The Heart

of ALASKA

2010 AnnuAL reporT

Corporate Social Responsibility is an intrinsic part of Alaska Milk Corporations business operations. At the heart of our advocacies and in line with our heritage of nutrition are programs that put thrusts towards the areas of nutrition education and physical development. As a responsible corporate citizen, we strive to make a difference in our country, especially in the community where we operate. We engage and sustain partnerships with private organizations, local government units and individuals by providing funds and other means of viable support to help uplift the lives of underprivileged Filipinos. We also recognize our crucial role in promoting positive values to address the moral challenges confronting modern society. Going beyond creative relevance and executions, our advertising campaigns are geared towards the development of better societal values that support the fulfillment of better lives for our countrymen.

1 Financial Highlights / 2 Our Company / 3 Our Vision & Mission / 4 Our Business Portfolio / 8 Chairmans Message / 10 Presidents Message / 14 Childrens Hour / 16 Alaska GK Village / 18 Happyland / 20 The Alaska Aces / 22 Values-Inspired Campaigns / 24 CFOs Report / 26 Managements Discussion & Analysis of Operations / 32 Corporate Governance / 36 Board of Directors / 40 Management Committee / 42 Audit Committee Report / 43 Statement of Managements Responsibility for Financial Statements / 44 Financial Statements / 80 Corporate and Shareholder Information

Contents

Financial Highlights
In million Pesos except per share data and ratios For the Year
Net Sales Income from Operations EBITDA1 Net Income 2010 12,163 2,327 2,762 1,816 2009 10,580 1,889 2,241 1,409 Change 15% 23% 23% 29%

At Year-End
Total Assets Stockholders Equity 9,140 6,046 7,271 4,677 26% 29%

Financial Ratios
Operating Margin Return on Sales Return on Equity Current Ratio Debt-to-Equity Ratio 19.1% 14.9% 30.0% 1.93 0.51 17.9% 13.3% 30.1% 1.55 0.55 +1.2% pts +1.6% pts -0.1% pt +0.38 -0.04

Per Common Share

Earnings per Share Cash Dividends
1

2.06 0.50

1.59 0.20

+0.47 +0.30

Earnings Before Interest, Taxes, Depreciation and Amortization

2010 AMC Stock Price Performance Relative to PSEi

14.00 13.50 13.00 12.50 12.00 11.50 11.00 10.50 10.00 9.50 9.00 8.50 8.00 7.50 7.00 6.50 6.00 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov

AMC

PSEi

Dec

Index based on December 29, 2009 PSEi of 3,053 and AMC closing price of P7.10 per share

2010 Annual Report

Our Company
ALASKA MILK CORPORATION (AMC) is a leading manufacturer of milk products in the Philippines. It has established a strong brand heritage and recognition among Filipino consumers with its traditional liquid canned milk products, marketed under the Alaska brand. In addition, the Company has developed a strong competitive position in the powdered milk category and a growing presence in the UHT ready-to-drink and ready-to-use segments. AMC began its corporate life in1972 as Holland Milk Products, Inc., in partnership with Holland Canned Milk BV, a dairy company in the Netherlands. Given the need to expand production capacities, AMC tapped the capital market and became a publicly listed company in the Philippine Stock Exchange in 1995. To better manage its sales and distribution efforts, AMC took over the operations of its exclusive distributor in 1998. In 2007, AMC became even more dominant in the liquid milk category by acquiring / licensing the liquid canned milk products of Socit Des Produits Nestl S.A., which includes the Carnation, Milkmaid, Alpine, Liberty and Krem-Top brands. For almost 40 years, AMC has been building its relationship with its consumers and the Companys memorable tagline: Sa sustansya at lasa, wala pa ring tatalo sa Alaska (in nutrition and taste, nothing beats Alaska), has both endeared it to its loyal consumers and embodies AMC products consumer value proposition. In recent years, AMC has leveraged the use of its new portfolio of trusted brands in catering to the needs of an economically diverse market and to further grow the business. AMCs strong financial performance through the years, amidst challenging economic environment, attests to its sound business model. This is supported by AMCs strong advocacy for transparency and good governance.

Our Vision
To be a leading consumer foods company with a diversified portfolio of consumer food brands and products that are market leaders in their respective categories.

Our Mission
PRODUCT DEVELOPMENT
We will continue to build on the strengths and competitive attributes of the ALASKA brand and develop its full marketing potential. We will develop new products and identify market opportunities, mindful of our task to be responsive to the ever changing and growing needs of our consumers.

PEOPLE
We recognize that our people, the Alaska Team Members, are one of our most important assets and we are committed to promote their safety and welfare. Their wealth of experience, ideas, dedication and strong work ethic lay the foundation for the Companys continued success. It is our goal as much as it is theirs, to pursue and reach their full potentials through continuing education, training, and skills-enhancement programs. We challenge each individual by providing the opportunity to contribute to the Companys endeavors.

CUSTOMER SERVICE
Customer relationships are integral in building the Alaska business. We aim to provide our partners in trade the best and most efficient service, making use of leading edge technology to ensure timely product availability and accessibility. We strive to know and understand our customers fully to bridge the gap between what they need and what we can offer.

PROFITABLE GROWTH
Growth that creates value for our shareholders is paramount. We will deploy our resources on investment opportunities that are within our core competence and yield excellent returns relative to its risks and which are consistent with our growth objectives.

QUALITY
Ultimately, the consumer whom we serve and their level of satisfaction with our products become our final judge and jury. We are committed to deliver high quality milk and other consumer food products from production to consumption. We will respond to the call to deliver higher quality nutrition to every Filipino home.

SOCIAL RESPONSIBILITY
We recognize our role in nation building by promoting the protection of the environment and taking part in various community-building projects that help enhance and uplift the quality of life of the underprivileged and the marginalized sectors of our society.

2010 Annual Report

Our Business Portfolio

Honde Sal
Paborito ng Pamilya!

LIQUID CANNED MILk

For nearly forty years, the Alaska brand has always been associated with quality and nutrition. The Companys first generation of milk products are Alaska Evaporated Filled Milk and Alaska Sweetened Condensed Filled Milk. Collectively known as the Classic Line, product usage has since expanded from a nutritional beverage to a multi-purpose cooking ingredient. To address the needs of the low-income earners for more affordable products, the Company also developed a Value Line of evaporated and sweetened condensed creamers in the market. Priced competitively and with the same Alaska Milk seal of quality, Alaska Evaporada and Alaska Condensada are the perfect enhancers for various food and beverage preparations. The Alaska brand is the undisputed market leader in both the Evaporated and Condensed Milk Categories. The Company has further strengthened its core business by acquiring / licensing the liquid canned milk business of global food giant Socit Des Produits Nestl S.A. In a deal signed on April 16, 2007, Alaska Milk Corporation bought from Nestle the Alpine, Liberty and Krem-Top brands, including all trademark properties. Also included in the deal is a long-term licensing agreement for AMC to manufacture and sell the Carnation and Milkmaid brands for liquid canned milk products. Each of these brands has a strong market position, a loyal customer base and a brand name associated with quality. In line with the Companys thrust of providing affordable and quality products to a greater number of consumers, an economy brand was made available in the market. Launched in 2009, Cow Bell Condensada addresses the needs of a growing price-conscious market, specifically the low-income earners. Today, Alaska Milk Corporation has a dominant position in the liquid canned milk category, accounting for nearly 80% of the market.

2010 Annual Report

Our Business Portfolio

POWDERED MILk
The Company has likewise built a solid position in the Powdered Milk Category. With the heritage gained by the Alaska line of liquid canned milk products, the Companys Alaska Powdered Milk Drink, the most nutritious powdered milk, has emerged as the second leading brand in the market. The successful Growth Gap Campaign was instrumental in sustaining consumer awareness on the benefits of drinking milk, especially among school-age children where weight and height gained during infancy progressively lessen over the years until the child reaches puberty.

UHT READY-TO-DRINk MILk

Alaska Milk Corporation also offers a line of Ready-to-Drink milk products that come in both plain and flavored milk. The Companys line of Ready-to-Drink milk products use Ultra Heat Temperature (UHT) process combined with aseptic packaging to ensure product quality, hygiene and longer shelf life. Alaska Fresh Milk contains the essential vitamins and minerals for healthy bones and teeth. It also contains energy-giving carbohydrates to suit the active lifestyle of every member of the family. Alaska Slim Milk, a 98% fat-free fresh cows milk, suits the nutritional needs of the weight and health conscious milk drinkers. Alaska Slim has all the calcium and minerals of regular milk, with less of the fat. To encourage milk consumption among children, a range of ready-to-drink flavored milk drinks under the brand names Alaska Choco! and Alaska Sweet Milk! are likewise available in the market. Alaska Yoghurt Drink is a ready-to-drink milk naturally fermented with good bacteria which promotes proper digestion. It comes in four fruity flavors: Strawberry, Blueberry, Orange and Green Apple.

UHT READY-TO-USE PRODUCT

Alaska Crema All-Purpose Cream is a result of the Companys effort to broaden its product portfolio in higher value-added segments. Launched in 2003, Alaska Crema enhances the taste of a variety of food preparations, bringing gourmet goodness at home.

NON-DAIRY COFFEE CREAMER

The latest addition to the Companys portfolio of quality products is Alaska Krem-Top Coffee Creamer. A non-dairy coffee creamer, Alaska Krem-Top enhances coffee experience with its rich flavor and aroma. In a blind test, more coffee drinkers in Metro Manila like Alaska Krem-Top better than the leading coffee creamer brand.

