRATION

D&L Industries maintains significant operational control of Oleo-Fats, FIC (including DLPC) and
Aero-Pack, as well as of several affiliate companies that provide goods and services complimentary to
those provided by the Company, including FIC Marketing Co. Inc., FIC Tankers, Inc., Consumer Care
Products Inc. and LBL Industries, Inc., among others, through a contractual shared services model.
In particular, D&L Industries provides the following services to its subsidiaries, Chemrez and three
affiliate companies:
Executive Management - including supervision of all business operations;
Administrative Support - including finance, treasury, accounting, internal audit, human resources,
information technology and legal services;
Logistics Support - which includes warehousing, distribution and delivery, transportation fleet
management, tank farm management, port clearing and procurement; and
Technical Services - which includes research and development, quality control and assurance and
use of trademarks. The technical services for all business operations are concentrated in D&L
Industries research and development department, which the Company believes has been a critical
driver for the success of each of its business lines.
D&L Industries maintains its own analytical laboratory that provides technical services and is located
in its headquarters in Quezon City, Metro Manila. While D&L Industries continues to provide
management services for this facility, specific research, development and application activities are
conducted, and expenses are incurred, by each of Oleo-Fats, FIC (including DLPC) and Aero-Pack
independently. D&L Industries and its subsidiaries research laboratories employ highly qualified
chemical engineers, chemists, consultants, technicians and support staff who service the customers of
the Company in the following industries: plastics and rubber, aerosol, paint and ink, soap and
detergent, paper, adhesive, textile, cosmetics and food and beverage.
SALES, MARKETING AND DISTRIBUTION
The Company employs a decentralized sales strategy for its operations; each of the Companys
subsidiaries and Chemrez have their own dedicated sales team to market to clients and provide aftersales services. These marketing team members, who are typically science or engineering graduates,
are key in maintaining the Companys relationships with key clients and delivering efficient and
timely customer service and feedback on the Companys products. The Company has also adopted a
policy of cross-selling across its various subsidiaries and Chemrez, as typically its customers for a
given industry or product are often potential customers for the Companys other products.
The Company employs a number of third-party service providers for approximately 90% of its
distribution and delivery requirements. The Company also maintains an internal logistics and
distribution system, with a centralized motor pool and transportation services, supported by a barging
and terminal system operated by an affiliate company.
INVENTORY MANAGEMENT
In line with its overall shared services administration model, the Company provides guidelines and
policies for inventory management to its subsidiaries, while day-to-day production scheduling,
materials planning and inventory management are conducted at the level of each operating company.
Although the Company has warehouses and storage facilities in most of its production facilities, the
Companys policy is to effectively maintain inventory of materials at minimum levels so as to control

103

costs and minimize risk. As of July 31, 2012, the Company had seven warehouses in its facilities, with
a total area of approximately 48,243 m2.
TECHNICAL DEPARTMENT
The Company maintains a centralized technical department responsible for research, product design
and application development, as well as quality control and assurance. As of the date of this
Prospectus, the Companys technical department employed a total of 138 individuals, including 69
individuals employed within the Companys quality control and quality assurance programs.
Research, Product Development and Engineering
The Company maintains its own centralized research and development laboratory staffed by
experienced chemical engineers, chemists and consultants. As of July 31, 2012, the Companys
research, product development and engineering teams employed a total of 69 individuals. These teams
support all customers of the Company and its businesses in the Philippines, including customers
involved in the manufacturing and sale of paint and ink, aerosols, food and beverage, plastics and
rubber, paper, adhesive, soap and detergent, textiles, cosmetics, and oil and gas.
Details of the Companys consolidated research and development expenditures for the periods
indicated are set out in the table below:
Year ended December 31,
Seven months ended July 31,
2009
2010
2011
2011
2012
(P in millions, except percentages)
Amount ............................. 32.4
46.7
54.5
29.8
28.5
% of revenues.................... 0.4%
0.5%
0.4%
0.4%
0.4%
% of operating
expenses............................ 6.4%
5.4%
2.6%
3.0%
1.2%

In addition, from time to time, the Company partners and enters into technical assistance
arrangements with various foreign counterparts to bolster its technical expertise and collaborate on
potential new products and process improvements.
Quality Control
The Company believes that quality is important to its business and is therefore committed to quality in
its raw materials, production processes, packaging and products and services delivered. The
Companys quality programs ensure that its personnel and physical processes strictly comply with
prescribed product and operational standards. As a result, many of the Companys facilities are
compliant with ISO 9001 quality control standards. In addition, with respect to its food and beverage
industry-related products and operations, the Companys facilities are good manufacturing practice
(GMP) and hazard analysis and critical control point (HACCP) system certified by SGS, a
leading international independent inspection, verification, testing and certification service provider.
GMP is a well-known standardized system based on international hygiene standards, and promotes a
quality-centered approach to manufacturing. On the other hand, HACCP is a systematic and scientific
approach to process control, designed to prevent the occurrence of problems and issues by ensuring
strict controls are imposed at all stages of the manufacturing process. Under HACCP, potential hazard
points are identified, critical control points established and monitoring procedures and corrective
actions are implemented at such control points.
As a part of its quality programs, the Company employs a team of personnel at each subsidiary and
Chemrez who continuously monitor its raw material supplies and production processes and much of
its production is controlled through automated, computerized systems that are regularly monitored to

104

ensure high quality, uniform results. Each of the Companys production processes begins with an
incoming materials inspection to ensure the quality of each component raw material and inspect such
raw materials for potential defects and other quality-related issues. The Company also conducts
routine quality assurance checks of its products at various intermediary stages of production, as well
as before distribution and delivery.
HEALTH, SAFETY AND ENVIRONMENT
The Company regards occupational health and safety as one of its most important corporate and social
responsibilities and it is the Companys corporate policy to comply with existing environmental laws
and regulations. The Company maintains various environmental protection systems, and since the
Companys operations are subject to broad range of health, safety and environmental laws and
regulations, the Company meets periodically to review, discuss and develop goals surrounding health,
safety and environmental compliance and awareness.
The Company believes that its production facilities are fully compliant with laws and regulations
related to restrictions on hazardous substances (RoHS) and substances of concern (SoC), as well
as international management systems (IMS) standards such as ISO 9001 (quality), ISO 14001
(environmental) and OHSAS 18001 (occupational health and safety). DLPC is accredited by
Underwriters Laboratories (UL), an independent, global not-for-profit product safety testing and
certification organization, as color compounder for several UL-registered plastic resins companies,
including BASF and Chemrez, among others. The Companys facilities are also Good Manufacturing
Practice (GMP) and Hazard Analysis and Ccritical Control Point (HACCP) system certified by
SGS, a leading international independent inspection, verification, testing and certification service
provider under certification number PH08/0241 and PH08/0240 respectively. The Companys
products and processes are likewise Halal-certified by the Islamic Dawa Council of the Philippines
under certification No. IDCP-05-F-38, Kosher-certified under Star-K Kosher, and the Company is
currently seeking International Organization for Standardization (ISO) certification for its facilities.
It also maintains compliance with all customer audits and is an approved supplier to major domestic
and multinational food companies including San Miguel Corporation, McDonalds and Universal
Robina Corporation.
As a leading manufacturer of biodiesel and other chemicals, Chemrez focuses on responsible
management, applying green chemistry technology in its products and complying with all
applicable laws and regulations. In particular, Chemrez has obtained formal certifications of
compliance with respect to IMS standards such as ISO 9001 (quality), ISO 14001 (environmental), as
well as OHSAS 18001 (occupational health and safety) and CIP/39051/07/03/519 (Stage 2
certification).
In conducting its business, Chemrez focuses on environmental conservation initiatives such as tree
planting at the Ipo Watershed in cooperation with Manila Water, a water and wastewater services
utility. It also focuses on employee safety, utilizing advanced management techniques such as
Aspect/Impact and Hazard Risk Assessment and a corporate-wide productivity improvement program.
Chemrez safety programs, namely its Healthy Lifestyle program and its Near Miss Accident program
have been cited as behavior-changing programs effective in preventing accidents in the work place.
In recognition of its efforts in using safe and sustainable manufacturing processes, Chemrez has been
awarded the Outstanding Sustainable Development Practices Most Outstanding Corporation in the
Practice of Health and Safety 2011 by The Federation of Philippine Industries. In addition, in 1997 it
received the Golden Shell Award Special Citation from the Philippine Department of Trade and
Industry for export excellence.

105

Environmental Management Facilities

The Company places critical importance on environmental protection. To further this aim, the
Company invests in facilities which it believes will reduce the impact of its operations on the
environment, as well as to reduce its operating costs. For example, the Company has invested in
wastewater treatment facilities, bringing its relevant facilities into compliance with ISO 14000
(wastewater treatment standards).
INVESTOR RELATIONS
Effective immediately upon issuance by the SEC of the Permit to Sell the Offer Shares, the Company
will form an Investor Relations Office to (a) create and implement an investor relations program that
reaches out to all shareholders and fully informs them of corporate activities, and (b) formulate a clear
policy on communicating and relating relevant information to Company shareholders and to the
broader investor community accurately, effectively and sufficiently. The Investor Relations Office
shall report to the President.
INSURANCE
The Company has marine insurance policies protecting against loss of raw materials, and has also
insured the motor vehicles in its transport pool, as well as policies against theft or hijacking of
deliveries. The Company has also adopted a policy of self-insurance with respect to its facilities and
operations, operating centralized fire protection and disaster prevention systems. The Company also
self-insures by maintaining a relatively high level of asset liquidity in the form of cash and cash
equivalents, to protect its businesses against other potential risks. The Company believes that its
insurance policies are sufficient to cover any loss or damage to its properties, and are generally in line
with industry practice in the Philippines.
EMPLOYEES
As of July 31, 2012, D&L Industries, including its subsidiaries and Chemrez, had an aggregate
workforce of 1,355 people, of which 210 were employed in management and administrative
functions, 57 in marketing, 61 in design or research and development and engineering, 919 in
manufacturing and 108 in other support roles, including janitorial and security staff.
The table below sets out the Companys total headcount for each business segment as of the dates
indicated.
As of December 31,
2009
Food ingredients............................................................................
Colorants and plastics additives .....................................................
Oleochemicals, resins and powder coatings....................................
Aerosols ........................................................................................
Management and administrative ....................................................
Others ...........................................................................................
Total ....................................................................................

137
239
250
103
259
96
1,084

2010

2011

367
201
280
102
247
95
1,292

357
209
323
108
212
111
1,320

As of
July 31,
2012
351
211
337
128
220
108
1,355

The Company believes that its relations with its employees are good, and there have been no major
labor stoppages in the last 20 years. There is no existing collective bargaining agreement between the
Company and any of its employees, and the Companys employees are not part of any labor union.

106

The Company places significant emphasis on training its personnel to increase their skill levels,
ensuring consistent application of the Companys procedures and instilling an application of its
corporate values. The Company has adopted a compensation policy which it believes to be
competitive with industry standards in the Philippines. Salaries and benefits are reviewed periodically
and adjusted to retain current employees and attract new employees. Performance is reviewed
annually and employees are rewarded based on the attainment of pre-defined objectives.
PROPERTY
As of the date of this Prospectus, the Company does not own any material real properties. The
Company recently entered into agreements for the sale of three previously-held investment properties
with an aggregate value of approximately P3 million, to its affiliates Green Giraffe Industries, Inc.,
Green Temple Industries, Inc. and Seaside Industries, Inc. The Company leases all real property and
facilities in its businesses from related parties LBL Industries, Inc. and its subsidiaries, including
Ecozone Properties, Inc. The Companys lease agreements are typically for a period of one to five
years and are renewable unless terminated by either party. Rentals are generally subject to an
escalation of five percent annually starting on the second year of the lease term. None of the
Companys properties used in its operations are subject to any material liens, encumbrances or
restrictions of use.
Aggregate rental expenses amounted to P115.5 million, P152.7 million, P155.8 million and P88.5
million for the years ended December 31, 2009, 2010 and 2011, and the seven months ended July 31,
2012, respectively.
Other Properties
To support the Companys centralized distribution and motor pool functions, as of July 31, 2012, the
Company owned 42 delivery trucks, with a total capacity of more than 1,064 MT. The Company also
operated six cargo barges owned by affiliates with an aggregate capacity of approximately 10,000
MT.
INTELLECTUAL PROPERTY
The Company believes that all proprietary product names, devices and logos used by the Company, its
subsidiaries and Chemrez are registered with or are covered by a pending Application for Registration
with the Intellectual Property Office of the Philippines, and have been filed or are owned by the
Company.
As of July 31, 2012, the Company had over 100 registered trademarks covering a wider range of
products such as resins, colorants, foam concentrates, fats and oils, powder coating and biofuel
compounds, among others, as enumerated in the table below.
Name of Tradename / Trademark
ACRYBOND
ACRYCOTE
ACRYGEL
ACRYLAC
ACRYLITE
ACRYTEX
ACTIV
ACTIV ADJUVANT
AERO-GARD
AERO-PACK
AERO-SEAL

Registration Number
40704
40695
66077
53119
40994
41015
04-2000-004434
04-2008-005356
04-2007-011791
04-1990-074977
65547

107

Registration Date
August 26, 2008
August 26, 2008
July 9, 1998
July 27, 1992
September 2, 2008
September 2, 2008
March 25, 2007
February 9, 2009
July 21, 2008
July 4, 2002
December 17, 1997

AERO-SIL
AGRIVANT
ALKYSOL
AQUABOND
AQUAFORTE
AQUASOL
AXIS
AXIS WITH LOGO
BAKERS DELITE
BARLEYGREEN
BIOACTIV
BIOPLAST
BIOSOL
BUNKER ECFO
CHEMLUB
CHEMREZ
CHEMSTAT
CHOCO-FAT
CHOCOMATE
CHROMAPLUS
CHROMAPRO
CHROMATINT
COCOBIODIESEL
CocoPower
COLORMATE
CORROCOAT
CORRO-COAT AG ION
CORRO-COAT ANTIMICROBIAL
SYSTEM AMS

04-1990-073293
04-2008-015202
04-2000-003910
04-2000-004433
04-2001-003091
04-2001-003092

April 28, 2006

April 13, 2009
April 16, 2004
June 26, 2003
May 13, 2006
July 30, 2005

47161
04-1994-092764
04-2005-000195
04-2008-008591
04-2008-015201
04-2007-011792
59460
04-1990-074970
61592
53389
04-1999-008262
04-2000-005289
04-2000-004432
04-1996-115739
04-2005-008188
04-2006-012944
38392
39709
04-2005-010714
04-2005-008523

December 18, 2009

April 16, 2004
January 22, 2007
February 23, 2009
April 13, 2009
July 21, 2008
October 11, 1994
July 4, 2002
September 26, 1995
September 4, 1992
September 3, 2006
May 13, 2006
July 21, 2003
February 6, 2001
July 14, 2008
June 15, 2009
March 16, 2008
June 27, 2008
July 2, 2009
June 11, 2007

CORRO-COAT DEKOWOOD SERIES

04-2005-008525

June 11, 2007

CORRO-COAT PE-F
CORROSOLV
CREAMAX
CRISP N DRY
D&L
DISPERSOL
DOUGHFRY
DURALAC
DYNAFLEX
EMULFLEX
ENDURA
FIL-AMIDE
FIL-ESTER
FIL-LUBE
FIREFOAM
FROSTY DELITE
FUSION BONDED EPOXY (FBE)

04-1996-108917
04-2009-007872
04-2000-002101
47620
04-2001-008731
04-1996-115737
65920
04-1993-092392
62958
04-1999-008258
04-2000-004431
04-1990-074980
04-1990-074978
62084
04-2009-007873
04-2000-009975
04-2000-004430

September 4, 2000
January 1, 2010
July 8, 2004
March 22, 2010
May 21, 2004
November 28, 2000
June 26, 1998
March 10, 2000
May 21, 1996
February 10, 2003
June 26, 2003
July 4, 2002
May 10, 2002
December 1, 1995
January 1, 2010
September 3, 2006
January 6, 2006

GreenGold
HI-FLEX
HI-FLO

04-2006-012943
52869
52867

February 9, 2009
July 15, 1992
July 15, 1992

108

HI-LITE
HYDROMATE
ITW DYNATEC
JETFRESH & DEVICE
LACTOVIT
LOAFMATE
MAXSOLV
MCT-OIL
MIYOSHI
MOMENTS
NUTEC
NUTRI-PLUS
OLEOCHEM
OLEO-FATS
OLEO-FRY
OLEOLARD
OPTIMAX
OXYDIESEL
PAN-FLO
PIZZADONUT
PLASTOFLEX
PLIOFLEX
POLYBLEND
POLYMATE
POLYMIX
POWER JOE
PROFLEX
PURICO
SKYLITE
SOLVIT
SPECTRAMAX
SULFONEX
SUPRA
SYNREZ
TUFLEX
ULTRASOL
UNICOL
URECOL
VINYLOID
VISCOS
VYNOFLEX
VYNOSOL

52989
04-2008-005355

July 15, 1992

February 9, 2009

62965
04-2001-004238
04-1999-005038
04-2009-007871
59464
04-1999-001449
04-2009-007528
04-2008-005354
04-2001-008729
52855
04-1999-008263
04-1994-92760
04-1994-092832
04-1999-005040
04-2007-000589
04-1999-005039

May 21, 1996

December 5, 2004
June 25, 2006
January 1, 2010
October 11, 1994
December 31, 2005
December 17, 2009
February 9, 2009
February 24, 2005
July 15, 1992
July 8, 2004
July 8, 2004
October 24, 2005
July 8, 2004
March 3, 2008
July 30, 2006

04-1991-080135
04-1991-078447
62238
04-2002-010268
52868
04-2009-001198
62083
04-1996-109193
63198

September 30, 2002

September 30, 2002
December 1, 1995
May 12, 2005
July 15, 1992
October 21, 2010
December 1, 1995
January 20, 2003
July 2, 1996

04-2000-004429
64003
45951
59462
64004
04-1996-115738
04-2000-009976
52913
52988
04-2008-005357
52958
61591

June 26, 2003

January 9, 1997
August 7, 2009
October 11, 1994
January 9, 1997
November 28, 2000
January 18, 2004
July 15, 1992
July 15, 1992
November 5, 2009
July 15, 1992
September 26, 1995

LEGAL PROCEEDINGS
In the ordinary course of business, the Company is a party to various legal actions that it believes are
routine and incidental to the operation of its business. In the opinion of the Companys management,
the outcome and potential liability of these aforementioned legal actions are not likely to have a
materially adverse effect on the Companys business, financial condition and results of operations.

109

REGULATORY AND ENVIRONMENTAL MATTERS

REGULATORY MATTERS
Various laws and government agencies in the Philippines regulate the manufacturing, processing and
sale aspects of the businesses of the Company.
Consumer Protection
The Consumer Act of the Philippines (the Consumer Act), the provisions of which are principally
enforced by the Philippine Department of Trade and Industry (DTI), seeks to: (i) protect consumers
against hazards to health and safety, (ii) protect consumers against deceptive, unfair and
unconscionable sales acts and practices; (iii) provide information and education to facilitate sound
choice and the proper exercise of rights by the consumer; (iv) provide adequate rights and means of
redress; and (v) involve consumer representatives in the formulation of social and economic policies.
This law imposes rules to regulate such matters as (i) consumer product quality and safety; (ii) the
production, sale, distribution and advertisement of food, drugs, cosmetics and devices as well as
substances hazardous to the consumers health and safety; (iii) fair, honest consumer transactions and
consumer protection against deceptive, unfair and unconscionable sales acts or practices;
(iv) practices relative to the use of weights and measures; (v) consumer product and service
warranties; (vi) compulsory labeling and fair packaging; (vii) liabilities for defective products and
services; (viii) consumer protection against misleading advertisements and fraudulent sales promotion
practices; and (ix) consumer credit transactions.
The Consumer Act establishes quality and safety standards with respect to the composition, contents,
packaging, labeling and advertisement of products and prohibits the manufacture for sale, offer for
sale, distribution, or importation of products which are not in conformity with applicable consumer
product quality or safety standards promulgated thereunder.
Safety and Quality Regulations under the Consumer Act
The DTI is tasked to implement the Consumer Act with respect to labels and packaging of consumer
products other than food products, and regulates product labeling, proper and correct description of
goods, product labels with foreign characters/languages, data/information on product contents and
origins and other similar matters.
Manufacturers, distributors, importers or repackers of consumer products are required to indicate in
their labels or packaging, a parallel translation in the English or Filipino language of the nature,
quality and quantity and other relevant prescribed information or instructions of such consumer
products in a manner that cannot be easily removed, detached or erased. In addition to the information
required to be displayed in the principal and secondary panels, DTI Administrative Order No. 01-08
mandates that all consumer products sold in the Philippines, whether manufactured locally or
imported shall indicate and specify the (i) country of manufacture; (ii) required information of
consumption duration safety; (iii) warranty of the manufacturer; (iv) weight content prior to
packaging; (v) consumer complaint desk address; and (vi) all other information necessary for giving
effect to a consumers right to information.
The packaging of consumer products must not cause the purchaser to be deceived as to the contents,
size, quantity, measurement or fill of the product. For consumer products which are packaged in such
a way that the contents cannot be seen or inspected upon purchase, samples or labeling describing the
product inside the package, in words, in pictorial or graphical representation or by similar means,

110

shall be provided for the inspection of the purchaser. Such sample or description should accurately
represent the product in the package.
With respect to the packaging and repackaging of food products, such activities are regulated by the
Philippine Department of Health (DOH), specifically the Food and Drugs Administration (FDA),
as discussed above. Establishments engaged in these activities are required to comply with, among
others, the current guidelines on good manufacturing practice in manufacturing, packing, repacking,
or holding food promulgated by the DOH.
Health Regulations
The FDA (which is under the DOH) administers and enforces the law, and issues rules and circulars,
on safety and good quality supply of food, drug and cosmetic to consumers; and regulation of the
production, sale, and traffic of the same to protect the health of the people.
Pursuant to this, food manufacturers are required to obtain a license to operate as such. The law
further requires food manufacturers to obtain a certificate of product registration for each product.
The DOH (which includes the FDA, formerly known as the Bureau of Food and Drugs) is the
government agency tasked to implement the Consumer Act with respect to food products. The DOH
also prescribes the Guidelines on Current Good Manufacturing Practice in Manufacturing, Packing,
Repacking, or Holding Food for food manufacturers. Under the Consumer Act, the DOH also has the
authority to order the recall, ban, or seizure from public sale or distribution of food products found to
be injurious, unsafe or dangerous to the general public.
The FDDC Act
The Foods, Drugs and Devices, and Cosmetics Act, as amended by the FDA Act of 2009 (the FDDC
Act), establishes standards and quality measures in relation to the manufacturing and branding of
food products to ensure the safe supply thereof to and within the Philippines. The FDA is the
governmental agency under the DOH tasked to implement and enforce the FDDC Act.
The FDDC Act prohibits, among others, (i) the manufacture, importation, exportation, sale, offering
for sale, distribution, transfer, non-consumer use, promotion, advertising, or sponsorship of any health
product that is adulterated, unregistered or misbranded; and (ii) the manufacture, importation,
exportation, transfer or distribution of any food, cosmetic or household/urban hazardous substance by
any natural or juridical person without the license to operate from the FDA required under the FDDC
Act.
Any person found in violation of any of the provisions of the FDDC Act shall be subject to
administrative penalties or imprisonment or both. Furthermore, the health products found in violation
of the provisions of the FDDC Act and other relevant laws, rules and regulations may be seized and
held in custody pending proceedings, without hearing or court order, when the director-general of the
FDA has reasonable cause to believe from facts found by him/her or an authorized officer or
employee of the FDA that such health products may cause injury or prejudice to the consuming
public.
Water Appropriation
The Water Code of the Philippines (P.D. No. 1067) defines the extent of the rights and obligation of
water users and owners including the protection and regulation of such rights. Under this law, use of
water for industrial purposes includes the utilization of water in factories, industrial plants, mines, and
the use of water as an ingredient of a finished product. This law requires that a water right as
evidenced by a Water Permit must be secured from the National Water Resources Board (NWRB)

111

before any person, including government instrumentalities or government-owned and controlled

corporations may appropriate water. Only citizens of the Philippines, of legal age, as well as juridical
persons who are duly qualified by law to exploit and develop water resources (at least 60% of its
capital being owned by Filipino citizens) may apply for Water Permits. Thus, a foreign corporation
may not apply for or be qualified to hold Water Permits. Water permits may be revoked, modified or
cancelled under the conditions provided in this law.
Use of Controlled Precursors and Essential Chemicals
Pursuant to the Comprehensive Dangerous Drugs Act (Republic Act No. 9165), the Government
pursues a campaign against the trafficking and use of dangerous drugs and other similar substances
through an integrated system of planning, implementation and enforcement of anti-drug abuse
policies, programs, and projects. The Government aims to achieve a balance in the national drug
control program so that people with legitimate medical needs are not prevented from being treated
with adequate amounts of appropriate medications, which include the use of dangerous drugs.
The Dangerous Drugs Board formulates the guidelines for the importation, distribution, production,
manufacture, compounding, prescription, dispensing and sale of, and other lawful acts in connection
with any dangerous drug (which includes those listed in the Schedules annexed to the 1961 Single
Convention on Narcotic Drugs, as amended by the 1972 Protocol, and in the Schedules annexed to the
1971 Single Convention on Psychotropic Substances), controlled precursor and essential chemical
(which include those listed in Tables I and II of the 1988 UN Convention Against Illicit Traffic in
Narcotic Drugs and Psychotropic Substances) and other similar or analogous substances of such kind
and in such quantity as the said Board may deem necessary according to the medical and research
needs or requirements of the country and determine the quantity and/or quality of dangerous drugs
and precursors and essential chemicals to be imported, manufactured and held in stock at any given
time by authorized importer, manufacturer or distributor of such drugs. The corresponding license for
this purpose is issued by the Philippine Drug Enforcement Agency (PDEA), which is the
implementing arm of the Dangerous Drugs Board. The PDEA is responsible for the efficient and
effective law enforcement of all the provisions of the law with respect to any dangerous drug and/or
controlled precursor and essential chemical.
All manufacturers, wholesalers, distributors, importers, dealers and retailers of dangerous drugs
and/or controlled precursors and essential chemicals (issued with the appropriate license by the
PDEA) is required to keep a record of all inventories, sales, purchases, acquisitions and deliveries of
the same as well as the names, addresses and licenses of the persons from whom such items were
purchased or acquired or to whom such items were sold or delivered, the name and quantity of the
same and the date of the transactions. Such records may be subjected anytime for review by the
Dangerous Drugs Board.
ENVIRONMENTAL MATTERS
The operations of the businesses of the Company are subject to various laws, rules and regulations
that have been promulgated for the protection of the environment.
The EISS Law
The Philippine Environmental Impact Statement System (the EISS Law), which is implemented by
the Philippine Department of Environment and Natural Resources (DENR), is the general
regulatory framework for any project or undertaking that is either (a) classified as environmentally
critical or (b) is situated in an environmentally critical area. It requires an entity that will undertake
any such declared environmentally critical project or operate in any such declared environmentally
critical area to submit an Environmental Impact Statement (EIS) which is a comprehensive study of
the significant impacts of a project on the environment. The EIS serves as an application for the

112

issuance of an Environmental Compliance Certificate (ECC). An ECC is a Philippine government

certification that the proposed project or undertaking will not cause significant negative
environmental impact; that the proponent has complied with all the requirements of the EISS in
connection with said project; and that the proponent is committed to implement its approved
Environmental Management Plan in the EIS. In general, only projects that pose potential significant
impact on the environment shall be required to secure an ECC. The proponent of a project for which
an ECC is issued and determined by the DENR to pose a significant public risk or necessitate
rehabilitation or restoration shall be required to establish an Environmental Guarantee Fund. Said
fund is intended to meet any damage caused by, as well as any rehabilitation and restoration measures
in connection with, the said project.
The Laguna Lake Development Authority
The Laguna Lake Development Authority (LLDA) was created under Republic Act No. 4850 to
promote, and accelerate the development and balanced growth of the Laguna Lake area and the
surrounding provinces, cities and towns hereinafter referred to as the region, within the context of the
national and regional plans and policies for social and economic development and to carry out the
development of the Laguna Lake region, with due regard and adequate provisions for environmental
management and control, preservation of the quality of human life and ecological systems, and the
preservation of undue ecological disturbances, deterioration and pollution. The LLDA issues the
necessary clearance for all plans, programs, and projects proposed by local government
offices/agencies within the region, public corporations, and private persons or enterprises where such
plans, programs and/or projects are related to those of the LLDA for the development of the Laguna
Lake region. The LLDA also issues permits for the use of the lake waters for any projects or
activities in or affecting the said lake including navigation, construction, and operation of fishpens,
fish enclosures, fish corrals and the like, and imposes necessary safeguards for lake quality control
and management. The LLDA is also tasked to establish water quality standards for industrial,
agricultural and municipal waste discharges into the lake.
The Clean Water Act
The Clean Water Act and its implementing rules and regulations provide for water quality standards
and regulations for the prevention, control, and abatement of pollution of the countrys water
resources. Said Act require owners or operators of facilities that discharge regulated effluents (such as
wastewater from manufacturing plants or other commercial facilities) to secure a discharge permit
from the DENR which authorizes said owners and operators to discharge waste and/or pollutants of
specified concentration and volumes from their facilities into a body of water or land resource for a
specified period of time. The DENR, together with other government agencies and the different local
government units, are tasked to implement the Clean Water Act and to identify existing sources of
water pollutants, as well as strictly monitor pollution sources which are not in compliance with the
effluent standards provided in the law.
Other Regulations on Water Pollution
Philippine maritime laws and regulations are enforced by two Philippine government agencies: the
Maritime Industry Authority (MARINA) and the Philippine Coast Guard. Both are agencies under
the Philippine Department of Transportation and Communications.
The MARINA is responsible for integrating the development, promotion, and regulation of the
maritime industry in the Philippines. It exercises jurisdiction over the development, promotion, and
regulation of all enterprises engaged in the business of designing, constructing, manufacturing,
acquiring, operating, supplying, repairing, and/or maintaining vessels, or component parts thereof, of
managing and/or operating shipping lines, shipyards, dry docks, marine railways, marine repair ships,
shipping and freight forwarding agencies, and similar enterprises.

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To address issues on marine pollution and oil spillage, the MARINA mandated the use of double-hull
vessels for transporting Black Products beginning at end of 2008 and by year 2011 for White
Products.
The Philippine Coast Guard, in a 2005 Memorandum Circular, provided implementing guidelines
based on the International Convention for the Prevention of Pollution from Ships, MARPOL 73/78.
The guidelines provide that oil companies in major ports or terminals/depots are required to inform
the Philippine Coast Guard through its nearest station of all transfer operations of oil cargoes in their
respective areas. Furthermore, oil companies and tanker owners are required to conduct regular team
trainings on managing oil spill operations including the handling and operations of MARPOL
combating equipment. A dedicated oil spill response team is required to be organized to react to land
and ship-originated oil spills.
Moreover, both the Clean Water Act and the Philippine Coast Guard guidelines provide that the
spiller or the person who causes the pollution have the primary responsibility of conducting clean-up
operations at its own expense.
The Clean Air Act
The Clean Air Act (Republic Act No. 8749) provides for air quality standards and regulations against
air pollution. It provides that the DENR shall have authority to issue permits as it may determine
necessary for the prevention and abatement of air pollution. Said permits shall cover emission
limitations for regulated air pollutants to help attain and maintain the ambient air quality standards.
Under the implementing rules and regulations of the Clean Air Act, all sources of air pollution are
required to obtain a valid Permit to Operate, while new or modified sources must first obtain an
Authority to Construct. The DENR, together with other government agencies and the different local
government units, are tasked to implement the Clean Air Act.
The Clean Air Act provides more stringent fuel specifications over a period of time to reduce
emission that pollutes the air. The Clean Air Act mandates the sulfur and benzene content for gasoline
and automotive diesel. Under the law, oil firms are mandated to lower the sulfur content of
automotive diesel oils to 0.05% by January 1, 2004 nationwide. The law also regulates the use of any
fuel or fuel additives. Furthermore, the Clean Air Act prohibits a manufacturer, processor or trader of
any fuel or additive to import, sell, offer for sale, or introduce into commerce such fuel or additive
unless these have been registered with the DOE. All the requirements of the said law have been
implemented, starting with the phase-out of leaded gasoline in Metro Manila in April 2000 and all
over the country in December 2000.
The Technical Committee on Petroleum Products and Additives sets the standards for certain
petroleum products following strict time-bound and quality-specific targets under the mandate of the
Clean Air Act and the DOE initiative on alternative fuels.
The Biofuels Act of 2006
The Biofuels Act of 2006 (Republic Act No. 9637), aims to reduce the dependence of the transport
sector on imported fuel and mandates that, starting February 2009, at least 5% bioethanol shall
comprise the total annual volume of gasoline fuel sold by every oil company. Oil companies are
allowed to blend the different premium gasoline grades with 10% ethanol to be sold in selected areas
to achieve the 5% of total gasoline volume requirement. The requirement to sell ethanol blended
gasoline commenced on February 9, 2009. For diesel engines, the mandated biodiesel blend in the
country was increased from 1% to 2% starting February 2009.
In 2008, a Joint Administrative Order known as the Guidelines Governing the Biofuel Feedstock
Production and Biofuel Blends Production, Distribution and Sale (the Guidelines) was issued by

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various Philippine government agencies. The Guidelines provide for responsibilities of oil companies
in the sourcing and blending of biodiesel and bioethanol with diesel and gasoline. The Guidelines
mandate that oil companies should source biofuels only from biofuel producers accredited by the
DOE or from Biofuel distributors registered with the DOE. Moreover, unless authorized by DOE to
import in case of shortage of supply of locally-produced bioethanol as provided for under the Act, an
oil companys failure to source its biofuels from accredited biofuels producers and/or registered
biofuel distributors would constitute a prohibited act.
The Renewable Energy Act of 2008
The Renewable Energy Act of 2008 (Republic Act No. 9513) aims to promote development and
commercialization of renewable and environment-friendly energy resources such as biomass, solar,
and wind through various tax incentives. Some of the tax incentives granted to renewable energy
developers under the law include (i) a seven-year income tax holiday; (ii) duty free importation of
renewable energy machinery, equipment, and materials; (iii) special realty tax rates on equipment and
machinery; (iv) zero percent VAT rate for power generated from these energy sources; and (v) the
imposition of a reduced corporate tax of 10% on its net taxable income after the income tax holiday.
Other Laws on Pollution Control
Other environmental laws and regulations on pollution control applicable to the businesses of the
Company include the following:

The Toxic Substances and Hazardous and Nuclear Waste Control Act of 1990 (Republic Act
No. 6969) regulates, restricts or prohibits the (i) importation, manufacture, processing,
handling, storage, transportation, sale, distribution, use and disposal of chemical substance and
mixtures that present unreasonable risk or injury to health or the environment, and (ii) entry
into the Philippines or the keeping in storage of hazardous wastes which include by-products,
process residue, contaminated plant or equipment or other substances from manufacturing
operations. Said law is implemented by the DENR.

The Philippine Ecological Solid Waste Management Act of 2000 (Republic Act No. 9003)
provides for the proper management of solid waste which includes discarded commercial
waste and non-hazardous institutional and industrial waste. Said law prohibits, among others,
the transporting and dumping of collected solid wastes in areas other than such centers and
facilities prescribed thereunder. The National Solid Waste Management Commission, together
with other government agencies and the different local government units, are responsible for
the implementation and enforcement of the said law.

The Code on Sanitation of the Philippines (Presidential Decree No. 856) provides for sanitary
and structural requirements in connection with the operation of certain establishments such as
food establishments which include such places where food or drinks are manufactured,
processed, stored, sold or served. Under the said law, food establishments are required to
secure sanitary permits prior to operation which shall be renewable on a yearly basis. Said law
is implemented by the DOH.

OTHER APPLICABLE LAWS AND RELEVANT REGULATORY AGENCIES

The Local Government Code
The Local Government Code of 1991 (Republic Act No. 7160 or the Local Government Code)
establishes the system and powers of provincial, city, municipal, and barangay governments in the
country. The Local Government Code general welfare clause states that every local government unit
(LGU) shall exercise the powers expressly granted, those necessarily implied, as well as powers

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necessary, appropriate, or incidental for its efficient and effective governance, and those which are
essential to the promotion of the general welfare.
LGUs exercise police power through their respective legislative bodies. Specifically, the LGU, though
its legislative body, has the authority to enact such ordinances as it may deem necessary and proper
for sanitation and safety, the furtherance of the prosperity, and the promotion of the morality, peace,
good order, comfort, convenience, and general welfare of the locality and its inhabitants. Ordinances
can reclassify land, order the closure of business establishments, and require permits and licenses
from businesses operating within the territorial jurisdiction of the LGU.
Recently, several LGUs have likewise adopted ordinances prohibiting the use of plastic packaging
materials and/or requiring the gradual phase out on the usage of such materials.
Philippine Securities and Exchange Commission
Under the SRC, the Philippine SEC has jurisdiction and supervision over all corporations,
partnerships or associations that are grantees of primary franchises, license to do business or other
secondary licenses. As the government agency regulating the Philippine securities market, the SEC
issues regulations on the registration and regulation of securities exchanges, the securities market,
securities trading, the licensing of securities brokers and dealers and reportorial requirements for
publicly listed companies and the proper application of SRC provisions, as well as the Philippine
Corporation Code, and certain other statutes.
Philippine Department of Trade and Industry
The DTI is the primary government agency with the dual mission of facilitating the creation of a
business environment wherein participants could compete, flourish, and succeed and, at the same
time, ensuring consumer welfare. It is the enforcement of laws to protect and educate consumers that
becomes the driving factor in the relationship of DTI and manufacturers, such as the Company.
Philippine Department of Labor and Employment
The Philippine Department of Labor and Employment stands as the national government agency
mandated to formulate policies, implement programs and services, and serve as the policycoordinating arm of the Philippine executive branch in the field of labor and employment. The said
department has exclusive authority in the administration and enforcement of labor and employment
laws and such other laws as specifically assigned to it or to the Secretary of Labor and Employment.
The Social Security System and the PhilHealth
An employer, or any person who uses the services of another person in business, trade, industry or
any undertaking is required under the Philippine Social Securities Act of 1997 (Republic Act No.
8282) ensure coverage of employees following procedures set out by the law and the Social Security
System (SSS). The employer must deduct from its employees their monthly contributions based on
a given schedule, pay its share of contribution and remit these to the SSS within a period set by law
and/ or SSS regulations.
Philippine Health Insurance Corporation (PhilHealth) is a government corporation attached to the
DOH that ensures sustainable, affordable and progressive social health insurance pursuant to the
provisions of the National Health Insurance Act of 1995 (Republic Act No. 7875). Employers are
required to ensure enrollment of its employees in the National Health Insurance Program being
administered by the PhilHealth.

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The Pag-IBIG Fund

The Pag-IBIG Law (Presidential Decree No. 1752, as amended), requires all employers covered by
the Social Security System to register and remit contributions to the Home Development Mutual
Fund, more commonly known as the Pag-IBIG Fund.
Every employee covered by the Pag-IBIG Fund shall be required to make monthly contributions to
the Pag-IBIG Fund. The amount of such monthly contributions shall depend on the amount of the
salary received by the covered employee, and shall be borne proportionately by the member and
his/her employer in accordance with a schedule prescribed by the Pag-IBIG Fund.
Every private employer shall be required to register with the Pag-IBIG Fund for purposes of making
the required contributions on behalf of its employees. It shall be the responsibility of the employer to
deduct the employees share from such employees salaries and remit the entire amount of required
contributions to the Pag-IBIG Fund. Failure to make the required deductions or to remit the same to
the Pag-IBIG Fund shall give rise to administrative and criminal liability on the part of the employer
and its responsible officers.
Special Economic Zone
PEZA is a Government corporation that operates, administers and manages designated special
economic zones (Ecozones) around the country. Ecozones, which are generally created by
proclamation of the President of the Philippines, are areas earmarked by the Government for
development into balanced agricultural, industrial, commercial, and tourist/recreational regions.
An Ecozone may contain any or all of the following: industrial estates, export processing zones, free
trade zones, and tourist/recreational centers. PEZA-registered enterprises locating in an Ecozone are
entitled to fiscal and non-fiscal incentives such as income tax holidays and duty free importation of
equipment, machinery and raw materials.
The Companys Canlubang, Laguna production facility is situated in a PEZA-approved special
economic zone, the Companys subsidiary DLPC is registered with PEZA as an export-oriented
manufacturing and services facility and as such currently enjoys certain tax and other incentives from
the Government, such as a four year income tax holiday ending in March 2014.
Board of Investments
Under the Omnibus Investments Code (Executive Order No. 226, as amended), an enterprise
registered with the Board of Investments (BOI), an agency under the DTI, may enjoy certain
incentives provided such enterprise invests in preferred areas of investment enumerated in the
Investment Priorities Plan annually prepared by the Government. Such incentives may include:
(i) income tax holiday; (ii) additional deduction for labor expenses; (iii) tax and duty exemption on
imported capital equipment; (iv) tax credit on domestic capital equipment; (v) exemption from
contractors tax; (vi) simplification of customs procedure; (vii) unrestricted use of consigned
equipment; (viii) employment of foreign nationals; (ix) tax credit for taxes and duties on raw materials;
(x) tax exemption on imported spare parts; and (xi) exemption from wharfage dues and export duties
and fees.

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INDUSTRY
OVERVIEW OF THE PHILIPPINE ECONOMY
GDP Growth
The Philippine economy has performed strongly over the past five years. Philippine real GDP has
increased from P5,028 billion in 2007 to P5,924 billion in 2011, representing a CAGR of 4.2%, driven
primarily by growth in domestic consumption and investment. The IMF has forecasted that real GDP
growth will increase to the CAGR of 4.9% from 2011 to 2015.

Sources: National Statistical Coordination Board. Real GDP figures are based on a base in the year 2000.
IMF forecasts, World Economic Outlook, October 2012

The Philippine population has been growing at a steady rate since 2007. According to the National
Statistics Office, the nations population grew at a CAGR of 1.9% from 2007 to 2011, or from a
population of 88.7 million people to 95.8 million people. The IMF forecasts that population will grow
at a CAGR of 2.0% from 2011 to 2015.

Sources: National Statistics Office. IMF forecast and World Economic Outlook, October 2012

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63% of the Philippine population is between the ages of 15 and 64. This signifies that the majority of
the Philippine population is within the productive age.

Source: National Statistics Office. As of 2010 census

According to the IMF, the population in the Philippines is the fastest growing in the region at 1.9%
versus the average of 1.2% for the South East Asia.

Source: IMF

OFW remittance contributes significantly to the populations income. Thus, money flowing from
abroad is a main driver of personal consumption. In US Dollar terms, remittances have been
increasing at a CAGR of 11.1% from 2005 to 2011.

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Source: Bangko Sentral ng Pilipinas (Central Bank)

As a result of lower population growth in the Philippines relative to real GDP growth, nominal GDP
per capita has increased at a CAGR of 2.2% from P56,685 per person in 2007 to P 61,832 per person
in 2011. The IMF predicts that real GDP per capita will increase by a CAGR of 2.9% from 2011 to
2015.

Sources: National Statistics Office and National Statistical Coordination Board and IMF forecasts, World
Economic Outlook, October 2012

Inflation
The Philippine consumer price index has increased at a CAGR of 4.7% from 2006 to 2011. Higher oil
prices led inflation to soar in 2008. However, inflation has decreased since 2008 and remained at a
relatively low level of 4.6% in 2011. The chart below shows the change in the consumer price index
in the Philippines from 2007 to 2011.

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Source: International Monetary Fund

The economic recovery of the Philippine economy since the Global Financial Crisis of 2008 has
boosted consumer spending in the past 3 years. Strong remittance growth, increased foreign
investment and higher consumer confidence led to an increase in private consumption expenditure.
Private consumption expenditure increased from P5.1 billion in 2007 to P7.1 billion in 2011,
representing a CAGR of 9.1%.

Source: National Statistical Coordination Board

Household consumption represents 74.6% of total GDP signifying the Philippines heavy reliance on
consumption in driving the economy.

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Source: National Statistical Coordination Board. Current Prices.

According to the NSCB, food expenditure continues to make up the largest part of private
consumption. Food has increased from 44.8% of private consumption in 2005 to 48.1%% of
consumption in 2009.

Source: International Monetary Fund

FOOD INGREDIENTS INDUSTRY

Segments in the food ingredients industry include companies that offer standardized or commoditized
products such as straight food ingredients (which are less refined or less processed) and the segment
that offers specialty/customized food ingredients, which are refined or processed to the specific
requirements of the various customers of the industry. Key customers in the specialty/customized
food ingredients include major consumer-focused companies in the Philippine food industry that
offer processed food products, such as San Miguel Corporation, Universal Robina Corporation, the
Yulefest/Castlemaine/Tokyo Group, Jollibee Foods Corporation, as well as other major restaurant
chains and quick service restaurant chains in the Philippines. The Philippine consumer sector is
expected to remain strong due to the countrys demographics, growth in the services sector and
currently low levels of inflation relative to 2008. The Company estimates that its market share in the

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Philippines in 2011 for fats and oils and other specialty food ingredients was approximately 50%,
with its nearest competitors holding approximately 30% and 10% market shares, respectively.
More Filipinos have adopted healthier lifestyles due partly to increased health awareness among
Filipino consumers as well as to the health and wellness information campaigns of the Philippine
Department of Health in coordination with other health advocates. These campaigns and increased
health awareness are targeted to increase awareness of real life issues that are currently affecting a
significant number of Filipinos such as malnutrition, obesity, high blood pressure, high cholesterol,
diabetes, cancer and other health scares that may result in death. Filipino consumers deciding to
improve their overall health have created higher demand for healthier food products with the belief
that there is a direct connection between both the quantity and quality of food intake and physical
health. This transition in consumer preferences has resulted in the development of healthier alternative
food products such as fortified food products and food products low in trans-fat or saturated fat.
COLORANTS AND PLASTICS ADDITIVES INDUSTRY
The Philippine plastics industry is a very broad industry covering various applications of plastics and
plastics-related products. Major Philippine customers for plastics products include Sumitomo Electric
Wiring Systems, Yazaki, San Miguel Corporation and Universal Robina Corporation, as well as other
manufacturers who use plastics in their consumer products. The Company estimates that its market
share in the Philippines in 2011 for colorants and plastic additives was approximately 54%, with its
two nearest competitors holding approximately 15% and 10% market shares, respectively.
OLEOCHEMICALS, RESINS AND POWDER COATINGS INDUSTRY
Philippine domestic demand for biodiesel will largely be driven by the National Biofuels Program
under the Biofuels Act of 2006, which mandates that all diesel fuel in the Philippines contain
biodiesel at a concentration of 2% beginning in 2009. The Government is presently considering
increasing the mandate to 5%. Aside from domestic demand, the Company further believes that its
biodiesel operations has a significant opportunity to service international requirements considering
current and projected demand for biodiesel.
The Company faces competition from the following:

Existing biodiesel manufacturers aside from Chemrez, there are at least 11 other producers
of biodiesel accredited by the DOE. The table below sets out these competitors:

Company

Location

Brand Name

Approximate
Capacity (in
millions of liters)

J&J Oleochemicals, Inc.

Metro Manila

Estrol

72

Romtron Philippines

Romblon province

Romtron

0.3

Pure Essence International,

Inc.

Metro Manila

Bio Pure

60

Freyvonne Milling Services

Davao City

Power Z

15.6

Golden Asian Oil

International Inc.

Metro Manila

Clean Air
Biodeiesel

60

Mt. Holly Coco Industrial

Company, Ltd.

Quezon province

Mt. Holly
Biofuel

10

Rasza Agro Produce

Corporation

Laguna province

Diezel Aide

0.72

Bioenergy 8 Corporation

Metro Manila

Green Power D

30

123

Tantuco Enterprises

Metro Manila

Bio-Coco

30

Lipi Tech, Inc.

Cavite province

Mile Plus

30

Philippine Biochem
Products, Inc.

Metro Manila

Biopower

12

Other existing oleochemical manufacturers - although not currently engaged in the production
of methyl ester for biodiesel, these companies have the capability of competing with the
Company should their products be reformulated and marketed as biodiesel. The Company
however believes that such oleochemical manufacturers would have to carefully weigh the
option of giving up an entire downstream value chain with its established markets in order to
enter the biodiesel market;

New entrants - new entrants may enter the market considering the prospective demand for
biodiesel in the Philippines. New entrants can include major oil refiners who may
manufacture their own biodiesel, other chemical (non-oleochemical) manufacturers and new
investors seeking to exploit expected demand. Aside from the lead time of approximately 18
to 24 months to develop and construct a competitive biodiesel facility, the Company believes
that its technical expertise and experience in oleochemical manufacturing and logistics
management will prove to be competitive advantages against any new entrants; and

Imports - although significant capacity is expected to be built in Indonesia, Malaysia and

Singapore, the Company believes that these new biodiesel capacities in the region will be
aimed at supplying these respective countries domestic requirements.

The Company estimates that its share of the Philippine oleochemicals market in 2011 was
approximately 54%, with no single significant competitor due to the highly fragmented nature of the
Philippine oleochemicals industry. With respect to resins and powder coatings industries have
traditionally been highly fragmented with few major players. The main industry players with respect
to resins include local manufacturers such as RI Chemical Corporation and Philippine Resins
Industries, Incorporated, while. in powder coatings, local manufacturers such as Diversys Spectrum
Specialists, Inc., Golden Diamond Powder Coaters Corporation and Gemini Powder Coating
Industries, among others, are active in the market.
AEROSOLS INDUSTRY
The Philippine aerosols industry produces a broad range of personal care and household products for
Filipino consumers. The Companys aerosols business competes primarily with importers of finished
aerosol products but maintains market leadership as the first and only company in the Philippines that
supplies three-piece aerosol cans and components which comprise the majority of aerosol products in
the Philippines. The Company estimates that for the year ended December 31, 2011, its aerosol
products held a market share of approximately 54%, with no single significant domestic competitor.
The remaining 46% market share consists primarily of imported aerosol products.

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BOARD AND SENIOR MANAGEMENT

The overall management and supervision of the Company is undertaken by the Board. The executive
officers and management team cooperate with the Board by preparing appropriate information and
documents concerning the Companys business operations, financial condition and results of
operations for its review.
BOARD OF DIRECTORS AND SENIOR MANAGEMENT
Currently, the Board consists of seven Members of the Board are elected annually, with the most
recent election of Board members conducted on September 3, 2012. The table below sets forth
certain information regarding the members of the Board as of the date of this Prospectus.

Name
Dean L. Lao
Leon L. Lao
Yin Yong L. Lao
Alex L. Lao
Ambassador Cesar
B. Bautista
Filemon T. Berba,
Jr.
John L. Lao
Alvin D. Lao
Dean A. Lao, Jr.
Vincent D. Lao
Lester A. Lao
Arthur R. Ponsaran
Kristine Ann C.
Cataindig-Ong

Age

Nationality

Position

74
70
60
67
74

Filipino
Filipino
Filipino
Filipino
Filipino

Chairman Emeritus
Chairman
Vice-Chairman
Director
Independent Director

73

Filipino

Independent Director

58
41
45
39
43
69
31

Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino

Director & President

Chief Financial Officer and Compliance Officer
Managing Director, Chemrez
Managing Director, Oleo-Fats
Managing Director, FIC and DLPC
Corporate Secretary
Assistant Corporate Secretary, Corporate
Information Officer and Corporate Legal Counsel

The business experience for the past five years of each of the directors and executive officers is set
forth below.
Dean L. Lao is the Chairman Emeritus of the Company, having previously served as Chairman and
President of the Company since 1971. He is the Chairman Emeritus of Chemrez Technologies Inc. He
was the founder of the various companies belonging to the Lao Family which include FIC Marketing
Co., Inc. (1986), Oleo-Fats, Inc. (1988), Corro-Coat, Inc (1990), Aero-Pack Industries, Inc. (1990),
First in Colors, Inc. (1991), and Chemrez, Inc. (1991). He currently serves as Director of the
following companies: Aero-Pack Industries, Inc., Chemrez, Inc., First in Colours, Incorporated, OleoFats Incorporated, Malay Resources, Incorporated, FIC Marketing Co., Inc., FIC Tankers Corporation,
LBL Industries, Inc., Ecozone Properties, Inc. and First Batangas Industrial Park, Inc. Mr. Lao
obtained his B.S. in Chemical Engineering from Polytechnic Colleges of the Philippines.
Leon L. Lao is the Chairman of the Company, having been a Director since 1971. He has been the
President and Chief Executive Officer, as well as a Director, of Chemrez Technologies Inc. since
2006. He is a co-founder of D&L Industries, Inc. where he currently serves as Director. He is also
President of First in Colors, Inc., FIC. Marketing Co., Inc., and Director of Aero-Pack Industries, Inc.,
Chemrez, Inc., First in Colours, Incorporated, D&L Polymer and Colours, Incorporated, Oleo-Fats
Incorporated, Malay Resources, Incorporated, FIC Marketing Co., Inc., LBL Industries, Inc., Ecozone

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Properties, Inc., First Batangas Industrial Park, Inc. Color-Chem Corp. and Jadel Holdings Co., Inc.
Mr. Lao obtained his B.S. in Chemical Engineering from Polytechnic Colleges of the Philippines.
Yin Yong L. Lao is the Vice Chairman of the Company, having been a Director since 1971, having
previously served as President. He is President of LBL Industries, Inc. Mr. Lao is also a Trustee of the
Association of Petrochemical Manufacturers of the Philippines. He graduated from the Ateneo de
Manila University with a Bachelor of Arts degree in General Studies. He also serves as a director of
the following: Aero-Pack Industries, Inc., Chemrez, Inc., Chemrez Technologies, Inc., First in
Colours, Incorporated, Oleo-Fats Incorporated, Malay Resources, Incorporated, FIC Marketing Co.,
Inc., LBL Industries, Inc., Ecozone Properties, Inc., First Batangas Industrial Park, Inc., Anonas LRT
Property and Devt Corp. and Hotel Acropolis, Inc.
Alex L. Lao has been a Director of the Company since 1971. He has also been a Director of other
subsidiaries and affiliates of D&L Industries. He serves as Alternate Director of Axis REIT a real
estate investment trust listed in Malaysia. Mr. Lao is also a Director of the following: Aero-Pack
Industries, Inc., Chemrez, Inc., First in Colours, Incorporated, Oleo-Fats Incorporated, Malay
Resources, Incorporated, FIC Marketing Co., Inc., LBL Industries, Inc., First Batangas Industrial Park,
Inc., Anonas LRT Property and Devt Corp. and Hotel Acropolis, Inc. Mr. Lao obtained his B.S. in
Chemical Engineering from Polytechnic Colleges of the Philippines in 1969.
John L. Lao is the President of the Company and has served as Director since 1971. He has also been
the Executive Vice President of Chemrez Technologies Inc. since 2006. He is currently the Executive
Vice President of Color-Chem Corporation and Jadel Holdings Co., Inc. His other directorships
include North Mactan Industrial Corporation, Aero-Pack Industries, Inc., Chemrez, Inc., First in
Colours, Incorporated, D&L Polymer and Colours, Incorporated, Oleo-Fats Incorporated, Malay
Resources, Incorporated, FIC Marketing Co., Inc., LBL Industries, Inc., Ecozone Properties, Inc.,
Anonas LRT Property and Devt Corp., Hotel Acropolis, Inc. and First Batangas Industrial Park, Inc.
Mr. Lao obtained his B.S. in Business Administration from the University of the East in 1974.
Filemon T. Berba, Jr. is an independent director of the Company. He is the President of the
Philippine Foundation for Science & Technology, President Emeritus of the Philippine Quality Award
Foundation and serves as independent director of Integrated Microelectronics, iPeople, EEI
Corporation and La Salle Canlubang. He also previously served as Senior Managing Director of
Ayala Corporation from 1991 to 2003, seconded as Vice Chairman and President of Manila Water
Company from 1997 to 2003, President of Globe Telecom from 1995 to 1997, Vice Chairman and
President of Integrated Microelectronics, Inc. from 1991 to 2003, President and Chief Executive
Office of Philippine Electric Corporation from 1987 to 1990, President of Westinghouse Asia
Controls Corporation from 1979-1987, Group President of various companies under the Herdis Group
from 1975-1979, Vice President for Manufacturing and Logistics Services for United Laboratories
from 1973 to 1975, as well as other senior management positions in the First Philippine Holdings
Group. Mr. Berba obtained a B.S. in Electrical Engineering (Magna Cum Laude) from the University
of the Philippines in 1959 and obtained his Masters of Business Administration degree (with
distinction) from the Wharton School of the University of Pennsylvania in 1964.
Cesar B. Bautista is an independent director of the Company. He is an independent director of
Chemrez Technologies Inc. and the Chairman of CIBI and St, James Ventures Inc. Mr. Bautista is
also a Director of First Philippines Holding Corporation, Bayantel Telecommunications, Inc.,
Pilipinas Shell Petroleum, Chartis Insurance Inc., Philratings Services Inc., PHINMA, Maxicare
Healthcare Inc., as well as an Advisory Director of AIM-Zuellig Center for Business Transformation,
Co-Chairman of the National Competitiveness Council and a Trustee of the Institute of Corporate
Directors. Mr. Bautista previously served as Philippine Ambassador to the United Kingdom, the
Republic of Ireland and the Republic of Iceland, as Secretary of the Department of Trade and Industry
of the Philippines, as well as President and Chairman of Unilever Philippines, Inc. Mr. Bautista
obtained a B.S. in Chemical Engineering from the University of the Philippines and an M.S. in
Chemical Engineering from Ohio State University.

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Alvin D. Lao is an Executive Vice President and the Chief Financial Officer of the Company. He is
also the Chief Financial Officer and Treasurer of Chemrez Technologies Inc. He serves as Director of
Axis REIT a real estate investment trust listed in Malaysia and as a Vice President of the Technology
Club of the Philippines (Philippine alumni of the Massachusetts Institute of Technology), and is a past
president and current member of the Entrepreneurs Organization (EO, Philippine Chapter), the
Financial Executives Institute of the Philippines (FINEX) and the Wallace Business Forum. He is a
director of Enderun Colleges, Gurango Software Corporation, First in Colours, Incorporated, D&L
Polymer and Colours, Incorporated, FIC Tankers Corporation, Ecozone Properties, Inc., Anonas LRT
Property and Devt Corp., and Hotel Acropolis, Inc. He was previously a faculty member of the De La
Salle University Graduate School of Business. He graduated from the University of Western Australia
with a Bachelor of Science in Information Technology (Honours) and Statistics. He also holds a
Masters degree in Business Administration from the MIT Sloan School of Management.
Dean A. Lao, Jr. is the Managing Director of Chemrez. He is currently the Chairman of the United
Coconut Association of the Philippines, Director of the ASEAN Oleochemical Manufacturing Group,
President of the Philippine Oleochemical Manufacturers Association, President of The Philippine
Biodiesel Association and member of the Wallace Business Forum, Chemical Industries Association
of the Philippines, Philippine Association of Paint Manufacturers and the Entrepreneurial
Organization, Philippine Chapter. He graduated from Curtin University in Western Australia with a
Bachelor of Business in Information Processing after completing his freshman year at the Ateneo de
Manila University in the Philippines with a BA in Interdisciplinary Studies. He also completed the
Advanced Management Program of Harvard Business School in 2010.
Lester A. Lao is the Managing Director of First in Colours, Incorporated. He is also the Vice
President and a Director of D&L Polymer and Colours, Inc. He also serves as Director of First in
Colours, Incorporated, Anonas LRT Property and Devt Corp., and Hotel Acropolis, Inc. He finished
his Bachelor of Applied Science (Information Business) in Edith Cowan University Australia in 1990.
Vincent D. Lao is the Managing Director of Oleo-Fats. He was previously Assistant Trader at Shuwa
Co. Ltd. in Japan from 1994 to 1995. He also serves as Director of D&L Polymer and Colours,
Incorporated, Oleo-Fats, Incorporated, Anonas LRT Property and Devt Corp., and Hotel Acropolis,
Inc. He graduated from the University of Western Australia with a Bachelor of Arts in Economics and
Japanese Studies.
Arthur R. Ponsaran is the Corporate Secretary of the Company. He is the Managing Partner of the
law firm Corporate Counsels, Philippines-Law Office. He is also the Corporate Secretary of, among
others, Waterfront Philippines, Inc., Producers Savings Bank Corporation, Chemrez Technologies, Inc.
and MRL Gold Philippines, Inc., and Director of Iloilo City Development Bank, Cebuana Lhuillier
Rural Bank, Inc., New Kanlaon Construction Inc., Acesite (Phils.) Hotel Corporation, Davao Insular
Hotel, Inc. , Philippine Estate Corporation, Forum Pacific Inc. and Philsteel Holdings Corporation. Mr.
Ponsaran is a lawyer and a member of the Integrated Bar of the Philippines and the New York Bar as
well as a licensed CPA and a member of the Philippine Institute of Certified Public Accountants.
Kristine Ann C. Catindig-Ong is the Assistant Corporate Secretary, Corporate Information Officer
and Corporate Legal Counsel of the Company. She is likewise the Assistant Corporate Secretary,
Compliance Officer and Corporate Information Officer of Chemrez. She also acts as the Corporate
Secretary of FIC and DLPC. She is a lawyer with a juris doctor degree from the Ateneo School of
Law and a member of the Integrated Bar of the Philippines.
Family Relationships
Mr. Dean L. Lao, Mr. Leon L. Lao, Mr. Alex L. Lao, Mr. Yin Yong L. Lao and Mr. John L. Lao are
brothers. Mr. Dean A. Lao, Jr. and Mr. Lester A. Lao are the sons of Mr. Dean L. Lao, and Mr. Alvin
D. Lao and Mr. Vincent D. Lao are the sons of Mr. Leon L. Lao.

127

Involvement in Certain Legal Proceedings of Directors and Executive Officers

To the best of the Companys knowledge and belief and after due inquiry, none of the directors,
nominees for election as director, or executive officer of the Company, its subsidiaries and affiliates
have in the five year period prior to the date of this Prospectus: (1) had any petition filed by or against
any business of which such person was a general partner or executive officer either at the time of the
bankruptcy or within a two-year period of that time; (2) convicted by final judgment in a criminal
proceeding, domestic or foreign, or have been subjected to a pending judicial proceeding of a criminal
nature, domestic or foreign, excluding traffic violations and other minor offenses; (3) subjected to any
order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, domestic or foreign, permanently or temporarily enjoining, barring,
suspending or otherwise limiting their involvement in any type of business, securities, commodities or
banking activities; or (4) found by a domestic or foreign court of competent jurisdiction (in a civil
action), the Philippine SEC or comparable foreign body, or a domestic or foreign exchange or other
organized trading market or self regulatory organization, to have violated a securities or commodities
law or regulation and the judgment has not been reversed, suspended, or vacated.
INVESTOR RELATIONS OFFICER
Nikka Maloles is the Companys Investor Relations Officer. Her contact details are as follows:
Telephone number: +63-2-635-0680
Email address: debmaloles@dnl.com.ph
Office address: #65 Industria Street, Bagumbayan, Quezon City 1110, Philippines
COMPLIANCE OFFICER
Alvin Lao is the Companys Compliance Officer. His contact details are as follows:
Telephone number: +63-2-635-0680
Email address: alvinlao@dnl.com.ph
Office address: #65 Industria Street, Bagumbayan, Quezon City 1110, Philippines
CORPORATE GOVERNANCE
The Board approved the Companys Corporate Governance Manual (the Manual) on October 2,
2012 in order to monitor and assess the level of the Companys compliance with leading practices on
good corporate governance as specified in pertinent Philippine SEC circulars. Aside from establishing
specialized committees to aid in complying with the principles of good corporate governance, the
Manual also outlines specific investors rights and protections and enumerates particular duties
expected from the Board members, officers and employees. It also features a disclosure system which
highlights adherence to the principles of transparency, accountability and fairness. A compliance
officer is tasked with the formulation of specific measures to determine the level of compliance with
the Manual by the Board members, officers and employees. There has been no deviation from the
Manuals standards as of the date of this Prospectus.
COMMITTEES OF THE BOARD
Pursuant to the Companys By-Laws, the Board created each of the following committees and
appointed Board members thereto. Each member of the respective committees named below has been
holding office as of the date of this Prospectus and will serve until his successor shall have been
elected and qualified.

128

EXECUTIVE COMMITTEE
The Executive Committee is composed of five members, a majority of whom are directors. The
Executive Committee, during the intervals between the meetings of the Board, may possess and
exercise powers of the Board which can lawfully be delegated in the management and direction of the
affairs of the Corporation in all cases in which specific directions have not been given by the Board.
All actions by the Executive Committee are reported to the Board at its meeting next succeeding such
action, and are subject to revision and alteration by the Board, provided that no rights of third parties
shall be affected by any such revision or alteration. As of the date of this Prospectus, the members of
the Executive Committee are Mr. Dean L. Lao (Chairman), Mr. Leon L. Lao, Mr. Yin Yong L. Lao,
Mr. Alex L. Lao and Mr. Alvin D. Lao.
AUDIT COMMITTEE
The Audit Committee is composed of three directors members, one of whom is an independent
director. Each member of the Audit Committee is required to have an adequate understanding at least,
or competence at most, of the Companys financial management systems and environment. The Audit
Committee has functions, powers and authorities as may be prescribed by the Board and as may be
prescribed by applicable law and regulations. The Audit Committee is in the process of enacting its
internal charter and rules. As of the date of this Prospectus, the members of the Audit Committee are
Mr. Cesar B. Bautista (Chairman), Mr. Yin Yong L. Lao and Mr. Filemon T. Berba.
NOMINATION COMMITTEE
The Nomination Committee is composed of three directors, one of whom is an independent director.
The Nomination Committee reviews and evaluates the qualifications of all persons nominated as
director, and conducts nominations and pre-screens the qualifications of candidates for independent
directors. The Nomination Committee prescribes screening policies and parameters in the review of
qualifications of nominees for independent directors. As of the date of this Prospectus, the members
of the Nomination Committee are Mr. Leon L. Lao (Chairman), Mr. Filemon T. Berba and Mr. John L.
Lao.
COMPENSATION COMMITTEE
The Compensation Committee is composed of three directors, one of whom is an independent director.
The Compensation Committee establishes formal procedures for developing the Companys policy
on remuneration of officers and directors to ensure that their compensation is consistent with the
Companys culture, strategy and the business environment in which it operates. As of the date of this
Prospectus, the members of the Nomination Committee are Mr. Yin Yong L. Lao (Chairman), Mr.
John L. Lao and Mr. Cesar B. Bautista.
EXECUTIVE COMPENSATION SUMMARY
Compensation
The following are the Companys CEO and four most highly compensated senior managers for the
year ended 2011:
Name
John L. Lao
Alvin D. Lao
Dean A. Lao, Jr.
Lester A. Lao
Vincent D. Lao

Position
President
Executive Vice President and Chief Financial Officer
Managing Director, Chemrez
Managing Director, FIC and DLPC
Managing Director, Oleo-Fats

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The following table identifies and summarizes the aggregate compensation of the Companys CEO
and the four most highly compensated executive officers, as well as the aggregate compensation paid
to all officers and Directors as a group, for the years ended December 31, 2009, 2010 and 2011, as
well as 2012 estimates:
Year

Salaries

CEO and the

2009
most highly
2010
compensated
2011
officers named
2012
above ................................
estimates

16.1
22.5
17.7
20.7

Aggregate
2009
compensation
2010
paid to all
2011
officers and
2012
Directors as a
estimates
group unnamed................................

39.8
36.6
38.3
45.6

Bonuses
(P in millions)
1.3
1.5
1.5
1.7

2.9
3.1
3.2
3.8

Other Income

Total

0.4
0.5
0.1
0.2

17.8
24.5
19.3
22.6

6.5
3.1
3.1

42.7
46.2
44.6
52.5

Standard Arrangements
Other than payment of reasonable per diem as may be determined by the Board for every meeting,
there are no standard arrangements pursuant to which directors of the Company are compensated
directly or indirectly, for any services provided as a director.
Other Arrangements
There are no other arrangements pursuant to which any director of the Company are compensated,
directly or indirectly, for any service provided as a director.
WARRANTS AND OPTIONS OUTSTANDING
As of the date of this Prospectus, there are no outstanding warrants or options held by the Companys
directors, named executive officers, and all officers and directors as a group.

130

PRINCIPAL SHAREHOLDERS AND SELLING SHAREHOLDER

SHAREHOLDERS
The following table sets forth the Companys shareholders as of September 3, 2012.

Name of Shareholder
Jadel Holdings Co., Inc.
Yin Yong L. Lao
John L. Lao
Alex L. Lao
Leon L. Lao
SmartWorks Trading Co. Inc.
Dean L. Lao
Allvee United, Inc.
Jadana Inc.
CEE Industries Inc.
Prime Spin Inc.
LBL Industries, Inc.
Filemon T. Berba, Jr.
Cesar B. Bautista
Total

Number of Shares Held

2,125,771,036
42,563,601
42,563,601
42,029,888
39,094,467
37,841,701
35,225,048
33,972,282
31,036,861
30,503,148
30,503,148
8,895,212
1
1
2,499,999,995

Percentage of total
outstanding Shares
85.03%
1.70%
1.70%
1.68%
1.56%
1.51%
1.41%
1.36%
1.24%
1.22%
1.22%
0.36%
0.00%
0.00%
100.00%

SELLING SHAREHOLDER
The table sets forth, for the Selling Shareholder, the number of Shares held before the Offer, the
number of Shares to be sold by the Selling Shareholder in the Offer (assuming full exercise of the
Over-Allotment Option) with respect to the Selling Shareholders Shares, and the number of Shares
the Selling Shareholder will own immediately after the Offer.

Selling
Shareholder

Shares
Before
Offer

% of Shares
Outstanding

Shares
to be
Sold in
the
Firm
Offer

Jadel Holdings
Co., Inc.

2,125,771,036

85.0

Shares to
be Sold
Pursuant
to Exercise
of OverAllotment
Option

Shares
Held after
Offer(1)

160,714,000

1,965,057,036

Notes:
(1) Assuming full exercise of the Over-Allotment Option.
(2) Assuming no exercise of the Over-Allotment Option.

131

%(1)

Shares
Held after
Offer(2)

%(2)

55.0

2,125,771,036

59.5

SECURITY OWNERSHIP OF CERTAIN RECORD AND BENEFICIAL OWNERS AND MANAGEMENT

Security Ownership of Certain Record and Beneficial Owners of more than 5% of the
Companys voting securities as of the date of this Prospectus

Title of Class
Common
Shares

Name and
Address of
Record
Owners
Jadel Holdings
Co., Inc.

Name of
Beneficial
Owner and
Relationship
with Record
Owner
n/a

Citizenship
Filipino

No. of Shares
Held
2,125,771,036

% of Total
Outstanding
Shares
85.0

Security Ownership of Directors and Officers as of the date of this Prospectus

Title of Class
Common Shares

Name of Beneficial
Owner
Dean L. Lao

Amount and
Nature of
Beneficial
Ownership
35,225,048

Citizenship
Filipino

% of Total
Outstanding
Shares
1.41

Common Shares

Leon L. Lao

39,094,467

Filipino

1.56

Common Shares

Alex L. Lao

42,029,888

Filipino

1.68

Common Shares

Yin Yong L. Lao

42,563,601

Filipino

1.70

Common Shares

John L. Lao

42,563,601

Filipino

1.70

Common Shares

Filemon T. Berba,
Jr.

Filipino

Common Shares

Cesar B. Bautista

Filipino

Total: 201,476,607

Total: 8.05

VOTING TRUST HOLDERS OF 5% OR MORE

There were no persons holding more than 5% of a class of Shares under a voting trust or similar
agreement as of the date of this Prospectus.
CHANGE IN CONTROL
As of the date of this Prospectus, there are no arrangements which may result in a change of control of
the Company.

132

RELATED PARTY TRANSACTIONS

The Company, in the ordinary course of business, engages in transactions among its constituent
companies. See Risk Factors Risks Relating to the Company The Company has a number of
related party transactions with affiliated companies.
The Companys material related party transactions include:
Management services
The Company has an existing management agreement with its related parties, whereby it provides the
following management services to related parties:

Technical support, which includes research and development, quality control and assurance,
use of trademarks, and IT related services;

Logistics support, which includes transport, fleet management, warehousing management,

tank farm management, port clearing and procurement;

Administrative support, which includes accounting and finance, human resources,

information technology, property management, legal services, and research and
development; and

Executive management, which includes the services performed by the executives to manage
the business operations of the related parties.

The fee for technical and logistic support services is fixed at 2% to 3% of net receipts from
operations, excluding intercompany sales, and those for administrative and executive management
support services at 3.5% to 7% of gross income from operations. The aggregate management fees
derived by the Company from other related parties under these arrangements, net of intersegment
charges, amounted to P140.2 million, P170.6 million, P154.7 million, P102.6 million and P65.7
million for the years ended December 31, 2009, 2010, 2011, and for the seven months ended July 31,
2011 and 2012, respectively.
The agreement remains in force, unless terminated by both parties.
Lease Agreements
The Company has existing cancellable operating lease agreements with LBL, whereby the Company
leases from LBL its facilities and warehouses, including the lands on which such facilities and
warehouses are located. The leases are generally for a period of five years commencing on July 1,
2008 and renewable for another five years thereafter, unless terminated by either party.
Oleo-Fats has existing cancellable lease operating agreements with Chemrez, and FIC, for the use of
Oleo-Fats storage tanks and various machineries and equipment. The lease is renewable for another
five years by mutual agreement of the parties. Oleo-Fats is required to give a six-month notice for
the termination of this agreement.
On July 1, 2007, FIC entered into lease agreement with Chemrez, whereby FIC leased from Chemrez
certain production and warehouse space. The lease runs for a period of five years starting from July 1,
2007 to June 30, 2012.

133

On January 1, 2010, DLPC entered into an operating lease agreement with a related party, Ecozone
Properties, Inc., covering its warehouse for a period of five years up to January 1, 2015 providing for
renewal options.
As a result of these lease agreements, rental deposit amounting to P4.5 million was recorded as part of
other non-current assets in the pro forma condensed consolidated statements of financial position.

Surety Arrangement
On August 4, 2009, Oleo-Fats provided surety for the obligations and indebtedness incurred or may
be incurred by the Company, Aero-Pack, FIC, and FIC Marketing, arising from short term credit
accommodation extended by a local bank to such related parties.
Other related party transactions
In the normal course of its business, the Company also enters into transactions for sales and purchases
of goods from related parties, such as raw materials for the production of finished goods, as well as
for cash advances. These transactions are pursuant to terms that are no less favorable than those
arranged with third parties.
For further information, please see Note 16 to the Pro-Forma Consolidated Financial Statements
included in this Prospectus.

134

DESCRIPTION OF THE SHARES

The Shares to be offered shall be common shares of the Company.
The Company has an authorized capital stock of Four Billion Pesos (P4,000,000,000.00) divided into
Four Billion (4,000,000,000) common shares with a par value of One Peso (P1.00) each. The issued
share capital will comprise 3,571,428,995 common shares after the completion of the Firm Offer. All
of the issued share capital of the Company are fully paid-up.
OBJECTS AND PURPOSES
Based on its amended Articles of Incorporation, the principal purpose of the Company is to invest in,
purchase or otherwise acquire and own, hold, use, mortgage, pledge, exchange, or otherwise dispose
of personal property of every kind and description, including shares of stock, bonds, debentures, notes,
evidences of indebtedness, and other securities or obligations of any corporation or corporations,
association or associations, domestic or foreign, for whatever lawful purpose or purposes the same
may have been organized and to pay therefore in money or by exchanging therefore stocks, bonds, or
other evidences of indebtedness or securities of this or any other corporation, and while the owner or
holder of any such personal property, stocks, bonds, debentures, contracts, or obligations, to receive,
collect and dispose of the interest, dividends, and income arising from such property and to possess
and exercise in respect thereof all the rights, powers and privileges of ownership, including all voting
powers of any so owned, without however acting as a broker/dealer in securities, Government
Securities Eligible Dealer (GSED), investment adviser of an investment company, or investment
house.
SHARE CAPITAL
A Philippine corporation may issue common or preferred shares, or such other classes of shares with
such rights, privileges or restrictions as may be provided for in the articles of incorporation and bylaws of the corporation.
Under Philippine law, the shares of stock of a corporation may either be with or without a par value.
All of the Shares currently issued or authorized to be issued have a par value of P1.00 per share. In the
case of par value shares, where a corporation issues shares at a price above par, whether for cash or
otherwise, the amount by which the subscription price exceeds the par value is credited to an account
designated as additional paid-in capital or paid-in surplus.
Subject to approval by the Philippine SEC, a corporation may increase or decrease its authorized
capital stock, provided that the change is approved by a majority of the board of directors of such
corporation and shareholders representing at least two-thirds of the issued and outstanding capital
stock of the corporation voting at a shareholders meeting duly called for the purpose.
A corporation is empowered to acquire its own shares for a legitimate corporate purpose, provided
that the corporation has unrestricted retained earnings or surplus profits sufficient to pay for the shares
to be acquired. Examples of instances in which the corporation is empowered to purchase its own
shares are: when the elimination of fractional shares arising out of stock dividends is necessary or
desirable, the purchase of shares of dissenting shareholders exercising their appraisal right (as
discussed below) and the collection or compromise of an indebtedness arising out of an unpaid
subscription. When a corporation repurchases its own shares, the shares become treasury shares,
which may be resold at a price fixed by the board of directors of such corporation.
The Board is authorized to issue shares from treasury from time to time. Treasury shares may be
issued to any person, corporation or association, whether or not a shareholder of the Company,
including its officers or employees for such consideration in money as the Board may determine.

135

VOTING RIGHTS
Under the Companys By-Laws, each holder of the Companys common share has full voting rights.
Each stockholder is, in every meeting of stockholders, entitled to one vote for each share of the capital
stock held by the stockholder, in person or by proxy, provided and except in cases in which it is by
statute, charter or by the By-laws, otherwise provided, a majority of the votes cast by the stockholders
present in person or by proxy at any meeting shall be sufficient for the adoption of any resolution.
The vote at the elections of Directors is by stock vote and by ballot unless by unanimous vote of all
the stockholders present in person or by proxy, the said stockholders shall, by resolution, agree to a
viva voce vote.
However, the Philippine Corporation Code and the Companys By-Laws provide that voting rights
cannot be exercised with respect to shares declared by the board of directors as delinquent, treasury
shares, or if the shareholder has elected to exercise his right of appraisal as discussed below.
PRE-EMPTIVE RIGHTS
The Philippine Corporation Code confers pre-emptive rights on the existing shareholders of a
Philippine corporation which entitle such shareholders to subscribe to all issues or other dispositions
of shares of any class by the corporation in proportion to their respective shareholdings, regardless of
whether the shares proposed to be issued or otherwise disposed of are identical to the shares held. A
Philippine corporation may, however, provide for the denial of these pre-emptive rights in its articles
of incorporation. Likewise, shareholders who are entitled to such pre-emptive rights may waive the
same through a written instrument to that effect.
The Amended Articles of Incorporation of the Company denies the pre-emptive rights of its
stockholders to subscribe to any or all dispositions of any class of shares.
DERIVATIVE RIGHTS
Philippine law recognizes the right of a shareholder to institute proceedings on behalf of the
corporation in a derivative action in circumstances where the corporation itself is unable or unwilling
to institute the necessary proceedings to redress wrongs committed against the corporation or to
vindicate corporate rights as, for example, where the directors of the corporation themselves are the
malefactors.
APPRAISAL RIGHTS
The Philippine Corporation Code grants a shareholder a right of appraisal and demand payment of the
fair value of his shares in certain circumstances where he has dissented and voted against a proposed
corporate action, including:
an amendment of the articles of incorporation which has the effect of changing or
restricting the rights attached to his shares or of authorizing preferences in any respect
superior to those of outstanding shares of any class;
the extension or shortening of the term of corporate existence;
the sale, lease, exchange, transfer, mortgage, pledge or other disposal of all or substantially
all the assets of the corporation;
a merger or consolidation; and
investment by the corporation of funds in any other corporation or business or for any
purpose other than the primary purpose for which it was organized.

136

In any of these circumstances, the dissenting shareholder may require the corporation to purchase its
shares at a fair value, which, in default of agreement, is determined by three disinterested persons, one
of whom shall be named by the shareholder, one by the corporation, and the third by the two thus
chosen. Regional Trial Courts will, in the event of a dispute, determine any question about whether a
dissenting shareholder is entitled to this right of appraisal. From the time the shareholder makes a
demand for payment until the corporation purchases such shares, all rights accruing on the shares,
including voting and dividend rights, shall be suspended, except the right of the shareholder to receive
the fair value of such shares. No payment shall be made to any dissenting stockholder unless the
corporation has unrestricted retained earnings sufficient to support the purchase of the shares of the
dissenting shareholders.
BOARD OF DIRECTORS
Unless otherwise provided by law or in the Amended Articles of Incorporation, the corporate powers
of the Company are exercised, its business is conducted, and its property is controlled by the Board.
The Company has seven Directors, at least two of whom are independent Directors within the
meaning set forth in Section 38 of the SRC. The Board shall be elected during each regular meeting of
shareholders, at which shareholders representing at least a majority of the issued and outstanding
capital stock of the Company are present, either in person or by proxy.
Directors may only act collectively; individual directors have no power as such. Four directors, which
is a majority of the Directors, constitute a quorum for the transaction of corporate business. In general,
every decision of a majority of the quorum duly assembled as a Board is valid as a corporate act.
Any vacancy occurring in the Board other then by removal of a director prior to expiration of such
directors term may be filled by a vote of at least a majority of the remaining members of the Board, if
still constituting a quorum; otherwise, the vacancy must be filled by the shareholders at a meeting
duly called for the purpose. Any director elected in this manner by the Board shall serve only for the
unexpired term of the director whom such director replaces and until his successor is duly elected and
qualified.
SHAREHOLDERS MEETINGS
Annual or Regular Shareholders Meetings
The Philippine Corporation Code requires all Philippine corporations to hold an annual meeting of
shareholders for corporate purposes including the election of directors. The Amended By-laws of the
Company provide for annual meetings on the last Monday of June of each year to be held at the
principal office or at any other place in Metro Manila, Philippines or any other place as may be
allowed by law designated by the Board or the Chairman and Chief Executive Officer and at such
hour as specified in the notice.
Special Shareholders Meeting
Special meetings of shareholders, for any purpose or purposes, may at any time be called by any of
the following: (1) the Chairman of the Board; (2) by the President of the Company; (3) by the Board
of Directors; or (4) upon written request of a majority of the registered owners of at least a majority of
the outstanding capital stock.
Notice of Shareholders Meeting
Whenever shareholders are required or permitted to take any action at a meeting, a written notice of
the meeting shall be given which shall state the place, date and time of the meeting, and the purpose
or purposes for which the meeting is called. Under the Amended By-laws of the Company, notices for
regular and special meetings shall be sent to each stockholder at least fifteen days prior to such

137

meeting. In addition, the Company is required under the SRC to send its shareholders of record at
least 15 business days prior to the date of the annual or special meeting, an information statement and
proxy form (in case of proxy solicitation) relating to such shareholders meeting. Notices of regular or
special meetings may be waived in writing by any shareholder, in person or by proxy, before or after
the meeting.
When the meeting of the shareholders is adjourned to another time or place, it shall not be necessary
to give any notice of the adjourned meeting if the time and place to which the meeting is adjourned
are announced at the meeting at which the adjournment is taken. At the reconvened meeting, any
business may be transacted that might have been transacted at the original date of the meeting.
Quorum
Unless otherwise provided by law, in all regular or special meeting of shareholders, a majority of the
outstanding capital stock must be present or represented in order to constitute a quorum, except in
those cases where the Corporation Code provides a greater percentage vis--vis the total outstanding
capital stock. If no quorum is constituted, the meeting shall be adjourned until the requisite amount of
stock shall be represented.
Meetings of the shareholders shall be presided over by the Chairman of the Board, or in his absence,
the President, or in the absence of the Chairman and the President, by a temporary chairman to be
chosen by the shareholders. The Corporate Secretary, or, in his absence, the Assistant Corporate
Secretary, or in the absence of both, any person appointed by the Chairman of the meeting, shall act as
secretary of such meeting.
Voting
At all meetings of shareholders, a shareholder may vote in person or by proxy, for each share held by
such shareholder.
Fixing Record Dates
The Companys amended by-laws provide that for the purpose of determining the shareholders
entitled to notice of, or to vote at, any meeting of shareholders or any adjournment thereof or to
receive payment of any dividend, or making any other proper determination of shareholders, the
Board may provide that the stock and transfer books be closed for a stated period, which shall not
exceed, in any case, 25 days immediately preceding such meeting.
Notwithstanding the provisions of the amended by-laws of the Company on the setting of record dates,
the Philippine SEC may, from time to time, promulgate rules for listed companies such as the
Company relating to the fixing of such record dates. Under existing Philippine SEC rules, cash
dividends declared by corporations whose shares are listed on the PSE shall have a record date which
shall not be less than 10 nor more than 30 days from the date of declaration. With respect to stock
dividends, the record date shall not be less than 10 nor more than 30 days from the date of shareholder
approval. However, the record date set shall not be less than 10 trading days from receipt by the PSE
of the notice of declaration of cash or stock dividends. In the event that stock dividends are declared
in connection with an increase in the authorized capital stock, the corresponding record date shall be
fixed by the Philippine SEC.
Matters Pertaining to Proxies
Shareholders may vote at all meetings the number of shares registered in their respective names,
either in person or by proxy duly given in writing and duly presented to the Corporate Secretary not
later than 10 working days before the time set for the meeting. Unless otherwise provided in the proxy,
it shall be valid only for the meeting at which it has been presented to the Corporate Secretary.