The Heart of Alaska

Chairmans Message

his is my first report as Chairman of Alaska Milk Corporation after twelve years as Vice Chairman and I write to you with mixed emotions. One borne out of humility, for the trust and confidence the Board has bestowed on me and that of pride, for the great accomplishments we have achieved for the year.
Our marketing and sales strategies were complemented by continuing investments in manufacturing capacity expansion and operating efficiencies. While we have begun to realize initial benefits from these capital investments, more gains will materialize in the coming years with the completion of these projects. With a growing product portfolio and brand strategies, we are well positioned to respond to deliver higher sales volumes amidst stronger consumer demand. In 2010, we entered the non-dairy coffee creamer category with the launch of Alaska Krem-Top Coffee Creamer. Alaska Krem-Top is a significant step in our continuing effort to expand our business portfolio and provide the Filipino consumers with affordable and quality products. With a strong heritage in the milk industry, we believe we are in a unique position to capitalize on this opportunity which will support our overall long-term growth objective. Our strong financial performance and competitive dividend yield continue to generate strong interest from the investing public. From a share price of P7.10 at the start of 2010, AMC share price gained 85% to close at P13.10 by year-end, outperforming the local composite index which increased by 38% during the comparable period. Our accomplishments in 2010 have definitely established a higher performance level moving forward. In December 2010, the Board reviewed managements strategic plan that focuses on continuing high growth and sustained profitability. Our priority in the immediate term is to continue to extract growth from our core milk products and fast-track development of new products and entry into new categories. We entered 2011 amidst growing inflationary pressures, adding uncertainties to economic recovery around the world. Soaring oil, food and commodity prices have been feeding inflation, which puts pressure on household budgets. Our assessment of the current market conditions highlight the need to continuously innovate in our marketing and selling efforts to effectively communicate our value proposition to

The results for the year certainly reflect our strong commitment to deliver higher levels of performance and value to our customers, consumers and shareholders. The Philippine economy grew at its strongest in 34 years at 7.3% in 2010 from 1.1% in 2009, aided by the recovery of exports and manufacturing, accommodative monetary and fiscal policies as well as election spending. Sustained remittance inflows, combined by stable food prices boosted consumer spending which expanded by 5.3% from 4.1% in 2009. Investor sentiment likewise remained bullish, which saw a 38% gain in the Philippine stock markets main index. With the sharp rebound in the economy, the Peso further appreciated by 5.3%, to settle at P43.88 to the U.S. dollar by year-end. With the favorable economic environment, your Company made significant progress, capitalizing on market opportunities as we continue to position our business for long-term growth. Our focus on promoting and growing our brands, building on our capability and expanding market presence as well as share of market enabled us to surpass our volume and profit goals for the year. Net income in 2010 reached P1.82 billion, 29% higher than the previous years net income and the highest in the history of the Company. This was achieved as a result of robust sales volume growth across our product portfolio, complemented by a stable cost environment and continuing focus on improving operating efficiencies. As consumer spending remained buoyant, we were relentless in pushing our products in the market through strategic advertising and promotional campaigns that capture the interest and diverse needs of consumers. Collaborative efforts with our retail trade partners ensured extensive exposure for our brands. Every initiative undertaken has been guided by a conscious effort to satisfy our consumers to the extent that they consistently choose our products over competition.

The Heart of Alaska

Our accomplishments in 2010 have definitely established a higher performance level moving forward.

our consumers. This will be supported with trade and distribution strategies to strengthen market coverage and product availability. In these challenging times, we will ensure that our company will live up to the expectations of our consumers and we will face these challenges equally. On behalf of the Board, I wish to take this opportunity to express our deepest gratitude and appreciation to our former Chairman, the late Wilfred Uytengsu, Sr., for his valuable contribution to the growth of Alaska Milk. It was under his stewardship and vision that we now have a strong and highly committed organization, built under the solid foundation of mutual respect and integrity. Thus, it is an honor for me to build upon this legacy as I step into a bigger role and responsibility of charting the next course for Alaska Milk.

In closing, I would like to recognize the valuable contribution of each and every Team Member in the organization, for their dedication and commitment to the objectives of the Company; to our business partners and consumers, for their abiding trust and support; and finally, to our shareholders, who continue to believe in the inherent value of Alaska Milk Corporation.

ANTONIO H. OZAETA Chairman of the Board

2010 Annual Report

President & CEOs Message

s the Philippine economy expanded to its strongest level in over three decades, I am pleased to report that your Company capped another year of solid financial results. Revenues for the year expanded by 15% to P12.16 billion from P10.58 billion in 2009 as a result of sales volume gains in our core milk products as well as incremental sales generated from new product launches. With the improvement in the Companys cost structure, combined with a disciplined approach on spending, net income for the year surged to a new record high of P1.82 billion, a 29% jump over the P1.41 billion net income earned in 2009.
Our achievements for the year can be credited to two factors. First, the soundness of our business platform which consists of: harnessing the strengths and full potential of our brands, deepening our relationships with customers and consumers and maintaining a strong balance sheet. Second, is the dedication and expertise of our Team Members across the organization. Dismissing conventional wisdom that a mature market limits growth, we continued to create demand in order to generate sales and expand our consumer base through value-added marketing initiatives. We have expanded our brand portfolio and packaging options to address the needs of an economically diverse market. As a result, we maintained our dominance in the liquid canned milk category, solidified our position as the second leading brand in the powdered milk market and carved a bigger market share in the UHT ready-to-drink and ready-to-use segments. Cognizant of our thrust to capitalize on the market value of our acquisitions and develop new avenues of growth in the future, Alaska Krem-Top Coffee Creamer was formally launched in July 2010. With a superior product profile, we are confident that Alaska Krem-Top will achieve a significant following in the non-dairy coffee creamer market. As we build on our revenue base, we continue to explore opportunities and frontiers within the dairy industry which have strong growth potentials and where we can become an important player. We are continuing to develop new products as we work to leverage the equity our brands have in the market and products that will meet and exceed consumer expectations. As reported last year, the devastation wrought by Typhoon Ondoy impacted us significantly in the fourth quarter of 2009, causing disruptions in our supply chain and falling short of market requirements. Through extensive rehabilitation efforts, your Company fully recovered from this unexpected calamity. With our ongoing expansion and modernization programs, we stand ready with increased production capacity and the confidence that the current strong demand is sustainable. We recognize that our supply chain is a vital cog in our aspiration to provide nutrition to every Filipino home. And as such, we continue to hone our logistics and distribution network in our resolve to bring our products to the smallest sari-sari stores and ultimately to the humblest homes. Supply quality and stock availability programs were carried out in earnest during the year. Technology enhancements, through the interconnection of all provincial warehouses under an integrated and seamless inventory management system, have enabled us to distribute our products more efficiently and cost-effectively than before. We have been resolute in growing our business by sharpening our engagement with our consumers at the point of purchase. To maximize trade coverage and spur consumer trial and re-trial for our products, our sales efforts concentrated on improving visibility and reach through aggressive penetration drives. Close collaboration with modern retailers enabled us to capitalize on their store expansions. Specialized in-store promotions and trade programs afforded us the flexibility to bolster the presence of our products in newly urbanized areas, capturing new consumers almost immediately. For 2011, about 130 new stores are expected to be opened by the Companys top retail accounts, representing a real growth opportunity as we bring our products closer to the consumers. Our investments in brands and infrastructure would be ineffective without corresponding investments in human capital. Along this line, we continue to develop the capabilities and competencies of our Team Members across the organization as well as those of our distributorpartners. Through development programs that are attuned to the ever-changing selling dynamics, we are able to draw out the best in our people and make them better understand and be more responsive to the growing needs of a highly segmented market.

10

The Heart of Alaska

We intend to retain our competitive vigor, determined to further cementing our position in the domestic milk market.

A welcome treat for the year was the victory of our professional basketball team, the Alaska Aces, in the 2010 Philippine Basketball Associations Fiesta Conference. This brings the total number of championship titles for the team to 13 in 25 years, making the Alaska Aces the second winningest team in terms of number of championship wins in the history of the PBA. This year, however, we are once again faced with strong inflationary pressures similar to those experienced in 2008, a concern that is shared by businesses and governments around the world. With memories of the 2008 inflation surge still vivid, rising energy cost and soaring global food prices pose downside risks especially on consumer spending, threatening economic recovery. Prices of skimmed milk powder, a key ingredient in most of our products, have risen sharply early on in 2011 driven by global demand and poor weather conditions in Australia

and New Zealand, two of the worlds largest exporter of dairy products. Furthermore, local costs of sugar and coconut oil have likewise increased drastically, adding pressure to profit margins. It is unlikely that this trend in commodity prices will reverse in the short-term. While we recognize the realities of the marketplace, we take these as a challenge for us to better ourselves. We intend to retain our competitive vigor, determined to further cementing our position in the domestic milk market and delivering on our full potential as an organization. I am confident that the soundness of our business model and strategies will give us stability through difficult times and optimistic that this will make us stronger.

WILFRED STEVEN UYTENGSU, JR. President & Chief Executive Officer

2010 Annual Report

11

The Heart

of ALASKA

Childrens Hour
Childrens Hour began with a noble dream wrapped in a single package: to create a brighter future for Filipino children. It was in 1999 when Childrens Hour began as an end-of-the-millennium campaign built on the promise that the one hours worth of annual earnings of each individual, employee, corporation and organization would be able to start the change that we all dreamt of. At present, Childrens Hour is now a full force non-profit organization that raises funds through the power of one hour. These funds are then deployed to carefully selected projects that help children in the areas of education, nutrition, shelter, protection and total development in the form of grants. All children deserve to get an education, to live healthy and happy lives, and to look forward to a brighter future where they can fulfill their potential. The truth is, everyone who has a job and a regular income, no matter how small, can make a difference in the lives of marginalized children, explains Ms. Emily Abrera, Chairperson of Childrens Hour Philippines, Inc. To date, from the contributions of individuals, organizations and partner The Alaska Milk corporations, Childrens Hour has funded 545 campaigns for Childrens projects that benefitted over 600,000 children Hour are always creative all over the country. and unique. Alaska Milk Corporation and Childrens Hour have enjoyed a long collaboration, spanning 10 years of shared goal of nurturing Childrens Hour Director the Filipino children. The Company was

Emily Abrera

one of the first companies to join Childrens Hour in 1999 and has been recognized as one of the organizations Top 20 contributors. Since Childrens Hours inception, officers and employees of Alaska Milk Corporation have raised a total of P2.2 million with an average employee participation rate of 90%. A staunch supporter of the Childrens Hour, AMC President and CEO Wilfred Steven Uytengsu went the extra mile by personally raising funds by competing in the 2009 Ironman World Championships in Kona, Hawaii. Ms. Abrera adds, Fred Uytengsu is one of our strongest champions. He himself is tireless in promoting our cause within the company, as well as raising extra funds via the Alaska Aces and through his personal contacts. The Alaska Milk campaigns for Childrens Hour are always creative and unique and unlike most of our donors, it is Alaska Milk who comes up with the ideas and presents those to us. To commemorate the 25th year of the Alaska Aces, Alaska Milk and Childrens Hour is launching yet another co-branding project wherein for every 1 liter of Alaska Fresh and Alaska Slim sold, 25 centavos will go to the Childrens Hour. Alaska Milk looks forward to a continuing partnership with Childrens Hour in making the world a better place, one hour at a time.

14

The Heart of Alaska

[ children lie at the heart of alaska ]

[ home is where the heart is ]

Alaska GK Village
In 2005, Alaska Milk Corporation together with the municipality of San Pedro, Laguna and the Gawad Kalinga Community Development Foundation laid the groundwork to build a community of 100 homes for the poorest of the poor. Gawad Kalinga (GK), which means to give care in Filipino, is a community development model and social movement founded in the Philippines in 1995. Its mission is to transform a nation by creating peaceful and self-reliant communities, anchored on the values of caring and generosity. It seeks to restore the dignity of the poor. People struggling to survive one day at a time and living in makeshift homes are given a chance to build their own homes and re-build their lives. More than providing a decent roof over their heads, GK also aims to develop community leaders and transform residents to be productive members of society, instilling in them the heart and capacity to help not only themselves but others as well. Guided by the belief that good community relationships is key for the business, the housing project is Alaska Milks modest way of giving

Alaska Milk believes that providing decent homes and livelihood programs are just the beginning of the transformation of a person, a family and a community.

back to the people of San Pedro who have contributed so much to the companys growth. San Pedro is home to the companys manufacturing facilities for nearly 40 years. Through the spirit of bayanihan (cooperation), the AMC-Gawad Kalinga Housing Project bore witness to a deeper meaning of social awareness and volunteerism among Alaska Milk employees. Under warm camaraderie, company employees, from senior management to plant personnel, worked together with the intended beneficiaries in constructing homes. More than providing financial assistance, the housing project is all about active involvement in building a shared community, nourishing the homeless dream for a better life. Five years later, 30 additional or a total of 130 homes now stand in what used to be a barren area. Wastelands have now been replaced by a multi-purpose hall, a day care center and a basketball court. As importantly, AMC fused their hopes for better lives by conducting training and skills development programs that will help address the residents economic needs. Livelihood training programs such as furniture making and making bags out of recycled packaging materials have been started within the community, with recyclable materials being supplied by Alaska Milk. Alaska Milk believes that providing decent homes and livelihood programs are just the beginning of the transformation of a person, a family and a community. Long after the last brick has been laid, Alaska Milk will continue to support its adopted community. After all, home is where the heart is and where your heart is, there shall your riches be.

2010 Annual Report

17

Happyland
Jim Libiran (Direk Jim), a former broadcast journalist, gained acclaim as an independent film maker through his debut film Tribu in 2007. The film, which shows street life and gangster culture in Tondo from an impoverished boys point of view, bagged Best Film, Best Actor and Best Sound Awards in the Philippines 2007 Cinemalaya Festival. The film was given the Pari de lAvenir Award by the Festival Paris Cinema in 2008. Fast forward to 2010, Direk Jim returns once more to the streets of Tondo for his second movie Happyland. If Tribu showed the dark and violent side of poverty in the Philippines, Happyland tells about finding hope and redemption in the face of desperate circumstances. It tells of a story of how ones ambition survived in one of Manilas poorest and roughest slums. The movie, based on true events that happened during the 1970s 80s, traces how an odd group of young misfits found inspiration in football. These boys eventually formed a football team that became legendary for playing barefoot (futkaleros) because they could not afford to buy shoes. Direk Jim describes the film as a coming-of-age story about poor young kids who learned to dream big and dared to fight for their simple goal.

Happyland is a comingof-age story about poor young kids who learned to dream big and dared to fight for their simple goal

Jim Libiran
Independent Film Director

Direk Jim saw the need to develop grassroots football in the country. From this dream, he envisioned, what he calls a three-legged social project an NGO to teach Futbol sa Kalye, a Tondo Futbol Team as proof of success, and a film to inspire the young (Happyland). The film is just part of a bigger dream. But to turn the vision into reality, Direk Jim needed support from the private sector. Thanks to what he considered divine intervention,

Direk Jim got introduced to Alaska Milk Corporations own sports development program the Alaska Football Power Camp. Alaska Milk has always believed that structured recreations can serve as a powerful tool in building a childs character and self-confidence. The Company also saw the movie as a vehicle to promote its advocacy on health and nutrition among the youth. A tie-up was then forged between Direk Jim and Alaska Milk Corporation, with the latter providing invaluable support to make the movie a reality. The best parts of the film are the football match scenes which give insights on how the fultkaleros play the game. For his part, Direk Jim is thankful for the partnership with Alaska Milk and its support to this creative endeavor. Doing service to the community is good business and good business goes hand-in-hand with a healthy nation. The movie is an ideal fit to Alaska Milks CSR activities considering its products are milk-based and children are its primary market, Direk Jim adds. Following good reviews for the film, plans are underway to show Happyland in schools and poor communities all over the country to help bring the message of hope and resilience amidst adversities. Direk Jim hopes the film will inspire more youth to take up football and get them out from a drug and crime-filled life. Alaska Milk Corporation is one in supporting Direk Jim and Happyland in its mission of promoting positive values among the youth and inspiring them to reach their full potential for a better Philippines. These are challenging times for us as a nation, Direk Jim says. If we want to reach the peak of progress and Filipino potential, we need to forge new relationships, new alliances, and develop new ways of doing business and art.

18

The Heart of Alaska

[ striking a goal in the hearts of youth ]

[ heart of a champion ]

The Alaska Aces

LA Tenorio would race through the basketball court as a diminutive but lightning fast pointguard. Off-guard Cyrus Baguio, on the other hand, would equal LAs move with acrobatic drives to the hoop. Their combined agility would bring the crowds to euphoric cheers as the impossible becomes possible, all for the love of the game. LA and Cyrus hold the honor of sharing the MVP title of the 2010 PBA Fiesta Conference Cup finals. Together with the rest of the squad, the Alaska Aces For me, a champion is how underscored their mastery of the game to clinch one plays the game, how you the 2010 PBA Fiesta Conference championship play as a team. over heavily favored San Miguel. The Alaska Aces is Alaska Milks franchise in the Philippines Professional Basketball Alaska Aces Point Guard Association (PBA). The 2010 PBA Fiesta Conference crown brings the number of championship wins for the team to 13, earning them the distinction of being the second most winning team in terms of number of championship titles in the history of the PBA. The championship was made more special as it was dedicated to former AMC Chairman Wilfred Uytengsu Sr. When asked what makes a champion, LA Tenorio has this to say: For me, a champion is how one plays the game, how you play as a team. More than winning the game, it is how you stand up as a team when you fall. How one picks up the pieces after a failure is for me what makes a champion. It is finding strength through all the adversities. Cyrus complements these words with: A champion is nothing A champion is nothing without his team. We without his team. We perform best when we trust one another. It is perform best when we all about focus, confidence and teamwork. It is trust one another. success out of all the efforts and hard work that we put together as a team. Through its 25 years of existence, the Alaska Aces Shooting Guard Alaska Aces has always lived by the values of determination, discipline, hard work and teamwork. It is a mirror image of Alaska Milk Corporations relentless passion and drive to deliver only the best and to rise above every challenge. We take great pride in our players, individual champions who lay down their own needs for the benefit of the common good and who live by a higher personal standard. These are the qualities that are embedded in the companys corporate culture and most of all, in the hearts of each Team Member of Alaska Milk Corporation.

L.A. Tenorio

Cyrus Baguio

2010 Annual Report

21

Values-Inspired Campaigns
Over the years, Alaska Milk Corporation has created communication campaigns that help build a strong connection between its products and its consumers. With the timeless tagline: Sa sustansyat lasa, wala pa ring tatalo sa Alaska (in nutrition and taste, nothing beats Alaska), Alaska Milk has since been associated with providing quality milk products for good nutrition and health. As a responsible corporate citizen, we are committed to making a difference to society at large. Along this line, the Company believes that its brands can be used as a tool to uplift the lives of Filipinos by championing social causes that promote changes in behavior and attitudes.

the Company believes that its brands can be used as a tool to uplift the lives of Filipinos by championing social causes that promote changes in behavior and attitudes.