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Proxies should comply with the relevant provisions of the Philippine Corporation Code, the SRC, the
Implementing Rules and Regulations of the SRC (as amended), and regulations issued by the
Philippine SEC.
DIVIDENDS
The Shares have full dividend rights. Dividends on the Companys Shares, if any, are paid in
accordance with Philippine law. Dividends are payable to all shareholders on the basis of outstanding
Shares held by them, each Share being entitled to the same unit of dividend as any other Share.
Dividends are payable to Shareholders whose name are recorded in the stock and transfer book as of
the record date fixed by the Companys Board of Directors. The PSE has an established mechanism
for distribution of dividends to beneficial owners of Shares which are traded through the PSE which
are lodged with the PCD Nominee as required for scripless trading.
Under Philippine law, a corporation can only declare dividends to the extent that it has unrestricted
retained earnings that represent the undistributed earnings of the corporation which have not been
allocated for any managerial, contractual or legal purposes and which are free for distribution to the
shareholders as dividends. A corporation may pay dividends in cash, by the distribution of property or
by the issuance of shares. Dividends may be declared by the board of directors except for stock
dividends which may only be declared and paid with the approval of shareholders representing at least
two-thirds of the issued and outstanding capital stock of the corporation voting at a shareholders
meeting duly called for the purpose.
The Philippine Corporation Code generally requires a Philippine corporation with retained earnings in
excess of 100% of its paid-in capital to declare and distribute as dividends the amount of such surplus.
However, a Philippine corporation may retain all or any portion of such surplus in the following cases:
(1) when justified by definite expansion plans approved by the board of directors of the corporation;
(2) when the required consent of any financing institution or creditor to such distribution has not been
secured; (3) when retention is necessary under special circumstances, such as when there is a need for
special reserves for probable contingencies; or (4) when the non-distribution of dividends is consistent
with the policy or requirement of a Government office. Philippine corporations whose securities are
listed on any stock exchange are required to maintain and distribute an equitable balance of cash and
stock dividends, consistent with the needs of shareholders and the demands for growth or expansion
of the business.
The Company has adopted a dividend policy of declaring at least 25% of its prior years consolidated
net income as a dividend in favor of its stockholders of record date to be determined by the Board, to
be paid from the Companys available unrestricted retained earnings. This dividend shall be payable
in cash, stock or property, or a combination of the three, as may be determined by the Board and
subject to applicable laws, rules and regulations. The dividend payout rate is based on
recommendation by the Board and is subject to periodic review and revision, which depends on the
Companys operating expenses, implementation of business plans, working capital requirements, cash
flow position and capital expenditure requirements, among other factors.
The Company declared cash dividends amounting to P60 million on November 20, 2009. The
Company did not declare dividends for its common shares for the years ended December 31, 2010 and
2011. On June 27, 2012, the Board approved the declaration of stock dividends amounting to P678.8
million from its unrestricted retained earnings as of December 31, 2011. Consequently, on August 28,
2012, the Board approved the declaration of both cash and stock dividends to stockholders as of
September 3, 2012 amounting to P863.4 million and P750 million, respectively; the cash and stock
dividends were each paid on September 3, 2012.
On June 27, 2012, Oleo-Fats, FIC, DLPC and Aero-Pack declared cash dividends amounting to P245
million, P235.6 million, P190.5 million and P26.3 million, respectively, in favor of their stockholders
of record as of August 28, 2012. D&L Industries plans to use the dividends it expects to receive as

139

shareholder of these subsidiaries to offset funds used for the cash dividend it paid on September 3,
2012.
TRANSFER OF SHARES AND SHARE REGISTER
All transfers of shares on the PSE shall be effected by means of a book-entry system. Under the bookentry system of trading and settlement, a registered shareholder shall transfer legal title over the
shares to a nominee, but retains beneficial ownership over the shares. The transfer of legal title is done
by surrendering the stock certificate representing the shares to participants of the PDTC System (i.e.,
brokers and custodian banks) that, in turn, lodge the same with the PCD Nominee Corporation, a
corporation wholly-owned by the PDTC (the PCD Nominee). A shareholder may request upliftment
of the shares from the PDTC, in which case a certificate of stock will be issued to the shareholder and
the shares registered in the shareholders name in the books of the Company. See The Philippine
Stock Market.
Philippine law does not require transfers of the Shares to be effected on the PSE, but any offexchange transfers will subject the transferor to a capital gains tax that may be significantly greater
than the stock transfer tax applicable to transfers effected on the PSE. See Philippine Taxation. All
transfers of Shares on the PSE must be effected through a licensed stockbroker in the Philippines.
ISSUES OF SHARES
Subject to otherwise applicable limitations, the Company may issue additional Shares to any person
for consideration deemed fair by the Board, provided that such consideration shall not be less than the
par value of the issued Shares. No share certificates shall be issued to a subscriber until the full
amount of the subscription together with interest and expenses (in case of delinquent Shares) has been
paid and proof of payment of the applicable taxes shall have been submitted to the Companys
Corporate Secretary. Under the PSE Rules, only fully-paid shares may be listed on the PSE.
SHARE CERTIFICATES
Certificates representing the Shares will be issued in such denominations as shareholders may request,
except that certificates will not be issued for fractional shares. Shareholders wishing to split their
certificates may do so upon application to the Companys stock transfer agent, Stock Transfer Service,
Inc., which maintains the share register. Shares may also be lodged and maintained under the bookentry system of the PDTC. See The Philippine Stock Market.
MANDATORY TENDER OFFERS
In general, under the SRC and its implementing rules and regulations, any person or group of persons
acting in concert and intending to acquire at least (1) 35% of any class of any equity security of a
public or listed corporation in a single transaction; or (2) 35% of such equity over a period of 12
months; or (3) even if less than 35% of such equity, if such acquisition would result in ownership by
the acquiring party of over 51% of the total outstanding equity, is required to make a tender offer to
all the shareholders of the target corporation on the same terms. Generally, in the event that the
securities tendered pursuant to such an offer exceed that which the acquiring person or group of
persons is willing to take up, the securities shall be purchased from each tendering shareholder on a
pro rata basis, disregarding fractions, according to the number of securities tendered by each security
holder. Where a mandatory tender offer is required, the acquirer is compelled to offer the highest price
paid by him for such shares during the past six months. Where the offer involves payment by transfer
or allotment of securities, such securities must be valued on an equitable basis. However, if any
acquisition of even less than 35% would result in ownership of over 51% of the total outstanding
equity, the acquirer shall be required to make a tender offer for all the outstanding equity securities to
all remaining shareholders of the said corporation at a price supported by a fairness opinion provided

140

by an independent financial adviser or equivalent third party. The acquirer in such a tender offer shall
be required to accept any and all securities thus tendered.
No Mandatory Tender Offer is required in: (i) purchases of shares from unissued capital stock unless
it will result to a 50.0% or more ownership of shares by the purchaser; (ii) purchases from an increase
in the authorized capital stock of the target company; (iii) purchases in connection with a foreclosure
proceedings involving a pledge or security where the acquisition is made by the debtor or creditor; (iv)
purchases in connection with privatization undertaken by the government of the Philippines; (v)
purchases in connection with corporate rehabilitation under court supervision; (vi) purchases through
an open market at the prevailing market price; or (vii) purchases resulting from a merger or
consolidation.
FUNDAMENTAL MATTERS
The Philippine Corporation Code provides that certain significant acts may only be implemented with
shareholders approval. The following require the approval of shareholders representing at least twothirds of the issued and outstanding capital stock (including non-voting preferred shares) of the
corporation in a meeting duly called for the purpose:
amendment of the articles of incorporation;
removal of directors;
sale, lease, exchange, mortgage, pledge or other disposition of all or a substantial part of the
assets of the corporation;
investment of corporate funds in any other corporation or business or for any purpose other
than the primary purpose for which the corporation was organized;
declaration or issuance of stock dividends;
delegation to the board of directors of the power to amend or repeal by-laws or adopt new bylaws;
merger or consolidation;
dissolution;
an increase or decrease in capital stock;
ratification of an act of a director who, by virtue of his office, acquires for himself a business
opportunity which should belong to the corporation;
ratification of a contract of a directors or officer with the corporation;
extension or shortening of the corporate term; and
creation or increase of bonded indebtedness.
The approval of shareholders holding a majority of the outstanding capital stock of a Philippine
corporation, including the preferred non-voting shares, is required for the adoption or amendment of
the by-laws of such corporation. The approval of shareholders representing at least two-thirds of the
issued and outstanding capital stock of the corporation entitled to vote is required for the removal of
directors and the execution of management contracts by a managed corporation (where a majority of

141

the members of the board of directors of the managing corporation also constitute a majority of the
members of the board of directors of the managed corporation).
ACCOUNTING AND AUDITING REQUIREMENTS
Philippine stock corporations are required to file copies of their annual financial statements with the
Philippine SEC. In addition, public corporations are required to file quarterly financial statements (for
the first three quarters) with the Philippine SEC. Those corporations whose shares are listed on the
PSE are additionally required to file said quarterly and annual financial statements with the PSE.
Shareholders are entitled to request copies of the most recent financial statements of the corporation
which include a statement of financial position as of the end of the most recent tax year and a profit
and loss statement for that year. Shareholders are also entitled to inspect and examine the books and
records that the corporation is required by law to maintain.
The Board is required to present to shareholders at every annual meeting a financial report of the
operations of the Company for the preceding year. This report is required to include audited financial
statements.

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THE PHILIPPINE STOCK MARKET

The information presented in this section has been extracted from publicly available documents which
have not been prepared or independently verified by the Company, the International Underwriter, the
Domestic Lead Underwriter or any of their respective subsidiaries, affiliates or advisors in
connection with the offer and sale of the Offer Shares.
BRIEF HISTORY
The Philippines initially had two stock exchanges, the Manila Stock Exchange, which was organized
in 1927, and the Makati Stock Exchange, which began operations in 1963. Each exchange was selfregulating, governed by its respective Board of Governors elected annually by its members.
Several steps initiated by the Philippine government have resulted in the unification of the two
bourses into the PSE. The PSE was incorporated in 1992 by officers of both the Makati and the
Manila Stock Exchanges. In March 1994, the licenses of the two exchanges were revoked. While the
PSE maintains two trading floors, one in Makati City and the other in Pasig City, these floors are
linked by an automated trading system, which integrates all bid, and ask quotations from the bourses.
In June 1998, the Philippine SEC granted the Self-Regulatory Organization (SRO) status to the PSE,
allowing it to impose rules as well as implement penalties on erring trading participants and listed
companies. On August 8, 2001, the PSE completed its demutualization, converting from a non-stock
member-governed institution into a stock corporation in compliance with the requirements of the
Philippine Securities Regulation Code. The PSE has an authorized capital stock of 97.8 million shares,
of which 30.7 million shares are subscribed and fully paid-up. Each of the 184 member-brokers was
granted 50,000 common shares of the new PSE at a par value of P1.00 per share. In addition, a trading
right evidenced by a Trading Participant Certificate was immediately conferred on each member
broker allowing the use of the PSEs trading facilities. As a result of the demutualization, the
composition of the PSE Board of Governors was changed, requiring the inclusion of seven brokers
and eight non-brokers, one of whom is the President.
On December 15, 2003, the PSE listed its shares by way of introduction at its own bourse as part of a
series of reforms aimed at strengthening the Philippine securities industry.
Classified into financial, industrial, holding firms, property, services, and mining and oil sectors,
companies are listed either on the PSEs First Board, Second Board or the Small and Medium
Enterprises Board. Each index represents the numerical average of the prices of component stocks.
The PSE has an index, referred to as the PHISIX, which as at the date thereof reflects the price
movements of selected stocks listed on the PSE, based on traded prices of stocks from the various
sectors. The PSE shifted from full market capitalization to free float market capitalization effective
April 3, 2006 simultaneous with the migration to the free float index and the renaming of the PHISIX
to PSEi. The PSEi is composed of stocks of 30 selected companies listed on the PSE.
With the increasing calls for good corporate governance, the PSE has adopted an online daily
disclosure system to improve the transparency of listed companies and to protect the investing public.
The table below sets out movements in the composite index as of the last business day of each
calendar year from 1995 to 2011 and shows the number of listed companies, market capitalization,
and value of shares traded for the same period:

Composite Index
Year
at Closing
1995................................ 2,594.2
1996................................ 3,170.6

Number of Listed
Companies
205
216

143

Aggregate Market
Capitalization
(in P billions)
1,545.7
2,121.1

Combined Value
of Turnover
(in P billions)
379.0
668.8

1997................................ 1,869.2
1998................................ 1,968.8
1999................................ 2,142.9
2000................................ 1,494.5
2001................................ 1,168.1
2002................................ 1,018.4
2003................................ 1,442.4
2004................................ 1,822.8
2005................................ 2,096.0
2006................................ 2,982.5
2007................................ 3,621.6
2008................................ 1,872.9
2009................................ 3,052.7
2010................................ 4,201.1
2011................................ 4,372.0

221
222
225
229
231
234
236
235
237
239
244
246
248
253
245

1,251.3
1,373.7
1,936.5
2,576.5
2,141.4
2,083.2
2,973.8
4,766.3
5,948.4
7,173.2
7,977.6
4,069.2
6,029.1
8,866.1
8,697.0

586.2
408.7
781.0
357.7
159.6
159.7
145.4
206.6
383.5
572.6
1,338.3
763.9
994.2
1,207.4
1,422.6

____________
Source: PSE

TRADING
The PSE is a double auction market. Buyers and sellers are each represented by stockbrokers. To
trade, bid or ask prices are posted on the PSEs electronic trading system. A buy (or sell) order that
matches the lowest asked (or highest bid) price is automatically executed. Buy and sell orders
received by one broker at the same price are crossed at the PSE at the indicated price. Payment of
purchases of listed securities must be made by the buyer on or before the third trading day (the
settlement date) after the trade.
Beginning January 2, 2012, trading on the PSE starts at 9:30 a.m. until 12:00 p.m.., when there will be
a one and a half hour lunch break. In the afternoon, trading resumes at 1:30 p.m. and ends at 3:30 p.m.,
with a 10-minute extension during which transactions may be conducted, provided that they are
executed at the last traded price and are only for the purpose of completing unfinished orders. Trading
days are Monday to Friday, except legal holidays and days when the BSP clearing house is closed.
Minimum trading lots range from 5 to 1,000,000 shares depending on the price range and nature of
the security traded. Odd-sized lots are traded by brokers on a board specifically designed for odd-lot
trading.
To maintain stability in the stock market, daily price swings are monitored and regulated. Under
current PSE regulations, when the price of a listed security moves up by 50% or down by 50% in one
day (based on the previous closing price or last posted bid price, whichever is higher), the price of that
security is automatically frozen by the PSE, unless there is an official statement from the company or
a government agency justifying such price fluctuation, in which case the affected security can still be
traded but only at the frozen price. If the issuer fails to submit such explanation, a trading halt is
imposed by the PSE on the listed security the following day. Resumption of trading shall be allowed
only when the disclosure of the company is disseminated, subject again to the trading ban.
NON-RESIDENT TRANSACTIONS
When the purchase/sale of Philippine shares of stock involves a non-resident, whether the transaction
is effected in the domestic or foreign market, it will be the responsibility of the securities
dealer/broker to register the transaction with the BSP. The local securities dealer/broker shall file with
the BSP, within three business days from the transaction date, an application in the prescribed
registration form. After compliance with other required undertakings, the BSP shall issue a Certificate
of Registration. Under BSP rules, all registered foreign investments in Philippine securities including
profits and dividends, net of taxes and charges, may be repatriated.

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SETTLEMENT
The Securities Clearing Corporation of the Philippines (SCCP) is a wholly-owned subsidiary of the
PSE, and was organized primarily as a clearance and settlement agency for SCCP-eligible trades
executed through the facilities of the PSE. SCCP received its permanent license to operate on
January 17, 2002. It is responsible for:
synchronizing the settlement of funds and the transfer of securities through Delivery versus
Payment clearing and settlement of transactions of Clearing Members, who are also Trading
Participants of the PSE;
guaranteeing the settlement of trades in the event of a Trading Participants default through the
implementation of its Fails Management System and administration of the Clearing and Trade
Guaranty Fund; and
performance of Risk Management and Monitoring to ensure final and irrevocable settlement.
SCCP settles PSE trades on a three-day rolling settlement environment, which means that settlement
of trades takes place three trading days after transaction date (T+3). The deadline for settlement of
trades is 12:00 n.n. of T+3. Securities sold should be in scripless form and lodged under the bookentry system of the PDTC. Each PSE Broker maintains a Cash Settlement Account with one of the
two existing Settlement Banks of SCCP, which are Banco de Oro Unibank, Inc. and Rizal
Commercial Banking Corporation. Payment for securities bought should be in good, cleared funds
and should be final and irrevocable. Settlement is presently on a broker level.
SCCP implemented its Central Clearing and Central Settlement system on May 29, 2006. CCCS
employs multilateral netting, whereby the system automatically offsets buy and sell transactions
on a per issue and a per flag basis to arrive at a net receipt or a net delivery security position for each
Clearing Member. All cash debits and credits are also netted into a single net cash position for each
Clearing Member. Novation of the original PSE trade contracts occurs, and SCCP stands between the
original trading parties and becomes the Central Counterparty to each PSE-eligible trade cleared
through it.
SCRIPLESS TRADING
In 1995, the PDTC (formerly the Philippine Central Depository, Inc.), was organized to establish a
central depository in the Philippines and introduce scripless or book-entry trading in the Philippines.
On December 16, 1996, the PDTC was granted a provisional license by the Philippine SEC to act as a
central securities depository.
All listed securities at the PSE have been converted into book-entry settlement in the PDTC. The
depository service of the PDTC provides the infrastructure for lodgment (deposit) and upliftment
(withdrawal) of securities, pledge of securities, securities lending and borrowing and corporate actions
including shareholders meetings, dividend declarations and rights offerings. The PDTC also provides
depository and settlement services for non-PSE trades of listed equity securities. For transactions on
the PSE, the security element of the trade will be settled through the book-entry system, while the
cash element will be settled through the current settlement banks, Rizal Commercial Banking
Corporation and Banco de Oro Unibank, Inc.
In order to benefit from the book-entry system, securities must be immobilized into the PDTC system
through a process called lodgment. Lodgment is the process by which shareholders transfer legal title
(but not beneficial title) over their shares of stock in favor of the PCD Nominee Corporation (PCD
Nominee), a corporation wholly-owned by the PDTC, whose sole purpose is to act as nominee and
legal title holder of all shares of stock lodged in the PDTC. Immobilization is the process by which
the warrant or share certificates of lodging holders are canceled by the transfer agent and the

145

corresponding transfer of beneficial ownership of the immobilized shares in the account of the PCD
Nominee through the PDTC participant will be recorded in the issuing corporations registry. This
trust arrangement between the participants and PDTC through the PCD Nominee is established by and
explained in the PDTC Rules and Operating Procedures approved by the Philippine SEC. No
consideration is paid for the transfer of legal title to the PCD Nominee. Once lodged, transfers of
beneficial title of the securities are accomplished via book-entry settlement.
Under the current PDTC system, only participants (e.g. brokers and custodians) will be recognized by
the PDTC as the beneficial owners of the lodged equity securities. Thus, each beneficial owner of
shares, through his participant, will be the beneficial owner to the extent of the number of shares held
by such participant in the records of the PCD Nominee. All lodgments, trades and uplifts on these
shares will have to be coursed through a participant. Ownership and transfers of beneficial interests in
the shares will be reflected, with respect to the participants aggregate holdings, in the PDTC system,
and with respect to each beneficial owners holdings, in the records of the participants. Beneficial
owners are thus advised that in order to exercise their rights as beneficial owners of the lodged shares,
they must rely on their participant-brokers and/or participant-custodians.
Any beneficial owner of shares who wishes to trade his interests in the shares must course the trade
through a participant. The participant can execute PSE trades and non-PSE trades of lodged equity
securities through the PDTC system. All matched transactions in the PSE trading system will be fed
through the SCCP, and into the PDTC system. Once it is determined on the settlement date (T+3) that
there are adequate securities in the securities settlement account of the participant-seller and adequate
cleared funds in the settlement bank account of the participant-buyer, the PSE trades are automatically
settled in the SCCP Central Clearing and Central Settlement system, in accordance with the SCCP
and PDTC Rules and Operating Procedures. Once settled, the beneficial ownership of the securities is
transferred from the participant-seller to the participant-buyer without the physical transfer of stock
certificates covering the traded securities.
If a shareholder wishes to withdraw his stockholdings from the PDTC system, the PDTC has a
procedure of upliftment under which PCD Nominee will transfer back to the shareholder the legal title
to the shares lodged. The uplifting shareholder shall follow the Rules and Operating Procedures of the
PDTC for the upliftment of the shares lodged under the name of the PCD Nominee. The transfer agent
shall prepare and send a Registry Confirmation Advice to the PDTC covering the new number of
shares lodged under the PCD Nominee. The expenses for upliftment are for the account of the
uplifting shareholder.
The difference between the depository and the registry would be on the recording of ownership of the
shares in the issuing corporations books. In the depository set-up, shares are simply immobilized,
wherein customers certificates are canceled and a confirmation advice is issued in the name of PCD
Nominee to confirm new balances of the shares lodged with the PDTC. Transfers among/between
broker and/or custodian accounts, as the case may be, will only be made within the book-entry system
of the PDTC. However, as far as the issuing corporation is concerned, the underlying certificates are
in the PCD Nominees name. In the registry set-up, settlement and recording of ownership of traded
securities will already be directly made in the corresponding issuing companys transfer agents books
or system. Likewise, recording will already be at the beneficiary level (whether it be a client or a
registered custodian holding securities for its clients), thereby removing from the broker its current
de facto custodianship role.
AMENDED RULE ON LODGMENT OF SECURITIES
On June 24, 2009, the PSE apprised all listed companies and market participants through
Memorandum No. 2009-0320 that commencing on July 1, 2009, as a condition for the listing and
trading of the securities of an applicant company, the applicant company shall electronically lodge its
registered securities with the PDTC or any other entity duly authorized by the Philippine SEC,
without any jumbo or mother certificate in compliance with the requirements of Section 43 of the

146

Philippine Securities Regulation Code. In compliance with the foregoing requirement, actual listing
and trading of securities on the scheduled listing date shall take effect only after submission by the
applicant company of the documentary requirements stated in the amended rule on Lodgment of
Securities of the PSE.
Furthermore, the PSE apprised all listed companies and market participants on May 21, 2010 through
Memorandum No. 20100246 that the Amended Rule on Lodgment of Securities under Section 16 of
Article III, Part A of the Revised Listing Rules of the Exchange shall apply to all securities that are
lodged with the PDTC or any other entity duly authorized by the SEC.
For listing applications, the amended rule on lodgement of securities is applicable to:
(a)

The offer shares/securities of the applicant company in the case of an initial public offering;

(b)

The shares/securities that are lodged with the PDTC, or any other entity duly authorized by the
SEC in the case of a listing by way of introduction;

(c)

New securities to be offered and applied for listing by an existing listed company;

(d)

Additional listing of securities of an existing listed company.

Pursuant to the said amendment, the PDTC issued an implementing procedure in support thereof to
wit:
For a new company to be listed at the PSE as of July 1, 2009, the usual procedure will be
observed but the transfer agent of the company shall no longer issue a certificate to PCD
Nominee but shall issue a Registry Confirmation Advice, which shall be the basis for the
PDTC to credit the holdings of the depository participants on listing date.
On the other hand, for an existing listed company, the PDTC shall wait for the advice of the
transfer agent that it is ready to accept surrender of PCD Nominee jumbo certificates and upon
such advice the PDTC shall surrender all PCD Nominee jumbo certificates to the transfer
agent for cancellation. The transfer agent shall issue a Registry Confirmation Advice to PDTC
evidencing the total number of shares registered in the name of PCD Nominee in the listed
companys registry as of confirmation date.
ISSUANCE OF STOCK CERTIFICATES FOR CERTIFICATED SHARES
On or after the listing of the shares on the PSE, any beneficial owner of the shares may apply with
PDTC through his broker or custodian-participant for a withdrawal from the book-entry system and
return to the conventional paper-based settlement. If a shareholder wishes to withdraw his
stockholdings from the PDTC system, the PDTC has a procedure of upliftment under which PCD
Nominee will transfer back to the shareholder the legal title to the shares lodged. The uplifting
shareholder shall follow the Rules and Operating Procedures of the PDTC for the uplifting of the
shares lodged under the name of the PCD Nominee. The transfer agent shall prepare and send a
Registry Confirmation Advice to the PDTC covering the new number of shares lodged under PCD
Nominee. The expenses for upliftment are on the account of the uplifting shareholder.
Upon the issuance of stock certificates for the shares in the name of the person applying for upliftment,
such shares shall be deemed to be withdrawn from the PDTC book-entry settlement system, and
trading on such shares will follow the normal process for settlement of certificated securities. The
expenses for upliftment of the shares into certificated securities will be charged to the person applying
for upliftment. Pending completion of the upliftment process, the beneficial interest in the shares
covered by the application for upliftment is frozen and no trading and book-entry settlement will be

147

permitted until the relevant stock certificates in the name of the person applying for upliftment shall
have been issued by the relevant companys transfer agent.

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Philippine Taxation
The following is a discussion of the material Philippine tax consequences of the acquisition,
ownership and disposition of the Shares. This general description does not purport to be a
comprehensive description of the Philippine tax aspects of the Shares and no information is provided
regarding the tax aspects of acquiring, owning, holding or disposing of the Shares under applicable
tax laws of other applicable jurisdictions and the specific Philippine tax consequence in light of
particular situations of acquiring, owning, holding and disposing of the Shares in such other
jurisdictions. This discussion is based upon laws, regulations, rulings, and income tax conventions
(treaties) in effect at the date of this Prospectus. The tax treatment applicable to a holder of the Shares
may vary depending upon such holders particular situation, and certain holders may be subject to
special rules not discussed below. This summary does not purport to address all tax aspects that may
be important to a holder of the Shares. Prospective investors of the Shares are urged to consult their
own tax advisors as to the particular tax consequences of the ownership and disposition of the Shares,
including the applicability and effect of any local or foreign tax laws.
As used in this section, the term resident alien refers to an individual whose residence is within the
Philippines and who is not a citizen of the Philippines; a non-resident alien is an individual whose
residence is not within the Philippines and who is not a citizen of the Philippines. A non-resident alien
who is actually within the Philippines for an aggregate period of more than 180 days during any
calendar year is considered a non-resident alien doing business in the Philippines. A non-resident
alien who is actually within the Philippines for an aggregate period of 180 days or less during any
calendar year is considered a non-resident alien not doing business in the Philippines. A resident
foreign corporation is a non-Philippine corporation engaged in trade or business within the
Philippines; and a non-resident foreign corporation is a non-Philippine corporation not engaged in
trade or business within the Philippines. The term dividends under this section refers to cash or
property dividends. Tax Code means the Philippine National Internal Revenue of 1997, as amended.
TAXES ON DIVIDENDS ON THE SHARES
Individual Philippine citizens and resident aliens are subject to a final tax on dividends derived from
the Shares at the rate of 10%, which tax shall be withheld by the Company.
Non-resident alien individuals engaged in trade or business in the Philippines are subject to a final
withholding tax on dividends derived from the Shares at the rate of 20% on the gross amount thereof,
subject to applicable preferential tax rates under tax treaties in force between the Philippines and the
country of domicile or residence of such non-resident alien individual. A non-resident alien individual
not engaged in trade or business in the Philippines is subject to a final withholding tax on dividends
derived from the Shares at the rate of 25% of the gross amount, subject to applicable preferential tax
rates under tax treaties in force between the Philippines and the country of domicile or residence of
such non-resident alien individuals.
The term non-resident holder means a holder of the Shares:
who is an individual who is neither a citizen nor a resident of the Philippines or an entity
which is a foreign corporation not engaged in trade or business in the Philippines; and
should a tax treaty be applicable, whose ownership of the Shares is not effectively connected
with a fixed base or a permanent establishment in the Philippines.
Dividends derived by domestic corporations (i.e. corporations created or organized in the Philippines
or under its laws) and resident foreign corporations from the Shares shall not be subject to tax.
Dividends received from a domestic corporation by a non-resident foreign corporation are generally
subject to final withholding tax at the rate of 30%, subject to applicable preferential tax rates under

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tax treaties in force between the Philippines and the country of domicile of such non-resident foreign
corporation. The 30% rate for dividends paid to non-resident foreign corporations with countries of
domicile having no tax treaty with the Philippines may be reduced to a special 15% rate if:
the country in which the non-resident foreign corporation is domiciled imposes no taxes on
foreign sourced dividends; or
the country in which the non-resident foreign corporation is domiciled allows a credit against
the tax due from the non-resident corporation for taxes deemed to have been paid in the
Philippines equivalent to 15%.
The withholding tax rate may likewise be reduced under an applicable tax treaty between the
Philippines and the country of residence or domicile of such non-resident foreign corporation.
The BIR has prescribed, through an administrative issuance, procedures for the availment of tax treaty
relief. The application for tax treaty relief has to be filed with the BIR by the non-resident holder of
the Shares prior to the deadline for the filing by the investee domestic corporation of the withholding
tax return on such dividends and its payment of the withholding tax, to allow the investee domestic
corporation the option to withhold taxes at the reduced rate, but subject always to the BIRs ruling on
the application. The investee domestic corporation may withhold taxes at a reduced rate on dividends
paid to a non-resident holder of the Shares if such non-resident holder submits to the domestic
corporation proof of the filing of the tax treaty relief application prior to the deadline for the filing of
the withholding tax return.
The requirements for a tax treaty relief application in respect of dividends are set out in the applicable
tax treaty and BIR Form No. 0901-D. These include proof of residence in the country that is a party to
the tax treaty. Proof of residence consists of a consularized certification from the tax authority of the
country of residence of the non-resident holder of Shares which states that the non-resident holder is a
resident of such country under the applicable tax treaty. If the non-resident holder of Shares is a
juridical entity, authenticated certified true copies of its articles of incorporation or association issued
by the proper government authority should also be submitted to the BIR in addition to the certification
of its residence from the tax authority of its country of residence.
If tax at the regular rate is withheld by the corporation instead of the reduced rates applicable under a
treaty, the non-resident holder of the Shares may file a claim for refund from the BIR. However,
because the refund process in the Philippines requires the filing of an administrative claim and the
submission of supporting information, and may also involve the filing of a judicial appeal, it may be
impractical to pursue obtaining such a refund. Moreover, in view of the requirement of the BIR that
an application for tax treaty relief be filed prior to the deadline for the filing by the investee domestic
corporation of the final withholding tax return on dividend income, the non-resident holder of Shares
may not be able to successfully pursue a claim for refund if such an application is not filed before the
deadline for the filing of the withholding tax return.
Stock dividends distributed pro rata to any holder of shares of stock are not subject to Philippine
income tax. However, the sale, exchange or disposition of shares received as stock dividends by the
holder is subject to capital gains or stock transaction tax.
TAX TREATIES
The following table lists some of the countries with which the Philippines has tax treaties and the tax
rates currently applicable to non-resident holders who are residents of those countries:

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Country

Dividends
(In %)
Canada ................................................................................................
25(1)
France ................................................................................................
15(2)
Germany ................................................................................................
15(3)
Japan................................................................................................15(4)
Singapore ................................................................................................
25(5)
United Kingdom ................................................................
25(6)
United States ................................................................................................
25(7)

Capital Gains Tax Due

on Disposition of Shares
Outside the PSE
(In %)
Exempt(8)
Exempt(8)
5/10(9)
Exempt(8)
Exempt(8)
Exempt(10)
Exempt(8)

___________
Notes:
(1)
15% if the recipient company controls at least 10% of the voting power of the company
paying the dividends.
(2)
10% if the recipient company (excluding a partnership) holds directly at least 10% of the
voting shares of the company paying the dividends.
(3)
10% if the recipient company (excluding a partnership) owns directly at least 25% of the
capital of the company paying the dividends.
(4)
10% if the recipient company holds directly at least 10% of either the voting shares of the
company paying the dividends or of the total shares issued by that company during the period
of six months immediately preceding the date of payment of the dividends.
(5)
15% if during the part of the paying companys taxable year which precedes the date of
payment of dividends and during the whole of its prior taxable year at least 15% of the
outstanding shares of the voting stock of the paying company were owned by the recipient
company.
(6)
15% if the recipient company is a company which controls directly or indirectly at least 10%
of the voting power of the company paying the dividends.
(7)
20% if during the part of the paying corporations taxable year which precedes the date of
payment of dividends and during the whole of its prior taxable year, at least 10% of the
outstanding shares of the voting stock of the paying corporation were owned by the recipient
corporation. Notwithstanding the rates provided under the Republic of the Philippines-United
States Treaty, residents of the United States may avail of the 15% withholding tax rate under
the tax-sparing clause of the Tax Code provided certain conditions are met.
(8)
Capital gains are taxable only in the country where the seller is a resident, provided the shares
are not those of a corporation, the assets of which consist principally of real property situated
in the Philippines, in which case the sale is subject to Philippine taxes.
(9)
Under the tax treaty between the Philippines and Germany, capital gains from the alienation
of shares of a Philippine corporation may be taxed in the Philippines irrespective of the nature
of the assets of the Philippine corporation. Tax rates are 5% on the net capital gains realized
during the taxable year not in excess of P100,000 and 10% on the net capital gains realized
during the taxable year in excess of P100,000.
(10)
Under the tax treaty between the Philippines and the United Kingdom, capital gains on the
sale of the stock of Philippine corporations are subject to tax only in the country where the
seller is a resident, irrespective of the nature of the assets of the Philippine corporation.
In order for an exemption under a tax treaty to be recognized, an application for tax treaty relief on
capital gains tax on the sale of shares must be filed by the income recipient before the deadline for the
filing of the documentary stamp tax return and approved by the BIR.

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The requirements for a tax treaty relief application in respect of capital gains tax on the sale of shares
are set out in the applicable tax treaty and BIR Form No. 0901-C. These include proof of residence in
the country that is a party to the tax treaty. Proof of residence consists of a consularized certification
from the tax authority of the country of residence of the seller of shares which provides that the seller
is a resident of such country under the applicable tax treaty. If the seller is a juridical entity,
authenticated certified true copies of its articles of incorporation or association issued by the proper
government authority should also be submitted to the BIR in addition to the certification of its
residence from the tax authority of its country of residence.
SALE, EXCHANGE OR DISPOSITION OF SHARES THROUGH AN INITIAL PUBLIC
OFFERING (IPO)
The sale, barter, exchange or other disposition through an IPO of shares of stock in closely held
corporations is subject to an IPO Tax at the rates below based on the gross selling price or gross value
in money of the shares of stock sold, bartered, exchanged or otherwise disposed in accordance with
the proportion of shares of stock sold, bartered, exchanged or otherwise disposed to the total
outstanding shares of stock after the listing in the local stock exchange:
Up to 25% ................................................................................................ 4%
Over 25% but not over 33 1/3% ................................................................ 2%
Over 33 1/3%................................................................................................ 1%
A closely held corporation means any corporation at least 50% in value of outstanding capital stock
or at least 50% of the total combined voting power of all classes of stock entitled to vote is owned
directly or indirectly by or for not more than 20 individuals.
The IPO Tax shall be paid by the Company for the primary offering.
SALE, EXCHANGE OR DISPOSITION OF SHARES AFTER THE IPO
Capital Gains Tax, If Sale Was Made outside the PSE
Net capital gains realized by a resident or non-resident other than a dealer in securities during each
taxable year from the sale, exchange or disposition of shares of stock outside the facilities of the PSE,
unless an applicable treaty exempts such gains from tax or provides for preferential rates, are subject
to tax as follows: 5.0% on gains not exceeding P100,000 and 10.0% on gains over P100,000. An
application for tax treaty relief must be filed (and approved) by the Philippine tax authorities to obtain
an exemption under a tax treaty.
Taxes on Transfer of Shares Listed and Traded at the PSE
A sale or other disposition of shares of stock through the facilities of the PSE by a resident or a nonresident holder, other than a dealer in securities, is subject to a stock transaction tax at the rate of 0.5%
of the gross selling price or gross value in money of the shares of stock sold or otherwise disposed,
unless an applicable treaty exempts such sale from said tax. This tax is required to be collected by and
paid to the Government by the selling stockbroker on behalf of his client. The stock transaction tax is
classified as a percentage tax in lieu of a capital gains tax. Under certain tax treaties, the exemptions
from capital gains tax discussed herein may not be applicable to stock transaction tax.
In addition, VAT of 12.0% is imposed on the commission earned by the PSE-registered broker, and is
generally passed on to the client.
In a letter dated December 28, 2010, the BIR issued a letter to the SEC imposing a range of between
10% to 33% public ownership levels based on the listed companys market capitalization, using the

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scale for the minimum levels for an initial public offering. The BIR letter would effectively require
listed companies to maintain potentially higher public ownership levels than prescribed by the PSE. In
addition, the BIR letter stated that the BIR would strictly impose the 5%/10% capital gains tax for
trades in listed companies who will not maintain their public ownership requirement. This letter
was referred to the PSE by the SEC on January 3, 2011. The PSE subsequently issued a memorandum
dated January 20, 2011 in response to the SEC on the BIRs statements. The PSE noted that the
Philippine Tax Code imposes a stock transaction tax of of 1% of the gross selling price or gross
value in money of shares of stock listed and traded on the PSE, without qualification and that the
powers of the Secretary of Finance to promulgate rules and regulations implementing the Philippine
Tax Code should be confined to the details for implementing the law as it has been enacted and such
powers cannot be extended to amend or expand the statutory requirement of the Philippine Tax Code.
Prospective purchasers of the Firm Shares should obtain their own tax advice in respect of their
investment in relation to these developments.
DOCUMENTARY STAMP TAXES ON SHARES
The original issue of shares of stock is subject to documentary stamp tax of P1.00 on each P200 par
value, or fraction thereof, of the shares of stock issued. On the other hand, the transfer of shares of
stock is subject to a documentary stamp tax at a rate of P0.75 on each P200, or fractional part thereof,
of the par value of the Shares. The documentary stamp tax is imposed on the person making, signing,
issuing, accepting or transferring the document and is thus payable either by the vendor or the
purchaser of the Shares.
However, the sale, barter or exchange of Shares should they be listed and traded through the PSE are
exempt from documentary stamp tax.
In addition, the borrowing and lending of securities executed under the securities borrowing and
lending program of a registered exchange, or in accordance with regulations prescribed by the
appropriate regulatory authority, are likewise exempt from documentary stamp tax. However, the
securities borrowing and lending agreement should be duly covered by a master securities borrowing
and lending agreement acceptable to the appropriate regulatory authority, and should be duly
registered and approved by the BIR.
ESTATE AND GIFT TAXES
The transfer of the Shares upon the death of a registered holder to his heirs by way of succession,
whether such an individual was a citizen of the Philippines or an alien, regardless of residence, will be
subject to Philippine estate tax at progressive rates ranging from 5% to 20% if the net estate is over
P200,000.
Individual registered holders, whether or not citizens or residents of the Philippines, who transfer
shares by way of gift or donation, will be liable for Philippine donors tax on such transfers at
progressive rates ranging from 2% to 15% if the total net gifts made during the calendar year exceed
P100,000. The rate of tax with respect to net gifts made to a stranger (one who is not a brother, sister,
spouse, ancestor, lineal descendant or relative by consanguinity within the fourth degree of
relationship) is a flat rate of 30%. Corporate registered holders are also liable for Philippine donors
tax on such transfers, but the rate of tax with respect to net gifts made by corporate registered holders
is always at a flat rate of 30%.
Estate and gift taxes will not be collected in respect of intangible personal property, such as shares of
stock, (1) if the deceased at the time of death, or the donor at the time of donation, was a citizen and
resident of a foreign country which at the time of his death or donation did not impose a transfer tax
of any character in respect of intangible personal property of citizens of the Philippines not residing in
that foreign country, or (2) if the laws of the foreign country of which the deceased or the donor was a

153

citizen and resident at the time of his death or donation allow a similar exemption from transfer or
death taxes of every character or description in respect of intangible personal property owned by
citizens of the Philippines not residing in that foreign country.
CORPORATE INCOME TAX
In general, a tax of 30% is imposed upon the taxable net income of a domestic corporation from all
sources (within and outside the Philippines) pursuant to Philippine Republic Act 9337.

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PHILIPPINE FOREIGN EXCHANGE REGULATIONS

Under current BSP regulations, an investment in listed Philippine securities (such as the Shares) must
be registered with the BSP if the foreign exchange needed to service the repatriation of capital and the
remittance of dividends, profits and earnings derived from such Shares is to be sourced from the
Philippine banking system. If the foreign exchange required to service capital repatriation or dividend
remittance is sourced outside the Philippine banking system, registration is not required. Current BSP
Circular No. 471 (Series of 2005), however, subjects foreign exchange dealers and money changers to
Republic Act No. 9160 (the Anti-Money Laundering Act of 2001, as amended) and requires these
nonbank sources of foreign exchange to require foreign exchange buyers to submit, among others, the
original BSP registration document in connection with their application to purchase foreign exchange
exceeding U.S.$5,000 for purposes of capital repatriation and remittance of dividends.1
The application for registration may be done directly with the BSP or through a custodian bank duly
designated by the foreign investor. A custodian bank may be a commercial bank or an offshore
banking unit registered with the BSP to act as such and appointed by the investor to register the
investment, hold shares for the investor, and represent the investor in all necessary actions in
connection with his investments in the Philippines. Applications for registration must be accompanied
by: (i) purchase invoice, subscription agreement and proof of listing on the PSE (either or both); (ii)
credit advice or bank certificate showing the amount of foreign currency inwardly remitted and
converted into Pesos; and (iii) transfer instructions from the stockbroker or dealer, as the case may be.
Upon registration of the investment, proceeds of divestments, or dividends of registered investments
are repatriable or remittable immediately and in full through the Philippine banking system, net of
applicable tax, without need of BSP approval. Capital repatriation of investments in listed securities is
permitted upon presentation of the BSP registration document and the brokers sales invoice, at the
exchange rate prevailing at the time of purchase of the foreign exchange from the banking system.
Remittance of dividends is permitted upon presentation of: (1) the BSP registration document; (2) the
cash dividends notice from the PSE and the Philippine Central Depository printout of cash dividend
payment or computation of interest earned; (3) copy of secretarys sworn statement on the board
resolution covering the dividend declaration and (4) detailed computation of the amount applied for in
the format prescribed by the BSP. Pending reinvestment or repatriation, divestment proceeds, as well
as dividends of registered investments, may be lodged temporarily in interest-bearing deposit accounts.
Interest earned thereon, net of taxes, may also be remitted in full. Remittance of divestment proceeds
or dividends of registered investments may be reinvested in the Philippines if the investments are
registered with the BSP or the investors custodian bank.
The foregoing is subject to the power of the BSP, through the Monetary Board, with the approval of
the President of the Philippines, to suspend temporarily or restrict the availability of foreign exchange,
require licensing of foreign exchange transactions or require delivery of foreign exchange to the BSP
or its designee during an exchange crisis, when an exchange crisis is imminent, or in times of national
emergency.
The registration with the BSP of all foreign investments in any Shares received in exchange for Offer
Shares shall be the responsibility of the foreign investor.

The term authorized agent bank refers to all categories of banks, except offshore banking units, duly licensed by the BSP.

155

PLAN OF DISTRIBUTION
1,071,429,000 Firm Shares are being offered for subscription or sale outside the United States by the
International Underwriter and the Domestic Lead Underwriter on behalf of the Company. The Selling
Shareholder has also granted Maybank ATR Kim Eng Capital Partners, Inc. in its role as stabilizing
agent (the Stabilizing Agent) the option to purchase up to an additional 160,714,000 Shares (the
Optional Shares) solely to cover over-allotments, if any.
The Domestic Underwriting
The Company has appointed Maybank ATR Kim Eng Capital Partners, Inc. as the Domestic Lead
Underwriter. The Company and the Domestic Lead Underwriter will enter into a Domestic
Underwriting Agreement (the Domestic Underwriting Agreement), whereby the Domestic Lead
Underwriter will agree to underwrite 321,428,700 Firm Shares on a firm commitment basis.
The Company, through the Domestic Lead Underwriter, will offer Firm Shares in the Philippines to
the PSE Trading Participants, the LSIs and the general public. In any case, the amount of Shares to be
made available to the PSE Trading Participants and LSIs will be at least 20% and 10%, respectively,
of the Firm Shares.
In the PSE and LSI Offer:
(1)

The PSE will allocate 214,285,800 Shares, which is equivalent to 20% of the Firm Shares,
among the PSE Trading Participants; each PSE Trading Participant shall initially be allocated
1,611,000 Shares (computed by dividing the Shares allocated to the PSE Trading Participants
among 133 PSE Trading Participants) and subject to reallocation as may be determined by the
PSE.
On or before December 3, 2012 the PSE Trading Participants shall submit to the PSE Listing
Department, or to its designated representative in the PSE, their respective firm orders and
commitments to purchase Offer Shares. Stock Transfer Services, Inc., as receiving agent shall
receive the commitment-to-purchase forms and the corresponding payments of each PSE
Trading Participant, and the Domestic Lead Underwriter will be responsible for facilitating the
issuance of the corresponding number of PSE and LSI Offer Shares on the Listing Date.
PSE Trading Participants who take up PSE and LSI Offer Shares shall be entitled to a selling
fee of 1.0% of the PSE and LSI Offer Shares taken up and purchased by the relevant PSE
Trading Participants. The selling fee, less a withholding tax of 10%, will be paid to the PSE
Trading Participants within 10 banking days after the Listing Date.

(2)

107,142,900 Shares, which is equivalent to 10% of the Firm Shares, shall be allocated to the
LSIs, subject to the requirement to increase the number of shares sold to LSIs under the Revised
Listing Rules of the PSE in cases where the subscriptions of the LSIs are at least five times
more than the initial allocation for the LSIs.
All LSI applications to purchase or subscribe for the Offer Shares must be evidenced by a duly
completed application form. An application to purchase Offer Shares shall not be deemed as a
duly completed application unless submitted with all required relevant information and
applicable supporting documents to the Domestic Lead Underwriter or such other financial
institutions that may be invited to manage the LSI program. Payment for the Offer Shares must
be made upon submission of the duly completed application form.

Prior to the closing of the PSE and LSI Offer, any allocation of Firm Shares in the PSE and LSI Offer
not taken up by the PSE Trading Participants and the LSIs shall be distributed by the Domestic Lead
Underwriter, together with the syndicate of participating domestic underwriters they will organize, to

156

their clients or the general public in the Philippines or shall be purchased by the Domestic Lead
Underwriter.
The Domestic Underwriting Agreement will be subject to certain conditions and may be subject to
termination by the Domestic Lead Underwriter if certain circumstances, including force majeure,
occur on or before the Offer Shares are listed on the PSE. Under the terms and conditions of the
Domestic Underwriting Agreement, the Domestic Lead Underwriter will be committed to underwrite
on a firm-commitment basis and to purchase or procure purchasers for any Firm Shares to be offered
in the PSE and LSI Offer. The closing of the PSE and LSI Offer will be conditional on the closing of
the Institutional Offer. The closing of the PSE and LSI Offer and the Institutional Offer are expected
to occur concurrently.
The Domestic Lead Underwriter shall receive a fee equivalent to 2.5% of the gross proceeds of the
PSE and LSI Offer. The underwriting fees shall be withheld by the Domestic Lead Underwriter from
the proceeds of the PSE and LSI Offer.
Maybank ATR Kim Eng Capital Partners, Inc. was incorporated in the Philippines on September 4,
1990. It is duly licensed by the Philippine SEC to operate as an investment house and was licensed by
the Philippine SEC to engage in underwriting or distribution of securities to the public in September
1993. As of December 31, 2011, its total assets amounted to P1,288 million and its capital base
amounted to approximately P805 million. It has an authorized capital stock of P1,000 million, of
which P871 million represents its paid-up capital. Its senior executives have extensive experience in
the capital markets and were involved in a lead role in a substantial number of major equity and debt
issues, both locally and internationally. Maybank ATR Kim Eng Capital Partners, Inc. and its
affiliates have engaged in transactions with, and performed various investment banking and securities
brokerage services for the Company and its affiliates in the past and may do so from time to time in
the future.
Maybank ATR Kim Eng Capital Partners, Inc. does not have any direct or indirect interest in the
Company or in any securities thereof (including options, warrants or rights thereto), and other than as
Domestic Lead Underwriter for the Offer, it has no relationship with the Company. Maybank ATR
Kim Eng Capital Partners, Inc. has no right to designate or nominate a member to the Board. The
Domestic Lead Underwriter does not have any contract or other arrangement with the Company by
which the Domestic Lead Underwriter may put back to the Company any unsold securities of the
Offer.
All of the PSE and LSI Offer Shares will be lodged with the PDTC and shall be issued to the PSE
Trading Participants and LSIs in scripless form. They may maintain the PSE and LSI Offer Shares in
scripless form or opt to have the stock certificates issued to them by requesting an upliftment of the
relevant PSE and LSI Offer Shares from the PDTCs electronic system after the closing of the PSE
and LSI Offer.
The Institutional Underwriting
The Company has appointed Maybank Kim Eng Securities Pte Ltd as the International Underwriter.
The Company and the International Underwriter entered into an Institutional Underwriting Agreement
expected to be dated November 26, 2012, whereby the International Underwriter agreed to underwrite
750,000,300 Firm Shares on a firm commitment basis. Pursuant to the Institutional Underwriting
Agreement, the International Underwriter shall receive from the Company a fee based on a percentage
of the gross proceeds of the Offer Shares to be sold in the Institutional Offer.
The Company, through the International Underwriter, is offering Shares outside the United States in
offshore transactions in reliance on Regulation S under the U.S. Securities Act.

157

The Institutional Underwriting Agreement is subject to certain conditions and may be subject to
termination by the International Underwriter if certain circumstances, including force majeure, occur
on or before the Offer Shares are listed on the PSE. Under the terms and conditions of the Institutional
Underwriting Agreement, the International Underwriter is committed to underwrite the Institutional
Offer on a firm-commitment basis and to purchase or procure purchasers for all of the Offer Shares to
be offered in the Institutional Offer. The closing of the PSE and LSI Offer is conditional on the
closing of the Institutional Offer. The closing of the PSE and LSI Offer and the Institutional Offer are
expected to occur concurrently.
The International Underwriter and its affiliates are full service financial institutions engaged in
various activities, which may include securities trading, commercial and investment banking,
financial advisory, investment management, investment research, principal investment, hedging,
financing and brokerage activities. Certain of the International Underwriter and its affiliates have,
from time to time, performed, and may in the future perform, various financial advisory and
investment banking services for the Company and its affiliates and shareholders, for which they
received or will receive customary fees and expenses. However, all services provided by the
International Underwriter, including in connection with the Offer, have been provided as an
independent contractor and not as a fiduciary to the Company.
In the ordinary course of their various business activities, the International Underwriter and its
affiliates may make or hold a broad array of investments and actively trade debt and equity securities
(or related derivative securities) and financial instruments (including bank loans) for their own
account and for the accounts of their customers, and such investment and securities activities may
involve securities and/or instruments of the Company. The International Underwriter and its affiliates
may also make investment recommendations and/or publish or express independent research views in
respect of such securities or instruments and may at any time hold, or recommend to clients that they
acquire, long and/or short positions in such securities and instruments.
The International Underwriter does not have any right to designate or nominate a member of the
Board of Directors of the Company. The International Underwriter has no direct relations with the
Company in terms of share ownership.
The Over-Allotment Option
In connection with the Offer, subject to the approval of the SEC, the Selling Shareholder has granted
the Stabilizing Agent an Over-Allotment Option, which is exercisable in whole or in part beginning
on or after the Listing Date and ending on the date 30 days from and including the Listing Date, to
purchase up to 15% of the total number of Firm Shares on the same terms and conditions as the Firm
Shares, as set out herein. In connection therewith, the Stabilizing Agent has entered into an agreement
with the Selling Shareholder to use up to an additional 160,714,000 Shares to cover over-allocations
under the Offer. Any Shares of the Company that may be delivered to the Stabilizing Agent under
such agreement will be re-delivered to the Selling Shareholder either through the purchase of Shares
in the open market by the Stabilizing Agent in the conduct of stabilization activities or through the
exercise of the Over-Allotment Option by the Stabilizing Agent. The Optional Shares may be overallotted and the Stabilizing Agent may effect price stabilization transactions for a period beginning on
or after the Listing Date, but extending no later than 30 days from and including the Listing Date. The
Stabilizing Agent may purchase Shares in the open market only if the market price of the Shares falls
below the Offer Price. Such activities may stabilize, maintain or otherwise affect the market price of
the Shares, which may have the effect of preventing a decline in the market price of the Shares and
may also cause the price of the Shares to be higher than the price that otherwise would exist in the
open market in the absence of these transactions. If the Stabilizing Agent commences any of these
transactions, it may discontinue them at any time. Once the Over-Allotment Option has been
exercised by the Stabilizing Agent, it will no longer be allowed to purchase Shares in the open market
for the conduct of stabilization activities.

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Reallocation
The allocation of the Firm Shares between the PSE and LSI Offer and the Institutional Offer is
subject to adjustment. In the event of an under-application in the Institutional Offer and a
corresponding over-application in the PSE and LSI Offer, Firm Shares in the Institutional Offer
may be reallocated to the PSE and LSI Offer. If there is an under-application in the PSE and LSI
Offer and if there is a corresponding over-application in the Institutional Offer, Firm Shares in the
PSE and LSI Offer may be reallocated to the Institutional Offer. The reallocation shall not apply in
the event of over-application in both the PSE and LSI Offer and the Institutional Offer.
Lock-up
The PSE rules require an applicant company to cause existing shareholders owning at least 10% of the
outstanding shares of the Company not to sell, assign or in any manner dispose of their shares for a
period of 180 days after the listing of the shares. In addition, if there is any issuance of shares or
securities (i.e., private placements, asset for shares swap or a similar transaction) or instruments which
lead to issuance of shares or securities (i.e., convertible bonds, warrants or a similar instrument) done
and fully paid for within 180 days prior to the start of the offer period, and the transaction price is
lower than that of the offer price in the initial public offering, all shares or securities availed of shall
be subject to a lock-up period of at least 365 days from full payment of the aforesaid shares or
securities. To implement these lock-up requirements, the PSE requires the applicant company to lodge
the shares with the PDTC through a PCD participant for the electronic lock-up of the shares or to
enter into an escrow agreement with the trust department or custodian unit of an independent and
reputable financial institution.
The following shareholder shall be covered by the 180-day lock-up requirement.
Shareholder
Jadel Holdings Co., Inc.

Number of Shares
273,900,000

Percentage of Ownership
7.7%

Furthermore, the following shareholders shall be covered by the 365-day lock-up requirement:
Shareholder
Dean L. Lao
Leon L. Lao
Alex L. Lao
Yin Yong L. Lao
John L. Lao
LBL Industries, Inc.
Jadel Holdings Co., Inc.
SmartWorks Trading Co. Inc.
Allvee United, Inc.
Jadana Inc.
CEE Industries Inc.
Prime Spin Inc.
Filemon T. Berba, Jr.
Cesar B. Bautista

Number of Shares
27,305,048
30,304,467
32,579,888
32,993,601
32,993,601
6,895,212
1,851,871,036
37,841,701
33,972,282
31,036,861
30,503,148
30,503,148
1
1

Percentage of Ownership
0.8%
0.8%
0.9%
0.9%
0.9%
0.2%
51.9%
1.1%
0.9%
0.9%
0.9%
0.9%
0.0%
0.0%

In addition to the lock-up obligations required by the PSE, each of the Company, the Selling
Shareholder, Dean L. Lao, Leon L. Lao, Alex L. Lao, Yin Yong L. Lao, John L. Lao and LBL
Industries, Inc. has agreed with the International Underwriter and the Domestic Lead Underwriter that,
other than in connection with the Over-Allotment Option and the issuance of stock dividends, for a
period of 180 days after the Listing Date, none of the Company, the Selling Shareholder, Dean L. Lao,
Leon L. Lao, Alex L. Lao, Yin Yong L. Lao, John L. Lao and LBL Industries, Inc. nor any person
acting on their behalf will, without the prior written consent of the International Underwriter and the
Domestic Lead Underwriter, issue, offer, sell, contract to sell, pledge or otherwise dispose of (or

159

publicly announce any such issuance, offer, sale or disposal of) any Shares or securities convertible or
exchangeable into or exercisable for Shares or warrants or other rights to purchase Shares or any
security or financial product whose value is determined directly or indirectly by reference to the price
of the Shares, including equity swaps, forward sales and options.
Philippines
No securities, except of a class exempt under Section 9 of the SRC or unless sold in any transaction
exempt under Section 10 thereof, shall be sold or distributed by any person within the Philippines,
unless such securities shall have been registered with the Philippine SEC on Form 12-1 and the
registration statement has been declared effective by the Philippine SEC.

160

LEGAL MATTERS
Certain legal matters as to Philippine law relating to the Offer will be passed upon by Corporate
Counsels, Philippines, legal counsel to the Company, and by Picazo Buyco Tan Fider & Santos, legal
counsel to the International Underwriter and Domestic Lead Underwriter. Certain legal matters as to
United States federal law and New York law will be passed upon by Allen & Overy, legal counsel to
the International Underwriter.
Each of the foregoing legal counsel has neither shareholdings in the Company nor any right, whether
legally enforceable or not, to nominate persons or to subscribe for securities in the Company. None of
the legal counsel will receive any direct or indirect interest in the Company or in any securities thereof
(including options, warrants or rights thereto) pursuant to or in connection with the Offer.

161

INDEPENDENT AUDITORS
The financial statements of the Company as of and for the year ended December 31, 2011, and as
of and for the seven months ended July 31, 2011 and 2012, were audited by Isla Lipana & Co.,
independent auditors, in accordance with PSA as stated in their reports appearing herein. The
financial statements of the Company as of and for the years ended December 31, 2009 and 2010
were audited by another independent auditor.
Isla Lipana & Co. has acted as the Companys external auditor since 2011. Imelda D. Mangundaya
is the current audit partner for the Company and has served as such since 2011. The Company has not
had any material disagreements on accounting and financial disclosures with its current external
auditor for the same periods or any subsequent interim period. Isla Lipana & Co. has neither
shareholdings in the Company nor any right, whether legally enforceable or not, to nominate persons
or to subscribe for the securities of the Company. Isla Lipana & Co. will not receive any direct or
indirect interest in the Company or its securities (including options, warrants or rights thereto)
pursuant to or in connection with the Offer. The foregoing is in accordance with the Code of Ethics
for Professional Accountants in the Philippines set by the Board of Accountancy and approved by the
Professional Regulation Commission.
The following table sets out the aggregate fees billed for each of the last two years for professional
services rendered by Isla Lipana & Co., excluding fees directly related to the Offer.

Audit and Audit-Related Fees(1) ...................................................................

Tax fees ......................................................................................................
All other fees ...............................................................................................

2010
(P in millions)
3.2

3.2

2011
3.9

3.9

____________
(1)
Audit and Audit-Related Fees. This category includes the audit of annual financial statements,
review of interim financial statements and services that are normally provided by the
independent auditor in connection with statutory and regulatory filings or engagements for
those calendar years.
The fees presented above include out-of-pocket expenses incidental to the independent auditors work,
the amounts of which do not exceed 10% of the agreed-upon engagement fees.
In relation to the audit of the Companys annual financial statements, the audit committee shall,
among other activities (i) evaluate significant issues reported by the external auditors in relation to
the adequacy, efficiency and effectiveness of policies, controls, processes and activities of the
Company; (ii) ensure that other non-audit work provided by the external auditors are not in
conflict with their functions as external auditors; and (iii) ensure the compliance of the Company
with acceptable auditing and accounting standards and regulations.

162

INDEX TO FINANCIAL STATEMENTS

UNAUDITED PRO-FORMA CONDENSED CONSOLIDATED FINANCIAL
INFORMATION OF THE COMPANY AS OF AND FOR THE SEVEN MONTHS
ENDED JULY 31, 2011 AND 2012, AND AS OF AND FOR THE YEARS ENDED
DECEMBER 31, 2009, 2010 and 2011
Report on Review of Pro-Forma Consolidated Financial Statements
Unaudited Interim Pro-Forma Consolidated Statements of Financial Position
Unaudited Pro-forma Condensed Consolidated Statements of Total Comprehensive Income
Unaudited Pro-forma Statements of Cash Flows
Unaudited Pro-forma Condensed Consolidated Statements of Changes in Equity
Notes to Unaudited Interim Pro-Forma Consolidated Financial Statements

F-1

CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND ITS

SUBSIDIARIES AS OF AND FOR THE SEVEN MONTHS ENDED JULY 31, 2011
AND 2012, AND AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2011
Independent Auditor's Report
Statements Required by Rule 68, Part I Section 4, Securities Regulation Code (SRC), As
Amended on October 20, 2011
Consolidated Statements of Financial Position
Consolidated Statements of Total Comprehensive Income
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Equity
Notes to Consolidated Financial Statements
Supplementary Information Required by the Securities and Exchange Commission

F-2

FINANCIAL STATEMENTS OF THE COMPANY AS OF AND FOR THE YEARS

ENDED DECEMBER 31, 2010 AND 2011
Independent Auditor's Report
Statements of Financial Position
Statements of Total Comprehensive Income
Statements of Changes in Equity
Statements of Cash Flows
Notes to Financial Statements

F-3

SEPARATE FINANCIAL STATEMENTS OF THE COMPANY AS OF AND FOR

THE SEVEN MONTHS ENDED JULY 31, 2011 AND 2012 AND AS OF AND FOR
THE YEAR ENDED DECEMBER 31, 2011
Independent Auditor's Report
Statements of Financial Position
Statements of Total Comprehensive Income
Statements of Cash Flows
Statements of Changes in Equity
Notes to Separate Financial Statements

F-4

FINANCIAL STATEMENTS OF OLEO-FATS, INCORPORATED AS OF AND

FOR THE SIX MONTHS ENDED JUNE 30, 2011 AND 2012, AND AS OF AND FOR
THE YEAR ENDED DECEMBER 31, 2011
Independent Auditor's Report
Statements of Financial Position
Statements of Total Comprehensive Income
Statements of Cash Flows
Statements of Changes in Equity
Notes to Financial Statements

F-5

D&L Industries, Inc. and Subsidiaries

Unaudited Pro-forma Condensed Consolidated Statements of Financial Position
July 31, 2012 and December 31, 2011, 2010, 2009
(All amounts in Philippine Peso)

Current assets
Cash and cash equivalents
Receivables, net
Due from related parties
Dividends receivable
Loans receivable
Inventories, net
Prepayments and other current assets
Total current assets
Non-current assets
Available-for-sale financial assets
Investment in associate
Property, plant and equipment, net
Deferred income tax assets, net
Other non-current assets
Total non-current assets
Total assets
Current liabilities
Trade payable and other liabilities
Income tax payable
Due to related parties
Dividends payable
Borrowings
Total current liabilities
Non-current liabilities
Deferred income tax liability, net
Retirement benefit obligation
Total non-current liabilities
Total liabilities
Equity
Share capital
Deposit for future stock subscription
Fair value reserves
Retained earnings
Appropriated
Unappropriated
Other charges to equity
Total equity
Total liabilities and equity

Notes

July 31, 2012

4
5
16
9

1,444,832,139
1,214,963,247
158,272,627
54,180,878
11,000,000
1,978,823,701
525,873,969
5,387,946,561

6
7

2011

972,443,079
1,724,971,757
229,003,121
11,000,000
2,035,073,778
670,901,896
5,643,393,631

December 31
2010

2009

688,318,588
1,726,879,277
76,219,369
1,373,393,119
609,044,253
4,473,854,606

248,569,488
1,444,298,066
408,270,386
1,405,854,221
586,111,879
4,093,104,040

8
9
10

84,350,938
1,529,608,367
1,607,682,604
4,164,274
26,135,712
3,251,941,895
8,639,888,456

51,025,938
1,527,572,401
1,501,040,822
14,344,110
16,741,072
3,110,724,343
8,754,117,974

21,025,938
1,491,007,432
1,247,290,359
15,743,501
16,619,704
2,791,686,934
7,265,541,540

21,025,938
1,377,749,814
912,319,374
97,308,476
15,809,659
2,424,213,261
6,517,317,301

11

525,817,884
8,279,460
1,461,641,549
231,285,249
3,127,725,484
5,354,749,626

790,328,941
7,970,262
1,643,768,431
24,997,500
3,347,640,246
5,814,705,380

573,687,726
1,403,090
1,666,075,257
3,051,993,062
5,293,159,135

681,186,155
2,419,399
2,259,269,183
2,490,866,393
5,433,741,130

6,174,628
29,031,446
35,206,074
5,389,955,700

31,194,718
31,194,718
5,845,900,098

41,162,174
41,162,174
5,334,321,309

28,274,217
28,274,217
5,462,015,347

321,200,000
-

146,216,000
-

510,000,000
1,176,407,964
(76,387,733)
1,931,220,231
7,265,541,540

360,000,000
625,473,687
(76,387,733)
1,055,301,954
6,517,317,301

16
12

1,000,000,000
187,500,000
13,500,000

2.2
13

2,125,387,185
(76,454,429)
3,249,932,756
8,639,888,456

321,200,000
(19,891,125)
510,000,000
2,173,363,430
(76,454,429)
2,908,217,876
8,754,117,974

(The notes on pages 1 to 41 are integral part of these pro-forma financial statements)

D&L Industries, Inc. and Subsidiaries

Unaudited Pro-forma Condensed Consolidated Statements of Total Comprehensive Income
For the seven months ended July 31, 2012 and 2011 and years ended December 31, 2011, 2010, 2009
(All amounts in Philippine Peso)

For the seven months ended July 31

2012
Revenues
Cost of sales and services
Gross profit
Expenses, net
Equity share in net income of
associate
Profit before income tax
Income tax (expense) benefit
Current
Deferred
Profit for the period
Other comprehensive income
Fair value adjustment on
available for sale financial
assets, net of tax
Total comprehensive income
for the period

For the years ended December 31

2010

2009

17
14

6,764,457,907
(5,750,966,172)

7,572,446,570
(6,471,585,329)

12,834,522,293
(11,128,446,151)

9,947,148,749
(8,723,953,415)

9,153,483,925
(8,632,562,405)

15

1,013,491,735
(264,902,407)

1,100,861,241
(273,498,770)

1,706,076,142
(535,597,541)

1,223,195,334
(530,082,054)

520,921,520
(483,003,749)

2011

2011

56,216,844

107,455,634

100,610,515

164,494,053

153,151,544

804,806,172

934,818,105

1,271,089,116

857,607,333

191,069,315

(151,024,873)
(12,644,339)

(188,727,447)
(2,679,532)

(270,524,134)
(3,609,516)

(80,513,905)
(76,159,152)

(41,114,272)
75,907,580

(163,669,212)

(191,406,979)

(274,133,650)

(156,673,057)

34,793,308

641,136,960

743,411,126

996,955,466

700,934,276

225,862,623

33,391,125

450,000

674,528,085

743,861,126

700,934,276

225,862,623

(19,891,125)
977,064,341

(The notes on pages 1 to 41 are integral part of these pro-forma financial statements)

D&L Industries, Inc. and Subsidiaries

Unaudited Pro-forma Condensed Consolidated Statements of Cash Flows
For the seven months ended July 31, 2012 and 2011 years ended December 31, 2011, 2010, 2009
(All amounts in Philippine Peso)

Notes
Cash flows from operating activities
Profit before income tax
Adjustments for:
Share in net income of associate
Write off of creditable withholding taxes
Bad debts directly written off
(Recovery of) provision for allowance of doubtful accounts
Reversal of provision for inventory obsolescence
Depreciation and amortization
(Gain) loss on sale of property and equipment
Retirement benefit expense
Losses from typhoon
Unrealized foreign exchange (gain) loss
Dividend income
Interest income
Interest expense
Operating profit before working capital changes
(Increase) decrease in:
Receivables
Due from related parties
Dividend receivable
Loans receivable
Inventories
Prepayments and other current assets
Other non current assets
Increase (decrease) in:
Trade payables and other liabilities
Dividends payable
Due to related parties
Cash from operations
Income taxes paid
Retirement contribution
Interest received from banks
Net cash from operating activities
(Forwarded to next page)

For the seven months ended July

31
2012
2011
804,806,172
(56,216,844)
-

5
5
6
10

934,818,105
-

For the year ended December 31

2011
2010
1,271,089,116

186,498
6,641,107
-

(100,610,515)
130,928
19,014,558
-

79,302,025
-

(1,520,338)
73,462,462
-

(1,520,338)
132,840,745
-

3,075,308
-

2,444,016
-

4,274,034
(6,805,875)
-

(9,024,317)
(4,493,328)
44,098,419
859,015,594

(20,772,809)
(613,944)
(5,193,559)
57,548,534
1,047,000,072

512,246,691
124,977,497
(54,180,878)
-

(591,170,381)
(67,637,156)
-

56,250,077
145,027,927
(9,394,640)

(358,989,012)
(53,868,680)
4,536,800

(232,662,597)
-

361,124,548
-

(182,126,882)
1,219,152,789
(150,715,675)
(5,238,580)
4,493,328
1,067,691,862

(93,527,938)
247,468,253
(172,973,112)
(14,197,215)
5,193,559
65,491,485

223,159
13,867,249
(5,062,089)
(9,707,387)
106,205,444
1,426,470,870
(17,107,038)
(135,558,604)
(11,000,000)
(661,680,659)
(61,988,571)
(187,964)
220,371,678
24,997,500
(39,531,974)
744,785,238
(266,167,087)
(10,190,615)
9,707,387
478,134,923

2009

857,607,333

191,069,315

(164,494,053)
3,357,283
3,198,321
(5,525,774)
-

(153,151,544)
1,774,698
4,517,395

118,993,155
20,166,789
14,036,142
(2,794,245)

161,806
99,916,677
(8,656,200)
10,441,438
12,075,776

(25,959,783)
134,927,217
953,512,385

6,914,871
(21,941,763)
(7,697,072)
181,011,093
316,436,490

(280,253,758)
339,905,802
-

259,139,819
(293,190,354)
-

32,461,102
(26,289,657)
(810,045)

190,131,856
(315,163,671)
1,516,877

(107,498,429)
-

(226,422,388)
-

(593,193,926)
317,833,474
(76,124,390)
(7,278,832)
25,959,783
260,390,035

976,938,783
909,387,412
(76,127,165)
(15,046,501)
7,697,072
825,910,818

D&L Industries, Inc. and Subsidiaries

Unaudited Pro-forma Condensed Consolidated Statements of Cash Flows (continued)
For the seven months ended July 31, 2012 and 2011 years ended December 31, 2011, 2010, 2009
(All amounts in Philippine Peso)

Notes
Net cash from operating activities
Cash flows from investing activities
Dividend received
Additions to available-for-sale financial assets
Acquisition of property and equipment
Proceeds from disposal of assets
Net cash used in investing activities
Cash flows from financing activities
Proceeds from borrowings
Payment of borrowings
Interest paid
Payment of dividends
Issuance of shares of stock
Deposit for future subscriptions of shares
Net (used in) cash from financing activities
Effect of foreign exchange rate changes on cash
Net increase (decrease) in cash and cash equivalents

8
10

12
12

Cash and cash equivalents

Beginning of period
End of period
Non-cash financing activity
Issuance of additional shares of stocks through declaration of
stock dividends

13

For the seven months ended July 31

2012
2011
1,067,691,862
65,491,485

For the year ended December 31

2011
2010
2009
478,134,923
260,390,035
825,910,818

(195,683,489)
9,739,682
(185,943,807)

51,850,379
(25,049,999)
(288,986,484)
(262,186,104)

69,107,535
(52,101,250)
(386,591,208)
(369,584,923)

54,030,680
(488,678,454)
26,859,529
(407,788,245)

60,369,090
(21,025,938)
(472,719,784)
24,632,214
(408,744,418)

2,945,302,086
(3,165,216,848)
(64,727,541)
(310,315,331)
187,500,000
(407,457,634)
(1,901,361)
472,389,060

1,792,123,450
(1,592,508,776)
(57,548,534)
142,066,140
20,772,809
(33,855,670)

3,948,027,653
(3,652,380,469)
(106,205,443)
189,441,741
(13,867,250)
284,124,491

1,828,896,209
(1,267,769,540)
(134,927,217)
174,984,000
601,183,452
(14,036,142)
439,749,100

50,000,000
(343,605,748)
(189,273,104)
(60,000,000)
(542,878,852)
(6,914,871)
(132,627,323)

972,443,079
1,444,832,139

688,318,588
654,462,918

688,318,588
972,443,079

248,569,488
688,318,588

381,196,811
248,569,488

678,800,000

(The notes on pages 1 to 41 are an integral part of these pro-forma financial statements)

D&L Industries, Inc. and Subsidiaries

Unaudited Pro-forma Condensed Consolidated Statements of Changes in Equity
For the seven months ended July 31, 2012 and 2011 and years ended December 31, 2011, 2010, 2009
(All amounts in Philippine Peso)
Retained earnings

Balances at January 1, 2009

Effect of acquisition and divestment
(Note 2)
As restated January 1, 2009
Comprehensive income
Profit for the year
Other comprehensive income
Fair value gains on
available-for-sale financial assets,
net of tax
Total comprehensive income for the year
Transaction with owners
Declaration of cash dividend
Balances at December 31, 2009
Comprehensive income
Profit for the year
Other comprehensive income
Fair value gains on
available-for-sale financial assets,
net of tax
Total comprehensive income for the year
Additional appropriation of retained
earnings
Transaction with owners
Issuance of additional shares
Balances at December 31, 2010
Transaction with owners
Additional loss on disposal of investment
Comprehensive income
Profit for the period
Other comprehensive income
Fair value gains on
available-for-sale financial assets,
net of tax
Total comprehensive income for the year
Balances at December 31, 2011

Share capital
(Note 13)
146,216,000
146,216,000

Deposit for
future stock
subscriptions
(Note 13)

Fair value
reserve
(Note 9)
-

Appropriated
(Note 13)
360,000,000

Unappropriated
(Note 13)
585,842,959

360,000,000

225,862,623

225,862,623

(126,231,894)
459,611,065

146,216,000

360,000,000

700,934,276

146,216,000

150,000,000

174,984,000
321,200,000

510,000,000

1,176,407,964

996,955,466

321,200,000

510,000,000

996,955,466
2,173,363,430

(19,891,125)
(19,891,125)
(19,891,125)

Other charges to
equity (Note 2.2)
(76,387,733)
(76,387,733)

Minority
interest
280,327,370
(280,327,370)
-

Total equity
1,372,386,329
(482,946,997)
889,439,332
225,862,623

225,862,623

(60,000,000)
1,055,301,955

700,934,276

700,934,276

700,934,276

(150,000,000)

(76,387,733)

174,984,000
1,931,220,231

(66,696)

174,984,000

996,955,466

(19,891,125)
977,064,341
2,908,217,876

(60,000,000)
625,473,688

(76,387,733)

(76,454,429)

D&L Industries, Inc. and Subsidiaries

Unaudited Pro-forma Condensed Consolidated Statements of Changes in Equity (continued)
For the seven months ended July 31, 2012 and 2011 and years ended December 31, 2011, 2010, 2009
(All amounts in Philippine Peso)

Balances at December 31, 2010

Comprehensive income
Profit for the period
Other comprehensive income
Fair value gains on
available-for-sale financial assets, net
of tax
Total comprehensive income for the
period
Balances at July 31, 2011
Balances at December 31, 2011
Adjustment on acquisition and divestment
effected at December 31, 2011
(Note 2)
Comprehensive income
Profit for the period
Other comprehensive income
Fair value gains on
available-for-sale financial assets,
net of tax
Total comprehensive income for the
period
Release of retained earnings
appropriation
Transaction with owners
Declaration of stock dividend
Deposit for future stock subscriptions
Total transactions with owners
Balances at July 31, 2012

Retained earnings
Unappropriated
Appropriated
(Note 13)
(Note 13)
510,000,000
1,176,407,964

Share capital
(Note 13)
321,200,000

Deposit for
future stock
subscriptions
-

Fair value
reserve
(Note 9)
-

743,411,126

450,000

321,200,000

450,000
450,000

510,000,000

743,411,126
1,919,819,090

321,200,000

510,000,000

2,173,363,430

(520,313,205)

(520,313,205)

641,136,960

641,136,960

33,391,125

33,391,125

33,391,125

641,136,960

674,528,085

510,000,000

678,800,000
678,800,000
1,000,000,000

187,500,000
187,500,000
187,500,000

13,500,000

187,500,000
187,500,000
3,249,932,756

(19,891,125)

(510,000,000)
-

(678,800,000)
(678,800,000)
2,125,387,185

Other charges
to equity
(Note 2.2)
(76,387,733)

Minority
interest
-

Total equity
1,931,220,231

743,411,126

450,000

(76,387,733)

743,861,126
2,675,081,357

(76,454,429)

2,908,217,876

(76,454,429)

(The notes on pages 1 to 41 are an integral part of these pro-forma financial statements)

D&L Industries, Inc. and Subsidiaries

Notes to the Unaudited Pro-forma Condensed Consolidated Financial Statements
As at July 31, 2012 and December 31, 2011, 2010 and 2009
and for the seven months ended July 31, 2012 and 2011 and years ended
December 31, 2011, 2010 and 2009
(All amounts are shown in Philippine Peso, unless otherwise stated)
Note 1 - General information
1.1

Business information

D&L Industries, Inc. (the Parent Company) was registered with the Securities and Exchange
Commission (SEC) on July 27, 1971 primarily to carry on the business of buying, selling, importing,
bartering, distributing, exchanging, processing, manufacturing, producing compounds, derivatives or
chemical substances and all kinds of goods, wares, manufactures, such as but not limited to machines,
supplies and all kinds of goods, wares and products and generally engage in and conduct any form of
manufacturing or mercantile enterprises.
The Parent Company is 85% owned by and is a subsidiary of Jadel Holdings, Inc. (JHI). The remaining
15% of Parent Companys outstanding shares are owned by the Lao Family (14%) and LBL Industries,
Inc. (1%). The shares of JHI are held by a Banco de Oro Trust Account, with the Lao Family as the
beneficial owner.
As at September 10, 2012, the Parent Company is in the process of completing and finalizing all
statutory requirements in connections with the planned listing and offering of its shares to the public
with the Philippine Stock Exchange.
The Parent Companys registered office address which is also its principal place of business is 65
Industria St., Bagumbayan, Quezon City. As at July 31, 2012, the Group has 462 regular employees
(December 31, 2011 - 458; 2010 - 416; 2009 - 440).
1.2

Significant developments

On July 16, 2012, the Parent Companys Board of Directors resolved to purchase the shares of other
shareholders to obtain 100% ownership in First In Colours, Incorporated (FIC), D&L Polymer and
Colours, Inc. (DLPCI), Aero-Pack Industries, Inc. (API) and Oleo-fats, Incorporated (OFI). The share
purchase agreements were signed by contracting parties and made effective on July 27, 2012. As a
result, FIC, DLPCI, API and OFI became 100% owned by the Parent Company effective July 27, 2012.
On July 23, 2012 and July 27, 2012 (divestment dates), the Parent Company entered into an agreement
for the sale and transfer of its 67% shareholdings in FIC Marketing Co., Inc. (FICM) and D&L Powder
Coating, Inc. (DL Powder Coating) to JHI.
The above transactions, along with other assumptions disclosed in Note 2, have been effected at the
beginning of the earliest period presented (January 1, 2009) in this pro-forma condensed consolidated
financial statements.