In 2010, two award-giving bodies recognized two of the Companys advertising campaigns for marketing excellence. The Ginang Alaska Integrated Marketing Communication (IMC) Campaign won the Silver Prize for Best Family-Oriented Brand Campaign and the Bronze Prize for Best Established Product Brand Campaign in the 2010 UA&P Tambuli Integrated Marketing

Communications Effectiveness Awards. The UA&P Tambuli Awards is the first and only award in the Philippines that recognizes both the business and societal values of marketing communication campaigns. It complements existing industry awards based solely on either creative merit or human values by recognizing integrated campaigns proven to deliver positive results for both the companies shareholders and society at large. The multi-media campaign of Liberty Condensada, entitled Lambing, on the other hand, won the Silver Medal for Reverence for Family Unity and the Inviolability of Marriage Category in the 2010 Araw Value Awards. Liberty Condensadas Lambing is a concentrated area marketing campaign implemented in Visayas and Mindanao which communicated the sharing of lifes sweetest moments among family members. The Araw Value Awards is organized by the Advertising Foundation of the Philippines, the social development institution of the advertising and marketing communications industry. The awards recognize advertising and marketing communications that promote values for national progress. Moving forward, Alaska Milk Corporation pledges that its marketing campaigns will continue to be relevant with the times, going beyond creative executions. As always, they will be driven by the same purpose that has distinguished the Company one that is aligned with the aspirations and development goals of our nation.

22

The Heart of Alaska

[ the heart of our campaigns ]

Chief Financial Officers Report

Net sales for 2010 grew by 15% to P12.16 billion from P10.58 billion a year ago, underpinned by the double-digit growth of the domestic milk market as the Philippine economy sharply rebounded from the slowdown in 2009. In addition, sustained advertising campaigns and demand-generating promotional initiatives help pushed sales volumes higher yearon-year, a significant achievement amidst aggressive competition and market challenges. The year 2010 also saw a moderation in price movements of production inputs. This was largely achieved as a result of the Companys strategic buying initiatives to secure forward supply contracts for key commodities skimmed milk powder, sugar, coconut oil and tinplates. With the favorable cost environment coupled with the appreciation of the Philippine Peso against the U.S. Dollar, cost of sales for the year grew at a slower pace of 11% at P7.56 billion from P6.82 billion in 2009. As a result, gross profit jumped 22% to P4.60 billion or 37.8% of net sales from P3.76 billion or 35.6% of net sales the prior year. Operating expenses for the year increased significantly, by 22% at P2.28 billion from P1.87 billion in 2009. The increase can be attributed to higher advertising and promotional spending to boost consumer demand for Alaska Milk products. In addition, higher distribution-related charges attendant to increased sales volume pushed operating expenses higher year-on-year. This put operating income for the year at P2.33 billion or 19.1% of net sales, a 23% increase from the 2009 operating income of P1.89 billion or 17.8% of net sales. As Alaska Milk carried on to improve its profitability, we kept our commitment to reward our shareholders and at the same time, ensure that significant capital is set aside for reinvestment to support future business plans. For 2010, the Company declared a total P0.50 per share in regular and special cash dividends. This translates to a 4.8% cash dividend yield based on

laska Milk Corporation delivered another year of solid performance, ending 2010 with a new record net income of P1.82 billion, a 29% improvement over the P1.41 billion net income earned in 2009. Fueling the growth was the strong sales volume expansion across the Companys portfolio of milk products alongside lower input costs as well as prudent spending.
a weighted average share price of P10.43 and is equivalent to a 31% payout of 2009 net income. During the year, 7.3 million common AMC shares worth P50.5 million were re-acquired under the Companys share buy-back program, a testament to Managements confidence in the underlying value of the business. Market capitalization at year-end stood at P11.5 billion, up 82% from P6.3 billion in the same period last year. The Company continues to generate strong cash flows from its operations, which amounted to P1.75 billion in 2010. This pushed interest income for the year higher at P48.75 million from P24.65 million in 2009. Internally generated funds were used to fund the Companys capital expenditure requirements which amounted to P347 million in 2010. Cash, cash equivalents and short-term investments as of endDecember 2010 totaled P2.94 billion compared to P1.90 billion in the same period last year. This puts our Company in a solid position to pursue growth objectives that will create value in the years to come. Our balance sheet likewise remained sound. As of December 31, 2010, total assets stood at P9.14 billion, posting a 26% increase from the December 31, 2009 level of P7.27 billion bolstered by a higher cash balance. Total inventories ended the year higher at P2.12 billion from P1.15 billion in the same period last year on account of higher cost per unit of raw materials combined with the purposive build-up of skimmed milk powder position going into 2011. Notwithstanding the 15% increase in net sales, total trade receivables at year-end edged 3% lower at P825 million from P849 million a year-ago on the back of improvements in collection turnover. Total liabilities stood at P3.09 billion, 19% higher than the end-2009 liabilities of P2.59 billion attributed to higher import bills and trade payables attendant to increased commodity prices as well as higher cash dividend payable due to a higher cash dividend

24

The Heart of Alaska

We remain committed towards a more solid financial position that will enable our Company to withstand even the most trying business conditions.

declaration for 2010. The current ratio as of endDecember 2010 was 1.93:1.00, an improvement from the 1.55:1.00 current ratio for the same period last year. Debt-to-equity ratio, on the other hand, improved to 0.51:1.00 from 0.55:1.00 in 2009. Indeed, our performance for the year reflects our resolve as an organization to develop clear-cut strategies and to execute them effectively, promoting healthy growth while at the same time, ensuring financial stability. Despite the challenges facing global economies in 2011,

we remain committed towards a more solid financial position that will enable our Company to withstand even the most trying business conditions.

JOSELITO J. SARMIENTO, JR. Senior Vice President & Chief Financial Officer

2010 Annual Report

25

Managements Discussion & Analysis of Operations

Riding on the heels of a resurgent consumer market, domestic consumption of both liquid canned milk and powdered milk products grew at double-digit rates compared to 2009 levels, their fastest in five years. The milk markets expansion was likewise stimulated by continuing efforts among key industry players to encourage demand through extensive advertising campaigns and promotional activities.
Through programs designed to take full advantage of a growing economy, Alaska Milk Corporation achieved record revenues and profits in 2010. From P10.58 billion a year ago, net sales for 2010 grew 15% to P12.16 billion on account of higher sales volume. Sales volume growth was broad-based, with all business segments registering healthy growth rates alongside market share gains. Collectively, sales volume of the Companys liquid canned milk business evaporated milk and sweetened condensed milk, posted strong double-digit growth rates for the year as product availability became more stable following supply disruptions in the aftermath of the September 2009 flooding. Investments in capacity expansion provided manufacturing headroom to meet growing demand and seasonal surges. Alaska Milk maintained its dominance of the liquid canned milk market despite the continuing presence of cheaper imported milk brands. In 2010, the Company capitalized on the growing trend towards economy brands with the nationwide distribution of Cow Bell Condensada, winning new customers and to some extent, regaining the interest of lapsed milk users. Alaska Evaporada and Alaska Condensada continue to be regarded as the most preferred milk creamer in the market. Creative marketing initiatives stimulated excitement in the industry especially during high-demand seasons. Renewed emphasis was placed on developing new markets to expand consumer base, especially among grassroots businesses. The Alaska Classic Line of liquid canned milk products Alaska Evaporated Filled Milk and Alaska Sweetened Condensed Milk, continued to enjoy strong patronage among its core loyal patrons. Tactical promotions and brand-building programs strengthened the products position in the upscale market segment. Carnation, Milkmaid, Liberty and Alpine, the Companys licensed and acquired milk brands, likewise performed well on robust sales. Various consumer initiatives as well as advertising campaigns that encourage everyday usage of milk through multifarious culinary applications contributed to strong sales volume growth. Channel-specific sales and marketing programs strengthened the brands leadership position in key regions of the Philippines. While our marketing objectives do not include winning advertising awards but rather reinforcing the image of our brands, which mostly strongly and closely represents the values and aspirations of our consumers, two of our brand campaigns were recognized for their marketing excellence. The Ginang Alaska Integrated Marketing Communication Campaign won the Silver Prize for Best Family-Oriented Brand Campaign and Bronze Prize for Best Established Product Brand Campaign in the 2010 Tambuli Integrated Marketing Communications Effectiveness Awards. Organized by the University of Asia and the Pacific (UA&P), the Tambuli Awards is the first and only award in the Philippines that recognizes both the business and societal values of marketing communications campaigns. The Liberty Condensada multi-media campaign entitled Lambing, on the other hand, won the Silver Medal for Reverence for Family Unity and the Inviolability of Marriage Category in the 2010 Araw Values Award. The Araw Value Awards, organized by the Advertising Foundation, is one of the most prestigious creative competition in the Philippine advertising industry. Sales volume of the Companys powdered milk business likewise expanded on the back of increased consumption alongside brand-building activities. Amidst fierce competition from rival brands, Alaska Powdered Milk Drink continued to strengthen its hold as the second leading brand in the powdered milk market. Branding

26

The Heart of Alaska

My ties with ALASKA is not just business; it has evolved into friendship and family. I can honestly say that I never experienced that in my 25 years in the entertainment industry.
Popular Television Host and Celebrity

I grew up on ALASKA products and I am very grateful for the support the company has given me. We share a long, time-tested relationship which I truly treasure.
Popular Television Host and Celebrity

Janice de Belen

Gelli de Belen

Managements Discussion & Analysis of Operations

campaign to improve perception and consumer loyalty was carried out alongside sponsorship of sales-generating events that support the Alaska brands equity in health and sports. In an effort to make the Alaska Powdered Milk Drink affordable for almost every consumer, a new economical, 33g packaging format was launched in 2010. The Companys UHT ready-to-drink and ready-to-use business sustained its growth trajectory, with sales volume posting high double-digit growth rates, significantly faster than the markets expansion. Consumers appetite for the Companys portfolio of ready-to-drink milk products: Alaska Choco, Alaska Sweet Milk, Alaska Fresh, Alaska Slim and Alaska Yoghurt Drink, remained strong on improved brand and retail management. On-site consumer promotions were executed to sustain demand and increase point-ofsale purchases. Significant gains were equally achieved for Alaska Crema All-Purpose Cream. Alaska Crema continued its strong showing with sales volume growth maintained at robust levels on the back of the brands pricing advantage. Relevant consumer marketing events as well as crosspromotional initiatives and co-branding activities enhanced the profile of Alaska Crema, making it the second leading brand in the category. During the year, Alaska Krem-Top Coffee Creamer was launched to capitalize on the opportunities in the non-dairy coffee creamer market. Alaska Krem-Top Coffee Creamer has gained overwhelming consumer response, manifested by very positive consumer feedback on the products superior taste and quality. Alaska Milk also began a strong marketing campaign in line with its strategic thrust to bring Alaska Krem-Top Coffee Creamer in the mainstream market alongside efforts to extend distribution and reach for the product. Complementing the success of AMC in differentiating its product offerings through communication campaigns is the continuing improvements in its distribution system, which enabled the Company to capture untapped and underserved retail outlets. Emphasis was placed on developing institutional accounts and strengthening customer relationships. Focused account management and trade-channel executions, supplemented by trade incentives and tactical distribution drives, further enhanced availability and visibility of Alaska Milk products in primary outlets. Logistical operations was also enhanced to improve product distribution, in the most efficient and cost-effective manner. Cost of sales for the year grew at a slower pace of 11%, at P7.56 billion from P6.82 billion a year ago, stemming from a stable cost environment combined with improvements in operating efficiency. Successful commodity hedging contracts made during the latter part of 2009 and early 2010 preserved the lower cost of key raw materials through most of the year, notwithstanding the sharp increases in commodity prices during the second half of 2010. The general weakness of the US Dollar against the Philippine Peso likewise mitigated the impact of rising cost of imported raw and packaging materials, including skimmed milk powder and tinplates. In addition, improved production and process capability on account of investments made in new machineries and equipment translated to higher efficiencies and better yields on material usages. All told, gross profit for 2010 swelled by 22% to P4.60 billion from P3.76 billion a year ago. Gross profit margin for the year likewise improved to 37.8% from 35.5% in 2009. Operating expenses for the year rose 22% to P2.28 billion from P1.87 billion in 2009 on the back of heightened trade marketing support and brand advertising to sustain sales volume growth and drive consumer demand for Alaska Milk products. In addition, higher distributionrelated charges attendant to increased sales volume pushed operating expenses higher year-on-year. This brought operating income for the year at P2.33 billion, 23% higher than year-ago operating income of P1.89 billion. Operating margin was likewise higher by 1.2 percentage points at 19.1% compared to 17.9% in 2009. Net interest earned income for the year amounted to P48.7 million from P22.2 million in 2009 as a result of higher cash balance, despite lower interest yields. The Company incurred foreign exchange losses of P40.32 million on account of the unexpected appreciation of the Philippine Peso against the US Dollar. After considering corporate income tax, net income for the year ended at a recordhigh of P1.82 billion or 14.9% of net sales, 29% higher than year-ago net income of P1.41 billion or 13.3% of net sales. Earnings per share for 2010 was up 30% at P2.06 against the 2009 level of P1.59.

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The Heart of Alaska

As a father, I only want whats best for my children. Thats why I only give them milk with the highest level of nutrients relevant to the Growth Gap years Alaska Powdered Milk Drink

Cesar Montano with Samantha and Chesca

Popular TV Host, Actor and Director

10 09 08 07 06
0 2000

12,163
10,580 9,968 9,082 5,921
4000 6000 8000 10000 12000 14000

10 09 08 07 06
0

2,327
1,889 464 950 514
500 1000 1500 2000 2500

Net Sales (In million pesos)

Operating Income (In million pesos)

10 09 08 07 06
0

2,762
2,241 789 1,199 633
1000 2000 3000

10 09 08 07 06
0

1,816
1,409 291 667 402
200 400 600 800 1000 1200 1400 1600 1800 2000

EBITDA (In million pesos)

Net Income (In million pesos)

2010 Annual Report

29

I love how good the coffee smells with Alaska Krem-Top. And even if you look at the consistency, you can tell its creamier and finer.
Popular Television Host and Celebrity

Ryan Agoncillo

Managements Discussion & Analysis of Operations

The Companys total assets amounted to P9.14 billion as of December 31, 2010, an increase of 26% from P7.27 billion in 2009 mainly due to higher cash balance and higher inventory. Cash and short-term investments ended the year 55% higher at P2.94 billion from P1.90 billion largely attributable to higher profitability. Owing to higher cost per unit of primary raw materials and purposive build-up of skimmed milk powder position going into 2011, inventories as of end December 2010 amounted to P2.12 billion, 84% higher than year-ago inventories of P1.15 billion. Property, plant and equipment, net of depreciation and retirement, amounted to P1.56 billion from P1.52 billion due to capital investments made during the year. Total liabilities increased by 19% to P3.09 billion from P2.59 billion on account of higher import bills attendant to higher cost of skimmed milk powder. Also contributing to the increase in liabilities is the higher income tax payable on higher taxable income and higher cash dividends payable attributed to higher cash dividend declaration in 2010. Total stockholders equity, on the other hand, increased to P6.05 billion from P4.68 billion in 2009 primarily due to the higher net income realized in 2010, net of cash dividends declared for the year of P434 million. During the year, the Company re-acquired 7.3 million of its common shares under its Share Buy-Back Program for a total value of P50.5 million. The Companys current ratio as of December 31, 2010 was 1.93:1.00, higher than year-ago current ratio of 1.55:1.00. The level of indebtedness, on the other hand, improved with a debt-to-equity ratio of 0.51:1.00 compared to 0.55:1.00 a year ago.

10 09 08 07 06
0.0

2.06
1.59 0.32 0.70 0.42
0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0 2.2

Earnings Per Share

10 09 08 07 06
0.0

0.50
0.20 0.30 0.30 0.20
0.20 0.40 0.60

Cash Dividend Per Share

10 09 08 07 06
0

9,140
7,271 6,307 7,126 5,128
1000 2000 3000 4000 5000 6000 7000 8000 9000 10000

Total Assets at Year-End (In million pesos)

To strengthen my body, I rely on the calcium and energy that milk builds into my bones.
2010 Cobra Energy Drink Ironman 70.3 Philippines Professional Mens Champion

Pete Jacobs

2010 Annual Report

31

Corporate Governance
Alaska Milk Corporation acknowledges the importance of good governance in carrying out its corporate mission of creating long-term value to its shareholders. The Company espouses the highest level of integrity, transparency and accountability across all levels of the organization in the conduct of its business. The Companys policies and guidelines on governance are principally contained in its Manual on Corporate Governance. Through the Manual, Alaska Milk Corporation has likewise adopted the Securities and Exchange Commissions (SEC) Corporate Governance Self Rating Form in evaluating the level of compliance of the Company, its directors, officers and employees. On January 28, 2011, the Company submitted its Compliance Report on Corporate Governance for the Year 2010 to the Philippine Stock Exchange, Inc. (PSE), reflecting the Companys level of adoption of the PSE recommended corporate guidelines for publicly-listed companies under PSE Memorandum No. 2010-0574 dated 26 November 2010. In addition, on February 21, 2011, Alaska Milk Corporation submitted to the SEC and PSE its revised Manual on Corporate Governance to adopt all the mandatory provisions of the Revised Code of Corporate Governance in compliance with SEC Memorandum Circular No. 6, Series of 2009. The Company constantly keeps its corporate governance provisions under review to conform, where applicable, with best practices and principles. THE BOARD OF DIRECTORS The Board of Directors plays an integral role in overseeing the strategic direction of the Company, monitoring operational and financial performances as well as protecting the interests of all stakeholders. The Companys Board members have successful careers in business, academe and public service. With their wealth of experience, they add significant perspective and direction into how management shapes and executes business strategies. The profiles of each director are found in the Board of Directors section of this Annual Report. The Board is currently composed of nine (9) directors, six (6) of whom are independent directors. The Company defines an independent director as independent of management and free from any business or other relationship with the Company which could interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In compliance with SEC Memorandum No. 16 Series of 2002 and with the Companys Manual on Corporate Governance, the Nomination Committee reviews the qualifications of all directors nominated for election. In addition, all nominees for independent directors possess all the qualifications and none of the disqualifications prescribed under the Securities Regulation Code Rule 38. The directors are elected at each Annual Stockholders Meeting by stockholders entitled to vote in accordance with the Companys By-Laws. Each director holds office until the next annual election and until his predecessor is duly elected; unless he resigns from office, is incapacitated and is unable to carry out his duties as director, or is removed prior to such election. The Board members are given a per diem of P5,000 per board or committee meeting. In addition, the Board members are entitled to a share in the Companys operating income based on their attendance. The remuneration is intended to provide a reasonable compensation to the directors in recognition of their responsibilities and the potential liability they assume as a result of the high standard of best practices required of the Board as a body, and of the directors individually,

32

The Heart of Alaska

under the Securities and Exchange Commission promulgated Code of Corporate Governance. Aside from the aforementioned, there are no other arrangements under which any director of the Company is compensated, whether directly or indirectly. The total compensation paid to non-executive directors for 2010 and 2009 amounted to P8.5 million and P1.9 million, respectively. None of the directors, in their personal capacity, has been contracted and compensated by the Company for services other than those provided as a director. In 2010, the Board held four (4) board meetings, one (1) special meeting and one (1) organizational meeting. All directors have individually complied with the Securities and Exchange Commissions (SEC) minimum attendance requirement of 50%.