1.3

Significant subsequent events

On August 28, 2012, the Parent Companys Board of Directors approved the declaration of cash
dividend amounting to P863.4 million (P8.63 per share) out of the unrestricted retained earnings of
the Parent Company as at June 30, 2012 to all stockholders of record as at September 3, 2012, payable
on or before December 31, 2012.
On the same date, the Parent Companys Board of Directors approved the declaration of stock dividend
amounting to P750 million out of the unrestricted retained earnings of the Parent Company as at June
30, 2012 to all stockholders of record as at September 3, 2012. The stock dividends will be issued until
December 31, 2012.
On the same date, the Parent Companys subsidiaries, API, OFI, FIC and DLPCI declared cash
dividends amounting to P26.3 million, P245 million, P235.6 million and P190.5 million, respectively, in
favor of their stockholders of record as at August 28, 2012. The dividend received by the Parent
Company from its subsidiaries will be used by the Parent Company partly to pay off cash dividend
declaration to its shareholders disclosed above.
On the same date, the Companys Board of Directors further resolved to sell, transfer and convey to
interested purchasers all its rights and interests to three parcels of land with an aggregate value of
P3 million.
On August 31, 2012, the SEC approved the Parent Companys application for increase in authorized
capital stock from P1 billion, comprising of 1 billion common shares at P1 par value, to P4 billion,
comprising of 4 billion common shares at P1 par value.
1.4

Authorization for issuance of unaudited pro-forma condensed consolidated

financial information

These unaudited pro-forma condensed consolidated financial information have been approved and
authorized for issuance by the Parent Companys Board of Directors on September 11, 2012.
Note 2 - Pro-forma condensed consolidated financial information
The accompanying pro-forma consolidated financial information as at and for the seven months ended
July 31, 2012 and 2011 and as at and for the years ended December 31, 2011, 2010 and 2009 are
presented for D&L Industries, Inc. and its subsidiaries namely: FIC, DLPCI, API and OFI (collectively
the Group). The pro-forma condensed consolidated financial information have been assembled by
reflecting pro-forma adjustments to give effect to the transactions disclosed below to the historical
separate financial statements of the Parent Company and each of its subsidiaries.
The pro-forma adjustments and the application of those adjustments to the historical amounts have
been based on the transactions and assumptions described below.
The historical financial information are derived from the historical separate financial statements of the
Parent Company and each of its subsidiaries presented elsewhere in the prospectus, after effecting
consolidation adjustments.
These unaudited pro-forma condensed consolidated financial statements should be used in conjunction
with the historical separate financial statements and notes thereto of the Group.

(2)

The following transactions, along with other managements assumptions, have been reflected in the
accompanying unaudited pro-forma condensed consolidated financial statements:
2.1 Acquisition of non-controlling interests in FIC, DLPCI, API and controlling interest in OFI
The acquisition by the Parent Company to obtain 100% ownership interest in FIC, DLPCI, API and OFI
was effected as if it occurred effective January 1, 2009 (Note 1.2). Previously, the Parent Company owns
67% interest each in FIC, DLPCI API and 40% interest in OFI. As a result, these entities have been fully
consolidated in the pro-forma condensed consolidated financial statements effective January 1, 2009.
The details of pro-forma adjustments applied on the historical amounts, after effecting consolidation
adjustments, and the resulting pro-forma balances are disclosed in Notes 2.4 and 2.5 below.
2.2 Disposal of controlling interests in FICM and DL Powder Coating
The sale and transfer of the Parent Companys 67% interest each in FICM and DL Powder Coating to JHI
was effected as if it occurred effective January 1, 2009 (Note 1.2). As a result, these entities have been fully
divested and deconsolidated in the pro-forma condensed consolidated financial statements effective
January 1, 2009.
The details of pro-forma adjustments applied on the historical amounts, after effecting consolidation
adjustments, and the resulting pro-forma balances are disclosed in Note 2.4 and 2.5 below.
2.3 Other assumptions
The objective of this unaudited pro-forma condensed consolidated financial statements is to show what
the significant effects of the historical financial information might have been, had transactions
described below occurred at the beginning of the earliest period presented. However, the unaudited
pro-forma condensed consolidated financial statements is not necessarily indicative of the results of
operations or the related effects on the consolidated financial statements that would have been attained
had the above-mentioned transactions actually occurred earlier.
The pro-forma adjustments are based upon available information and certain assumptions that the
Parent Company believes are reasonable under the circumstances. The unaudited pro-forma condensed
financial information does not purport to represent what the results of operations and financial position
of the Group would have been had the acquisition of non-controlling and controlling interests in its
subsidiaries and associate and the disposal of controlling interests in subsidiaries in fact occurred at
January 1, 2009, as the case may be, nor does it purport the results of operations of the Group for any
future period or date.
Considering that the Parent Company is 85% owned by JHI and is in itself a subsidiary of the latter, it
elected not to present historical consolidated financial statements and full consolidation of the Parent
Company and its subsidiaries are made at JHI level as at and for the years ended December 31, 2011,
2010 and 2009, under Philippine Financial Reporting Standards for the purpose of its statutory filing.
The unaudited pro-forma condensed consolidated financial information is not intended to be considered
in isolation from, or as a substitute for financial position or results of operations prepared in accordance
in Philippine Financial Reporting Standards.

(3)

2.4 Pro-forma adjustments and reconciliation of historical amounts to unaudited pro-forma

condensed consolidated statements of financial position
At July 31, 2012
Historical
amounts
Current assets
Cash and cash equivalents
Trade and other receivables, net
Due from related parties
Loans receivable
Dividend receivable
Inventories
Prepayments and other current assets
Total current assets

1,444,832,139
1,214,963,247
158,272,627
54,180,878
11,000,000
1,978,823,701
525,873,969
5,387,946,561

Pro-forma adjustments (Note 2)

Divestment
Acquisition

Pro-forma
balances

1,444,832,139
1,214,963,247
158,272,627
54,180,878
11,000,000
1,978,823,701
525,873,969
5,387,946,561

Non-current assets
Available for sale financial assets
Investment in associate
Property, plant and equipment, net
Deferred tax assets, net
Other non-current assets
Total non-current assets
Total assets

84,350,938
1,529,608,367
1,607,682,604
4,164,274
26,135,712
3,251,941,895
8,639,888,456

84,350,938
1,529,608,367
1,607,682,604
4,164,274
26,135,712
3,251,941,895
8,639,888,456

Current liabilities
Trade and other payables
Income tax payable
Due to related parties
Dividends payable
Borrowings
Total current liabilities

525,817,884
8,279,460
1,461,641,549
231,285,249
3,127,725,484
5,354,749,626

525,817,884
8,279,460
1,461,641,549
231,285,249
3,127,725,484
5,354,749,626

Non-current liabilities
Deferred income tax liability
Retirement benefit obligation
Total Liabilities

6,174,628
29,031,446
5,389,955,700

6,174,628
29,031,446
5,389,955,700

1,000,000,000
187,500,000
13,500,000
(76,454,429)

1,000,000,000
187,500,000
13,500,000
(76,454,429)

2,125,387,185

Equity
Share capital
Deposit for future stock subscription
Fair value reserve
Other charges to equity
Retained earnings
Appropriated
Unappropriated
Minority interest
Total equity
Total liabilities and equity

(4)

2,125,387,185

3,249,932,756
8,639,888,456

3,249,932,756
8,639,888,456

At December 31, 2011

Historical
amounts
Current assets
Cash and cash equivalents
Trade and other receivables, net
Due from related parties
Loans receivable
Inventories
Prepayments and other current assets
Total current assets

598,158,811
412,248,321
206,288,297
11,000,000
661,580,321
222,333,807
2,111,609,557

Non-current assets
Available for sale financial assets
Investment in associate
Property, plant and equipment, net
Deferred tax assets, net
Other non-current assets
Total non-current assets
Total assets

51,025,938
2,120,512,369
305,483,902
10,788,045
4,771,502
2,492,581,756
4,604,191,313

Current liabilities
Trade and other payables
Income tax payable
Due to related parties
Dividends payable
Borrowings
Total current liabilities
Non-current liability
Retirement benefit obligation
Total liabilities
Equity
Share capital
Fair value reserve
Other charges to equity
Retained earnings
Appropriated
Unappropriated
Minority interest
Total equity
Total liabilities and equity

(5)

Pro-forma adjustments (Note 2)

Divestment
Acquisition
(44,026,191)

418,310,459

(86,462,980)
52,723,132

1,399,186,416
(30,008,308)

(14,516,041)

1,388,009,498

(28,342,645)
(120,624,725)

476,910,734
3,652,408,799

(31,959,528)
506,133
-

(592,939,968)
1,227,516,448
3,049,932
11,969,570

(31,453,395)
(152,078,120)

649,595,982
4,302,004,781

199,087,193
7,970,262
586,161,483
24,997,500
750,000,000
1,568,216,438

(7,284,426)
(8,038,075)
(150,000,000)
(165,322,501)

598,526,174
-

30,794,040
1,599,010,478

(162,194,439)

321,200,000
(19,891,125)
510,000,000
1,793,419,355
400,452,605
3,005,180,835
4,604,191,313

3,128,062

1,065,645,023

2,747,640,246
4,411,811,443

(2,727,384)
4,409,084,059

(76,454,429)

17,246,091

362,697,984

(7,129,772)

(393,322,833)

10,116,319
(152,078,120)

(107,079,278)
4,302,004,781

Pro-forma
balances
972,443,079
1,724,971,757
229,003,121
11,000,000
2,035,073,778
670,901,896
5,643,393,631

51,025,938
1,527,572,401
1,501,040,822
14,344,110
16,741,072
3,110,724,343
8,754,117,974

790,328,941
7,970,262
1,643,768,431
24,997,500
3,347,640,246
5,814,705,380

31,194,718
5,845,900,098

321,200,000
(19,891,125)
(76,454,429)
510,000,000
2,173,363,430
2,908,217,876
8,754,117,974

At December 31, 2010

Historical amounts

Pro-forma adjustments (Note 2)

Divestment
Acquisition

Pro-forma
balances

Current assets
Cash and cash equivalents
Trade and other receivables, net
Due from related parties
Inventories
Prepayments and other current assets
Total current assets

339,260,958
350,514,525
556,543,778
646,863,440
147,256,587
2,040,439,288

(13,363,121)
(66,018,992)
147,207,128
(29,427,241)
(26,488,750)
11,909,024

362,420,751
1,442,383,744
(627,531,537)
755,956,920
488,276,416
2,421,506,294

688,318,588
1,726,879,277
76,219,369
1,373,393,119
609,044,253
4,473,854,606

Non-current assets
Available for sale financial assets
Investment in associate
Property, plant and equipment, net
Deferred tax assets, net
Other non-current assets
Total non-current assets
Total assets

21,025,938
1,913,037,615
308,763,482
12,580,587
3,771,927
2,259,179,549
4,299,618,837

(36,005,763)
400,630
(1,306,687)
(36,911,820)
(25,002,796)

(422,030,183)
974,532,640
2,762,284
14,154,464
569,419,205
2,990,925,499

21,025,938
1,491,007,432
1,247,290,359
15,743,501
16,619,704
2,791,686,934
7,265,541,540

Current liabilities
Trade and other payables
Income tax payable
Due to related parties
Borrowings
Total current liabilities

322,790,204
1,403,090
686,242,410
940,000,000
1,950,435,704

(3,360,965)
(6,846,668)
(10,207,633)

254,258,487
986,679,515
2,111,993,062
3,352,931,064

573,687,726
1,403,090
1,666,075,257
3,051,993,062
5,293,159,135

Non-current liability
Retirement benefit obligation
Total liabilities

38,384,578
1,988,820,282

2,777,596
(7,430,037)

3,352,931,064

41,162,174
5,334,321,309

321,200,000
(76,387,733)

Equity
Share capital
Fair value reserve
Other charges to equity
Retained earnings
Appropriated
Unappropriated
Minority interest
Total equity
Total liabilities and equity

(6)

321,200,000
-

(76,387,733)

510,000,000
1,146,217,378
333,381,177
2,310,798,555
4,299,618,837

71,873,357
(13,058,383)
(17,572,759)
(25,002,796)

(41,682,771)
(320,322,794)
(362,005,565)
2,990,925,499

510,000,000
1,176,407,964
1,931,220,231
7,265,541,540

At December 31, 2009

Historical
amounts

Pro-forma adjustments (Note 2)

Divestment
Acquisition

Pro-forma
balances

Current assets
Cash and cash equivalents
Trade and other receivables, net
Due from related parties
Inventories
Prepayments and other current assets
Total current assets

181,759,369
314,252,761
1,110,479,658
496,233,471
91,881,637
2,194,606,896

(21,729,671)
(41,831,615)
4,362,332
(19,222,613)
(18,206,720)
(96,628,287)

88,539,790
1,171,876,920
(706,571,604)
928,843,363
512,436,962
1,995,125,431

Non-current assets
Available for sale financial assets
Investment in associate
Property, plant and equipment, net
Deferred tax assets, net
Other non-current assets
Total non-current assets
Total assets

21,025,938
1,523,893,660
339,198,338
12,526,578
3,936,987
1,900,581,501
4,095,188,397

(43,981,446)
865,110
(1,471,747)
(44,588,083)
(141,216,370)

(146,143,846)
617,102,482
83,916,788
13,344,419
568,219,843
2,563,345,274

21,025,938
1,377,749,814
912,319,374
97,308,476
15,809,659
2,424,213,261
6,517,317,301

Current liabilities
Trade and other payables
Income tax payable
Due to related parties
Borrowings
Total current liabilities

298,955,216
2,419,399
1,320,174,311
910,000,000
2,531,548,926

(27,659,625)
(75,655,996)
(10,000,000)
(113,315,621)

409,890,564
1,014,750,868
1,590,866,393
3,015,507,825

681,186,155
2,419,399
2,259,269,183
2,490,866,393
5,433,741,130

Non-current liability
Retirement benefit obligation
Total liabilities

25,390,519
2,556,939,445

2,883,698
(110,431,923)

3,015,507,825

28,274,217
5,462,015,347

146,216,000
-

(76,387,733)

146,216,000
(76,387,733)

360,000,000
751,705,582
280,327,370
1,538,248,952
4,095,188,397

63,025,776
(17,422,490)
(30,784,447)
(141,216,370)

Equity
Share capital
Fair value reserve
Other charges to equity
Retained earnings
Appropriated
Unappropriated
Minority interest
Total equity
Total liabilities and equity

(7)

(189,257,671)
(262,904,880)
(452,162,551)
2,563,345,274

248,569,488
1,444,298,066
408,270,386

1,405,854,221
586,111,879
4,093,104,040

360,000,000
625,473,687
1,055,301,954
6,517,317,301

2.5 Pro-forma adjustments and reconciliation of historical amounts to unaudited pro-forma

condensed consolidated statements of total comprehensive income
For the seven months ended July 31, 2012

Revenues
Cost of sales and services
Gross profit
Expenses, net
Equity share in net income
Profit before income tax
Income tax expense
Profit for the period
Other comprehensive income
Fair value adjustment on available for sale
financial assets, net of tax
Total comprehensive income for the period

Historical
amounts
2,254,414,778
(1,735,533,105)
518,881,673
(130,589,810)
156,310,460
544,602,323
(50,205,094)
494,397,229

33,391,125
527,788,354

Pro-forma adjustments(Note 2)
Acquisition
Divestment
(93,282,011)
4,603,325,140
83,090,506
(4,098,523,573)
(10,191,505)
504,801,567
10,191,505
(144,504,102)
(100,093,616)
260,203,849
(113,464,118)
146,739,731

146,739,731

Pro-forma
balances
6,764,457,907
(5,750,966,172)
1,013,491,735
(264,902,407)
56,216,844
804,806,172
(163,669,212)
641,136,960

33,391,125
674,528,085

For the seven months ended July 31, 2011

Revenues
Cost of sales and services
Gross profit
Expenses, net
Equity share in net income
Profit before income tax
Income tax expense
Profit for the period
Other comprehensive income
Fair value adjustment on available for sale
financial assets, net of tax
Total comprehensive income for the period

(8)

Historical
amounts
1,760,955,069
(1,280,025,353)
480,929,716
(142,534,504)
271,520,300
609,915,512
(60,137,608)
549,777,904

450,000
550,227,904

Pro-forma adjustments(Note 2)
Divestment
Acquisition
(2,088,229,259)
7,899,720,760
1,558,390,223
(6,749,950,199)
(529,839,036)
1,149,770,561
191,443,824
(322,408,090)
(164,064,666)
(338,395,212)
663,297,805
(131,269,371)
(338,395,212)
532,028,434

(338,395,212)

532,028,434

Pro-forma
balances
7,572,446,570
(6,471,585,329)
1,100,861,241
(273,498,770)
107,455,634
934,818,105
(191,406,979)
743,411,126

450,000
743,861,126

For the year ended December 31, 2011

Revenues
Cost of sales and services
Gross profit
Expenses, net
Equity share in net income
Profit before income tax
Income tax expense
Profit for the period
Other comprehensive income
Fair value adjustment on available for sale
financial assets, net of tax
Total comprehensive income for the period

Historical
amounts
3,501,867,825
(2,731,036,943)
770,830,882
(241,699,495)
271,520,300
800,651,687
(93,054,447)
707,597,240
(19,891,125)
687,706,115

Pro-forma adjustments(Note 2)
Acquisition
Divestment
(585,399,359)
9,918,053,827
589,942,790
(8,987,351,998)
4,543,431
28,015,310
32,558,741
(181,514,009)
(148,955,268)
(148,955,268)

930,701,829
(321,913,356)
(170,909,785)
437,878,688
434,806
438,313,494
438,313,494

Pro-forma
balances
12,834,522,293
(11,128,446,151)
1,706,076,142
(535,597,541)
100,610,515
1,271,089,116
(274,133,650)
996,955,466
(19,891,125)
977,064,341

For the year ended December 31, 2010

Revenues
Cost of sales and services
Gross profit
Expenses, net
Equity share in net income
Profit before income tax
Income tax expense
Profit for the period
Other comprehensive income
Fair value adjustment on available for sale
financial assets, net of tax
Total comprehensive income for the period

(9)

Historical
amounts
3,073,516,458
(2,448,890,228)
624,626,230
(260,189,534)
252,244,716
616,681,412
(57,771,067)
558,910,345

Pro-forma adjustments(Note 2)
Divestment
Acquisition
(369,041,654)
7,242,673,945
366,030,828
(6,641,094,015)
(3,010,826)
601,579,930
13,133,811
(283,026,331)
(87,750,663)
10,122,985
230,802,936
274,953
(99,176,943)
10,397,938
131,625,993

Pro-forma
balances
9,947,148,749
(8,723,953,415)
1,223,195,334
(530,082,054)
164,494,053
857,607,333
(156,673,057)
700,934,276

558,910,345

10,397,938

131,625,993

700,934,276

For the year ended December 31, 2009

Revenues
Cost of sales and services
Gross profit
Expenses, net
Equity share in net income
Profit before income tax
Income tax expense
Profit for the period
Other comprehensive income
Fair value adjustment on available for sale
financial assets, net of tax
Total comprehensive income for the period

Historical
amounts
2,459,590,783
(1,919,250,184)
540,340,599
(255,648,239)
85,223,467
369,915,827
(39,796,459)
330,119,368

330,119,368

Pro-forma adjustments(Note 2)
Acquisition
Divestment
(296,054,525)
6,989,947,667
261,497,323
(6,974,809,544)
(34,557,202)
15,138,123
29,930,742
(257,286,252)
67,928,077
(4,626,460)
(174,220,052)
2,261,831
72,327,936
(2,364,629)
(101,892,116)

(2,364,629)

(101,892,116)

Pro-forma
balances
9,153,483,925
(8,632,562,405)
520,921,520
(483,003,749)
153,151,544
191,069,315
34,793,308
225,862,623

225,862,623

The above historical amounts were derived from the separate historical financial information of the
Parent Company and each of its subsidiaries, after effecting consolidation adjustments consisting
mainly of eliminating entries on sales, costs and expenses; receivable and payable; and investment
transactions and balances relating to the Parent Company and its subsidiaries.
The above pro-forma adjustments represent the net effect of the results of acquisition of noncontrolling interests in FIC, DLPCI, API and controlling interest in OFI, and the divestment of
controlling interests in FICM and DL Powder Coating (Note 2).
The effect on income tax, if any, of these pro-forma adjustments were accordingly taken up as if it also
occurred at the beginning of January 1, 2009.
The results of the above pro-forma adjustments were considered and have the same effect on the
unaudited pro-forma condensed consolidated statements of cash flow.
Note 3 - Significant accounting policies
The Groups significant accounting policies are as follows:
3.1

Cash and cash equivalents

Cash and cash equivalents consist of cash deposits held at call with banks and other short-term highly
liquid investments with maturities of three months or less from date of acquisition. Cash in bank earns
interest at the prevailing bank deposit rate.
3.2

Receivables

Trade receivables arising from regular sales with an average credit term of 30 to 90 days are recorded at
fair value plus transaction cost, which approximates invoice value, less any provision for impairment.
Other receivables are recognized initially at fair value and subsequently measured at amortized cost using
effective interest method, less any provision for impairment.

(10)

An individual and collective provision for impairment of receivables is established when there is objective
evidence that the Group will not be able to collect all amounts due according to the original terms of
receivables. Significant financial difficulties of the debtor, probability that the debtor will enter
bankruptcy or financial reorganization, and default or delinquency in payments are considered as
indicators that the receivable is impaired. The amount of the provision is the difference between the
assets carrying amount and the present value of estimated future cash flows, discounted at the effective
interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the
amount of the loss is recognized in the provision for impairment of receivables in the statement of total
comprehensive income within selling and marketing costs.
The Group first assesses whether objective evidence of impairment exists individually for receivables that
are individually significant, and collectively for receivables that are not individually significant. If the
Group determines that no objective evidence of impairment exists for an individually assessed receivable,
whether significant or not, it includes the asset in a group of financial assets with similar credit risk
characteristics and collectively assesses them for impairment. Receivables that are individually assessed
for impairment and for which an impairment loss is or continues to be recognized are not included in a
collective assessment of impairment.
When a receivable is uncollectible, it is written off against the provision account for receivables.
Receivables and its related provision for impairment are written off when the Group has determined that
the receivable is uncollectible as they have already exerted all collection efforts, including filing a legal
case. Bad debts written off are specifically identified by the Groups marketing department after
exhausting all collection efforts (i.e. sending demand letters and legal notice of default to customers),
and is approved by the respective product manager and subsequently by the Board of Directors. Write
offs represent the release of previously recorded provision from the allowance account and credited to
the related receivable account following the Groups assessment that the related receivable will no longer
be collected after all collection efforts have been exhausted.
Subsequent recoveries of amounts previously written-off are credited against the provision account in
the statement of total comprehensive income. Reversals of previously recorded impairment provision
are credited in the statement of total comprehensive income based on the result of managements update
assessments, considering available facts and changes in circumstances, including but not limited to
results of recent discussions and arrangements entered into with customers as to the recoverability of
receivable at reporting date.
3.3

Inventories

Inventories are stated at the lower of cost and net realizable value (NRV). The cost of finished goods
inventories is determined on the basis of standard costs which are adjusted at periodic intervals and
which approximate actual manufacturing cost. The cost of raw materials is determined using the
weighted average and specific identification method. Inventories in transit are valued at invoice cost
including related importation costs. NRV is the estimated selling price in the ordinary course of business,
less applicable variable selling and distribution expenses. Provision for inventory losses and obsolescence
is provided, when necessary, based on managements review of inventory turnover and projected future
production demands.
Provision for inventory losses is established for slow moving, obsolete, defective and damaged
inventories based on physical inspection and management evaluation. Inventories and its related
provision for impairment are written off when the Group has determined that the related inventory is
already obsolete and damaged. Write offs represent the release of previously recorded provision from
the allowance account and credited to the related inventory account following the disposal of the

(11)

inventories. Destruction of the obsolete and damaged inventories is made in the presence of regulatory
agencies.
Reversals of previously recorded impairment provisions are credited against provision account in the
statement of total comprehensive income based on the result of managements update assessment,
considering available facts and circumstances, including but not limited to net realizable value at the
time of disposal.
Inventories are derecognized when sold or otherwise disposed of.
3.4

Claim for input value added tax (VAT), prepayments and other current assets

Claim for input VAT

Claim for input VAT and prepaid taxes is stated at face value less provision for impairment, if any.
Provision for unrecoverable input VAT and prepaid taxes, if any, is maintained by the Company at a
level considered adequate to provide for potential uncollectible portion of the claim. The Company, on
a continuing basis, reviews the status of the claim designed to identify those that may require provision
for impairment losses.
A provision for impairment of unrecoverable input VAT and prepaid taxes is established when there is
objective evidence that the Company will not be able to recover the claims. The carrying amount of the
asset is reduced through the use of an allowance account and the amount of the loss is recognized in the
statement of total comprehensive income within cost of goods sold.
Prepayments in the form of unused tax credits are derecognized when there is a legally enforceable
right to offset the recognized amounts against income tax due and there is an intention to settle on a
net basis, or realize the asset and settle the liability simultaneously.
Prepayments and other current assets
Prepayments are recognized in the statement of financial position in the event that payment has been
made in advance of obtaining right of access to goods or receipt of services and measured at nominal
amounts. These are derecognized in the statement of financial position upon delivery of goods or when
services have been rendered, through amortization over a certain period of time, and use or
consumption.
Other non-current assets consist substantially of input value-added tax and creditable withholding
taxes which are recognized as assets in the period such input value-added tax and income tax payments
become available as tax credits to the Group and carried over to the extent that it is probable that the
benefit will flow to the Group. These are derecognized in the statement of financial position when there
is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net
basis, or realize the asset and settle the liability simultaneously.
Prepayments and other non-financial assets are included in current assets, except when the related
goods or services are expected to be received or rendered more than twelve (12) months after the
reporting period which are classified as non-current assets.
3.5

Property, plant and equipment

Property, plant and equipment are stated at historical cost less related accumulated depreciation and
amortization, and provision for any impairment. Historical cost includes expenditure that is directly
attributable to the acquisition of the items.
(12)

Subsequent costs are included in the assets carrying amount or recognized as a separate asset, as
appropriate, only when it is probable that future economic benefits associated with the item will flow to
the Group and the cost of the item can be measured reliably. All other repairs and maintenance are
charged to the profit or loss during the financial period in which they are incurred.
Construction in progress, which represents properties under construction, is stated at cost and
depreciated only when the relevant assets are completed and put into operational use. Upon
completion, these properties are reclassified to their relevant property and equipment account.
Leasehold improvements are amortized over the period of the lease agreement or estimated useful life
of the improvements, which is shorter than the lease term, considering the renewal option.
Depreciation on assets is computed on the straight-line method to allocate the cost of each asset, less its
residual value, over its estimated useful life, determined based on the Groups historical information
and experience on the use of such assets, as follows:

Building
Machinery and equipment
Transportation and equipment
Furniture and fixtures
Office equipment
Leasehold improvements

In years
40
5 - 20
5 - 10
5
5
5

The assets residual values and useful lives are reviewed, and adjusted as appropriate, at each reporting
date.
An assets carrying amount is written down immediately to its recoverable amount if the assets carrying
amount is greater than its estimated recoverable amount.
An item of property and equipment is derecognized upon disposal or when no future economic benefits
are expected from its use or disposal at which time the cost and their accumulated depreciation are
removed from the disposal accounts.
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount of
the assets and are included in the profit or loss.
3.6

Impairment of non-financial assets

Non-financial assets that have an indefinite useful life, such as land, are not subject to amortization and are
tested annually for impairment. Other non-financial assets, mainly property, plant and equipment and
investment in associates, are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the
amount by which the assets carrying amount exceeds its recoverable amount. The recoverable amount is
the higher of an assets fair value less cost to sell and value in use. For the purposes of assessing
impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows
(cash-generating units). Impairment losses, if any, are recognized in the statement of total
comprehensive income as part of administrative expenses.

(13)

When impairment loss subsequently reverses, the carrying amount of the asset or cash-generating unit
is increased to the revised estimate of its recoverable amount, but the increased carrying amount
should not exceed the carrying amount that would have been determined had no impairment loss been
recognized for the asset or cash-generating unit in prior years. A reversal of an impairment loss is
recognized are credited against the provision account in the statement of total comprehensive income.
3.7

Current and deferred income tax

The tax expense for the period comprises current and deferred tax. Tax is recognized in the profit or
loss, except to the extent that it relates to items recognized in other comprehensive income or directly
in equity. In this case the tax is also recognized in other comprehensive income or directly in equity,
respectively.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively
enacted at the reporting date. Management periodically evaluates positions taken in the tax returns
with respect to situations in which applicable tax regulation is subject to interpretation and establishing
provisions where appropriate on the basis of amounts to be paid to tax authorities.
Deferred income tax (DIT) is provided in full, using the liability method, on temporary differences
arising between the tax bases of assets and liabilities and their carrying amounts in the financial
statements. DIT is determined using tax rates (and laws) that have been enacted or substantively
enacted by the reporting date and are expected to apply when the related DIT asset is realized or the
DIT liability is settled.
DIT assets are recognized for all deductible temporary differences, carry-forward of unused tax credits
and unused tax losses, to the extent that it is probable that future taxable profit will be available against
which the temporary differences can be utilized. Deferred income tax liabilities are recognized in full
for all taxable temporary differences.
DIT assets and liabilities are offset when there is a legally enforceable right to offset current tax assets
against current tax liabilities and when the DIT assets and liabilities relate to income taxes levied by the
same taxation authority on either the taxable entity or different taxable entities where there is an
intention to settle the balances on a net basis.
The Group re-assesses at each reporting date the need to recognize a previously unrecognized DIT
asset, if any.
3.8

Trade payable and other liabilities

Trade payable and other liabilities are obligations to pay for goods or services that have been acquired
in the ordinary course of business from suppliers.
Trade payable and other liabilities are recognized in the period in which the related money, goods or
services are received or when a legally enforceable claim against the Group is established or when the
corresponding assets or expenses are recognized. These are classified as current liabilities if payment is
due within one year or less (or in the normal operating cycle of the business if longer). If not, they are
presented as non-current liabilities.
Trade payable and other liabilities are recognized initially at fair value and subsequently measured at
amortized cost using effective interest method.

(14)

3.9

Borrowings and borrowing costs

Borrowings
Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are
subsequently stated at amortized cost; any difference between the proceeds (net of transaction costs)
and the redemption value is recognized in the statement of total comprehensive income over the period
of the borrowings using the effective interest method.
Borrowings are classified as current liabilities unless the Group has unconditional right to defer
settlement of the liability for at least twelve months after the reporting date.
Borrowing costs
Borrowing costs incurred for the construction of any qualifying asset, if any, are capitalized during the
period of time that is required to complete and prepare the asset for its intended use.
Other borrowing costs are recognized and charged to operations in the year in which these are incurred.
3.10

Provisions

Provision are recognized when the Group has a present legal or constructive obligation as a result of
past events, it is probable that an outflow of resources will be required to settle the obligation, and a
reliable estimate of the amount can be made. Provisions are not recognized for future operating losses.
Provisions are measured at the present value of the expenditures expected to be required to settle the
obligation using a pre-tax rate that reflects current market assessments of the time value of money and
the risks specific to the obligation. The increase in the provision due to passage of time is recognized as
interest expense.
Provisions are reviewed at reporting date and adjusted to reflect the current best estimate.
3.11

Equity

Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares
are shown in equity as a deduction from the proceeds.
Deposit for future stock subscription
Deposit for future stock subscription represents funds received by the Group with the intention to apply
the same as payment for additional issuance of common shares or additional paid in capital.
Retained earnings
Appropriated retained earnings
Appropriated retained earnings pertain to the portion of the accumulated profit from operations which
are restricted or reserved for a specific purpose such as capital expenditures for expansion projects, and
approved by the Groups Board of Directors.

(15)

Unappropriated retained earnings

Unappropriated retained earnings pertain to the unrestricted portion of the accumulated profit from
operations of the Group which are available for dividend declaration.
3.12

Dividend distribution

Dividend distribution to the Groups shareholders is recognized as a liability in the financial statements in
the period in which the dividends are approved by the Groups Board of Directors.
Recording of stock dividend depends on whether the stock dividend declared is a small stock dividend or
a large stock dividend. Stock dividend declared is considered to be small when the shares to be issued are
less than 20-25% of the total outstanding shares before the stock dividend, otherwise the stock dividend
will be considered large. The amount to be released from retained earnings when a small stock dividend
is declared will be equivalent to the fair market value of the shares at the date of declaration. Any excess
of the fair market value of the shares against its par value will be recorded as additional paid-in capital.
On the other hand, the amount to be released in retained earnings when a large stock dividend is declared
will be equivalent to the par value of the shares being issued.
3.13

Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for the sale of goods and
services in the ordinary course of the Groups activities. Revenue is shown net of value-added tax,
returns, rebates and discounts.
The Group recognizes revenue when the amount of revenue can be reliably measured, it is probable that
future economic benefits will flow into the entity, collectability of the related receivable is reasonably
assured, and specific criteria have been met for each of the Groups activities as described below. The
amount of revenue is not considered to be reliably measured until all contingencies relating to the sale
have been resolved.
Revenue is recognized as follows:
Sale of goods
Sale of goods are recognized when the Group has delivered the products to the customer and there is no
unfulfilled obligation that could affect the acceptance of the products. Delivery does not occur until the
products have been shipped to the specific location, the risk of obsolescence and loss have been
transferred to the customer, and either the customer has accepted the products in accordance with the
sales contract, the acceptance provisions have lapsed, or the Group has objective evidence that all
criteria for acceptance have been satisfied.
Service fees
Service fees from technical, logistics, administrative and executive management service agreements are
recognized when the service has been completed and rendered in accordance with the provision of
relevant agreements.
Service income
Service income from rental, lighterage and thruput is recognized when services have been rendered and
accepted by the related parties which coincide with invoicing.
(16)

Dividend income
Dividend income is recognized when the right to receive payment is established.
Interest income
Interest income from cash in banks, which is presented net of final taxes paid or withheld, is recognized
on a time-proportion basis using the effective interest method.
Other income
All other income items are recognized when earned.
3.14

Costs and expenses

Costs and expenses are charged to operations when incurred.

3.15

Employee benefits

Retirement benefit obligation

The Group has a defined benefit retirement plan in accordance with the local conditions and practices
in the Philippines. The plan is generally funded through payments to trustee-administered funds as
determined by periodic actuarial calculations. Defined benefit plans define an amount of pension
benefit that an employee will receive on retirement, usually dependent on one or more factors such as
age, years of service and compensation.
The liability recognized in the statement of financial position is the present value of the defined benefit
obligation less fair value of the plan assets at the reporting date, together with adjustments for
unrecognized past service costs. In cases when the amount determined results in an asset, the Group
measures the resulting asset at the lower of such amount determined and the total of any cumulative
unrecognized net actuarial losses and past service cost and the present value of any economic benefits
available to the Group in the form of refunds or reductions in future contributions to the plan. The
defined benefit obligation is calculated annually by independent actuaries using the projected unit credit
method. The present value of the defined benefit obligation is determined by discounting the estimated
future cash outflows using interest rates of government bonds that are denominated in the currency in
which the benefits will be paid, and that have terms to maturity which approximate the terms of the
related pension liability.
Cumulative actuarial gains and losses arising from experience adjustments and changes in actuarial
assumptions in excess of the greater of 10% of the value of plan assets or 10% of the defined benefit
obligation are spread to income over the employees expected average remaining working lives.
Past service costs are recognized immediately in the profit or loss, unless the changes to the pension plan
are conditional on the employees remaining in service for a specified period of time (the vesting period).
In this case, the past service costs are amortized on a straight-line basis over the vesting period.

(17)

Termination benefits
Termination benefits are payable when employment is terminated before the normal retirement date,
or when an employee accepts voluntary redundancy in exchange for these benefits. The Group
recognizes termination benefits when it is demonstrably committed to either: terminating the
employment of current employees according to a detailed formal plan without possibility of withdrawal;
or providing termination benefits as a result of an offer made to encourage voluntary redundancy.
Benefits falling due more than 12 months after reporting date are discounted to present value.
3.16

Leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor
are classified as operating leases. Payments made under operating leases are charged to the statement
of total comprehensive income on a straight-line basis over the period of the lease.
When the Group enters into an arrangement, comprising a transaction or a series of related
transactions, that does not take the legal form of a lease but conveys a right to use an asset or is
dependent on the use of a specific asset or assets, the Group assesses whether the arrangement is, or
contains, a lease. The Group does not have such arrangements during and at the end of each reporting
period.
3.17

Segment reporting

Operating segments are in a manner consistent with the internal reporting provided to the Chief
Operating Decision Maker (CODM), which is the represented by the members of the Management
Committee (ManCom) in making collective operating decisions with regards to the business segments.
The ManCom, which is responsible for allocating resources and assessing performance of the operating
segments, is identified as the one that makes strategic decisions for the Group.
The accounting policies used to recognize and measure the segments assets, liabilities and profit or
loss is consistent with that of the financial statements.
3.18

Related party relationships and transactions

Related party relationship exists when one party has the ability to control, directly or indirectly through
one or more intermediaries, the other party or exercises significant influence over the other party in
making financial and operating decisions. Such relationship also exists between and/or among entities
which are under common control with the reporting enterprise, or between and/or among entities and
its key management personnel, directors, or its shareholders. In considering each possible related party
relationship, attention is directed to the substance of the relationship, and not merely the legal form.

(18)

3.19

Foreign currency transactions and translation

Functional and presentation currency

Items included in the consolidated financial statements are measured using the currency of the primary
economic environment in which the Parent Company operates (the functional currency). The
consolidated financial statements are presented in Philippine Peso, which is the Parent Companys
functional and presentation currency.
Transactions and balances
Foreign currency transactions are translated into Philippine Peso using the exchange rates prevailing at
the dates of the transaction. Foreign exchange gains and losses resulting from the settlement of foreign
currency transactions and from the translation at year-end exchange rates of monetary assets and
liabilities denominated in foreign currencies are recognized in the profit or loss.
For income tax purposes, foreign exchange gains and losses are treated as taxable income or deductible
expense in the period such are realized/sustained.
3.20

Subsequent events (or events after the reporting date)

Post year-end events that provide additional information about the Groups financial position at
reporting date (adjusting events) are reflected in the financial statements. Post period events that are
not adjusting events are disclosed in the notes to the financial statements when material.
Note 4 - Cash and cash equivalents
Cash and cash equivalents consist of:

Cash in bank
Cash equivalents
Cash on hand

July 31, 2012

1,442,864,715
1,967,424
1,444,832,139

2011
816,538,367
155,574,712
330,000
972,443,079

December 31
2010
683,149,667
5,168,921
688,318,588

2009
244,576,222
3,993,266
248,569,488

Cash in bank earns interest at the prevailing bank deposit rate.

Note 5 - Receivables, net
Receivables, net consist of:

Third party trade receivables

Less: provision for impairment of
receivables
Net trade receivables
Advances to officers and employees
Non-trade receivables

(19)

July 31, 2012

1,211,613,178

2011
1,719,698,194

December 31
2010
1,734,307,512

2009
1,455,266,978

1,415,619
1,210,197,559
2,321,154
2,444,534
1,214,963,247

8,221,494
1,711,476,700
877,291
12,617,766
1,724,971,757

8,221,494
1,726,086,018
793,259
1,726,879,277

13,747,268
1,441,519,710
106,318
2,672,038
1,444,298,066

Movements in the provision for impairment of receivables are as follows:

Beginning of period
(Reversal) provision
End of period

July 31, 2012

8,221,494
(6,805,875)
1,415,619

2011
8,221,494
8,221,494

December 31
2010
13,747,268
(5,525,774)
8,221,494

2009
9,229,873
4,517,395
13,747,268

Management believes that the carrying amount of the receivable is fully recoverable.
For the seven months ended July 31, 2012, the Company has directly written off uncollectible other
receivables amounting to P4,274,034 (seven months ended July 31, 2011 P6,641,107; year ended
December 31, 2011 - P19,014,558; 2010 - P3,198,321; 2009 - nil) charged as part of selling and
marketing expenses (Note 15).
Note 6 - Inventories, net
Inventories, net consist of:

2011

December 31
2010

2009

473,252,333
1,237,071,361

322,290,206
1,282,909,251

266,348,337
992,250,895

222,786,466
1,027,012,477

268,500,007
1,978,823,701

429,874,321
2,035,073,778

114,793,887
1,373,393,119

156,055,278
1,405,854,221

July 31, 2012

At net carrying amount
Finished goods
Raw materials
At cost
In transit

Provisions for inventory obsolescence by inventory class are as follows:

Finished goods
Raw materials

July 31, 2012

2011

December 31
2010

2009

1,419,678
100,660
1,520,338

1,419,678
100,660
1,520,338

December 31
2010
1,520,338
1,520,338

2009
1,358,532
161,806
1,520,338

Movements in the provision for inventory obsolescence are as follows:

Beginning of period
(Recovery) provision
End of period

July 31, 2012

-

2011
1,520,338
(1,520,338)
-

The net carrying amount of inventories is stated at cost which is lower than their net realizable value
(estimated selling price less variable selling expenses).
The cost of goods sold recognized in profit and loss for the seven months ended July 31, 2012 amounted
to P5,598,951796 (July 31, 2011 6,328,254,791; December 31, 2011 P10,904,119,898; December 31,
2010 P8,497,332,159; December 31, 2009 P8,393,199,648).

(20)

Note 7 - Prepayments and other current assets

Prepayments and other current assets consist of:

Creditable withholding taxes

Advances to suppliers
Input value added tax, net
Prepaid taxes
Others

July 31, 2012

220,167,935
151,376,091
146,282,028
1,678,117
6,369,798
525,873,969

2011
248,877,538
227,696,273
187,227,630
7,100,455
670,901,896

December 31
2010
260,789,798
193,294,793
154,097,026
862,636
609,044,253

2009
182,704,627
268,750,093
134,617,574
39,585
586,111,879

December 31
2010
7,500,000
5,000,000
4,850,938
3,125,000
550,000
21,025,938

2009
7,500,000
5,000,000
4,850,938
3,125,000
550,000
21,025,938

December 31
2010
21,025,938
21,025,938

2009
21,025,938
21,025,938

Note 8 - Available-for-sale financial assets

Details of available-for-sale financial assets are as follows:

Manila Golf and Country Club

Mimosa Golf and Country Club
Export and Industry Bank
Ayala Corporation
Palmera Resources
American Image, Inc.

July 31, 2012

67,000,000
7,500,000
5,000,000
4,850,938
84,350,938

2011
30,000,000
7,500,000
5,000,000
4,850,938
3,125,000
550,000
51,025,938

The movements in available-for-sale financial assets are as follows:

Beginning of period
Acquisitions
Disposals
Fair value adjustment
End of period

July 31, 2012

51,025,938
(3,776,250)
37,101,250
84,350,938

2011
21,025,938
52,101,250
(22,101,250)
51,025,938

Note 9 - Investment in associate

Details of investment in shares of stock of an associate are as follows:

Acquisition cost
Accumulated equity in net earnings:
Beginning of period
Equity in net earnings for the period
Dividends received (Note 16)
End of period

(21)

July 31, 2012

1,031,317,280

2011
1,031,317,280

December 31
2010
1,031,317,280

2009
1,031,317,280

496,255,121
56,216,844
(54,180,878)
498,291,087
1,529,608,367

459,690,152
100,610,515
(64,045,546)
496,255,121
1,527,572,401

346,432,534
164,494,053
(51,236,435)
459,690,152
1,491,007,432

231,708,317
153,151,544
(38,427,327)
346,432,534
1,377,749,814

Investment in an associate pertains to the Parent Companys 34.2% investment in Chemrez

Technologies, Inc. (CTI). CTI was incorporated and registered with SEC on June 1, 1989. CTI attained
its status of being a public company on December 8, 2000 and is listed on the Philippine Stock
Exchange. The Company is engaged in the business of manufacturing, processing, refining all kinds of
chemical products, compounds, derivatives or chemical substances and all kinds of goods, wares,
supply and manufacture, buy, sell, trade, distribute or otherwise dispose of the same, locally or abroad,
in the normal course of business without engaging in the business of manufacturing food, drugs and
cosmetics.
On May 12 and June 9, 2007, CTIs Board of Directors and Shareholders, respectively, authorized CTI
to invest and/or engage in the manufacture, sale and distribution of biodiesel under the brand
BioActiv.
CTI is controlled by the Lao family which, as at July 31, 2012, effectively owns 67% of CTIs shares. The
remaining 33% of the shares outstanding are publicly held.
The summarized financial information of Chemrez Technologies, Inc. and its subsidiary are as follows:

Total assets
Total liabilities
Total equity

July 31, 2012

4,610,704,734
632,047,460
3,978,657,274

2011
4,810,319,329
837,965,355
3,972,353,974

December 31
2010
4,489,478,233
630,328,499
3,859,149,734

2009
3,934,725,785
426,218,830
3,508,506,955

Total revenue
Net income for the period

2,193,342,992
174,045,957

3,299,428,658
311,487,661

5,835,964,320
509,269,515

5,115,464,767
474,153,387

(22)

Note 10 - Property, plant and equipment, net

The movements in property, plant and equipment, net consist of:
At January 1, 2009
Cost
Accumulated depreciation and amortization
Net carrying value
For the year ended December 31, 2009
Opening net carrying value
Additions
Disposals
Cost
Accumulated Depreciation and amortization
Depreciation and amortization
Closing net carrying value
At December 31, 2009
Cost
Accumulated depreciation and amortization
Net carrying value
At January 1, 2010
Cost
Accumulated depreciation and amortization
Net carrying value
For the year ended December 31, 2010
Opening net carrying value
Additions
Transfers
Disposals
Cost
Accumulated Depreciation and amortization
Depreciation and amortization
Closing net carrying value
At December 31, 2010
Cost
Accumulated depreciation and amortization
Net carrying value

(23)

1,089,511,836
(534,019,555)
555,492,281
555,492,281
472,719,784
(35,809,199)
19,833,185
(99,916,677)
912,319,374
1,526,422,421
(614,103,047)
912,319,374
1,526,422,421
(614,103,047)
912,319,374
912,319,374
488,678,454
(7,854,785)
(60,968,683)
34,109,154
(118,993,155)
1,247,290,359
1,946,277,408
(698,987,049)
1,247,290,359

At January 1, 2011
Cost
Accumulated depreciation and amortization
Net carrying value
For the year ended December 31, 2011
Opening net carrying value
Additions
Disposals
Cost
Accumulated Depreciation and amortization
Depreciation and amortization
Closing net carrying value
At December 31, 2011
Cost
Accumulated depreciation and amortization
Net carrying value
At January 1, 2012
Cost
Accumulated depreciation and amortization
Net carrying value
For the period ended July 31, 2012
Opening net carrying value
Additions
Disposals
Cost
Accumulated Depreciation and amortization
Depreciation and amortization
Closing net carrying value
At July 31, 2012
Cost
Accumulated depreciation and amortization
Net carrying value

1,946,277,408
(698,987,049)
1,247,290,359
1,247,290,359
386,591,208
(132,840,745)
1,501,040,822
2,332,868,616
(831,827,794)
1,501,040,822
2,332,868,616
(831,827,794)
1,501,040,822
1,501,040,822
195,683,489
(106,361,201)
96,621,519
(79,302,025)
1,607,682,604
2,422,190,904
(814,508,300)
1,607,682,604

Depreciation expense charged to profit and loss are as follows:

For the seven months ended July 31, 2012

For the seven months ended July 31, 2011
For the year ended December 31, 2011
For the year ended December 31, 2010
For the year ended December 31, 2009

(24)

Cost of sales
55,450,741
49,257,019
89,265,959
79,841,539
63,087,768

Cost of services
21,841,904
23,774,809
13,943,674
13,470,124
10,821,387

Administrative
2,009,380
430,634
29,631,112
25,681,492
26,007,522

Total
79,302,025
73,462,462
132,840,745
118,993,155
99,916,677

Note 11 - Trade payable and other liabilities

Trade payable and other liabilities consist of:

July 31, 2012

475,726,792
14,078,682
23,062,518
12,949,892
525,817,884

Trade payables
Non-trade payables
Due to regulatory agencies
Advances from customers
Advances from officers and employees
Others

2011
688,720,663
53,436,156
19,449,945
15,414,868
4,312,543
8,994,766
790,328,941

December 31
2010
535,541,866
7,204,545
22,552,379
8,388,936
573,687,726

2009
635,445,730
21,780,927
23,959,498
681,186,155

December 31
2010
2,490,866,393
1,834,061,589
(1,267,769,540)

2009
2,784,472,141
50,000,000
(343,605,748)

Note 12 - Borrowings
Details of borrowings consist of:

Beginning of period
Proceeds from borrowings
Payments of borrowings
Unrealized foreign exchange
losses (gains) on borrowings
End of period

July 31, 2012

3,347,640,246
2,970,704,951
(3,165,216,848)

2011
3,051,993,062
3,932,633,278
(3,652,380,469)

(25,402,865)
3,127,725,484

15,394,375
3,347,640,246

(5,165,380)
3,051,993,062

2,490,866,393

Short-term borrowings as at July 31, 2012 and December 31, 2011, 2010 and 2009 consist of Pilippine
Peso and U.S. Dollar denominated, unsecured, short-term loans from local banks with an average
maturity of one to five months from the reporting date. These borrowings bear average annual interest
rates ranging from 3% to 5%, subject to monthly repricing.
Interest expense for the seven months ended July 31, 2012 amounted to P44,098,419 (seven months ended
July 31, 2011 - P57,548,534; year ended December 31, 2011 - P106,205,444; December 31, 2010 P134,927,217; December 31, 2009 - P181,011,903).
As at July 31, 2012 and December 31, 2011, 2010 and 2009, there are no capitalized interest as there are no
qualifying assets.
Note 13 - Equity
Share capital
Details of share capital are as follows:
December 31
July 31, 2012

Common shares at
P1 par value per share
Authorized
Issued and outstanding

(25)

2011

2010

2009

Shares

Amount

Shares

Amount

Shares

Amount

Shares

Amount

1,000,000,000

1,000,000,000

1,000,000,000

1,000,000,000

1,000,000,000

1,000,000,000

1,000,000,000

1,000,000,000

1,000,000,000

1,000,000,000

321,000,000

321,000,000

321,000,000

321,000,000

146,216,000

146,216,000

At June 27, 2012, the Parent Companys Board of Directors approved the declaration of stock dividend
amounting to Php678.8 million out of the unrestricted retained earnings as at December 31, 2011,
payable to all stockholders of record as of the said date. The stock dividends were issued on June 29,
2012.
On July 2, 2012, the Parent Companys Board of Directors approved to increase its authorized share
capital from P1 billion comprising of 1 billion common shares at P1 par value to P4 billion comprising of
4 billion shares at P1 par value. Consequently, the Board of Directors resolved to amend the articles of
incorporation to increase the authorized share capital of the Parent Company. On August 31, 2012, the
SEC approved the Parent Company's application for increase in authorized share capital.
Deposit for future stock subscription
On July 23, 2012, the shareholders have made a capital infusion amounting to P187.5 million which
was recorded as a deposit for future stock subscription. The deposit will be converted to the Parent
Companys share capital before December 31, 2012.
Retained earnings
Appropriated retained earnings
In 2008, the Parent Companys Board of Directors approved the appropriation of its retained earnings
amounting to P360 million for capital expansion program. In 2010, additional retained earnings
amounting to P150 million has been appropriated for loan payment due on February 22, 2011 and May
30, 2011, bringing the total appropriated retained earnings to P510 million as at December 31, 2010.
At June 27, 2012, the Parent Companys Board of Directors approved the release of its appropriated
retained earnings amounting to P510 million. Out of this amount, P150 million was used to pay off the
outstanding loan of the Parent Company and the remaining P360 million will be declared as dividends
to shareholders.
Retained earnings available for dividend declaration
As at July 31, 2012, the Groups management is still in the process of finalizing its plans, including
conversion of its deposit for future stock subscription into share capital and further dividend
declaration to its shareholders, to address the excess of retained earnings of the Group.
Subsequent dividend declaration have been disclosed in Note 1.3.

(26)

Note 14 - Cost of sales and services

The components of cost of sales and services for the periods ended July 31 and December 31 consist of:

Raw materials used

Direct labor
Factory overhead
Rental
Contracted service
Power and light
Depreciation and
amortization
Repairs and maintenance
Indirect labor
Supplies
Fuels and oils
Indirect materials used
Others
Finished goods, net change
Losses from typhoon damages
Cost of goods sold
Cost of services

Notes
6

16

10

July 31
2012
2011
5,312,532,955
5,981,399,402
58,023,743
37,282,367
50,620,894
34,420,036
73,667,681
55,450,741
35,402,079
25,217,157
2,695,625
87,022,395
11,024,459
3,836,158
(150,962,127)
5,598,951,796
152,014,376
5,750,966,172

52,391,159
30,771,589
62,520,075
49,257,019
33,980,362
27,212,111
1,820,959
87,488,690
10,499,164
189,420
(46,557,526)
6,328,254,791
143,330,538
6,471,585,329

2011
10,196,866,830
69,345,587

December 31
2010
7,818,977,514
77,491,827

2009
7,701,705,949
73,424,679

92,926,242
60,389,278
153,442,859

86,875,189
60,388,504
143,651,034

63,418,990
60,133,309
106,945,736

89,265,959
63,395,910
51,173,773
2,731,194
154,991,976
22,931,710
2,600,449
(55,941,869)
10,904,119,898
224,326,253
11,128,446,151

79,841,539
63,087,768
47,754,358
17,986,659
21,311,489
17,819,363
149,445,557
84,316,550
38,051,023
48,252,655
2,247,382
1,092,331
(43,561,871)
142,940,054
12,075,776
8,482,473,545 8,393,199,819
241,479,870
239,362,586
8,723,953,415 8,632,562,405

Note 15 Expenses, net

The classification of expenses for the periods ended July 31 and December 31 consist of:
July 31
2012
181,414,968
84,731,393
(45,342,373)
44,098,419
264,902,407

Selling and marketing expenses

Administrative expenses
Other income, net
Finance costs

2011
163,757,342
74,416,996
(22,224,102)
57,548,534
273,498,770

2011
291,766,941
143,531,688
(5,906,533)
106,205,444
535,597,540

December 31
2010
255,691,610
145,247,253
(5,784,026)
134,927,217
530,082,054

2009
189,014,944
144,886,026
(31,908,314)
181,011,093
483,003,749

The nature of expenses, net for the periods ended July 31 and December 31 consist of:

Notes
Delivery charges
Interest expense
Employee related costs
Outside services
Depreciation
Taxes and licenses
Bank charges
Bad debts
Professional fees
Advertising
Others

12

10

July 31
2012
113,859,660
44,098,419
34,990,417
18,962,410
2,009,380
45,225,111
3,126,143
(2,531,841)
3,126,143
789,843
1,246,722
264,902,407

2011
93,579,049
57,548,534
34,548,898
14,262,335
430,634
36,370,306
8,014,444
6,641,107
11,001,313
4,470,713
6,631,437
273,498,770

2011
171,534,561
106,205,444
60,568,845
27,870,177
29,631,112
52,551,352
10,214,600
19,014,558
18,927,823
4,663,286
34,415,782
535,597,540

December 31
2010
133,588,739
134,927,217
79,968,879
27,061,589
25,681,492
47,221,592
11,251,155
(2,327,453)
18,359,641
4,024,569
50,324,634
530,082,054

2009
70,762,680
181,011,093
55,483,076
24,172,790
26,007,522
42,936,939
24,513,258
4,517,395
15,880,039
19,035,499
18,683,458
483,003,749

Others pertain to representation expenses, travel and transportation expenses, supplies, and other
related expenses, net of non-operating income such as dividend and interest income and foreign
exchange gains (losses).
(27)

Selling and marketing expenses for the periods ended July 31 and December 31 consist of:

Notes
Delivery charges
Employee Costs
Outside services
Transportation and travel
Bad debts
Representation expenses
Advertising and promotions
Others

July 31
2012
2011
93,579,049
113,859,660
34,629,109
34,992,454
9,660,197
12,628,769
4,105,998
6,908,786
6,641,107
(2,531,841)
3,052,199
5,099,023
4,470,713
789,843
9,668,274
7,618,970
181,414,968
163,757,342

2011
171,534,561
60,726,948
18,825,784
6,956,785
19,014,558
9,488,634
4,663,286
556,385
291,766,941

December 31
2010
133,588,739
70,316,424
16,221,326
6,387,920
(2,327,453)
6,555,604
4,024,569
20,924,481
255,691,610

2009
70,762,680
49,964,846
19,546,036
9,472,329
4,517,395
9,438,802
19,035,499
6,277,357
189,014,944

Administrative expenses for the periods ended July 31 and December 31 consist of:

Notes
Taxes, licenses and permit
Others
Outside Services
Utilities
Supplies
Bank charges
Professional fees
Depreciation and
amortization
Employee costs

July 31
2012
2011
36,370,306
45,225,111
6,325,063
18,283,282
4,602,138
6,333,641
3,762,759
3,416,921
3,990,550
3,231,477
8,014,444
3,126,143
11,001,313
3,107,475
2,009,380
(2,037)
84,731,393

430,634
(80,211)
74,416,996

2011
52,551,352
11,532,466
9,044,393
6,044,269
5,743,777
10,214,600
18,927,823
29,631,112
(158,104)
143,531,688

December 31
2010
47,221,592
10,482,723
10,840,263
6,514,468
5,243,464
11,251,155
18,359,641

2009
42,936,939
12,651,167
4,626,754
8,499,763
4,252,354
24,513,258
15,880,039

25,681,492
9,652,455
145,247,253

26,007,522
5,518,230
144,886,026

December 31
2010

2009

Other income, net for the periods ended July 31 and December 31 consist of:
July 31
2012

Notes
Foreign exchange gain
(loss), net
Other income (expenses),
net
Interest income
Dividend income

2011

2011

32,684,715

11,426,297

(19,427,683)

(8,870,762)

(7,733,899)

8,164,330
4,493,328
45,342,373

4,990,302
5,193,559
613,944
22,224,102

10,564,740
9,707,387
5,062,089
5,906,533

(14,099,240)
25,959,783
2,794,245
5,784,026

10,003,378
7,697,072
21,941,763
31,908,314

Note 16 - Related party transactions

The Parent Company, in the ordinary course of business, has transactions with related parties.
Significant related party transactions include the following:
Management services
The Parent Company has an existing management agreement with its related parties, whereby it
provides the following management services to related parties:
Technical support, which includes research and development, quality control and assurance, use of
trademarks, and IT related services;

(28)

 Logistics support, which includes transport, fleet management, warehousing management, tank farm
management, port clearing and procurement;
Administrative support, which includes accounting and finance, human resources, information
technology, property management, legal services, and research and development; and
Executive management, which includes the services performed by the executives to manage the
business operations of the related parties.
The fee for technical and logistics support services is fixed at 2% to 3% of net receipts from operations,
excluding intercompany sales, and those for administrative and executive management support
services at 3.5% to 7% of gross income from operations.
The agreement remains in force, unless terminated by both parties.
Management service fees charged to statement of total comprehensive income periods ended July 31
and December 31 are as follows:
Current
relationship
Chemrez Technologies,
Inc. (CTI)
Chemrez, Inc. (CHI)
Consumer Care
Products, Inc. (CCPI)
LBL Industries, Inc. (LBL)
FIC Marketing Co. Inc.
(FICM)
FIC Tankers, Inc. (FICT)

July 31,
2012

2011

2011

December 31,
2010

2009

Associate
Subsidiary of
associate
Entity under
common control

29,575,019

57,859,388

78,376,075

93,321,792

76,944,926

24,836,753

25,235,700

43,226,312

51,702,894

50,761,447

4,684,547

4,018,059

6,953,028

6,114,943

1,292,905

Stockholder
Entity under
common control
Entity under
common control

5,050,604

4,712,684

8,125,316

8,107,500

2,006,594

582,269

9,722,409

16,178,795

9,945,210

7,574,826

1,003,259
65,732,451

1,046,602
102,594,842

1,808,545
154,668,071

1,434,530
170,626,869

1,581,500
140,162,198

Lease agreements
The Group has existing cancellable operating lease agreements with LBL, whereby the Group leases
from LBL its factory and warehouse spaces. The lease is for a period of five years starting July 1, 2008
and renewable for another five years thereafter, unless terminated by either party.
OFI has existing cancellable lease operating agreements with CTI, and FICT, for the use of the latters
storage tanks and various machineries and equipment. The lease is renewable for another five years by
mutual agreement of the parties. Also, OFI is required to give a six-month notice for the termination of
this agreement.
On July 1, 2007, FIC entered into lease agreement with CTI, related entity under common control,
whereby FIC leases from CTI certain production and warehouse space. The lease runs for a period of
five years starting from July 1, 2007 to June 30, 2012.
On January 1, 2010, DLPCI entered into an operating lease agreement with a related party, under
common control, Ecozone Properties, Inc. (EPI), covering its warehouse for a period of five years up to
January 1, 2015 providing for renewal options.
(29)

Rental deposit amounting to P4,502,230 million was recorded as part of other non-current assets in
the pro-forma condensed consolidated statements of financial position.
Rental expense charged to cost of sales and services for the periods ended July 31 and December 31 are
as follows:
Period
July 31, 2012
July 31, 2011
December 31, 2011
December 31, 2010
December 31, 2009

Cost of sales
50,620,894
52,391,159
92,926,242
86,875,189
63,418,990

Cost of services
37,857,174
36,262,934
62,888,397
65,869,274
52,121,245

Total Amount
88,478,068
88,654,093
155,814,639
152,744,463
115,540,235

Dividend income
The Group earned dividend income from its investments in CTI for the periods ended July 31 and
December 31 as follows (Note 9):
Period
July 31, 2012
July 31, 2011
December 31, 2011
December 31, 2010
December 31, 2009

Amount
54,180,878
64,045,545
51,236,435
38,427,327

Dividend income from associate is treated under the equity method where dividend income is
accounted as a reduction to investment in associate in the pro-forma condensed consolidated financial
statements (Note 9).
As at July 31, 2012, dividends receivable from associate amounted to P54.2 million (December 31, 2011,
2010 and 2009 - nil).
Sales of goods
The Group, in the normal course of business, has transactions relating to the sale of goods to related
parties for the periods ended July 31 and December 31 are as follows:

LBL
CHI
CTI
FICM
CCPI
FICT
Other entities under
common control

July 31
2012
2011
129,581
7,349,661
41,619,934
645,353,254
266,609,310
36,461,484
33,529,597
3,521
78,210,999

952,845,343

2011
9,163,387
818,719,606
458,128,853
57,163,548
768
105,498
1,343,281,660

Sales of goods are negotiated with related parties on a cost-plus basis.

(30)

December 31
2010
24,000
97,696,981
1,493,987,246
248,896,582
58,408,599

59,815
1,899,073,223

2009
1,250,961
9,012,208
1,982,311,008
157,795,636
13,456,056
28,415
2,163,854,284

Purchases of goods
The Group, in the normal course of business, has transactions relating to the purchases of goods from
related parties for the periods ended July 31 and December 31 are as follows:
July 31
LBL
CHI
CTI
FICM
CCPI
FICT
Other entities under
common control

2012
14,277,845
-

2011
7,094,210
33,412,325
385,336
93,725
10,227,273

2011
13,471,539
123,059,284
767,884
53,752,659

December 31
2010
13,390,922
14,157,217
11,145,946
276,712
36,032,924

2009
222,849,045
1,991,243,822
159,162,321
-

14,277,845

51,212,869

191,051,366

75,003,721

28,415
2,373,283,603

Purchases of goods and services are negotiated with related parties on a cost-plus basis.
Surety agreement
On August 4, 2009, the OFI was authorized by its Board of Directors to provide surety for the
obligations and indebtedness incurred or may be incurred by the Parent Company, API, FIC and FICM,
arising from short term credit accommodation extended by a local bank to such related parties. Bank
lines are in a corporate cross guarantee arrangement among the Parent Company, API, FIC and FICM.
As at July 31, 2012 and December 31, 2011, total short term borrowings from local banks of the Group
amounted to P3.028 billion and P3.298 billion, respectively. As at July 31, 2012 and December 31,
2011, the Group has not incurred obligations and indebtedness arising from the above surety
agreement. Obligations, arising from the above surety agreement if any, will be funded by the OFI and
other related parties.
Cash advances and other obligation
The Group has obtained cash advances from JHI for working capital requirements, which are
unsecured, due and demandable on short notice.
Amounts due to JHI and Cahaya substantially represents amounts payable as a result of the Parent
Companys acquisition of controlling interest in OFI, which are unsecured, non interest bearing and are
expected to be settled until December 31, 2012.
Net year-end balances arising from related party transactions
Sale of goods and services are billed to related parties based on contract price and terms, similarly
enforced with third parties.
Purchase of goods and services are billed to related parties based on agreed price and terms, similarly
enforced with third parties.
Due from and to related parties are settled on a net basis. These are unsecured, non-interest bearing
and have no fixed repayment terms, except as disclosed above. Collection and settlement of
outstanding receivable and payable, respectively, are generally made upon demand and/or within a
period of not more than 12 months.

(31)

There are no collaterals held or guarantees issued with respect to related party transactions and
balances.
Net amounts are as follows:
(a) Due from related parties

CCPI
FICT
FICM
LBL
CTI
CHI
JHI

July 31, 2012

106,771,217
22,381,772
17,524,612
11,595,026
158,272,627

December 31
2011
2010
147,415,025
7,559,529
23,696,223
6,625,683
6,846,668
9,602
46,302,082
60,924,581
4,954,506
888,591
229,003,121
76,219,369

2009
108,581,492
2,524,560
86,790,177
1,251,175
187,460,224
21,662,758
408,270,386

(b) Due to related parties

Cahaya
JHI
Shareholders
CTI
FICM
CHI
FICT
Other entities under common control

July 31, 2012

593,692,838
565,703,013
298,185,956
4,059,742
1,461,641,549

2011
1,110,809,160
468,767,651
53,979,013
3,407,718
246,307
6,558,582
1,643,768,431

December 31
2010
1,030,055,648
630,434,250
1,223,567
3,019,930
1,341,862
1,666,075,257

2009
1,127,529,400
1,098,116,525
33,623,258
2,259,269,183

Note 17 - Segments information

Primary reporting format - business segments
The Groups operating businesses are organized and managed according to the nature of the products
marketed, which each segment, representing a strategic business unit, offers different products and
services to different markets.
The Group has organized its reporting structure based on the grouping of similar products and services
resulting in five main business segments as follows:
(i) Food ingredients
The Group, operating through its subsidiary OFI, manufactures a line of industrial fats and oils,
specialty fats and oils and culinary and specialty food ingredients. The Group provides food
ingredients and specialty fats, such as margarine and flour mixes to most of the leading food
manufacturers and large restaurant chains in the Philippines.

(32)

(ii) Colorants and plastic additives

The Group, operating through its subsidiaries FIC and DLPC, manufactures a line of dry colors,
color and additive masterbatches and engineered polymers for a wide range of applications. The
Group also exports a number of these products to overseas markets. The Group's share of this
market in the Philippines in 2011 was approximately 50% for colorants and plastics additives and
approximately 60% for engineered polymers, such as automotive wiring compounds and furniture
compounds. The Group's products add properties such as precise coloring, reduced friction or
increased resistance to degradation caused by light sources for plastics used in items such as bottle
caps or outdoor furniture.
(iii) Oleochemicals, Resins and Powder Coatings
The Group, operating through its affiliate CTI and its subsidiary, CHI, manufactures a line of
powder coatings; resins such as polystyrene and polyester; and oleochemicals, which are chemicals
derived from plant and animal fats, including the manufacture of biodiesel from the Philippines'
first continuous-process biodiesel plant.
(iv) Aerosols
The Group, operating through its subsidiary API, manufactures aerosol cans and components and
provides contract aerosol filling and compounding services (the only such manufacturer in the
Philippines to do so). The Group also produces a range of other products, including insecticides,
industrial maintaining chemicals, air fresheners, furniture polish, personal care products, liquid
and gel disinfectants and liquid soaps.
(v) Management and administrative
The Parent Company maintains significant operational control of its subsidiaries, as well as affiliate
companies that provide goods and services complimentary to those provided by the Group, through
a contractual "shared services" model.

(33)

The following table presents the segment information about the Groups business segments for the reporting periods presented:
For the seven months ended July 31, 2012

Notes
External sales and services
Inter-segment sales

Food
ingredients

Colorants and
plastic additives

Oleochemicals,
Resins and
Powder Coatings

Aerosols

Management and
administrative

Elimination

Total

4,994,861,156

1,513,167,094

186,258,924

70,170,733

6,764,457,907

3,165,931

55,192,830

8,032,729

214,000,526

(280,392,016)

4,998,027,087

1,568,359,924

194,291,653

284,171,259

(280,392,016)

6,764,457,907

15

(4,444,336,475)

(1,241,552,954)

(143,494,788)

(153,623,086)

232,041,131

(5,750,966,172)

553,690,612

326,806,970

50,796,865

130,548,173

(48,350,885)

1,013,491,735

Selling and marketing expenses

15

(114,440,408)

(37,478,121)

(2,396,515)

(27,099,924)

(181,414,968)

Administrative expenses

15

(81,732,603)

(20,826,204)

(7,013,114)

(23,510,357)

48,350,885

(84,731,393)

Other operating income (expenses), net

15

36,959,952

100,477,856

586,676

572,308,124

(664,990,235)

45,342,373

Operating profit

394,477,553

368,980,501

41,973,912

652,246,016

(664,990,235)

792,687,747

Finance cost

(30,779,396)

Profit before income tax and equity share in net

income of associate

363,698,157

366,583,126

41,973,912

641,324,368

56,216,844

363,698,157

366,583,126

56,216,844

41,973,912

641,324,368

Income tax expense

(113,464,118)

(12,788,733)

(9,396,747)

(28,019,614)

Profit for the period

250,234,039

353,794,393

56,216,844

32,577,165

613,304,754

Total sales and services

Cost of sales and services
Gross profit

Equity share in net income of associate

Profit before income tax

Other comprehensive income

Fair value adjustment on available for sale
financial assets, net of tax
Total comprehensive income for the period

(34)

(2,397,375)

(10,921,648)

33,391,125

250,234,039

353,794,393

56,216,844

32,577,165

646,695,879

(664,990,235)
(664,990,235)
(664,990,235)
(664,990,235)

(44,098,419)
748,589,328
56,216,844
804,806,172
(163,669,212)
641,136,960
33,391,125
674,528,085

For the seven months ended July 31, 2011

Notes
External sales and services
Inter-segment sales
Total sales and services
Cost of sales and services

15

Gross profit

Food
ingredients

Colorants and
plastic additives

Oleochemicals,
Resins and
Powder Coatings

Aerosols

Management and
administrative

Elimination

Total

6,164,082,289

1,158,429,006

155,150,056

94,785,219

7,572,446,570

2,721,556

69,981,650

6,793,074

247,777,910

(327,274,190)

6,166,803,845

1,228,410,656

161,943,130

342,563,129

(327,274,190)

7,572,446,570

(5,461,239,656)

(1,017,030,691)

(126,430,467)

(145,249,385)

278,364,870

(6,471,585,329)

(48,909,320)

1,100,861,241

705,564,189

211,379,965

35,512,663

197,313,744

Selling and marketing expenses

15

(99,966,624)

(29,342,202)

(2,333,830)

(32,114,686)

(163,757,342)

Administrative expenses

15

(76,445,286)

(17,104,305)

(6,566,706)

(23,210,019)

48,909,320

(74,416,996)

Other operating income (expenses), net

15

24,750,267

999,463

(69,586)

(3,456,042)

22,224,102

Operating profit

553,902,546

165,932,921

26,542,541

138,532,997

884,911,005

Finance cost

(39,726,902)

(16,678,750)

(57,548,534)

Profit before income tax and equity share in net

income of associate

514,175,644

164,790,039

26,542,541

121,854,247

827,362,471

107,455,634

107,455,634

107,455,634

26,542,541

121,854,247

934,818,105

(6,468,412)

(38,923,155)

(191,406,979)

20,074,129

82,931,092

743,411,126

Equity share in net income of associate

Profit before income tax

(1,142,882)

514,175,644

164,790,039

Income tax expense

(131,269,371)

(14,746,041)

Profit for the period

382,906,273

150,043,998

107,455,634

Other comprehensive income

Fair value adjustment on available for sale
financial assets, net of tax
Total comprehensive income for the period

(35)

450,000

450,000

382,906,273

150,043,998

107,455,634

20,074,129

83,381,092

743,861,126

For the year ended December 31, 2011

Notes
External sales and services

Food
ingredients
10,262,951,583

Inter-segment sales

Colorants and
plastic additives
2,140,636,240

Oleochemicals,
Resins and
Powder Coatings

Aerosols

Management and
administrative

Elimination

Total

273,239,634

157,694,836

12,834,522,293

4,820,327

114,648,155

12,040,338

393,974,419

(525,483,239)

10,267,771,910

2,255,284,395

285,279,972

551,669,255

(525,483,239)

12,834,522,293

15

(9,272,258,002)

(1,852,024,661)

(222,999,443)

(228,270,654)

447,106,609

(11,128,446,151)

995,513,908

403,259,734

62,280,529

323,398,601

(78,376,630)

1,706,076,142

Selling and marketing expenses

15

(174,858,787)

(55,369,183)

(4,248,827)

(57,290,144)

(291,766,941)

Administrative expenses

15

(118,106,415)

(28,072,244)

(9,607,341)

(66,122,318)

78,376,630

(143,531,688)

Other operating income (expenses), net

15

(14,894,457)

7,542,739

85,119

173,887,844

(160,714,713)

5,906,533

327,361,046

48,509,480

373,873,983

(160,714,713)

1,276,684,045

Total sales and services

Cost of sales and services
Gross profit

Operating profit

687,654,249

Finance cost

(78,865,777)

Profit before income tax and equity share in net

income of associate

608,788,472

325,333,261

48,509,480

348,562,101

100,610,515

100,610,515

Equity share in net income of associate

Profit before income tax
Income tax expense
Profit for the year
Other comprehensive income
Fair value adjustment on available for sale
financial assets, net of tax
Total comprehensive income for the period

(36)

(2,027,785)

608,788,472

325,333,261

(181,514,009)

(23,880,392)

427,274,463

301,452,869

(25,311,882)

48,509,480

348,562,101

(11,349,851)

(57,389,398)

100,610,515

37,159,629

291,172,703

427,274,463

301,452,869

100,610,515

37,159,629

(19,891,125)
271,281,578

(160,714,713)
(160,714,713)
(160,714,713)
(160,714,713)

(106,205,444)
1,170,478,601
100,610,515
1,271,089,116
(274,133,650)
996,955,466
(19,891,125)
977,064,341

For the year ended December 31, 2010

Notes
External sales and services
Inter-segment sales

Food
ingredients

Colorants and
plastic additives

Oleochemicals,
Resins and
Powder Coatings

Aerosols

Management and
administrative

Elimination

Total

7,464,442,272

2,061,601,022

228,636,016

192,469,439

9,947,148,749

7,195,076

206,108,448

10,651,970

293,322,517

(517,278,011)

7,471,637,348

2,267,709,470

239,287,986

485,791,956

(517,278,011)

9,947,148,749

15

(6,826,233,303)

(1,911,162,091)

(194,074,577)

(248,958,868)

456,475,424

(8,723,953,415)

645,404,045

356,547,379

45,213,409

236,833,088

(60,802,587)

1,223,195,334

Selling and marketing expenses

15

(149,245,475)

(47,167,411)

(4,544,365)

(54,734,359)

(255,691,610)

Administrative expenses

15

(91,285,501)

(42,070,926)

(9,604,702)

(63,088,711)

60,802,587

(145,247,253)

Other operating income (expenses), net

15

1,359,137

(5,395,856)

779,445

133,740,404

(124,699,104)

5,784,026

31,843,787

252,750,422

(124,699,104)

828,040,497

Total sales and services

Cost of sales and services
Gross profit

Operating profit

406,232,206

Finance cost

(87,678,607)

Profit before income tax and equity share in net

income of associate

318,553,599

255,285,998

31,843,787

212,129,000

164,494,053

Profit before income tax

318,553,599

255,285,998

164,494,053

31,843,787

212,129,000

Income tax expense

(99,176,943)

(27,294,621)

(8,220,199)

(21,981,294)

Profit for the year

219,376,656

227,991,377

164,494,053

23,623,588

190,147,706

Equity share in net income of associate

Other comprehensive income

Fair value adjustment on available for sale
financial assets, net of tax
Total comprehensive income for the period

(37)

261,913,186
(6,627,188)

(40,621,422)

219,376,656

227,991,377

164,494,053

23,623,588

190,147,706

(124,699,104)
(124,699,104)
(124,699,104)
(124,699,104)

(134,927,217)
693,113,280
164,494,053
857,607,333
(156,673,057)
700,934,276
700,934,276

For the year ended December 31, 2009

Notes
External sales and services
Inter-segment sales

Food ingredients

Colorants and
plastic additives

Oleochemicals,
Resins and
Powder Coatings

Aerosols

Management and
administrative

Elimination

Total

7,210,542,795

1,435,651,360

160,193,835

347,095,935

9,153,483,925

9,217,401

270,120,525

1,594,806

287,506,418

(568,439,150)

7,219,760,196

1,705,771,885

161,788,641

634,602,353

(568,439,150)

9,153,483,925

15

(7,201,189,399)

(1,417,804,670)

(134,784,350)

(429,841,658)

551,057,672

(8,632,562,405)

18,570,797

287,967,215

27,004,291

204,760,695

(17,381,478)

Selling and marketing expenses

15

(94,266,219)

(32,819,430)

(1,991,854)

(59,937,441)

Administrative expenses

15

(52,106,486)

(37,310,959)

(6,614,272)

Other operating income (expenses), net

15

(92,739)

4,319,462

378,972

Operating profit

(127,894,647)

222,156,288

18,777,137

197,917,413

Finance cost

(114,253,482)

Profit before income tax and equity share in net

income of associate

(242,148,129)

213,992,955

18,777,137

139,323,135

153,151,544

153,151,544

18,777,137

139,323,135

Total sales and services

Cost of sales and services
Gross profit

Equity share in net income of associate

Profit before income tax

(8,163,333)

(189,014,944)

(64,806,274)

15,951,965

(144,886,026)

117,900,433

(90,597,814)

31,908,314

(92,027,327)

218,928,864

(58,594,278)

(242,148,129)

213,992,955

Income tax benefit

72,327,936

(28,656,065)

Profit for the year

(169,820,193)

185,336,890

153,151,544

13,863,200

135,358,509

Other comprehensive income

Fair value adjustment on available for sale
financial assets, net of tax
Total comprehensive income for the period

(38)

(169,820,193)

(4,913,937)

520,921,520

(3,964,626)

185,336,890

153,151,544

13,863,200

135,358,509

(92,027,327)

(181,011,093)
37,917,771

153,151,544

191,069,315

(92,027,327)
(92,027,327)

34,793,308
225,862,623
225,862,623

Other segment information as at July 31, 2012 and December 31, 2011 are as follows:
Oleochemicals
,Resins and
Powder
Coatings

Aerosols

Management and
administrative

Total

Food
ingredients

Colorants and
plastic additives

Segment assets

4,381,814,384

1,571,481,863

153,807,988

2,528,619,947

8,635,724,182

Segment liabilities

3,034,386,460

555,950,721

52,414,616

1,741,029,275

5,383,781,072

160,468,117

14,547,582

4,709,182

15,958,608

195,683,489

44,199,781

11,217,145

2,043,195

21,841,904

79,302,025

Segment assets

4,906,041,668

1,392,818,041

189,517,591

2,234,171,416

8,722,548,716

Segment liabilities

3,401,928,261

363,784,923

16,278,065

2,046,683,701

5,828,674,950

318,299,440

21,623,239

8,149,171

38,519,358

386,591,208

65,315,632

22,053,705

3,233,787

42,237,621

132,840,745

Segment assets

3,875,068,558

1,116,676,293

160,139,499

2,097,913,689

7,249,798,039

Segment liabilities

2,822,755,384

362,036,142

25,029,774

2,124,500,009

5,334,321,309

419,624,223

23,699,616

9,846,824

35,507,791

488,678,454

55,211,423

23,492,253

2,803,992

37,485,487

118,993,155

Segment assets

3,379,428,203

999,372,775

122,896,367

1,918,311,480

6,420,008,825

Segment liabilities

2,777,646,189

446,719,340

12,263,864

2,225,385,954

5,462,015,347

382,589,886

46,010,631

2,644,309

41,474,958

472,719,784

39,795,057

20,210,563

4,007,159

35,903,898

99,916,677

July 31,2012

Capital expenditures
Depreciation
December 31, 2011

Capital expenditures
Depreciation
December 31, 2010

Capital expenditures
Depreciation
December 31, 2009

Capital expenditures
Depreciation

(39)

Reportable segments assets are reconciled to total assets are as follows:

Colorants and
plastic additives

Oleochemicals,
Resins and
Powder
Coatings

1,571,481,863
650,927

4,381,814,384

Aerosols

Management
and
administrative

Total

153,807,988
-

2,528,619,947
3,513,347

8,635,724,182
4,164,274

1,572,132,790

153,807,988

2,532,133,294

8,639,888,456

4,906,041,668

1,392,818,041

189,517,591
-

8,722,548,716

728,477

2,234,171,416

3,049,932

10,565,701

14,344,110

4,909,091,600

1,393,546,518

189,517,591

2,244,737,117

8,736,892,826

3,875,068,558

1,116,676,293

160,139,499

2,097,913,689

7,249,798,039

2,762,284

592,184

310,114

12,078,919

15,743,501

3,877,830,842

1,117,268,477

160,449,613

2,109,992,608

7,265,541,540

3,379,428,203

999,372,775

122,896,367

1,918,311,480

6,420,008,825

83,916,788

1,133,736

179,033

12,078,919

97,308,476

3,463,344,991

1,000,506,511

123,075,400

1,930,390,399

6,517,317,301

Food
ingredients
July 31, 2012
Segment assets
Deferred income tax assets
Total assets per statement
of financial position

4,381,814,384

December 31, 2011

Segment assets
Deferred income tax assets
Total assets per statement
of financial position
December 31, 2010
Segment assets
Deferred income tax assets
Total assets per statement
of financial position
December 31, 2009
Segment assets
Deferred income tax assets
Total assets per statement
of financial position

(40)

Reportable segments liabilities are reconciled to total liabilities are as follows:

Food
ingredients

Colorants and
plastic additives

Oleochemicals,
Resins and
Powder
Coatings

3,034,386,460

555,950,721

52,414,616

1,741,029,275

5,383,781,072

5,931,567

243,061

6,174,628

3,040,318,027

555,950,721

52,657,677

1,741,029,275

5,389,955,700

3,401,928,261

363,784,923

16,278,065

2,046,683,701

5,828,674,950

16,278,065

2,046,683,701

5,828,674,950

25,029,774

2,124,500,009

5,334,321,309

25,029,774

2,124,500,009

5,334,321,309

Aerosols

Management and
administrative

Total

July 31, 2012

Segment liabilities
Deferred income tax
liabilities
Total liabilities per statement
of financial position
December 31, 2011
Segment liabilities
Deferred income tax
liabilities
Total liabilities per statement
of financial position

3,401,928,261

363,784,923

2,822,755,384

362,036,142

2,822,755,384

362,036,142

2,777,646,189

446,719,340

12,263,864

2,225,385,954

5,462,015,347

2,777,646,189

446,719,340

12,263,864

2,225,385,954

5,462,015,347

December 31, 2010

Segment liabilities
Deferred income tax
liabilities
Total liabilities per statement
of financial position

December 31, 2009

Segment liabilities
Deferred income tax
Liabilities
Total liabilities per statement
of financial position

(41)

D&L Industries, Inc.