Director

Regular Meeting

Annual Stockholders Meeting, Organizational Meeting & Special Meeting Dec 1 P P P P P P P P P May 4 P P P P P P P P P

Percentage

Antonio H. Ozaeta Juan B. Santos W. Steven Uytengsu, Jr. Roberto F. de Ocampo Jose R. Facundo Grahame S. Tonkin Michael R.B. Uytengsu Atty. Ramon S. Esguerra Bernardo M. Villegas

Feb 9 P P P P P P P P P

Aug 10 P A P A P P P P P

100% 75% 100% 75% 100% 100% 100% 100% 100%

Legend:

P Present

A Absent

None of the members of the Companys directors and senior management own 1.0% or more of the Companys outstanding capital stock. To assist the Board in its function and to secure the Companys sustained competitiveness in a manner consistent with its fiduciary responsibility, the Board has established four (4) committees with oversight responsibilities. The committees are the Audit and Risk Committee, Nomination Committee, Compensation and Remuneration Committee and Governance Committee. AUDIT AND RISk COMMITTEE The Audit and Risk Committee is composed of three (3) members of the Board, all of whom are independent directors. The Audit and Risk Committee has oversight responsibility on financial management functions, especially in the areas of financial reporting process and internal controls. It has the duty to ensure transparency and integrity in the Companys financial management system. Through the Committee, the Board is responsible for overseeing the implementation of adequate internal control procedures as well as the scope of audit engagement of the Companys external auditor Sycip Gorres Velayo and Co.

2010 Annual Report

33

Corporate Governance
The Committee is likewise tasked to (a) oversee the formulation of an enterprise-wide risk management system; (b) review, analyze and recommend the policy, framework, strategy and method to be used by the Company to manage risks or threats; (c) review with management the corporate performance in the areas of legal risks and crisis management; and (d) identify, review and assess the likelihood and magnitude of the impact of material events on the Company and to recommend measures to avoid or mitigate risks. NOMINATION COMMITTEE The Nomination Committee is comprised of three (3) members of the Board, two (2) of whom are independent directors. The Nomination Committee is mandated by the Board to review the qualifications of all members of the Board. All candidates nominated to the Board are pre-screened to ensure that they have all the necessary qualifications and none of the disqualifications as set forth in the Companys Manual on Corporate Governance. COMPENSATION AND REMUNERATION COMMITTEE The Compensation and Remuneration Committee is composed of three (3) members of the Board, two (2) of whom are independent directors. An independent director chairs the Compensation Committee. The Compensation Committee is tasked to review the Companys remuneration structure as well as the reasonableness of its incentive plans and compliance with all statutory requirements. GOVERNANCE COMMITTEE The Governance Committee is composed of three (3) members of the Board, two (2) of whom are independent directors. An independent director chairs the Governance Committee. The Governance Committee is mandated to develop, maintain and review the Companys corporate governance policies and procedures. Board Committees (As of December 31, 2010) Audit Committee Antonio H. Ozaeta (Chairman)* Juan B. Santos (Vice Chairman)* Wilfred Steven Uytengsu, Jr. Dr. Roberto F. de Ocampo* Jose R. Facundo* Grahame S. Tonkin* Michael R.B. Uytengsu Atty. Ramon S. Esguerra Dr. Bernardo M. Villegas*
*Independent Director

Directors

Nomination Committee Member Chairman

Compensation Committee Chairman Member Member

Governance Committee

Chairman

Chairman Member Member Member Member Member

34

The Heart of Alaska

MANAGEMENT COMMITTEE The Companys President and CEO is assisted by his senior management team, collectively known as the Management Committee, in the day-to-day operations of the business as well as in the development and execution of business strategies. The Management Committee meets regularly to discuss operating performances, market and industry developments and plans of actions in the attainment of corporate goals and objectives. In addition, management provides the Board with information on the results of operations of the Company on a quarterly basis. Management is also required to prepare the financial statements for each preceding calendar year in accordance with generally accepted accounting standards in conformity with Philippine Financial Reporting Standards. Managements statement of responsibility for the Companys financial statements is included in this annual report. DISCLOSURE AND TRANSPARENCY Alaska Milk Corporation is committed to the highest standards of disclosure and transparency to apprise the investing public on the Companys performance. The Company regularly updates the investing public with operating and financial information through adequate and timely disclosures filed with the Securities and Exchange Commission (SEC) and the Philippine Stock Exchange (PSE). In addition, any material, market-sensitive information as well as mandatory reportorial requirements are likewise disclosed to the SEC and PSE. In addition, Quarterly Updates are provided to fund managers and investors, analysts, media and those who specifically requested for copies. All corporate disclosures, including the Quarterly Updates, are made available on the Companys website (www.alaskamilk.com.ph). This ensures that all stakeholders have equal opportunity and access to corporate information. The Companys Investor Relations office is also available to address investor queries and requirements.

2010 Annual Report

35

Board of Directors

Standing from left to right: WILFRED STEVEN UYTENGSU, JR. (Director); DR. ROBERTO F. DE OCAMPO (Independent Director) Seated from left to right: ANTONIO H. OZAETA (Chairman, Independent Director); JUAN B. SANTOS (Vice Chairman, Independent Director)

36

The Heart of Alaska

Standing from left to right: GRAHAME S. TONkIN (Independent Director); JOSE R. FACUNDO (Independent Director); MICHAEL R.B. UYTENGSU (Director) Seated from left to right: DR. BERNARDO M. VILLEGAS (Independent Director); ATTY. RAMON S. ESGUERRA (Director)

2010 Annual Report

37

Board of Directors Profile

ANTONIO H. OZAETA
Independent Director, Chairman of the Board since 2010, Vice Chairman of the Board from 1998 to 2010 President, Philippine Trust Company (PHILTRUST Bank) Chairman of the Board of Directors of Philippine Commercial Capital, Inc., Ancel Holdings Corporation and Magellan Capital Holdings Corporation Board Member of PHILTRUST Bank, Insular Health Care, Inc. and Home Credit Mutual Building and Loan Association Former President and Chief Executive Officer of Philippine Commercial International Bank (PCIBank) and former Chairman of the Board of Manila Electric Company (Meralco) Educated at the Ateneo de Manila University (B.S. Economics), De La Salle University (B.S. Business Administration) and Harvard University (Masters in Business Administration)

WILFRED STEVEN UYTENGSU, JR.

Director since 1994 President and Chief Executive Officer of Alaska Milk Corporation President of GenOSI, Inc. and Jadestone Investments LLC Board Member of the Makati Business Club and Childrens Hour Philippines, Inc. Past Chairman, Young Presidents Organization Awarded Philippines Entrepreneur of the Year and Master Entrepreneur for 2007 by Ernst & Young Former Executive Vice President and Chief Financial Officer of General Milling Corporation Educated at the University of Southern California (B.S. Business Administration)

DR. ROBERTO F. DE OCAMPO

Independent Director since 1999 Former Secretary of Finance of the Republic of the Philippines Chairman of the Board of Advisors of the RFO Center for Public Finance and Regional Economic Corporation Board Member of EEI Corporation, Globe Telecom, Robinsons Land Corporation, Rizal Commercial Banking Corporation, House of Investments, PHINMA Corporation, DFNN Inc., Philippine Phosphate Fertilizer Corporation, AB Capital & Investment Corporation, Pacific Gaming Investments Pte. Ltd., Bankard, Inc., Beneficial Life Insurance Co., Inc. and Salcon Power Corporation Member / Advisory Board Member; The Conference Board, the Trilateral Commission, the BOAO Forum for Asia and the Emerging Markets Forum Member of the Board of Trustees of Asian Institute of Management Former President of the Asian Institute of Management Former Chairman and Chief Executive Officer of Development Bank of the Philippines Educated at the Ateneo de Manila University (A.B. Economics), University of Michigan (Masters in Business Adminisration) and London School of Economics (DDA Fellow in Developmental Administration)

JUAN B. SANTOS
Independent Director, Vice Chairman of the Board since 2010, Director since 2007 Former Secretary of Trade and Industry of the Republic of the Philippines Board Member of Grepalife Financials, Inc., First Philippine Holdings Corporation, Philex Mining Corporation, Philippine Long Distance Telephone Company (PLDT), Pilipino Telephone Corporation and Zuelling Group, Inc. Consultant, Marsman Drysdale Group of Companies Member, Board of Advisors of Coca Cola Bottlers Philippines, Inc. and East-West Seeds Co., Inc. Member, Board of Trustees of St. Lukes Medical Center Former Chairman and President of Nestle Philippines, Inc. Former Chief Executive Officer of Nestle Group of Companies in Thailand and of Nestle Singapore Pte Ltd. Educated at the Ateneo de Manila University (B.S. Business Administration) and took his postgraduate degree at the Thunderbird Graduate School of Management in Arizona, USA

38

The Heart of Alaska

JOSE R. FACUNDO
Independent Director since 1994 Board Member of Security Bank Corporation, Aboitiz Power Corporation and Siemens Philippines, Inc. Former President and Chief Executive Officer of CityTrust, former President of BPI Capital Corporation and former Senior Managing Director of Ayala Corporation Former Chairman of the Philippine Clearing House Educated at the Ateneo de Manila University (Bachelor of Arts degree in Engineering) and took post graduate studies in Statistics at the University of the Philippines, and in Engineering at the Technical University of Munich

ATTY. RAMON S. ESGUERRA

Director since 2003 Managing Partner, Esguerra & Blanco Law Offices President of the Intellectual Property Association of the Philippines, Inc.; Director of the Integrated Bar of he Philippines Cavite Chapter Professional Lecturer, Graduate School of Law of the Pamantasan ng Lungsod ng Maynila Former Undersecretary, Department of Justice Former Partner at Castillo Laman Tan Pantaleon & San Jose Law Offices Former President of the Licensing Executives Society of the Philippines Educated at the University of Santo Tomas (A.B. Economics) and University of the Philippines (Bachelor of Laws)

GRAHAME S. TONkIN
Independent Director since 1998 Director, Food and Beverage Australia Ltd. and Smythe Road Vintners Pty. Ltd. Chief Executive Officer of the Aboriginal Foundation of South Australia, Inc. Former Executive Director of Food South Australia and former Managing Director of Tarac Australia Pty. Ltd. Former Chief Executive Officer of Australian Dairy Corporation and of Inchape, Asia Pacific (Wines and Spirits) Qualified Accountant, Fellow CPA, Fellow Chartered Secretary and Fellow of the Australian Institute of Company Directors

DR. BERNARDO M. VILLEGAS

Independent Director from 1999 to 2006, Re-elected in 2008 University Professor at the University of the Asia and the Pacific and a Visiting Professor at the IESE Business School in Barcelona, Spain Member, Board of Trustees of Insular Life and Phinma Properties Former Senior Vice President of the University of Asia and the Pacific Former Chairman of the Center for Research and Communication Educated at De La Salle University (Bachelors degrees in Commerce and the Humanities) and Harvard University (M.A. in Economics and Ph.D. in Economics)

MICHAEL R.B. UYTENGSU

Director since 1998 President, Brookstone Holdings, Inc. (USA) Former investment banker at Salomon Brothers (New York and Hong Kong) Obtained his Bachelors Degree in Business from the University of Southern California

2010 Annual Report

39

Management Committee

Standing from left to right: ALFREDO B. JAVIER (AVP, Internal Audit); REYCELLE M. RODRIGUEZ (Director, Materials Management); ARNOLD L. ABAD (VP, Accounting and Controller) Seated from left to right: MA. BELEN M. FERNANDO (VP, Marketing); WILFRED STEVEN UYTENGSU, JR. (President and Chief Executive Officer)

40 10

The Heart of Alaska

Standing from left to right: SANTIAGO A. POLIDO (VP, Corporate Affairs and Corporate Secretary); ANSELMA G. CABANTAN (AVP, Information Systems); RENE D. FERNANDEZ (Director, Engineering Services); THOMAS NILSSON (Director, UHT Operations) Seated from left to right: JOSELITO J. SARMIENTO, JR. (SVP and Chief Financial Officer); FRANCISCO T. IDIAN (VP, Sales); AARON D. FULTON (Director, Plant Operations)

2010 Annual Report

11 41

Report of the Audit Committee

The Audit Committees roles and responsibilities are defined in the Audit Committee Charter approved by the Board of Directors. It assists the Board of Directors in fulfilling its oversight responsibility to the shareholders relating to the (i) integrity of the Companys financial statements and its financial reporting process; (ii) system of internal controls; (iii) risk management; (iv) performance of internal and external auditors; and (v) compliance with legal and regulatory matters and other reporting standards. In compliance with the Audit Committee Charter, we confirm that: An independent director chairs the Audit Committee; We had five (5) meetings during the year, which included executive sessions with the internal and / or independent auditors; We have reviewed and discussed the quarterly unaudited financial statements and the 2010 audited annual financial statements of Alaska Milk Corporation (the Company), including Managements Discussion and Analysis of Financial Condition and Results of Operations, with the Companys management and SyCip Gorres Velayo & Co. (SGV & Co.), the Companys external auditor. These activities were performed in the following context: Management is responsible for the preparation and fair presentation of the Companys financial statements in accordance with Philippine Financial Reporting Standards; and SGV & Co.s responsibility is to express an opinion on the Companys financial statements based on their audit conducted in accordance with Philippine Standards on Auditing. We have discussed and approved the overall scope and the respective audit plans of the internal auditors and SGV & Co. We have also discussed the results of their audits, the internal auditors assessment of the Companys internal controls and the overall quality of the financial reporting process; We have reviewed and approved all audit-related services provided by SGV & Co. to the Company; We have reviewed the reports of the internal auditors, where applicable, ensuring that Management is taking appropriate corrective actions in a timely manner, including addressing internal control and compliance issues; and We have reviewed and discussed the adequacy of the Companys enterprise-wide risk management process, including the nature of significant risk exposures and the related risk mitigation efforts and initiatives. This activity was reviewed in the context that management is primarily responsible for the risk management process. Based on the reviews and discussions undertaken, and subject to the limitations on our roles and responsibilities referred to above, the Audit Committee recommends to the Board of Directors that the audited financial statements be included in the Annual Report for the year ended December 31, 2010 for filing with the Securities and Exchange Commission. We are also recommending to the Board of Directors the reappointment of SGV & Co. as Alaska Milk Corporations external auditor for 2011 based on the review of their performance and qualifications. March 11, 2011

Dr. Roberto F. de Ocampo Chairman Audit Committee

Jose R. Facundo Member

42

Dr. Bernardo M. Villegas Member

The Heart of Alaska

Statement of Managements Responsibility for Financial Statements

The management of Alaska Milk Corporation is responsible for all information and representations contained in the balance sheets as at December 31, 2010 and 2009 and the related statements of comprehensive income, changes in stockholders equity and cash flows for each of the three years in the period ended December 31, 2010. The financial statements have been prepared in accordance with Philippine Financial Reporting Standards and reflect amounts that are based on the best estimates and informed judgment of management with an appropriate consideration to materiality. In this regard, management maintains a system of accounting and reporting which provides for the necessary internal controls to ensure that transactions are properly authorized and recorded, assets are safeguarded against unauthorized use or disposition and liabilities are recognized. The management likewise discloses to the Companys Audit Committee and to its external auditor: (i) all significant deficiencies in the design or operation of internal controls that could adversely affect its ability to record, process, and report financial data; (ii) material weaknesses in the internal controls; and (iii) any fraud that involves management or other employees who exercise significant roles in internal controls. The Board of Directors reviews the financial statements before such statements are approved and submitted to the stockholders of the Company. SyCip Gorres Velayo & Co., the independent auditors appointed by the Board of Directors and stockholders, have audited the financial statements of the Company in accordance with Philippine Standards on Auditing and have expressed their opinion on the fairness of presentation upon completion of such audit, in their report to the Board of Directors and stockholders.

Antonio H. Ozaeta Chairman

Wilfred Steven Uytengsu, Jr. President & Chief Executive Officer

Joselito J. Sarmiento, Jr. Sr. Vice President & Chief Financial Officer

Vice President Accounting & Controller

Arnold L. Abad

2010 Annual Report

43

Independent Auditors Report

The Stockholders and the Board of Directors Alaska Milk Corporation

Report on the Financial Statements We have audited the accompanying financial statements of Alaska Milk Corporation, which comprise the balance sheets as at December 31, 2010 and 2009, and the statements of comprehensive income, statements of changes in stockholders equity and statements of cash flows for each of the three years in the period ended December 31, 2010, and a summary of significant accounting policies and other explanatory information. Managements Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Philippine Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Philippine Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entitys preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entitys internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Alaska Milk Corporation as at December 31, 2010 and 2009, and its financial performance and its cash flows for each of the three years in the period ended December 31, 2010 in accordance with Philippine Financial Reporting Standards. Report on the Supplementary Information Required Under Revenue Regulations 15-2010 Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information on taxes, duties and license fees in Note 31 to the financial statements is presented for purposes of filing with the Bureau of Internal Revenue and is not a required part of the basic financial statements. The information is also not required by Securities Regulation Code Rule 68. Such information is the responsibility of the management of Alaska Milk Corporation. The information has been subjected to the auditing procedures applied in our audit of the basic financial statements. In our opinion, the information is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

SYCIP GORRES VELAYO & CO.

Ramon D. Dizon Partner CPA Certificate No. 46047 SEC Accreditation No. 0077-AR-2 Tax Identification No. 102-085-577 BIR Accreditation No. 08-001998-17-2009, June 1, 2009, Valid until May 31, 2012 PTR No. 2641521, January 3, 2011, Makati City March 17, 2011 44

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Balance Sheets
December 31 2010 ASSETS Current Assets Cash and cash equivalents (Notes 5, 26 and 27) Short-term investments (Notes 6, 24, 26 and 27) Trade and other receivables - net (Notes 7, 26, 27 and 30) Inventories (Note 8) Prepaid expenses and other current assets (Notes 26 and 27) Total Current Assets Noncurrent Assets Available-for-sale investments (Notes 9, 26 and 27) Property, plant and equipment - net (Note 10) Intangible assets - net (Notes 11 and 25) Deferred tax assets - net (Note 21) Net pension assets (Note 20) Other noncurrent assets (Notes 26 and 27) Total Noncurrent Assets 2009

P1,110,623,996 1,833,983,891 827,839,418 2,117,670,472 38,970,814 5,929,088,591

P857,054,066 1,044,563,465 893,566,768 1,153,181,393 33,263,909 3,981,629,601

2,556,403 1,562,810,605 1,310,444,899 260,587,503 44,836,138 29,460,456 3,210,696,004 P9,139,784,595

2,556,403 1,515,257,935 1,481,438,498 197,984,388 49,260,438 42,786,207 3,289,283,869 P7,270,913,470

LIABILITIES AND STOCKHOLDERS EQUITY Current Liabilities Trade and other payables (Notes 12, 25, 26 and 27) Acceptances payable (Notes 26 and 27) Income tax payable Dividends payable (Notes 14, 26 and 27) Current portion of obligation under finance leases (Notes 25, 26 and 27) Total Current Liabilities Noncurrent Liability Obligation under finance leases - net of current portion (Notes 25, 26 and 27) Stockholders Equity (Note 26) Capital stock (Notes 13 and 22) Additional paid-in capital (Note 22) Retained earnings (Note 14): Appropriated for various capital investment projects and share buy-back program Unappropriated Treasury stock (Notes 13 and 14) Total Stockholders Equity

P2,096,022,469 704,782,480 131,913,063 125,099,266 7,227,315 3,065,044,593

P1,839,819,125 560,124,762 109,980,839 52,097,499 4,019,227 2,566,041,452

28,638,522

27,465,248

971,432,578 152,393,329

968,074,878 118,361,998

2,075,000,000 3,249,867,801 (402,592,228 ) 6,046,101,480 P9,139,784,595

1,625,000,000 2,318,019,622 (352,049,728 ) 4,677,406,770 P7,270,913,470

See accompanying Notes to Financial Statements.