Schedule of Philippine Financial Reporting Standards
Effective as at July 31, 2012
The following table summarizes the effective standards and interpretations as at July 31, 2012:

Standards and Interpretations

Standards
PAS 1, Presentation of Financial Statements
PAS 2, Inventories
PAS 7, Cash Flow Statements
PAS 8, Accounting Policies, Changes in Accounting Estimates and Errors
PAS 10, Events After the Reporting Period
PAS 11, Construction Contracts
PAS 12, Income Taxes
PAS 16, Property, Plant and Equipment
PAS 17, Leases
PAS 18, Revenues
PAS 19, Employee Benefits
PAS 20, Accounting for Government Grants and Disclosure of
Government Assistance
PAS 21, The Effects of Changes in Foreign Exchange Rates
PAS 23, Borrowing Costs
PAS 24, Related Party Disclosures
PAS 26, Accounting and Reporting by Retirement Benefit Plans
PAS 27, Consolidated and Separate Financial Statements
PAS 28, Investments in Associates
PAS 29, Financial Reporting in Hyperinflationary Economies
PAS 31, Interests in Joint Ventures
PAS 32, Financial Instruments: Presentation
PAS 33, Earnings per Share
PAS 34, Interim Financial Reporting
PAS 36, Impairment of Assets
PAS 37, Provisions, Contingent Liabilities and Contingent Assets
PAS 38, Intangible Assets
PAS 39, Financial Instruments: Recognition and Measurement
PAS 40, Investment Property
PAS 41, Agriculture

Adopted/
*Not Applicable
Adopted
Adopted
Adopted
Adopted
Adopted
Not Applicable
Adopted
Adopted
Adopted
Adopted
Adopted
Not Applicable
Adopted
Adopted
Adopted
Not Applicable
Adopted
Adopted
Not Applicable
Not Applicable
Adopted
Adopted
Adopted
Adopted
Adopted
Adopted
Adopted
Adopted
Not Applicable

Standards and Interpretations

Standards, continued
PFRS 1, First-time Adoption of Philippine Financial Reporting Standards
PFRS 2, Share-based Payment
PFRS 3, Business Combinations
PFRS 4, Insurance Contracts
PFRS 5, Non-current Assets Held for Sale and Discontinued Operations
PFRS 6, Exploration for and Evaluation of Mineral Resources
PFRS 7, Financial Instruments: Disclosures
PFRS 8, Operating Segments
Interpretations
IFRIC 1, Changes in Existing Decommissioning, Restoration and Similar
Liabilities
IFRIC 2, Members Shares in Co-operative Entities and Similar
Instruments
IFRIC 4, Determining whether an Arrangement contains a Lease
IFRIC 5, Rights to Interest arising from Decommissioning, Restoration
and Environmental Rehabilitation Funds
IFRIC 6, Liabilities arising from Participating in a Specific Market Waste Electrical and Electronic Equipment
IFRIC 7, Applying the Restatement Approach under PAS 29, Financial
Reporting in Hyperinflationary Economies
IFRIC 9, Reassessment of Embedded Derivatives
IFRIC 10, Interim Financial Reporting and Impairment
IFRIC 12, Service Concession Arrangements
IFRIC 13, Customer Loyalty Programmes
IFRIC 14, PAS 19 - The Limit on a Defined Benefit Asset, Minimum
Funding Requirements and their Interaction
IFRIC 16, Hedges of a Net Investment in a Foreign Operation
IFRIC 17, Distributions of Non-Cash Assets to Owners
IFRIC 18, Transfers of Assets from Customers
IFRIC 19, Extinguishing Financial Liabilities with Equity Instruments

Adopted/
*Not Applicable
Adopted
Not Applicable
Adopted
Not Applicable
Not Applicable
Not Applicable
Adopted
Adopted

Not Applicable
Not Applicable
Adopted
Not Applicable
Not Applicable
Not Applicable
Not Applicable
Adopted
Not Applicable
Not Applicable
Adopted
Not Applicable
Not Applicable
Not Applicable
Not Applicable

Standards and Interpretations

Interpretations, continued
SIC 7, Introduction of the Euro
SIC 10, Government Assistance - No Specific Relation to Operating
Activities
SIC 12, Consolidation - Special Purpose Entities
SIC 13, Jointly Controlled Entities - Non-Monetary Contributions by
Venturers
SIC 15, Operating Leases - Incentives
SIC 21, Income Taxes - Recovery of Revalued Non-Depreciable Assets
SIC 25, Income Taxes - Changes in the Tax Status of an Entity or its
Shareholders
SIC 27, Evaluating the Substance of Transactions Involving the Legal
Form of a Lease
SIC 29, Service Concession Arrangements: Disclosures
SIC 31, Revenue - Barter Transactions Involving Advertising Services
SIC 32, Intangible Assets - Web Site Costs

Adopted/
*Not Applicable
Not Applicable
Not Applicable
Not Applicable
Not Applicable
Not Applicable
Not Applicable
Not Applicable
Adopted
Not Applicable
Not Applicable
Not Applicable

*Not Applicable - Standards and interpretations that are effective as at July 31, 2012 but are not
relevant/applicable to the Company in consideration of the nature of its business operations and/or there
are currently no transactions relating to such standards.
Please refer to Note 2.1 to the financial statements for related discussion on the assessed impact on the
Companys financial statements on the adoption of new standards, amendments and interpretations to
existing standards effective for annual periods beginning January 1, 2012 and onwards.

Component C
D&L Industries, Inc.
65 Industria Street
Bagumbayan, Quezon City
Reconciliation of Parent Companys Retained Earnings Available for Dividend Declaration
For the seven months ended July 31, 2012
(All amounts in Philippine Peso)

UNAPPROPRIATED RETAINED EARNINGS AVAILABLE FOR

DIVIDEND DECLARATION, January 1, 2012

1,754,422,621

ADD:NET INCOME ACTUALLY EARNED DURING THE PERIOD

Total comprehensive income for the seven months ended
July 31, 2012 closed to retained earnings
LESS: NON-ACTUAL/UNREALIZED INCOME, NET OF TAX
Share in net income of associates
Fair value adjustment on available-for-sale financial assets

527,788,374

(156,310,460)
(33,391,125)
2,092,509,410

Reversals of appropriations
TOTAL UNAPPROPRIATED RETAINED EARNINGS, AVAILABLE FOR
DIVIDEND DECLARATION, July 31, 2012

510,000,000
2,602,509,410

D&L Industries, Inc. and Subsidiaries

Consolidated Statements of Financial Position
July 31, 2012 and December 31, 2011
(All amounts in Philippine Peso)
Notes

July 31, 2012

December 31, 2011

1,444,832,139
1,214,963,247
158,272,627
54,180,878
11,000,000
1,978,823,701
525,873,969
5,387,946,561

598,158,811
409,561,423
204,546,192
11,000,000
661,580,321
225,020,705
2,109,867,452

84,350,938
1,529,608,367
1,607,682,604
4,164,274
26,135,712
3,251,941,895
8,639,888,456

51,025,938
2,120,512,370
305,483,902
11,476,671
4,771,503
2,493,270,384
4,603,137,836

525,817,884
1,692,926,798
3,127,725,484
8,279,460
5,354,749,626

237,276,629
621,229,942
750,000,000
7,970,262
1,616,476,833

6,174,628
29,031,446
5,389,955,700

688,626
30,794,040
1,647,959,499

ASSETS
Current assets
Cash and cash equivalent
Receivables, net
Due from related parties
Dividend receivable
Loans receivable
Inventories, net
Prepayments and other current assets
Total current assets
Non-current assets
Available-for-sale financial asset
Investment in associates
Property, plant and equipment, net
Deferred income tax
Other non-current assets
Total non-current assets
Total assets

5
6
19
10
7
8

9
10
11
21

LIABILITIES AND EQUITY

Current liabilities
Trade payable and other liabilities
12
Due to related parties
19
Borrowings
13
Income tax payable
Total current liabilities
Non-current liabilities
Deferred income tax
21
Retirement benefit obligation
20
Total liabilities
Equity
Attributable to the owners of the Parent Company
Share capital
Deposit for future stock subscription
Fair value reserve
Other equity charges
Retained earnings
Appropriated
Unappropriated
Non-controlling interest
Total equity
Total liabilities and equity

14

1,000,000,000
187,500,000
13,500,000
(76,454,429)
2,125,387,185
3,249,932,756
3,249,932,756
8,639,888,456

321,200,000
(19,891,125)
510,000,000
1,754,422,621
2,565,731,496
389,446,841
2,955,178,337
4,603,137,836

(The notes on pages 1 to 58 are integral part of these financial statements)

D&L Industries, Inc. and Subsidiaries

Consolidated Statements of Total Comprehensive Income
For the seven months ended July 31, 2012 and 2011
(All amounts in Philippine Peso)

Sales
Management service fee

Cost of sales and services

Notes

2012

2011

23
19

2,000,140,973
254,273,805

1,456,294,985
304,660,084

2,254,414,778

1,760,955,069

(1,735,533,105)

(1,280,025,353)

15

Gross profit

518,881,673

480,929,716

16

(71,011,428)

(71,541,433)

Administrative expenses

17

(52,931,819)

(53,689,279)

Other income, net

18

8,446,627

517,840

403,385,053

356,216,844

Selling and marketing costs

Operating profit
Finance costs

13

(15,093,190)

(17,821,632)

Profit before share in net income of associates and

income tax
Share in net income of associates

10

388,291,863
156,310,460

338,395,212
271,520,300

544,602,343

609,915,512

(46,542,254)

(57,458,076)

Profit before income tax

Income tax expense
Current
Deferred

(3,662,840)

(2,679,532)

(50,205,094)

(60,137,608)

494,397,249

549,777,904

Owners of the Parent Company

364,474,212

484,704,824

Non-controlling interest

129,923,037

65,073,080

494,397,249

549,777,904

33,391,125
527,788,374

450,000
550,227,904

Owners of the Parent Company

397,865,337

485,154,824

Non-controlling interest

129,923,037
527,788,374

65,073,080

21
Profit for the period
Profit attributable to:

Fair value adjustment on available-for-sale

financial assets, net of tax
Total comprehensive income for the period

Attributable to:

(The notes on pages 1 to 58 are integral part of these financial statements)

550,227,904

D&L Industries, Inc. and Subsidiaries

Consolidated Statements of Cash Flows
For the seven months ended July 31, 2012 and 2011
(All amounts in Philippine Peso)
Notes
Cash flows from operating activities
Profit before income tax
Adjustments for:
Share in net income of associates
Loss on write-off of receivables
Provision for impairment
Depreciation
Retirement benefit (credit) expense
Unrealized foreign exchange loss
Dividend income
Interest income
Interest expense
Operating profit before working capital changes
(Increase) decrease in:
Receivables
Due from related parties
Dividend receivable
Inventories
Prepayments and other current assets
Other non-current assets
Increase in:
Trade payables
Due to related parties
Cash (used in) from operations
Income taxes paid or withheld
Retirement contribution
Interest received from banks
Net cash (used in) from operating activities
Cash flows from investing activities
Dividend received
Additions to investment in associates
Additions to available-for-sale financial assets
Acquisition of property and equipment
Proceeds from disposal of asset
Net cash used in investing activities
Cash flows from financing activities
Proceeds from borrowings
Payment of borrowings
Dividends paid
Deposit for future stock subscription
Interest paid
Net cash from (used in) financing activities
Effect of foreign exchange rate changes on cash
Acquisition of shareholdings
Sale of shareholdings
Net increase in cash
Cash and cash equivalent, January 1
Cash and cash equivalent, July 31

Non-cash financing activity

Issuance of additional shares of stocks through declaration
of stock dividends

2012

2011

544,602,343

609,915,512

(156,310,460)
942,591
914,229
40,640,580
3,075,508
1,524,801
(3,899,458)
15,093,190
446,583,324

(271,520,300)
306
143,533
41,702,036
(521,357)
11,871,548
(613,944)
(4,209,637)
17,821,632
404,589,329

(807,257,900)
46,823,565
(54,180,878)
(1,317,243,380)
(300,853,264)
(21,364,209)

(92,344,594)
200,316,977
(15,823,036)
(131,940,422)
(4,889,049)

288,541,255
1,240,714,457
(478,237,030)
(46,233,056)
(5,238,780)
3,899,458
(525,809,408)

34,805,756
257,648,749
652,363,710
(62,692,239)
(9,551,674)
4,209,637
584,329,434

18
10
9
11
11

3,226,500
(1,352,578,964)
9,739,682
(1,339,612,782)

613,944
(7,499,250)
(25,499,999)
(86,144,072)
(118,529,377)

13
13

3,077,725,484
(700,000,000)
(367,210,373)
187,500,000
(15,093,190)
2,182,921,921
(1,525,545)
598,158,811
(45,065,667)
869,067,330

300,000,000
(690,017,788)
(17,821,632)
(407,839,420)
(3,208,976)
54,751,661

575,764,809
1,444,832,139

325,897,837
380,649,498

678,800,000

16
16
11
20
22
18
18
13

20
18

1.1
1.1

(The notes on pages 1 to 58 are an integral part of these financial statements)

D&L Industries, Inc. and Subsidiaries

Consolidated Statements of Changes in Equity
For the seven months ended July 31, 2012 and 2011
(All amounts in Philippine Peso)

Balances at January 1, 2011

Comprehensive income
Profit for the period
Other comprehensive income
Fair value gains on
available-for-sale financial assets,
net of tax
Total comprehensive income for the period
Balances at July 31, 2011
Balances at January 1, 2012
Comprehensive income
Profit for the period
Other comprehensive income
Fair value gains on
available-for-sale financial assets,
net of tax
Total comprehensive income for the
period
Release of retained earnings
appropriation

Share capital
(Note 14)
321,200,000

Deposit for
future stock
subscription
(Note 14)
-

Fair value
reserve
(Note 9)
-

Other charges
to equity
(Note 1)
-

Appropriated
(Note 14)
510,000,000

Retained earnings
Unappropriated
(Note 14)
1,495,922,102

321,200,000

450,000
450,000
450,000

321,200,000

(19,891,125)

Total
2,005,922,102

Noncontrolling
interest
155,397,475

Total equity
2,482,519,577

484,704,824

484,704,824

65,073,080

549,777,904

510,000,000

484,704,824
1,980,626,926

484,704,824
2,490,626,926

65,073,080
220,470,555

450,000
550,227,904
3,032,747,481

510,000,000

1,754,422,621

2,264,422,621

389,446,841

2,955,178,337

364,474,212

364,474,212

129,923,037

494,397,249

33,391,125

33,391,125

33,391,125

364,474,212

364,474,212

129,923,037

527,788,374

510,000,000

678,800,000

187,500,000

129,908,439

129,908,439

678,800,000
1,000,000,000

187,500,000
187,500,000

13,500,000

(503,509,648)
2,125,387,185

(510,000,000)

Transaction with owners

Declaration of stock dividend
Deposit for future stock subscription
Charges to equity as a result of
acquisition of shareholdings (Note 1.1)
Other charges to equity as a result of sale
of shareholdings (Note 1.1)
Total transactions with owners
Balances at July 31, 2012

(76,454,429)
(76,454,429)
(76,454,429)

(678,800,000)

45,381,913

(The notes on pages 1 to 58 are an integral part of these financial statements)

(678,800,000)

45,381,913
(503,509,648)
2,125,387,185

187,500,000

(498,417,296)

(368,508,857)

(20,952,582)

(52,025,098)

(519,369,878)
-

(233,033,955)
3,249,932,756

D&L Industries, Inc. and Subsidiaries

Notes to Interim Consolidated Financial Statements
As at July 31, 2012 and December 31, 2011
and for the seven months ended July 31, 2012 and 2011
(All amounts are shown in Philippine Peso, unless otherwise stated)

Note 1 - General information

1.1

Business information

D&L Industries, Inc. (the Parent Company) was registered with the Securities and Exchange
Commission (SEC) on July 27, 1971 primarily to carry on the business of buying, selling, importing,
bartering, distributing, exchanging, processing, manufacturing, producing compounds, derivatives or
chemical substances and all kinds of goods, wares, manufactures, such as but not limited to machines,
supplies and all kinds of goods, wares and products and generally engage in and conduct any form of
manufacturing or mercantile enterprises.
The Parent Company is 85% owned and is a subsidiary of Jadel Holdings, Inc. (JHI). The remaining
15% of Parent Companys outstanding shares are owned by Lao Family (14%) and LBL Industries, Inc.
(1%).
As at August 28, 2012, the Parent Company is in the process of completing and finalizing all statutory
requirements in connection with the planned listing and offering of its shares to the public with the
Philippine Stock Exchange.
The Parent Companys ultimate parent is the BDO Trust, organized and domiciled in the Philippines,
with the Lao family as the beneficial owner.
The Parent Companys registered office address which is also its principal place of business is 65
Industria St., Bagumbayan, Quezon City. As at July 31, 2012, the Parent Company has 135 regular
employees (December 31, 2011 - 119).

The Parent Company and its subsidiaries are collectively referred to here as the Group. The Parent
Companys subsidiaries which are fully consolidated in these interim consolidated financial statements
and the Parent Companys associates where share in net income is recognized in the statement of total
comprehensive income are as follows:
Interest
July 31, 2012 December 31, 2011
Subsidiaries:
First In Colours,
Incorporated
(FIC)

100%

67%

Country of
incorporation
Philippines

Main activity
FIC was registered with SEC on November
17, 1988 primarily to carry on the business of
importing, exporting, manufacturing and
distributing at wholesale and retail chemical
products, compounds, derivatives or
chemical substances and generally, engage
in and conduct any form of manufacturing or
mercantile enterprises.
As at December 31, 2011, FIC is 67% owned by
the Company, 22% owned by JHI and 11%
owned by the Lao family.

Aero-Pack
Industries, Inc.
(API)

100%

67%

Philippines

On July 16, 2012, the Parent Companys

Board of Directors resolved to purchase the
shares of other shareholders for a
consideration of P112.1 million, which is
equivalent to FICs fair market value as at
June 30, 2012 to obtain 100% ownership in
FIC. The share purchase agreement was
signed by the parties and made effective on
July 27, 2012. As a result, FIC became 100%
owned by the Parent Company effective July
27, 2012.
API was incorporated and registered with SEC
on September 29, 1989 to engage in the
manufacture of aerosol packaging materials,
aerosol products, chemical derivatives and
compounds and other related products.
As at December 31, 2011, API is 67% owned
by the Parent Company and 25% owned by
JHI.

Oleo-fats,
Incorporated (OFI)

100%

40%

Philippines

On July 16, 2012, the Parent Companys

Board of Directors resolved to purchase the
shares of other shareholders for a
consideration of P40.3 million, which is
equivalent to APIs fair market value as at
June 30, 2012 to obtain 100% ownership in
API. The share purchase agreement was
signed by the parties and made effective on
July 27, 2012. As a result, API became 100%
owned by the Parent Company effective July
27, 2012.
OFI was registered with SEC on May 4, 1987
to carry on the business of manufacturing,
processing, sourcing, marketing, selling,
utilizing fats and oils, oleo chemicals and
derivatives, distributing locally and abroad.
As at December 31, 2011, OFI is 40% owned
by the Parent Company, 40% owned by

(2)

Interest
July 31, 2012 December 31, 2011

Country of
incorporation

Main activity
Cahaya, Inc. and 16% owned by JHI.
On July 16, 2012, the Parent Companys
Board of Directors resolved to purchase the
shares of other shareholders for a
consideration of P747 million , which is
equivalent to OFIs fair market value as at
June 30, 2012, to obtain 100% ownership in
OFI. The share purchase agreement was
signed by the parties and made effective on
July 27, 2012. As a result, OFI became 100%
owned by the Parent Company effective July
27, 2012.

D&L Polymer and

Colours, Inc.
(DLPCI)

100%

67%

Philippines

Accordingly, OFI has been fully consolidated

in this interim consolidated fianancial
statements beginning July 28, 2012.
DLPCI was incorporated and registered with
SEC on March 30, 2006 primarily to carry on the
business of buying, selling, importing, exporting,
bartering, distributing, exchanging, processing,
manufacturing, producing, refining, beneficiating
and disposing at wholesale and retail of
chemical products, compounds, derivatives or
chemical substances and all kinds of goods,
wares, manufactures, such as, but not limited to,
machines, supplies and products and generally
to engage in the conduct of manufacturing or
mercantile enterprises.
As at December 31, 2011, DLPCI is 33%
owned by the Parent Company, 50% owned
by FIC and 17% owned by JHI.
On December 19, 2011, FIC subscribed for 100
million shares in DLPCI amounting to P100
million.
On December 28, 2011, DLPCIs Board of
Directors approved the declaration of stock
dividend amounting to P100 million to all
shareholders of record as at December 5,
2011. The stock dividends were distributed
and issued to shareholders as at July 31,
2012.
As at December 31, 2011, DLPCI became
67% owned by the Parent Company.

D&L Powder
Coating, Inc.
(DL Powder
Coating)

(3)

0%

60%

Philippines

On July 16, 2012, the Board of Directors of

JHI resolved to sell all of their shares in
DLPCI to FIC, which is 100% owned by the
Parent Company. As a result, DLPCI
became 100% (44% direct and 56% indirect)
owned by the Parent Company as at July 31,
2012 and is fully consolidated in the financial
statements effective at that date.
DL Powder Coating, Inc. was incorporated
and registered with SEC on February 11,
2011 primarily to engage in the business of
manufacturing, processing, refining, of all

Interest
July 31, 2012 December 31, 2011

Country of
incorporation

Main activity
kinds of chemical products, compounds,
derivatives or chemical substances, and all
kinds of goods, wares, supplies and
manufactures, buy, sell, trade, distribute, or
otherwise dispose of the same, locally or
abroad in the normal course of business and
industry without engaging in the business of
manufacturing food, drugs and cosmetics.
As at December 31, 2011, DL Powder
Coating is 60% owned by the Parent
Company and 40% owned by JHI. DL
Powder Coating has not started commercial
operation as of August 28, 2012.

FIC Marketing
Co., Inc.
(FICM)

0%

67%

Philippines

As futher disclosed below, the Parent

Company entered into an agreement with JHI
for the sale and transfer of its
shareholderings in DL Powder Coating
effective July 27, 2012.
FICM was incorporated and registered with SEC
on November 21, 1985 primarily to carry on the
business of selling, marketing, distributing,
trading goods, commodities, merchandise,
wares, articles, chattel, materials and products
of every kind and description but not limited to
industrial chemicals, agricultural and industrial
products, materials, machines, equipment and
accessories, at wholesale or retail, locally or
abroad.
As at December 31, 2011, FICM is 67% owned
by the Parent Company and 32% owned by JHI.
As further disclosed below, the Parent
Company entered into an agreement with JHI
for the sale and transfer of its shareholdings
in FICM effective July 23, 2012.

Associate:
Chemrez
Technologies, Inc.
(CTI)

34%

34%

Philippines

CTI was incorporated and registered with SEC

on June 1, 1989. CTI attained its status of
being a public company on December 8,
2000 and is listed on the Philippine Stock
Exchange. The Company is engaged in the
business of manufacturing, processing,
refining all kinds of chemical products,
compounds, derivatives or chemical
substances and all kinds of goods, wares,
supply and manufacture, buy, sell, trade,
distribute or otherwise dispose of the same,
locally or abroad, in the normal course of
business without engaging in the business of
manufacturing food, drugs and cosmetics.
On May 12 and June 9, 2007, CTIs Board of
Directors and Stockholders, respectively,
authorized CTI to invest and/or engage in the
manufacture, sale and distribution of biodiesel
under the brand BioActiv.
CTI is controlled by the Lao family which, as at

(4)

Interest
July 31, 2012 December 31, 2011

Country of
incorporation

Main activity
July 31, 2012, effectively owns 67% of CTIs
shares, including those held by the Company,
JHI and Color Chem Corporation, which
domestic companies collectively own 37% of
the CTIs issued shares of stock. The
remaining 33% of the shares outstanding are
publicly held.

On July 23, 2012 and July 27, 2012 (divestment dates), the Parent Company entered into an agreement
for the sale and transfer of its shareholdings in FICM and DL Powder Coating, respectively, to JHI for a
total consideration of P17.1 million. As a result, the Parent Company recognized other charges to equity
as a result of sale of its shareholdings in such subsidiaries amounting to P76.4 million as at July 31,
2012, representing the difference between the selling price and the fair market value of the subsidiaries
as at divestment date. Moreover, the Group has deconsolidated FICM and DL Powder Coating from the
consolidated financial statements effective July 23 and 27, 2012, respectively. The interim consolidated
statements of income for the seven months ended July 31, 2012 include results of operations of FICM
and DL Powder Coating for the period up to July 23 and 27, 2012, respectively.
1.2

Approval of the interim consolidated interim financial statements

The interim consolidated financial statements of the Group as at July 31, 2012 and December 31, 2011
were authorized and approved for issuance by the Board of Directors (BOD) on August 28, 2012.
Note 2 - Summary of significant accounting policies
The principal accounting policies adopted in the preparation of these interim consolidated financial
statements are set out below.
The accounting policies and methods of computation utilized in the most recent annual consolidated
financial statements as at and for the year ended December 31, 2011 have been consistently applied in
these interim consolidated financial statements.
2.1 Basis of preparation
These interim consolidated financial statements have been prepared in accordance with Philippine
Accounting Standards (PAS) 34 - Interim Financial Reporting.
These interim consolidated financial statements have been prepared under the historical cost convention,
as modified by revaluation of available-for-sale financial assets.
The preparation of interim consolidated financial statements in conformity with PAS 34 requires the use
of certain critical accounting estimates. It also requires management to exercise judgment in the process
of applying the Groups accounting policies. The areas involving higher degree of judgment or
complexity, or areas where assumptions and estimates are significant to the interim consolidated
financial statements are disclosed in Note 4.

(5)

Changes in accounting policy and disclosures

(a) Amendments to existing standards adopted by the Group effective January 1, 2012
The amendments to existing standards below, as approved by the Financial Reporting Standards
Council (FRSC), are mandatory for annual periods beginning January 1, 2012:

PFRS 7 (Amendment), Financial Instruments: Disclosures - Derecognition (effective July 1, 2011).

This amendment will promote transparency in the reporting of transfer transactions and improve
users understanding of the risk exposures relating to transfers of financial assets and the effect of
those risks on an entitys financial position, particularly those involving securitization of financial
assets. The Group adopted the amendment beginning January 1, 2012 but did not have a significant
impact on the Groups interim consolidated financial statements as the Group did not transfer or
securitize significant financial assets covered by the standard.

PAS 12 (Amendment), Income Taxes - Deferred Tax (effective January 1, 2012). PAS 12 currently
requires an entity to measure the deferred tax relating to an asset depending on whether the entity
expects to recover the carrying amount of the asset through use or sale. It can be difficult and
subjective to assess whether recovery will be through use or through sale when the asset is
measured using the fair value model in PAS 40, Investment Property. This amendment therefore
introduces an exception to the existing principle for the measurement of deferred tax assets or
liabilities arising on investment property measured at fair value. As a result of the amendments,
SIC 21, Income Taxes - Recovery of Revalued Non-Depreciable Assets, will no longer apply to
investment properties carried at fair value. The Group adopted the amendment beginning
January 1, 2012 but did not have a significant impact on the Groups interim consolidated financial
statements as the Group did not have investment property measured at fair value nor did it
recognize deferred income tax arising from fair value measurement.

(b) New standards and amendments to existing standards that are not yet effective and not early
adopted by the Group
The following revised standards and amendments to existing standards approved by the FRSC which
are mandatory for annual periods beginning January 1, 2013 and onwards are not early adopted by the
Group:

PAS 1 (Amendment), Financial Statement Presentation - Other Comprehensive Income (effective

July 1, 2012). The main change resulting from these amendments is a requirement for entities to
group items presented in other comprehensive income on the basis of whether they are potentially
reclassifiable to profit or loss subsequently (reclassification adjustments). The amendments do not
address which items are presented in other comprehensive income. The Group will apply the
amendment beginning January 1, 2013 but it is not expected to have a significant impact on the
Groups consolidated financial statements other than the classification of other comprehensive
income on the basis of whether these are potentially and subsequently reclassifiable to profit or
loss.

PAS 19 (Amendment), Employee Benefits (effective January 1, 2013). These amendments eliminate
the corridor approach and calculate finance costs on a net funding basis. They would also require
recognition of all actuarial gains and losses in other comprehensive income as they occur and of all
past service costs in profit or loss. The amendments replace interest cost and expected return on
plan assets with a net interest amount that is calculated by applying the discount rate to the net
defined benefit liability (asset). The Group will adopt the amendment beginning January 1, 2013. It

(6)

is not expected to have a significant impact on the Groups consolidated financial statements other
than the full recognition of unrecognized actuarial losses (Note 20) to other comprehensive income
and the effect of the net interest amount based on new calculation criteria.

PAS 27 (Revised), Separate Financial Statements (effective January 1, 2013). The revised standard
includes the provisions on separate financial statements that are left after the control provisions of
PAS 27 have been included in the new PFRS 10. The Group will apply the revised standard
beginning January 1, 2013 but the adoption is not expected to have a significant impact on the
Groups consolidated financial statements as the Parent Company fully consolidates all its
subsidiaries in its consolidated financial statements and those associates where the Company has
no significant control are accounted for using the equity method.

PAS 28 (Revised), Investments in Associates and Joint Ventures (effective January 1, 2013). This
revised standard includes the requirements for joint ventures, as well as associates, to be equity
accounted following the issue of PFRS 11. The Group is yet to assess PAS 27s full impact on the
consolidated financial statements and intends to adopt the standard beginning January 1, 2013.

PFRS 7 (Amendment), Financial Instruments: Disclosures - Transfers of Financial Assets

(effective July 1, 2012). The amendment requires the disclosure of information that enables the
users of financial statements to understand the relationship between transferred financial assets
that are derecognized in their entirety and the associated liabilities; and to evaluate the nature of,
and risks associated with, the entities continuing involvement in derecognized financial assets. The
Group will apply this amendment commencing January 1, 2013. It is not expected to have a
significant impact on the Groups consolidated financial statements as the Group, currently, has
not made any plans to transfer significant financial assets covered by the amendment.

PFRS 9, Financial Instruments (effective January 1, 2015). This standard is the first step in the
process to replace PAS 39, Financial Instruments: Recognition and Measurement. PFRS 9
introduces new requirements for classifying and measuring financial assets and is likely to affect
the Companys accounting for its financial assets. The Group is yet to assess PFRS 9s full impact.
However, initial indications are that it may affect the Groups accounting for its debt available-forsale financial assets, as PFRS 9 only permits the recognition of fair value gains and losses in other
comprehensive income if they relate to equity investments that are not held for trading. Fair value
gains and losses on available-for-sale debt investments, for example, will therefore have to be
recognized directly in profit or loss. The Group has yet to assess PFRS 9s full impact and intends
to adopt PFRS 9 beginning January 1, 2015.

PFRS 12, Disclosures of Interests in Other Entities (effective January 1, 2013). This new standard
includes the disclosure requirements for all forms of interests in other entities, including joint
arrangements, associates, special purpose vehicles and other off balance sheet vehicles. The Group
has yet to assess PFRS 12s full impact and intends to adopt PFRS 12 beginning January 1, 2013.

PFRS 13, Fair Value Measurement (effective January 1, 2013). This new standard aims to improve
consistency and reduce complexity by providing a precise definition of fair value and a single
source of fair value measurement and disclosure requirements for use across PFRS. The
requirements, which are largely aligned between IFRS and US GAAP, do not extend the use of fair
value accounting but provide guidance on how it should be applied where its use is already
required or permitted by other standards within IFRS or US GAAP. The Group is yet to assess
PFRS 13s full impact on the consolidated financial statements and intends to adopt the standard
beginning January 1, 2013.

(7)

(c) New standards, amendments and interpretations to existing standards that are not applicable
and/or relevant to the Group
The standards, amendments and interpretations to existing standards approved by FRSC effective for
annual periods beginning January 1, 2012 and onwards as disclosed below are considered not
applicable and/or relevant to the Groups consolidated financial statements during and at the end of
each reporting period.

PFRS 1 (Amendment), First-time Adoption of PFRS - Fixed Dates and Hyperinflation (effective
July 1, 2011). The Group is not a first-time adopter;

PFRS 11, Joint Arrangements (effective January 1, 2013). Currently, the Group has no
investment in joint ventures;

Philippine Interpretation IFRIC 15, Agreement for Construction of Real Estate. The Group is
currently not operating in real estate industry; and

Philippine Interpretation IFRIC 20, Stripping Costs in the Production Phase of a Surface
Mine (effective January 1, 2013). The Group is currently not operating in mining industry.

2.2
2.2. 1

Financial assets
Classification and presentation

The Group classifies its financial assets in the following categories: (i) loans and receivables, (ii) at fair
value through profit or loss, (iii) held-to-maturity and (iv) available-for-sale. The classification depends
on the purpose for which the financial assets were acquired. Management determines the classification of
its financial assets at initial recognition.
The Group did not hold financial assets under categories (ii) and (iii) above during and at the end of each
reporting period.
Loans and receivables
The Groups financial assets categorized as loans and receivables are non-derivative financial assets with
fixed or determinable payments and are not quoted in an active market. They are included in current
assets, except for maturities greater than twelve months after the reporting date, which are classified as
non-current assets.
The Groups loans and receivables consist mainly of cash, receivables, due from related parties, loans
receivable and refundable deposits presented under other non-current assets in the statement of financial
position.
Available-for-sale
Available-for-sale financial asset is non-derivative that is either designated in this category or not
classified in any of the other categories. It is included in non-current assets unless management intends to
dispose of the investment within twelve (12) months after the reporting period.

(8)

The Groups available -for-sale financial assets consist of investment in equity securities of listed and nonlisted entities in the Philippines including investment in golf club shares (Note 9).
2.2.2

Initial recognition and subsequent measurement

Loans and receivables

Loans and receivables are initially recognized at fair value plus transaction costs. Loans and receivables
are subsequently carried at amortized cost using the effective interest method, less provision for
impairment.
Available-for-sale financial assets
Available-for-sale financial assets are subsequently carried at fair value, except where fair value cannot be
reliably measured which shall be measured at cost. Unrealized gains and losses arising from changes in
the fair value of assets classified as available-for-sale financial assets are recognized in other
comprehensive income. For available-for-sale financial assets carried at cost, if a reliable measure
becomes available, it is measured at fair value and the difference between its carrying amount and fair
value is recognized in other comprehensive income. Dividends on available-for-sale investments are
recognized in profit or loss when the Groups right to receive such dividends is established.
2.2.3

Derecognition

Loans and receivables and available-for-sale financial assets are derecognized when the rights to receive
cash flows have expired or the Group has transferred substantially all the risks and rewards of ownership
to the financial assets.
2.2.4

Impairment

Loans and receivables

The Group assesses at the end of each reporting period whether there is objective evidence that a
financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets
is impaired and impairment losses are incurred only if there is objective evidence of impairment as a
result of one or more events that occurred after the initial recognition of the asset (a loss event) and
that loss event (or events) has an impact on the estimated future cash flows of the financial asset or
group of financial assets that can be reliably estimated.
The criteria that the Group uses to determine that there is objective evidence of an impairment loss
include:

(9)

Significant financial difficulty of the customer or other third party considered as obligor;
A breach of contract, such as a default or delinquency in interest or principal payments;
It becomes probable that the customer or other third party considered as obligor will enter
bankruptcy or other financial reorganization; or
Observable data indicating that there is a measurable decrease in the estimated future cash
flows from a portfolio of financial assets since the initial recognition of those assets, although
the decrease cannot yet be identified with the individual financial assets in the portfolio,
including adverse changes in the payment status of customers or other third parties considered
as obligors in the portfolio and national or local economic conditions that correlate with
defaults on the assets in the portfolio.

For loans and receivables category, the Group first assesses whether there is objective evidence of
impairment exists individually for receivables that are individually significant, and collectively for
receivables that are not individually significant. If the Group determines that no objective evidence of
impairment exists for an individually assessed receivable, whether significant or not, it includes the
asset in a group of financial assets with similar credit risk characteristics and collectively assesses those
for impairment. Receivables that are individually assessed for impairment and for which an
impairment loss is or continues to be recognized are not included in a collective assessment of
impairment.
The amount of the loss is measured as the difference between the assets carrying amount and the
present value of estimated future cash flows (excluding future credit losses that have not been incurred)
discounted at the financial assets original effective interest rate. The carrying amount of the asset is
reduced and the amount of the loss is recognized in profit or loss.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related
objectively to an event occurring after the impairment was recognized (such as an improvement in the
debtors credit rating), the reversal of the previously recognized impairment loss is recognized in the
statement of total comprehensive income. Reversals of previously recorded impairment provision are
based on the result of managements update assessment, considering the available facts and changes in
circumstances, including but not limited to results of recent discussions and arrangements entered into
with customers as to the recoverability of receivables at the end of the reporting period. Subsequent
recoveries of amounts previously written-off are credited against selling and marketing costs in
statement of total comprehensive income.
Available-for-sale financial assets
In the case of equity investments classified as available-for-sale financial assets, a significant or
prolonged decline in the fair value of the security below its cost is also evidence that the assets are
impaired.
When a decline in the fair value of an available-for-sale financial asset has been recognized in other
comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss
that has been recognized in other comprehensive income is reclassified from equity to profit or loss as a
reclassification adjustment even though the financial asset has not been derecognized, measured as the
difference between the acquisition cost and the current fair value, less any impairment loss on that
financial asset previously recognized in statement of total comprehensive income. Impairment losses
recognized in profit or loss for an investment in an equity instrument classified as available-for-sale is
not reversed through statement of total comprehensive income.
2.3

Financial liabilities

2.3.1

Classification and presentation

The Group classifies its financial liabilities in the following categories: (i) financial liabilities at fair value
through profit or loss (including financial liabilities held for trading and those that are designated at fair
value) and (ii) financial liabilities at amortized cost. The classification depends on the purpose for which
the financial liabilities were incurred. Management determines the classification of its financial liabilities
at initial recognition.
The Group did not hold financial liabilities at fair value through profit or loss during and at the end of
each reporting period.
(10)

The Groups financial liabilities at amortized cost are those that are not classified at fair value through
profit or loss. They are included in current liabilities, except for maturities greater than 12 months after
reporting date which are classified as non-current liabilities.
The Groups financial liabilities at amortized cost consist mainly of trade payable and other liabilities
(excluding payables to government agencies for value-added tax, withholding and other taxes payable) ,
due to related parties, dividends payable and borrowings.
2.3.2

Initial recognition and subsequent measurement

The Groups financial liabilities are initially measured at fair value plus transaction costs. Subsequently,
these are measured at amortized cost using the effective interest method. Interest expense on financial
liabilities is recognized within finance cost, at gross amount, in the statement of total comprehensive
income.
2.3.3

Derecognition

Financial liabilities are derecognized when extinguished, that is, when the obligation specified in a
contract is discharged or cancelled or when the obligation expires.
2.4

Determination of fair value

The Group classifies its fair value measurements using a fair value hierarchy that reflects the significance of
the inputs used in making the measurements. The fair value hierarchy has the following levels:

quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);
inputs other than quoted prices included within Level 1 that are observable for the asset or liability,
either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2); and
inputs for the asset or liability that are not based on observable market data (that is, unobservable
inputs) (Level 3).

The fair value of financial instruments traded in active markets is based on quoted market prices at the
reporting date. A market is regarded as active if quoted prices are readily and regularly available from an
exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent
actual and regularly occurring market transactions on an arms length basis.
The quoted market price used for financial instruments that are traded in active market is the current bid
price. These instruments are included in level 1. Instruments included in level 1 comprise primarily of
FTSE 100 equity investments classified as trading securities or available-for-sale.
The fair value of financial instruments that are not traded in an active market (for example, over-thecounter derivatives) is determined by using valuation techniques. These valuation techniques maximize the
use of observable market data where it is available and rely as little as possible on entity specific estimates.
If all significant inputs required to fair value an instrument are observable, the instrument is included in
level 2.

(11)

If one or more of the significant inputs is not based on observable market data, the instrument is included
in level 3. Specific valuation techniques used to value financial instruments include:

Quoted market prices or dealer quotes for similar instruments;

The fair value of interest rate swaps is calculated as the present value of the estimated future cash
flows based on observable yield curves;
The fair value of forward foreign exchange contracts is determined using forward exchange rates at
the reporting date, with the resulting value discounted back to present value ; and
Other techniques, such as discounted cash flow analysis, are used to determine fair value for the
remaining financial instruments.

The Groups available-for-sale financial asset with quoted market price is valued using Level 1 of the fair
value hierarchy and those with unquoted market price, which is carried at cost, is valued using Level 3 of
the fair value hierarchy.
The Group has no other significant financial assets and liabilities carried at fair value.
2.5

Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported in the statement of financial
position when there is a legally enforceable right to offset the recognized amounts and there is an
intention to settle on a net basis, or realize the asset and settle the liability simultaneously.
Offsetting of financial instruments is limited to balances with related parties.
2.6

Consolidation

Subsidiaries
These interim consolidated financial statements include the accounts of the Company and all
subsidiaries of the Parent Company (Note 1).
Subsidiaries are all entities over which the Group has the power to govern the financial and operating
policies generally accompanying a shareholding of more than one half of the voting rights. The
existence and effect of potential voting rights that are currently exercisable or convertible are
considered when assessing whether the Group controls another entity.
The purchase method of accounting is used to account for the acquisition of subsidiaries by the Parent
Company. The cost of an acquisition is measured as the fair value of the assets given, equity
instruments issues and liabilities incurred or assumed at the date of exchange, plus costs directly
attributable to the acquisition.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are
de-consolidated from the date that control ceases.
If the business combination is achieved in stages, the acquisition date fair value of the acquirers
previously held equity interest in the acquiree is remeasured to fair value at the acquisition date
through profit or loss.
The excess of the aggregate of the consideration transferred, the amount of any non-controlling interest
in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over
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the fair value of the Groups share of the identifiable net assets acquired is recorded as goodwill. If this
is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase,
the difference is recognized directly in profit or loss.
Intercompany transactions, balances and unrealized gains on transactions between group companies
are eliminated. Unrealized losses are also eliminated unless the transaction provides evidence of an
impairment of the asset transferred. The subsidiarys accounting policies are consistent with the
policies adopted by the Group.
Changes in ownership interests in subsidiaries without change of control
Transactions with non-controlling entities that do not result in loss of control are accounted for as equity
transactions - that is, as transactions with the owners in their capacity as owners. The difference between
fair value of any consideration paid and the relevant share acquired in the carrying value of net assets of
the subsidiary is recorded as equity under other equity charges account in the consolidated statement
of financial position. Gains or losses on disposals of non-controlling interests are also recorded in equity.
Associates
Associates are all entities over which the Group has significant influence but not control, generally
accompanying a shareholding of 20% to 50% of the voting rights. Investments in associates are
accounted for by the equity method of accounting and are initially recognized at cost. An allowance is
set up for any substantial and permanent decline in the carrying value of investment in associates.
The Groups share of its associates post-acquisition profits or losses is recognized in the statement of
total comprehensive income. The cumulative post-acquisition movements are adjusted against the
carrying amount of the investment. When the Groups share of losses in an associate is equal to or exceed
its interest in the associate, including any other unsecured receivables, the Group does not recognize
further losses, unless it has incurred obligations or made payments on behalf of the associates.
The Group determines at each reporting date whether there is any objective evidence that the
investment in the associate is impaired. If this is the case, the Group calculates the amount of
impairment as the difference between the recoverable amount of the associate and its carrying value
and recognizes the amount adjacent to share of profit (loss) of an associate in profit or loss.
Transactions with non-controlling interest
The Group applies a policy of treating transactions with non-controlling interests as transactions with
parties external to the Group. Disposals of non-controlling interests result in gains and losses for the
Group that are recorded in the consolidated total comprehensive income. Purchases from noncontrolling interests result in goodwill, being the difference between any consideration paid and the
relevant share acquired in the carrying value of net assets of the subsidiary. The Group has neither
disposed of nor acquired interest to or from the non-controlling interest during and at the end of each
reporting period.
2.7

Cash and cash equivalents

Cash and cash equivalents consist of cash deposits held at call with banks and other short-term highly
liquid investments with original maturities of three months or less. Cash in bank earns interest at the
prevailing bank deposit rate.

(13)

2.8

Receivables

Trade receivables arising from regular sales with an average credit term of 30 to 90 days are recorded at
fair value plus transaction cost, which approximates invoice value, less any provision for impairment.
Other receivables are recognized initially at fair value and subsequently measured at amortized cost using
effective interest method, less any provision for impairment.
An individual and collective provision for impairment of receivables is established when there is objective
evidence that the Group will not be able to collect all amounts due according to the original terms of
receivables. Significant financial difficulties of the debtor, probability that the debtor will enter
bankruptcy or financial reorganization, and default or delinquency in payments are considered as
indicators that the receivable is impaired. The amount of the provision is the difference between the
assets carrying amount and the present value of estimated future cash flows, discounted at the effective
interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the
amount of the loss is recognized in the provision for impairment of receivables in the statement of total
comprehensive income within selling and marketing costs.
The Group first assesses whether objective evidence of impairment exists individually for receivables that
are individually significant, and collectively for receivables that are not individually significant. If the
Group determines that no objective evidence of impairment exists for an individually assessed receivable,
whether significant or not, it includes the asset in a group of financial assets with similar credit risk
characteristics and collectively assesses them for impairment. Receivables that are individually assessed
for impairment and for which an impairment loss is or continues to be recognized are not included in a
collective assessment of impairment.
When a receivable is uncollectible, it is written off against the provision account for receivables.
Receivables and its related provision for impairment are written off when the Group has determined that
the receivable is uncollectible as they have already exerted all collection efforts, including filing a legal
case. Bad debts written off are specifically identified by the Groups marketing department after
exhausting all collection efforts (i.e. sending demand letters and legal notice of default to customers),
and is approved by the respective product manager and subsequently by the Board of Directors. Write
offs represent the release of previously recorded provision from the allowance account and credited to
the related receivable account following the Groups assessment that the related receivable will no longer
be collected after all collection efforts have been exhausted.
Subsequent recoveries of amounts previously written-off are credited against the provision account in
the statement of total comprehensive income. Reversals of previously recorded impairment provision
are credited in the statement of total comprehensive income based on the result of managements update
assessments, considering available facts and changes in circumstances, including but not limited to
results of recent discussions and arrangements entered into with customers as to the recoverability of
receivable at reporting date.

(14)

2.9

Inventories

Inventories are stated at the lower of cost and net realizable value (NRV). The cost of finished goods
inventories is determined on the basis of standard costs which are adjusted at periodic intervals and
which approximate actual manufacturing cost. The cost of raw materials is determined using the
weighted average and specific identification method. Inventories in transit are valued at invoice cost
including related importation costs. NRV is the estimated selling price in the ordinary course of business,
less applicable variable selling and distribution expenses. Provision for inventory losses and obsolescence
is provided, when necessary, based on managements review of inventory turnover and projected future
production demands.
Provision for inventory losses is established for slow moving, obsolete, defective and damaged
inventories based on physical inspection and management evaluation. Inventories and its related
provision for impairment are written off when the Group has determined that the related inventory is
already obsolete and damaged. Write offs represent the release of previously recorded provision from
the allowance account and credited to the related inventory account following the disposal of the
inventories. Destruction of the obsolete and damaged inventories is made in the presence of regulatory
agencies.
Reversals of previously recorded impairment provisions are credited against provision account in the
statement of total comprehensive income based on the result of managements update assessment,
considering available facts and circumstances, including but not limited to net realizable value at the
time of disposal.
Inventories are derecognized when sold or otherwise disposed of.
2.10

Claim for input value added tax (VAT), prepayments and other current assets

Claim for input VAT

Claim for input VAT and prepaid taxes is stated at face value less provision for impairment, if any.
Provision for unrecoverable input VAT and prepaid taxes, if any, is maintained by the Company at a
level considered adequate to provide for potential uncollectible portion of the claim. The Company, on
a continuing basis, reviews the status of the claim designed to identify those that may require provision
for impairment losses.
A provision for impairment of unrecoverable input VAT and prepaid taxes is established when there is
objective evidence that the Company will not be able to recover the claims. The carrying amount of the
asset is reduced through the use of an allowance account and the amount of the loss is recognized in the
statement of total comprehensive income within cost of goods sold.
Prepayments in the form of unused tax credits are derecognized when there is a legally enforceable
right to offset the recognized amounts against income tax due and there is an intention to settle on a
net basis, or realize the asset and settle the liability simultaneously.

(15)

Prepayments and other current assets

Prepayments are recognized in the statement of financial position in the event that payment has been
made in advance of obtaining right of access to goods or receipt of services and measured at nominal
amounts. These are derecognized in the statement of financial position upon delivery of goods or when
services have been rendered, through amortization over a certain period of time, and use or
consumption.
Other non-current assets consist substantially of input value-added tax and creditable withholding
taxes which are recognized as assets in the period such input value-added tax and income tax payments
become available as tax credits to the Group and carried over to the extent that it is probable that the
benefit will flow to the Group. These are derecognized in the statement of financial position when there
is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net
basis, or realize the asset and settle the liability simultaneously.
Prepayments and other non-financial assets are included in current assets, except when the related
goods or services are expected to be received or rendered more than twelve (12) months after the
reporting period which are classified as non-current assets.
2.11

Property, plant and equipment

Property, plant and equipment are stated at historical cost less related accumulated depreciation and
amortization, and provision for any impairment. Historical cost includes expenditure that is directly
attributable to the acquisition of the items.
Subsequent costs are included in the assets carrying amount or recognized as a separate asset, as
appropriate, only when it is probable that future economic benefits associated with the item will flow to
the Group and the cost of the item can be measured reliably. All other repairs and maintenance are
charged to the profit or loss during the financial period in which they are incurred.
Construction in progress, which represents properties under construction, is stated at cost and
depreciated only when the relevant assets are completed and put into operational use. Upon
completion, these properties are reclassified to their relevant property and equipment account.
Leasehold improvements are amortized over the period of the lease agreement or estimated useful life
of the improvements, which is shorter than the lease term, considering the renewal option.

(16)

Depreciation on assets is computed on the straight-line method to allocate the cost of each asset, less its
residual value, over its estimated useful life, determined based on the Groups historical information
and experience on the use of such assets, as follows:

Building
Machinery and equipment
Transportation and equipment
Furniture and fixtures
Office equipment
Leasehold improvements

In years
40
5 - 20
5 - 10
5
5
5

The assets residual values and useful lives are reviewed, and adjusted as appropriate, at each reporting
date.
An assets carrying amount is written down immediately to its recoverable amount if the assets carrying
amount is greater than its estimated recoverable amount.
An item of property and equipment is derecognized upon disposal or when no future economic benefits
are expected from its use or disposal at which time the cost and their accumulated depreciation are
removed from the disposal accounts.
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount of
the assets and are included in the profit or loss.
2.12

Impairment of non-financial assets

Non-financial assets that have an indefinite useful life, such as land, are not subject to amortization and are
tested annually for impairment. Other non-financial assets, mainly property, plant and equipment and
investment in associates, are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the
amount by which the assets carrying amount exceeds its recoverable amount. The recoverable amount is
the higher of an assets fair value less cost to sell and value in use. For the purposes of assessing
impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows
(cash-generating units). Impairment losses, if any, are recognized in the statement of total
comprehensive income as part of administrative expenses.
When impairment loss subsequently reverses, the carrying amount of the asset or cash-generating unit
is increased to the revised estimate of its recoverable amount, but the increased carrying amount
should not exceed the carrying amount that would have been determined had no impairment loss been
recognized for the asset or cash-generating unit in prior years. A reversal of an impairment loss is
recognized are credited against the provision account in the statement of total comprehensive income.
2.13

Current and deferred income tax

The tax expense for the period comprises current and deferred tax. Tax is recognized in the profit or
loss, except to the extent that it relates to items recognized in other comprehensive income or directly
(17)

in equity. In this case the tax is also recognized in other comprehensive income or directly in equity,
respectively.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively
enacted at the reporting date. Management periodically evaluates positions taken in the tax returns
with respect to situations in which applicable tax regulation is subject to interpretation and establishing
provisions where appropriate on the basis of amounts to be paid to tax authorities.
Deferred income tax (DIT) is provided in full, using the liability method, on temporary differences
arising between the tax bases of assets and liabilities and their carrying amounts in the financial
statements. DIT is determined using tax rates (and laws) that have been enacted or substantively
enacted by the reporting date and are expected to apply when the related DIT asset is realized or the
DIT liability is settled.
DIT assets are recognized for all deductible temporary differences, carry-forward of unused tax credits
and unused tax losses, to the extent that it is probable that future taxable profit will be available against
which the temporary differences can be utilized. Deferred income tax liabilities are recognized in full
for all taxable temporary differences.
DIT assets and liabilities are offset when there is a legally enforceable right to offset current tax assets
against current tax liabilities and when the DIT assets and liabilities relate to income taxes levied by the
same taxation authority on either the taxable entity or different taxable entities where there is an
intention to settle the balances on a net basis.
The Group re-assesses at each financial position date the need to recognize a previously unrecognized
DIT asset, if any.
2.14

Trade payable and other liabilities

Trade payable and other liabilities are obligations to pay for goods or services that have been acquired
in the ordinary course of business from suppliers.
Trade payable and other liabilities are recognized in the period in which the related money, goods or
services are received or when a legally enforceable claim against the Group is established or when the
corresponding assets or expenses are recognized. These are classified as current liabilities if payment is
due within one year or less (or in the normal operating cycle of the business if longer). If not, they are
presented as non-current liabilities.
Trade payable and other liabilities are recognized initially at fair value and subsequently measured at
amortized cost using effective interest method.
2.15

Borrowings and borrowing costs

Borrowings
Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are
subsequently stated at amortized cost; any difference between the proceeds (net of transaction costs)
and the redemption value is recognized in the statement of total comprehensive income over the period
of the borrowings using the effective interest method.

(18)

Borrowings are classified as current liabilities unless the Group has unconditional right to defer
settlement of the liability for at least twelve months after the reporting date.
Borrowing costs
Borrowing costs incurred for the construction of any qualifying asset, if any, are capitalized during the
period of time that is required to complete and prepare the asset for its intended use.
Other borrowing costs are recognized and charged to operations in the year in which these are incurred.
2.16

Provisions

Provision are recognized when the Group has a present legal or constructive obligation as a result of
past events, it is probable that an outflow of resources will be required to settle the obligation, and a
reliable estimate of the amount can be made. Provisions are not recognized for future operating losses.
Provisions are measured at the present value of the expenditures expected to be required to settle the
obligation using a pre-tax rate that reflects current market assessments of the time value of money and
the risks specific to the obligation. The increase in the provision due to passage of time is recognized as
interest expense.
Provisions are reviewed at reporting date and adjusted to reflect the current best estimate.
2.17

Equity

Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares
are shown in equity as a deduction from the proceeds.
Deposit for future stock subscription
Deposit for future stock subscription represents funds received by the Group with the intention to apply
the same as payment for additional issuance of common shares or additional paid in capital.
Retained earnings
Appropriated retained earnings
Appropriated retained earnings pertain to the portion of the accumulated profit from operations which
are restricted or reserved for a specific purpose such as capital expenditures for expansion projects, and
approved by the Groups Board of Directors.
Unrestricted retained earnings
Unrestricted retained earnings pertain to the unrestricted portion of the accumulated profit from
operations of the Group which are available for dividend declaration.

(19)

2.18

Dividend distribution

Dividend distribution to the Groups shareholders is recognized as a liability in the financial statements in
the period in which the dividends are approved by the Groups Board of Directors.
Recording of stock dividend depends on whether the stock dividend declared is a small stock dividend or
a large stock dividend. Stock dividend declared is considered to be small when the shares to be issued are
less than 20-25% of the total outstanding shares before the stock dividend, otherwise the stock dividend
will be considered large. The amount to be released from retained earnings when a small stock dividend
is declared will be equivalent to the fair market value of the shares at the date of declaration. Any excess
of the fair market value of the shares against its par value will be recorded as additional paid-in capital.
On the other hand, the amount to be released in retained earnings when a large stock dividend is declared
will be equivalent to the par value of the shares being issued.
2.19

Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for the sale of goods and
services in the ordinary course of the Groups activities. Revenue is shown net of value-added tax,
returns, rebates and discounts.
For the seven months ended July 31, revenue is shown net of the following:

Discounts
Returns

2012
43,003,676
33,123,091
76,126,767

2011
23,865,607
26,818,250
50,683,857

The Group recognizes revenue when the amount of revenue can be reliably measured, it is probable that
future economic benefits will flow into the entity, collectability of the related receivable is reasonably
assured, and specific criteria have been met for each of the Groups activities as described below. The
amount of revenue is not considered to be reliably measured until all contingencies relating to the sale
have been resolved.
Revenue is recognized as follows:
Sale of goods
Sale of goods are recognized when the Group has delivered the products to the customer and there is no
unfulfilled obligation that could affect the acceptance of the products. Delivery does not occur until the
products have been shipped to the specific location, the risk of obsolescence and loss have been
transferred to the customer, and either the customer has accepted the products in accordance with the
sales contract, the acceptance provisions have lapsed, or the Group has objective evidence that all
criteria for acceptance have been satisfied.

(20)

Service fees
Service fees from technical, logistics, administrative and executive management service agreements are
recognized when the service has been completed and rendered in accordance with the provision of
relevant agreements.
Service income
Service income from rental, lighterage and thruput is recognized when services have been rendered and
accepted by the related parties which coincide with invoicing.
Dividend income
Dividend income is recognized when the right to receive payment is established.
Interest income
Interest income from cash in banks, which is presented net of final taxes paid or withheld, is recognized
on a time-proportion basis using the effective interest method.
Other income
All other income items are recognized when earned.
2.20

Costs and expenses

Costs and expenses are charged to operations when incurred.

2.21

Employee benefits

Retirement benefit obligation

The Group has a defined benefit retirement plan in accordance with the local conditions and practices
in the Philippines. The plan is generally funded through payments to trustee-administered funds as
determined by periodic actuarial calculations. Defined benefit plans define an amount of pension
benefit that an employee will receive on retirement, usually dependent on one or more factors such as
age, years of service and compensation.
The liability recognized in the statement of financial position is the present value of the defined benefit
obligation less fair value of the plan assets at the reporting date, together with adjustments for
unrecognized past service costs. In cases when the amount determined results in an asset, the Group
measures the resulting asset at the lower of such amount determined and the total of any cumulative
unrecognized net actuarial losses and past service cost and the present value of any economic benefits
available to the Group in the form of refunds or reductions in future contributions to the plan. The
defined benefit obligation is calculated annually by independent actuaries using the projected unit credit
method. The present value of the defined benefit obligation is determined by discounting the estimated
future cash outflows using interest rates of government bonds that are denominated in the currency in
(21)

which the benefits will be paid, and that have terms to maturity which approximate the terms of the
related pension liability.
Cumulative actuarial gains and losses arising from experience adjustments and changes in actuarial
assumptions in excess of the greater of 10% of the value of plan assets or 10% of the defined benefit
obligation are spread to income over the employees expected average remaining working lives.
Past service costs are recognized immediately in the profit or loss, unless the changes to the pension plan
are conditional on the employees remaining in service for a specified period of time (the vesting period).
In this case, the past service costs are amortized on a straight-line basis over the vesting period.
Termination benefits
Termination benefits are payable when employment is terminated before the normal retirement date,
or when an employee accepts voluntary redundancy in exchange for these benefits. The Group
recognizes termination benefits when it is demonstrably committed to either: terminating the
employment of current employees according to a detailed formal plan without possibility of withdrawal;
or providing termination benefits as a result of an offer made to encourage voluntary redundancy.
Benefits falling due more than 12 months after reporting date are discounted to present value.
2.22

Leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor
are classified as operating leases. Payments made under operating leases are charged to the statement
of total comprehensive income on a straight-line basis over the period of the lease.
Leases where the Group has substantially all the risks and rewards of ownership are classified as
finance leases. Finance leases are capitalized at the leases commencement at the lower of the fair value
of the leased property and the present value of the minimum lease payments. The Group has no lease
that qualifies for finance lease during and at the end of each reporting period.
When the Group enters into an arrangement, comprising a transaction or a series of related
transactions, that does not take the legal form of a lease but conveys a right to use an asset or is
dependent on the use of a specific asset or assets, the Group assesses whether the arrangement is, or
contains, a lease. The Group does not have such arrangements during and at the end of each reporting
period.
2.23

Segment reporting

Operating segments are in a manner consistent with the internal reporting provided to the Chief
Operating Decision Maker (CODM), which is the represented by the members of the Management
Committee (ManCom) in making collective operating decisions with regards to the business segments.
The ManCom, which is responsible for allocating resources and assessing performance of the operating
segments, is identified as the one that makes strategic decisions for the Group.
The accounting policies used to recognize and measure the segments assets, liabilities and profit or
loss is consistent with that of the financial statements.
(22)

2.24

Related party relationships and transactions

Related party relationship exists when one party has the ability to control, directly or indirectly through
one or more intermediaries, the other party or exercises significant influence over the other party in
making financial and operating decisions. Such relationship also exists between and/or among entities
which are under common control with the reporting enterprise, or between and/or among entities and
its key management personnel, directors, or its stockholders. In considering each possible related party
relationship, attention is directed to the substance of the relationship, and not merely the legal form.
2.25

Foreign currency transaction and translation

Functional and presentation currency

Items included in the consolidated financial statements are measured using the currency of the primary
economic environment in which the entity operates (the functional currency). The consolidated
financial statements are presented in Philippine Peso, which is the Groups functional and presentation
currency.
Transactions and balances
Foreign currency transactions are translated into Philippine Peso using the exchange rates prevailing at
the dates of the transaction. Foreign exchange gains and losses resulting from the settlement of foreign
currency transactions and from the translation at year-end exchange rates of monetary assets and
liabilities denominated in foreign currencies are recognized in the profit or loss.
For income tax purposes, foreign exchange gains and losses are treated as taxable income or deductible
expense in the period such are realized/sustained.
2.26

Subsequent events (or events after the reporting date)

Post year-end events that provide additional information about the Groups financial position at
reporting date (adjusting events) are reflected in the financial statements. Post year-end events that
are not adjusting events are disclosed in the notes to the financial statements when material.
Note 3 - Financial risk and capital management
3.1

Financial risk factors

The Groups activities expose it to a variety of financial risks and these activities involve the analysis,
evaluation and management of some degree of risk or combination of risks. The Groups overall risk
management program focuses on the unpredictability of financial markets, aims to achieve an
appropriate balance between risk and return and seeks to minimize potential adverse effects on the
Groups financial performance.
Risk management is carried out by the ManCom (Management Committee).
The most important types of risk the Group manages are: credit risk, market risk and liquidity risk.
Market risk includes foreign exchange, interest and price risks.
(23)

3.2

Components of financial assets and financial liabilities by category

Financial assets
Details of the Groups financial assets are as follows:

Loans and receivables

Cash
Receivables, gross
Due from related parties
Dividends receivable
Loans receivable
Refundable deposits
Available for sale financial assets
Total financial assets

Notes

July 31, 2012

December 31, 2011

5
6
19
10

1,444,832,139
1,216,876,816
163,144,438
54,180,878
11,000,000
19,579,445
2,909,613,716
84,350,938
2,993,964,654

598,158,811
411,003,588
204,546,192
11,000,000
2,470,240
1,227,178,831
51,025,938
1,278,204,769

Trade and other receivables are presented gross of provision for impairment at July 31, 2012 amounting
to P1,913,569 (December 31, 2011 - P1,442,165).
Refundable deposits at July 31, 2012 and December 31, 2011 amounting to P19,579,445 and P2,470,240,
respectively, are presented among other non-current assets in the interim consolidated statement of
financial position.
The other components of other current and non-current assets are considered non-financial assets. These
include substantially input value-added tax, creditable withholding taxes and prepayments.
Financial liabilities
Details of the Groups financial liabilities, categorized as liabilities at amortized cost, are as follows:

Trade payable and other liabilities

Due to related parties
Borrowings
Total financial liabilities

Notes
12
19
13

July 31, 2012

488,676,684
1,692,926,798
3,127,725,484
5,309,328,966

December 31, 2011

226,620,873
621,229,942
750,000,000
1,597,850,815

Trade payable and other liabilities exclude amounts due to regulatory agencies, output VAT and
advances from customers as at July 31, 2012 amounting to P12,548,340, P1,530,342 and P23,062,518,
respectively (December 31, 2011 - P9,006,197, nil and P1,649,559) (Note 12).

(24)

3.3

Credit risk

Credit risk arises from cash deposits with banks and financial institutions, as well as credit exposure on
receivable from customers, related parties and other counterparties.
The Groups financial assets that are subject to credit risks are shown below:

July 31, 2012

Cash in banks
Receivables, gross
Due from related parties
Dividends receivable
Loans receivable
Refundable deposits

Carrying
amount

Neither past
due nor
impaired

1,442,864,715
1,216,876,816
163,144,438
54,180,878
11,000,000
19,579,445

1,442,864,715
787,875,438
163,144,438
54,180,878
11,000,000
19,579,445

2,907,646,292

December 31, 2011

Cash in banks
Receivables, gross
Due from related parties
Loans receivable
Refundable deposits

Carrying
amount
597,579,144
411,003,588
204,546,192
11,000,000
2,470,240
1,226,599,164

2,478,644,914
Neither past
due nor
impaired
597,579,144
258,053,362
204,546,192
11,000,000
2,470,240
1,073,648,938

Past due but not impaired

Overdue
and
impaired

31 - 60 days

61 - 90 days

Over 90
days

370,426,568
-

46,210,601
-

10,450,640
-

1,913,569
-

370,426,568

46,210,601

10,450,640

1,913,569

Past due but not impaired

31 - 60 days

61 - 90 days

Over 90
days

109,568,443
109,568,443

31,194,517
31,194,517

10,745,101
10,745,101

Overdue
and
impaired
1,442,165
1,442,165

The cash above excludes cash on hand at July 31, 2012 amounting to P1,967,424 (December 31, 2011 P579,667) (Note 5).
The maximum exposure to credit risk at the reporting date is equal to the carrying value of financial
assets summarized above.
None of the financial assets that are fully performing has been renegotiated in 2012 and 2011.
The Group does not hold any collateral as security to the above financial assets.
Credit quality of the Groups financial assets
(i)

Neither past due nor impaired

Cash in banks
Credit risk exposure arising from cash in banks arises from default of the counter party, with a
maximum exposure equal to the fair value of financial assets. The Group has policies that limit the
amount of credit exposure with financial institutions.

(25)

To minimize credit risk exposure, the Group deposits its cash in banks with good financial ratings.
Cash deposited in these banks are as follows:

Universal banks
Thrift banks
Commercial banks

July 31, 2012

1,408,688,019
22,384,282
11,792,414
1,442,864,715

December 31, 2011

566,280,123
26,932,797
4,366,224
597,579,144

Receivables
Trade receivables
The Group has prudent credit policies to ensure that sales of its products are made to customers with
good credit history. The senior management team, product group heads and the respective sales teams
perform monthly reviews of outstanding receivables as part of the regular performance assessment
process. All significant receivables from key customers are monitored for collectability and actual
settlement performance, and specific action plans are required for any material overdue amounts from
all categories of customers.
From time to time management undertakes an evaluation of certain customer accounts for potential
provisioning and write-off.
Trade receivables from its major customers (existing customers with some defaults in the past but all
defaults were fully recovered) amounted to P 333,086,046 (December 31, 2011 - P4,535,660) comprising
42% of neither past due nor impaired at July 31, 2012 (December 31, 2011 - 2%). The remaining balance
comes from a broad base of customers in all of the markets where the Groups business is engaged. The
Group considers that it is impracticable to specifically identify those customers with no history of default
from those with some defaults in the past considering the number of customers and the volume and level
of transactions under this category.
Advances to officers and employees
This account pertains to mostly cash advances to officers and employees for expenses used in various
official business activities. To address credit risk, these advances are subject to liquidation and/or
collectible through salary deduction.
Other receivables
Other receivables comprise mainly of receivable from third parties which are considered collectible on
demand. The Group limits its exposure to credit risk by transacting only with counterparties that have
appropriate and acceptable credit history.
Due from related parties
Due from related parties, arising mainly from transaction on sale of goods and services, are given the
right of offset against the outstanding balance of due to related parties as of a particular date.
Receivables from related parties under the neither past due nor impaired category have minimal history
of default or write off and considered fully performing. The Group is not expecting significant exposure
(26)

in these balances considering these are transacted with related parties.

Dividend receivable
Dividend receivable is fully collectible from its subsidiary with no historical default rates. This is
expected to be paid on or before December 31, 2012 (Note 8).
Loans receivable
Loans receivable pertains to an unsecured loan made to a third party, which is due and demandable
and is subject to an annual interest rate of 12% per annum. The Company is not expecting significant
exposure in this balance.
Refundable deposits
This account pertains to security deposits on properties leased by the Group. Security deposits are
generally refundable at the end of the lease term. Management is not expecting significant credit risk
on these deposits.
(ii)

Past due but not impaired

Past due but not impaired trade receivables are related to a number of independent customers with
whom there is no recent history of default. At July 31, 2012 and December 31, 2011, past due but not
impaired trade receivables amounting to P427,087,809 and P151,508,061, respectively, are fully
recoverable and no provision for impairment is required on these outstanding balances.
(iii)

Overdue and impaired

Overdue and impaired trade receivable relate to transactions arising from sale of goods to customers.
The Company establishes an allowance for impairment based on specific loss component that relates to
individually significant exposures.
The individually impaired trade receivables amounting to P1,913,569 as at July 31, 2012
(December 31, 2011 - P1,442,165) substantially relate to receivables from customers that are in difficult
economic situations. Overdue and impaired accounts at July 31, 2012 and December 31, 2011 are fully
provided with allowance for impairment.
For the seven months ended July 31, 2012, the Company has directly written-off uncollectible
receivables amounting to P942,591 (2011 - P17,792,355) (Note 6).
3.4

Market risk

3.4.1

Foreign currency risk

The Group has transactional currency exposures. Such exposure arises mainly from receivable from
customers in currencies other than the Groups functional currency. As at July 31, 2012 and December
31, 2011, the Group has significant assets and liabilities denominated in Australian Dollar and
US Dollar as presented in Note 22.

(27)

The Group manages its foreign currency exchange risk through minimizing foreign currency
denominated transactions. Also, the Group maintains sufficient cash in foreign currency to cover its
maturing obligations.
At July 31, 2012, if the Australian Dollar and US Dollar had weakened/strengthened by 0.13% and
0.02%, respectively (July 31, 2011 - 2.11% and 2.04%), profit and equity would have been P32,022
higher/lower (July 31, 2011 - P3,165,912 lower/higher) mainly as a result of net foreign exchange
gains/losses on translation of Australian Dollar and US Dollar-denominated monetary assets and
liabilities.
The reasonable possible change in foreign exchange rate used in the sensitivity analysis is the rate of
change in various foreign currencies using the Peso equivalent at reporting date and sixty (60) days
from reporting date, by which management is expected to receive or settle the Groups most significant
financial assets or liabilities, respectively.
3.4.2

Price risk

The Group is exposed to price risk in relation to its available-for-sale financial asset. Components of
equity would increase or decrease as a result of gains or losses on these financial assets classified as
available-for-sale. Management monitors such financial instruments based on the current market price
of the shares. Available-for-sale financial assets are managed on an individual basis and all buy and sell
decisions are approved accordingly, thereby reducing the Groups exposure to equity price risk at an
acceptably low level.
Management does not foresee significant exposure to price risk with respect to available-for-sale
financial assets.
3.4.3

Cash flow and fair value interest rate risks

Cash flow interest rate risk is the risk that the future cash flows of a financial assets and
liabilities will fluctuate because of changes in market interest rates. Fair value interest rate risk
is the risk that the value of a financial assets and liabilities will fluctuate because of changes in
market interest rates.
Cash flow interest rate risks
The Groups exposure to cash flow interest rate risk pertains to short-term borrowings where the
related interests are repriced at periodic intervals based on the prevailing mark-to-market prices, in
accordance with the terms of the agreement. The Groups practice is to manage its interest cost by
reference to current market rates in borrowings.
At July 31, 2012, if interest rates increased / decreased by 1.59% (July 31, 2011 - 0.5%) from the last
repricing date, with all other variables held constant, profit and equity would have been P29,009,654
(July 31, 2011 - P2,187,500) lower/higher, respectively, mainly as a result of higher/lower interest
expense, net based on variable rates.
The reasonable possible change in interest rate used in the sensitivity analysis is the rate of change
between the nominal interest rate at the end of the reporting period and the use of hypothetical interest
rate (gross of applicable final tax rate), which is normally equal to the discount rate set by reference to
(28)

yields on government bonds, determined at the next repricing date or the date by which management is
expected to settle the Groups variable interest-bearing borrowings.
Fair value interest rate risk
The Group has no significant financial assets and liabilities that are subject to fixed interest rates.
Accordingly, the Group does not foresee fair value risk to be significant.
3.5

Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding
through an adequate amount of credit facilities and the ability to close out market positions. Due to the
dynamic nature of the underlying businesses, the Group aims to maintain flexibility by keeping credit
lines available.
On a regular basis, management monitors forecasts of the Groups liquidity reserve on the basis of
expected cash flow. The Group places cash in excess of immediate requirements in banks.
The table below presents the Groups financial liabilities maturing in the next twelve months from
reporting date.

July 31, 2012

Trade payable and
other liabilities
Due to related parties
Borrowings and future
interest payments
on borrowings

December 31, 2011

Trade payable and
other liabilities
Due to related parties
Borrowings and future
interest payments
on borrowings

Due and
demandable

Less than 3
months

Between 3
to 6 months

Between 7
to 12 months

Over 12
months

Total

113,192,638
1,744,084,916

353,104,476
-

9,237,242
-

13,142,328
-

488,676,684
1,744,084,916

150,000,000
2,007,295,378

807,075,767
1,160,180,243

1,308,189,606
1,317,426,848

907,471,181
920,613,509

3,172,754,378
5,405,515,978

Due and
demandable

Less than 3
months

Between 3
to 6 months

Between 7
to 12 months

Over 12
months

Total

66,536,356
621,229,942

88,900,910
-

71,183,607
-

226,620,873
621,229,942

148,250,000
836,016,298

601,750,000
690,650,910

25,740,000
96,923,607

775,740,000
1,623,590,815

At July 31, 2012, borrowings include undiscounted cash flows on interest payable of P45,028,894
(December 31, 2011 - P25,740,000) until its maturity.
The amounts disclosed in the table are the contractual undiscounted cash flows. Balances equal their
carrying balances, as the impact of discounting is not significant.
The Group believes that cash generated from its operating activities is sufficient to meet maturing
obligations required to operate the business. The Group would also be able to meet unexpected cash
outflows by accessing additional funding sources from local banks and related parties.

(29)

The Group expects to settle the above financial obligations in accordance with their maturity date.
3.6

Capital management

The Groups objective when managing capital is to generate the maximum possible returns for its
shareholder while taking on a manageable degree of risk ensuring that the Group will continue to
operate as a going concern into the foreseeable future.
In order to maintain or adjust the capital structure, the Group reviews its capital structure from time to
time to assess the proper financing mix necessary to grow and sustain its operations. As a matter of
policy, capital expenditures have been financed from internally-generated cash flow while investments
in working capital will be augmented by short-term bank borrowings from time to time. The Group has
been engaged in a conscious effort to keep its overall gearing ratio as low as possible through proper
management of its working capital cycle.
At July 31, 2012 and December 31, 2011, total capital is equal to the equity as shown in the statement of
financial position.
Earnings in excess of cash dividend distribution to shareholder have been continuously redeployed and
reinvested in the growth of the Groups business. Each instance of expansion of manufacturing
capacity and entry into new products and markets undergo a thorough evaluation process to ensure
that such investments and marketing programs are in consonance with the Groups core competencies
and would be enhancing, rather than diminishing, shareholder value in the long run.
The Group is not subject to externally imposed capitalization requirements.
Note 4 - Critical accounting estimates, assumptions and judgments
Estimates, assumptions and judgments are continually evaluated and are based on historical experience
and other factors, including expectations of future events that are believed to be reasonable under the
circumstances.
The Group makes estimates and assumptions concerning the future. The resulting accounting
estimates will, by definition, seldom equal the related actual results. The estimates, assumptions and
judgments that have a significant risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year are discussed below.
4.1

Critical accounting estimates and assumptions

Retirement benefit obligation (Note 20)

The present value of the retirement benefit obligation depends on a number of factors that are
determined on an actuarial basis using a number of assumptions. The assumptions used in
determining the net cost (income) for retirement benefit include the discount rate, expected return on
plan asset and future salary increases. Any changes in these assumptions will impact the carrying
amount of retirement benefit obligation.

(30)

The Group determines the appropriate discount rate at the end of each year. This is the interest rate
that should be used to determine the present value of estimated future cash outflows expected to be
required to settle the pension obligation. In determining the appropriate discount rate, the Group
considers the interest rates of government bonds that are denominated in the currency in which the
benefits will be paid and that have terms to maturity approximating the terms of the related retirement
benefit obligation and related retirement benefit expense.
Other key assumptions for retirement benefit obligation are based in part on current market
conditions.
The Group considers that it is impracticable to disclose with sufficient reliability the possible effects of
sensitivities surrounding these actuarial assumptions at reporting date. One or more of the actuarial
assumptions may differ significantly and as a result, the actuarial present value of the defined benefit
obligation estimated at reporting date may differ significantly from amount reported.
Estimated useful life of property, plant and equipment (Note 11)
The useful life of each of the Groups property, plant and equipment is estimated based on the period
over which these assets are expected to be available for use. Such estimation is based on a collective
assessment of internal technical evaluation and experience with similar assets. The estimated useful
life of each asset is reviewed periodically and updated if expectations differ from previous estimates due
to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of
the asset. It is possible, however, that future results of operations could be materially affected by
changes in the amounts and timing of recorded expenses brought about by changes in the factors
mentioned above. A change in the estimated useful life of any property, plant and equipment would
impact the recorded expenses and non-current assets.
The Group considers that it is impracticable to disclose with sufficient reliability the possible effects of
sensitivities surrounding the estimated useful lives of the property, plant and equipment at reporting
date. One or more of the assumptions may differ significantly and as a result, the net carrying value of
the property, plant and equipment at reporting date may differ significantly from amount reported.
4.2

Critical accounting judgment in applying the entitys accounting policies

Provision for impairment of receivables (Note 6)

Provision for impairment of receivables is maintained at a level considered adequate to provide for
potentially uncollectible receivables. The level of provision is based on past collection experience and
other factors that may affect collectibility. An evaluation of the receivables, designed to identify
potential charges to the provision, is performed on a continuous basis throughout the year.
Management evaluates specific accounts of customers who are unable to meet their financial
obligations. In these cases, management uses judgment based on the best available facts and
circumstances, including but not limited to, the length of relationship with the customers and the
customers payment history. The amount and timing of recorded expenses for any period would
therefore differ based on the judgments made.
For the seven months ended July 31, 2012, the Group has written off uncollectible receivables
amounting to P942,591 (December 31, 2011 - P17,792,355) (Note 6).

(31)

In relation to receivables which are past due but not impaired, no provision for impairment has been
determined by management to be necessary considering customer relationship and historical
experience.
Although the amount and timing of recorded expenses for any period would differ based on the
judgments made, receivables are recognized at fair value based on recently observed market conditions.
Such fair values may change materially within the next financial year but these changes would not arise
from assumptions or other sources of estimation uncertainty as at July 31, 2012 and December 31, 2011
and for the seven months ended July 31, 2012 and 2011.
Provision for inventory obsolescence (Note 7)
Provision for inventory obsolescence is maintained at a level considered adequate to provide for potential
loss on inventory items. The level of provision is based on past experience and other factors affecting the
recoverability and obsolescence of inventory items. An evaluation of inventories, designed to identify
potential charges to the provision, is performed on a continuous basis throughout the period.
Management uses judgment based on the best available facts and circumstances, including but not
limited to evaluation of individual inventory items future recoverability and utilization. The amount and
timing of recorded expenses for any period would therefore differ based on the assessment and
judgments made. A change in provision for inventory obsolescence would impact the Groups recorded
expenses and current assets.
At July 31, 2012 and December 31, 2011, Group has not provided any allowance for inventory
obsolescence.
The carrying values of the inventories at the end of the reporting period and the amount and timing of
recorded provision for any period could be materially affected by actual experience and changes in such
judgments such as effect of technological obsolescence, competition in the market and changes in
prices of raw and packaging materials, including any associated labor costs. Thus, it is reasonably
possible, on the basis of existing knowledge, that outcome within the next financial year arising from
changes in judgments may have a significant impact on the carrying amounts of provisions for
inventories.
Provision for unrecoverable input tax credits (Note 8)
Provision for unrecoverable input tax credits is maintained at a level considered adequate to provide
for potentially unrecoverable tax claims from excess input value-added taxes (VAT). The level of
provision is based on factors affecting the recoverability of the tax credit certificates applied and filed
with the Bureau of Internal Revenue (BIR). An evaluation of the input VAT claims, designed to identify
potential charges to the provision, is performed on a continuous basis throughout the period.
Management uses judgment based on the best available facts and circumstances, including but not
limited to the evaluation of the individual tax credit claims recoverability and future utilization.
Recoverability of creditable withholding taxes (Note 8)
The Group recognizes creditable withholding taxes to the extent that it is probable that future tax
liabilities will be available against which tax credits can be utilized. Determining the realizability of
creditable withholding taxes requires the assessment of the availability of taxable profit expected to be
(32)

generated from the operations which effectively drives the tax liabilities against which such creditable
taxes can be applied.
Significant judgment is required in determining the realizability of creditable withholding taxes.
Considering the Group is primarily engaged in providing management and support services to its
affiliates, from which the creditable withholding taxes arise, management believes that the Group
would be able to obtain sufficient taxable income and future tax liabilities. Accordingly, creditable
withholding taxes as at reporting dates are realizable.
Impairment of investment in associates (Note 10)
The Groups investment in associates is carried at cost. The carrying value is reviewed and assessed for
impairment whenever events or changes in circumstances indicate that the carrying amount may not be
recoverable. Changes in those management judgments and assessments could have a significant effect
on the carrying value of investments in associates and the amount and timing of recorded provision for
any period.
As at July 31, 2012 and December 31, 2011, based on managements assessment and judgment, there
are no indications of impairment or changes in circumstances indicating that the carrying value of its
investment in associates may not be recoverable.
Impairment of property, plant and equipment (Note 11)
The Groups property, plant and equipment is carried at cost. The carrying value is reviewed and
assessed for impairment whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. Changes in those assessment and judgment could have a significant
effect on the carrying value of property, plant and equipment and the amount and timing of recorded
provision for any period.
As at July 31, 2012 and December 31, 2011, management believes, based on its assessment and
judgment that there are no indications of impairment or changes in circumstances that the carrying
value of its property, plant and equipment may not be recoverable.
Provision for income tax; deferred income tax (Note 22)
The Group recognizes deferred tax assets to the extent that it is probable that future taxable income will
be available against which temporary differences can be utilized. Determining the realizability of
deferred tax assets requires the assessment on the availability of taxable profit expected to be generated
from the operations against which income tax assets can be applied.
Further, significant judgment is required in determining the provision for income taxes. There are
many transactions and calculations for which the ultimate tax determination is uncertain in the
ordinary course of business. The Group recognizes liabilities based on careful evaluation of whether
additional taxes will be due. Where the final tax outcome of these matters is different from the amounts
that were initially recorded, such differences will impact the Groups income tax and deferred tax
provisions in the period in which such determination is made.

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Note 5 - Cash and cash equivalent

Cash consist of:

Cash in bank
Cash on hand
Cash equivalent

July 31, 2012

December 31, 2011

1,442,864,715
1,967,424
1,444,832,139

442,004,432
579,667
155,574,712
598,158,811

For the seven months ended July 31, 2012, the Group earned interest income of P3,899,458 (2011 P4,209,637) from the above cash and cash equivalents (Note 18).
Note 6 - Receivables
Receivables consist of:
July 31, 2012
Trade receivables
Less: provision for impairment
Net trade receivables
Advances to officers and employees
Other receivables

1,212,111,128
(1,913,569)
1,210,197,559
2,321,154
2,444,534
1,214,963,247

December 31, 2011

406,201,370
(1,442,165)
404,759,205
3,027,299
1,774,919
409,561,423

Movements in the provision for impairment of receivables are as follows:

Beginning of period
Provision
Accumulated impairment provision from
acquired subsidiary
Accumulated impairment provision from
deconsolidated subsidiaries
Write off
End of period

Note

July 31, 2012

1,442,165
914,229

December 31, 2011

1,442,165
-

1.1

1,415,619

1.1

(1,442,165)
(416,279)
1,913,569

1,442,165

For the seven months ended July 31, 2012, the Company has directly written off uncollectible other
receivables amounting to P942,591 (July 31, 2011 - P306) charged as part of selling and marketing costs
(Note 16).
Management believes that the outstanding allowance for impairment of receivable at July 31, 2012 of
P1,913,569 (December 31, 2011 - P1,442,165) is adequate to cover further impairment losses.

(34)

Note 7 - Inventories
Inventories consist of:
Note

July 31, 2012

December 31, 2011

15

473,252,333
1,237,071,361
268,500,007
1,978,823,701

239,235,295
362,951,406
59,393,620
661,580,321

At cost
Finished goods
Raw materials
In transit - raw materials

Based on managements assessment, no provision for inventory losses are required as at July 31, 2012 and
December 31, 2011. Further, the carrying amount of inventories is stated at cost which is lower than their
net realizable value (estimated selling price less variable selling expenses).
The cost of goods sold recognized as expense for the seven months ended July 31, 2012 amounted to
P1,583,518,729 (2011 - P1,136,694,815) (Note 15).
Note 8 - Prepayments and other current assets
Prepayments and other current assets consist of:

Creditable withholding taxes

Advances to suppliers
Input value added tax, net
Prepaid taxes
Others

July 31, 2012

220,167,935
151,376,091
146,282,028
1,678,117
6,369,798
525,873,969

December 31, 2011

193,211,900
15,517,437
15,018,401
598,842
674,125
225,020,705

July 31, 2012

67,000,000
7,500,000
5,000,000
4,850,938
84,350,938

December 31, 2011

30,000,000
7,500,000
5,000,000
4,850,938
3,125,000
550,000
51,025,938

Note 9 - Available-for-sale financial assets

Details of available-for-sale financial assets are as follows:

Manila Golf and Country Club

Mimosa Golf and Country Club
Export and Industry Bank
Ayala Corporation
Palmera Resources
American Image, Inc.

(35)

The movements in available-for-sale financial assets are as follows:

July 31, 2012
51,025,938
(3,776,250)
37,101,250
84,350,938

Balance at beginning of period

Acquisitions
Disposals
Fair value adjustment
Balance at end of period

December 31, 2011

21,025,938
52,101,250
(22,105,250)
51,021,938

Note 10 - Investment in associates

Details of investment in associates are as follows:
July 31, 2012
1,851,278,884
1,851,278,884

December 31, 2011

1,556,092,327
592,939,968
2,149,032,295

Note

July 31, 2012

2,120,512,370
156,310,460
(54,180,878)

December 31, 2011

1,913,037,615
271,520,300
(64,045,545)

1.1

(693,033,585)
1,529,608,367

Chemrez Technologies, Inc.

Oleo-fats, Incorporated

The movements of investment in associates are as follows:

Balance at beginning of period

Share in associates net income
Share in associates dividend declaration
Changes in ownership interests from
associate to subsidiary
Balance at end of period

2,120,512,370

As at July 31, 2012, dividend receivable from associates amounted to P54,180,878 (December 31, 2011 nil).
The summarized audited financial information of the associates is as follows:
Chemrez Technologies, Inc. and its subsidiary
July 31, 2012

December 31, 2011

Total assets
Total liabilities
Total equity

4,610,704,734
632,047,460
3,978,657,274

4,810,319,329
837,965,355
3,972,353,974

July 31, 2012

July 31, 2011

Total revenue
Net income for the period

2,193,342,992
174,045,957

3,299,428,658
332,679,980

(36)

Oleo-fats, Incorporated

Total assets
Total liabilities
Total equity

Total revenue
Net income for the period

December 31, 2011

4,916,447,192
3,434,097,271
1,482,349,921
July 31, 2011
6,166,803,845
382,906,273

As discussed in Note 1.1, OFI became 100% owned subsidiary by the Parent Company effective July 27,
2012.

(37)

Note 11 - Property, plant and equipment, net

Property, plant and equipment, net consist of:

Land

Barges

Building and leasehold

improvements

Transportation and
delivery equipment

Office, furniture
and fixtures

Tools, machinery
and equipment

Construction in
progress
3,708,300

Total

At January 1, 2011
Cost
Accumulated depreciation and amortization
Net carrying value

3,010,000

26,661,259

28,287,384

259,817,213

96,976,016

457,230,880

(19,091,775)

(15,001,532)

(181,469,084)

(70,391,175)

(280,974,004)

3,010,000

7,569,484

13,285,852

78,348,129

26,584,841

176,256,876

3,010,000

7,569,484

13,285,852

78,348,129

26,584,841

965,597

1,963,614

13,394,613

12,892,945

875,691,052
(566,927,570)

3,708,300

308,763,482

176,256,876

3,708,300

308,763,482

28,627,636

16,764,327

74,608,732

For the year ended December 31, 2011

Opening net carrying value
Additions
Reclassifications
Cost

2,847,336

4,973,859

(7,821,195)

Transfers

4,950,413

(4,950,413)

Depreciation and amortization

Closing net carrying value

3,010,000

(2,725,067)
5,810,014

(4,336,788)
13,760,014

(29,638,487)

(12,187,888)

67,054,668

27,289,898
109,868,961

(29,000,082)

180,858,289

7,701,019

490,832,375

7,701,019

(77,888,312)
305,483,902

At December 31, 2011

Cost
Accumulated depreciation and amortization
Net carrying value

(38)

3,010,000
3,010,000

27,626,856

33,098,334

278,162,239

(21,816,842)

(19,338,320)

(211,107,571)

(82,579,063)

(309,974,086)

5,810,014

13,760,014

67,054,668

27,289,898

180,858,289

7,701,019

950,299,784
(644,815,882)
305,483,902

Note 11 - Property, plant and equipment, net (continued)

Land

Barges

Building and leasehold

improvements

Transportation and Office, furniture

delivery equipment
and fixtures

Tools, machinery
and equipment

Construction in
progress

490,832,375

7,701,019

Total

At January 1, 2012
Cost

3,010,000

Accumulated depreciation and amortization

Net carrying value

27,626,856

33,098,334

278,162,239

(21,816,842)

(19,338,320)

(211,107,571)

(82,579,063)

(309,974,086)

3,010,000

5,810,014

13,760,014

67,054,668

27,289,898

180,858,289

109,868,961

950,299,784
(644,815,882)

7,701,019

305,483,902

For the seven months ended July 31, 2012

Opening net carrying value

3,010,000

5,810,014

13,760,014

67,054,668

27,289,898

180,858,289

7,701,019

305,483,902

Additions

7,166,668

2,964,861

5,821,375

26,932,143

42,885,047

Reclassifications

4,856,722

Cost

(106,361,201)

(106,361,201)

Accumulated depreciation

96,621,519

96,621,519

Cost

210,333,213

620,168,945

1,662,120,989

Accumulated depreciation

(4,856,722)

Disposals

Acquisition of subsidiary (Note 1.1)

3,214,999

4,222,470

824,181,362

(18,721,515)

(2,822,821)

(2,735,663)

(294,056,206)

(318,336,205)

Deconsolidation of subsidiary (Note 1.1)

Cost

(27,626,856)

(9,659,993)

(75,997,566)

(1,636,069)

(881,434)

Accumulated depreciation

22,718,402

5,821,287

62,123,221

1,605,682

378,495

Transfers

3,639,129

Depreciation and amortization

Closing net carrying value

(901,560)

(2,482,029)

(15,162,922)

(6,414,363)

(15,679,706)

(10,936,036)
-

(126,737,954)
92,647,087

(3,639,129)
-

(40,640,580)

3,010,000

199,050,977

35,836,565

28,935,945

705,478,897

635,370,220

1,607,682,604

3,010,000

233,771,554

106,169,376

119,059,352

1,324,810,400

635,370,220

2,422,190,902

3,010,000

At July 31, 2012

Cost
Accumulated depreciation and amortization
Net carrying value

(34,720,577)
199,050,977

(70,332,811)

(90,123,407)

(619,331,503)

35,836,565

28,935,945

705,478,897

635,370,220

(814,508,298)
1,607,682,604

Construction in progress represents building, leasehold improvements, various plant developments and machinery and equipment that will be used in
operations and are expected to be fully completed in the next 12 months. There are no qualifying assets under property, plant and equipment as at
July 31, 2012 and December 31, 2011.

(39)

Depreciation and amortization are charged as follows:

Cost of sales and services

Administrative expenses

Note
15
17

July 31, 2012

36,843,156
3,797,424
40,640,580

July 31, 2011

37,903,830
3,798,206
41,702,036

Subsequently, on August 28, 2012, the Companys Board of Directors resolved to sell, transfer and convey to
interested purchasers all its rights and interests to three parcels of land with an aggregate value of P3,010,000.
Note 12 - Trade payable and other liabilities
Trade payable and other liabilities consist of:
Note
Trade payable
Advances from customers
Due to regulatory agencies
Accrued interest expense
Output VAT payable
Accrued utilities
Others

13

July 31, 2012

475,726,792
23,062,518
12,548,340
6,838,956
1,530,342
503,994
5,606,942
525,817,884

December 31, 2011

212,754,822
1,649,559
9,006,197
778,556
968,719
12,118,776
237,276,629

Note 13 - Borrowings
Short-term borrowings as at July 31, 2012 and December 31, 2011 consist of unsecured, short-term loans
from local banks with an average maturity of one to five months from July 31, 2012 and December 31, 2011.
These borrowings bear average interest rates ranging from 3% to 5% in 2012 and 2011, subject to monthly
repricing.
For the seven months ended July 31, 2012, the Company availed short term borrowings from local banks
amounting to P 3.077 billion (2011 - P300 million).
For the seven months ended July 31, 2012, P700 million (2011 - P650 million) worth of borrowings has
been settled by the Group.
As at July 31, 2012, outstanding borrowings amounted to P3.128 billion (December 31, 2011 - P750 million).
Interest expense for the seven months ended July 31, 2012 amounted to P15,093,190 (2011 - P17,821,632).
As at July 31, 2012, accrued interest amounted to P6,838,956 (December 31, 2011 - P778,556).
As at July 31, 2012 and December 31, 2011, there are no significant capitalized interest relating to qualifying
assets.

(40)

Note 14 - Equity
Share capital
Details of share capital are as follows:
July 31, 2012
Shares
Amount
Common shares at P1 par value
per share
Authorized
Issued and outstanding

1,000,000,000
1,000,000,000

1,000,000,000
1,000,000,000

December 31, 2011

Shares
Amount

1,000,000,000
321,000,000

1,000,000,000
321,000,000

At June 27, 2012, the Parent Companys Board of Directors approved the declaration of stock dividend
amounting to Php678.8 million out of the unrestricted retained earnings as at December 31, 2011, payable
to all stockholders of record as of the said date. The stock dividends were issued on June 29, 2012.
On July 2, 2012, the Parent Companys Board of Directors approved to increase its authorized capital stock
from P1 billion comprising of 1 billion common shares at P1 par value to P4 billion comprising of
4 billion shares at P1 par value. Consequently, the Board of Directors resolved to amend the articles of
incorporation to increase the authorized capital stock of the Parent Company. As at August 28, 2012, the
Parent Company is awaiting the SECs approval on its application for increase in authorized capital stock.
Deposit for future stock subscription
On July 23, 2012, the stockholders have made a capital infusion amounting to P187.5 million which was
recorded as a deposit for future stock subscription. The deposit will be converted to the Parent Companys
share capital upon approval by SEC of the Parent Companys application for increase in authorized capital
stock.
Retained earnings
Appropriated retained earnings
In 2009, the Parent Companys Board of Directors approved the appropriation of its retained earnings
amounting to P360 million for capital expansion program. In 2010, additional retained earnings amounting
to P150 million has been appropriated for loan payment due on February 22, 2011 and May 30, 2011, bringing
the total appropriated retained earnings to P510 million as at December 31, 2010.
At June 27, 2012, the Parent Companys Board of Directors approved the release of its appropriated retained
earnings amounting to P510 million. Out of this amount, P150 million was used to pay off the outstanding
loan of the Parent Company and the remaining P360 million will be declared as dividends to shareholders.
Retained earnings available for dividend declaration
At July 31, 2012, the Groups retained earnings exceeded its paid up capital by P1.63 billion. As at July 31,
2012, the Groups management is still in the process of finalizing its plans, including conversion of its
deposit for future stock subscription into share capital and further dividend declaration to its shareholders,
to address the excess of retained earnings of the Group.
On August 28, 2012, the Parent Companys Board of Directors approved the declaration of cash dividend
amounting to P863,434,640 (P0.86 per share) out of the unrestricted retained earnings of the Parent
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Company as at June 30, 2012 to all stockholders of record as at September 3, 2012, payable on or before
December 31, 2012.
On the same date, the Parent Companys Board of Directors approved the declaration of stock dividend
amounting to P750 million out of the unrestricted retained earnings of the Parent Company as at June 30,
2012 to all stockholders of record as at September 3, 2012. The stock dividends will be issued upon SECs
approval on the Parent Companys application for increase in authorized capital stock.
On the same date, the Parent Companys subsidiaries, API, OFI and FIC and DLPCI declared cash dividends
amounting to P26,289,005, P244,986,534, P235,560,630 and P190,489,784, respectively, in favor of their
stockholders of record as at August 28, 2012.
Note 15 - Cost of sales and services
The components of cost of sales and services for the seven months ended July 31 consist of:

Raw materials used

Direct labor
Factory overhead
Utilities
Rental
Contracted services
Depreciation and amortization
Purchased carriage and freight
Indirect labor
Repairs and maintenance
Supplies
Indirect materials used
Fuels and oils
Reversal of provision for
obsolescence
Finished goods, net change
Others
Cost of goods sold
Cost of services

(42)

Notes
7
20

19
11

2012
1,460,261,880
19,059,616

2011
1,007,115,788
18,491,536

43,172,548
20,605,017
20,152,019
15,001,250
12,048,833
11,228,188
10,794,438
2,695,625
2,569,665
1,920,100

30,236,182
23,575,282
16,503,572
14,129,021
16,204,826
14,326,570
16,810,366
1,820,959
2,914,804
3,990,209

(40,393,170)
4,402,720
1,583,518,729
152,014,376
1,735,533,105

(1,520,338)
(28,158,064)
254,102
1,136,694,815
143,330,538
1,280,025,353

Note 16 - Selling and marketing costs

The components of selling and marketing costs for the seven months ended July 31 consist of:

Employee costs
Delivery charges
Contracted services
Transportation and travel
Representation expenses
Loss on write-off of receivables
Provision for impairment of receivables
Advertising and promotion
Others

Notes
20

6
6

2012
28,189,899
25,762,131
7,231,926
3,967,378
3,154,161
942,591
914,229
399,742
449,371
71,011,428

2011
27,563,686
16,544,771
7,668,502
3,634,788
2,216,705
306
143,533
3,372,775
10,396,367
71,541,433

Others consist of commission, utilities, supplies, and other miscellaneous items related to selling and
marketing activities of the Group.
Note 17 - Administrative expenses
The components of administrative expenses for the years ended July 31 consist of:
Note
Taxes and licenses
Donations and contributions
Professional fees
Depreciation
Membership dues
Utilities
Supplies
Contracted services
Bank charges
Rentals
Repairs and maintenance
Transportation and travel
Government grants
Miscellaneous

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11

2012
21,711,952
7,302,041
6,665,793
3,797,424
3,026,419
2,832,557
2,407,090
1,750,659
1,058,375
1,052,667
206,642
135,836
984,364
52,931,819

2011
13,082,036
1,626,800
12,450,451
3,798,206
1,880,171
5,522,096
3,074,327
2,755,277
3,678,375
791,955
143,085
120,705
1,688,679
3,077,116
53,689,279

Note 18 - Other income, net

The components of other income, net for the seven months ended July 31 consist of:
Notes
Interest income
Rental income
Dividend income
Foreign exchange loss, net
Other income, net

22

2012
3,899,458
133,097
(2,876,149)
7,290,221
8,446,627

2011
4,209,637
127,609
613,944
(12,308,022)
7,874,672
517,840

Other income, net pertains to various income from scrap sales.

Note 19 - Related party transactions
The Group, in the ordinary course of business, has transactions with related parties. Significant related
party transactions include the following:
Management services
The Group has an existing management agreement with its related parties, whereby it provides the
following management services to related parties:
Technical support, which includes research and development, quality control and assurance, use of
trademarks, and IT related services;
Logistics support, which includes transport, fleet management, warehousing management, tank farm
management, port clearing and procurement;
Administrative support, which includes accounting and finance, human resources, information
technology, property management, legal services, and research and development; and
Executive management, which includes the services performed by the executives to manage the business
operations of the related parties.
The fee for technical and logistics support services ranges from 2% to 3% of net receipts from operations,
excluding intercompany sales, and those for administrative and executive management support services
ranges from 3.5% to 7% of gross income from operations.
The agreement remains in force, unless terminated by both parties.

(44)

Management service fees charged to statement of total comprehensive income for the seven months ended
July 31 are as follows:
2011

2012
Relationship
Oleo-fats, Incorporated
Chemrez Technologies, Inc.
and Subsidiary
LBL Industries, Inc.
Consumer Care Products, Inc.

Amount

Relationship

Amount

Subsidiary

190,126,882

Associate

212,834,253

Associate

54,411,772

Associate

83,095,088

Shareholder
Entity under
common control

5,050,604

Shareholder
Entity under
common control

4,712,684

4,684,547
254,273,805

4,018,059
304,660,084

Lease agreements
The Group has existing cancellable operating lease agreements with LBL Industries, Inc. (LBL), an entity
under common control, whereby the Group leases from LBL its factory and warehouse spaces. The lease is
for a period of five years starting July 1, 2008 and renewable for another five years thereafter, unless
terminated by either party.
Rental expense for the seven months ended July 31, 2012 amounted to P62,008,706 (July 31, 2011 P61,238,216) (Note 15).
Sales of goods
The Group, in the normal course of business, has transactions relating to the sale of goods to related parties
for the seven months ended July 31 as follows:
2012
Relationship

2011
Amount

Entity under
Consumer Care Products, Inc.

Relationship

Amount

Entity under

common control

36,461,484

common control

33,529,597

Associate

41,619,934

Associate

652,702,915

Chemrez Technologies, Inc. and

Subsidiary
Oleo-Fats, Incorporated
LBL Industries, Inc.

Subsidiary

930,557

Associate

Shareholder

129,581

Shareholder

79,141,556

Sales of goods are negotiated with related parties on a cost-plus basis.

(45)

31,004
686,263,516

Purchases of goods
The Group, in the normal course of business, has transactions relating to the purchases of inventories from
related parties for the seven months ended July 31 as follows:
2012
Relationship
Oleo-Fats, Incorporated

2011
Amount

Relationship

Amount

Subsidiary

245,203,885

Associate

Associate

14,277,845

Associate

40,506,535

Chemrez Technologies, Inc. and

Subsidiary

Entity under
Consumer Care Products, Inc.

Entity under

common control

common control

259,481,730

93,725
40,600,260

Purchases of goods and services are negotiated with related parties on a cost-plus basis.
Surety agreement
On August 4, 2009, the Oleo-fats, Incorporated was authorized by its Board of Directors to provide surety
for the obligations and indebtedness incurred or may be incurred by the Parent Company, API, FIC and
FICM, arising from short term credit accommodation extended by a local bank to such related parties. Bank
lines are in a corporate cross guarantee arrangement among the Parent Company, API, FIC and FICM. As at
July 31, 2012 and December 31, 2011, total short term borrowings from local banks of the Group amounted
to P750 million and P3.128 billion, respectively. As at July 31, 2012 and December 31, 2011, the Group has
not incurred obligations and indebtedness arising from the above surety agreement. Obligations, arising
from the above surety agreement if any, will be funded by the Oleo-fats, Incorporated and other related
parties.
Cash advances
The Group has obtained cash advances from JHI for working capital requirements, which are unsecured,
due and demandable on short notice.
The Parent Company has also obtained advances from its shareholders for working capital requirements,
which are unsecured and due and demandable within a period of 12 months.
Net year-end balances arising from related party transactions
Sale of goods and services are billed to related parties based on contract price and terms, similarly enforced
with third parties.
Purchase of goods and services are billed to related parties based on agreed price and terms, similarly
enforced with third parties.
Due from and to related parties are settled on a net basis. These are unsecured, non-interest bearing and
have no fixed repayment terms. Collection and settlement of outstanding receivable and payable,
respectively, are generally made upon demand and/or within a period of not more than 12 months.
(46)

There are no collaterals held or guarantees issued with respect to related party transactions and balances.
Net amounts are as follows:
(a) Due from related parties
July 31, 2012

Consumer Care Products, Inc.

FIC Tankers Corporation
FIC Marketing Co., Inc.
LBL Industries, Inc.
Oleo-Fats, Incorporated
Chemrez Technologies, Inc. and
Subsidiary
Ecozone Properties, Inc.

Relationship
Entity under
common control
Entity under
common control
Entity under
common control

December 31, 2011

Amount
106,771,217
22,381,772

Shareholder

Relationship
Entity under
common control
Entity under
common control

17,524,612

Associate

11,595,026

Shareholder

Amount
152,947,561
9,602

Subsidiary

Associate

36,000,208

Associate
Entity under
common control

Associate
Entity under
common control

15,491,646

158,272,627

97,175
204,546,192

(b) Due to related parties

July 31, 2012
Stockholders
Chemrez Technologies, Inc. and
Subsidiary
Oleo-Fats, Incorporated
Cahaya, Inc.
Jadel Holdings, Inc.
FIC Marketing Co., Inc.
Others

December 31, 2011

Relationship

Amount

Relationship

Amount

Shareholders

502,506,289

Shareholders

551,700,122

Associate

21,865,842

Associate

Subsidiary
Entity under
common control
Parent
Entity under
common control
Affiliate

2,058,464
4,324,254

593,692,838

Associate
Entity under
common control

565,703,013

Parent

63,147,102

360,750
8,798,066
1,692,926,798

Associate
Affiliate

621,229,942

Due to Jadel and Cahaya substantially represents amounts payable as a result of the Companys acquisition
of controlling interests in OFI.

(47)

Key management compensation

Key management compensation for the seven months ended July 31, consist of:
2012
38,666,376
2,738,543
2,267,531
43,672,450

Salaries and wages

Retirement benefits
Other short term employee benefits

2011
34,452,029
2,076,494
2,336,648
38,865,171

The Group has not provided share-based payments, termination benefits or other long term benefits, other
than the retirement benefits, to its key management employees for the seven months ended July 31, 2012 and
2011.
There are no amounts due from or payable to key management personnel arising from the above
compensation arrangement at July 31, 2012 and December 31, 2011.
Note 20 - Retirement benefit obligation
The Group maintains a non-contributory defined benefit retirement plan for the benefit of its regular
employees. The normal retirement age is 60. Normal retirement benefit is equal to one-half month salary
as of date of retirement multiplied by retirees years of service. Actuarial valuation is performed by
independent actuary on an annual basis.
The amounts recognized in the statement of financial position, which were recorded as part of the noncurrent assets, are determined as follows:

July 31, 2012

Fair value of plan asset
Present value of funded obligation
Surplus (unfunded)
Unrecognized actuarial (gains)
losses
Retirement (benefit obligation)
plan asset

(48)

2011

December 31
2010

2009

2008

112,929,458
(109,712,566)
3,216,892

103,761,207
(94,954,782)
8,806,425

103,769,811
(84,977,248)
18,792,563

108,298,152
(95,655,124)
12,643,028

80,618,644
(125,874,680)
(45,256,036)

(32,248,338)

(39,600,465)

(53,192,716)

(34,859,169)

55,247,812

(29,031,446)

(30,794,040)

(34,400,153)

(22,216,141)

9,991,776

The movements in the defined benefit obligation are as follows:

Beginning of period
Current service cost
Interest cost
Benefits paid
Transfers
Actuarial losses
End of period

July 31, 2012

109,996,424
3,771,567
3,831,769
(10,823,881)
(842,273)
3,778,960
109,712,566

December 31, 2011

75,010,836
5,229,965
5,508,881
(216,495)
(3,784,302)
13,205,897
94,954,782

Transfers pertain allocated pension cost of transferred employees to related parties during the year.
The movements in the fair value of plan assets are as follows:

Beginning of the period

Expected return on plan asset
Contributions
Benefits paid
Actuarial gains
End of the period

July 31, 2012

113,818,987
2,845,475
5,238,780
(10,823,881)
1,850,097
112,929,458

December 31, 2011

89,200,455
5,352,028
6,655,807
(216,495)
2,769,412
103,761,207

The amounts recognized in the statement of total comprehensive income for the seven months ended July
31 are as follows:
2012
Interest cost
Current service cost
Expected return on plan asset
Transfers from subsidiaries
Net actuarial gains
Retirement benefit expense (credit)

3,831,769
3,771,567
(2,845,475)
(842,273)
(840,080)
3,075,508

2011
(553,427)
(388,782)
450,255
(63,609)
34,206
(521,357)

Retirement benefit (credit) expense is included as part of employee costs in cost of sales and services
(Note 15) and selling and marketing costs (Notes 16).
For the seven months ended July 31, 2012, the actual return on plan asset amounted to P4,574,130
(2011 - P1,683,912).

(49)

The movements in the liability recognized in the statement of financial position are as follows:
July 31, 2012
31,194,718
3,075,508
(5,238,780)
29,031,446

Beginning of period
Total retirement benefit expense (credit)
Contributions paid
End of period

December 31, 2011

38,384,578
(934,731)
(6,655,807)
30,794,040

The Group has plan asset under the D&L Group of Companies Employees Retirement Plan (the
Retirement plan) that share risks between various entities under common control. As at July 31, 2012, the
Group has an allocated fund of P112,929,458 (December 31, 2011 - P 103,761,207) in the Retirement plan
based on the fund balance report of the trustee (using the Companys percentage of equity over the total
plan assets under the Retirement plan). The Retirement plan has investments consisting of the following:

Listed stocks
Unit investment trust funds
Mutual funds
Treasury bonds and notes

July 31, 2012

Amount
%
106,269,213
59.43%
24,707,361
13.82%
24,543,135
13.73%
23,274,456
13.02%
178,794,165 100.00%

December 31, 2011

Amount
%
49,670,433
30.60%
880,512
2.30%
3,692,340
0.50%
108,134,071
66.60%
162,377,356
100.00%

The allocated share of the Group in the Retirement Plan asset is as follows:

Treasury bonds and notes

Listed stocks
Unit investment trust funds
Mutual funds

July 31, 2012

Amount
%
67,113,977 59.43%
15,606,851 13.82%
15,493,921 13.73%
14,714,709 13.02%
112,929,458 100.00%

December 31,2011
Amount
%
29,439,827
30.60%
55,100,218
2.30%
0.50%
17,202,523
66.60%
2,018,639
100.00%
103,761,207

Listed stocks include the Groups shares with fair value of P38,304,000 as at July 31, 2012 (December 31,
2011 - P36,000,000).
The principal annual actuarial assumptions used were as follows:

Discount rate
Expected return on plan asset
Future salary increase

July 31, 2012

5.57%
5.00%
6.00%

December 31, 2011

5.88%
5.00%
6.00%

Assumptions regarding future mortality experience are set based on advice from published statistics and
experience.
(50)

The expected contribution to retirement fund by December 31, 2012 is P5,238,779.

The expected return on plan assets was determined based on the average and expected rate of return of the
investments in the Retirement Plan.
The expected return on plan assets was determined by considering the expected returns available on the
assets underlying the current investment policy. Expected yields in fixed interest investments are based on
redemption yields at the reporting date.
History of actuarial loss (gain) on the present value of defined benefit obligation is as follows:
December 31
July 31, 2012

2011

Effect of changes in
actuarial assumptions
Experience adjustments

2,817,518
961,442

4,403,599
8,802,298

585,223
(4,821,478)

1,339,117
(4,469,585)

2,061,577
(200,069)

Actuarial loss

3,778,960

13,205,897

(4,236,255)

(3,130,468)

1,861,508

2.57%

4.64%

0.69%

1.40%

1.88%

0.88%

9.27%

-5.67%

-4.67%

-0.18%

3.44%

13.91%

-4.99%

-3.27%

1.70%

2008

Effects of changes in
assumptions as a
percentage of the
present value of defined
benefit obligation
Experience adjustments as
a percentage of the
present value of defined
benefit obligation
Actuarial gain as a
percentage of the
present value of defined
benefit obligation

2010

2009

2008

History of actuarial (loss) gain on plan asset is as follows:

December 31
Actuarial gain (loss) due to
experience adjustments
Percentage of plan assets

(51)

July 31, 2012

2011

2010

2009

1,850,097

2,769,412

7,650,606

1,383,438

1.62%

2.67%

7.37%

1.28%

(17,190,801)
-21.32%

Note 21 - Taxation
Deferred income tax (DIT)
DIT assets consist of:

To be recovered within 12 months

Unrealized foreign exchange loss
To be recovered after 12 months:
Fair value adjustment of available-for-sale
financial assets
Retirement benefit obligation
To be settled after 12 months
Fair value adjustment of available-for-sale
financial assets

July 31, 2012

December 31, 2011

491,215

818,690

5,173,059
5,664,274

2,210,125
8,447,856
11,476,671

(1,500,000)
(1,500,000)
4,164,274

11,476,671

The movements in the DIT assets are as follows:

Notes
Beginning of period
Charged to statement of total comprehensive
income
Charged to fair value reserves
Deconsolidation
End of period

9
1.1

July 31, 2012

11,476,671
(3,435,052)
(3,710,125)
(167,220)
4,164,274

December 31, 2011

11,497,282
(2,230,736)
2,210,125
11,476,671

DIT liabilities consist of:

July 31, 2012
To be recovered within 12 months
Unrealized foreign exchange gain (loss)
Provision for impairment of receivables
To be recovered after 12 months:
Retirement benefit plan

(52)

5,489,404
685,224
6,174,628

December 31, 2011

(280,354)
(432,649)
1,401,629
688,626

The movements in the DIT liabilities are as follows:

Beginning of period
Charged to statement of total comprehensive
income
Acquisition
Deconsolidation
End of period

July 31, 2012

688,626

December 31, 2011

603,734
84,892
688,626

227,788
5,931,567
(673,353)
6,174,628

On December 20, 2008, Revenue Regulations No. 16-2009 on the Optional Standard Deduction (OSD) was
published. The regulation prescribed the rules for the OSD application by corporations in the computation
of their final taxable income. For corporations, OSD shall be 40% based on gross income; cost of goods
sold and cost of services will be allowed to be deducted from gross sales.
On February 26, 2010, RR 2-2010 on the amendment of Section 6 and 7 of RR 16-2009 was published. The
regulation amended the other implications of the OSD particularly on the election to claim either the OSD or
the itemized deduction which must be signified on the first quarter and must be consistently applied for all
the succeeding quarterly returns and in the final income tax return for the taxable year.
The Group availed the OSD for purpose of income tax calculation in 2012. The Parent Company, FICM and
its subsidiary, FIC Tankers Corporation, did not avail the OSD for the purposes of income tax calculation in
2011.
A reconciliation of income tax expense computed at the statutory income tax rate to the income tax expense
as reflected in the statement of total comprehensive income for the seven months ended July 31 is as
follows:
2012
Non-PEZA
PEZA registered

registered activity

activity (0%)

(30%)

212,570,290

17,829

Dividend income

(664,990,233)

Availment of OSD

(12,719,113)

10,023,950

44,847,851

257,245,491

17,829

0%

30%

30%

5,349

50,199,745

Regular tax
rate (30%)

Tax base:
Net profit before tax

Interest income subject to final tax

Change in tax rate
Non-deductible expenses under the PEZA rules
Gross income
Statutory income tax rates
Income tax expense

(172,650)

838,642,217

(3,624,337)

167,332,484

Change in tax rate relates to the change in effective rate as a result of the Companys availment of OSD.

(53)

2011
Non-PEZA
PEZA registered

registered activity

activity (0%)

(30%)

Regular tax
rate (30%)

100,255,407

18,213

221,910,977

Dividend income

(613,943)

Availment of OSD

(17,158,753)

(3,698,107)

Tax base:
Net profit before tax

(19,530)

Interest income subject to final tax

Non-deductible write off of assets
Non-deductible expenses under the PEZA rules
Gross income
Statutory income tax rates
Income tax expense

30,179,223

307
-

130,415,100

18,213

200,440,481

0%

30%

30%

5,464

60,132,144

Note 22 - Foreign currency denominated financial assets and liabilities

The Groups foreign currency denominated financial assets and liabilities consist of:

Cash
Receivables
Due from related parties
Trade payable and other liabilities
Borrowings
Net (liabilities) assets
Closing exchange rate
Philippine Peso equivalent

July 31, 2012

AUD
USD
494
7,305,902
3,900,968
80,000
666,408
11,873,278
80,494
(5,805,358)
(10,439,434)
(16,244,792)
(4,371,514)
80,494
43.99
41.93
(183,297,582)
3,540,931

December 31, 2011

AUD
USD
1,012,621
3,346,776
1,257,939
5,617,336
(2,077,377)
(2,077,377)
3,539,959
43.84
155,191,803

Foreign exchange loss, net presented under other income (expenses), net (Note 18) in the consolidated
statement of total comprehensive income for the seven months ended July 31 consists of:

Realized foreign exchange loss

Unrealized foreign exchange loss

(54)

2012
1,351,348
1,524,801
2,876,149

2011
436,474
11,871,548
12,308,022

Note 23 - Segment information

Primary reporting format - business segments
The Groups operating businesses are organized and managed according to the nature of the products
marketed, which each segment, representing a strategic business unit, offers different products and services
to different markets.
The Group has organized its reporting structure based on the grouping of similar products and services
resulting in four main business segments as follows:
(i) Food ingredients
The Group, operating through its subsidiary OFI, manufactures a line of industrial fats and oils,
specialty fats and oils and culinary and other specialty food ingredients. The Group provides and
contract manufactures its food ingredients products to most of the leading food manufacturers and
quick-service restaurant chains in the Philippines, and also produces food safety solutions such as
cleaning and sanitation agents for various customers.
(ii) Colorants and plastic additives
The Group, operating through its subsidiaries FIC and DLPC, manufactures a line of pigment blends,
color and additive masterbatches and engineered polymers for a wide range of applications, introducing
a number of products into the Philippine market and expanding into the export of certain products
overseas. The Group's products add properties such as precise coloring, reduced friction or increased
resistance to degradation for plastics used in consumer goods, appliances and outdoor furniture;
(iii) Oleochemicals, resins and powder coatings
The Group, operating through its affiliate CTI and its subsidiary, CHI, manufactures Coconut Methyl
Ester ("CME", also known as coco-biodiesel), other oleochemicals or chemicals derived from vegetable
oils, resins such as polystyrene, acrylic emulsions and polyester; and a line of powder coatings.
(iv) Aerosols
The Group, operating through its subsidiary API, manufactures aerosol cans and components and
provides contract aerosol filling and compounding services. The Group also toll manufactures a range of
products, including insect control, industrial maintenance chemicals, and home and personal care
products, among others.
(v) Management and administrative
The Parent Company maintains significant operational control of its subsidiaries that provide goods
and services complimentary to those provided by the Group, through a contractual "shared services"
model (Note 19).

(55)

The following table presents the segment information provided to the ManCom about the Groups business
segments for the seven months ended July 31, 2012 and 2011:
Oleochemicals,
Colorants and

resins and

Food ingredients

plastic additives

powder coatings

Aerosols

and administrative

Management

External sales

1,803,180,040

194,257,624

256,977,114

Inter-segment sales

66,053,837

34,029

27,194,145

(93,282,011)

1,869,233,877

194,291,653

284,171,259

(93,282,011)

2,254,414,778

100,093,616

307,083,192

56,216,844

41,387,236

79,859,143

income

104,088,576

586,676

572,308,124

Finance costs

(4,171,542)

(12,788,733)

Eliminations

Total

2,254,414,778

2012

Total sales

Segment result

584,640,031

General corporate
(668,536,749)

8,446,627

(10,921,648)

(15,093,190)

(28,019,614)

(50,205,094)

(668,536,749)

527,788,374

Income tax
expense
Profit for the period

100,093,616

394,211,493

56,216,844

(9,396,747)
32,577,165

613,226,005

and administrative

Oleochemicals,
Colorants and

resins and

Food ingredients

plastic additives

powder coatings

Aerosols

Management

External sales

1,545,955,078

155,150,056

59,849,935

Inter-segment sales

82,928,089

6,793,074

282,713,194

(372,434,357)

1,628,883,167

161,943,130

342,563,129

(372,434,357)

1,760,955,069

153,162,509

185,697,838

170,909,785

26,612,127

91,287,045

Eliminations

Total

1,760,955,069

2011

Total sales

Segment result

627,669,304

General corporate
income

5,443,468

Finance costs

(1,142,882)

(14,746,041)

(69,586)
-

(3,456,042)

(1,400,000)

517,840

(16,678,750)

(17,821,632)

(38,923,155)

(60,137,608)

Income tax
expense
Profit for the year

(56)

153,162,509

175,252,383

170,909,785

(6,468,412)
20,074,129

32,229,098

(1,400,000)

550,227,904

Other segment information as at July 31, 2012 and December 31, 2011 are as follows:
Oleochemicals,
Colorants and

resins and

Food ingredients

plastic additives

powder coatings

Aerosols

Management and
administrative

Total

Segment assets

4,381,814,384

1,571,481,863

153,807,988

2,528,619,947

8,635,724,182

Segment liabilities

3,034,386,460

555,950,721

52,414,616

1,741,029,275

5,383,781,072

July 31, 2012

Oleochemicals,
Colorants and

resins and

Food ingredients

plastic additives

powder coatings

Aerosols

Management and
administrative

Total

Segment assets

1,702,160,531

190,526,057

2,698,974,577

4,591,661,165

Segment liabilities

671,969,444

17,959,843

957,341,586

1,647,270,873

December 31, 2011

Reportable segments assets are reconciled to total assets are as follows:

Oleochemicals,

Food ingredients

Colorants and

resins and

plastic additives

powder coatings

Aerosols

Management and
administrative

Total

1,571,481,863

153,807,988

2,528,619,947

8,635,724,182

650,927

1,572,132,790

July 31, 2012

Segment assets

4,381,814,384

Deferred income tax

assets

3,513,347

4,164,274

Total assets per

statement of financial
position

4,381,814,384

153,807,988

2,532,133,294

8,639,888,456

Oleochemicals,
Colorants and resins and powder

Management and

Food ingredients

plastic additives

coatings

Aerosols

administrative

Total

1,702,160,531

190,526,057

2,698,974,577

4,591,661,165

910,970

10,565,701

11,476,671

1,703,071,501

190,526,057

2,709,540,278

4,603,137,836

December 31, 2011

Segment assets
Deferred income tax
assets
Total assets per
statement of financial
position

(57)

Reportable segments liabilities are reconciled to total liabilities are as follows:

Oleochemicals,
Colorants and

resins and

Food ingredients

plastic additives

powder coatings

Aerosols

Management and
administrative

Total

3,034,386,460

555,950,721

52,414,616

1,741,029,275

5,383,781,072

5,931,567

243,061

3,040,318,027

555,950,721

52,657,677

July 31, 2012

Segment liabilities
Deferred income tax
liabilities

6,174,628

Total liabilities per

statement of financial
position

1,741,029,275

5,389,955,700

Oleochemicals,
Colorants and

resins and

Food ingredients

plastic additives

powder coatings

Aerosols

Management and
administrative

Total

671,969,444

17,959,843

957,341,586

1,647,270,873

673,353

15,273

688,626

672,642,797

17,975,116

957,341,586

1,647,959,499

December 31, 2011

Segment liabilities
Deferred income tax
liabilities
Total liabilities per
statement of financial
position

The Oleochemicals, resins and powder coatings segment relates to Chemrez Technologies, Inc. and its
wholly owned subsidiary which was accounted under the equity method.
The amounts provided to the ManCom with respect to total assets, liabilities and profit or loss are
recognized and measured in a manner consistent with that of the financial statements. Segment assets are
allocated based on the operations of the segment and consist primarily of inventories and property, plant
and equipment, net of related accumulated depreciation.
Secondary reporting - geographical segments
The Group is domiciled in the Philippines. For the seven months ended July 31, 2012, the revenue from
customers in the Philippines is P2,170,635,146 (2011 - P1,672,367,635), and the total of revenue from
customers in other countries is P83,779,632 (2011 - P88,587,434).

(58)

D&L INDUSTRIES, INC.

Supplemental Information
Result of the Companys Acquisition of Controlling Interest in
Oleo Fats, Inc. (OFI)
July 27, 2012
On July 16, 2012, the Companys Board of Directors resolved to purchase the shares of other
shareholders for a consideration of P747 million, which is equivalent to OFIs fair market value as at
June 30, 2012, to obtain 100% ownership in OFI. The share purchase agreement was signed by the
parties and made effective on July 27, 2012. As a result, OFI became 100% owned by the Parent
Company effective July 27, 2012.
The purchase method of accounting is used to account for the above acquisition whereby the cost of
an acquisition is measured as the fair value of the assets given, equity instruments issued and
liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the
acquisition.
The following commercial substance of transaction supporting the rationale behind the use of
Purchase Method were accordingly considered by management: (i) the main objective of the
transaction is to fully consolidate the groups operations, through acquisition of further interests,
including OFI, in connection with the planned listing of the parent company; (ii) a re-assessment of net
assets of the entities acquired was accordingly carried out by management; (iii) the acquisition brought
the entities together in a reporting structure that did not exist before, in the case of OFI, from associate
to a subsidiary and from equity method to full consolidation, at the parent company level (iv)
significant change in ownership of the parent company from non-controlling to controlling interest, in
the case of OFI; (v) the involvement of parties holding non-controlling interests from which additional
shares were acquired by the Parent Company; and (vi) as a result of the acquisition and full
consolidation, the parent company (as the acquiring entity) is expected to benefit with respect to
improvement in its consolidated financial performance, results of operations and cash flows from the
full consolidation of the acquired entities.

The details of the fair value of acquired assets and liabilities at acquisition date are as follows:
(in P millions)
Current assets
Cash
Trade and other receivables, net
Inventories, net
Other current assets
Total current assets
Non-current assets
Property, plant and equipment, net
Other non-current assets
Total non-current assets
Total assets

1,330.6
14.2
1,344.8
4,277.0

Current liabilities
Trade and other payables
Accrued interest
Borrowings
Dividends payable
Total current liabilities

345.1
2.4
2,197.3
480.4
3,025.2

Other non-current liability

Total liabilities

6.8
3,032.0

Net assets

261.7
1,292.2
1,201.6
176.8
2,932.2

1,245

The fair value of assets and liabilities acquired were determined on the basis of income approach, except
for property, plant and equipment, retirement benefits and deferred income tax. The fair value of
property, plant and equipment was determined using cost approach. Retirement benefits and deferred
income taxes were measured in accordance with PAS 19 Retirement Benefits and PAS 12 Income
Taxes in accordance with the provisions of PFRS 3 Exceptions to Recognition or Measurement
Principles. Management believes that the above valuation techniques are considered appropriate given
the circumstances and the nature and components of the assets and liabilities acquired.

(2)

The consideration given with respect to the acquisition is equivalent to the acquired fair market value
of OFI shares (fair value of the net assets acquired) and there is no resulting gain or loss and/or
goodwill recognized from the above acquisition. There was no gain or loss recognized in the remeasurement of previously held equity interest to fair value specific to this transaction. The summary
of this determination is presented below:
Goodwill
Fair value of consideration transferred (cash)
Fair value of the NCI
Fair value of previously held equity interest
Total
Less: Recognized value of 100% of identifiable assets, as measured in
accordance with the Standards
Goodwill recognized

(In million Peso)

747
0
498
1,245

Re-measurement of previously held equity

Fair value of previously held equity (PhP 1,244 x 40%)
Carrying value of previously equity
Gain or loss

(In million Peso)

498
498
-

1,245
-

As at July 31, 2012, revenue and net income of OFI included in the interim consolidated statement of
comprehensive income of the Group from the acquisition date of July 27, 2012 amounted to P55
million and P 700 thousand, respectively.
Had it been that the acquisition date for the business combination occurred at January 1, 2012, the
aggregate revenue and profit or loss of the combined entities for the seven months ended July 31, 2012
are as follows:

(In million Peso)

Revenues
Cost of sales and services
Gross profit

Parent
company
284.2
(153.6)
130.6

OFI
4,998.0
(4,444.3)
553.7

Eliminations
(51)
(51)

Combined
5,231.2
(4,597.9)
633.3

Net operating income and

expenses
Operating profit

575.9
706.5

(159.2)
394.5

(193.9)
(244.9)

222.8
856.1

Finance cost
Profit before income tax

(10.9)
695.6

(30.8)
363.7

(244.9)

(41.7)
814.4

Income tax expense

(28.0)
667.6

(113.5)
250.2

(244.9)

(141.5)
672.9

(3)

D&L Industries, Inc.

Statements of Financial Position
December 31, 2011
(With comparative figures as at December 31, 2010)
(All amounts in Philippine Peso)

Notes

2011

2010

146,221,084
7,566,632
262,322,061
11,000,000
2,754,724
175,429,305
605,293,806

55,919,291
8,170,580
748,613,527
2,013,704
100,863,860
915,580,962

51,025,938
1,739,607,480
120,493,244
10,565,701
3,124,500
1,924,816,863
2,530,110,669

21,025,938
1,732,108,230
124,211,507
12,078,919
963,010
1,890,387,604
2,805,968,566

12
19
13

29,195,362
517,503,554
550,000,000
1,096,698,916

142,539,187
605,438,518
890,000,000
1,637,977,705

20

25,122,951
1,121,821,867

30,983,636
1,668,961,341

ASSETS
Current assets
Cash
Receivables
Due from related parties
Loans receivable
Inventories, net
Prepayments and other current assets
Total current assets
Non-current assets
Available-for-sale financial assets
Investments in subsidiaries and associate
Property, plant and equipment
Deferred tax assets, net
Other non-current assets
Total non-current assets
Total assets

5
6
19
7
8

9
10
11
21

LIABILITIES AND EQUITY

Current liabilities
Trade payable and other liabilities
Due to related parties
Borrowings
Total current liabilities
Non-current liability
Retirement benefit obligation
Total liabilities
Equity
Share capital
Fair value reserves
Retained earnings
Appropriated
Unappropriated
Total equity
Total liabilities and equity

321,200,000
(19,891,125)

14

510,000,000
596,979,927
1,408,288,802
2,530,110,669

321,200,000
510,000,000
305,807,225
1,137,007,225
2,805,968,566

(The notes on pages 1 to 55 are integral part of these financial statements)

D&L Industries, Inc.

Statements of Total Comprehensive Income
For the year ended December 31, 2011
(With comparative figures for the year ended December 31, 2010)
(All amounts in Philippine Peso)
Notes

2011

2010

19

547,925,731
3,743,524
551,669,255

453,782,847
18,183,786
471,966,633

Cost of sales and services

Gross profit

15

(228,270,654)
323,398,601

(255,262,880)
216,703,753

Selling and marketing costs

16

(57,290,144)

(54,734,359)

Administrative expenses

17

(66,122,319)

(63,088,711)

Other income, net

Operating profit

18

173,887,844
373,873,982

133,740,404
232,621,087

Finance costs
Profit before income tax
Income tax expense
Current
Deferred

13

(25,311,882)
348,562,100

(40,621,422)
191,999,665

(53,666,055)
(3,723,343)
(57,389,398)
291,172,702

(21,981,294)
(21,981,294)
170,018,371

(19,891,125)
271,281,577

170,018,371

Revenues
Management service fee
Sales

22
Profit for the year
Fair value adjustment on available-for-sale
financial assets, net of tax
Total comprehensive income for the year

(The notes on pages 1 to 55 are integral part of these financial statements)

D&L Industries, Inc.

Statements of Cash Flows
For the year ended December 31, 2011
(With comparative figures for the year ended December 31, 2010)
(All amounts in Philippine Peso)
Notes
Cash flows from operating activities
Profit before income tax
Adjustments for:
Write-off of receivables
Depreciation
Retirement benefit (credit) expense
Unrealized foreign exchange loss
Dividends income
Interest income
Interest expense
Operating profit before working capital changes
(Increase) decrease in:
Receivables
Due from related parties
Loans receivables
Inventories
Prepayments and other current assets
Other non-current assets
Decrease in:
Trade payables
Due to related parties
Cash generated from operations
Income taxes paid or withheld
Retirement contributions
Interest received from banks
Net cash generated from operating activities
Cash flows from investing activities
Dividends received
Additions to investments subsidiaries and associates
Additions to available -for-sale financial assets
Acquisition of property and equipment
Net cash generated from (used in) investing activities
Cash flows from financing activities
Proceeds from borrowings
Payment of borrowings
Interest paid
Net cash used in financing activities
Effect of foreign exchange rate changes on cash
Net increase (decrease) in cash
Cash balance
Beginning of year
End of year

16
11
20
22
18
18
13

20
18

10
9
11

13
13

2011

2010

348,562,100

191,999,665

11,268,172
42,237,621
(1,340,220)
2,728,967
(165,776,801)
(1,340,495)
25,311,882
261,651,226

38,432,850
3,645,361
(107,364,014)
(23,925,622)
40,621,422
143,409,662

(10,664,224)
483,661,459
(11,000,000)
(741,020)
(74,565,445)
(2,161,490)

(8,102,260)
236,209,275
9,872,871
(37,016,776)
-

(114,122,381)
(87,934,964)
444,123,161
(53,666,055)
(4,520,465)
1,340,495
387,277,136

(252,084,279)
4,556,312
96,844,805
(21,981,294)
(3,645,361)
23,925,622
95,143,772

165,776,801
(7,499,250)
(52,101,250)
(38,519,358)
67,656,943

107,364,014
(174,984,000)
(27,653,006)
(95,272,992)

(340,000,000)
(24,533,326)
(364,533,326)
(98,960)
90,301,793

140,000,000
(120,000,000)
(40,621,422)
(20,621,422)
(20,750,642)

55,919,291
146,221,084

76,669,933
55,919,291

(The notes on pages 1 to 55 are an integral part of these financial statements)

D&L Industries, Inc.

Statements of Changes in Equity
For the year ended December 31, 2011
(With comparative figures for the year ended December 31, 2010)
(All amounts in Philippine Peso)

Balances at January 1, 2010

Comprehensive income
Profit for the year
Other comprehensive income
Total comprehensive income for
the year
Transactions with owners:
Additional subscription of stocks
Additional appropriation
Total transactions with owners
Balances at December 31, 2010
Comprehensive income
Profit for the year
Other comprehensive loss
Fair value gains on
available-for-sale financial
assets, net of tax
Total comprehensive income for
the year
Balances at December 31, 2011

Share capital
(Note 14)
146,216,000

Fair value
reserves
(Note 9)
-

Retained earnings
Appropriated
(Note 14)
360,000,000

Unappropriated
285,788,854

Total
645,788,854

Total equity
792,004,854

170,018,371
170,018,371

170,018,371
170,018,371

170,018,371
170,018,371

(150,000,000)
(150,000,000)
305,807,225

815,807,225

174,984,000
174,984,000
1,137,007,225

291,172,702

291,172,702

291,172,702

174,984,000
174,984,000
321,200,000

150,000,000
150,000,000
510,000,000

(19,891,125)

321,200,000

(19,891,125)
(19,891,125)

510,000,000

291,172,702
596,979,927

(The notes on pages 1 to 55 are an integral part of these financial statements)

(19,891,125)
271,281,577
1,087,088,802

(19,891,125)
271,281,577
1,408,288,802

D&L Industries, Inc.

Notes to Financial Statements
As at and for the years ended December 31, 2011
(With comparative figures as at and for the year ended December 31, 2010)
(All amounts are shown in Philippine Peso, unless otherwise stated)

Note 1 - General information

1.1

Business information

D&L Industries, Inc. (the Company) was registered with the Securities and Exchange Commission
(SEC) on July 27, 1971 primarily to carry on business of buying, selling, importing, bartering,
distributing, exchanging, processing, manufacturing, producing compounds, derivatives or chemical
substances and all kinds of goods, wares, manufactures, such as but not limited to machines, supplies
and all kinds of goods, wares, manufactures and products and generally engage in and conduct any
form of manufacturing or mercantile enterprises.
The Company is 85% owned subsidiary of Jadel Holdings, Inc. (JHI). The remaining 15% of
Companys outstanding shares are owned by Lao Family (14%) and LBL Industries, Inc. (1%), an entity
under common control.
The Companys ultimate parent company is the Equitable PCI Bank Trust Account, a trust organized
and domiciled in the Philippines.
The Companys registered office address which is also its principal place of business is 65 Industria St.,
Bagumbayan, Quezon City. As at December 31, 2011, the Company has 119 regular employees (2010 145).
1.2

Approval of the Companys financial statements

The financial statements of the Company as at December 31, 2011 were authorized and approved for
issue by the Board of Directors (BOD) on April 30, 2012.

Note 2 - Summary of significant accounting policies

The principal accounting policies adopted in the preparation of these separate financial statements are
set out below. These policies have been consistently applied to all the years presented, unless otherwise
stated.
2.1 Basis of preparation
The financial statements of the Company have been prepared in accordance with Philippine Financial
Reporting Standards (PFRS). The term PFRS in general includes all applicable PFRS, Philippine
Accounting Standards (PAS), interpretations of the Philippine Interpretations Committee (PIC),
Standing Interpretations Committee (SIC) and International Financial Reporting Interpretations
Committee (IFRIC) which have been approved by the Financial Reporting Standards Council (FRSC) and
adopted by the SEC.
The financial statements have been prepared under the historical cost convention, as modified by
revaluation of available-for-sale financial assets.
These financial statements are prepared as the Companys separate financial statements. The Company
did not present consolidated financial statements because its parent company, Jadel Holdings, Inc.,
publishes consolidated financial statements prepared in accordance with the Philippine Financial
Reporting Standards, in consideration of Philippine Interpretations Committee Q & A No. 2007-02 and
as allowed under paragraph 10 of Philippine Accounting Standard 27, Consolidated and Separate
Financial Statements. The parent companys consolidated financial statements include the financial
statements of the Company and its subsidiaries, collectively referred as the Group.
Users of these separate financial statements should read them together with the Groups consolidated
financial statements as at and for the years ended December 31, 2011 and 2010 in order to obtain full
information on the financial position, results of operations and changes in financial position, financial
performance and cash flows of the Group as a whole. The consolidated financial statements of Jadel
Holdings, Inc can be obtained from its registered office address in Quezon City.
The preparation of financial statements in conformity with PFRS requires the use of certain critical
accounting estimates. It also requires management to exercise judgment in the process of applying the
Companys accounting policies. The areas involving higher degree of judgment or complexity, or areas
where assumptions and estimates are significant to the financial statements are disclosed in Note 4.

(2)

Changes in accounting policy and disclosures

(a) Standards and amendments to existing standards adopted by the Company effective January 1,
2011
The following standards and amendments to existing standards, as approved by the FRSC, are
mandatory for annual periods beginning January 1, 2011:

PAS 24 (Revised), Related Party Disclosures (effective January 1, 2011). The revised standard
clarifies and simplifies the definition of a related party and removes the requirement for
government-related entities to disclose details of all transactions with the government and other
government-related entities. The adoption of the standard beginning January 1, 2011 did not have
a significant impact on the Companys financial statements as the Company did not identify
additional related party relationships and transactions and additional required disclosures on
related parties as a result on the adoption of the revised standard.

The following are the relevant amendments to PFRS which contain amendments that result in changes
in accounting, presentation, recognition and measurement. It also includes amendments that are
terminology or editorial changes only which have either minimal or no effect on accounting. These
amendments are part of the IASBs annual improvements project published in August 2009.

PAS 1 (Amendment), Presentation of Financial Statements (effective January 1, 2011). The

amendment clarifies that an entity will present an analysis of other comprehensive income for each
component of equity, either in the statement of changes in equity or in the notes to the financial
statements. The Company adopted the amendment beginning January 1, 2011 but the amendment
did not have a significant impact on the Companys financial statements as the Company has
previously presented the components of its other comprehensive income as part of its statements
of total comprehensive income and changes in equity and accordingly disclosed in the notes, and
continues to apply the same in 2011.

PAS 27, Consolidated and Separate Financial Statements (effective July 1, 2010). The
amendment clarifies that the consequential amendments from PAS 27 made to PAS 21, The Effect
of Changes in Foreign Exchange Rates, PAS 28, Investments in Associates, and PAS 31, Interests in
Joint Ventures, apply prospectively for annual periods beginning on or after July 1, 2009, or
earlier when PAS 27 is applied earlier. The Company adopted the amendment for the period
beginning January 1, 2011 but the amendment did not have a significant impact on the Companys
financial statements as the Company did not have investment in associates and interest in joint
ventures affected by changes in foreign exchange rates.

PFRS 7 (Amendment), Financial Instruments: Disclosures (effective January 1, 2011). The

amendment emphasizes the interaction between quantitative and qualitative disclosures about the
nature and extent of risks associated with financial instruments. The Company adopted the
amendment from January 1, 2011 which resulted to enhancement of disclosures on the nature and
extent of risks associated with its financial instruments.

(3)

(b) New standards and amendments to existing standards that are not yet effective and not early
adopted by the Company
The following revised standards and amendments to existing standards approved by the FRSC which
are mandatory for annual periods beginning January 1, 2012 and onwards are not early adopted by the
Company:

PAS 1 (Amendment), Financial Statement Presentation - Other Comprehensive Income (effective

July 1, 2012). The main change resulting from these amendments is a requirement for entities to
group items presented in other comprehensive income on the basis of whether they are potentially
reclassifiable to profit or loss subsequently (reclassification adjustments). The amendments do not
address which items are presented in other comprehensive income. The Company will apply the
amendment beginning January 1, 2013 but it is not expected to have a significant impact on the
Companys financial statements other than the classification of other comprehensive income on
the basis of whether these are potentially and subsequently reclassifiable to profit or loss.

PAS 19 (Amendment), Employee Benefits (effective January 1, 2013). These amendments

eliminate the corridor approach and calculate finance costs on a net funding basis. They would also
require recognition of all actuarial gains and losses in other comprehensive income as they occur
and of all past service costs in profit or loss. The amendments replace interest cost and expected
return on plan assets with a net interest amount that is calculated by applying the discount rate to
the net defined benefit liability (asset). The Company will adopt the amendment beginning
January 1, 2013. It is not expected to have a significant impact on the Companys financial
statements other than the full recognition of unrecognized actuarial losses to other comprehensive
income and the effect of the net interest amount based on new calculation criteria.

PAS 27 (Revised), Separate Financial Statements (effective January 1, 2013). The revised standard
includes the provisions on separate financial statements that are left after the control provisions of
PAS 27 have been included in the new PFRS 10. The Company will apply the revised standard
beginning January 1, 2013 but the adoption is not expected to have a significant impact on the
Companys financial statements as the Company, currently, is a controlled subsidiary which is fully
consolidated in the parent companys financial statements.

PFRS 7 (Amendment), Financial Instruments: Disclosures - Derecognition (effective July 1, 2011).

This amendment will promote transparency in the reporting of transfer transactions and improve
users understanding of the risk exposures relating to transfers of financial assets and the effect of
those risks on an entitys financial position, particularly those involving securitization of financial
assets. The Company will adopt the amendment beginning January 1, 2012 and provide additional
disclosures required by the amendment but are not expected to have a significant impact on the
Companys financial statements.

PFRS 7 (Amendment), Financial Instruments: Disclosures - Transfers of Financial Assets

(effective July 1, 2012). The amendment requires the disclosure of information that enables the
users of financial statements to understand the relationship between transferred financial assets
that are derecognized in their entirety and the associated liabilities; and to evaluate the nature of,
and risks associated with, the entities continuing involvement in derecognized financial assets.
The Company will apply this amendment commencing January 1, 2013. It is not expected to have
a significant impact on the Companys financial statements as the Company, currently, has not
made any plans to transfer significant financial assets covered by the amendment.

(4)

PFRS 9, Financial Instruments (effective January 1, 2013). This standard is the first step in the
process to replace PAS 39, Financial Instruments: Recognition and Measurement. PFRS 9
introduces new requirements for classifying and measuring financial assets and liabilities. The
Company is yet to assess PFRS 9s full impact on the financial statements and intends to adopt the
standard from January 1, 2013.

PFRS 13, Fair Value Measurement (effective January 1, 2013). This new standard aims to improve
consistency and reduce complexity by providing a precise definition of fair value and a single
source of fair value measurement and disclosure requirements for use across PFRS. The
requirements, which are largely aligned between IFRS and US GAAP, do not extend the use of fair
value accounting but provide guidance on how it should be applied where its use is already
required or permitted by other standards within IFRS or US GAAP. The Company is yet to assess
PFRS 13s full impact on the financial statements and intends to adopt the standard beginning 1,
2013.

(c) New standards, amendments and interpretations to existing standards that are not applicable
and/or relevant to the Company
The standards, amendments and interpretations to existing standards approved by FRSC effective for
annual periods beginning January 1, 2011 and onwards as disclosed below are considered not
applicable and/or relevant to the Companys financial statements during and at the end of each
reporting period.

2.2

PAS 12 (Amendment), Income Taxes - Deferred Tax (effective January 1, 2012);

PAS 28 (Revised), Investments in Associates and Joint Ventures (effective January 1, 2013);
PAS 32 (Amendment), Financial Instruments: Presentation - Classification of Rights Issues
(effective February 1, 2010);
PAS 34, Interim Financial Reporting (effective January 1, 2011);
PFRS 1 (Revised), First-time Adoption of Philippine Financial Reporting Standards (effective
January 1, 2011);
PFRS 1 (Amendment), First-time Adoption of PFRS - Fixed Dates and Hyperinflation (effective
July 1, 2011);
PFRS 3, Business Combinations (effective July 1, 2010);
PFRS 11, Joint Arrangements (effective January 1, 2013);
PFRS 12, Disclosures of Interests in Other Entities (effective January 1, 2013);
Philippine Interpretation IFRIC 13, Customer Loyalty Programs (effective January 1, 2011);
Philippine Interpretation IFRIC 14, PAS 19 - The Limit on a Defined Benefit Asset, Minimum
Funding Requirements and their Interaction (Amendment) (effective January 1, 2011);
Philippine Interpretation IFRIC 15, Agreement for Construction of Real Estate;
Philippine Interpretation IFRIC 19, Extinguishing Financial Liabilities with Equity
Instruments (Effective July 1, 2010); and
Philippine Interpretation IFRIC 20, Stripping Costs in the Production Phase of a Surface
Mine (effective January 1, 2013).
Separate financial statements

Following the Companys adoption of PAS 27, the Company elected not to present consolidated
financial statements, and presented only separate financial statements.

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The consolidated financial statements of the parent and its subsidiaries (including the Company) as at
and for the years ended December 31, 2011 and 2010 can be obtained from the SEC. These
consolidated financial statements have been prepared in accordance PFRS that give a true and fair
view of the financial position, results of operations and cash flows of the entire group.
Investment in shares of stock of subsidiaries and associates at December 31, 2011 and 2010 consist of
the following:
Interest
Subsidiaries:
First In Colours, Incorporated (FIC)

Aero-Pack Industries, Inc.

(API)

D&L Powder Coating, Inc.

(DLPCI)

67%

67%

60%

Main activity
FIC was registered with SEC on November 17, 1988
primarily to carry on the business of importing,
exporting, manufacturing and distributing at wholesale
and retail chemical products, compounds, derivatives
or chemical substances and generally, engage in and
conduct any form of manufacturing or mercantile
enterprises.
FICs equity is 67% owned by the Company and 22% held
by JHI.
API was incorporated and registered with SEC on
September 29, 1989 to engage in the manufacture of
aerosol packaging materials, aerosol products, chemical
derivatives and compounds and other related products.
APIs equity is 67% owned by the Company and 25% is
held by JHI.
DLPCI was incorporated and registered with SEC on
February 11, 2011 primarily to engage in the business
of manufacturing, processing, refining, of all kinds of
chemical products, compounds, derivatives or chemical
substances, and all kinds of godos, wares, supplies
and manufactures, and buy, sell, trade, distribute, or
otherwise dispose of the same, locally or abroad in the
normal course of business and industry without
engaging in the business of manufacturing food, drugs
and cosmetics.
DLPCIs equity is 60% owned by the Company and
40% is held by JHI.

FIC Marketing Co., Inc.(FICM)

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67%

As at December 31, 2011, DLPCI has not yet started

comercial operation.
FICM was incorporated and registered with SEC on
November 21, 1985 primarily to carry on the business of
selling, marketing, distributing, trading goods,
commodities, merchandise, wares, articles, chattel,
materials and products of every kind and description not
limited to industrial chemicals, agricultural and industrial
products, materials, machines, equipment and
accessories, at wholesale or retail, locally or abroad.

As at December 31, 2011 and 2010, FICMs equity is 67%

owned by the Company and 32% held by JHI.
Associates:
D&L Polymer and Colours, Inc.
(DLPCI)

Chemrez Technologies, Inc. (CTI)

33%

34%

DLPCI was incorporated and registered with SEC on

March 30, 2006 primarily to carry on the business of
buying, selling, importing, exporting, bartering, distributing,
exchanging, processing, manufacturing, producing,
refining, beneficiating and disposing at wholesale and
retail of chemical products, compounds, derivatives or
chemical substances and all kinds of goods, wares,
manufactures, such as, but not limited to, machines,
supplies and products and generally to engage in the
conduct of manufacturing or mercantile enterprises.
DLPCI is 50% owned by FIC, 33% owned by the
Company and 17% owned by JHI.
CTI was incorporated and registered with SEC on June
1, 1989. CTI attained its status of being a public
company on December 8, 2000 and is listed on the
Philippine Stock Exchange. The Company is engaged
in the business of manufacturing, processing, refining all
kinds of chemical products, compounds, derivatives or
chemical substances and all kinds of goods, wares,
supply and manufacture, buy, sell, trade, distribute or
otherwise dispose of the same, locally or abroad, in the
normal course of business without engaging in the
business of manufacturing food, drugs and cosmetics.
On May 12 and June 9, 2007, CTIs Board of Directors
and Stockholders, respectively, authorized CTI to invest
and/or engage in the manufacture, sale and distribution
of biodiesel under the brand BioActiv.

Oleo-Fats, Inc. (OFI)

40%

CTI is controlled by the Lao family which, as at

December 31, 2011, effectively owns 67% of CTIs
shares, including those held by the Company, JHI and
Color Chem Corporation, which domestic companies
collectively own 37% of the CTIs issued shares of
stock. The remaining 33% of the shares outstanding
are publicly held.
OFI was registered with SEC on May 4, 1987 to carry
on the business of manufacturing, processing, sourcing,
marketing, selling, utilizing fats and oils, oleo chemicals
and derivatives, distributing locally and abroad.
As at December 31, 2011 and 2010, OFIs equity is
40% held by the Company, 40% held by Cahaya, Inc.
and 16% held by JHI.

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Considering that the Company presents only separate financial statements, the investment in shares of
stock of subsidiaries and associates above, is accounted using the cost method (Note 2.12).
Subsidiaries
Subsidiaries are all entities (including special purpose entities) over which the Company has the power
to govern the financial and operating policies generally accompanying a shareholding of more than one
half of the voting rights. The existence and effect of potential voting rights that are currently
exercisable or convertible are considered when assessing whether the Company controls another
entity.
The cost method of accounting is used to account for the acquisition of subsidiaries by the Company.
The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued
and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the
acquisition.
Identifiable assets acquired and liabilities assumed in a business combination are measured initially at
their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess
of the cost of acquisition over the fair value of the Companys share of the identifiable net assets
acquired is recorded as goodwill.
Associates
Associates are entities over which the Company has significant influence but not control, generally
accompanying a shareholding of between 20% and 50% of the voting rights.
Investments in associate are accounted for using the cost method of accounting and are initially
recognized at cost.
2.3
2.3. 1

Financial assets
Classification and presentation

The Company classifies its financial assets in the following categories: (i) loans and receivables, (ii) at fair
value through profit or loss, (iii) held-to-maturity and (iv) available-for-sale. The classification depends
on the purpose for which the financial assets were acquired. Management determines the classification
of its financial assets at initial recognition.
The Company did not hold financial assets under categories (ii) and (iii) above during and at the end of
each reporting period.
Loans and receivables
The Companys financial assets categorized as loans and receivables are non-derivative financial assets
with fixed or determinable payments and are not quoted in an active market. They are included in
current assets, except for maturities greater than twelve months after the reporting date, which are
classified as non-current assets.

(8)

The Companys loans and receivables consist mainly of cash, receivables, due from related parties, loans
receivable and refundable deposits presented under other non-current assets in the statement of
financial position.
Available-for-sale
Available-for-sale financial asset is non-derivative that is either designated in this category or not
classified in any of the other categories. It is included in non-current assets unless management intends
to dispose of the investment within twelve (12) months after the reporting period.
The Companys available -for-sale financial assets consist of investment in equity securities of listed and
non-listed entities in the Philippines and investment in golf club shares (Note 9).
2.3.2

Initial recognition and subsequent measurement

Loans and receivables

Loans and receivables are initially recognized at fair value plus transaction costs. Loans and receivables
are subsequently carried at amortized cost using the effective interest method, less provision for
impairment of receivables.
Available-for-sale financial assets
Available-for-sale financial assets are subsequently carried at fair value, except where fair value cannot be
reliably measured which shall be measured at cost. Unrealized gains and losses arising from changes in
the fair value of assets classified as available-for-sale financial assets are recognized in other
comprehensive income. For available-for-sale financial assets carried at cost, if a reliable measure
becomes available, it is measured at fair value and the difference between its carrying amount and fair
value is recognized in other comprehensive income. Dividends on available-for-sale investments are
recognized in profit or loss when the Companys right to receive payments is established.
2.3.3

Derecognition

Loans and receivables and available for sale financial assets are derecognized when the rights to receive
cash flows have expired or the Company has transferred substantially all the risks and rewards of
ownership to the financial assets.
2.3.4

Impairment

Loans and receivables

The Company assesses at the end of each reporting period whether there is objective evidence that a
financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets
is impaired and impairment losses are incurred only if there is objective evidence of impairment as a
result of one or more events that occurred after the initial recognition of the asset (a loss event) and
that loss event (or events) has an impact on the estimated future cash flows of the financial asset or
group of financial assets that can be reliably estimated.

(9)

The criteria that the Company uses to determine that there is objective evidence of an impairment loss
include:

Significant financial difficulty of the customer or other third party considered as obligor;
A breach of contract, such as a default or delinquency in interest or principal payments;
It becomes probable that the customer or other third party considered as obligor will enter
bankruptcy or other financial reorganization; or
Observable data indicating that there is a measurable decrease in the estimated future cash
flows from a portfolio of financial assets since the initial recognition of those assets, although
the decrease cannot yet be identified with the individual financial assets in the portfolio,
including adverse changes in the payments status of customers or other third parties
considered as obligors in the portfolio and national or local economic conditions that correlate
with defaults on the assets in the portfolio.

For loans and receivables category, the Company first assesses whether there is objective evidence of
impairment exists individually for receivables that are individually significant, and collectively for
receivables that are not individually significant. If the Company determines that no objective evidence
of impairment exists for an individually assessed receivable, whether significant of not, it includes the
asset in a group of financial assets with similar credit risk characteristics and collectively assesses those
for impairment. Receivables that are individually assessed for impairment and for which an
impairment loss is or continues to be recognized are not included in a collective assessment of
impairment.
The amount of the loss is measured as the difference between the assets carrying amount and the
present value of estimated future cash flows (excluding future credit losses that have not been
incurred) discounted at the financial assets original effective interest rate. The carrying amount of the
asset is reduced and the amount of the loss is recognized in profit or loss.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be
related objectively to an event occurring after the impairment was recognized (such as an improvement
in the debtors credit rating), the reversal of the previously recognized impairment loss is recognized in
the statement of total comprehensive income. Reversals of previously recorded impairment provision
are based on the result of managements update assessment, considering the available facts and
changes in circumstances, including but not limited to results of recent discussions and arrangements
entered into with customers as to the recoverability of receivables at the end of the reporting period.
Subsequent recoveries of amounts previously written-off are credited against selling and marketing
costs in statement of total comprehensive income.
Available-for-sale financial assets
In the case of equity investments classified as available-for-sale financial assets, a significant or
prolonged decline in the fair value of the security below its cost is also evidence that the assets are
impaired.
When a decline in the fair value of an available-for-sale financial asset has been recognized in other
comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss
that had been recognized in other comprehensive income is reclassified from equity to profit or loss as
a reclassification adjustment even though the financial asset has not been derecognized, measured as
the difference between the acquisition cost and the current fair value, less any impairment loss on that
financial asset previously recognized in statement of total comprehensive income. Impairment losses

(10)

recognized in profit or loss for an investment in an equity instrument classified as available-for-sale is

not reversed through statement of total comprehensive income.
2.4

Financial liabilities

2.4.1

Classification and presentation

The Company classifies its financial liabilities in the following categories: (i) financial liabilities at fair
value through profit or loss (including financial liabilities held for trading and those that are designated
at fair value) and (ii) financial liabilities at amortized cost. The classification depends on the purpose for
which the financial liabilities were incurred. Management determines the classification of its financial
liabilities at initial recognition.
The Company did not hold financial liabilities at fair value through profit or loss during and at the end of
each reporting period.
The Companys financial liabilities at amortized cost are those that are not classified at fair value through
profit or loss. They are included in current liabilities, except for maturities greater than 12 months after
reporting date which are classified as non-current liabilities.
The Companys financial liabilities at amortized cost consist mainly of trade payable and other liabilities
(excluding payables to government agencies for value-added tax, withholding and other taxes payable) ,
due to related parties and borrowings.
2.4.2

Initial recognition and subsequent measurement

The Companys financial liabilities are initially measured at fair value plus transaction costs.
Subsequently, these are measured at amortized cost using the effective interest method. Interest expense
on financial liabilities is recognized within finance cost, at gross amount, in the statement of total
comprehensive income.
2.4.3

Derecognition

Financial liabilities are derecognized when extinguished, that is, when the obligation specified in a
contract is discharged or cancelled or when the obligation expires.
2.5

Determination of fair value

The Company classifies its fair value measurements using a fair value hierarchy that reflects the
significance of the inputs used in making the measurements. The fair value hierarchy has the following
levels:

quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);
inputs other than quoted prices included within Level 1 that are observable for the asset or liability,
either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2); and
inputs for the asset or liability that are not based on observable market data (that is, unobservable
inputs) (Level 3).

The fair value of financial instruments traded in active markets is based on quoted market prices at the
reporting date. A market is regarded as active if quoted prices are readily and regularly available from an

(11)

exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent
actual and regularly occurring market transactions on an arms length basis.
The quoted market price used for financial instruments that are traded in active market is the current bid
price. These instruments are included in level 1. Instruments included in level 1 comprise primarily of
FTSE 100 equity investments classified as trading securities or available-for-sale.
The fair value of financial instruments that are not traded in an active market (for example, over-thecounter derivatives) is determined by using valuation techniques. These valuation techniques maximize
the use of observable market data where it is available and rely as little as possible on entity specific
estimates. If all significant inputs required to fair value an instrument are observable, the instrument is
included in level 2.
If one or more of the significant inputs is not based on observable market data, the instrument is included
in level 3. Specific valuation techniques used to value financial instruments include:

Quoted market prices or dealer quotes for similar instruments;

The fair value of interest rate swaps is calculated as the present value of the estimated future cash
flows based on observable yield curves;
The fair value of forward foreign exchange contracts is determined using forward exchange rates at
the reporting date, with the resulting value discounted back to present value ; and
Other techniques, such as discounted cash flow analysis, are used to determine fair value for the
remaining financial instruments.

The Companys available-for-sale financial asset with quoted market price is valued using Level 1 of the
fair value hierarchy and those with unquoted market price, which is carried at cost, is valued using Level 3
of the fair value hierarchy.
The Company has no other significant financial assets and liabilities carried at fair value.
2.6

Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported in the statement of financial
position when there is a legally enforceable right to offset the recognized amounts and there is an
intention to settle on a net basis, or realize the asset and settle the liability simultaneously.
Offsetting of financial instruments is limited to balances with related parties.
2.7

Cash

Cash consists of cash on hand and deposits held at call with banks. Cash in bank earns interest at the
prevailing bank deposit rate.
2.8

Receivables

Trade receivables arising from regular sales with an average credit term of 30 to 90 days are recorded at
fair value plus transaction cost, which approximates invoice value, less any provision for impairment.
Other receivables are recognized initially at fair value and subsequently measured at amortized cost using
effective interest method, less any provision for impairment.
(12)

An individual and collective provision for impairment of receivables is established when there is objective
evidence that the Company will not be able to collect all amounts due according to the original terms of
receivables. Significant financial difficulties of the debtor, probability that the debtor will enter
bankruptcy or financial reorganization, and default or delinquency in payments are considered as
indicators that the receivable is impaired. The amount of the provision is the difference between the
assets carrying amount and the present value of estimated future cash flows, discounted at the effective
interest rate. The carrying amount of the asset is reduced through the use of an allowance account and
the amount of the loss is recognized in the provision for impairment of receivables in the statement of
total comprehensive income within selling and marketing costs.
The Company first assesses whether objective evidence of impairment exists individually for receivables
that are individually significant, and collectively for receivables that are not individually significant. If
the Company determines that no objective evidence of impairment exists for an individually assessed
receivable, whether significant or not, it includes the asset in a group of financial assets with similar
credit risk characteristics and collectively assesses them for impairment. Receivables that are
individually assessed for impairment and for which an impairment loss is or continues to be recognized
are not included in a collective assessment of impairment.
When a receivable is uncollectible, it is written off against the provision account for receivables.
Receivables and its related provision for impairment are written off when the Company has determined
that the receivable is uncollectible as they have already exerted all collection efforts, including filing a
legal case. Bad debts written off are specifically identified by the Companys marketing department
after exhausting all collection efforts (i.e. sending demand letters and legal notice of default to
customers), and is approved by the respective product manager and subsequently by the Board of
Directors. Write offs represent the release of previously recorded provision from the allowance account
and credited to the related receivable account following the Companys assessment that the related
receivable will no longer be collected after all collection efforts have been exhausted.
Subsequent recoveries of amounts previously written-off are credited against the provision account in
the statement of total comprehensive income. Reversals of previously recorded impairment provision
are credited in the statement of total comprehensive income based on the result of managements
update assessments, considering available facts and changes in circumstances, including but not limited
to results of recent discussions and arrangements entered into with customers as to the recoverability of
receivable at reporting date.
2.9

Inventories

Inventories are stated at the lower of cost and net realizable value (NRV). The cost of finished goods
inventories is determined on the basis of standard costs which are adjusted at periodic intervals and
which approximate actual manufacturing cost. The cost of raw materials is determined using the
weighted average method. Inventories in transit are valued at invoice cost including related importation
costs. NRV is the estimated selling price in the ordinary course of business, less applicable variable
selling and distribution expenses. Provision for inventory losses and obsolescence is provided, when
necessary, based on managements review of inventory turnover and projected future production
demands.

(13)

Provision for inventory losses is established for slow moving, obsolete, defective and damaged
inventories based on physical inspection and management evaluation. Inventories and its related
provision for impairment are written off when the Company has determined that the related inventory
is already obsolete and damaged. Write offs represent the release of previously recorded provision from
the allowance account and credited to the related inventory account following the disposal of the
inventories. Destruction of the obsolete and damaged inventories is made in the presence of regulatory
agencies.
Reversals of previously recorded impairment provisions are credited against provision account in the
statement of total comprehensive income based on the result of managements update assessment,
considering available facts and circumstances, including but not limited to net realizable value at the
time of disposal.
Inventories are derecognized when sold or otherwise disposed of.
2.10

Prepayments and other current assets

Prepayments are recognized in the statement of financial position in the event that payment has been
made in advance of obtaining right of access to goods or receipt of services and measured at nominal
amounts. These are derecognized in the statement of financial position upon delivery of goods or when
services have been rendered, through amortization over a certain period of time, and use or
consumption.
Other non-current assets consist substantially of input value-added tax and creditable withholding
taxes which are recognized as assets in the period such input value-added tax and income tax
payments become available as tax credits to the Company and carried over to the extent that it is
probable that the benefit will flow to the Company. These are derecognized in the statement of
financial position when there is a legally enforceable right to offset the recognized amounts and there
is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously.
Prepayments and other non-financial assets are included in current assets, except when the related
goods or services are expected to be received or rendered more than twelve (12) months after the
reporting period which are classified as non-current assets.
2.11

Property, plant and equipment

Property, plant and equipment are stated at historical cost less related accumulated depreciation and
amortization, and provision for any impairment. Historical cost includes expenditure that is directly
attributable to the acquisition of the items.
Subsequent costs are included in the assets carrying amount or recognized as a separate asset, as
appropriate, only when it is probable that future economic benefits associated with the item will flow to
the Company and the cost of the item can be measured reliably. All other repairs and maintenance are
charged to the statement of total comprehensive income during the financial period in which they are
incurred.

(14)

Construction in progress, which represents properties under construction, is stated at cost and
depreciated only when the relevant assets are completed and put into operational use. Upon
completion, these properties are reclassified to their relevant property and equipment account.
Leasehold improvements are amortized over the period of the lease agreement or estimated useful life
of the improvements, which is shorter than the lease term, considering the renewal option.
Depreciation on assets is computed on the straight-line method to allocate the cost of each asset, less
its residual value, over its estimated useful life, determined based on the Companys historical
information and experience on the use of such assets, as follows:

Machinery and equipment

Transportation and equipment
Office equipment
Leasehold improvements

In years
10
5
5
5

The assets residual values and useful lives are reviewed, and adjusted as appropriate, at each reporting
date.
An assets carrying amount is written down immediately to its recoverable amount if the assets carrying
amount is greater than its estimated recoverable amount.
An item of property and equipment is derecognized upon disposal or when no future economic
benefits are expected from its use or disposal at which time the cost and their accumulated
depreciation are removed from the disposal accounts.
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount of
the assets and are included in the statement of total comprehensive income.
2.12

Investment in shares of stock of subsidiaries and associates

Investment in shares of stock of subsidiaries and associates is accounted for using the cost method. Under
this method, investments are recognized at cost and income from investment is recognized in the
statement of total comprehensive income only to the extent that the Company (as investor) receives
distribution from accumulated profits of the investee arising after the acquisition date. Distributions
received in excess of such profits are regarded as a recovery of investment and are recognized as a
reduction of the cost of the investment.
Investments in subsidiaries and associates are derecognized when the Company ceased to have control or
shareholdings over the entities or when the risks and rewards of ownership have been transferred or
extinguished.

(15)

2.13

Impairment of non-financial assets

Non-financial assets that have an indefinite useful life, such as land, are not subject to amortization and
are tested annually for impairment. Other non-financial assets, mainly property, plant and equipment and
investment in subsidiaries and associates, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. An impairment loss is
recognized for the amount by which the assets carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of an assets fair value less cost to sell and value in use. For the
purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately
identifiable cash flows (cash-generating units). Impairment losses, if any, are recognized in the
statement of total comprehensive income as part of administrative expenses.
When impairment loss subsequently reverses, the carrying amount of the asset or cash-generating unit
is increased to the revised estimate of its recoverable amount, but the increased carrying amount
should not exceed the carrying amount that would have been determined had no impairment loss been
recognized for the asset or cash-generating unit in prior years. A reversal of an impairment loss is
recognized are credited against the provision account in the statement of total comprehensive income.
2.14

Current and deferred income tax

The tax expense for the period comprises current and deferred tax. Tax is recognized in the profit or
loss, except to the extent that it relates to items recognized in other comprehensive income or directly
in equity. In this case the tax is also recognized in other comprehensive income or directly in equity,
respectively.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively
enacted at the reporting date. Management periodically evaluates positions taken in the tax returns
with respect to situations in which applicable tax regulation is subject to interpretation and
establishing provisions where appropriate on the basis of amounts to be paid to tax authorities.
Deferred income tax (DIT) is provided in full, using the liability method, on temporary differences
arising between the tax bases of assets and liabilities and their carrying amounts in the financial
statements. DIT is determined using tax rates (and laws) that have been enacted or substantively
enacted by the reporting date and are expected to apply when the related DIT asset is realized or the
DIT liability is settled.
DIT assets are recognized for all deductible temporary differences, carry-forward of unused tax credits
from excess minimum corporate income tax (MCIT) and unused tax losses (net operating loss
carryover or NOLCO), to the extent that it is probable that future taxable profit will be available against
which the temporary differences can be utilized. Deferred income tax liabilities are recognized in full
for all taxable temporary differences.
DIT assets and liabilities are offset when there is a legally enforceable right to offset current tax assets
against current tax liabilities and when the DIT assets and liabilities relate to income taxes levied by
the same taxation authority on either the taxable entity or different taxable entities where there is an
intention to settle the balances on a net basis.
The Company re-assesses at each financial position date the need to recognize a previously
unrecognized DIT asset, if any.

(16)

2.15

Trade payable and other liabilities

Trade payable and other liabilities are obligations to pay for goods or services that have been acquired
in the ordinary course of business from suppliers.
Trade payable and other liabilities are recognized in the period in which the related money, goods or
services are received or when a legally enforceable claim against the Company is established or when the
corresponding assets or expenses are recognized. These are classified as current liabilities if payment is
due within one year or less (or in the normal operating cycle of the business if longer). If not, they are
presented as non-current liabilities.
Trade payable and other liabilities are recognized initially at fair value and subsequently measured at
amortized cost using effective interest method.
2.16

Borrowings and borrowing costs

Borrowings
Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are
subsequently stated at amortized cost; any difference between the proceeds (net of transaction costs)
and the redemption value is recognized in the statement of total comprehensive income over the
period of the borrowings using the effective interest method.
Borrowings are classified as current liabilities unless the Company has unconditional right to defer
settlement of the liability for at least twelve months after the reporting date.
Borrowing costs
Borrowing costs incurred for the construction of any qualifying asset, if any, are capitalized during the
period of time that is required to complete and prepare the asset for its intended use.
Other borrowing costs are recognized and charged to operations in the year in which these are incurred.
2.17

Provisions

Provision are recognized when the Company has a present legal or constructive obligation as a result of
past events, it is probable that an outflow of resources will be required to settle the obligation, and a
reliable estimate of the amount can be made. Provisions are not recognized for future operating losses.
Provisions are measured at the present value of the expenditures expected to be required to settle the
obligation using a pre-tax rate that reflects current market assessments of the time value of money and
the risks specific to the obligation. The increase in the provision due to passage of time is recognized
as interest expense.
Provisions are reviewed at reporting date and adjusted to reflect the current best estimate.

(17)

2.18

Share capital

Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares
are shown in equity as a deduction from the proceeds.
Retained earnings
Appropriated retained earnings
Appropriated retained earnings pertain to the portion of the accumulated profit from operations which
are restricted or reserved for a specific purpose such as capital expenditures for expansion projects, and
approved by the Companys Board of Directors.
Unrestricted retained earnings
Unrestricted retained earnings pertain to the unrestricted portion of the accumulated profit from
operations of the Company which are available for dividend declaration.
2.19

Dividend distribution

Dividend distribution to the Companys shareholders is recognized as a liability in the financial

statements in the period in which the dividends are approved by the Companys Board of Directors.
2.20 Revenue recognition
Revenue comprises the fair value of the consideration received or receivable for the sale of goods and
services in the ordinary course of the Companys activities. Revenue is shown net of value-added tax,
returns, rebates and discounts.
For the years ended December 31, revenue is shown net of the following:

Discounts
Returns

2011
1,546,762
104,214
1,650,976

2010
104,678
284,770
389,448

The Company recognizes revenue when the amount of revenue can be reliably measured, it is probable
that future economic benefits will flow into the entity, collectability of the related receivable is reasonably
assured, and specific criteria have been met for each of the Companys activities as described below.
The amount of revenue is not considered to be reliably measured until all contingencies relating to the
sale have been resolved.

(18)

Revenue is recognized as follows:

Sale of goods
Sale of goods are recognized when the Company has delivered the products to the customer and there is
no unfulfilled obligation that could affect the acceptance of the products. Delivery does not occur until
the products have been shipped to the specific location, the risk of obsolescence and loss have been
transferred to the customer, and either the customer has accepted the products in accordance with the
sales contract, the acceptance provisions have lapsed, or the Company has objective evidence that all
criteria for acceptance have been satisfied.
Service fees
Service fees from logistics, support and management service agreements are recognized when the
service has been rendered.
Dividend income
Dividend income is recognized when the right to receive payment is established.
Interest income
Interest income from cash in banks, which is presented net of final taxes paid or withheld, is
recognized on a time-proportion basis using the effective interest method.
Other income
All other income items are recognized when earned.
2.21

Costs and expenses

Costs and expenses are charged to operations when incurred.

2.22

Employee benefits

Retirement benefit obligations

The Company has a defined benefit pension plan in accordance with the local conditions and practices
in the Philippines. The plan is generally funded through payments to trustee-administered funds as
determined by periodic actuarial calculations. Defined benefit plans define an amount of pension
benefit that an employee will receive on retirement, usually dependent on one or more factors such as
age, years of service and compensation.
The liability recognized in the statement of financial position is present value of the defined benefit
obligation less fair value of the plan assets at the reporting, together with adjustments for unrecognized
past service costs. In cases when the amount determined results in an asset, the Company measures the
resulting asset at the lower of such amount determined and the total of any cumulative unrecognized net
(19)

actuarial losses and past service cost and the present value of any economic benefits available to the
Company in the form of refunds or reductions in future contributions to the plan. The defined benefit
obligation is calculated annually by independent actuaries using the projected unit credit method. The
present value of the defined benefit obligation is determined by discounting the estimated future cash
outflows using interest rates of government bonds that are denominated in the currency in which the
benefits will be paid, and that have terms to maturity which approximate the terms of the related pension
liability.
Cumulative actuarial gains and losses arising from experience adjustments and changes in actuarial
assumptions in excess of the greater of 10% of the value of plan assets or 10% of the defined benefit
obligation are spread to income over the employees expected average remaining working lives.
Past service costs are recognized immediately in the statement of total comprehensive income, unless the
changes to the pension plan are conditional on the employees remaining in service for a specified period
of time (the vesting period). In this case, the past service costs are amortized on a straight-line basis over
the vesting period.
Termination benefits
Termination benefits are payable when employment is terminated before the normal retirement date,
or when an employee accepts voluntary redundancy in exchange for these benefits. The Company
recognizes termination benefits when it is demonstrably committed to either: terminating the
employment of current employees according to a detailed formal plan without possibility of withdrawal;
or providing termination benefits as a result of an offer made to encourage voluntary redundancy.
Benefits falling due more than 12 months after reporting date are discounted to present value.
2.23

Leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor
are classified as operating leases. Payments made under operating leases are charged to the statement
of total comprehensive income on a straight-line basis over the period of the lease.
Leases where the Company has substantially all the risks and rewards of ownership are classified as
finance leases. Finance leases are capitalized at the leases commencement at the lower of the fair
value of the leased property and the present value of the minimum lease payments. The Company has
no lease that qualifies for finance lease during and at the end of each reporting period.
When the Company enters into an arrangement, comprising a transaction or a series of related
transactions, that does not take the legal form of a lease but conveys a right to use an asset or is
dependent on the use of a specific asset or assets, the Company assesses whether the arrangement is,
or contains, a lease. The Company does not have such arrangements during and at the end of each
reporting period.

(20)

2.24

Related party relationships and transactions

Related party relationship exists when one party has the ability to control, directly or indirectly
through one or more intermediaries, the other party or exercises significant influence over the other
party in making financial and operating decisions. Such relationship also exists between and/or among
entities which are under common control with the reporting enterprise, or between and/or among
entities and its key management personnel, directors, or its stockholders. In considering each possible
related party relationship, attention is directed to the substance of the relationship, and not merely the
legal form.
2.25

Foreign currency transaction and translation

Functional and presentation currency

Items included in the financial statements are measured using the currency of the primary economic
environment in which the entity operates (the functional currency). The financial statements are
presented in Philippine Peso, which is the Companys functional and presentation currency.
Transactions and balances
Foreign currency transactions are translated into Philippine Peso using the exchange rates prevailing
at the dates of the transaction. Foreign exchange gains and losses resulting from the settlement of
foreign currency transactions and from the translation at year-end exchange rates of monetary assets
and liabilities denominated in foreign currencies are recognized in the statement of total
comprehensive income.
For income tax purposes, foreign exchange gains and losses are treated as taxable income or deductible
expense in the period such are realized/sustained.
2.26

Subsequent events (or events after the reporting date)

Post year-end events that provide additional information about the Companys financial position at
reporting date (adjusting events) are reflected in the financial statements. Post year-end events that
are not adjusting events are disclosed in the notes to the financial statements when material.
Note 3 - Financial risk management
3.1

Financial risk factors

The Companys activities expose it to a variety of financial risks and these activities involve the
analysis, evaluation and management of some degree of risk or combination of risks. The Companys
overall risk management program focuses on the unpredictability of financial markets, aims to achieve
an appropriate balance between risk and return and seeks to minimize potential adverse effects on the
Companys financial performance.
Risk management is carried out by the ManCom (Management Committee).

(21)

The most important types of risk the Company manages are: credit risk, market risk and liquidity risk.
Market risk includes foreign exchange, interest and price risks.
3.2

Components of financial assets and financial liabilities by category

Financial assets
Details of the Companys financial assets at December 31 are as follows:
Notes
Loans and receivables
Cash
Receivables
Due from related parties
Loans receivable
Refundable deposits
Available for sale financial assets
Total financial assets

5
6
19

2010

2011
146,221,084
4,879,734
262,322,061
11,000,000
968,010
425,390,889
51,025,938
476,416,827

55,919,291
5,317,340
748,613,527
963,010
810,813,168
21,025,938
831,839,106

Receivables above exclude advances to suppliers at December 31, 2011 amounting to P2,686,898
(2010 - P2,853,240) (Note 5).
Refundable deposits at December 31, 2011 amounting to P968,010 (2010 - P963,010) are presented
among other non-current assets in the statement of financial position.
The other components of other current and non-current assets are considered non-financial assets.
These include prepaid taxes, input value-added tax and prepaid insurance.
Financial liabilities
Details of the Companys financial liabilities, categorized as liabilities at amortized cost, at December
31 are as follows:

Trade payable and other liabilities

Due to related parties
Borrowings
Total financial liabilities

Notes
12
19
13

2011
24,860,929
517,503,554
550,000,000
1,092,364,483

2010
139,979,734
605,438,518
890,000,000
1,635,418,252

Trade payable and other liabilities exclude amounts due to regulatory agencies and advances from
customers as at December 31, 2011 amounting to P2,684,874 and P1,649,559, respectively (2010
P2,559,453 and nil) (Note 12).

(22)

3.3

Credit risk

Credit risk arises from cash deposits with banks and financial institutions, as well as credit exposure
on receivable from customers, related parties and other counterparties.
The Companys financial assets that are subject to credit risks at December 31 are shown below:

Cash in banks
Receivables
Due from related
parties
Loans receivable
Refundable
deposits

Carrying amount
145,891,084
4,879,734

2011
Neither past due
nor impaired
145,891,084
4,879,734

2010
Carrying amount
50,750,370
5,317,340

Neither past due

nor impaired
50,750,370
5,317,340

262,322,061
11,000,000

262,322,061
11,000,000

748,613,527
-

748,613,527
-

968,010
425,060,889

968,010
425,060,889

963,010
805,644,247

963,010
805,644,247

Cash above excludes cash on hand at December 31, 2011 amounting to P330,000 (2010 - P5,168,921)
(Note 5).
The maximum exposure to credit risk at the reporting date is equal to the carrying value of financial
assets summarized above.
None of the financial assets that are fully performing has been renegotiated in 2011 and 2010.
The Company does not hold any collateral as security to the above financial assets.
The Company has no financial assets classified as past due but not impaired and past due and
impaired categories as at December 31, 2011 and 2010.
Credit quality of the Companys financial assets
(i)

Neither past due nor impaired

Cash in banks
Credit risk exposure arising from cash in banks arises from default of the counter party, with a
maximum exposure equal to the fair value of financial assets. The Company has policies that limit the
amount of credit exposure with financial institutions.
To minimize credit risk exposure, the Company deposits its cash in banks with good financial ratings.

(23)

Cash deposited in these banks at December 31 are as follows:

Universal banks
Thrift banks
Commercial banks

2011
114,779,298
4,178,989
26,932,797
145,891,084

2010
50,750,370
50,750,370

Receivables
Trade receivables
The Company has prudent credit policies to ensure that sales of its products are made to customers
with good credit history. The senior management team, product group heads and the respective sales
teams perform monthly reviews of outstanding receivables as part of the regular performance
assessment process. All significant receivables from key customers are monitored for collectability and
actual settlement performance, and specific action plans are required for any material overdue
amounts from all categories of customers.
From time to time management undertakes an evaluation of certain customer accounts for potential
provisioning and write-off.
The credit quality of trade receivables that are neither past due nor impaired can be assessed by
reference to historical information about counterparty default. The Companys trade receivables arising
from sale of goods at December 31, 2011 amounting to P2,007,582 (2010 - P863,914) have no history of
recent default or write-off and are considered to be fully performing. Accordingly, no provision for
impairment is required as a result of management assessment.
Advances to officers and employees
This account pertains to mostly cash advances to officers and employees for expenses used in various
official business activities. To address credit risk, these advances are subject to liquidation and/or
collectible through salary deduction.
Other receivables
Other receivables comprise mainly of receivable from third parties which are considered collectible on
demand. The Company limits its exposure to credit risk by transacting only with counterparties that
have appropriate and acceptable credit history.
Due from related parties
Due from related parties, arising mainly from transaction on sale of services and goods, are given the
right of offset against the outstanding balance of due to related parties as of a particular date.
Receivables from related parties under the neither past due nor impaired category have minimal history
of default or write off and considered fully performing. The Company is not expecting significant
exposure in these balances considering these are transacted with related parties.

(24)

Refundable deposits
This account pertains to security deposits on properties leased by the Company. Security deposits are
generally refundable at the end of the lease term. Management is not expecting significant credit risk
on these deposits.
3.4

Market risk

3.4.1 Foreign currency risk

The Company has transactional currency exposures. Such exposure arises mainly from receivable
from customers in currencies other than the Companys functional currency. As at December 31, 2011
and 2010, the Company has significant assets and liabilities denominated in US Dollar as presented in
Note 22.
The Company manages its foreign currency exchange risk through minimizing foreign currency
denominated transactions. Also, the Company maintains sufficient cash in foreign currency to cover
its maturing obligations.
The reasonable possible change in foreign exchange rate used in the sensitivity analysis is the rate of
change in various foreign currencies between the Peso equivalent at year end and sixty (60) days from
financial position date, by which management is expected to receive or settle the Companys most
significant financial assets or liabilities, respectively.
At December 31, 2011, if the US Dollar had weakened/strengthened by 1.43% (2010 - o.97%),
profit for the year and equity would have been P828,296 (2010 P37,780) higher/lower, mainly
as a result of foreign exchange gains/losses on translation of US Dollar-denominated cash and
receivables.
3.4.2 Price risk
The Company is exposed to price risk in relation to its available-for-sale financial asset. Components of
equity would increase or decrease as a result of gains or losses on these financial assets classified as
available-for-sale. Management monitors such financial instruments based on the current market price
of the shares. Available-for-sale financial assets are managed on an individual basis and all buy and
sell decisions are approved accordingly, thereby reducing the Companys exposure to equity price risk
at an acceptably low level.
Management does not foresee significant exposure to price risk with respect to available-for-sale
financial assets.
3.4.3 Cash flow and fair value interest rate risks
Cash flow interest rate risks
The Companys exposure to cash flow interest rate risk pertains to short-term borrowings where the
related interests are repriced at periodic intervals based on the prevailing mark-to-market prices, in
accordance with the terms of the agreement. The Companys practice is to manage its interest cost by
reference to current market rates in borrowings.
(25)

At December 31, 2011 and 2010, if interest rates increased / decreased by 0.5% from the last repricing
date, with all other variables held constant, profit for the year would have been P207,203 (2010 P82,500) higher/lower, respectively, mainly as a result of higher/lower interest expense, net based on
variable rates.
The reasonable possible change in interest rate used in the sensitivity analysis is the rate of change
between the nominal interest rate at the end of the reporting period and the use of hypothetical
interest rate (gross of applicable final tax rate), which is normally equal to the discount rate set by
reference to yields on government bonds, determined at the next repricing date or the date by which
management is expected to settle the Companys variable interest-bearing borrowings.
Fair value interest rate risk
The Company has no significant financial assets and liabilities that are subject to fixed interest rates.
Accordingly, the Company does not foresee fair value risk to be significant.
3.5

Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding
through an adequate amount of credit facilities and the ability to close out market positions. Due to
the dynamic nature of the underlying businesses, the Company aims to maintain flexibility by keeping
credit lines available.
On a regular basis, management monitors forecasts of the Companys liquidity reserve on the basis of
expected cash flow. The Company places cash in excess of immediate requirements in banks.
The table below presents the Companys financial liabilities maturing in the next twelve months from
reporting date. The amounts disclosed in the table are the contractual undiscounted cash flows.
Balances equal their carrying balances, as the impact of discounting is not significant.

December 31, 2011

Trade payable and
other liabilities
Due to related parties
Borrowings

December 31, 2010

Trade payable and
other liabilities
Due to related parties
Borrowings

(26)

Due and
demandable

Less than 3
months

Between 3
to 6 months

Over 12
months

Total

517,503,554
517,503,554

24,860,929
550,000,000
574,860,929

25,740,000
25,740,000

24,860,929
517,503,554
575,740,000
1,118,104,483

Due and
demandable

Less than 3
months

Between 3 to
6 months

Over 12
months

Total

605,438,518
605,438,518

139,979,734
490,000,000
629,979,734

400,000,000
400,000,000

28,480,000
28,480,000

139,979,734
605,438,518
918,480,000
1,663,898,252

Borrowings include undiscounted cash flows from interest payable of P25.74 million (2010 P28.48
million) (Note 13).
The Company believes that cash generated from its operating activities is sufficient to meet maturing
obligations required to operate the business. The Company would also be able to meet unexpected
cash outflows by accessing additional funding sources from local banks and related parties.
The Company expects to settle the above financial obligations in accordance with their maturity date.
3.6

Capital risk management

The Companys objective when managing capital is to generate the maximum possible returns for its
shareholder while taking on a manageable degree of risk ensuring that the Company will continue to
operate as a going concern into the foreseeable future.
In order to maintain or adjust the capital structure, the Company reviews its capital structure from
time to time to assess the proper financing mix necessary to grow and sustain its operations. As a
matter of policy, capital expenditures have been financed from internally-generated cash flow while
investments in working capital will be augmented by short-term bank borrowings from time to time.
The Company has been engaged in a conscious effort to keep its overall gearing ratio as low as possible
through proper management of its working capital cycle.
At December 31, 2011 and 2010, total capital is equal to the equity as shown in the statement of
financial position.
Earnings in excess of dividend distributions in cash to shareholder have been continuously redeployed
and reinvested in the growth of the Companys business. Each instance of expansion of manufacturing
capacity and entry into new products and markets undergo a thorough evaluation process to ensure
that such investments and marketing programs are in consonance with the Companys core
competencies and would be enhancing, rather than diminishing, shareholder value in the long run.
The Company is not subject to externally imposed capitalization requirements.
Note 4 - Critical accounting estimates, assumptions and judgments
Estimates, assumptions and judgments are continually evaluated and are based on historical experience
and other factors, including expectations of future events that are believed to be reasonable under the
circumstances.
The Company makes estimates and assumptions concerning the future. The resulting accounting
estimates will, by definition, seldom equal the related actual results. The estimates, assumptions and
judgments that have a significant risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year are discussed below.

(27)

4.1

Critical accounting estimates and assumptions

Retirement plan obligation (Note 20)

The present value of the pension obligation depends on a number of factors that are determined on an
actuarial basis using a number of assumptions. The assumptions used in determining the net cost
(income) for pension include the discount rate, expected return on plan asset and future salary
increases. Any changes in these assumptions will impact the carrying amount of pension obligation.
The Company determines the appropriate discount rate at the end of each year. This is the interest
rate that should be used to determine the present value of estimated future cash outflows expected to
be required to settle the pension obligation. In determining the appropriate discount rate, the
Company considers the interest rates of government bonds that are denominated in the currency in
which the benefits will be paid and that have terms to maturity approximating the terms of the related
pension obligation and related pension expense.
Other key assumptions for pension obligation are based in part on current market conditions.
The Company considers that it is impracticable to disclose with sufficient reliability the possible effects
of sensitivities surrounding these actuarial assumptions at reporting date. One or more of the actuarial
assumptions may differ significantly and as a result, the actuarial present value of the defined benefit
obligation estimated at reporting date may differ significantly from amount reported.
Estimated useful life of property, plant and equipment (Note 11)
The useful life of each of the Companys property, plant and equipment is estimated based on the
period over which these assets are expected to be available for use. Such estimation is based on a
collective assessment of, internal technical evaluation and experience with similar assets. The
estimated useful life of each asset is reviewed periodically and updated if expectations differ from
previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or
other limits on the use of the asset. It is possible, however, that future results of operations could be
materially affected by changes in the amounts and timing of recorded expenses brought about by
changes in the factors mentioned above. A change in the estimated useful life of any property, plant
and equipment would impact the recorded expenses and non-current assets.
The Company considers that it is impracticable to disclose with sufficient reliability the possible effects
of sensitivities surrounding the estimated useful lives of the property, plant and equipment at
reporting date. One or more of the assumptions may differ significantly and as a result, the net
carrying value of the property, plant and equipment at reporting date may differ significantly from
amount reported.

(28)

4.2

Critical accounting judgment in applying the entitys accounting policies

Provision for impairment of receivables (Note 6)

Provision for impairment of receivables is maintained at a level considered adequate to provide for
potentially uncollectible receivables. The level of provision is based on past collection experience and
other factors that may affect collectibility. An evaluation of the receivables, designed to identify
potential charges to the provision, is performed on a continuous basis throughout the year.
Management evaluates specific accounts of customers who are unable to meet their financial
obligations. In these cases, management uses judgment based on the best available facts and
circumstances, including but not limited to, the length of relationship with the customers and the
customers payment history. The amount and timing of recorded expenses for any period would
therefore differ based on the judgments made.
For the year ended December 31, 2011, the Company has written off uncollectible receivables
amounting to P11,268,172 (2010 - nil) (Note 6).
In relation to receivables which are neither past due nor impaired, no provision for impairment has
been determined by management to be necessary considering customer relationship and historical
experience.
Although the amount and timing of recorded expenses for any period would differ based on the
judgments made, receivables are recognized at fair value based on recently observed market
conditions. Such fair values may change materially within the next financial year but these changes
would not arise from assumptions or other sources of estimation uncertainty as at and for the years
ended December 31, 2011 and 2010.
Provision for inventory obsolescence (Note 7)
Provision for inventory obsolescence is maintained at a level considered adequate to provide for potential
loss on inventory items. The level of provision is based on past experience and other factors affecting the
recoverability and obsolescence of inventory items. An evaluation of inventories, designed to identify
potential charges to the provision, is performed on a continuous basis throughout the period.
Management uses judgment based on the best available facts and circumstances, including but not
limited to evaluation of individual inventory items future recoverability and utilization. The amount and
timing of recorded expenses for any period would therefore differ based on the assessment and
judgments made. A change in provision for inventory obsolescence would impact the Companys
recorded expenses and current assets.
At December 31, 2011 and 2010, Company has not provided any allowance for inventory obsolescence.
The carrying values of the inventories at the end of the reporting period and the amount and timing of
recorded provision for any period could be materially affected by actual experience and changes in
such judgments such as effect of technological obsolescence, competition in the market and changes in
prices of raw and packaging materials, including any associated labor costs. Thus, it is reasonably
possible, on the basis of existing knowledge, that outcome within the next financial year arising from
changes in judgments may have a significant impact on the carrying amounts of provisions for
inventories.

(29)

Impairment of investment in subsidiaries and associate (Note 10)

The Companys investment in subsidiaries and associates is carried at cost. The carrying value is
reviewed and assessed for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. Changes in those management judgments and assessments
could have a significant effect on the carrying value of investments in subsidiaries and associates and
the amount and timing of recorded provision for any period.
As at December 31, 2011 and 2010, based on managements assessment and judgment, there are no
indications of impairment or changes in circumstances indicating that the carrying value of its
investment in a subsidiary may not be recoverable.
Impairment of property, plant and equipment (Note 11)
The Companys property, plant and equipment is carried at cost. The carrying value is reviewed and
assessed for impairment whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. Changes in those assessment and judgment could have a significant
effect on the carrying value of property, plant and equipment and the amount and timing of recorded
provision for any period.
As at December 31, 2011 and 2010, management believes, based on its assessment and judgment that
there are no indications of impairment or changes in circumstances indicating that the carrying value
of its property, plant and equipment may not be recoverable.
Provision for income tax; deferred income tax (Note 22)
The Company recognizes deferred tax assets to the extent that it is probable that future taxable income
will be available against which temporary differences can be utilized. Determining the realizability of
deferred tax assets requires the assessment on the availability of taxable profit expected to be
generated from the operations against which income tax assets can be applied.
Further, significant judgment is required in determining the provision for income taxes. There are
many transactions and calculations for which the ultimate tax determination is uncertain in the
ordinary course of business. The Company recognizes liabilities based on careful evaluation of whether
additional taxes will be due. Where the final tax outcome of these matters is different from the
amounts that were initially recorded, such differences will impact the Companys income tax and
deferred tax provisions in the period in which such determination is made.

(30)

Note 5 - Cash
Cash at December 31 consist of:

Cash in bank
Cash on hand

2011
145,891,084
330,000
146,221,084

2010
50,750,370
5,168,921
55,919,291

2011
2,007,582
2,686,898
2,150,008
722,144
7,566,632

2010
863,914
2,853,240
2,399,912
2,053,514
8,170,580

Cash in bank earns interest at the prevailing bank deposit rate.

Note 6 - Receivables
Receivables at December 31 consist of:
Note
Trade receivables
Advances to suppliers
Advances to officers and employees
Other receivables

As at December 31, 2011, the Company has written-off uncollectible other receivables and advances to
suppliers amounting to P1,632,559 and P9,635,613 which was directly charged to loss on write off of
assets under selling and administrative (Note 16).
Note 7 - Inventories
Inventories at December 31 consist of:

At cost
Finished goods
In transit raw materials

Note
15

2011

2010

2,367,856
386,868
2,754,724

1,770,833
242,871
2,013,704

Based on managements assessment, no provision for inventory losses are required as at and for the years
ended December 31, 2011 and 2010. Further, the carrying amount of inventories is stated at cost which is
lower than their net realizable value (estimated selling price less variable selling expenses).
The cost of raw materials inventories recognized as expense and included in cost of goods sold for the
year ended December 31, 2011 amounted to P3,944,401 (2010 - P13,783,010) (Note 15).

(31)

Note 8 - Prepayments and other current assets

Prepayments and other current assets at December 31 consist of:

Creditable withholding taxes

Input value added tax, net
Others

2011
173,263,631
2,159,524
6,150
175,429,305

2010
90,796,922
10,060,788
6,150
100,863,860

Note 9 - Available-for-sale financial assets

Details of available-for-sale financial assets at December 31 are as follows:

Manila Golf and Country Club

Mimosa Golf and Country Club
Ayala Corporation
Export and Industry Bank
Palmera Resources
American Image, Inc.

Balance at beginning of year

Acquisitions
Fair value adjustment
Balance at end of year

2011
30,000,000
7,500,000
4,850,938
5,000,000
3,125,000
550,000
51,025,938

2010
7,500,000
4,850,938
5,000,000
3,125,000
550,000
21,025,938

2011
21,025,938
52,101,250
(22,105,250)
51,025,938

2010
21,025,938
21,025,938

For the year ended December 31, 2011, fair value adjustment of available for sale financial assets
amounted to P22,101,250.

(32)

Note 10 - Investment in subsidiaries and associates

Details of investment in subsidiaries and associates at December 31 are as follows:

Investment in subsidiaries:
First In Colours, Incorporated
Aero-Pack Industries, Inc.
FIC Marketing Co., Inc.
D&L Powder Coating, Inc.

Investment in associates:
D&L Polymer and Colours, Inc.
Chemrez Technologies, Inc.
Oleo-Fats, Inc.

2011

2010

137,670,000
63,115,950
33,335,000
7,499,250
241,620,200

137,670,000
63,115,950
33,335,000
234,120,950

66,670,000
1,031,317,280
400,000,000
1,497,987,280
1,739,607,480

66,670,000
1,031,317,280
400,000,000
1,497,987,280
1,732,108,230

The movements of investments in subsidiaries associates for the years ended December 31 are as
follows:

Balance at beginning of year

Additions
Disposals
Balance at end of year

2011
1,732,108,230
7,499,250
1,739,607,480

2010
1,557,214,230
174,894,000
1,732,108,230

For the year ended December 31, 2011, the Company earned dividend from the investments amounting
to P165,776,801 (2010 - P107,364,014) (Note 18).
The summarized audited financial information of the associates as at and for the years ended
December 31 is as follows:
D&L Polymer and Colours, Inc.

Total assets
Total liabilities
Total equity
Total revenue
Net income for the year

(33)

2011
845,242,769
318,187,298
527,055,471

2010
655,614,755
300,142,175
355,472,580

1,541,396,856
221,582,891

1,266,527,353
156,995,096

Chemrez Technologies, Inc.

Total assets
Total liabilities
Total equity

2011
4,129,355,260
446,833,919
3,682,521,341

2010
4,064,387,551
477,172,043
3,587,215,508

Total revenue
Net income for the year

3,332,904,559
293,589,254

3,765,503,000
365,040,765

2011
4,916,447,192
3,434,097,271
1,482,349,921

2010
3,877,830,842
2,822,755,384
1,055,075,458

10,267,771,910
427,274,463

7,471,637,348
219,376,656

Oleo-fats, Inc.

Total assets
Total liabilities
Total equity
Total revenue
Net income for the year

(34)

Note 11 - Property, plant and equipment, net

Property, plant and equipment, net at December 31 consist of:

At January 1, 2010
Cost
Accumulated depreciation and
amortization
Net carrying value

Land

Building and
leasehold
improvements

Transportation and
delivery equipment

Office, furniture
and fixtures

Tools, machinery
and equipment

Construction in
progress

Total

3,010,000

10,446,602

169,964,759

76,649,932

112,333,817

4,909,345

377,314,455

3,010,000

(5,407,191)
5,039,411

(104,128,745)
65,836,014

(56,035,294)
20,614,638

(76,751,874)
35,581,943

4,909,345

(242,323,104)
134,991,351

5,039,411
1,111,706
(687,767)
5,463,350

65,836,014
9,295,455
(21,777,849)
53,353,620

20,614,638
13,456,131
(9,895,728)
24,175,041

35,581,943
7,825,059
(6,071,506)
37,335,496

4,909,345
3,819,440
(7,854,785)
874,000

134,991,351
35,507,791
(7,854,785)
(38,432,850)
124,211,507

11,558,308

179,260,214

90,106,063

120,158,876

874,000

404,967,461

(6,094,958)
5,463,350

(125,906,594)
53,353,620

(65,931,022)
24,175,041

(82,823,380)
37,335,496

874,000

(280,755,954)
124,211,507

3,010,000

5,463,350
508,615
(1,088,169)
4,883,796

53,353,620
13,394,613
4,950,413
(23,259,965)
48,438,681

24,175,041
12,574,312
(11,306,346)
25,443,007

37,335,496
4,442,270
(6,583,141)
35,194,625

3,010,000

12,066,923

197,605,240

102,680,375

3,010,000

(7,183,127)
4,883,796

(149,166,559)
48,438,681

(77,237,368)
25,443,007

For the year ended December 31, 2010

3,010,000
Opening net carrying value
Additions
Transfers
Depreciation and amortization
Closing net carrying value
At December 31, 2010
Cost
Accumulated depreciation and
amortization
Net carrying value

3,010,000

3,010,000
3,010,000

For the year ended December 31, 2011

3,010,000
Opening net carrying value
Additions
Transfers
Depreciation and amortization
Closing net carrying value
At December 31, 2011
Cost
Accumulated depreciation and
amortization
Net carrying value

(35)

874,000
7,599,548
(4,950,413)
3,523,135

124,211,507
38,519,358
(42,237,621)
120,493,244

124,601,146

3,523,135

443,486,819

(89,406,521)
35,194,625

3,523,135

(322,993,575)
120,493,244

Depreciation and amortization for the years ended December 31 are charged as follows:

Cost of sales and services

Administrative expenses

Notes
15
17

2011
13,943,674
28,293,947
42,237,621

2010
13,470,124
24,962,726
38,432,850

2011
21,925,189
2,684,874
1,649,559
778,556
409,448
1,747,736
29,195,362

2010
139,979,734
2,559,453
142,539,187

Note 12 - Trade payable and other liabilities

Trade payable and other liabilities at December 31 consist of:
Note
Trade payable
Due to regulatory agencies
Advances from customers
Accrued interest expense
Accrued utilities
Others

13

Note 13 - Borrowings
Short-term borrowings as at December 31, 2011 and 2010 consist of unsecured short-term loans from
local banks with an average maturity of one to five months from December 31, 2011 and 2010.
These borrowings bear average interest rates of 4.68% in 2011 and 3.2% in 2010, subject to monthly
repricing.
In 2011, P340 million worth of borrowings has been settled by the Company.
As at December 31, 2011, outstanding borrowings amounted to P550 million (2010 - P890 million).
Interest expense for the year ended December 31, 2011 amounted to P25,311,882 (2010 - P40,621,422). As
at December 31, 2011, accrued interest amounted to P778,556 (2010 - nil).
Note 14 - Equity
Share capital
Details of share capital at December 31, 2011 and 2010 are as follows:

Common shares at P1 par value per share

Authorized
Issued and outstanding

(36)

Shares

Amount

1,000,000,000
321,200,000

1,000,000,000
321,200,000

On December 15, 2010, the Company received payment for additional stock subscription from its
shareholders amounting to P174,984,000.
Retained earnings
Appropriated retained earnings
In 2009, the Companys Board of Directors approved the appropriation of its retained earnings
amounting to P360,000,000 for capital expansion program. In 2010, additional retained earnings
amounting to P150,000,000 has been appropriated for loan payment due on February 22, 2011 and
May 30, 2011, bringing the total appropriated retained earnings to P510,000,000 as at December 31,
2010.
Excess retained earnings
Under the Corporate Code of the Philippines (the Code), stock corporations are prohibited from
retaining surplus profits in excess of 100% of that paid up capital except when justified by any reasons
mentioned in the Code.
At December 31, 2011, the Company has accumulated unappropriated retained earnings of
P596,979,927 which is in excess of 100% of its paid up capital by P275,779,927.
As at April 30, 2012, the Companys management is in the process of finalizing its plans and
recommendations to address the excess of retained earnings of the Company either through further
appropriation or declaration of dividends in the ensuing year.

(37)

Note 15 - Cost of sales and services

The components of cost of sales and services for the years ended December 31 consist of:

Inventories, beginning
Add: Purchases
Total goods available for sale
Less: Inventories, end
Cost of goods sold
Rental
Employee costs
Supplies
Contracted service
Repairs and maintenance
Depreciation

Notes
7

7
19
20

11

Fuels and oils

Delivery expenses
Communication and utilities
Insurance
Transportation and travel expense
Representation expense
Taxes and licenses
Others

2011
2,013,704
4,685,421
6,699,125
2,754,724
3,944,401
62,888,397
57,193,630
21,961,343
20,519,616
14,428,773
13,943,674

2010
10,406,809
5,389,905
15,796,714
2,013,704
13,783,010
65,869,274
68,713,224
19,373,703
21,499,074
11,240,099
13,470,124

13,385,689
9,110,321
6,224,406
2,057,416
1,613,846
526,771
141,489
330,882
228,270,654

13,013,247
17,901,572
6,102,054
1,932,863
1,904,786
324,374
98,256
37,220
255,262,880

Note 16 - Selling and marketing costs

The components of selling and marketing costs for the years ended December 31 consist of:

Employee costs
Contracted services
Provision for impairment of receivables
Representation
Transportation and travel
Delivery charges
Others

(38)

Notes
20
6

2011
30,464,266
11,626,620
11,268,172
2,461,602
907,215
463,150
99,119
57,290,144

2010
35,240,607
14,383,410
1,717,566
2,815,045
244,198
333,533
54,734,359

Note 17 - Administrative expenses

The components of administrative expenses for the years ended December 31 consist of:

Depreciation
Professional fees
Taxes and licenses
Donations and contributions
Communications
Supplies
Bank charges
Membership dues
Utilities
Repairs and maintenance
Miscellaneous

Note
11

2011
28,293,947
17,209,856
4,403,224
3,778,038
3,627,163
3,027,106
2,753,086
1,716,869
547,085
84,094
681,851
66,122,319

2010
24,962,726
17,457,725
4,909,640
920,986
3,453,462
3,304,570
3,960,754
1,593,382
443,757
275,252
1,806,457
63,088,711

Note 18 - Other income, net

The components of other income for the years ended December 31 consist of:

Dividend income
Interest income
Foreign exchange (loss) gain, net
Other income, net

Notes
10,19
22

2011
165,776,801
1,340,495
(1,866,672)
8,637,220
173,887,844

2010
107,364,014
23,925,622
98,426
2,352,342
133,740,404

Note 19 - Related party transactions

The Company, in the ordinary course of business, has transactions with related parties. Significant
related party transactions include the following:
Management services
The Company has an existing management agreement with its related parties, whereby it provides the
following management services:
Technical support, which includes research and development, quality control and assurance, use of
trademarks, and IT related services;
Logistics support, which includes transport, fleet management, warehousing management, tank
farm management, port clearing and procurement;

(39)

 Administrative support, which includes accounting and finance, human resources, information
technology, property management, legal services, and research and development; and
Executive management, which includes the services performed by the executives to manage the
business operations of the Company.
The fee for technical and logistic support services is fixed at 3% of net receipts from operations,
excluding intercompany sales, and those for administrative and executive management support
services at 7% of gross income from operations.
The agreement remains in force, unless terminated by both parties.
Management service fees charged to statement of total comprehensive income for the years ended
December 31 are as follows:

Oleo-Fats, Inc.
Chemrez Technologies, Inc.
Chemrez, Inc.
First in Colours, Incorporated
FIC Marketing Co. Inc.
Aero-pack Industries, Inc.
LBL Industries, Inc.
Consumer Care Products, Inc.
FIC Tankers, Inc.

Relationship
Subsidiary
Subsidiary
Entity under common control
Subsidiary
Subsidiary
Subsidiary
Stockholder
Entity under common control
Entity under common control

2011

2010

349,718,083
78,376,075
43,226,312
30,637,428
16,178,795
12,902,149
8,125,316
6,953,028
1,808,545
547,925,731

228,963,403
93,321,792
51,702,894
43,364,663
9,945,210
10,827,912
8,107,500
6,114,943
1,434,530
453,782,847

Lease agreements
The Company has existing cancellable operating lease agreements with LBL Industries, Inc. (LBL), an
entity under common control, whereby the Company leases from LBL its factory and warehouse
spaces. The lease is for a period of five years starting July 1, 2008 and renewable for another five
years thereafter, unless terminated by either party.
Rental expense for the year ended December 31, 2011 amounted to P62,888,397 (2010 - P65,869,274)
(Note 15).

(40)

Dividend income
The Company earned dividend from its investments for the years ended December 31 as follows:

Chemrez Technologies, Inc.

D&L Polymer & Colours, Inc.
First In Colours, Inc.
Others

Relationship
Associate
Associate
Subsidiary

2011

2010

67,726,261
50,002,500
46,666,667
1,381,373
165,776,801

54,030,681
53,333,333
107,364,014

Sales of inventories
The Company, in the normal course of business, has transactions relating to the sale of inventories to
related parties for the years ended December 31 as follows:

Chemrez Technologies, Inc.

Oleo-Fats, Incorporated
First In Colours, Incorporated
Chemrez, Inc.
D&L Polymer & Colours, Inc.
F.I.C. Marketing Co., Inc.
Aero-Pack Industries, Inc.

Relationship
Associate
Associate
Subsidiary
Entity under common control
Associate
Subsidiary
Subsidiary

2011
732,035
416,228
353,009
308,084
210,486
33,510
21,179
2,074,531

2010
1,150,706
8,303,055
41,973
47,988
9,543,722

Sales of goods are negotiated with related parties on a cost-plus basis.

Purchases of goods
The Company, in the normal course of business, has transactions relating to the purchases of
inventories from related parties for the years ended December 31 as follows:

Chemrez, Inc
F.I.C. Marketing Co., Inc.
Chemrez Technologies, Inc.
Aero-Pack Industries, Inc.
Oleo-Fats, Incorporated
First In Colours, Incorporated

(41)

Relationship
Entity under common control
Subsidiary
Associate
Subsidiary
Associate
Subsidiary

2011
517,009
364,820
315,813
80,277
57,968
15,196
1,351,083

2010
41,973
53,746
1,150,706
8,303,055
9.549,480

Purchases of goods and services are negotiated with related parties on a cost-plus basis.
Surety agreement
On August 4, 2009, the Oleo-fats, Inc. was authorized by its Board of Directors to provide surety for
the obligations and indebtedness incurred or may be incurred by the Company, Aero-Pack Industries,
Inc., First in Colours, Incorporated, FIC Marketing Co., Inc., arising from short term credit
accommodation extended by a local bank to such related parties. As at December 31, 2011 and 2010,
the Company has not incurred obligations and indebtedness related to this agreement.
Net year-end balances arising from related party transactions
Due from and to related parties are settled on a net basis. These are unsecured non-interest bearing
and have no fixed repayment terms. Collection and settlement of outstanding receivable and payable,
respectively, are generally made upon demand and/or within a period of not more than 12 months.
There are no collaterals held or guarantees issued with respect to related party transactions and
balances.
Net amounts at December 31 are as follows:
(a) Due from related parties

Consumer Care Products, Inc.

D&L Polymer and Colours, Inc.
Chemrez Technologies, Inc.
FIC Tankers Corporation
Chemrez, Inc.
Oleo-Fats, Inc.
First in Colours, Incorporated
LBL Industries, Inc.
Aero-pack Industries, Inc.

(42)

Relationship
Entity under common control
Associate
Associate
Entity under common control
Entity under common control
Associate
Subsidiary
Stockholder
Subsidiary

2011
141,189,385
49,943,708
44,914,964
23,696,223
919,491
913,074
735,614
9,602
262,322,061

2010
62,056,533
138,941,983
6,707,679
454,477,182
11,457,064
9,237,467
748,613,527

(b) Due to related parties

Relationship
Entity under common control
Stockholder

FIC Marketing Co., Inc.

Stockholders

2011
16,224
517,487,330
517,503,554

2010
605,438,518
605,438,518

Key management compensation

Key management compensation for the years ended December 31, consist of:
2011
33,267,621
2,500,925
2,993,254
38,761,800

Salaries and wages

Retirement benefits
Other short term employee benefits

2010
39,364,761
4,226,232
3,380,798
46,971,791

The Company has not provided share-based payments, termination benefits or other long term benefits,
other than the retirement benefits, to its key management employees for the years ended December 31,
2011 and 2010.
There are no amount due from or to key management arising from compensation at December 31, 2011
and 2010.
Note 20 - Retirement benefit obligation
The Company maintains a non-contributory defined benefit retirement plan for the benefit of its
regular employees. The normal retirement age is 60. Normal retirement benefit is equal to one-half
month salary as of date of retirement multiplied by retirees years of service. Actuarial valuation is
performed by independent actuary on an annual basis.
The amounts recognized in the statement of financial position at December 31, which were recorded
as part of the non-current assets, are determined as follows:

Fair value of plan asset

Present value of funded
obligation
(Unfunded) surplus
Unrecognized actuarial
(losses) gains
Retirement benefit
(obligation) asset

(43)

2011
55,819,154

2010
44,968,732

2009
60,292,549

2008
44,837,809

2007
58,900,752

(56,229,154)
(409,594)

(46,440,416)
(1,471,684)

(56,505,378)
3,787,171

(86,986,370)
(42,148,561)

(46,168,037)
(12,732,715)

(24,713,357)

(29,511,952)

(34,770,807)

44,170,862

18,318,592

(25,122,951)

30,983,636

30,983,636

2,022,301

(5,585,877)

The movements in the defined benefit obligation for the years ended December 31 are as follows:

Beginning of year
Current service cost
Interest cost
Benefits paid
Transfers
Actuarial gains
End of year

2011
46,440,416
3,118,844
3,361,334
(216,495)
(3,738,896)
7,308,951
56,229,154

2010
56,505,378
3,177,626
4,995,075
(24,734,095)
6,496,432
46,440,416

Transfers pertain to transfer of employees to related parties during the year.

The movements in the fair value of plan assets for the years ended December 31 are as follows:

Beginning of the year

Expected return on plan asset
Contributions
Benefits paid
Actuarial (losses) gains
End of the year

2011
44,968,732
2,698,124
4,520,465
(216,495)
3,848,328
55,819,154

2010
60,292,549
3,041,627
3,645,361
(24,734,095)
2,723,290
44,968,732

The amounts recognized in the statement of total comprehensive income for the years ended
December 31 are as follows:

Interest cost
Current service cost
Expected return on plan asset
Transfers from subsidiaries
Net actuarial gains
Retirement benefit (credit) expense

2011
3,361,334
3,118,844
(3,928,957)
145,061
(1,338,220)
(1,340,220)

2010
3,177,626
4,995,075
(3,014,627)
(1,512,713)
3,645,361

Retirement benefit (credit) expense is included as part of employee costs in selling and marketing
costs (Notes 16).
For the year ended December 31, 2011, the actual return on plan asset amounted to P2,698,124
(2010 - P6,326,192).

(44)

The movements in the liability recognized in the statement of financial position as at December 31 are
as follows:

Beginning of year
Total retirement benefit (income) expense
Contributions paid
End of year

2011
30,983,636
(1,340,220)
(4,520,465)
25,122,951

2010
30,983,636
3,645,361
(3,645,361)
30,983,636

The Company has plan asset under the D&L Group of Companies Employees Retirement Plan (the
Retirement plan) that share risks between various entities under common control. As at December
31, 2011, the Company has an allocated fund of P55,819,154 (2010 P44,968,732) in the Retirement
plan based on the fund balance report of the trustee (using the Companys percentage of equity over
the total plan assets under the Retirement plan). The Retirement plan has investments as at
December 31 consisting of the following:

Treasury bonds and notes

Listed stocks
Mutual funds
Unit investment trust funds

2011
Amount
Percentage
108,134,071
67%
49,670,433
30%
1%
880,512
3,692,340
2%
162,377,356
100%

2010
Amount Percentage
74,576,824
50%
47,782,957
32%
8,352,466
6%
18,045,990
12%
148,758,237
100%

The allocated share of the Company in the retirement plan asset as at December 31 are as follows:

Treasury bonds and notes

Listed stocks
Mutual funds
Unit investment trust funds

2011
Amount Percentage
36,765,584
67%
16,887,947
30%
299,374
1%
1,866,249
2%
55,819,154
100%

2010
Amount Percentage
23,118,815
50%
14,812,717
32%
2,589,264
6%
4,447,936
12%
44,968,732
100%

Listed stocks include the Companys shares with fair value of P36,000,000 as at December 31, 2011
(2010 - P34,560,000).
The principal annual actuarial assumptions used at December 31 were as follows:

Discount rate
Expected return on plan asset
Future salary increase

(45)

2011
5.88%
5.00%
6.00%

2010
7.88%
6.00%
6.00%

The average life expectancy in years of experience of a pensioner retiring at age 60 at reporting date is
18 years for both male and female (2010 - 18 years).
Assumptions regarding future mortality experience are set based on advice from published statistics
and experience.
The expected return on plan assets was determined based on the average and expected rate of return
of the investments in the Retirement plan.
The expected return on plan assets was determined by considering the expected returns available on
the assets underlying the current investment policy. Expected yields in fixed interest investments are
based on redemption yields at the reporting date.
History of actuarial loss (gain) on the present value of defined benefit obligation for the years ended
December 31 are as follows:
2011
Effect of changes in actuarial
assumptions
Experience adjustments
Actuarial loss (gain )
Effects of changes in
assumptions as a
percentage of the present
value of defined benefit
obligation
Experience adjustments as a
percentage of the present
value of defined benefit
obligation
Actuarial gain as a
percentage of the present
value of defined benefit
obligation

2010

2009

2007

2,061,577
(200,069)
1,861,508

(5,255,935)
11,943,212
6,687,277

2.37%

(2.37%)

(8.92%)

8.52%

(0.23%)

0.23%

25.87%

13.99%

2.14%

(2.14%)

14.48%

(2,055,416)
9,364,367
7,308,951

2,541,887
3,954,545
6,496,432

(3.66%)

5.47%

16.65%

13.01%

1,339,117
(129,962)
(1,209,215)

2008

History of actuarial (loss) gain on plan asset for the years ended December 31 are as follows:

Actuarial gain (loss) due to

experience adjustments
Percentage of plan assets

(46)

2011

2010

2009

3,848,328
6.89%

2,723,290
6.05%

(4,881,687)
(8.10%)

2008
(3,630,368)
(8.10%)

2007
11,943,212
11.35%

Note 21 - Taxation
Deferred income tax (DIT)
Deferred income tax assets, net at December 31 consist of:

To be recovered within 12 months

Unrealized foreign exchange loss
Other accruals
To be recovered after 12 months:
Retirement benefit obligation
Fair value adjustment of available-for-sale financial
assets

2011

2010

818,690
-

2,783,828

7,536,886

9,295,091

2,210,125
10,565,701

12,078,919

The movements in the deferred income tax assets for the years ended December 31 are as follows:

Beginning of year
Charged to statement of total comprehensive income
Charged to equity
End of year

2011
12,078,919
(3,723,343)
2,210,125
10,565,701

2010
12,078,919
12,078,919

On December 20, 2008, Revenue Regulations No. 16-2009 on the Optional Standard Deduction
(OSD) was published. The regulation prescribed the rules for the OSD application by corporations in
the computation of their final taxable income. For corporations, OSD shall be 40% based on gross
income; cost of goods sold and cost of services will be allowed to be deducted from gross sales.
On February 26, 2010, RR 2-2010 on the amendment of Section 6 and 7 of RR 16-2009 was published.
The regulation amended the other implications of the OSD particularly on the election to claim either
the OSD or the itemized deduction which must be signified on the first quarter and must be
consistently applied for all the succeeding quarterly returns and in the final income tax return for the
taxable year.
The Company did not avail the OSD for purpose of income tax calculation in 2011 and 2010.

(47)

A reconciliation of income tax expense computed at the statutory income tax rate to the income tax
expense as reflected in the statement of total comprehensive income for the years ended
December 31 is as follows:

Income tax at statutory income tax rate of 30%

Adjustments for:
Dividend income
Derecognized deferred tax assets
Interest income subjected to final withholding tax
Unallowable interest expense
Non-deductible expense
Income tax expense

2011
104,568,630
(49,733,040)
2,783,828
(402,149)
169,326
2,803
57,389,398

2010
57,599,900
(32,209,204)
(7,177,687)
3,768,285
21,981,294

Note 22 - Foreign currency denominated financial assets and liabilities

The Companys foreign currency denominated financial assets and liabilities as at December 31
consist of:

Current assets
Cash
Due from related parties
Closing exchange rate of US $1 to Philippine Peso
Philippine Peso equivalent

2011

2010

63,293
1,257,939
1,321,232
43.84
57,922,811

88,843
88,843
43.84
3,894,877

Foreign exchange gain (loss) presented under other income (Note 18) in the statement of total
comprehensive income for the years ended December 31 consists of:

Realized foreign exchange gain

Unrealized foreign exchange loss

(48)

2011
862,295
(2,728,967)
(1,866,672)

2010
98,426
98,426

Note 23 - Supplementary information required by Revenue Regulations

The following information is presented for purposes of filing with the BIR and is not a required part of
the basic financial statements.
(a) RR No. 15-2010
On December 28, 2010, Revenue Regulations (RR) No. 15-2010 became effective and amended
certain provisions of RR No. 21-2002 prescribing the manner of compliance with any documentary
and/or procedural requirements in connection with the preparation and submission of financial
statements and income tax returns. Section 2 of RR No. 21-2002 was further amended to include in
the notes to financial statements information on taxes, duties and license fees paid or accrued during
the year in addition to what is mandated by Philippine Financial Reporting Standards.
Below is the additional information required by RR No. 15-2010.
(i)

Output value-added tax (VAT)

Output VAT declared for the year ended December 31 and the gross revenues upon which the same
was based consist of:
2011
Gross amount of
revenues,
Output VAT
net of VAT
declared
Sale of goods subject of
12% VAT
Sale of services subject of
12% VAT
Sale of goods subject of 0%
VAT (zero-rated)
Total output VAT

2010
Gross amount
of revenues,
Output VAT
net of VAT
declared

4,567,349

548,082

16,165,374

1,939,845

650,656,938

78,078,833

427,257,846

51,270,942

722,937
655,947,224

78,626,914

2,123,090
445,546,310

53,210,787

Zero-rated transactions are sale and actual shipment of goods to customers in foreign countries and
PEZA registered entities irrespective of any shipping arrangement that may be agreed upon which
may influence or determine the transfer of ownership of the goods exported and paid for in acceptable
foreign currency or its equivalent in goods, and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas.
The difference between the gross amount of revenues pertaining to sale of goods shown above
representing the gross selling price of goods sold and the net sales presented in the statement of total
comprehensive income amounting to P3,743,524 for the year ended December 31, 2011
(2010 - P18,183,786 ), which are measured and presented in accordance with the Companys relevant
accounting policies on revenue recognition (Note 2.20) pertains to prompt payment discounts
provided to the customers amounting to P1,546,762 (2010 - P104,678) Prompt payment discounts
are not deducted from gross revenues for purposes of computing the vatable sales.
The gross amount from revenues shown above pertaining to sale of services are based on gross
receipts and management service fees presented under other income in the statement of total
comprehensive income (Note 18).
(49)

Following the relevant provisions of Revenue Regulation (RR) 16-2005, output VAT is computed by
multiplying the gross selling price or gross receipts by the regular VAT rate of 12%.
Gross selling price has been defined as total amount of money or its equivalent which the purchaser is
obligated to pay to the seller in consideration of the sale, excluding VAT. The excise tax, if any, on
such goods shall form part of the gross selling price.
Gross receipts has been defined as the total amount of money or its equivalent representing the rental
actually received or constructively received during the taxable period for the services performed or to
be performed for another person, excluding VAT.
The Companys output VAT was paid and remitted to BIR.
(ii) Input value-added tax (VAT)
Movements in input VAT are as follows:
December 31, 2011
Beginning of year, January 1, 2011
Add: Current years domestic purchases/payments for:
Goods for resale
Goods other than for resale or manufacture
Capital goods subject to amortization
Capital goods not subject to amortization
Services lodged under cost of goods sold
Services lodged under other accounts
Add: Current years imported purchases/payments for:
Goods other than for resale or manufacture
Capital goods subject to amortization
Claims for tax credit/refund and other adjustments
End of year, December 31, 2011

9,834,517
4,664,055
3,755,563
203,788
11,401,313
40,333
407,200
919,532

20,065,053

1,326,732
(21,982,626)
9,243,675

December 31, 2010

Beginning of year, January 1, 2010
Add: Current years domestic purchases/payments for:
Goods for resale
Goods other than for resale or manufacture
Capital goods subject to amortization
Capital goods not subject to amortization
Services lodged under cost of goods sold
Services lodged under other accounts
Add: Current years imported purchases/payments for:
Goods other than for resale or manufacture
Capital goods subject to amortization
Claims for tax credit/refund and other adjustments
End of year, December 31, 2010

(50)

14,791,172
4,419,079
1,950,775
336,273
11,401,314
1,385,518
267,911
814,987

19,564,959

1,082,898
(25,604,512)
9,864,517

The Company is engaged in both zero-rated and VAT taxable sale of goods. The Company recognizes
input tax credit to the extent that it can be directly attributed to VAT taxable sale of goods pursuant to
the relevant provisions of Revenue Regulation (RR) 16-2005.
The difference between the input VAT above and the input VAT presented in the statement of
financial position at December 31, 2011 amounting to P2,159,524 (2010 - P10,060,788) pertains to
the deferred input tax on services which is claimable upon payment of the related liabilities and
unpaid output VAT offset against input VAT for 2011.
Details of Companys input VAT at December 31, 2011 and 2010 are shown within other current assets
in the statement of financial position (Note 8).
(iii) Importations
The total landed cost of imports and the amount of custom duties and tariff fees paid and accrued for
the years ended December 31 are as follow:

Landed cost of imports

Customs duties and tariff fees
Amount paid
Amount accrued
Total

2011
10,474,319

2010
8,881,308

161,916
10,636,235

42,342
8,923,650

(iv) Excise tax

The Company is not engaged in the manufacture or production of certain specified goods or articles
subject to excise tax for domestic sale or consumption or for any other disposition.
(v) Documentary stamp tax
The Company paid documentary stamp tax amounting to P450 for the year ended December 31, 2010
pertaining to life insurance policies. For the year ended December 31, 2011, no documentary stamp
tax has been recognized and paid.
Documentary stamp taxes is presented as part of taxes and licenses within administrative expenses in
Note 17.
(vi) All other local and national taxes
All other local and national taxes accrued and paid as at and for the years ended December 31 consists
of:

Real property tax

Mayors permit
Municipal taxes
Community tax
Others

(51)

Paid
629,451
2,635,645
17,721
1,120,407
4,403,224

2011
Accrued
-

Total
629,451
2,635,645
17,721
1,120,407
4,403,224

Paid
1,345,280
2,447,087
12,056
10,500
1,094,267
4,909,190

2010
Accrued
-

Total
1,345,280
2,447,087
12,056
10,500
1,094,267
4,909,190

The local and national taxes is included in taxes and licenses and presented within the statement of
total comprehensive income (Note 17).
(vii) Withholding
Withholding taxes accrued and paid as at and for the years ended December 31 consist of:
2011
Creditable withholding
tax
Withholding tax on
compensation
Expanded withholding
tax
Final withholding tax

2010

Paid

Accrued

Total

Paid

Accrued

Total

137,721,640

173,263,631

310,985,271

63,728,454

90,796,922

154,525,376

14,292,693

1,925,422

16,218,115

16,645,768

1,950,798

18,596,566

5,956,781
121,999,254

759,452
175,948,505

6,716,232
297,947,758

6,817,512
200
87,191,934

608,655
93,356,375

7,426,167
200
180,548,309

The Company applied the creditable withholding taxes as credit against income tax due for the years
ended December 31, 2011 and 2010. Remaining unapplied creditable withholding taxes is presented
as part of prepayments and other current assets in Note 8.
Accrued withholding taxes is presented in the due to regulatory agencies account within trade payable
and other liabilities in the statement of financial position (Note 13).
(viii) Tax assessments
The Company has no outstanding tax assessments as at December 31, 2011 and 2010.
(ix) Tax cases
The Company has no outstanding tax cases as at December 31, 2011 and 2010.
(b) RR No. 19-2011
RR No. 19-2011 prescribes the new BIR forms that should be used for income tax filing covering and
starting with the calendar year 2011 and modifies Revenue Memorandum Circular No. 57-2011. In
the Guidelines and Instructions Section of the new BIR Form 1702 (version November 2011), a
required attachment to the income tax returns is an Account Information Form and/or Financial
Statements that include in the Notes to Financial Statements schedules of sales/receipts/fees, cost of
sales/services, non-operating and taxable other income, itemized deductions (if the taxpayer did not
avail of the Optional Standard Deduction or OSD), taxes and licenses and other information
prescribed to be disclosed in the Notes to the Financial statements.

(52)

The Companys schedules for the year ended December 31, 2011 follow:
(i) Sales/receipts/fees

Sale of goods/properties
Sale of services
Sub-total
Less: sales
returns/discounts
Total

Special rate
Creditable tax
withheld
-

Regular rate
Creditable tax
withheld
Taxable amount
5,394,500
547,925,731
553,320,231

Taxable
amount
-

(1,650,976)
551,669,255

The Companys sales subject to the regular income tax rate of 30% pertain to revenue from sale of
goods and management service fees which are the same as disclosed in the 2011 statement of total
comprehensive income.
(ii) Cost of sales/services
Regular rate
Special rate
Regular rate
2,013,704
4,685,421
6,699,125
(2,754,724)
3,944,401
224,326,253
228,270,654

Merchandise inventory, beginning

Add: Purchases of merchandise
Total goods available for sale
Less: merchandise inventory, ending
Cost of goods sold
Other costs of sales and services
Cost of sales and services

The Companys cost of sales and services shown above are the same as disclosed in the 2011 statement
of total comprehensive income.
(iii) Non-operating income
Special rate
Creditable tax
Taxable
withheld
amount
Realized foreign exchange
gain
Other income
Total

(53)

Regular rate
Creditable tax
withheld
-

Taxable
amount
862,295
8,637,220
9,499,515

The Companys non operating income shown above are the same as disclosed in the 2011 statement of
total comprehensive income except for the following non-deductible expenses:

Nature of expense/deduction
Dividend income
Interest income
Foreign exchange (loss) gain, net
Other income (expense), net

Per financial
statements
165,776,801
1,340,495
(1,866,672)
8,637,220
173,887,844

Taxable
Reconciling
items
(165,776,801)
(1,340,495)
2,728,967
(164,388,329)

Taxable
amount
862,295
8,637,220
9,499,515

The reconciling items pertain to the following:

Dividend income representing non taxable dividend from local investee which were exempted
from tax;
Interest income representing non taxable interest earned on cash in banks which were
subjected to 20% final tax; and
Unrealized foreign exchange losses in 2011.

(iv) Itemized deductions

The Companys itemized deductions subject to the regular income tax rate of 30% consists of:
Deductible
Nature of expense/deduction
Salaries and allowances
Depreciation
Professional fees
Management and consultancy fee
Losses
Taxes and licenses
Communication, light and water
Charitable institutions
Office supplies
Bank charges
Representation and entertainment
Membership dues
Transportation and travel
Repairs and maintenance
Miscellaneous
Others
Interest expense

(54)

Exempt
-

Special
rate
-

Regular
rate
36,324,951
28,293,947
17,209,856
11,626,620
9,635,613
4,252,393
4,174,248
3,778,038
3,027,106
2,753,086
2,461,602
1,716,869
1,370,365
84,094
823,339
99,119
129,263,805
24,747,464
154,011,269

The Companys itemized deductions which are subject to the regular income tax rate of 30% are the
same as shown in Notes 16 and 17 and finance cost as shown in the statement of total comprehensive
income, except for the following reconciling items:

Nature of expense/deduction
Salaries and allowances
Taxes and licenses
Interest expense

Per financial
statements
30,464,266
4,261,735
25,311,882
60,037,883

Reconciling
items
5,860,685
(9,342)
564,418
6,415,761

Deductible
amount
36,324,951
4,252,393
24,747,464
65,324,808

The following are the description of the reconciling items shown in the table above:

The reconciling item for salaries and allowances pertain to payroll-related expenses like provision
for pension which were accrued in 2010 but settled in 2011.
The reconciling item for taxes and licenses pertains to non-deductible surcharge on tax deficiency
paid in 2011.
The reconciling item for interest expense pertains to unallowable interest expense.

(v) Taxes and licenses

The details of the Companys taxes and licenses are presented in Note 23, section a (vi).

(55)

D&L Industries, Inc.

Statements of Financial Position
July 31, 2012 and December 31, 2011
(All amounts in Philippine Peso)

Notes
Current assets
Cash
Receivables
Due from related parties
Dividend receivable
Loans receivable
Inventories, net
Prepayments and other current assets
Total current assets
Non-current assets
Available-for-sale financial assets
Investments in subsidiaries and associates
Property, plant and equipment, net
Deferred income tax assets, net
Other non-current assets
Total non-current assets
Total assets
Current liabilities
Trade payable and other liabilities
Due to related parties
Borrowings
Total current liabilities
Non-current liability
Retirement benefit obligation
Total liabilities
Equity
Share capital
Deposit for future stock subscription
Fair value reserves
Other charges to equity
Retained earnings
Appropriated
Unappropriated
Total equity
Total liabilities and equity

5
6
19
19

July 31, 2012

December 31, 2011

555,333,834
3,389,143
194,200,975
336,333,416
11,000,000
2,882,191
191,939,415
1,295,078,974

146,221,084
7,566,632
262,322,061
11,000,000
2,754,724
175,429,305
605,293,806

9
10
11
21

84,350,938
2,598,168,903
104,870,266
3,513,346
7,352,609
2,798,256,062
4,093,335,036

51,025,938
1,739,607,480
120,493,244
10,565,701
3,124,500
1,924,816,863
2,530,110,669

12
19
13

17,758,336
1,328,251,253
450,000,000
1,796,009,589

29,195,362
517,503,554
550,000,000
1,096,698,916

20

24,294,858
1,820,304,447

25,122,951
1,121,821,867

7
8

9
2.2

14

1,000,000,000
187,500,000
13,500,000
(23,634,970)
1,095,665,559
2,273,030,589
4,093,335,036

(The notes on pages 1 to 49 are integral part of these financial statements)

321,200,000
(19,891,125)
510,000,000
596,979,927
1,408,288,802
2,530,110,669

D&L Industries, Inc.

Statements of Total Comprehensive Income
For the seven months ended July 31, 2012 and 2011
(All amounts in Philippine Peso)
Notes

2012

2011

19

281,467,950
2,703,309
284,171,259

341,163,980
1,399,149
342,563,129

Cost of sales and services

Gross profit

15

(153,623,086)
130,548,173

(145,249,385)
197,313,744

Selling and marketing costs

16

(27,099,924)

(32,114,686)

Administrative expenses

17

(23,510,357)

(23,210,019)

Other income (expenses), net

Operating profit

18

626,489,002
706,426,894

(3,456,042)
138,532,997

Finance costs
Profit before income tax
Income tax expense
Current
Deferred

13

(10,921,648)
695,505,246

(16,678,750)
121,854,247

(24,677,384)
(3,342,230)
(28,019,614)
667,485,632

(35,938,294)
(2,984,861)
(38,923,155)
82,931,092

33,391,125
700,876,757

450,000
83,381,092

Revenues
Management service fees
Sales

21
Profit for the period
Other comprehensive income
Fair value adjustment on available for sale
financial assets, net of tax
Total comprehensive income for the period

(The notes on pages 1 to 49 are integral part of these financial statements)

D&L Industries, Inc.

Statements of Cash Flows
For the seven months ended July 31, 2012 and 2011
(All amounts in Philippine Peso)
Notes
Cash flows from operating activities
Profit before income tax
Adjustments for:
Write off of receivables and prepayments
Depreciation
Retirement benefit expense (credit)
Unrealized foreign exchange gain (loss)
Dividend income
Interest income
Interest expense
Operating profit before working capital changes
(Increase) decrease in:
Receivables
Due from related parties
Inventories
Prepayments and other current assets
Other non-current assets
(Decrease) increase in:
Trade payables and other liabilities
Due to related parties
Cash from operations
Income taxes withheld
Retirement contribution
Interest received
Net cash from operating activities
Cash flows from investing activities
Dividend received
Additions to investment in subsidiaries and associates
Disposals of (additions to) available-for-sale financial assets
Acquisition of property and equipment
Proceeds from disposal of asset
Net cash from (used in) investing activities
Cash flows from financing activities
Proceeds from borrowings
Payment of borrowings
Deposit for future stock subscription
Interest paid
Net cash from (used in) financing activities
Effect of foreign exchange rate changes on cash
Net increase (decrease) in cash
Cash balance
Beginning of period
End of period
Non-cash financing activity
Issuance of additional shares of stocks through declaration of
stock dividends

16
15
20
22
18
18
13

2012

2011

695,505,246

121,854,247

557,360
21,841,904
1,840,335
(1,150,119)
(618,485,956)
(304,521)
10,921,648
110,725,897
5,418,175
85,320,367
(127,467)
(16,511,110)
(4,228,109)

20
18

10,19
9,19
11
11

13
13
14

306
23,774,809
(670,110)
9,027,769
(613,944)
(952,877)
16,678,750
169,098,950

(11,540,762)
(88,647,975)

39,648,185
450,464,608
(1,169,852)
(44,183,287)
4,992,053
(204,303,744)

80,409,016
(24,677,384)
(2,668,428)
304,521

414,546,913
(35,938,293)
952,877

53,367,725

379,561,497

282,152,540
3,226,250
(15,958,608)
9,739,682

613,944
(6,999,250)
(25,499,999)
(29,416,242)
-

279,159,864

(61,301,547)

550,000,000
(650,000,000)
187,500,000
(10,817,910)

350,000,000
(690,017,788)
(16,009,174)

76,682,090

(356,026,962)

(96,929)

20,148

409,112,750

(37,746,864)

146,221,084
555,333,834

55,919,291
18,172,427

678,800,000

14

(The notes on pages 1 to 49 are an integral part of these financial statements)

D&L Industries, Inc.

Statements of Changes in Equity
For the seven months ended July 31, 2012 and 2011
(All amounts in Philippine Peso)

Balances at January 1, 2011

Comprehensive income
Profit for the period
Other comprehensive income
Fair value gains on
available-for-sale financial assets,
net of tax
Total comprehensive income for the period
Balances at July 31, 2011

Share capital
(Note 14)
321,200,000

Deposit for
future stock
subscription
(Note 14)
-

Fair value
reserves
(Note 9)
-

Other charges
to equity
(Note 2.2)
-

Retained earnings
Appropriated
Unappropriated
(Note 14)
(Note 14)
510,000,000
305,807,225

Total equity
1,137,007,225

82,931,092

82,931,092

321,200,000

450,000
450,000
450,000

510,000,000

82,931,092
388,738,317

450,000
83,381,092
1,220,388,317

Balances at January 1, 2012

Comprehensive income
Profit for the period
Other comprehensive income
Fair value gains on
available-for-sale financial assets,
net of tax
Total comprehensive income for the period

321,200,000

(19,891,125)

510,000,000

596,979,927

1,408,288,802

667,485,632

667,485,632

33,391,125

33,391,125

Release of retained earnings appropriation

678,800,000

187,500,000

678,800,000
1,000,000,000

187,500,000
187,500,000

13,500,000

(510,000,000)

33,391,125

667,485,632

700,876,757

510,000,000

Transaction with owners

Declaration of stock dividend
Deposit for future stock subscription
Other charges to equity
Total transactions with owners
Balances at July 31, 2012

(23,634,970)
(23,634,970)
(23,634,970)

(The notes on pages 1 to 49 are an integral part of these financial statements)

(678,800,000)
(678,800,000)
1,095,665,559

187,500,000
(23,634,970)
163,865,030
2,273,030,589

D&L Industries, Inc.

Notes to Separate Financial Statements
As at July 31, 2012 and December 31, 2011
and for the seven months ended July 31, 2012 and 2011
(All amounts are shown in Philippine Peso, unless otherwise stated)
Note 1 - General information
1.1

Business information

D&L Industries, Inc. (the Company) was registered with the Securities and Exchange Commission
(SEC) on July 27, 1971 primarily to carry on business of buying, selling, importing, bartering,
distributing, exchanging, processing, manufacturing, producing compounds, derivatives or chemical
substances and all kinds of goods, wares, manufactures, such as but not limited to machines, supplies
and all kinds of goods, wares, manufactures and products and generally engage in and conduct any
form of manufacturing or mercantile enterprises.
The Company is 85% owned by and is a subsidiary of Jadel Holdings, Inc. (JHI). The remaining 15% of
the Companys outstanding shares are owned by Lao Family (14%) and LBL Industries, Inc. (1%).
The Companys ultimate parent is the BDO Trust, organized and domiciled in the Philippines, with the
Lao family as the beneficial owner.
As at August 28, 2012, the Company is in the process of completing and finalizing all statutory
requirements in connection with the planned listing and offering of its shares to the public with the
Philippine Stock Exchange.
The Companys registered office address which is also its principal place of business is 65 Industria St.,
Bagumbayan, Quezon City. As at July 31, 2012, the Company has 135 regular employees (December 31,
2011 - 119).
1.2

Approval of the Companys interim financial statements

The separate interim financial statements of the Company as at and for the seven months ended July 31,
2012 were authorized and approved for issuance by the Board of Directors (BOD) on August 28, 2012.
Note 2 - Summary of significant accounting policies
The principal accounting policies adopted in the preparation of these interim separate financial
statements are set out below. The accounting policies and methods of computation utilized in the most
recent annual financial statements as at and for the year ended December 31, 2011 have been consistently
applied in these interim financial statements.
2.1 Basis of preparation
The financial statements of the Company have been prepared in accordance with Philippine Accounting
Standards (PAS 34) - Interim Financial Reporting. These interim financial statements should be read in
conjuction with the annual financial statements for the year ended December 31, 2011, which have been
prepared in accordance with Philippine Financial Reporting Standards (PFRS).

The financial statements have been prepared under the historical cost convention, as modified by
revaluation of available-for-sale financial assets.
The preparation of financial statements in conformity with PAS 34 requires the use of certain critical
accounting estimates. It also requires management to exercise judgment in the process of applying the
Companys accounting policies. The areas involving higher degree of judgment or complexity, or areas
where assumptions and estimates are significant to the financial statements are disclosed in Note 4.
(a) Amendments to existing standards adopted by the Company effective January 1, 2012
The amendments to existing standards below, as approved by the Financial Reporting Standards
Council (FRSC), are mandatory for annual periods beginning January 1, 2012:

PFRS 7 (Amendment), Financial Instruments: Disclosures - Derecognition (effective July 1, 2011).

This amendment will promote transparency in the reporting of transfer transactions and improve
users understanding of the risk exposures relating to transfers of financial assets and the effect of
those risks on an entitys financial position, particularly those involving securitization of financial
assets. The Company adopted the amendment beginning January 1, 2012 but did not have a
significant impact on the Companys financial statements as the Company did not transfer or
securitize significant financial assets covered by the standard.

PAS 12 (Amendment), Income Taxes - Deferred Tax (effective January 1, 2012). PAS 12 currently
requires an entity to measure the deferred tax relating to an asset depending on whether the entity
expects to recover the carrying amount of the asset through use or sale. It can be difficult and
subjective to assess whether recovery will be through use or through sale when the asset is
measured using the fair value model in PAS 40, Investment Property. This amendment therefore
introduces an exception to the existing principle for the measurement of deferred tax assets or
liabilities arising on investment property measured at fair value. As a result of the amendments,
SIC 21, Income Taxes - Recovery of Revalued Non-Depreciable Assets, will no longer apply to
investment properties carried at fair value. The Company adopted the amendment beginning
January 1, 2012 but did not have a significant impact on the Companys financial statements as the
Company did not have investment property measured at fair value nor did it recognize deferred
income tax arising from fair value measurement.

(b) New standards and amendments to existing standards that are not yet effective and not early
adopted by the Company
The following revised standards and amendments to existing standards approved by the FRSC which
are mandatory for annual periods beginning January 1, 2013 and onwards are not early adopted by the
Company:

(2)

PAS 1 (Amendment), Financial Statement Presentation - Other Comprehensive Income (effective

July 1, 2012). The main change resulting from these amendments is a requirement for entities to
group items presented in other comprehensive income on the basis of whether they are potentially
reclassifiable to profit or loss subsequently (reclassification adjustments). The amendments do not
address which items are presented in other comprehensive income. The Company will apply the
amendment beginning January 1, 2013 but it is not expected to have a significant impact on the
Companys financial statements other than the classification of other comprehensive income on the
basis of whether these are potentially and subsequently reclassifiable to profit or loss.

PAS 19 (Amendment), Employee Benefits (effective January 1, 2013). These amendments eliminate
the corridor approach and calculate finance costs on a net funding basis. They would also require
recognition of all actuarial gains and losses in other comprehensive income as they occur and of all
past service costs in profit or loss. The amendments replace interest cost and expected return on
plan assets with a net interest amount that is calculated by applying the discount rate to the net
defined benefit liability (asset). The Company will adopt the amendment beginning January 1,
2013. It is not expected to have a significant impact on the Companys financial statements other
than the full recognition of unrecognized actuarial losses (Note 20) to other comprehensive income
and the effect of the net interest amount based on new calculation criteria.

PAS 27 (Revised), Separate Financial Statements (effective January 1, 2013). The revised standard
includes the provisions on separate financial statements that are left after the control provisions of
PAS 27 have been included in the new PFRS 10. The Company will apply the revised standard
beginning January 1, 2013 but the adoption is not expected to have a significant impact on the
Companys financial statements as the Company fully consolidates all its subsidiaries in its
consolidated financial statements.

PAS 28 (Revised), Investments in Associates and Joint Ventures (effective January 1, 2013). This
revised standard includes the requirements for joint ventures, as well as associates, to be equity
accounted following the issue of PFRS 11. The Company will apply the revised standard beginning
January 1, 2013 but the adoption is not expected to have an impact on the separate financial
statements as the Company has taken the exemption in this standard not to apply equity
accounting to its investment in associate as the Company fully consolidates all its subsidiaries in its
consolidated financial statements.

PFRS 7 (Amendment), Financial Instruments: Disclosures - Transfers of Financial Assets

(effective July 1, 2012). The amendment requires the disclosure of information that enables the
users of financial statements to understand the relationship between transferred financial assets
that are derecognized in their entirety and the associated liabilities; and to evaluate the nature of,
and risks associated with, the entities continuing involvement in derecognized financial assets. The
Company will apply this amendment commencing January 1, 2013. It is not expected to have a
significant impact on the Companys financial statements as the Company, currently, has not made
any plans to transfer significant financial assets covered by the amendment.

PFRS 9, Financial Instruments (effective January 1, 2015). This standard is the first step in the
process to replace PAS 39, Financial Instruments: Recognition and Measurement. PFRS 9
introduces new requirements for classifying and measuring financial assets and is likely to affect
the Companys accounting for its financial assets. The Company is yet to assess PFRS 9s full
impact. However, initial indications are that it may affect the Companys accounting for its debt
available-for-sale financial assets, as PFRS 9 only permits the recognition of fair value gains and
losses in other comprehensive income if they relate to equity investments that are not held for
trading. Fair value gains and losses on available-for-sale debt investments, for example, will
therefore have to be recognized directly in profit or loss. The Company has yet to assess PFRS 9s
full impact and intends to adopt PFRS 9 beginning January 1, 2015.

PFRS 12, Disclosures of Interests in Other Entities (effective January 1, 2013). This new standard
includes the disclosure requirements for all forms of interests in other entities, including joint
arrangements, associates, special purpose vehicles and other off balance sheet vehicles. The
Company has yet to assess PFRS 12s full impact and intends to adopt PFRS 12 beginning
January 1, 2013.

(3)

PFRS 13, Fair Value Measurement (effective January 1, 2013). This new standard aims to improve
consistency and reduce complexity by providing a precise definition of fair value and a single
source of fair value measurement and disclosure requirements for use across PFRS. The
requirements, which are largely aligned between IFRS and US GAAP, do not extend the use of fair
value accounting but provide guidance on how it should be applied where its use is already
required or permitted by other standards within IFRS or US GAAP. The Company is yet to assess
PFRS 13s full impact on the financial statements and intends to adopt the standard beginning
January 1, 2013.

(c) New standards, amendments and interpretations to existing standards that are not applicable
and/or relevant to the Company
The standards, amendments and interpretations to existing standards approved by FRSC effective for
annual periods beginning January 1, 2012 and onwards as disclosed below are considered not
applicable and/or relevant to the Companys financial statements during and at the end of each
reporting period.

2.2

PFRS 1 (Amendment), First-time Adoption of PFRS - Fixed Dates and Hyperinflation (effective
July 1, 2011). The Company is not a first-time adopter.

PFRS 11, Joint Arrangements (effective January 1, 2013). Currently, the Company has no
investment in joint ventures.

Philippine Interpretation IFRIC 15, Agreement for Construction of Real Estate. The Company
is currently not operating in real estate industry.

Philippine Interpretation IFRIC 20, Stripping Costs in the Production Phase of a Surface
Mine (effective January 1, 2013). The Company is currently not operating in mining industry.
Separate financial statements

The Company also prepares consolidated financial statements in accordance with PAS 34 which include
the Company and its subsidiaries (the Group). The consolidated financial statements can be obtained
from the Companys registered office address in Quezon City (Note 1).
The interim separate financial statements have been prepared for the Companys general use. Users of
these separate financial statements should read them together with the Groups consolidated financial
statements as at July 31, 2012 and December 31, 2011 and for the seven months ended July 31, 2012
and 2011 in order to obtain the information on the financial position, results of operations and changes
in the financial position of the Group as a whole.

(4)

Investment in shares of stock of subsidiaries and associates consist of the following:

Interest
July 31, 2012 December 31, 2011
Subsidiaries:
First In Colours,
Incorporated
(FIC)

100%

67%

Country of
incorporation
Philippines

Main activity
FIC was registered with SEC on November 17,
1988 primarily to carry on the business of
importing, exporting, manufacturing and
distributing at wholesale and retail chemical
products, compounds, derivatives or chemical
substances and generally, engage in and
conduct any form of manufacturing or
mercantile enterprises.
As at December 31, 2011, FIC is 67% owned by
the Company, 22% owned by JHI and 11%
owned by the Lao family.

Aero-Pack
Industries, Inc.
(API)

100%

67%

Philippines

On July 16, 2012, the Companys Board of

Directors resolved to purchase the shares of
other shareholders for a consideration of
P112.1 million, which is equivalent to FICs fair
market value as at June 30, 2012, to obtain
100% ownership in FIC (Note 10). The share
purchase agreement was signed by the parties
and made effective on July 27, 2012. As a
result, FIC became 100% owned by the
Company as at the said date.
API was incorporated and registered with SEC
on September 29, 1989 to engage in the
manufacture of aerosol packaging materials,
aerosol products, chemical derivatives and
compounds and other related products.
As at December 31, 2011, API is 67% owned by
the Company and 25% owned by JHI.

Oleo-fats,
Incorporated (OFI)

100%

40%

Philippines

On July 16, 2012, the Companys Board of

Directors resolved to purchase the shares of
other shareholders for a consideration of P40.3
million, which is equivalent to APIs fair market
value as at June 30, 2012, to obtain 100%
ownership in API (Note 10). The share
purchase agreement was signed by the parties
and made effective on July 27, 2012. As a
result, API became 100% owned by the
Company as at the said date.
OFI was registered with SEC on May 4, 1987 to
carry on the business of manufacturing,
processing, sourcing, marketing, selling,
utilizing fats and oils, oleo chemicals and
derivatives, distributing locally and abroad.
As at December 31, 2011, OFI is 40% owned
by the Company, 40% owned by Cahaya, Inc.
and 16% owned by JHI.
On July 16, 2012, the Companys Board of
Directors resolved to purchase the shares of
other shareholders for a consideration of P747
million, which is equivalent to OFIs fair market
value as at June 30, 2012, to obtain 100%

(5)

Interest
July 31, 2012 December 31, 2011

Country of
incorporation

Main activity

Subsidiaries:

D&L Polymer and

Colours, Inc.
(DLPCI)

100%

33%

Philippines

ownership in OFI (Note 10). The share

purchase agreement was signed by the parties
and made effective on July 27, 2012. As a
result, OFI became 100% owned by the
Company as at the said date.
DLPCI was incorporated and registered with SEC
on March 30, 2006 primarily to carry on the
business of buying, selling, importing, exporting,
bartering, distributing, exchanging, processing,
manufacturing, producing, refining, beneficiating
and disposing at wholesale and retail of chemical
products, compounds, derivatives or chemical
substances and all kinds of goods, wares,
manufactures, such as, but not limited to,
machines, supplies and products and generally to
engage in the conduct of manufacturing or
mercantile enterprises.
As at December 31, 2011, DLPCI is 33% owned
by the Company, 50% owned by FIC and 17%
owned by JHI.
On December 19, 2011, FIC subscribed for 100
million shares amounting to P100 million.
On December 28, 2011, DLPCIs Board of
Directors approved the declaration of stock
dividend amounting to P100 million to all
shareholders of record as at December 5,
2011. The stock dividends were distributed
and issued to shareholders as at July 31,
2012.

D&L Powder
Coating, Inc.
(DL Powder
Coating)

0%

60%

Philippines

On July 16, 2012, the Board of Directors of JHI

resolved to sell all of their shares in DLPCI to
FIC, which is 100% owned by the Company.
As a result, DLPCI became 100% owned (44%
direct and 56% indirect) by the Company as at
July 31, 2012 (Note 10).
DL Powder Coating, Inc. was incorporated and
registered with SEC on February 11, 2011
primarily to engage in the business of
manufacturing, processing, refining, of all
kinds of chemical products, compounds,
derivatives or chemical substances, and all
kinds of goods, wares, supplies and
manufactures, buy, sell, trade, distribute, or
otherwise dispose of the same, locally or
abroad in the normal course of business and
industry without engaging in the business of
manufacturing food, drugs and cosmetics.
As at December 31, 2011, DL Powder Coating
is 60% owned by the Company and 40%
owned by JHI. DL Powder Coating has not
started commercial operation as at August 28,
2012.
On July 27, 2012, the Company entered into
an agreement with JHI for the sale and

(6)

Interest
July 31, 2012 December 31, 2011

Country of
incorporation

Main activity

Subsidiaries:

FIC Marketing
Co., Inc.
(FICM)

0%

67%

Philippines

transfer of the Companys shareholding in DL

Powder Coating. As a result of the transaction,
the Company recognized other charges to
equity of P300 thousand.
FICM was incorporated and registered with SEC
on November 21, 1985 primarily to carry on the
business of selling, marketing, distributing, trading
goods, commodities, merchandise, wares,
articles, chattel, materials and products of every
kind and description not limited to industrial
chemicals, agricultural and industrial products,
materials, machines, equipment and accessories,
at wholesale or retail, locally or abroad.
As at December 31, 2011, FICM is 67% owned
by the Company and 32% owned by JHI.
On July 23, 2012, the Company entered into
an agreement with Jadel Holdings, Inc. for the
sale and transfer of the Companys
shareholding in FICM. As a result of the
transaction, the Company recognized other
charges to equity of P23.3 million.

Associates:
Chemrez
Technologies, Inc.
(CTI)

34%

34%

Philippines

CTI was incorporated and registered with SEC

on June 1, 1989. CTI attained its status of
being a public company on December 8, 2000
and is listed on the Philippine Stock Exchange.
The Company is engaged in the business of
manufacturing, processing, refining all kinds of
chemical products, compounds, derivatives or
chemical substances and all kinds of goods,
wares, supply and manufacture, buy, sell, trade,
distribute or otherwise dispose of the same,
locally or abroad, in the normal course of
business without engaging in the business of
manufacturing food, drugs and cosmetics.
On May 12 and June 9, 2007, CTIs Board of
Directors and Stockholders, respectively,
authorized CTI to invest and/or engage in the
manufacture, sale and distribution of biodiesel
under the brand BioActiv.
CTI is controlled by the Lao family which, as at
July 31, 2012, effectively owns 67% of CTIs
shares, including those held by the Company,
JHI and Color Chem Corporation, which
domestic companies collectively own 37% of
the CTIs issued shares of stock. The
remaining 33% of the shares outstanding are
publicly held.

The investment in shares of stock of subsidiaries and associates above, is accounted for using the cost
method (Note 2.12), in these separate financial statements.

(7)

Subsidiaries
Subsidiaries are all entities (including special purpose entities) over which the Company has the power
to govern the financial and operating policies generally accompanying a shareholding of more than one
half of the voting rights. The existence and effect of potential voting rights that are currently
exercisable or convertible are considered when assessing whether the Company controls another entity.
The Company also assesses existence of control where it does not have more than 50% of the voting
power but is able to govern the financial and operating policies by virtue of de-facto control. De-facto
control may arise in circumstances where the size of the Companys voting rights relative to the size and
dispersion of holdings of other shareholders give the Company the power to govern the financial and
operating policies, etc.
Subsidiaries are fully consolidated in the consolidated financial statements from the date on which
control is transferred to the Company. They are deconsolidated from the date that control ceases.
The purchase method of accounting is used to account for the acquisition of subsidiaries by the
Company. The consideration transferred for the acquisition of a subsidiary is the fair values of the
assets transferred, the liabilities incurred and the equity interests issued by the Company, plus costs
directly attributable to the acquisition. The consideration transferred includes the fair value of any
asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired
and liabilities and contingent liabilities assumed in a business combination are measured initially at
their fair values at the acquisition date, irrespective of the extent of any minority interest.
Associates
Associates are entities over which the Company has significant influence but not control, generally
accompanying a shareholding of between 20% and 50% of the voting rights.
Investments in associate are accounted for using the cost method of accounting and are initially
recognized at cost, in these separate financial statements.
In accordance with PAS 28, investments in associates are accounted for using the equity method of
accounting in the consolidated financial statements. Under the equity method, the investment is
initially recognized at cost, and the carrying amount is increased or decreased to recognize the
investors share of the profit or loss of the investee after the date of acquisition.
The Company determines at each reporting date whether there is any objective evidence that an
investment in a subsidiary or associate is impaired. If this is the case, the Company calculates the
amount of impairment as the difference between the carrying value and recoverable amount of the
subsidiary or associate and an allowance is set up for any substantial or permanent decline in the
carrying value of an investment in a subsidiary or associate.
2.3
2.3. 1

Financial assets
Classification and presentation

The Company classifies its financial assets in the following categories: (i) loans and receivables, (ii) at fair
value through profit or loss, (iii) held-to-maturity and (iv) available-for-sale. The classification depends
on the purpose for which the financial assets were acquired. Management determines the classification of
its financial assets at initial recognition.

(8)

The Company did not hold financial assets under categories (ii) and (iii) above during and at the end of
each reporting period.
Loans and receivables
The Companys financial assets categorized as loans and receivables are non-derivative financial assets
with fixed or determinable payments and are not quoted in an active market. They are included in
current assets, except for maturities greater than twelve months after the reporting date, which are
classified as non-current assets.
The Companys loans and receivables consist mainly of cash, receivables, due from related parties, loans
receivable and refundable deposits presented under other non-current assets in the statement of financial
position.
Available-for-sale financial assets
Available-for-sale financial asset is non-derivative that is either designated in this category or not
classified in any of the other categories. It is included in non-current assets unless management intends to
dispose of the investment within twelve (12) months after the reporting period.
The Companys available -for-sale financial assets consist of investment in equity securities of listed and
non-listed entities in the Philippines and investment in golf club shares (Note 9).
2.3.2

Initial recognition and subsequent measurement

Loans and receivables

Loans and receivables are initially recognized at fair value plus transaction costs. Loans and receivables
are subsequently carried at amortized cost using the effective interest method, less provision for
impairment of receivables.
Available-for-sale financial assets
Available-for-sale financial assets are initially recognized at fair value plus transaction costs and are
subsequently carried at fair value, except where fair value cannot be reliably measured which shall be
measured at cost. Unrealized gains and losses arising from changes in the fair value of assets classified as
available-for-sale financial assets are recognized in other comprehensive income. For available-for-sale
financial assets carried at cost, if a reliable measure becomes available, it is measured at fair value and the
difference between its carrying amount and fair value is recognized in other comprehensive income.
Dividends on available-for-sale investments are recognized in profit or loss when the Companys right to
receive payments is established.
2.3.3

Derecognition

Loans and receivables and available for sale financial assets are derecognized when the rights to receive
cash flows have expired or the Company has transferred substantially all the risks and rewards of
ownership to the financial assets.

(9)

2.3.4

Impairment

Loans and receivables

The Company assesses at the end of each reporting period whether there is objective evidence that a
financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets
is impaired and impairment losses are incurred only if there is objective evidence of impairment as a
result of one or more events that occurred after the initial recognition of the asset (a loss event) and
that loss event (or events) has an impact on the estimated future cash flows of the financial asset or
group of financial assets that can be reliably estimated.
The criteria that the Company uses to determine that there is objective evidence of an impairment loss
include:

Significant financial difficulty of the customer or other third party considered as obligor;
A breach of contract, such as a default or delinquency in interest or principal payments;
It becomes probable that the customer or other third party considered as obligor will enter
bankruptcy or other financial reorganization; or
Observable data indicating that there is a measurable decrease in the estimated future cash
flows from a portfolio of financial assets since the initial recognition of those assets, although
the decrease cannot yet be identified with the individual financial assets in the portfolio,
including adverse changes in the payments status of customers or other third parties
considered as obligors in the portfolio and national or local economic conditions that correlate
with defaults on the assets in the portfolio.

For loans and receivables category, the Company first assesses whether there is objective evidence of
impairment exists individually for receivables that are individually significant, and collectively for
receivables that are not individually significant. If the Company determines that no objective evidence
of impairment exists for an individually assessed receivable, whether significant or not, it includes the
asset in a group of financial assets with similar credit risk characteristics and collectively assesses those
for impairment. Receivables that are individually assessed for impairment and for which an
impairment loss is or continues to be recognized are not included in a collective assessment of
impairment.
The amount of the loss is measured as the difference between the assets carrying amount and the
present value of estimated future cash flows (excluding future credit losses that have not been incurred)
discounted at the financial assets original effective interest rate. The carrying amount of the asset is
reduced and the amount of the loss is recognized in profit or loss.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related
objectively to an event occurring after the impairment was recognized (such as an improvement in the
debtors credit rating), the reversal of the previously recognized impairment loss is recognized in the
statement of total comprehensive income. Reversals of previously recorded impairment provision are
based on the result of managements update assessment, considering the available facts and changes in
circumstances, including but not limited to results of recent discussions and arrangements entered into
with customers as to the recoverability of receivables at the end of the reporting period. Subsequent
recoveries of amounts previously written-off are credited against selling and marketing costs in profit
or loss.

(10)

Available-for-sale financial assets

In the case of equity investments classified as available-for-sale financial assets, a significant or
prolonged decline in the fair value of the security below its cost is also evidence that the assets are
impaired.
When a decline in the fair value of an available-for-sale financial asset has been recognized in other
comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss
that had been recognized in other comprehensive income is reclassified from equity to profit or loss as
a reclassification adjustment even though the financial asset has not been derecognized, measured as
the difference between the acquisition cost and the current fair value, less any impairment loss on that
financial asset previously recognized in statement of total comprehensive income. Impairment losses
recognized in profit or loss for an investment in an equity instrument classified as available-for-sale is
not reversed through statement of total comprehensive income.
2.4

Financial liabilities

2.4.1

Classification and presentation

The Company classifies its financial liabilities in the following categories: (i) financial liabilities at fair
value through profit or loss (including financial liabilities held for trading and those that are designated at
fair value) and (ii) financial liabilities at amortized cost. The classification depends on the purpose for
which the financial liabilities were incurred. Management determines the classification of its financial
liabilities at initial recognition.
The Company did not hold financial liabilities at fair value through profit or loss during and at the end of
each reporting period.
The Companys financial liabilities at amortized cost are those that are not classified at fair value through
profit or loss. They are included in current liabilities, except for maturities greater than 12 months after
reporting date which are classified as non-current liabilities.
The Companys financial liabilities at amortized cost consist mainly of trade payable and other liabilities
(excluding payables to government agencies for value-added tax, withholding and other taxes payable) ,
due to related parties and borrowings.
2.4.2

Initial recognition and subsequent measurement

The Companys financial liabilities are initially measured at fair value plus transaction costs.
Subsequently, these are measured at amortized cost using the effective interest method. Interest expense
on financial liabilities is recognized within finance cost, at gross amount, in the statement of total
comprehensive income.
2.4.3

Derecognition

Financial liabilities are derecognized when extinguished, that is, when the obligation specified in a
contract is discharged or cancelled or when the obligation expires.

(11)

2.5

Determination of fair value

The Company classifies its fair value measurements using a fair value hierarchy that reflects the
significance of the inputs used in making the measurements. The fair value hierarchy has the following
levels:

quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);
inputs other than quoted prices included within Level 1 that are observable for the asset or liability,
either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2); and
inputs for the asset or liability that are not based on observable market data (that is, unobservable
inputs) (Level 3).

The fair value of financial instruments traded in active markets is based on quoted market prices at the
reporting date. A market is regarded as active if quoted prices are readily and regularly available from an
exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent
actual and regularly occurring market transactions on an arms length basis.
The quoted market price used for financial instruments that are traded in active market is the current bid
price. These instruments are included in level 1. Instruments included in level 1 comprise primarily of
FTSE 100 equity investments classified as trading securities or available-for-sale.
The fair value of financial instruments that are not traded in an active market (for example, over-thecounter derivatives) is determined by using valuation techniques. These valuation techniques maximize the
use of observable market data where it is available and rely as little as possible on entity specific estimates.
If all significant inputs required to fair value an instrument are observable, the instrument is included in
level 2.
If one or more of the significant inputs is not based on observable market data, the instrument is included
in level 3. Specific valuation techniques used to value financial instruments include:

Quoted market prices or dealer quotes for similar instruments;

The fair value of interest rate swaps is calculated as the present value of the estimated future cash
flows based on observable yield curves;
The fair value of forward foreign exchange contracts is determined using forward exchange rates at
the reporting date, with the resulting value discounted back to present value ; and
Other techniques, such as discounted cash flow analysis, are used to determine fair value for the
remaining financial instruments.

The Companys available-for-sale financial asset with quoted market price is valued using Level 1 of the fair
value hierarchy and those with unquoted market price, which is carried at cost, is valued using Level 3 of
the fair value hierarchy.
The Company has no other significant financial assets and liabilities carried at fair value.
The carrying amount of significant financial assets and liabilities (Note 3.2) approximates their fair value at
reporting date, as the impact of fair value calculation is not significant considering that these financial
assets and liabilities are measured at fair value plus transaction costs and subsequently measured at
amortized cost and generally have short-term maturities.

(12)

2.6

Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported in the statement of financial
position when there is a legally enforceable right to offset the recognized amounts and there is an
intention to settle on a net basis, or realize the asset and settle the liability simultaneously.
Offsetting of financial instruments is limited to balances with related parties.
2.7

Cash

Cash consists of cash on hand and deposits held at call with banks. Cash in bank earns interest at the
prevailing bank deposit rate.
2.8

Receivables

Trade receivables arising from regular sales with an average credit term of 30 to 90 days are recorded at
fair value plus transaction cost, which approximates invoice value, less any provision for impairment.
Other receivables are recognized initially at fair value and subsequently measured at amortized cost using
effective interest method, less any provision for impairment.
An individual and collective provision for impairment of receivables is established when there is objective
evidence that the Company will not be able to collect all amounts due according to the original terms of
receivables. Significant financial difficulties of the debtor, probability that the debtor will enter
bankruptcy or financial reorganization, and default or delinquency in payments are considered as
indicators that the receivable is impaired. The amount of the provision is the difference between the
assets carrying amount and the present value of estimated future cash flows, discounted at the effective
interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the
amount of the loss is recognized in the provision for impairment of receivables in the statement of total
comprehensive income within selling and marketing costs.
The Company first assesses whether objective evidence of impairment exists individually for receivables
that are individually significant, and collectively for receivables that are not individually significant. If the
Company determines that no objective evidence of impairment exists for an individually assessed
receivable, whether significant or not, it includes the asset in a group of financial assets with similar credit
risk characteristics and collectively assesses them for impairment. Receivables that are individually
assessed for impairment and for which an impairment loss is or continues to be recognized are not
included in a collective assessment of impairment.
When a receivable is uncollectible, it is written off against the provision account for receivables.
Receivables and its related provision for impairment are written off when the Company has determined
that the receivable is uncollectible as they have already exerted all collection efforts, including filing a
legal case. Bad debts written off are specifically identified by the Companys marketing department after
exhausting all collection efforts (i.e. sending demand letters and legal notice of default to customers),
and is approved by the respective product manager and subsequently by the Board of Directors. Write
offs represent the release of previously recorded provision from the allowance account and credited to
the related receivable account following the Companys assessment that the related receivable will no
longer be collected after all collection efforts have been exhausted.

(13)

Subsequent recoveries of amounts previously written-off are credited against the provision account in
the statement of total comprehensive income. Reversals of previously recorded impairment provision
are credited in the statement of total comprehensive income based on the result of managements update
assessments, considering available facts and changes in circumstances, including but not limited to
results of recent discussions and arrangements entered into with customers as to the recoverability of
receivable at reporting date.
2.9

Inventories

Inventories are stated at the lower of cost and net realizable value (NRV). The cost of finished goods
inventories is determined on the basis of standard costs which are adjusted at periodic intervals and
which approximate actual manufacturing cost. The cost of raw materials is determined using the
weighted average method. Inventories in transit are valued at invoice cost including related importation
costs. NRV is the estimated selling price in the ordinary course of business, less applicable variable selling
and distribution expenses. Provision for inventory losses and obsolescence is provided, when necessary,
based on managements review of inventory turnover and projected future production demands.
Provision for inventory losses is established for slow moving, obsolete, defective and damaged
inventories based on physical inspection and management evaluation. Inventories and its related
provision for impairment are written off when the Company has determined that the related inventory is
already obsolete and damaged. Write offs represent the release of previously recorded provision from
the allowance account and credited to the related inventory account following the disposal of the
inventories. Destruction of the obsolete and damaged inventories is made in the presence of regulatory
agencies.
Reversals of previously recorded impairment provisions are credited against provision account in the
statement of total comprehensive income based on the result of managements update assessment,
considering available facts and circumstances, including but not limited to net realizable value at the
time of disposal.
Inventories are derecognized when sold or otherwise disposed of.
2.10

Prepayments and other current assets

Prepayments are recognized in the statement of financial position in the event that payment has been
made in advance of obtaining right of access to goods or receipt of services and measured at nominal
amounts. These are derecognized in the statement of financial position upon delivery of goods or when
services have been rendered, through amortization over a certain period of time, and use or
consumption.
Other non-current assets consist substantially of input value-added tax and creditable withholding
taxes which are recognized as assets in the period such input value-added tax and income tax payments
become available as tax credits to the Company and carried over to the extent that it is probable that
the benefit will flow to the Company. These are derecognized in the statement of financial position
when there is a legally enforceable right to offset the recognized amounts and there is an intention to
settle on a net basis, or realize the asset and settle the liability simultaneously.
Prepayments and other non-financial assets are included in current assets, except when the related
goods or services are expected to be received or rendered more than twelve (12) months after the
reporting period which are classified as non-current assets.

(14)

2.11

Property, plant and equipment

Property, plant and equipment are stated at historical cost less related accumulated depreciation and
amortization, and provision for any impairment. Historical cost includes expenditure that is directly
attributable to the acquisition of the items.
Subsequent costs are included in the assets carrying amount or recognized as a separate asset, as
appropriate, only when it is probable that future economic benefits associated with the item will flow to
the Company and the cost of the item can be measured reliably. All other repairs and maintenance are
charged to the statement of total comprehensive income during the financial period in which they are
incurred.
Construction in progress, which represents properties under construction, is stated at cost and
depreciated only when the relevant assets are completed and put into operational use. Upon
completion, these properties are reclassified to their relevant property and equipment account.
Leasehold improvements are amortized over the period of the lease agreement or estimated useful life
of the improvements, which is shorter than the lease term, considering the renewal option.
Depreciation on assets is computed on the straight-line method to allocate the cost of each asset, less its
residual value, over its estimated useful life, determined based on the Companys historical information
and experience on the use of such assets, as follows:

Machinery and equipment

Transportation and equipment
Office equipment
Leasehold improvements

In years
10
5
5
5

The assets residual values and useful lives are reviewed, and adjusted as appropriate, at each reporting
date.
An assets carrying amount is written down immediately to its recoverable amount if the assets carrying
amount is greater than its estimated recoverable amount.
An item of property and equipment is derecognized upon disposal or when no future economic benefits
are expected from its use or disposal at which time the cost and their accumulated depreciation are
removed from the accounts.
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount of
the assets and are included in the statement of total comprehensive income.
2.12

Investment in shares of stock of subsidiaries and associates

Investment in shares of stock of subsidiaries and associates is accounted for using the cost method. Under
this method, investments are recognized at cost and income from investment is recognized in the
statement of total comprehensive income only to the extent that the Company (as investor) receives
distribution from accumulated profits of the investee arising after the acquisition date. Distributions
received in excess of such profits are regarded as a recovery of investment and are recognized as a
reduction of the cost of the investment.

(15)

Investments in subsidiaries and associates are derecognized when the Company ceased to have control or
shareholdings over the entities or when the risks and rewards of ownership have been transferred or
extinguished.
2.13

Impairment of non-financial assets

Non-financial assets that have an indefinite useful life, such as land, are not subject to amortization and are
tested annually for impairment. Other non-financial assets, mainly property, plant and equipment and
investment in subsidiaries and associates, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized
for the amount by which the assets carrying amount exceeds its recoverable amount. The recoverable
amount is the higher of an assets fair value less cost to sell and value in use. For the purposes of
assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable
cash flows (cash-generating units). Impairment losses, if any, are recognized in the statement of total
comprehensive income as part of administrative expenses.
When impairment loss subsequently reverses, the carrying amount of the asset or cash-generating unit
is increased to the revised estimate of its recoverable amount, but the increased carrying amount
should not exceed the carrying amount that would have been determined had no impairment loss been
recognized for the asset or cash-generating unit in prior years. A reversal of an impairment loss is
recognized are credited against the provision account in the statement of total comprehensive income.
2.14

Current and deferred income tax

The tax expense for the period comprises current and deferred tax. Tax is recognized in the profit or
loss, except to the extent that it relates to items recognized in other comprehensive income or directly
in equity. In this case the tax is also recognized in other comprehensive income or directly in equity,
respectively.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively
enacted at the reporting date. Management periodically evaluates positions taken in the tax returns
with respect to situations in which applicable tax regulation is subject to interpretation and establishing
provisions where appropriate on the basis of amounts to be paid to tax authorities.
Deferred income tax (DIT) is provided in full, using the liability method, on temporary differences
arising between the tax bases of assets and liabilities and their carrying amounts in the financial
statements. DIT is determined using tax rates (and laws) that have been enacted or substantively
enacted by the reporting date and are expected to apply when the related DIT asset is realized or the
DIT liability is settled.
DIT assets are recognized for all deductible temporary differences to the extent that it is probable that
future taxable profit will be available against which the temporary differences can be utilized. Deferred
income tax liabilities are recognized in full for all taxable temporary differences.
DIT assets and liabilities are offset when there is a legally enforceable right to offset current tax assets
against current tax liabilities and when the DIT assets and liabilities relate to income taxes levied by the
same taxation authority on either the taxable entity or different taxable entities where there is an
intention to settle the balances on a net basis.
The Company re-assesses at each financial position date the need to recognize a previously
unrecognized DIT asset, if any.

(16)

2.15

Trade payable and other liabilities

Trade payable and other liabilities are obligations to pay for goods or services that have been acquired
in the ordinary course of business from suppliers.
Trade payable and other liabilities are recognized in the period in which the related money, goods or
services are received or when a legally enforceable claim against the Company is established or when the
corresponding assets or expenses are recognized. These are classified as current liabilities if payment is
due within one year or less (or in the normal operating cycle of the business if longer). If not, they are
presented as non-current liabilities.
Trade payable and other liabilities are recognized initially at fair value and subsequently measured at
amortized cost using effective interest method.
2.16

Borrowings and borrowing costs

Borrowings
Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are
subsequently stated at amortized cost; any difference between the proceeds (net of transaction costs)
and the redemption value is recognized in the statement of total comprehensive income over the period
of the borrowings using the effective interest method.
Borrowings are classified as current liabilities unless the Company has unconditional right to defer
settlement of the liability for at least twelve months after the reporting date.
Borrowing costs
Borrowing costs incurred for the construction of any qualifying asset, if any, are capitalized during the
period of time that is required to complete and prepare the asset for its intended use.
Other borrowing costs are recognized and charged to operations in the year in which these are incurred.
2.17

Provisions

Provision are recognized when the Company has a present legal or constructive obligation as a result of
past events, it is probable that an outflow of resources will be required to settle the obligation, and a
reliable estimate of the amount can be made. Provisions are not recognized for future operating losses.
Provisions are measured at the present value of the expenditures expected to be required to settle the
obligation using a pre-tax rate that reflects current market assessments of the time value of money and
the risks specific to the obligation. The increase in the provision due to passage of time is recognized as
interest expense.
Provisions are reviewed at reporting date and adjusted to reflect the current best estimate.

(17)

2.18

Equity

Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares
are shown in equity as a deduction from the proceeds.
Deposit for future stock subscription
Deposit for future stock subscription represents funds received by the Company with the intention to
apply the same as payment for additional issuance of common shares or additional paid in capital.
Retained earnings
Appropriated retained earnings
Appropriated retained earnings pertain to the portion of the accumulated profit from operations which
are restricted or reserved for a specific purpose such as capital expenditures for expansion projects, and
approved by the Companys Board of Directors.
Unappropriated retained earnings
Unrestricted retained earnings pertain to the unrestricted portion of the accumulated profit from
operations of the Company which are available for dividend declaration.
2.19

Dividend distribution

Dividend distribution to the Companys shareholders is recognized as a liability in the financial

statements in the period in which the dividends are approved by the Companys Board of Directors.
Recording of stock dividend depends on whether the stock dividend declared is a small stock dividend or
a large stock dividend. Stock dividend declared is considered to be small when the shares to be issued are
less than 20-25% of the total outstanding shares before the stock dividend, otherwise the stock dividend
will be considered large. The amount to be released from retained earnings when a small stock dividend
is declared will be equivalent to the fair market value of the shares at the date of declaration. Any excess
of the fair market value of the shares against its par value will be recorded as additional paid-in capital.
On the other hand, the amount to be released in retained earnings when a large stock dividend is declared
will be equivalent to the par value of the shares being issued.
2.20 Revenue recognition
Revenue comprises the fair value of the consideration received or receivable for the sale of goods and
services in the ordinary course of the Companys activities. Revenue is shown net of value-added tax,
returns, rebates and discounts.

(18)

For the seven months ended July 31, revenue is shown net of the following:

Discounts
Returns

2012
81,884
81,884

2011
10,965
104,214
115,179

The Company recognizes revenue when the amount of revenue can be reliably measured, it is probable
that future economic benefits will flow into the entity, collectability of the related receivable is reasonably
assured, and specific criteria have been met for each of the Companys activities as described below. The
amount of revenue is not considered to be reliably measured until all contingencies relating to the sale
have been resolved.
Revenue is recognized as follows:
Sale of goods
Sale of goods are recognized when the Company has delivered the products to the customer and there is
no unfulfilled obligation that could affect the acceptance of the products. Delivery does not occur until
the products have been shipped to the specific location, the risk of obsolescence and loss have been
transferred to the customer, and either the customer has accepted the products in accordance with the
sales contract, the acceptance provisions have lapsed, or the Company has objective evidence that all
criteria for acceptance have been satisfied.
Service fees
Service fees from technical, logistics, administrative and executive service agreements are recognized
when the service has been rendered.
Dividend income
Dividend income is recognized when the right to receive payment is established.
Interest income
Interest income from cash in banks, which is presented net of final taxes paid or withheld, is recognized
on a time-proportion basis using the effective interest method.
Other income
All other income items are recognized when earned.
2.21

Costs and expenses

Costs and expenses are charged to operations when incurred.

(19)

2.22

Employee benefits

Retirement benefit obligation

The Company has a defined benefit pension plan in accordance with the local conditions and practices
in the Philippines. The plan is generally funded through payments to trustee-administered funds as
determined by periodic actuarial calculations. Defined benefit plans define an amount of pension
benefit that an employee will receive on retirement, usually dependent on one or more factors such as
age, years of service and compensation.
The liability recognized in the statement of financial position is the present value of the defined benefit
obligation less fair value of the plan assets at the reporting date, together with adjustments for
unrecognized past service costs. In cases when the amount determined results in an asset, the Company
measures the resulting asset at the lower of such amount determined and the total of any cumulative
unrecognized net actuarial losses and past service cost and the present value of any economic benefits
available to the Company in the form of refunds or reductions in future contributions to the plan. The
defined benefit obligation is calculated annually by independent actuaries using the projected unit credit
method. The present value of the defined benefit obligation is determined by discounting the estimated
future cash outflows using interest rates of government bonds that are denominated in the currency in
which the benefits will be paid, and that have terms to maturity which approximate the terms of the
related pension liability.
Cumulative actuarial gains and losses arising from experience adjustments and changes in actuarial
assumptions in excess of the greater of 10% of the value of plan assets or 10% of the defined benefit
obligation are spread to income over the employees expected average remaining working lives.
Past service costs are recognized immediately in the statement of total comprehensive income, unless the
changes to the pension plan are conditional on the employees remaining in service for a specified period
of time (the vesting period). In this case, the past service costs are amortized on a straight-line basis over
the vesting period.
Termination benefits
Termination benefits are payable when employment is terminated before the normal retirement date,
or when an employee accepts voluntary redundancy in exchange for these benefits. The Company
recognizes termination benefits when it is demonstrably committed to either: terminating the
employment of current employees according to a detailed formal plan without possibility of withdrawal;
or providing termination benefits as a result of an offer made to encourage voluntary redundancy.
Benefits falling due more than 12 months after reporting date are discounted to present value.
2.23

Leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor
are classified as operating leases. Payments made under operating leases are charged to the statement
of total comprehensive income on a straight-line basis over the period of the lease.
Leases where the Company has substantially all the risks and rewards of ownership are classified as
finance leases. Finance leases are capitalized at the leases commencement at the lower of the fair value
of the leased property and the present value of the minimum lease payments. The Company has no
lease that qualifies for finance lease during and at the end of each reporting period.

(20)

When the Company enters into an arrangement, comprising a transaction or a series of related
transactions, that does not take the legal form of a lease but conveys a right to use an asset or is
dependent on the use of a specific asset or assets, the Company assesses whether the arrangement is, or
contains, a lease. The Company does not have such arrangements during and at the end of each
reporting period.
2.24

Segment reporting

Operating segments are in a manner consistent with the internal reporting provided to the Chief
Operating Decision Maker (CODM), which is the represented by the members of the Management
Committee (ManCom) in making collective operating decisions with regards to the business segments.
The ManCom, which is responsible for allocating resources and assessing performance of the operating
segments, is identified as the one that makes strategic decisions for the Company.
ManCom views the Companys operations as a single unit primarily operating to provide management
services to its affiliates; consequently, the Company does not prepare a segmental analysis for its
separate financial statements.
The accounting policies used to recognize and measure the segments assets, liabilities and profit and
loss is consistent with that of the financial statements.
The Company is operating in the Philippines. Accordingly, ManComm does not make use of
geographical segment in its financial management reporting.
2.25

Related party relationships and transactions

Related party relationship exists when one party has the ability to control, directly or indirectly through
one or more intermediaries, the other party or exercises significant influence over the other party in
making financial and operating decisions. Such relationship also exists between and/or among entities
which are under common control with the reporting enterprise, or between and/or among entities and
its key management personnel, directors, or its stockholders. In considering each possible related party
relationship, attention is directed to the substance of the relationship, and not merely the legal form.
2.26

Foreign currency transactions and translation

Functional and presentation currency

Items included in the financial statements are measured using the currency of the primary economic
environment in which the entity operates (the functional currency). The financial statements are
presented in Philippine Peso, which is the Companys functional and presentation currency.
Transactions and balances
Foreign currency transactions are translated into Philippine Peso using the exchange rates prevailing at
the dates of the transaction. Foreign exchange gains and losses resulting from the settlement of foreign
currency transactions and from the translation at year-end exchange rates of monetary assets and
liabilities denominated in foreign currencies are recognized in the statement of total comprehensive
income.

(21)

For income tax purposes, foreign exchange gains and losses are treated as taxable income or deductible
expense in the period such are realized/sustained.
2.27

Subsequent events (or events after the reporting date)

Post year-end events that provide additional information about the Companys financial position at
reporting date (adjusting events) are reflected in the financial statements. Post year-end events that
are not adjusting events are disclosed in the notes to the financial statements when material.
Note 3 - Financial risk and capital management
3.1

Financial risk factors

The Companys activities expose it to a variety of financial risks and these activities involve the analysis,
evaluation and management of some degree of risk or combination of risks. The Companys overall risk
management program focuses on the unpredictability of financial markets, aims to achieve an
appropriate balance between risk and return and seeks to minimize potential adverse effects on the
Companys financial performance.
Risk management is carried out by the ManCom (Management Committee).
The most important types of risk the Company manages are: credit risk, market risk and liquidity risk.
Market risk includes foreign exchange, interest and price risks.
3.2

Components of financial assets and financial liabilities by category

Financial assets
Details of the Companys financial assets are as follows:

Loans and receivables

Cash
Receivables
Due from related parties
Dividend receivable
Loans receivable
Refundable deposits
Available for sale financial assets
Total financial assets

Notes

July 31, 2012

December 31, 2011

5
6
19
19

555,333,834
3,389,143
194,200,975
336,333,416
11,000,000
813,010
1,101,070,378
84,350,938
1,185,421,316

146,221,084
4,879,734
262,322,061
11,000,000
968,010
425,390,889
51,025,938
476,416,827

Receivables above exclude advances to suppliers at July 31, 2012 amounting to nil
(December 31, 2011 - P2,686,898) (Note 6).
Refundable deposits at July 31, 2012 and December 31, 2011 amounting to P813,010
(December 31, 2011-P968,010) are presented among other non-current assets in the statement of
financial position.
The other components of other current and non-current assets are considered non-financial assets. These
include prepaid taxes, input value-added tax and prepaid insurance.

(22)

Financial liabilities
Details of the Companys financial liabilities, categorized as liabilities at amortized cost, are as follows:

Trade payable and other liabilities

Due to related parties
Borrowings
Total financial liabilities

Notes
12
19
13

July 31, 2012

14,083,679
1,328,251,253
450,000,000
1,792,334,932

December 31, 2011

23,605,572
517,503,554
550,000,000
1,091,109,126

Trade payable and other liabilities exclude amounts due to regulatory agencies and advances from
customers as at July 31, 2012 amounting to P2,121,550 and P1,553,107, respectively
(December 31, 2011 - P3,940,231 and P1,649,559) (Note 12).
3.3

Credit risk

Credit risk arises from cash deposits with banks and financial institutions, as well as credit exposure on
receivable from customers, related parties and other counterparties.
The Companys financial assets that are subject to credit risks are shown below:

Cash in banks
Receivables
Due from related parties
Dividend receivable
Loans receivable
Refundable deposits

July 31, 2012

Carrying
Neither past due
amount
nor impaired
553,566,410
553,566,410
3,389,143
3,389,143
194,200,975
194,200,975
336,333,416
336,333,416
11,000,000
11,000,000
813,010
813,010
1,099,302,954
1,099,302,954

December 31, 2011

Carrying
Neither past due
amount
nor impaired
145,891,084
145,891,084
4,879,734
4,879,734
262,322,061
262,322,061
11,000,000
11,000,000
968,010
968,010
425,060,889
425,060,889

The cash above excludes cash on hand at July 31, 2012 amounting to P1,767,424
(December 31, 2011 - P330,000) (Note 5).
The maximum exposure to credit risk at the reporting date is equal to the carrying value of financial
assets summarized above.
None of the financial assets that are fully performing has been renegotiated in 2012 and 2011.
The Company does not hold any collateral as security to the above financial assets.
The Company has no financial assets classified as past due but not impaired and past due and impaired
categories as at July 31, 2012 and December 31, 2011.

(23)

Credit quality of the Companys financial assets

Neither past due nor impaired
(i)

Cash in banks

Credit risk exposure arising from cash in banks arises from default of the counter party, with a
maximum exposure equal to the fair value of financial assets. The Company has policies that limit the
amount of credit exposure with financial institutions.
To minimize credit risk exposure, the Company deposits its cash in universal banks with good financial
ratings.
At July 31, 2012, cash deposited in these universal banks amounted to P553,566,410
(December 31, 2011 - P145,891,084).
(ii)

Receivables

Trade receivables
The Company has prudent credit policies to ensure that sales of its products are made to customers
with good credit history. The senior management team, product group heads and the respective sales
teams perform monthly reviews of outstanding receivables as part of the regular performance
assessment process. All significant receivables are monitored for collectability and actual settlement
performance, and specific action plans are required for any material overdue amounts from all
categories of customers.
From time to time management undertakes an evaluation of receivable accounts for potential
provisioning and write-off.
The credit quality of trade receivables that are neither past due nor impaired can be assessed by
reference to historical information about counterparty default. The Companys trade receivables arising
from sale of goods at July 31, 2012 amounting to P1,020,072 (December 31, 2011 - P2,007,582) have no
history of recent default or write-off and are considered to be fully performing. Accordingly, no provision
for impairment is required as a result of management assessment.
Advances to officers and employees
This account pertains mostly to cash advances to officers and employees for expenses used in various
official business activities. To address credit risk, these advances are subject to liquidation and/or
collectible through salary deduction.
Other receivables
Other receivables comprise mainly of receivable from third parties which are considered collectible on
demand. The Company limits its exposure to credit risk by transacting only with counterparties that
have appropriate and acceptable credit history.

(24)

(iii)

Due from related parties

Due from related parties, arising mainly from transaction on sale of services and goods, are given the
right of offset against the outstanding balance of due to related parties as of a particular date.
Receivables from related parties under the neither past due nor impaired category have minimal history
of default or write off and considered fully performing. The Company is not expecting significant
exposure in these balances considering these are transacted with related parties.
(iv)

Dividend receivable

Dividend receivable is fully collectible from its subsidiary with no historical default rates. This is
expected to be paid on or before December 31, 2012 (Note 8).
(v)

Loans receivable

Loans receivable pertains to an unsecured loan made to a third party, which is due and demandable
and is subject to an annual interest rate of 12% per annum. The Company is not expecting significant
exposure in this balance.
(vi)

Refundable deposits

This account pertains to security deposits on properties leased by the Company. Security deposits are
generally refundable at the end of the lease term. Management is not expecting significant credit risk
on these deposits.
3.4

Market risk

3.4.1 Foreign currency risk

The Company has transactional currency exposures. Such exposure arises mainly from receivable from
customers in currencies other than the Companys functional currency. As at July 31, 2012 and
December 31, 2011, the Company has monetary assets and liabilities denominated in Australian Dollar
and US Dollar (Note 22).
The Company manages its foreign currency exchange risk through minimizing foreign currency
denominated transactions. Also, the Company maintains sufficient cash in foreign currency to cover its
maturing obligations.
At July 31, 2012, if the Australian Dollar and US Dollar had strengthened/weakened by 0.13% and
0.02%, respectively (July 31, 2011 - 2.11% and 2.04%), profit for the year and equity would have been
P614 (July 31, 2011 - P1,181,625) higher/lower, mainly as a result of foreign exchange gains/losses on
translation of net Australian Dollar and US Dollar-denominated monetary assets.
The reasonable possible change in foreign exchange rate used in the sensitivity analysis is the rate of
change in various foreign currencies using the Peso equivalent at year end and thirty (30) days from
financial position date, by which management is expected to receive or settle the Companys most
significant financial assets or liabilities, respectively.

(25)

3.4.2 Price risk

The Company is exposed to price risk in relation to its available-for-sale financial assets. Components of
equity would increase or decrease as a result of gains or losses on these financial assets classified as
available-for-sale. Management monitors such financial instruments based on the current market price
of the shares. Available-for-sale financial assets are managed on an individual basis and all buy and sell
decisions are approved accordingly, thereby reducing the Companys exposure to equity price risk at an
acceptably low level.
3.4.3 Cash flow and fair value interest rate risks
Cash flow interest rate risks
The Companys exposure to cash flow interest rate risk pertains to short-term borrowings where the
related interests are repriced at periodic intervals based on the prevailing mark-to-market prices, in
accordance with the terms of the agreement. The Companys practice is to manage its interest cost by
reference to current market rates in borrowings.
At July 31, 2012, if interest rates decreased/increased by 1.59% (July 31, 2011 - 0.5%) from the last
repricing date, with all other variables held constant, profit and equity would have been P4,173,750
(July 31, 2011 - P1,604,167) higher/lower, respectively, mainly as a result of lower/higher interest
expense, net based on variable rates.
The reasonable possible change in interest rate used in the sensitivity analysis is the rate of change
between the nominal interest rate at the end of the reporting period and the use of hypothetical interest
rate (gross of applicable final tax rate), which is normally equal to the discount rate set by reference to
yields on government bonds, determined at the next repricing date or the date by which management is
expected to settle the Companys variable interest-bearing borrowings.
Fair value interest rate risk
The Company has no significant financial assets and liabilities that are subject to fixed interest rates.
Accordingly, the Company does not foresee fair value risk to be significant.
3.5

Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding
through an adequate amount of credit facilities and the ability to close out market positions. Due to the
dynamic nature of the underlying businesses, the Company aims to maintain flexibility by keeping
credit lines available.
On a regular basis, management monitors forecasts of the Companys liquidity reserve on the basis of
expected cash flow. The Company places cash in excess of immediate requirements in banks.

(26)

The table below presents the Companys financial liabilities maturing in the next twelve months from
reporting date. The amounts disclosed in the table are the contractual undiscounted cash flows.
Balances equal their carrying balances, as the impact of discounting is not significant.

July 31, 2012

Trade payable and
other liabilities
Due to related
parties
Borrowings
Future interest
payments on
borrowings

December 31, 2011

Trade payable and
other liabilities
Due to related
parties
Borrowings
Future interest
payments on
borrowings

Due and
demandable

Less than 3
months

14,083,679

1,328,251,253
-

Between 3
to 6 months

Between 7 to
12 months

Over 12
months

Total

14,083,679

350,000,000

100,000,000

1,328,251,253
450,000,000

1,328,251,253

2,850,000
16,933,679

5,145,833
355,145,833

475,000
100,475,000

8,470,833
1,800,805,765

Due and
demandable

Less than 3
months

Between 3
to 6 months

Between 7 to
12 months

Over 12
months

Total

23,605,572

517,503,554

550,000,000

517,503,554

573,605,572

25,740,000
25,740,000

23,605,572
517,503,554

550,000,000

25,740,000
1,116,849,126

The Company believes that cash generated from its operating activities is sufficient to meet maturing
obligations required to operate the business. The Company would also be able to meet unexpected cash
outflows by accessing additional funding sources from local banks and related parties.
The Company expects to settle the above financial obligations in accordance with their maturity date.
3.6

Capital management

The Companys objective when managing capital is to generate the maximum possible returns for its
shareholder while taking on a manageable degree of risk ensuring that the Company will continue to
operate as a going concern into the foreseeable future.
In order to maintain or adjust the capital structure, the Company reviews its capital structure from
time to time to assess the proper financing mix necessary to grow and sustain its operations. As a
matter of policy, capital expenditures have been financed from internally-generated cash flow while
investments in working capital will be augmented by short-term bank borrowings from time to time.
The Company has been engaged in a conscious effort to keep its overall gearing ratio as low as possible
through proper management of its working capital cycle.
At July 31, 2012 and December 31, 2011, total capital is equal to the equity as shown in the statement of
financial position.
Earnings in excess of dividend distribution in cash to shareholder have been continuously redeployed
and reinvested in the growth of the Companys business. Each instance of expansion of manufacturing

(27)

capacity and entry into new products and markets undergo a thorough evaluation process to ensure
that such investments and marketing programs are in consonance with the Companys core
competencies and would be enhancing, rather than diminishing, shareholder value in the long run.
The Company is not subject to externally imposed capitalization requirements.
Note 4 - Critical accounting estimates, assumptions and judgments
Estimates, assumptions and judgments are continually evaluated and are based on historical experience
and other factors, including expectations of future events that are believed to be reasonable under the
circumstances.
The Company makes estimates and assumptions concerning the future. The resulting accounting
estimates will, by definition, seldom equal the related actual results. The estimates, assumptions and
judgments that have a significant risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year are discussed below.
4.1

Critical accounting estimates and assumptions

Retirement plan obligation (Note 20)

The present value of the pension obligation depends on a number of factors that are determined on an
actuarial basis using a number of assumptions. The assumptions used in determining the net cost
(income) for pension include the discount rate, expected return on plan asset and future salary
increases. Any changes in these assumptions will impact the carrying amount of pension obligation.
The Company determines the appropriate discount rate at the end of each year. This is the interest rate
that should be used to determine the present value of estimated future cash outflows expected to be
required to settle the pension obligation. In determining the appropriate discount rate, the Company
considers the interest rates of government bonds that are denominated in the currency in which the
benefits will be paid and that have terms to maturity approximating the terms of the related pension
obligation and related pension expense.
Other key assumptions for pension obligation are based in part on current market conditions.
The Company considers that it is impracticable to disclose with sufficient reliability the possible effects
of sensitivities surrounding these actuarial assumptions at reporting date. One or more of the actuarial
assumptions may differ significantly and as a result, the actuarial present value of the defined benefit
obligation estimated at reporting date may differ significantly from amount reported.
Estimated useful life of property, plant and equipment (Note 11)
The useful life of each of the Companys property, plant and equipment is estimated based on the
period over which these assets are expected to be available for use. Such estimation is based on a
collective assessment of, internal technical evaluation and experience with similar assets. The
estimated useful life of each asset is reviewed periodically and updated if expectations differ from
previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or
other limits on the use of the asset. It is possible, however, that future results of operations could be
materially affected by changes in the amounts and timing of recorded expenses brought about by
changes in the factors mentioned above. A change in the estimated useful life of any property, plant
and equipment would impact the recorded expenses and non-current assets.

(28)

The Company considers that it is impracticable to disclose with sufficient reliability the possible effects
of sensitivities surrounding the estimated useful lives of the property, plant and equipment at reporting
date. One or more of the assumptions may differ significantly and as a result, the net carrying value of
the property, plant and equipment at reporting date may differ significantly from amount reported.
4.2

Critical accounting judgment in applying the entitys accounting policies

Provision for impairment of receivables (Note 6)

Provision for impairment of receivables is maintained at a level considered adequate to provide for
potentially uncollectible receivables. The level of provision is based on past collection experience and
other factors that may affect collectibility. An evaluation of the receivables, designed to identify
potential charges to the provision, is performed on a continuous basis throughout the year.
Management evaluates specific accounts of customers who are unable to meet their financial
obligations. In these cases, management uses judgment based on the best available facts and
circumstances, including but not limited to, the length of relationship with the customers and the
customers payment history. The amount and timing of recorded expenses for any period would
therefore differ based on the judgments made.
As at July 31, 2012, the Company has written off uncollectible receivables amounting to P556,360
(December 31, 2011 - P11,268,172) (Note 6).
In relation to receivables which are neither past due nor impaired, no provision for impairment has
been determined by management to be necessary considering customer relationship and historical
experience.
Although the amount and timing of recorded expenses for any period would differ based on the
judgments made, receivables are recognized at fair value based on recently observed market conditions.
Such fair values may change materially within the next financial year but these changes would not arise
from assumptions or other sources of estimation uncertainty.
Provision for inventory obsolescence (Note 7)
Provision for inventory obsolescence is maintained at a level considered adequate to provide for potential
loss on inventory items. The level of provision is based on past experience and other factors affecting the
recoverability and obsolescence of inventory items. An evaluation of inventories, designed to identify
potential charges to the provision, is performed on a continuous basis throughout the period.
Management uses judgment based on the best available facts and circumstances, including but not
limited to evaluation of individual inventory items future recoverability and utilization. The amount and
timing of recorded expenses for any period would therefore differ based on the assessment and
judgments made. A change in provision for inventory obsolescence would impact the Companys
recorded expenses and current assets.
As at July 31, 2012 and December 31, 2011, Company has not provided any allowance for inventory
obsolescence.
The carrying values of the inventories at the end of the reporting period and the amount and timing of
recorded provision for any period could be materially affected by actual experience and changes in such
judgments such as effect of technological obsolescence, competition in the market and changes in
prices of raw and packaging materials, including any associated labor costs. Thus, it is reasonably
possible, on the basis of existing knowledge, that outcome within the next financial year arising from

(29)

changes in judgments may have a significant impact on the carrying amounts of provisions for
inventories.
Recoverability of creditable withholding taxes (Note 8)
The Company recognizes creditable withholding taxes to the extent that it is probable that future tax
liabilities will be available against which tax credits can be utilized. Determining the realizability of
creditable withholding taxes requires the assessment of the availability of taxable profit expected to be
generated from the operations which effectively drives the tax liabilities against which such creditable
taxes can be applied.
Significant judgment is required in determining the realizability of creditable withholding taxes.
Considering the Company is primarily engaged in providing management and support services to its
affiliates, from which the creditable withholding taxes arise, management believes that the Company
would be able to obtain sufficient taxable income and future tax liabilities. Accordingly, creditable
withholding taxes as at reporting dates are realizable.
Impairment of investment in subsidiaries and associate (Note 10)
The Companys investment in subsidiaries and associates is carried at cost. The carrying value is
reviewed and assessed for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. Changes in those management judgment and assessment
could have a significant effect on the carrying value of investment in subsidiaries and associates and the
amount and timing of recorded provision for any period.
As at July 31, 2012 and December 31, 2011, based on managements assessment and judgment, there
are no indications of impairment or changes in circumstances indicating that the carrying value of its
investment in subsidiaries and associates may not be recoverable.
Impairment of property, plant and equipment (Note 11)
The Companys property, plant and equipment is carried at cost. The carrying value is reviewed and
assessed for impairment whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. Changes in those assessment and judgment could have a significant
effect on the carrying value of property, plant and equipment and the amount and timing of recorded
provision for any period.
As at July 31, 2012 and December 31, 2011, management believes, based on its assessment and
judgment that there are no indications of impairment or changes in circumstances indicating that the
carrying value of its property, plant and equipment may not be recoverable.
Provision for income tax; deferred income tax (Note 21)
The Company recognizes deferred tax assets to the extent that it is probable that future taxable income
will be available against which temporary differences can be utilized. Determining the realizability of
deferred tax assets requires the assessment of the availability of taxable profit expected to be generated
from the operations against which deferred income tax assets can be applied.
Further, significant judgment is required in determining the provision for income taxes. There are
many transactions and calculations for which the ultimate tax determination is uncertain in the

(30)

ordinary course of business. The Company recognizes liabilities based on careful evaluation of whether
additional taxes will be due. Where the final tax outcome of these matters is different from the amounts
that were initially recorded, such differences will impact the Companys income tax and deferred tax
provisions in the period in which such determination is made.
Note 5 - Cash
Cash consist of:

Cash in bank
Cash on hand

July 31, 2012

553,566,410
1,767,424
555,333,834

December 31, 2011

145,891,084
330,000
146,221,084

July 31, 2012

1,020,072
2,321,154
47,917
3,389,143

December 31, 2011

2,007,582
2,150,008
2,686,898
722,144
7,566,632

Cash in bank earns interest at the prevailing bank deposit rate.

Note 6 - Receivables
Receivables consist of:

Trade receivables
Advances to officers and employees
Advances to suppliers
Other receivables

As at July 31, 2012, the Company has directly written off uncollectible other receivables amounting to
P556,360 (December 31, 2011 - P11,268,172) charged as part of selling and marketing expenses (Note
16).
Note 7 - Inventories
Inventories consist of:
Note

July 31, 2012

December 31, 2011

15

2,681,455
200,736
2,882,191

2,367,856
386,868
2,754,724

At cost
Finished goods
In transit - raw materials

Based on managements assessment, no provision for inventory losses are required as at July 31, 2012 and
December 31, 2011 and for the seven months ended July 31, 2012 and 2011. Further, the carrying amount
of inventories is stated at cost which is lower than their net realizable value (estimated selling price less
variable selling expenses).
The cost of finished goods inventories recognized as expense and included in cost of goods sold for the
seven months ended July 31, 2012 amounted to P1,608,710 (July 31, 2011 - P1,918,847) (Note 15).

(31)

Note 8 - Prepayments and other current assets

Prepayments and other current assets consist of:

Creditable withholding taxes

Input value added tax, net
Others

July 31, 2012

184,698,353
6,578,398
662,664
191,939,415

December 31, 2011

173,263,631
2,159,524
6,150
175,429,305

July 31, 2012

67,000,000
7,500,000
5,000,000
4,850,938
84,350,938

December 31, 2011

30,000,000
7,500,000
5,000,000
4,850,938
3,125,000
550,000
51,025,938

Note 9 - Available-for-sale financial assets

Details of available-for-sale financial assets are as follows:

Manila Golf and Country Club

Mimosa Golf and Country Club
Export and Industry Bank
Ayala Corporation
Palmera Resources
American Image, Inc.

The movements in available-for-sale financial assets are as follows:

Balance at beginning of period

Acquisitions
Disposals
Fair value adjustment
Balance at end of period

(32)

July 31, 2012

51,025,938
(3,776,250)
37,101,250
84,350,938

December 31, 2011

21,025,938
52,101,250
(22,101,250)
51,025,938

Note 10 - Investment in subsidiaries and associates

Details of investment in subsidiaries and associates are as follows:

Investment in subsidiaries:
Oleo-fats, Incorporated
First In Colours, Incorporated
Aero-Pack Industries, Inc.
FIC Marketing Co., Inc.
D&L Powder Coating, Inc.
Investment in associates:
Chemrez Technologies, Inc.
D&L Polymer and Colours, Inc.
Oleo-fats, Incorporated

Note

July 31, 2012

December 31, 2011

2.2
2.2
2.2
2.2
2.2

1,146,991,858
249,752,844
103,436,922
1,500,181,624

137,670,000
63,115,950
33,335,000
7,499,250
241,620,200

1,031,317,279
66,670,000
1,097,987,279
2,598,168,903

1,031,317,280
66,670,000
400,000,000
1,497,987,280
1,739,607,480

2.2

The movements of investments in subsidiaries and associates are as follows:

Note
Balance at beginning of period
Additions
Disposals
Balance at end of period

2.2
2.2

July 31, 2012

1,739,607,480
899,395,673
(40,834,250)
2,598,168,903

December 31, 2011

1,732,108,230
7,499,250
1,739,607,480

For the seven months ended July 31, 2012, the Company earned dividend from its investments in
subsidiaries and associates amounting to P621,599,747 (July 31, 2011 - nil) (Note 19).
The summarized audited financial information of the associates is as follows:
D&L Polymer and Colours, Inc.

Total assets
Total liabilities
Total equity

July 31, 2012

1,019,639,898
508,406,062
511,233,836

December 31, 2011

845,242,769
318,187,298
527,055,471

Total revenue
Net income for the period

July 31, 2012

1,194,394,427
211,233,836

July 31, 2011

804,162,140
100,268,157

(33)

Chemrez Technologies, Inc. and its subsidiary

Total assets
Total liabilities
Total equity

July 31, 2012

4,610,704,734
632,047,460
3,978,657,274

December 31, 2011

4,810,319,329
837,965,355
3,972,353,974

Total revenue
Net income for the period

July 31, 2012

2,193,342,992
174,045,957

July 31, 2011

3,299,428,658
332,679,980

Oleo-fats, Incorporated

Total assets
Total liabilities
Total equity

Total revenue
Net income for the period

(34)

December 31, 2011

4,916,447,192
3,434,097,271
1,482,349,921
July 31, 2011
6,166,803,845
382,906,273

Note 11 - Property, plant and equipment, net

Property, plant and equipment, net consist of:
Land

Building and leasehold

improvements

Transportation and
delivery equipment

Office, furniture
and fixtures

Tools, machinery
and equipment

Construction in
progress

Total

3,010,000

11,558,308

179,260,214

90,106,063

120,158,876

874,000

404,967,461

3,010,000

(6,094,958)
5,463,350

(125,906,594)
53,353,620

(65,931,022)
24,175,041

(82,823,380)
37,335,496

874,000

(280,755,954)
124,211,507

Opening net carrying value

3,010,000
Additions
Transfers
Depreciation and amortization
Closing net carrying value
3,010,000
At December 31, 2011
Cost
3,010,000
Accumulated depreciation and
amortization
Net carrying value
3,010,000
For the seven months ended July 31, 2012

5,463,350
508,615
(1,088,169)
4,883,796

53,353,620
13,394,613
4,950,413
(23,259,965)
48,438,681

24,175,041
12,574,312
(11,306,346)
25,443,007

37,335,496
4,442,270
(6,583,141)
35,194,625

12,066,923

197,605,240

102,680,375

(7,183,127)
4,883,796

(149,166,559)
48,438,681

At January 1, 2011
Cost
Accumulated depreciation and
amortization
Net carrying value
For the year ended December 31, 2011

Opening net carrying value

874,000
7,599,548
(4,950,413)
3,523,135

124,211,507
38,519,358
(42,237,621)
120,493,244

124,601,146

3,523,135

443,486,819

(77,237,368)
25,443,007

(89,406,521)
35,194,625

3,523,135

(322,993,575)
120,493,244

3,010,000

4,883,796

48,438,681

25,443,007

35,194,625

3,523,135

120,493,244

Additions

7,166,668

2,830,489

1,363,909

4,597,542

15,958,608

Transfers

3,639,129

Disposals
Cost
Accumulated depreciation
Depreciation and amortization
Closing net carrying value
At July 31, 2012
Cost
Accumulated depreciation and
amortization
Net carrying value

(35)

3,010,000

(487,654)
4,396,142

(106,361,201)
96,621,519
(11,442,117)
34,423,550

(5,871,954)
26,040,671

(4,040,179)
32,518,355

(3,639,129)

4,481,548

(106,361,201)
96,621,519
(21,841,904)
104,870,266

3,010,000

12,066,923

98,410,707

109,149,993

125,965,055

4,481,548

353,084,226

3,010,000

(7,670,781)
4,396,142

(63,987,157)
34,423,550

(83,109,322)
26,040,671

(93,446,700)
32,518,355

4,481,548

(248,213,960)
104,870,266

Construction in progress represents various office developments that will be used in operations and are
expected to be fully completed in the next 12 months. There are no qualifying assets under this account as
at July 31, 2012 and December 31, 2011.
Depreciation and amortization for the seven months ended July 31, 2012 charged to cost of sales and
services amounted to P21,841,904 (July 31, 2011 - P18,878,954).
Subsequently, on August 28, 2012, the Companys Board of Directors resolved to sell, transfer and convey
to interested purchasers all its rights and interests to three parcels of land with an aggregate value of
P3,010,000.
Note 12 - Trade payable and other liabilities
Trade payable and other liabilities consist of:
Note
Trade payable
Due to regulatory agencies
Advances from customers
Accrued interest expense
Accrued utilities
Advances from officers and employees
Others

13

July 31, 2012

12,697,393
2,121,550
1,553,107
882,292
503,994
17,758,336

December 31, 2011

21,925,189
3,940,231
1,649,559
778,556
409,448
416,379
76,000
29,195,362

Note 13 - Borrowings
In 2012, the Company availed peso denominated short term borrowing from local banks amounting to
P550 million (2011 - P350 million). Short-term borrowings as at July 31, 2012 and December 31, 2011
consist of unsecured short-term loans from local banks with an average maturity of one to five months
from July 31, 2012 and December 31, 2011.
These borrowings bear average interest rates of 3.80% in 2012 and 4.62% in 2011, subject to monthly
repricing.
For the seven months ended July 31, 2012, P650 million (year ended December 31, 2011 - P340 million)
worth of borrowings has been settled by the Company.
As at July 31, 2012, outstanding borrowings amounted to P450 million (December 31, 2011 - P550
million).
Interest expense for the seven months ended July 31, 2012 amounted to P10,921,648
(July 31, 2011 P9,576,787). As at July 31, 2012, accrued interest amounted to P882,292
(December 31, 2011 - P778,556) (Note 12).
As at July 31, 2012 and December 31, 2011, there are no significant capitalized interest relating to qualifying
assets.

(36)

Note 14 - Equity
Share capital
Details of share capital are as follows:
July 31, 2012
Shares
Amount
Common shares at P1 par value
per share
Authorized
Issued and outstanding

1,000,000,000
1,000,000,000

1,000,000,000
1,000,000,000

December 31, 2011

Shares
Amount

1,000,000,000
321,000,000

1,000,000,000
321,000,000

At June 27, 2012, the Companys Board of Directors approved the declaration of stock dividend
amounting to Php678.8 million out of the unrestricted retained earnings as at December 31, 2011,
payable to all stockholders of record as of the said date. The stock dividends were issued on June 29,
2012.
On July 2, 2012, the Companys Board of Directors approved to increase its authorized capital stock
from P1 billion comprising of 1 billion common shares at P1 par value to P4 billion comprising of
4 billion shares at P1 par value. Consequently, the Board of Directors resolved to amend the articles of
incorporation to increase the authorized capital stock of the Company. On August 28, 2012, the SEC
approved the Companys application for increase in authorized capital stock.
Deposit for future stock subscription
On July 23, 2012, the shareholders have made a capital infusion amounting to P187.5 million which was
recorded as a deposit for future stock subscription. The deposit will be converted to the Companys
share capital upon approval by SEC of the Companys application for increase in authorized capital
stock.
Retained earnings
Appropriated retained earnings
In 2009, the Companys Board of Directors approved the appropriation of its retained earnings
amounting to P360 million for capital expansion program. In 2010, additional retained earnings
amounting to P150 million has been appropriated for loan payment due on February 22, 2011 and May
30, 2011, bringing the total appropriated retained earnings to P510 million as at December 31, 2010.
At June 27, 2012, the Companys Board of Directors approved the release of its appropriated retained
earning amounting to P510 million. Out of this amount, P150 million was used to pay off the outstanding
loan of the Company and the remaining P360 million will be declared as dividends to shareholders.
Excess retained earnings
At July 31, 2012, the Companys retained earnings exceeded its paid up capital by P94 million. As at
July 31, 2012, the Companys management is still in the process of finalizing its plans, including
conversion of its deposit for future stock subscription into share capital and further dividend
declaration to its shareholders, to address the excess of retained earnings of the Company.

(37)

On August 28, 2012, the Board of Directors approved the declaration of cash dividend amounting to
P863,434,640 (P8.63 per share) out of the unrestricted retained earnings of the Company as at June
30, 2012 to all stockholders of record as at September 3, 2012, payable on or before
December 31, 2012.
On the same date, the Board of Directors approved the declaration of stock dividend amounting to
P750,000,000 out of the unrestricted retained earnings of the Company as at June 30, 2012 to all
stockholders of record as at September 3, 2012. The stock dividends will be issued upon SECs approval
on the Companys application for increase in authorized capital stock.
On the same date, the Companys subsidiaries, API, OFI and FIC and DLPC declared cash dividends
amounting to P26,289,005, P244,986,534, P235,560,630 and P190,489,784, respectively, in favor of
their stockholders of record as at August 28, 2012.
Note 15 - Cost of sales and services
The components of cost of sales and services for the seven months ended July 31 consist of:

Inventories, beginning
Add: Purchases
Total goods available for sale
Less: Inventories, end
Cost of goods sold
Rental
Employee costs
Depreciation and amortization
Contracted service
Supplies
Fuels and oils
Repairs and maintenance
Delivery expenses
Communication and utilities
Insurance
Transportation and travel expense
Representation expense
Taxes and licenses
Others

(38)

Notes
7

7
19
20
11

2012
2,754,724
1,736,177
4,490,901
2,882,191
1,608,710
37,857,174
35,408,089
21,841,904
20,686,811
11,465,604
7,157,604
5,540,530
5,356,337
3,400,751
1,795,497
1,176,042
193,456
85,464
49,113
153,623,086

2011
2,013,704
3,088,699
5,102,403
3,183,556
1,918,847
36,262,934
31,708,234
23,774,809
12,801,382
11,953,432
8,608,339
5,733,607
4,929,726
4,011,667
1,894,436
1,017,033
249,565
86,738
298,636
145,249,385

Note 16 - Selling and marketing costs

The components of selling and marketing costs for the seven months ended July 31 consist of:

Employee costs
Contracted services
Transportation and travel
Loss on write off of assets
Others

Notes
20

2012
17,831,927
7,060,479
1,113,948
557,360
536,210
27,099,924

2011
17,480,007
6,168,954
1,046,134
306
7,419,285
32,114,686

Others pertain to representation expenses, delivery charges and other related expenses.
Note 17 - Administrative expenses
The components of administrative expenses for the seven months ended July 31 consist of:
2012
11,250,188
3,915,915
2,207,739
2,168,260
1,662,707
1,499,434
303,148
200,950
6,173
295,843
23,510,357

Taxes and licenses

Donations and contributions
Professional fees
Membership dues
Communications
Supplies
Utilities
Repairs and maintenance
Bank charges
Miscellaneous

2011
3,282,893
1,575,000
9,452,610
894,597
2,309,051
2,040,308
286,522
67,945
2,746,114
554,979
23,210,019

Note 18 - Other income (expenses), net

The components of other income (expenses), net for the seven months ended July 31 consist of:

Dividend income
Foreign exchange gain (loss), net
Interest income
Others

(39)

Notes
10,19
22

2012
618,485,956
1,350,148
304,521
6,348,377
626,489,002

2011
613,944
(8,996,527)
952,877
3,973,664
(3,456,042)

Note 19 - Related party transactions

The Company, in the ordinary course of business, has transactions with related parties. Significant
related party transactions include the following:
Management services
The Company has an existing management agreement with its related parties, whereby it provides the
following management services to related parties:
Technical support, which includes research and development, quality control and assurance, use of
trademarks, and IT related services;
Logistics support, which includes transport, fleet management, warehousing management, tank farm
management, port clearing and procurement;
Administrative support, which includes accounting and finance, human resources, information
technology, property management, legal services, and research and development; and
Executive management, which includes the services performed by the executives to manage the
business operations of the related parties.
The fee for technical and logistics support services ranges from 2% to 3% of net receipts from
operations, excluding intercompany sales, and those for administrative and executive management
support services ranges from 3.5% to 7% of gross income from operations.
The agreement remains in force, unless terminated by both parties.
Management service fees charged to statement of total comprehensive income for the seven months
ended July 31 are as follows:
2011

2012
Relationship
Oleo-fats, Incorporated

Amount

Relationship

Amount

Subsidiary

190,126,882

Associate

212,834,253

Associate
Entity under
common control

29,575,019

57,859,388

24,836,753

Associate
Entity under common
control

25,235,700

First in Colours, Incorporated

Subsidiary

16,121,200

Subsidiary

17,280,523

Aero-pack Industries, Inc.

Subsidiary

9,487,417

Subsidiary

8,454,362

Shareholder
Entity under
common control
Entity under
common control
Entity under
common control

5,050,604

Shareholder
Entity under common
control
Entity under common
control

4,712,684

Subsidiary

9,722,409

Chemrez Technologies, Inc.

Chemrez, Inc.

LBL Industries, Inc.

Consumer Care Products, Inc.
FIC Tankers, Inc.
FIC Marketing Co. Inc.

4,684,547
1,003,259
582,269
281,467,950

4,018,059
1,046,602

341,163,980

Lease agreements
The Company has existing cancellable operating lease agreement with LBL Industries, Inc. (LBL), an
entity under common control, whereby the Company leases from LBL its factory and warehouse spaces.

(40)

The lease is for a period of five years starting July 1, 2008 and renewable for another five years
thereafter, unless terminated by either party.
Rental expense for the seven months ended July 31, 2012 amounted to P37,857,174 (July 31, 2011 P32,331,053) (Note 15).
Dividend income
The Company earned dividend from its investments for the seven months ended July 31 as follows:

Oleo-Fats, Incorporated
First in Colours, Inc.
D&L Polymer & Colours, Inc.
Chemrez Technologies, Inc.
Aero-Pack Industries, Inc.

2012
Relationship
Amount
Subsidiary
192,939,964
Subsidiary
185,193,515
Associate
134,253,588
Associate
54,180,878
Subsidiary
51,918,011
618,485,956

2011
Relationship
Associate
Subsidiary
Associate
Associate
Subsidiary

Amount
-

As at July 31, 2012, dividend receivable from D&L Polymer & Colours, Inc., First in Colours,
Incorporated, Aero-Pack Industries, Inc., Oleo-Fats, Incorporated and Chemrez Technologies
amounted to P67,126,794, P92,596,757, P25,959,005, P96,469,982 and P57,294,669, respectively.
Sales of goods
The Company, in the normal course of business, has transactions relating to the sale of goods to related
parties for the seven months ended July 31 as follows:
2012

2011

Relationship

Amount

Relationship

Amount

Shareholder

129,581

Shareholder

31,004

Associate
Entity under
common control

95,876

15,693

94,029

Associate
Entity under
common control

First in Colours, Incorporated

Subsidiary

62,559

Subsidiary

Aero-Pack Industries, Inc.

Subsidiary

27,779

Subsidiary

38

Oleo-Fats, Incorporated

Subsidiary

Associate

92,504

Associate
Entity under
common control
Entity under
common control

Associate

23,080

Subsidiary
Entity under
common control

3,363

LBL Industries, Inc.

Chemrez Technologies, Inc.
Chemrez, Inc.

D&L Polymer & Colours, Inc.

FIC Marketing Co., Inc.
FIC Tankers, Inc.

409,824

Sales of goods are negotiated with related parties on a cost-plus basis.

(41)

741
-

2,753
169,176

Purchases of goods
The Company, in the normal course of business, has transactions relating to the purchases of
inventories from related parties for the seven months ended July 31 as follows:
2012

FIC Marketing Co., Inc.

Oleo-Fats, Incorporated
Chemrez, Inc
Chemrez Technologies, Inc.
Consumer Care Products, Inc.
Aero-Pack Industries, Inc.

2011

Relationship

Amount

Relationship

Amount

Subsidiary
Subsidiary

10,677

Subsidiary
Associate

155,486

Entity under
common control

2,455
-

Associate
Entity under
common control

Subsidiary

Entity under
common control

16,473
408,950
280,375

Associate
Entity under
common control

Subsidiary

18,234

13,132

93,725

973,243

Purchases of goods and services are negotiated with related parties on a cost-plus basis.
Surety agreement
On August 4, 2009, Oleo-fats, Incorporated was authorized by its Board of Directors to provide surety
for the obligations and indebtedness incurred or may be incurred by the Company, API, FIC, and FICM,
arising from short term credit accommodation extended by a local bank to such related parties. Bank
lines are in a corporate cross guarantee arrangement among the Company, API, FIC and FICM. As at
July 31, 2012 and December 31, 2011, the Company has not incurred obligation and indebtedness
related to this agreement. The Companys borrowings relates mainly to its unsecured, short term loans
from local banks amounting to P450 million and P550 million, respectively (Note 13).
Cash advances
The Company has obtained cash advances from JHI for working capital requirements, which are
unsecured, due and demandable on short notice.
The Company has also obtained advances from its shareholders for working capital requirements,
which are unsecured and due and demandable within a period of 12 months.
Corporate guarantee
On March 22, 2012, DLPCI was authorized by the Board of Directors to issue corporate guarantees in
favor of a local bank to unconditionally guarantee the obligations of the Company with the local bank.
As at July 31, 2012, the Company has no outstanding obligation with the bank to which DLPCI has
issued the corporate guarantee.

(42)

Net year-end balances arising from related party transactions

Due from and to related parties are settled on a net basis. These are unsecured non-interest bearing
and have no fixed repayment terms. Collection and settlement of outstanding receivable and payable,
respectively, are generally made upon demand and/or within a period of not more than 12 months.
There are no collaterals held or guarantees issued with respect to related party transactions and
balances.
Net amounts are as follows:
(a) Due from related parties
July 31, 2012

Consumer Care Products, Inc.

Oleo-fats, Incorporated
FIC Tankers Corporation
LBL Industries, Inc.
Chemrez Technologies, Inc.
First in Colours, Incorporated
Chemrez, Inc.
Aero-pack Industries, Inc.
FIC Marketing Co., Inc.
D&L Polymer and Colours, Inc.

Relationship
Entity under
common control
Subsidiary
Entity under
common control

December 31, 2011

Amount
93,221,334
48,058,195
22,381,772

Relationship
Entity under
common control
Associate
Entity under
common control

Shareholder

11,595,026

Shareholder

Associate

6,932,393

Associate

Subsidiary
Entity under
common control
Subsidiary
Entity under
common control
Associate

4,781,210
3,732,193

Subsidiary
Entity under
common control

3,290,380

Subsidiary

208,472
-

Amount
141,189,385
913,074
23,696,223
9,602
44,914,964
735,614
919,491
-

Subsidiary
Associate

194,200,975

49,943,708
262,322,061

(b) Dividend receivable

July 31, 2012
Relationship

December 31, 2011

Amount

Relationship

Amount

Oleo-fats, Incorporated

Subsidiary

96,469,982

Associate

First in Colours, Incorporated

Subsidiary

92,596,757

Subsidiary

D&L Polymer and Colours, Inc.

Associate

67,126,794

Associate

Chemrez Technologies, Inc.

Associate

54,180,878

Associate

Aero-pack Industries, Inc.

Subsidiary

25,959,005

Subsidiary

336,333,416

(43)

(c) Due to related parties

July 31, 2012
Relationship
Shareholders
Cahaya, Inc.

December 31, 2011

Amount

Shareholders
Entity under
common control

497,994,614

Shareholders
Entity under
common control

Parent

276,592,232

Parent

Jadel Holdings, Inc.

553,664,407

Relationship

1,328,251,253

Amount
517,503,554
517,503,554

Due to Jadel and Cahaya substantially represents amounts payable as a result of the Companys
acquisition of controlling interest in OFI.
Key management compensation
Key management compensation for the seven months ended July 31, consist of:

Salaries and wages

Retirement benefits
Other short term employee benefits

2012
22,903,856
1,502,608
1,908,654
26,315,118

2011
20,369,728
1,458,872
1,697,477
23,526,077

The Company has not provided share-based payments, termination benefits or other long term benefits,
other than the retirement benefits, to its key management employees for the seven months ended
July 31, 2012 and 2011.
There are no amounts due from or payable to key management personnel arising from the above
compensation arrangement at July 31, 2012 and December 31, 2011.
As at July 31, 2012, advances from officers amounted to nil (December 31, 2011 - P416,379).

(44)

Note 20 - Retirement benefit obligation

The Company maintains a non-contributory defined benefit retirement plan for the benefit of its regular
employees. The normal retirement age is 60. Normal retirement benefit is equal to one-half month
salary as of date of retirement multiplied by retirees years of service. Actuarial valuation is performed
by independent actuary on an annual basis.
The amounts recognized in the statement of financial position at reporting dates, which were recorded
as part of the non-current assets, are determined as follows:
December 31
July 31, 2012

2011

2010

2009

2008

Present value of funded

obligation

(52,201,660)

(56,228,748)

(46,440,416)

(56,505,378)

(86,986,370)

Fair value of plan asset

49,965,365

55,819,154

44,968,732

60,292,549

44,837,809

Unfunded
Unrecognized actuarial (gains)
losses
Retirement benefit (obligation)
asset

(2,236,295)

(409,594)

(1,471,684)

3,787,171

(42,148,561)

(22,058,563)

(24,713,357)

(29,511,952)

(34,770,807)

44,170,862

(24,294,858)

(25,122,951)

(30,983,636)

(30,983,636)

2,022,301

The movements in the defined benefit obligation are as follows:

Beginning of period
Current service cost
Interest cost
Benefits paid
Transfers
Actuarial losses
End of period

July 31, 2012

56,228,748
1,650,062
2,198,226
(10,823,881)
(110,500)
3,059,005
52,201,660

December 31, 2011

46,440,416
3,118,844
3,361,334
(216,495)
(3,784,302)
7,308,951
56,228,748

Transfers pertain to transfer of employees to related parties during the period.

The movements in the fair value of plan assets are as follows:

Beginning of the period

Expected return on plan asset
Contributions
Benefits paid
Actuarial gains
End of the period

(45)

July 31, 2012

55,819,154
1,395,479
2,668,428
(10,823,881)
906,185
49,965,365

December 31, 2011

44,968,732
2,698,124
4,520,465
(216,495)
3,848,328
55,819,154

The amounts recognized in the statement of total comprehensive income for the seven months ended
July 31 are as follows:

Interest cost
Current service cost
Expected return on plan asset
Transfers from subsidiaries
Net actuarial (gains) losses
Retirement benefit expense (credit)

2012
1,650,062
2,198,226
(1,395,479)
(110,500)
(501,974)
1,840,335

2011
(1,680,667)
(1,559,422)
1,964,478
(63,609)
669,110
(670,110)

Retirement benefit expense (credit) is included as part of employee costs under cost of sales and
services and selling and marketing costs (Notes 15 and 16).
For the seven months ended July 31, 2012, the actual return on plan asset amounted to P2,301,664
(July 31, 2011 - P1,484,062).
The movements in the liability recognized in the statement of financial position are as follows:

Beginning of period
Total retirement benefit expense (credit)
Contributions paid
End of period

July 31, 2012 December 31, 2011

25,122,951
30,983,636
1,840,335
(1,340,220)
(2,668,428)
(4,520,465)
24,294,858
25,122,951

The Company has plan asset under the D&L Group of Companies Employees Retirement Plan (the
Retirement Plan) that share risks between various entities under common control. As at July 31,
2012, the Company has an allocated fund of P49,965,365 (December 31, 2011 - P56,228,748) in the
Retirement Plan based on the fund balance report of the trustee (using the Companys percentage of
equity over the total plan assets under the Retirement Plan). The Retirement Plan has investments as at
reporting date consisting of the following:
July 31, 2012
Amount
%
Listed stocks
106,269,213
59%
Unit investment trust funds
24,707,361
14%
Mutual funds
24,543,135
14%
Treasury bonds and notes
23,274,456
13%
178,794,165
100%
The allocated share of the Company in the retirement plan asset is as follows:

Listed stocks
Unit investment trust funds
Mutual funds
Treasury bonds and notes

(46)

July 31, 2012

Amount
%
29,479,565
59%
6,904,657
14%
6,858,762
14%
6,722,381
13%
49,965,365
100%

December 31, 2011

Amount
%
49,670,433
30%
3,692,340
2%
880,512
1%
108,134,071
67%
162,377,356
100%

December 31,2011
Amount
%
37,398,833
67%
16,745,746
30%
1,116,383
2%
558,192
1%
55,819,154
100%

The principal annual actuarial assumptions used were as follows:

July 31, 2012
5.68%
5.00%
6.00%

Discount rate
Expected return on plan asset
Future salary increase

December 31, 2011

5.88%
5.00%
6.00%

The average life expectancy in years of experience of a pensioner retiring at age 60 at reporting date is
19 years for both male and female (2011 - 18 years).
Assumptions regarding future mortality experience are set based on advice from published statistics
and experience.
The expected contribution to retirement fund by December 31, 2012 is P2,668,428.
The expected return on plan assets was determined based on the average and expected rate of return of
the investments in the Retirement Plan.
The expected return on plan assets was determined by considering the expected returns available on the
assets underlying the current investment policy. Expected yields in fixed interest investments are based
on redemption yields at the reporting date.
History of actuarial loss on the present value of defined benefit obligation is as follows:
December 31
July 31, 2012

2011

2010

2009

2008

Effect of changes in actuarial

assumptions
Experience adjustments

1,180,472
1,878,533

(2,055,416)
9,364,367

2,541,887
3,954,545

1,339,117
(129,962)

2,061,577
(200,069)

Actuarial loss

3,059,005

7,308,951

6,496,432

1,209,155

1,861,508

5.47%

2.37%

(2.37%)

Effects of changes in
assumptions as a
percentage of the present
value of defined benefit
obligation
Experience adjustments as a
percentage of the present
value of defined benefit
obligation
Actuarial gain as a
percentage of the present
value of defined benefit
obligation

2.26%

(3.66%)

3.60%

16.65%

8.52%

(0.23%)

0.23%

5.86%

12.99%

13.99%

2.14%

(2.14%)

2009

2008

History of actuarial gain (loss) on plan asset are as follows:

December 31
Actuarial gain (loss) due to
experience adjustments
Percentage of plan assets

(47)

July 31, 2012

2011

2010

906,185
1.81%

3,848,328
6.89%

2,723,290
6.05%

(4,881,687)
(8.10%)

(3,630,368)
(8.10%)

Note 21 - Taxation
Deferred income tax (DIT)
DIT, net consist of:

To be recovered within 12 months

Unrealized foreign exchange loss
To be recovered after 12 months:
Retirement benefit obligation
Fair value adjustment of available-for-sale
financial assets
To be settled after 12 months
Fair value adjustment of available-for-sale
financial assets

July 31, 2012

December 31, 2011

491,215

818,690

4,522,131

7,536,886

5,013,346

2,210,125
10,565,701

(1,500,000)
3,513,346

10,565,701

The movements in the DIT assets are as follows:

Beginning of period
Charged to statement of total comprehensive
income
Charged to equity
End of period

July 31, 2012

10,565,701
(3,342,230)
(3,710,125)
3,513,346

December 31, 2011

12,078,919
(3,723,343)
2,210,125
10,565,701

On December 20, 2008, Revenue Regulations No. 16-2009 on the Optional Standard Deduction (OSD)
was published. The regulation prescribed the rules for the OSD application by corporations in the
computation of their final taxable income. For corporations, OSD shall be 40% based on gross income;
cost of goods sold and cost of services will be allowed to be deducted from gross sales.
On February 26, 2010, RR 2-2010 on the amendment of Section 6 and 7 of RR 16-2009 was published.
The regulation amended the other implications of the OSD particularly on the election to claim either the
OSD or the itemized deduction which must be signified on the first quarter and must be consistently
applied for all the succeeding quarterly returns and in the final income tax return for the taxable year.
The Company availed the OSD for purpose of income tax calculation in 2012.

(48)

A reconciliation of income computed at the statutory income tax rate to the income tax expense as
reflected in the statement of total comprehensive income for the seven months ended July 31 is as
follows:
Income tax at statutory income tax rate of 30%
Adjustments for:
Dividend income
Interest income subjected to final withholding tax
Availment of OSD
Non-deductible write off of assets
Change in tax rate
Income tax expense

2012
209,585,711

2011
39,264,605

(186,479,924)
(91,356)
1,662,953
3,342,230
28,019,614

(184,183)
(157,359)
92
38,923,155

Change in tax rate relates to the change in effective rate as a result of the Companys availment of OSD.
Note 22 - Foreign currency denominated financial assets and liabilities
The Companys foreign currency denominated financial assets and liabilities consist of:

Cash
Receivables
Due from related parties
Trade payable and other liabilities
Net assets
Closing exchange rate
Philippine Peso equivalent

July 31, 2012

AUD
USD
494
60,642
80,000
80,494
80,494
43.99
3,540,931

December 31, 2011

AUD
USD
63,293

666,408
727,050
100,908
626,142
41.93
26,254,134

1,257,939
1,321,232
1,321,232
43.84
57,922,811

Foreign exchange gain (loss), net presented under other income (Note 18) in the statement of total
comprehensive income for the seven months ended July 31 consists of:

Realized foreign exchange gain

Unrealized foreign exchange gain (loss)

(49)

2012
200,029
1,150,119
1,350,148

2011
31,242
(9,027,769)
(8,996,527)

Oleo-Fats, Incorporated
Statements of Financial Position
June 30, 2012 and December 31, 2011
(All Amounts in Philippine Peso)

Notes

June 30, 2012

December 31, 2011

ASSETS
Current assets
Cash
Trade and other receivables, net
Inventories, net
Other current assets
Total current assets
Non-current assets
Property, plant and equipment, net
Deferred income tax, net
Retirement benefit
Refundable deposits
Total non-current assets
Total assets

261,720,886
1,292,161,257
1,201,593,481
176,785,691
2,932,261,315

418,310,459
1,604,618,431
1,388,009,498
262,045,000
3,672,983,388

1,330,572,696
2,455,209
11,731,085
1,344,758,990
4,277,020,305

1,227,516,448
3,049,932
2,727,384
10,170,040
1,243,463,804
4,916,447,192

9
10
10
11

345,138,191
2,414,111
2,197,250,378
480,420,521
3,025,223,201

684,870,922
1,586,103
2,747,640,246
3,434,097,271

18

6,810,570
3,032,033,771

3,434,097,271

11

1,000,000,000
244,986,534
1,244,986,534
4,277,020,305

1,000,000,000
482,349,921
1,482,349,921
4,916,447,192

5
6
7

8
18
17
16

LIABILITIES AND EQUITY

Current liabilities
Trade and other payables
Accrued interest
Borrowings
Dividends payable
Total current liabilities
Non-current liability
Deferred income tax, net
Total liabilities
Equity
Share capital
Retained earnings
Total equity
Total liabilities and equity

(The notes on pages 1 to 37 are integral part of these financial statements)

Oleo-Fats, Incorporated
Statements of Total Comprehensive Income
For the six months ended June 30, 2012 and 2011
(All amounts in Philippine Peso)

Notes

June 30, 2012

June 30, 2011

Net sales
Cost of goods sold
Gross profit

16
12

4,447,986,580
(3,946,890,929)
501,095,651

5,215,678,025
(4,589,700,839)
625,977,186

Selling and marketing costs

13

(98,134,243)

(86,508,232)

Administrative expenses

14

(70,776,593)

(71,321,565)

Other income, net

Operating profit

15

37,480,479
369,665,294

4,498,842
472,646,231

10
10

(46,162,256)
25,640,508
(20,521,748)
349,143,546

(31,466,639)
(7,456,633)
(38,923,272)
433,722,959

18
18

Profit for the period

94,296,510
9,860,502
104,157,012
244,986,534

113,257,808
113,257,808
320,465,151

Other comprehensive income

Total comprehensive income for the period

244,986,534

320,465,151

Finance cost
Interest expense
Foreign exchange gain (loss)
Profit before income tax
Income tax expense (benefit), net
Current
Deferred

(The notes on pages 1 to 37 are integral part of these financial statements)

Oleo-Fats, Incorporated
Statements of Cash Flows
For the six months ended June 30, 2012 and 2011
(All amounts in Philippine Peso)

Notes
Cash flows from operating activities
Profit before income tax
Adjustments for:
Receivables directly written-off
Provision for impairment of receivables
Creditable withholding tax written off
Depreciation and amortization
Retirement benefit expense
Unrealized foreign exchange (gain) loss
Interest income
Interest expense
Operating income before working capital changes
(Increase) decrease in:
Trade and other receivables
Inventories
Other current assets
Decrease in trade and other payables
Cash from (used in) operations
Retirement contributions
Interest received
Net cash from (used in) operating activities
Cash flows from investing activity
Acquisitions of property, plant and equipment
Net cash used in investing activities
Cash flows from financing activities
Proceeds from borrowings
Payment of borrowings
Interest paid
Net cash (used in) from financing activities
Effect of foreign exchange rate changes on cash
Net decrease in cash
Cash balance
Beginning of period
End of period

June 30, 2012

June 30, 2011

349,143,546

433,722,959

3,716,583
1,415,619
36,640,309
1,576,419
(39,994,827)
(565,693)
46,162,256
398,094,212

6,393,255
130,928
30,306,852
1,300,327
6,968,608
(866,169)
31,466,639
509,423,399

311,370,619
186,416,017
(10,598,247)
(330,309,279)
554,973,322
(1,304,244)
565,693
554,234,771

(634,594,660)
(145,363,020)
(149,045,706)
(2,048,677)
(421,628,664)
(1,300,327)
866,169
(422,062,822)

(139,696,557)
(139,696,557)

(216,850,075)
(216,850,075)

10
10
10

1,820,704,951
(2,345,454,311)
(45,334,248)
(570,083,608)
(1,044,179)
(156,589,573)

1,171,425,975
(659,441,981)
(33,718,323)
478,265,671
488,025
(160,159,201)

13
13
13
12, 14
17
19
15
10

17

418,310,459
261,720,886

(The notes on pages 1 to 37 are integral part of these financial statements)

362,420,751
202,261,550

Oleo-Fats, Incorporated
Statements of Changes In Equity
For the six months ended June 30, 2012 and 2011
(All amounts in Philippine Peso)

Note
Balances at January 1, 2011
Comprehensive income
Profit for the period
Other comprehensive income for the period
Total comprehensive income for the period
Balances at June 30, 2011
Balances at January 1, 2012
Comprehensive income
Profit for the period
Other comprehensive income for the period
Total comprehensive income for the period
Transaction with owner
Dividends declared during the period
Balances at June 30, 2012

11

Share capital
(Note 11)
1,000,000,000

Retained
earnings
55,075,458

Total equity
1,055,075,458

1,000,000,000

320,465,151
320,465,151
375,540,609

320,465,151
320,465,151
1, 375,540,609

1,000,000,000

482,349,921

1,482,349,921

244,986,534

1,000,000,000

244,986,534
-

244,986,534

244,986,534

(482,349,921)
244,986,534

(482,349,921)
1,244,986,534

(The notes on pages 1 to 37 are integral part of these financial statements)

Oleo-Fats, Incorporated
Notes to Financial Statements
As at June 30, 2012 and December 31, 2011 and
for the six months ended June 30, 2012 and 2011
(All amounts are shown in Philippine Peso, unless otherwise stated)
Note 1 - Business information
1.1

General information

Oleo-Fats, Incorporated (the Company) was registered with the Securities and Exchange
Commission (SEC) on May 4, 1987 to carry on the business of manufacturing, processing, sourcing,
marketing, selling, utilizing fats and oils, oleo chemicals and derivatives, distributing locally and
abroad.
The Companys equity is 40% held by D&L Industries, Inc. (D&L), 40% held by Cahaya, Inc. and 16%
held by Jadel Holdings, Inc. (JHI). These companies are incorporated in the Philippines.
The Companys ultimate parent company is Equitable PCI Bank Jadel Holdings, Inc. Trust Account.
On July 16, 2012, the Board of Directors of D&L resolved to purchase the shares of other shareholders
to obtain 100% ownership in the Company. As a result, the Company became 100% owned by D&L as
at the said date.
The Company has its registered address, which is also its principal place of business, at 65 Industria
St., Bagumbayan, Quezon City. It has 112 and 115 employees as at June 30, 2012 and December 31,
2011, respectively.
1.2

Approval of the financial statements

These financial statements have been approved and authorized for issuance by the Companys Board
of Directors on July 31, 2012.
Note 2 - Summary of significant accounting policies
The principal accounting policies adopted in the preparation of these financial statements are set out
below. The accounting policies and methods of computation utilized in the most recent annual financial
statements as at and for the year ended December 31, 2011 have been consistently applied in these
interim financial statements.
2.1

Basis of preparation

The interim financial statements of the Company have been prepared in accordance with Philippine
Accounting Standards (PAS) 34, Interim Financial Reporting. These interim financial statements should
be read in conjunction with the annual financial statements for the year ended December 31, 2011,
which have been prepared in accordance with Philippine Financial Reporting Standards (PFRS).
The financial statements have been prepared under the historical cost convention.

The preparation of financial statements in conformity with PAS 34 requires the use of certain critical
accounting estimates. It also requires management to exercise judgment in the process of applying the
Companys accounting policies. The areas involving higher degree of judgment or complexity, or areas
where assumptions and estimates are significant to the financial statements are disclosed in Note 4.
Changes in accounting policy and disclosures
(a) Amendments to existing standards adopted by the Company effective January 1, 2012
The following amendments to existing standards, as approved by the Financial Reporting Standards
Council (FRSC), are mandatory for annual periods beginning January 1, 2012:

PFRS 7 (Amendment), Financial Instruments: Disclosures - Derecognition (effective July 1,

2011). This amendment will promote transparency in the reporting of transfer transactions and
improve users understanding of the risk exposures relating to transfers of financial assets and the
effect of those risks on an entitys financial position, particularly those involving securitization of
financial assets. The Company adopted the amendment beginning January 1, 2012 but did not
have a significant impact on the Companys financial statements as the Company did not transfer
or securitize significant financial assets covered by the standard.

Philippine Accounting Standards (PAS) 12 (Amendment), Income Taxes - Deferred Tax (effective
January 1, 2012). PAS 12 currently requires an entity to measure the deferred tax relating to an
asset depending on whether the entity expects to recover the carrying amount of the asset
through use or sale. It can be difficult and subjective to assess whether recovery will be through
use or through sale when the asset is measured using the fair value model in PAS 40, Investment
Property. This amendment therefore introduces an exception to the existing principle for the
measurement of deferred tax assets or liabilities arising on investment property measured at fair
value. As a result of the amendments, SIC 21, Income Taxes - Recovery of Revalued NonDepreciable Assets will no longer apply to investment properties carried at fair value. The
amendments also incorporate into PAS 12 the remaining guidance previously contained in SIC 21,
which is withdrawn. The Company adopted the amendments beginning January 1, 2012 but did
not have a significant impact on the Companys financial statements as the Company did not have
investment property measured at fair value nor did it recognize deferred income tax arising from
fair value measurement.

(b) New standards and amendments to existing standards that are not yet effective and not early
adopted by the Company
The following revised standards and amendments to existing standards approved by the FRSC which
are mandatory for annual periods beginning January 1, 2012 and onwards are not early adopted by
the Company:

(2)

PAS 1 (Amendment), Financial Statement Presentation - Other Comprehensive Income (effective

July 1, 2012). The main change resulting from these amendments is a requirement for entities to
group items presented in other comprehensive income on the basis of whether they are
potentially reclassifiable to profit or loss subsequently (reclassification adjustments). The
amendments do not address which items are presented in other comprehensive income. The
Company will apply the amendment beginning January 1, 2013 but it is not expected to have a
significant impact on the Companys financial statements other than the classification of other

comprehensive income on the basis of whether these are potentially and subsequently
reclassifiable to profit or loss.

PAS 19 (Amendment), Employee Benefits (effective January 1, 2013). These amendments

eliminate the corridor approach and calculate finance costs on a net funding basis. They would
also require recognition of all actuarial gains and losses in other comprehensive income as they
occur and of all past service costs in profit or loss. The amendments replace interest cost and
expected return on plan assets with a net interest amount that is calculated by applying the
discount rate to the net defined benefit liability (asset). The Company will adopt the amendment
beginning January 1, 2013. It is not expected to have a significant impact on the Companys
financial statements other than the full recognition of unrecognized actuarial losses (Note 17) to
other comprehensive income and the effect of the net interest amount based on new calculation
criteria.

PAS 27 (Revised), Separate Financial Statements (effective January 1, 2013). The revised
standard includes the provisions on separate financial statements that are left after the control
provisions of PAS 27 have been included in the new PFRS 10. The Company will apply the revised
standard beginning January 1, 2013 but the adoption is not expected to have a significant impact
on the Companys financial statements as the Company, subsequently became a controlled
subsidiary which will be consolidated in the parent companys financial statements.

PFRS 7 (Amendment), Financial Instruments: Disclosures - Transfers of Financial Assets

(effective July 1, 2012). The amendment requires the disclosure of information that enables the
users of financial statements to understand the relationship between transferred financial assets
that are derecognized in their entirety and the associated liabilities; and to evaluate the nature of,
and risks associated with, the entities continuing involvement in derecognized financial assets.
The Company will apply this amendment commencing January 1, 2013. It is not expected to have
a significant impact on the Companys financial statements as the Company, currently, has not
made any plans to transfer significant financial assets covered by the amendment.

PFRS 9, Financial Instruments (effective January 1, 2013). This standard is the first step in the
process to replace PAS 39, Financial Instruments: Recognition and Measurement. PFRS 9
introduces new requirements for classifying and measuring financial assets and liabilities. The
Company is yet to assess PFRS 9s full impact on the financial statements and intends to adopt
the standard from January 1, 2013.

PFRS 13, Fair Value Measurement (effective January 1, 2013). This new standard aims to
improve consistency and reduce complexity by providing a precise definition of fair value and a
single source of fair value measurement and disclosure requirements for use across PFRS. The
requirements, which are largely aligned between IFRS and US GAAP, do not extend the use of fair
value accounting but provide guidance on how it should be applied where its use is already
required or permitted by other standards within IFRS or US GAAP. The Company is yet to assess
PFRS 13s full impact on the financial statements and intends to adopt the standard beginning 1,
2013.

(3)

(c) New standards, amendments and interpretations to existing standards that are not applicable
and/or relevant to the Company
The standards, amendments and interpretations to existing standards approved by FRSC effective for
annual periods beginning January 1, 2012 and onwards as disclosed below are considered not
applicable and/or relevant to the Companys financial statements during and at the end of each
reporting period.

2.2

PAS 28 (Revised), Investments in Associates and Joint Ventures (effective January 1, 2013);
PFRS 1 (Revised), First-time Adoption of Philippine Financial Reporting Standards (effective
January 1, 2011);
PFRS 11, Joint Arrangements (effective January 1, 2013);
PFRS 12, Disclosures of Interests in Other Entities (effective January 1, 2013);
Philippine Interpretation IFRIC 15, Agreement for Construction of Real Estate; and
Philippine Interpretation IFRIC 20, Stripping Costs in the Production Phase of a Surface
Mine (effective January 1, 2013).
Financial assets

The Company classifies its financial assets in the following categories: (a) loans and receivables,
(b) held-to-maturity, (c) at fair value through profit or loss, and (d) available-for-sale. The
classification depends on the purpose for which the financial assets were acquired. Management
determines the classification of its financial assets at initial recognition.
The Company did not hold financial assets under categories (b), (c) and (d) during and at the end of
each reporting period.
Classification
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that
are not quoted in an active market. They are included in current assets, except for those with
maturities greater than 12 months after the reporting date. These are classified as non-current assets.
The Companys loans and receivables consist of cash, and trade and other receivables excluding advances
to suppliers and refundable deposits.
Initial recognition and measurement
The Company recognizes a financial asset in the statement of financial position when, and only when,
the Company becomes a party to the contractual provisions of the instrument.
Loans and receivables are initially recognized at fair value plus transaction costs.
Subsequent measurement
Loans and receivables are carried at amortized cost using the effective interest method.

(4)

Derecognition
Loans and receivables are derecognized when the rights to receive cash flows from the financial assets
have expired or have been transferred and the Company has transferred substantially all risks and
rewards of ownership.
Impairment of loans and receivable
The Company assesses at end of each reporting period whether there is objective evidence that a
financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is
impaired and impairment losses are incurred only if there is objective evidence of impairment as a
result of one or more events that occurred after the initial recognition of the asset (a loss event) and
that loss event (or events) has an impact on the estimated future cash flows of the financial asset or
group of financial assets that can be reliably estimated.
The Company first assesses whether objective evidence of impairment exists.
The amount of the loss is measured as the difference between the assets carrying amount and the
present value of estimated future cash flows (excluding future credit losses that have not been
incurred) discounted at the financial assets original effective interest rate. The carrying amount of the
asset is reduced and the amount of the loss is recognized in the provision for impairment of
receivables account in the statement of total comprehensive income.
2.3

Financial liabilities

Classification
The Companys financial liabilities are classified at (a) amortized cost, and (b) fair value through profit or
loss (including those that are designated at fair value).
The Company did not hold any financial liabilities at fair value through profit and loss during and at the
end of each reporting period.
Financial liabilities at amortized cost are included in current liabilities, except for maturities greater
than 12 months after the reporting date when the Company has an unconditional right to defer
settlement for at least 12 months after the reporting date which are classified as non-current
liabilities.
The Companys financial liabilities at amortized cost consist of trade and other payables (excluding
amounts due to government agencies and advances to customers), accrued interest, borrowings and
dividends payable.
Initial recognition and measurement
The Company recognizes a financial liability in the statement of financial position when, and only
when, the Company becomes a party to the contractual provision of the instrument.
Financial liabilities are initially measured at fair value plus transaction costs.

(5)

Subsequent measurement
Financial liabilities are subsequently measured at amortized cost using the effective interest method.
Interest expense on financial liabilities is recognized within finance cost, at gross amount, in the total
statement of total comprehensive income.
Derecognition
Financial liabilities are derecognized when it is extinguished, that is, when the obligation specified in
a contract is discharged or cancelled, or when the obligation expires.
2.4

Determination of fair value

The Company classifies its fair value measurements using a fair value hierarchy that reflects the
significance of the inputs used in making the measurements. The fair value hierarchy has the following
levels:

quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);
inputs other than quoted prices included within Level 1 that are observable for the asset or liability,
either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2); and
inputs for the asset or liability that are not based on observable market data (that is, unobservable
inputs) (Level 3).

The fair value of financial instruments traded in active markets is based on quoted market prices at the
reporting date. A market is regarded as active if quoted prices are readily and regularly available from an
exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent
actual and regularly occurring market transactions on an arms length basis.
The quoted market price used for financial assets held by the Company is the current bid price. These
instruments are included in level 1. Instruments included in level 1 comprise primarily of FTSE 100
equity investments classified as trading securities or available-for-sale.
The fair value of financial instruments that are not traded in an active market (for example, over-thecounter derivatives) is determined by using valuation techniques. These valuation techniques maximize
the use of observable market data where it is available and rely as little as possible on entity specific
estimates. If all significant inputs required to fair value an instrument are observable, the instrument is
included in level 2.
If one or more of the significant inputs is not based on observable market data, the instrument is
included in level 3. Specific valuation techniques used to value financial instruments include:

Quoted market prices or dealer quotes for similar instruments;

The fair value of interest rate swaps is calculated as the present value of the estimated future cash
flows based on observable yield curves;
The fair value of forward foreign exchange contracts is determined using forward exchange rates at
the reporting date, with the resulting value discounted back to present value; and
Other techniques, such as discounted cash flow analysis, are used to determine fair value for the
remaining financial instruments.

The Company has no significant financial assets and liabilities carried at fair value at reporting date.

(6)

The carrying amount of significant financial assets and liabilities (Note 3.2) approximate their fair value
at reporting date, as the impact of fair value calculation is not significant considering that these financial
assets and liabilities are measured at fair value plus transaction costs and subsequently measured at
amortized cost and generally have short-term maturities.
2.5

Offsetting of financial instruments

Financial assets and liabilities are offset and the net amount reported in the statement of financial
position when there is a legally enforceable right to offset the recognized amounts and there is an
intention to settle on a net basis, or realize the asset and settle the liability simultaneously.
2.6

Cash

Cash consists of cash on hand and deposits held at call with banks. Cash in bank earns interest at the
prevailing bank deposit rate.
2.7

Trade and other receivables

Trade receivables arising from regular sales with credit term of 30 to 90 days are recorded at fair
value plus transaction cost and subsequently measured at amortized cost less any provision for
impairment.
Other receivables are recognized initially at fair value and subsequently measured at amortized cost
using effective interest method, less any provision for impairment.
An individual and collective provision for impairment of trade receivables is established when there is
objective evidence that the Company will not be able to collect all amounts due according to the
original terms of receivables. Significant financial difficulties of the debtor, probability that the debtor
will enter bankruptcy or financial reorganization, and default or delinquency in payments are
considered as indicators that the trade receivable is impaired. The amount of the provision is the
difference between the assets carrying amount and the present value of estimated future cash flows,
discounted at the effective interest rate. The carrying amount of the asset is reduced through the use
of an allowance account and the amount of the loss is recognized in the statement of total
comprehensive income within selling and marketing costs.
The Company first assesses whether objective evidence of impairment exists individually for
receivables that are individually significant, and collectively for receivables that are not individually
significant. If the Company determines that no objective evidence of impairment exists for an
individually assessed receivable, whether significant or not, it includes the asset in a group of
financial assets with similar credit risk characteristics and collectively assesses them for impairment.
Receivables that are individually assessed for impairment and for which an impairment loss is or
continues to be recognized are not included in a collective assessment of impairment.

(7)

When a trade receivable is uncollectible, it is written off against the provision account for trade
receivables. Trade receivables and its related provision for impairment are written off when the
Company has determined that the receivable is uncollectible as they have already exerted all collection
efforts, including filing a legal case. Bad debts written off are specifically identified by the Companys
marketing department after exhausting all collection efforts (i.e. sending demand letters and legal
notice of default to customers), and is approved by the respective product manager and subsequently
by the Board of Directors. Write offs represent the release of previously recorded provision from the
allowance account and credited to the related receivable account following the Companys assessment
that the related receivable will no longer be collected after all collection efforts have been exhausted.
Subsequent recoveries of amounts previously written-off are credited against the provision account
within selling and marketing expenses in the statement of total comprehensive income. Reversals of
previously recorded impairment provision are credited against the provision account in the statement
of total comprehensive income based on the result of managements update assessments, considering
available facts and changes in circumstances, including but not limited to results of recent discussions
and arrangements entered into with customers as to the recoverability of receivable at reporting date.
2.8

Inventories

Inventories are stated at the lower of cost and net realizable value (NRV). The cost of finished goods
inventories is determined on the basis of standard costs which are adjusted at periodic intervals and
which approximates actual manufacturing cost. The cost of raw materials is determined using the
weighted average method. Inventories in transit are valued at invoice cost including related
importation costs. NRV is the estimated selling price in the ordinary course of business, less applicable
variable selling and distribution expenses. An allowance for inventory losses and obsolescence is
provided, when necessary, based on managements review of inventory turnover and projected future
production demands.
Provision for inventory losses is established for slow moving, obsolete, defective and damaged
inventories based on physical inspection and management evaluation. Inventories and its related
provision for impairment are written off when the Company has determined that the related inventory
is already obsolete and damaged. Write offs represent the release of previously recorded provision
from the allowance account and credited to the related inventory account following the disposal of the
inventories. Destruction of the obsolete and damaged inventories is made in the presence of regulatory
agencies.
Reversals of previously recorded impairment provisions are credited against the provision account in
the statement of total comprehensive income based on the result of managements update assessment,
considering available facts and circumstances, including but not limited to net realizable value at the
time of disposal.
Inventories are derecognized when sold, written-off or otherwise disposed of.
2.9

Claim for input value added tax (VAT) and prepaid taxes

Claim for input VAT and prepaid taxes is stated at face value less provision for impairment, if any.
Provision for unrecoverable input VAT and prepaid taxes, if any, is maintained by the Company at a
level considered adequate to provide for potential uncollectible portion of the claim. The Company, on a
continuing basis, reviews the status of the claim designed to identify those that may require provision
for impairment losses.

(8)

A provision for impairment of unrecoverable input VAT and prepaid taxes is established when there is
objective evidence that the Company will not be able to recover the claims. The carrying amount of the
asset is reduced through the use of an allowance account and the amount of the loss is recognized in the
statement of total comprehensive income within cost of goods sold.
Prepayments in the form of unused tax credits are derecognized when there is a legally enforceable
right to offset the recognized amounts against income tax due and there is an intention to settle on a
net basis, or realize the asset and settle the liability simultaneously.
Prepayments are included in current assets, except when the related goods or services are expected to
be received and rendered more than twelve months after the end of the reporting period, in which
case, these are classified as non-current assets.
2.10

Property, plant and equipment

Property, plant and equipment are stated at historical cost less related accumulated depreciation and
amortization, and any impairment. Historical cost includes expenditure that is directly attributable
to the acquisition of the items.
Subsequent costs are included in the assets carrying amount or recognized as a separate asset, as
appropriate, only when it is probable that future economic benefits associated with the item will flow to
the Company and the cost of the item can be measured reliably. All other repairs and maintenance are
charged to the statement of total comprehensive income during the financial period in which they are
incurred.
Construction in progress, which represents properties under construction, is stated at cost and
depreciated only when the relevant assets are completed and put into operational use. Upon
completion, these properties are reclassified to their relevant property, plant and equipment account.
Leasehold improvements are amortized over the estimated useful life of the improvements, which is
shorter than the lease term, considering the renewal option.
Depreciation on assets is computed on the straight-line method to allocate the cost of each asset less
its residual value over its estimated useful life, determined based on the Companys historical
information and experience on the use of such assets, as follows:

Machinery and equipment

Transportation and equipment
Office equipment
Leasehold improvements

In years
10
5
5
5

Major renovations are depreciated over the remaining useful life of the related asset, whichever is
sooner. The assets residual values and useful lives are reviewed, and adjusted as appropriate, at each
reporting date.
An assets carrying amount is written down immediately to its recoverable amount if the assets
carrying amount is greater than its estimated recoverable amount.

(9)

An item of property and equipment is derecognized upon disposal or when no future economic
benefits are expected from its use or disposal at which time the cost and their accumulated
depreciation are removed from the accounts.
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount of
the assets and are included in the statement of total comprehensive income.
2.11

Impairment of non-financial assets

Assets that have definite useful life, such as property, plant and equipment, are subject to depreciation
or amortization and reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by
which the assets carrying amount exceeds its recoverable amount. The recoverable amount is the
higher of an assets fair value less cost to sell and value in use. For the purposes of assessing
impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows
(cash-generating units). Value in use requires entities to make estimates of future cash flows to be
derived from the particular asset, and discount them using a pre-tax market rate that reflects current
assessments of the time value of money and the risks specific to the asset. Non-financial assets that
suffered impairment are reviewed for possible reversal of the impairment at each reporting date.
Reversals of previously recorded impairment provisions are credited against the provision account
within cost of sale in the statement of total comprehensive income.
2.12

Trade and other payables

Trade and other payables are obligations to pay for related money received, goods or services that
have been acquired in the ordinary course of business from suppliers.
Trade and other payables are recognized in the period in which the related money, goods or services
are received or when a legally enforceable claim against the Company is established or when the
corresponding assets or expenses are recognized. These are classified as current liabilities if payment
is due within one year or less (or in the normal operating cycle of the business if longer). If not, they
are presented as non-current liabilities.
Trade and other payables are recognized initially at fair value and subsequently measured at
amortized cost using effective interest method.
Trade and other payables are derecognized when extinguished, that is, when the obligation specified in a
contract is discharged or cancelled or when the obligation expires.
2.13

Borrowings and borrowing costs

Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are
subsequently stated at amortized cost; the difference between the proceeds and the redemption value
is recognized in the statement of total comprehensive income over the period of the borrowings using
the effective interest rate method. Borrowings are classified as current liabilities unless the Company
has an unconditional right to defer settlement of the liability for at least 12 months after the reporting
date.

(10)

Borrowing costs which are directly attributable to the acquisition, construction or production of a
qualifying asset (one that takes a substantial period of time to get ready for use or sale) are capitalized
as part of the cost of that asset. Borrowing costs, not directly attributed to a qualifying asset, are
recognized and charged to operations in the year in which they are incurred.
2.14

Provisions

Provision are recognized when the Company has a present legal or constructive obligation as a result
of past events, it is probable that an outflow of resources will be required to settle the obligation, and
a reliable estimate of the amount can be made. Provisions are not recognized for future operating
losses.
Provisions are measured at the present value of the expenditures expected to be required to settle the
obligation using a pre-tax rate that reflects current market assessments of the time value of money
and the risks specific to the obligation. The increase in the provision due to passage of time is
recognized as interest expense.
Provisions are reviewed at reporting date and adjusted to reflect the current best estimate.
2.15

Related party relationships and transactions

Related party relationships exist when one party has the ability to control, directly, or indirectly
through one or more intermediaries, the other party or exercises significant influence over the other
party in making financial and operating decisions. Such relationships also exist between and/or
among entities, which are under common control with the reporting enterprise, or between and/or
among the reporting enterprises and their key management personnel, directors, or their
shareholders. In considering each possible related party relationship, attention is directed to the
substance of the relationship, and not merely the legal form.
2.16

Equity

Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new
shares are shown in equity as a deduction from the proceeds.
Retained earnings
Retained earnings pertain to the unrestricted portion of the accumulated profit from operations
which are available for dividend declaration.
2.17

Dividend distribution

Dividend distribution to the Companys shareholders is recognized as a liability in the Companys

financial statements in the period in which the dividends are approved by the Companys Board of
Directors.

(11)

2.18

Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for the sale of goods and
services in the ordinary course of the Companys activities. Revenue is shown net of value-added tax,
returns, rebates and discounts.
For the six months ended June 30, revenue is shown net of the following:

Returns
Discounts

2012
27,267,667
26,210,693
53,478,360

2011
11,417,577
15,821,397
27,238,974

The Company recognizes revenue when the amount of revenue can be reliably measured, it is
probable that future economic benefits will flow into the entity and specific criteria have been met for
each of the Companys activities as described below. The amount of revenue is not considered to be
reliably measured until all contingencies relating to the sale have been resolved.
Revenue is recognized as follows:
Sale of goods
Revenue from sale of goods is recognized: when the Company has delivered the products to the
customer and there is no unfulfilled obligation that could affect the acceptance of the products.
Delivery does not occur until the products have been shipped to the specific location, the risk of
obsolescence and loss have been transferred to the customer, and either the customer has accepted
the products in accordance with the sales contract, the acceptance provisions have lapsed, or the
Company has objective evidence that all criteria for acceptance have been satisfied; and the
collectability of the related receivables is reasonably assured.
Interest income
Interest income from cash in bank, which is presented net of final taxes paid or withheld, is
recognized on a time-proportion basis using the effective interest method.
Other income
All other income items are recognized when earned.
2.19

Costs and expenses

Costs and expenses are charged to operations when incurred.

(12)

2.20

Employee benefits

Pension obligations
The Company has a defined benefit pension plan in accordance with the local conditions and
practices in the Philippines. The plan is generally funded through payments to trustee-administered
funds as determined by periodic actuarial calculations. Defined benefit plans define an amount of
pension benefit that an employee will receive on retirement, usually dependent on one or more
factors such as age, years of service and compensation.
The asset recognized in the statement of financial position is the fair value of the plan assets less the
present value of the defined benefit obligation at reporting date less the fair value of plan assets,
together with adjustments for unrecognized past service costs. In cases when the amount determined
results in an asset, the Company measures the resulting asset at the lower of such amount determined
and the total of any cumulative unrecognized net actuarial losses and past service cost and the present
value of any economic benefits available to the Company in the form of refunds or reductions in future
contributions to the plan. The defined benefit obligation is calculated annually by independent
actuaries using the projected unit credit method. The present value of the defined benefit obligation is
determined by discounting the estimated future cash outflows using interest rates of government bonds
that are denominated in the currency in which the benefits will be paid, and that have terms to maturity
which approximate the terms of the related pension liability.
Cumulative actuarial gains and losses arising from experience adjustments and changes in actuarial
assumptions in excess of the greater of 10% of the value of plan assets or 10% of the defined benefit
obligation are spread to income over the employees expected average remaining working lives.
Past service costs are recognized immediately in the statement of total comprehensive income, unless
the changes to the pension plan are conditional on the employees remaining in service for a specified
period of time (the vesting period). In this case, the past service costs are amortized on a straight-line
basis over the vesting period.
Termination benefits
Termination benefits are payable when employment is terminated before the normal retirement date,
or when an employee accepts voluntary redundancy in exchange for these benefits. The Company
recognizes termination benefits when it is demonstrably committed to either: terminating the
employment of current employees according to a detailed formal plan without possibility of
withdrawal; or providing termination benefits as a result of an offer made to encourage voluntary
redundancy. Benefits falling due more than 12 months after reporting date are discounted to present
value.
2.21

Leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor
are classified as operating leases. Payments made under operating leases are charged to the
statement of total comprehensive income on a straight-line basis over the period of the lease
(Note 16).

(13)

Leases where the Company has substantially all the risks and rewards of ownership are classified as
finance leases. Finance leases are capitalized at the leases commencement at the lower of the fair
value of the leased property and the present value of the minimum lease payments. The Company has
no lease agreement that qualifies as finance lease at reporting date.
When the Company enters into an arrangement, comprising a transaction or a series of related
transactions, that does not take the legal form of a lease but conveys a right to use an asset or is
dependent on the use of a specific asset or assets, the Company assesses whether the arrangement is,
or contains, a lease. The Company does not have such arrangements at reporting date.
2.22

Foreign currency transactions and translation

Functional and presentation currency

Items included in the financial statements are measured using the currency of the primary economic
environment in which the entity operates (the functional currency). The financial statements are
presented in Philippine Peso, which is the Companys functional and presentation currency.
Transactions and balances
Foreign currency transactions are translated into Philippine Peso using the exchange rates prevailing
at the dates of the transaction. Foreign exchange gains and losses resulting from the settlement of
foreign currency transactions and from the translation at year-end exchange rates of monetary assets
and liabilities denominated in foreign currencies are recognized in the statement of total
comprehensive income.
For income tax purposes, foreign exchange gains and losses are treated as taxable income or
deductible expense in the period such are realized/sustained.
2.23

Current and deferred income tax

The tax expense for the period comprises current and deferred tax. Tax is recognized in the profit or
loss, except to the extent that it relates to items recognized in other comprehensive income or directly
in equity. In this case, the tax is also recognized in other comprehensive income or directly in equity,
respectively.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively
enacted at the reporting date. Management periodically evaluates positions taken in the tax returns
with respect to situations in which applicable tax regulation is subject to interpretation and
establishing provisions where appropriate on the basis of amounts to be paid to tax authorities.
Deferred income tax (DIT) is provided in full, using the liability method, on temporary differences
arising between the tax bases of assets and liabilities and their carrying amounts in the financial
statements. DIT is determined using tax rates (and laws) that have been enacted or substantively
enacted at reporting date and are expected to apply when the related DIT asset is realized or the DIT
liability is settled.
DIT assets are recognized for all deductible temporary differences, to the extent that it is probable
that future taxable profit will be available against which the temporary differences can be utilized.
Deferred income tax liabilities are recognized in full for all taxable temporary differences.

(14)

DIT assets and liabilities are offset when there is a legally enforceable right to offset current tax assets
against current tax liabilities and when the DIT assets and liabilities relate to income taxes levied by
the same taxation authority on either the taxable entity or different taxable entities where there is an
intention to settle the balances on a net basis.
The Company reassesses at each reporting date the need to recognize a previously unrecognized DIT
asset, if any.
2.24

Subsequent events (or events after the reporting date)

Post year-end events that provide additional information about the Companys position at reporting
date (adjusting events) are reflected in the financial statements. Post year-end events that are not
adjusting events are disclosed in the notes to the financial statements when material.
Note 3 - Financial risk management
3.1

Financial risk factors

The Companys activities expose it to a variety of financial risks and these activities involve the
analysis, evaluation and management of some degree of risk or combination of risks. The Companys
overall risk management program focuses on the unpredictability of financial markets, aims to
achieve an appropriate balance between risk and return and seeks to minimize potential adverse
effects on the Companys financial performance.
Risk management is carried out by the Companys Board of Directors and its senior management.
The most important types of risk the Company manages are: credit risk, market risk and liquidity
risk. Market risk includes foreign exchange, interest and price risks.
3.2

Components of financial assets and financial liabilities

Financial assets
Details of the Companys financial assets, categorized as loans and receivables, are as follows:
Notes
Cash
Trade and other receivables
Refundable deposit

5
16

June 30, 2012

261,720,886
1,127,855,056
11,731,085
1,401,307,027

December 31,2011
418,310,459
1,404,478,456
10,170,040
1,832,958,955

Trade and other receivables are presented gross of provision for impairment at June 30, 2012
amounting to P1,415,619 (December 31, 2011 - P8,221,494). It excludes advances to supplier
amounting to P165,721,820 (December 31, 2011 - P208,361,469) (Note 5), which are considered as
non-financial assets.

(15)

Financial liabilities
Details of the Companys financial liabilities, categorized as liabilities at amortized cost, are as
follows:

Trade and other payables

Accrued interest
Dividends payable
Borrowings

Notes
9

June 30, 2012

322,158,435
2,414,111
480,420,521
2,197,250,378
3,002,243,445

11
10

December 31, 2011

657,794,752
1,586,103
2,747,640,246
3,407,021,101

Trade and other payables excludes payable to government agencies as at June 30, 2012 amounting to
P8,867,819 (December 31, 2011 - P11,661,302) and advances from customers amounting to
P14,111,937 (December 31, 2011 - P15,414,868) (Note 9).
3.3

Credit risk

The Companys exposure to credit risk arises primarily from cash deposit in bank and trade and other
receivables and refundable deposits under non-current assets.
The aging of the Companys financial assets is as follows:

At June 30, 2012

Cash in bank
Trade and other
receivables
Refundable deposits

At December 31, 2011

Cash in bank
Trade and other
receivables
Refundable deposits

Carrying
amount
261,620,886

Neither past due

nor impaired
261,620,886

1,127,855,056
11,731,085
1,401,207,027

698,639,529
11,731,085
971,991,500

Carrying
amount
418,210,459

Neither past due

nor impaired
418,210,459

1,404,478,456
10,170,040
1,832,858,955

681,894,587
10,170,040
1,110,275,086

Past due not impaired

61 - 90
Over 90
31 - 60 days
days
days
353,172,731
353,172,731

21,771,709
21,771,709

1,415,619
1,415,619

Past due not impaired

61 - 90
Over 90
31 - 60 days
days
days
-

Overdue
and
impaired
-

586,296,018
586,296,018

52,855,468
52,855,468

Overdue
and
impaired
-

74,472,541
74,472,541

53,593,816
53,593,816

8,221,494
8,221,494

Cash excludes cash on hand at June 30, 2012 and December 31, 2011 amounting to P100,000.
The maximum exposure to credit risk at the reporting date is the carrying value of financial assets
summarized above.
None of the financial assets that are fully performing has been renegotiated as at June 30, 2012 and
December 31, 2011.
The Company does not hold any collateral as security to the above financial assets.

(16)

3.3.1

Credit quality of the Companys financial assets

(a) Neither past due nor impaired

Cash in banks
Credit risk exposure arising from cash in bank arises from default of the counter party, with a
maximum exposure equal to the fair value of financial assets. The Company has policies that limit the
amount of credit exposure with financial institutions.
To minimize credit risk exposure, the Company deposits its cash in banks with good financial ratings.
Cash deposited in these banks is as follows:

Universal banks
Thrift banks
Commercial banks

June 30, 2012

209,717,840
37,390,832
14,512,214
261,620,886

December 31, 2011

382,563,468
28,792,059
6,854,932
418,210,459

Trade and other receivables

The Company has prudent credit policies to ensure that sales of its products are made to customers
with good credit history. The senior management team, product group heads and the respective sales
teams perform monthly reviews of outstanding receivables as part of the regular performance
assessment process. All significant receivables from key customers are monitored for collectibility
and actual settlement performance, and specific action plans are required for any material overdue
amounts from all categories of customers.
From time to time management undertakes an evaluation of certain customer accounts for potential
provisioning and write-off.
Trade receivables from its five major customers (existing customers with some defaults in the past but
all defaults were fully recovered) amounted to P633,531,153 (December 31, 2011 - P321,793,258)
comprising of 91% of neither past due nor impaired category at June 30, 2012 (December 31, 2011 47%). The remaining balance comes from a broad base of customers in all of the markets where the
Companys business is engaged. The Company considers that it is impracticable to specifically
identify those customers with no history of default from those with some defaults in the past
considering the number of customers and the volume and level of transactions under this category.
Due from related parties pertain to amounts receivable for sale of inventories to its affiliates. These
are non-interest bearing and are due and demandable on short notice (Note 16). Due from related
parties are fully recoverable. Management does not foresee significant credit risk on the outstanding
balances of due from related parties as these are transacted with related parties.
Other non trade receivables pertain to advances to employees. Credit risk over receivables from
employees is reduced through salary deductions over a considerable amount of time, if the employee
fails to settle or liquidate within the maximum due days set in accordance with the Company policy.

(17)

Refundable deposit
Credit exposure on refundable deposit relates to the Companys existing non-cancellable lease
agreements and deposit with a utility company for a period of more than twelve months from
reporting date. These outstanding deposits are fully collectible at the end of the lease term or upon
termination of the agreement. The Company limits its exposure to credit risk by transacting only with
counterparties that have appropriate and acceptable credit history.
(b) Past due but not impaired
Past due but not impaired trade receivables are related to a number of independent customers with
whom there is no recent history of default. At June 30, 2012 and December 31, 2011, past due but not
impaired trade receivables amounting to P427,799,908 and P714,362,375, respectively, are fully
recoverable and no provision for impairment is required on these outstanding balances.
(c) Overdue and impaired
Overdue and impaired trade receivable relate to transactions arising from sale of goods to customers.
The Company establishes an allowance for impairment based on specific loss component that relates
to individually significant exposures.
The individually impaired trade receivables amounting to P1,415,619 as at June 30, 2012
(December 31, 2011 - P8,221,494) substantially relate to receivables from customers that are in
difficult economic situations. Overdue and impaired accounts at June 30, 2012 and December 31,
2011 are fully provided with allowance for impairment.
For the six months ended June 30, 2012, the Company has directly written-off uncollectible
receivables amounting to P3,716,583 (June 30, 2011 - P6,393,255) (Note 5).
3.4

Market risk

3.4.1.

Foreign currency risk

Foreign currency exchange risk arises when future commercial transactions, and recognized assets
and liabilities are denominated in a currency that is not the Companys functional currency.
The Company has transactional currency exposures. Such exposure arises mainly from trade
receivable from customers, inventory purchases and borrowings in currencies other than the
Companys functional currency. At June 30, 2012 and December 31, 2011, the Companys significant
financial assets and liabilities denominated in US Dollar as presented in Note 19.
The Company manages its foreign currency exchange risk through minimizing foreign currency
denominated transactions. Also, the Company maintains sufficient cash in foreign currency to cover
its maturing obligations.
For the six months ended June 30, 2012, if the US Dollar had weakened/strengthened by 0.45%
(December 31, 2011 - 2.04%) (based on the fluctuation of Philippine Peso to US Dollar during the
period) with all other variables held constant, profit for the year and equity would have been
P3,213,134 (December 31, 2011 - P23,081,853) higher/lower, mainly as a result of foreign
exchange gains/losses on translation of US Dollar-denominated cash, trade receivables, trade
and borrowings.

(18)

The reasonable possible change in foreign exchange rate used in the sensitivity analysis is the rate
of change in foreign currency between the Peso equivalent at year end and thirty (30) days from
financial position date, by which management is expected to receive or settle the Companys most
significant financial assets or liabilities, respectively.
3.4.2.

Cash flow and fair value interest rate risks

Cash flow interest rate risk is the risk that the future cash flows of a financial assets and liabilities will
fluctuate because of changes in market interest rates. Fair value interest rate risk is the risk that the
value of a financial assets and liabilities will fluctuate because of changes in market interest rates.
Cash flow interest rate risks
The Companys exposure to cash flow interest rate risk pertains to short-term borrowings which are
interest-bearing. Interest rates on borrowings are repriced at periodic intervals based on the
prevailing mark-to-market prices, in accordance with the terms of the agreement. The Companys
practice is to manage its interest cost by reference to current market rates in borrowings.
For the six months ended June 30, 2012, if interest rates increased/ decreased by 0.82% (December
31, 2011 - 0.5%) from the last repricing date, with all other variable held constant, profit and equity
for the period would have been P18,017,453 and P13,738,201 lower/higher, respectively, as a result of
higher/lower interest expense.
The reasonable possible change in interest rate used in the sensitivity analysis is the rate of change
between the nominal interest rate at the end of the reporting period and the use of hypothetical
interest rate (gross of applicable final tax rate), which is normally equal to the discount rate set by
reference to yields on government bonds, determined at the next repricing date or the date by which
management is expected to settle the Companys variable interest-bearing borrowings.
Fair value interest rate risk
The Company has no significant financial assets and liabilities that are subject to fixed interest rates.
Accordingly, the Company does not foresee fair value interest rate risk to be significant.
3.4.3.

Price risk

As at June 30, 2012 and December 31, 2011, the Company has no financial assets and liabilities
that are exposed to significant price risk.
3.5

Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding
through an adequate amount of credit facilities and the ability to close out market positions. Due to
the dynamic nature of the underlying businesses, the Company aims to maintain flexibility by keeping
credit lines available.
On a regular basis, management monitors forecasts of the Companys liquidity reserve on the basis of
expected cash flow. The Company places money in excess of immediate requirements in banks.

(19)

The table below presents the Companys financial liabilities maturing in the next twelve months.
At June 30, 2012
Trade and other payables
Accrued interest
Dividends payable
Borrowings

Due and
demandable
168,246,518
2,414,111
461,490,063
632,150,692

Less than 3
months
153,911,917
990,010,694
1,143,922,611

Between 3 to
6 months

At December 31, 2011

Trade and other payables
Accrued interest
Borrowings

Due and
demandable
591,390,431
1,586,103
404,304,366
997,280,900

Less than 3
months
-

480,420,521
252,063,843
732,484,364

Between 6
to12 months
528,746,180
528,746,180

Total
322,158,435
2,414,111
480,420,521
2,232,310,780
3,037,303,847

Between 3 to
6 months
41,428,603
432,322,316
473,750,919

Between 6
to12 months
24,975,718
1,986,573,671
2,011,549,389

Total
657,794,752
1,586,103
2,823,200,353
3,482,581,208

At June 30, 2012, borrowings include undiscounted cash flows on interest payable of P35,606,402
(December 31, 2011 - P75,560,107) until its maturity.
The amounts disclosed in table above are the contractual undiscounted cash flows. Balances equal
their carrying amounts, as the impact of discounting is not significant.
On August 4, 2009, the Company was authorized by the Board of Directors to provide surety for the
obligations and indebtedness incurred or may be incurred by Aero-Pack, Industries, Inc., First in
Colours, Incorporated, FIC Marketing, Co., Inc. and D&L Industries, Inc. arising from short term
credit accommodation extended by a local bank to such related parties (Note 16). As at June 30, 2012
and December 31, 2011, total short term borrowings from local banks of the above related parties
amounted to P450,000,000 and P700,000,000, respectively. As at June 30, 2012 and
December 31, 2011, the Company has not incurred obligation and indebtedness arising from the above
surety agreement. Obligations, arising from the above surety agreement if any, will be funded by the
Company and other related parties.
The Company believes that cash generated from its operating activities is sufficient to meet maturing
obligations required to operate the business. The Company would also be able to meet unexpected
cash outflows by accessing additional funding sources from related parties as well as third party
banking institution.
The Company expects to settle the above financial obligations in accordance with their maturity date.
3.6

Capital risk management

The Companys objective when managing capital is to generate the maximum possible return for its
shareholders while taking on a manageable degree of risk ensuring that the Company will continue to
operate as a going concern into the foreseeable future.
In order to maintain or adjust the capital structure, the Company reviews its capital structure from
time to time to assess the proper financing mix necessary to grow and sustain its operations. As a
matter of policy, capital expenditures have been financed from internally-generated cash flow while
investments in working capital will be augmented by short-term bank borrowings from time to time.
The Company has been engaged in a conscious effort to keep its overall gearing ratio as low as
possible through proper management of its working capital.

(20)

At June 30, 2012 and December 31, 2011, total capital is equal to the equity as shown in the statement
of financial position.
Earnings in excess of dividend distribution in cash to shareholder have been continuously redeployed
and reinvested in the growth of the Companys business. Each instance of expansion of
manufacturing capacity and entry into new products and markets undergo a thorough evaluation
process to ensure that such investments and marketing programs are in consonance with the
Companys core competencies and would be enhancing, rather than diminishing, shareholder value in
the long run.
The Company is not exposed to externally imposed minimum capitalization requirements.
Note 4 - Critical accounting estimates, assumptions and judgments
Estimates, assumptions and judgments are continually evaluated and are based on historical
experience and other factors, including expectations of future events that are believed to be
reasonable under the circumstances.
The Company makes estimates and assumptions concerning the future. The resulting accounting
estimates will, by definition, seldom equal the related actual results. The estimates, assumptions and
judgments that have a significant risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year are discussed below.
4.1

Critical accounting estimates and assumptions

Retirement plan asset (Note 17)

The present value of the pension obligations depends on a number of factors that are determined on
an actuarial basis using a number of assumptions. The assumptions used in determining the net cost
(income) for pensions include the discount rate, expected return on plan assets and future salary
increases. Any changes in these assumptions will impact the carrying amount of pension obligations.
The Company determines the appropriate discount rate at the end of each year. This is the interest
rate that should be used to determine the present value of estimated future cash outflows expected to
be required to settle the pension obligations. In determining the appropriate discount rate, the
Company considers the interest rates of government bonds that are denominated in the currency in
which the benefits will be paid and that have terms to maturity approximating the terms of the related
pension obligation.
Other key assumptions for pension obligations are based in part on current market conditions.
The Company considers that it is impracticable to disclose with sufficient reliability the possible
effects of sensitivities surrounding these actuarial assumptions at reporting date. One or more of the
actuarial assumptions may differ significantly and as a result, the actuarial present value of the
defined benefit obligation estimated at the financial position date may differ significantly from
amount reported.

(21)

Estimated useful life of property, plant and equipment (Note 8)

The useful life of each of the Companys property, plant and equipment is estimated based on the
period over which these assets are expected to be available for use. Such estimation is based on a
collective assessment of, internal technical evaluation and experience with similar assets. The
estimated useful life of each asset is reviewed periodically and updated if expectations differ from
previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or
other limits on the use of the asset. It is possible, however, that future results of operations could be
materially affected by changes in the amounts and timing of recorded expenses brought about by
changes in the factors mentioned above. A reduction in the estimated useful life of any property,
plant and equipment would increase the recorded expenses and decrease non-current assets.
The Company considers that it is impracticable to disclose with sufficient reliability the possible
effects of sensitivities surrounding the estimated useful lives of the property, plant and equipment at
reporting date. One or more of the assumptions may differ significantly and as a result, the net
carrying value of the property, plant and equipment at reporting date may differ significantly from
amount reported.
4.2

Critical judgment in applying the entitys accounting policies

Provision for impairment of receivables (Note 5)

Provision for impairment of receivables is maintained at a level considered adequate to provide for
potentially uncollectible receivables. The level of provision is based on past collection experience and
other factors that may affect collectibility. An evaluation of the receivables, designed to identify
potential charges to the provision, is performed on a continuous basis throughout the year.
Management evaluates specific accounts of customers who are unable to meet their financial
obligations. In these cases, management uses judgment based on the best available facts and
circumstances, including but not limited to, the length of relationship with the customers and the
customers payment history. The amount and timing of recorded expenses for any period would
therefore differ based on the judgments made.
For the six months ended June 30, 2012, the Company has directly written off uncollectible
receivables amounting to P3,716,583 (June 30, 2011 - P6,393,255). At June 30, 2012, provision for
impairment of receivable amounted to P1,415,619 (December 31, 2011 - P8,221,494) (Note 5).
In relation to receivables which are past due but not impaired, no provision for impairment has been
determined by management to be necessary considering customer relationship and historical
experience.
Although the amount and timing of recorded expenses for any period would differ based on the
judgments made, receivables are recognized at fair value based on recently observed market
conditions. Such fair values may change materially within the next financial year but these changes
would not arise from assumptions or other sources of estimation uncertainty.

(22)

Provision for inventory obsolescence (Note 6)

Provision for inventory obsolescence is maintained at a level considered adequate to provide for
potential loss on inventory items. The level of provision is based on past experience and other factors
affecting the recoverability and obsolescence of inventory items. An evaluation of inventories, designed
to identify potential charges to the provision, is performed on a continuous basis throughout the period.
Management uses judgment based on the best available facts and circumstances, including but not
limited to evaluation of individual inventory items future recoverability and utilization. The amount
and timing of recorded expenses for any period would therefore differ based on the assessment and
judgments made. A change in provision for inventory obsolescence would impact the Companys
recorded expenses and current assets.
At June 30, 2012 and December 31, 2011, Company has not provided any allowance for inventory
obsolescence.
The carrying values of the inventories at the end of the reporting period and the amount and timing of
recorded provision for any period could be materially affected by actual experience and changes in
such judgments such as effect of technological obsolescence, competition in the market and changes
in prices of raw and packaging materials, including any associated labor costs. Thus, it is reasonably
possible, on the basis of existing knowledge, that outcome within the next financial year arising from
changes in judgments may have a significant impact on the carrying amounts of provisions for
inventories.
Impairment of property, plant and equipment (Note 8)
The Companys property, plant and equipment is carried at cost. The carrying value is reviewed and
assessed for impairment whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. Changes in those assessment and judgment could have a significant
effect on the carrying value of property, plant and equipment and the amount and timing of recorded
provision for any period.
As at June 30, 2012 and December 31, 2011, management believes, based on its assessment and
judgment that there are no indications of impairment or changes in circumstances indicating that the
carrying value of its property, plant and equipment may not be recoverable.
Provision for income tax; deferred income tax (Note 18)
Significant judgment is required in determining the recorded income tax expense in the statement of
total comprehensive income. There are many transactions and calculations for which the ultimate tax
determination is uncertain in the ordinary course of business. The Company recognizes liabilities for
anticipated tax assessment issues when it is probable. The liabilities are based on assessment and
judgment of whether additional taxes will be due. Where the final tax outcome of these matters is
different from the amounts that were initially recorded, such differences will impact the Companys
income tax and deferred income tax provisions in the period in which such determination is made.

(23)

Further, the recognition of deferred income tax assets depends on managements assessment of
adequate future taxable income against which the temporary differences can be applied. The
Company reviews the carrying amounts of deferred income tax assets at the end of each reporting
period and reduces the amounts to the extent that it is no longer probable that sufficient taxable
profit will allow all or part of its deferred income tax assets to be utilized. The Companys
management believes that the deferred income tax assets at the end of each reporting period will be
fully realized.
Note 5 - Trade and other receivables, net
Trade and other receivables, net consist of:
Note
Trade receivables (third parties)
Less: provision for impairment of receivables
Net trade receivables
Advances to suppliers
Due from related parties
Non-trade receivables

16

June 30, 2012

1,109,869,419
1,415,619
1,108,453,800
165,721,820
17,636,171
349,466
1,292,161,257

December 31, 2011

1,395,069,261
8,221,494
1,386,847,767
208,361,469
7,791,429
1,617,766
1,604,618,431

Movements in the provision for impairment of receivables are as follows:

Beginning of period
Provision
Write-off
End of period

June 30, 2012

8,221,494
1,415,619
(8,221,494)
1,415,619

December 31, 2011

8,221,494
8,221,494

For the six months ended June 30, 2012, the Company has directly written-off uncollectible accounts
amounting to P3,716,583 (June 30, 2011 - P6,393,255) which was charged to selling and marketing
costs.
Management believes that the outstanding allowance for impairment of receivable at June 30, 2012 of
P1,415,619 (December 31, 2011 - P8,221,494) is adequate to cover further impairment losses.
The carrying amounts of the Companys trade and other receivables denominated in the following
currencies are as follows:

Philippine Peso
US Dollar

(24)

June 30, 2012

1,269,557,138
22,604,119
1,292,161,257

December 31, 2011

1,581,211,071
23,407,360
1,604,618,431

Note 6 - Inventories
Inventories consist of:

At cost
Raw materials
Finished goods
In transit

June 30, 2012

December 31, 2011

711,655,391
263,088,341
226,849,749
1,201,593,481

906,622,196
133,060,468
348,326,834
1,388,009,498

No provision for inventory valuation has been recorded for the six months ended June 30, 2012 and
year ended December 31, 2011.
Total cost of inventories recognized as expense and included in cost of goods sold for the six months
ended June 30, 2012 amounted to P3,665,543,315 (June 30, 2011- P4,209,659,555) (Note 12).
Note 7 - Other current assets
Other current assets consist of:

Input value-added tax (VAT), net

Creditable withholding taxes (CWT)

June 30, 2012

138,921,783
37,863,908
176,785,691

December 31, 2011

180,438,054
81,606,946
262,045,000

June 30, 2012

94,964,278
25,049,788
18,907,717
138,921,783

December 31, 2011

94,853,842
63,961,654
21,622,558
180,438,054

Details of the Companys input VAT are as follows:

On depreciable assets claimable against output VAT

On other goods
Deferred input VAT

Deferred input VAT relates to input tax on services which is claimable upon payment of the related
liabilities.

(25)

Note 8 - Property and equipment, net

Property and equipment at June 30, 2012 and December 31, 2011 consist of:

At January 1, 2011
Cost
Accumulated depreciation and
amortization
Net carrying value

Machinery
and
equipment

Transportation
equipment

Office
equipment

617,595,636

3,199,236

3,276,508

18,110,923

541,155,366

(190,223,652)
427,371,984

(2,528,851)
670,385

(2,532,900)
743,608

(13,519,626)
4,591,297

541,155,366

(208,805,029)
974,532,640

670,385
(189,160)
481,225

743,608
1,498,627
(517,702)
1,724,533

4,591,297
582,952
(2,150,554)
3,023,695

541,155,366
207,506,797
748,662,163

974,532,640
318,299,440
(65,315,632)
1,227,516,448

Leasehold Construction in
improvements
progress

Total
1,183,337,669

For the year ended December 31, 2011

Opening net carrying value
Additions
Depreciation and amortization
Closing net carrying value
At December 31, 2011
Cost
Accumulated depreciation and
amortization
Net carrying value

427,371,984
108,711,064
(62,458,216)
473,624,832

726,306,700

3,199,236

4,775,135

18,693,875

748,662,163

1,501,637,109

(252,681,868)
473,624,832

(2,718,011)
481,225

(3,050,602)
1,724,533

(15,670,180)
3,023,695

748,662,163

(274,120,661)
1,227,516,448

473,624,832

481,225

1,724,533

3,023,695

748,662,163

1,227,516,448

68,751,449

For the six months ended June 30, 2012

Opening net carrying value
Reclassifications
Cost
Accumulated depreciation
and amortization
Additions
Depreciation and amortization
Closing net carrying value
At June 30, 2012
Cost
Accumulated depreciation and
amortization
Net carrying value

28,533,524
(35,067,380)
535,842,425

15,763
(89,837)
407,151

(880,951)

154,262,442

(222,132,940)

529,055
46,696
(182,650)
1,236,683

(544,818)
(1,300,442)
155,440,877

111,116,337
637,645,560

139,696,557
(36,640,309)
1,330,572,696

823,591,673

3,199,236

3,940,880

172,956,317

637,645,560

1,641,333,666

(287,749,248)
535,842,425

(2,792,085)
407,151

(2,704,197)
1,236,683

(17,515,440)
155,440,877

637,645,560

(310,760,970)
1,330,572,696

Construction in progress represents building, leasehold improvements, various plant developments and
machinery and equipment that will be used in operations and are expected to be fully completed in the
near term.

(26)

Note 9 - Trade and other payables

Trade and other payables consist of:
Note
Trade payables
Due to related parties
Advances from customers
Due to government agencies
Non-trade payables
Others

June 30, 2012

279,268,267
40,641,096
14,111,937
8,867,819
825,060
1,424,012
345,138,191

December 31, 2011

523,637,327
87,930,851
15,414,868
11,661,302
44,803,099
1,423,475
684,870,922

Note

June 30, 2012

2,747,640,246
1,820,704,951
(2,345,454,311)

December 31, 2011

2,111,993,062
3,932,633,278
(3,312,380,469)

19

(25,640,508)
2,197,250,378

16

Note 10 - Borrowings
Details of borrowings consist of:

Beginning of period
Proceeds from borrowings
Payments of borrowings
Unrealized foreign exchange (gains) losses
on borrowings
End of period

15,394,375
2,747,640,246

Borrowings as at June 30, 2012 and December 31, 2011 consist of unsecured, short-term loans from
local banks with maturity of one to eleven months from reporting dates. These borrowings bear
average interest rates for the six months ended June 30, 2012 of 2.36% to 4.5% (December 31, 2011 2.0% to 4.5%), subject to monthly repricing.
Interest expense for the six months ended June 30, 2012 amounted to P46,162,256
(June 30, 2011 - P31,466,639) and accrued interest as at June 30, 2012 amounted to P2,414,111
(December 31, 2011 - P1,586,103).
Note 11 - Equity
Share capital
Details of share capital as at June 30, 2012 and December 31, 2011 are as follows:
Shares

Amount

Common shares at P10 par value per share

Authorized

100,000,000

1,000,000,000

Share capital issued and outstanding

100,000,000

1,000,000,000

(27)

Dividend declaration
On June 27, 2012, the Board of Directors approved the declaration of cash dividend amounting to
P482,349,921 (P4.82 per share) out of the unrestricted retained earnings of the Company as at
December 31, 2011, to all stockholders of record as of June 27, 2012, payable on or before December
31, 2012. Final taxes payable arising from this transaction amounting to P1,929,400 at June 30, 2012
was recorded as payable to government agencies under trade and other payables (Note 9). As at
July 31, 2012, the cash dividend declared remains unpaid.
Note 12 - Cost of goods sold
Cost of goods sold for the six months ended June 30 consists of:

Raw materials used

Direct labor
Factory overhead
Management service fees
Fuel and oil
Power and light
Depreciation and amortization
Repairs and maintenance
Rent
Indirect labor
Contracted services
Indirect materials used
Development expense
Finished goods, net change

Notes
6, 16
17
16

8
16

June 30, 2012

3,665,543,315
21,090,352

June 30, 2011

4,209,659,555
18,189,592

133,398,537
66,332,493
53,762,801
35,178,992
33,661,174
27,753,008
14,693,120
11,807,337
10,194,870
3,502,803
(130,027,873)
3,946,890,929

142,161,985
73,511,109
33,515,559
30,093,948
23,452,660
26,730,138
12,000,124
12,139,497
7,589,479
1,609,995
(952,802)
4,589,700,839

Note 13 - Selling and marketing costs

Selling and marketing costs for the six months ended June 30 consist of:
Notes
Delivery charges
Salaries and allowances
Receivables directly written-off
Outside services
Transportation and travel
Representation and entertainment
Provision for impairment of receivables
Employee benefits
Advertising and promotions
SSS, HDMF and other contributions
Creditable withholding tax written off

(28)

17
5

June 30, 2012

75,421,710
6,480,135
3,716,583
4,489,665
2,896,932
2,412,820
1,415,619
775,471
327,833
197,475
98,134,243

June 30, 2011

66,649,932
6,114,362
6,393,255
2,853,626
1,086,362
1,366,907
745,839
966,992
200,029
130,928
86,508,232

Note 14 - Administrative expenses

Administrative expenses for the six months ended June 30 consist of:

Management service fees

Taxes and licenses
Donations
Outside services
Bank charges
Depreciation and amortization
Office supplies
Communication, light and water
Subscription
Miscellaneous

Notes
16

June 30, 2012

34,925,561
23,332,226
4,282,029
2,217,014
1,778,741
1,461,317
835,689
433,558
145,170
1,365,288
70,776,593

June 30, 2011

42,117,158
20,902,051
12,284
1,975,096
3,768,645
212,904
1,051,441
565,567
158,661
557,758
71,321,565

Note 15 - Other income, net

Other income (expense), net for the six months ended June 30, 2012 consists of:
Note
Interest income
Foreign exchange loss, net
Miscellaneous

19

June 30, 2012

565,693
36,321,026
593,760
37,480,479

June 30, 2011

866,169
3,720,883
(88,210)
4,498,842

Note 16 - Related party transactions

The Company, in the ordinary course of business, has transactions with related parties. Significant
related party transactions include the following:
Management services
The Company has an existing management agreement with D&L Industries, Inc., a stockholder,
whereby the latter provides the following logistics, support and management services:
Technical support, which includes research and development, quality control and assurance, use of
trademarks and IT related services;
Logistics support, which includes transport, fleet management, warehousing management, tank
farm management, port clearing and procurement;
Administrative support, which includes accounting and finance, human resources, information
technology, property management, legal services and research and development; and
Executive management, which includes the services performed by the executives to manage the
business operations of the Company.

(29)

The fee for technical and logistics support services is fixed at 3% of net receipts from operations
excluding intercompany sales and those for administrative and executive management support
services at 7% of gross income from operations.
The agreement remains in force, unless terminated by both parties.
Management service fees charged to statement of total comprehensive income for the six months
ended June 30 are as follows:

Cost of goods sold

Administrative expenses

Notes
12
14

June 30, 2012

133,398,537
34,925,561
168,324,098

June 30, 2011

142,161,985
42,117,158
184,279,143

Lease agreements
The Company has various existing cancellable operating lease agreements with LBL Industries, Inc.,
an entity under common control, covering its factory and warehouse spaces. The lease runs for a
period of one year and renewable every year thereafter, unless terminated by either party. Rental
expense for the six months ended June 30, 2012 amounted to P12,889,372 (June 30, 2011 P12,275,592) (Note 12).
The Company has existing cancellable operating lease agreements with Chemrez Technologies, Inc.
(CTI), and FIC Tankers Corporation (FICT), entities under common control, for the use of the latters
various machineries and equipment and storage tanks. These leases are renewable for another five
years by mutual agreement of the parties. Also, the Company is required to give a six-month notice
for the termination of this agreement. A total rental deposit of P3 million was recorded under other
non-current assets in the statement of financial position as part of the agreement. Rental expense for
the six months ended June 30, 2012 amounted to P14,863,636 (June 30, 2011 - P14,454,546) (Note
12).
Sale of goods
The Company, in the normal course of business, has transactions with related parties relating to the
sale of goods for the six months ended June 30, 2012 and 2011 as follows:

FIC Marketing Co., Inc.

First in Colours, Incorporated
Chemrez Technologies, Inc.
Chemrez, Inc.
Aero-Pack Industries, Inc.
D&L Industries, Inc.
D&L Polymer and Colours, Inc.

Relationship
Entity under common control
Entity under common control
Entity under common control
Entity under common control
Entity under common control
Parent Company
Entities under common control

June 30, 2012

202,346,071
2,739,786
1,389,853
889,268
10,773
9,286
1,300
207,386,337

Sales of goods are usually negotiated with related parties on a cost-plus basis.

(30)

June 30, 2011

221,335,908
2,134,574
491,417,618
3,617,357
25,556
13,125
58,000
718,602,138

Purchases of goods and services

The Company, in the normal course of business, has transactions with related parties relating to the
purchases of goods and services for the six months ended June 30, 2012 and 2011 as follows:
Relationship
Goods
Chemrez Technologies, Inc.
Aero-Pack Industries, Inc.
Chemrez Inc.
First in Colours, Incorporated
D&L Industries, Inc.
Services
FIC Tankers Corporation

June 30, 2012

June 30, 2011

Entity under common control

Entity under common control
Entity under common control
Entity under common control
Parent Company

24,453,292
864,659
741,625
26,059,576

15,862,356
719,509
123,473
673,820
84,570
17,463,728

Entity under common control

8,863,636
34,923,212

8,454,546
25,918,274

Purchases of goods and services are usually negotiated with related parties on a cost-plus basis.
Surety agreement
On August 4, 2009, the Company was authorized by the Board of Directors to provide surety for the
obligations and indebtedness incurred or may be incurred by Aero-Pack Industries, Inc., First in
Colours, Incorporated, FIC Marketing Co., Inc. and D&L Industries, Inc. arising from short term
credit accommodation extended by a local bank to such related parties. As at June 30, 2012 and
December 31, 2011, the Company has not incurred obligations and indebtedness related to this
agreement (Note 3.5).
Net amounts arising from the above transactions at June 30, 2012 and December 31, 2011 are as
follows:
(i) Due from related parties (Note 5)

FIC Marketing Co., Inc.

Chemrez, Inc.
First in Colours, Incorporated

Relationship
Entity under common control
Entity under common control
Entity under common control

June 30, 2012

12,414,014
5,222,157
17,636,171

December 31, 2011

3,625,683
3,467,175
698,571
7,791,429

June 30, 2012

25,700,790
11,361,122
2,308,609
1,241,811
28,764
40,641,096

December 31, 2011

29,435,070
51,930,643
6,558,582
6,556
87,930,851

(ii) Due to related parties (Note 9)

D&L Industries, Inc.

First in Colours, Incorporated
Chemrez Technologies, Inc.
FIC Tankers Corporation
Aero-Pack Industries, Inc

(31)

Relationship
Parent Company
Entity under common control
Entity under common control
Entity under common control
Entity under common control

Due from and to related parties are settled on a net basis. These are unsecured, non-interest bearing,
and due and demandable on short notice but not later than 12 months from reporting date. There are
no guarantees issued or collaterals held with respect to transactions and balances with related parties.
Key management compensation
Key management compensation for the six months ended June 30 consists of:
June 30, 2012
5,113,082
426,090
228,128
5,767,300

Salaries and wages

Retirement benefits
Other short term employee benefits

June 30, 2011

5,509,754
97,734
459,146
6,066,634

There are no amounts due from or to key management personnel at June 30, 2012 and
December 31, 2011.
The Company has not provided share-based payments, termination benefits or other long term benefits,
other than the retirement benefits, to its key management employees for the six months ended June 30,
2012 and 2011.
Note 17 - Retirement plan
The Company maintains a non-contributory defined benefit retirement plan for the benefit of its
regular employees. The normal retirement age is 60. Normal retirement benefit is equal to one-half
month salary as of date of retirement multiplied by retirees years of service. Actuarial valuation is
performed by independent actuary on an annual basis.
The amounts recognized in the statement of financial position as at June 30, 2012 and
December 31, 2008 to 2011, which were recorded as part of the non-current assets, are determined as
follows:
June 30,
2012
Fair value of plan assets
18,641,082
Present value of funded obligations
(20,175,481)
(Unfunded obligation) surplus
(1,534,399)
Unrecognized actuarial losses (gains)
3,989,608
Retirement benefit asset
2,455,209

December
31, 2011
16,654,186
(17,705,226)
(1,051,040)
3,778,424
2,727,384

December
31, 2010
14,569,356
(9,966,412)
4,602,944
(618,519)
3,984,425

December
31, 2009
12,116,157
(7,772,561)
4,343,596
(1,169,218)
3,174,378

December
31, 2008
8,301,278
(9,163,914)
(862,628)
3,448,326
2,585,699

The movements in the defined benefit obligation for the six months ended June 30, 2012 and year
ended December 31 are as follows:

Beginning of period
Current service cost
Interest cost
Transfer from subsidiaries
Actuarial losses
End of period

(32)

June 30, 2012

17,705,226
966,107
540,628
438,232
525,288
20,175,481

December 31, 2011

9,966,412
1,160,661
914,576
1,399,578
4,263,999
17,705,226

Transfers pertain to transfer of employees from related parties during the period.
The movements in the fair value of plan assets for the six months ended June 30, 2012 and year
ended December 31, 2011 are as follows:

Beginning of the period

Expected return on plan assets
Contributions
Actuarial gains (losses)
End of the period

June 30, 2012

16,654,186
416,355
1,304,244
266,297
18,641,082

December 31, 2011

14,569,356
874,161
1,343,613
(132,944)
16,654,186

The amounts recognized in the statement of total comprehensive income are as follows:

Current service cost

Interest cost
Expected return on plan assets
Transfer from subsidiaries
Net actuarial losses recognized during the period
Retirement benefit expense

June 30, 2012

966,107
540,628
(416,355)
438,232
47,807
1,576,419

June 30, 2012

580,331
457,288
(437,081)
699,789
1,300,327

Retirement benefit expense is included as part of direct labor under cost of sales and as part of
salaries and allowances under selling and marketing costs (Notes 12 and 13).
For the six months ended June 30, 2012, the actual return on plan assets amounted to P682,652
(December 31, 2011 - P741,217).
The movements in the asset recognized in the statement of financial position are as follows:

Beginning of period
Retirement benefit expense
Contributions paid
End of period

(33)

June 30, 2012

2,727,384
(1,576,419)
1,304,244
2,455,209

December 31, 2011

3,984,425
(2,600,654)
1,343,613
2,727,384

The Company has plan assets under the D&L Group of Companies Employees Retirement Plan (the
Retirement Plan) that share risks between various entities under common control. As at
June 30, 2012, the Company has an allocated fund of P18,641,082 (December 31, 2011 - P16,654,186)
in the Retirement Plan based on the fund balance report of the trustee (using the Companys
percentage of equity over the total plan assets under the Retirement Plan). The Retirement Plan has
investments at June 30, 2012 and December 31, 2011 consisting of the following:

Treasury bonds and notes

Listed stocks
Mutual funds
Unit investment trust funds

June 30, 2012

Amount
Percentage
83,078,405
48.04%
52,451,458
30.33%
29,035,937
16.79%
8,370,097
4.84%
172,935,897
100.00%

December 31, 2011

Amount
Percentage
108,134,071
66.60%
49,670,433
30.60%
3,692,340
0.50%
880,512
2.30%
162,377,356
100.00%

The allocated share of the Company in the retirement plan assets as at June 30, 2012 and
December 31, 2011 are as follows:

Treasury bonds and notes

Listed stocks
Unit investment trust funds
Mutual funds

June 30, 2012

Amount
Percentage
8,955,176
48.04%
5,653,840
30.33%
3,129,838
16.79%
902,228
4.84%
18,641,082
100.00%

December 31, 2011

Amount
Percentage
11,091,688
66.60%
5,096,181
30.60%
383,046
2.30%
83,271
0.50%
16,654,186
100.00%

The principal actuarial assumptions used at June 30, 2012 and December 31, 2011 were as follows:

Discount rate
Expected return on plan assets
Future salary increases

June 30, 2012

5.68%
5.00%
6.00%

December 31,
2011
5.97%
5.00%
6.00%

The average life expectancy in years of experience of a pensioner retiring at age 60 on the financial
position date is 20 years for both male and female for the six months ended June 30, 2012
(December 31, 2011 - 21 years).
Assumptions regarding future mortality experience are set based on advice from published statistics
and experience.
The expected return on plan assets was determined based on the average and expected rate of return
of the investments in the Retirement Plan.
The expected return on plan assets was determined by considering the expected returns available on
the assets underlying the current investment policy. Expected yields in fixed interest investments are
based on redemption yields at the reporting date.

(34)

History of actuarial loss (gain) on the present value of defined benefit obligation for the six months
ended June 30, 2012 and year ended December 31, 2011 are as follows:

Effect of changes in actuarial assumptions

Experience adjustments
Actuarial loss (gain)

June 30,
2012
869,933
(344,645)
525,288

December
31, 2011
4,844,828
(580,829)
4,263,999

December
31, 2010
550,699
1,059,345
1,610,044

December
31, 2009
(2,987,824)
(2,987,824)

4%

27%

6%

(2%)

(3%)

10%

38%

2%

24%

16%

(38%)

Effect of changes in assumptions as a

percentage of the present value of defined
benefit obligation
Experience adjustments as a percentage of
the present value of defined benefit
obligation
Actuarial loss (gain) as a percentage of the
present value of defined benefit obligation

December 31,
2008
-

History of actuarial gain (loss) on plan asset for the six months ended June 30, 2012 and years ended
December 31, 2008 to 2011 are as follows:

Actuarial gain (loss) due to experience

adjustments
Percentage of plan assets

June 30,
2012

December
31,2011

December
31, 2010

December
31, 2009

December
31, 2008

286,297
1%

(132,944)
(0.8%)

1,509,345
10%

1,509,151
12%

(3,076,285)
37%

Note 18 - Taxation
Deferred income tax (DIT)
Deferred income tax asset (liability), net consist of:

DIT assets to be recovered within 12 months:

Provision for impairment of receivables
Unrealized foreign exchange loss
DIT liability to be settled within 12 months:
Unrealized foreign exchange gain
DIT liability to be settled after 12 months:
Retirement plan assets

(35)

Notes

June 30, 2012

December 31, 2011

2,466,448
1,491,163
3,957,611

17

(6,304,371)

(506,199)
(6,810,570)

(907,679)
3,049,932

The movement in net DIT asset (liability), without taking into consideration the offsetting of balances
within the same tax jurisdiction, is as follows:

At January 1, 2011
Charged to the statement of total
comprehensive income
At December 31, 2011
Charged to the statement of total
comprehensive income
At June 30, 2012

Unrealized
foreign
exchange
loss (gain)
1,491,163

Provision for
impairment of
receivables
2,466,448

Retirement
plan assets
(1,195,327)

Total
2,762,284

1,491,163

2,466,448

287,648
(907,679)

287,648
3,049,932

(7,795,534)
(6,304,371)

(2,466,448)
-

401,480
(506,199)

(9,860,502)
(6,810,570)

Income tax expense

On December 20, 2008, Revenue Regulations No. 16-2008 on the Optional Standard Deduction
(OSD) was published. The regulation prescribed the rules for the OSD application by corporations in
the computation of their final taxable income. For corporations, OSD shall be 40% based on gross
income; cost of goods sold and cost of services will be allowed to be deducted from gross sales.
For taxable period 2009, the maximum 40% deduction shall only cover the period beginning July 6,
2009. However July 1, 2009 shall be considered as the start of the period when the 40% OSD may be
allowed.
On February 26, 2010, RR 2-2010 on the amendment of Section 6 and 7 of RR 16-2008 was published.
The regulation amended the other implications of the OSD particularly on the election to claim either
the OSD or the itemized deduction which must be signified on the first quarter and must be
consistently applied for all the succeeding quarterly returns and in the final income tax return for the
taxable year.
The Company availed of the OSD for the purposes of income tax calculation in 2012 and 2011.
A reconciliation of income tax expense computed at the statutory income tax rate to the income tax
expense as reflected in the statement of total comprehensive income is as follows:
Income tax at statutory income tax rate of 30%
Adjustments for:
Availment of OSD
Derecognized deferred tax asset
Change in tax rate
Interest income subjected to final withholding tax
Income tax expense

(36)

June 30, 2012

104,743,064
4,124,036
1,219,973
(5,760,353)
(169,708)
104,157,012

June 30, 2011

130,116,888
(16,599,229)
(259,851)
113,257,808

Note 19 - Foreign currency denominated financial assets and liabilities

The Companys foreign currency denominated financial assets and liabilities are as follows:
June 30, 2012
Current assets
Cash
Trade receivables

Current liabilities
Trade payables
Borrowings
Net foreign currency denominated financial
liabilities
Closing exchange rate of US $1 to Philippine Peso
Philippine Peso equivalent

391,947
536,660
928,607

December 31, 2011

$

171,495
533,927
705,422

(3,505,420)
(14,375,461)
(17,880,881)

(6,041,842)
(20,472,507)
(26,514,349)

$ (16,952,274)
42.12
(714,029,781)

$ (25,808,927)
43.84
(1,131,463,360)

Foreign exchange gain (loss) presented under other income (Note 15) in the statement of total
comprehensive income consists of:
Note
Realized foreign exchange gain
Unrealized foreign exchange gain (loss)
15

June 30, 2012

21,966,707
14,354,319
36,321,026

June 30, 2011

3,232,858
488,025
3,720,883

Foreign exchange gain on borrowings amounting to P25,640,508 (June 30, 2011 - loss of P7,456,633)
for the six months ended June 30, 2012 is presented as part of finance cost in the statement of total
comprehensive income.

(37)

D&L Industries, Inc.

65 Industria Street, Bagumbayan
Quezon City 1110
Philippines
INTERNATIONAL UNDERWRITER AND BOOKRUNNER
Maybank Kim Eng Securities Pte Ltd
9 Temasek Boulevard
#39-00 Suntec Tower 2
Singapore 038989
DOMESTIC LEAD UNDERWRITER AND ISSUE MANAGER
Maybank ATR Kim Eng Capital Partners, Inc.
17th Floor, Tower One & Exchange Plaza
Ayala Triangle, Ayala Avenue
Makati City
Philippines
FINANCIAL ADVISOR
Bancpros & Associates
20 Celery Street
Valle Verde 5, Pasig City
Philippines
LEGAL COUNSEL TO THE INTERNATIONAL UNDERWRITER
as to New York and United States Federal Law
Allen & Overy
9/F, Three Exchange Square
Central
Hong Kong

as to Philippine Law
Picazo Buyco Tan Fider & Santos
18/F Liberty Center
104 H. V. Dela Costa Street
Makati City, Philippines

LEGAL COUNSEL TO THE COMPANY

as to Philippine Law
Corporate Counsels, Philippines
Unit 3104, 31st Floor, Antel Global Corporate Center
3 Dona Julia Vargas Avenue
Ortigas Center
Pasig City, Philippines

INDEPENDENT AUDITORS
Isla Lipana & Co.
29th Floor Philamlife Tower
8767 Paseo de Roxas
Makati City 1226,
Philippines