2010 Annual Report

45

Statements of Comprehensive Income Chief Operating Officers Report Statements of Comprehensive Income
2010 NET SALES COST OF SALES (Notes 15 and 30) GROSS PROFIT Operating expenses (Note 16) Interest income (Note 19) Foreign exchange gain (loss) - net Gain on disposals of property and equipment and investment properties Interest expense on obligation under finance leases (Note 25) Casualty loss (Note 30) Interest expense on bank loans (Note 30) Rent income (Note 25) Dividend income and others (Note 9) INCOME BEFORE INCOME TAX PROVISION FOR (BENEFIT FROM) INCOME TAX (Notes 21 and 29) Current Deferred P12,162,709,978 7,558,650,096 4,604,059,882 (2,277,295,199) 48,748,735 (40,319,512) 3,216,898 (2,100,081) (1,998) 2,336,308,725 Years Ended December 31 2009 P10,580,440,474 6,821,522,353 3,758,918,121 (1,869,510,056) 24,646,247 (26,700,674) 766,164 (1,867,856) (156,536,291) (2,453,962) 13,892 1,727,275,585 2008 P9,967,757,268 7,903,815,821 2,063,941,447 (1,599,921,570 ) 4,952,263 13,985,346 9,431,114 (60,321,826 ) 427,891 1,174,323 433,668,988

583,312,875 (62,603,115) 520,709,760

361,555,720 (43,668,855) 317,886,865

80,034,252 62,536,013 142,570,265

TOTAL COMPREHENSIVE INCOME/ NET INCOME Earnings Per Share (Note 23) Basic Diluted See accompanying Notes to Financial Statements.

P1,815,598,965

P1,409,388,720

P291,098,723

P2.0618 2.0577

P1.5894 1.5860

P0.3156 0.3153

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Statements of Changes in Stockholders Equity

Retained Earnings (Note 14) Appropriated
Capital Stock (Notes 13 and 22) P968,074,878 3,357,700 P971,432,578 P967,094,878 980,000 P968,074,878 P966,204,878 890,000 P967,094,878 Additional Paid-in Capital (Note 22) P118,361,998 12,367,020 21,664,311 P152,393,329 P110,590,145 7,771,853 P118,361,998 P101,779,626 2,179,960 6,630,559 P110,590,145 Capital Investment Projects P1,125,000,000 300,000,000 P1,425,000,000 P1,125,000,000 P1,125,000,000 P745,000,000 380,000,000 P1,125,000,000 Share-buy-Back Treasury Stock Program Unappropriated (Notes 13 and 14) Total P500,000,000 P2,318,019,622 (P352,049,728) P4,677,406,770 1,815,598,965 1,815,598,965 15,724,720 21,664,311 (50,542,500) (50,542,500) 150,000,000 (450,000,000) (433,750,786) (433,750,786) P650,000,000 P3,249,867,801 (P402,592,228) P6,046,101,480 P500,000,000 P500,000,000 P200,000,000 300,000,000 P500,000,000 P1,086,123,740 1,409,388,720 (177,492,838) P2,318,019,622 P1,752,849,376 291,098,723 (680,000,000) (277,824,359) P1,086,123,740 (P289,663,278) (62,386,450) (P352,049,728) (P33,288,708) (256,374,570) (P289,663,278) P3,499,145,485 1,409,388,720 980,000 7,771,853 (62,386,450) (177,492,838) P4,677,406,770 P3,732,545,172 291,098,723 3,069,960 6,630,559 (256,374,570) (277,824,359) P3,499,145,485

Balance at December 31, 2009 Net income Issuance of capital stock Stock option Acquisition of treasury stock Appropriations during the year Cash dividends - P0.50 a share Balance at December 31, 2010 Balance at December 31, 2008 Net income Issuance of capital stock Stock option Acquisition of treasury stock Cash dividends - P0.20 a share Balance at December 31, 2009 Balance at December 31, 2007 Net income Issuance of capital stock Stock option Acquisition of treasury stock Appropriations during the year Cash dividends - P0.30 a share Balance at December 31, 2008

See accompanying Notes to Financial Statements.

2010 Annual Report

47

Statements of Cash Flows

2010 CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax Adjustments for: Depreciation and amortization (Note 18) Impairment loss (Note 10) Interest income (Note 19) Provision for inventory obsolescence Unrealized foreign exchange loss (gain) Compensation expense from share-based payment (Note 22) Provision for pension (Note 20) Gain on disposals of property and equipment and investment properties Interest expense on obligation under finance leases (Note 25) Dividend income (Note 9) Casualty loss (Note 30) Interest expense on bank loans (Note 30) Income before working capital changes Decrease (increase) in: Trade and other receivables Inventories Prepaid expenses and other current assets Increase (decrease) in: Trade and other payables Acceptances payable Cash generated from operations Income tax paid Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property, plant and equipment (Notes 10 and 28) Proceeds from disposal of property and equipment and investment properties Decrease (increase) in: Short-term investments Other noncurrent assets Intangible assets Interest received Contributions to plan assets (Note 20) Dividend received Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Payment of dividends Acquisition of treasury shares (Note 13) Proceeds from issuance of capital stock (Notes 13 and 22) Payment of obligation under finance lease Payment of bank loans Interest paid Net cash used in financing activities EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR CASH AND CASH EQUIVALENTS AT END OF YEAR (Note 5) See accompanying Notes to Financial Statements. Years Ended December 31 2009 2008

P2,336,308,725 380,775,737 54,455,722 (48,748,735) 34,100,000 33,801,452 21,664,311 17,694,600 (3,216,898) 2,100,081 (1,250) 2,828,933,745 72,530,949 (998,589,079) (5,706,905) 255,284,391 157,950,111 2,310,403,212 (561,380,651) 1,749,022,561

P1,727,275,585 351,679,390 (24,646,247) 7,500,000 12,785,479 4,545,973 16,077,762 (766,164) 1,867,856 (1,000) 156,536,291 2,453,962 2,255,308,887 (60,980,990) 628,158,147 7,477,822 192,393,454 (239,752,067) 2,782,605,253 (195,678,541) 2,586,926,712

P433,668,988 325,144,394 (4,952,263 ) 7,500,000 (10,033,080) 6,630,559 6,641,300 (9,431,114 ) (885,100 ) 60,321,826 814,605,510 (9,960,337 ) 724,419,859 56,664,434 296,918,730 (266,049,876 ) 1,616,598,320 (213,733,218 ) 1,402,865,102

(347,433,269) 52,162,658 (789,420,426) 15,226,973 39,720,181 (13,270,300) 1,250 (1,043,012,933)

(360,944,916) 1,624,372 (1,044,563,465) 21,359,268 20,176,744 (13,270,300) 1,000 (1,375,617,297)

(240,116,305 ) 29,734,110 3,007,185 (11,652,923 ) 5,872,693 (3,556,500 ) 885,100 (215,826,640 )

(P360,749,019) (50,542,500) 15,724,720 (8,421,555) (403,988,354) (48,451,344) 253,569,930 857,054,066 P1,110,623,996

(P266,649,401) (62,386,450) 4,205,880 (175,000,000) (3,694,740) (503,524,711) (24,436,117) 683,348,587 173,705,479 P857,054,066

(P209,297,489 ) (256,374,570 ) 3,069,960 (625,000,000 ) (61,386,673 ) (1,148,988,772 ) (683,937 ) 37,365,753 136,339,726 P173,705,479

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The Heart of Alaska

Notes to Financial Statements

1. Corporate Information
Alaska Milk Corporation (the Company) was incorporated in the Philippines and registered with the Philippine Securities and Exchange Commission on September 26, 1994. The Company is primarily involved in the manufacture, distribution and sale of liquid, powdered and ultra-heat treated milk products under the Alaska, Carnation, Liberty, Alpine and Milkmaid brands. The registered office address of the Company is 6th Floor, Corinthian Plaza, Paseo de Roxas, Makati City. The financial statements of the Company were approved and authorized for issuance by the Board of Directors (BOD) on March 17, 2011.

2. Basis of Preparation, Statement of Compliance and Changes in Accounting Policies and Disclosures
Basis of Preparation The accompanying financial statements of the Company have been prepared on the historical cost basis, except for derivative instruments, which have been measured at fair value. The financial statements are presented in Philippine Peso, which is the Companys functional and presentation currency under Philippine Financial Reporting Standards (PFRS). All values are rounded to the nearest Philippine Peso, except when otherwise indicated. Statement of Compliance The accompanying financial statements have been prepared in compliance with PFRS. PFRS also includes Philippine Accounting Standards (PAS) issued by the Financial Reporting Standards Council and Philippine interpretations from International Financial Reporting Interpretations Committee (IFRIC). Changes in Accounting Policies and Disclosures The accounting policies adopted are consistent with those of the previous financial year, except for the adoption of the following amended PFRS and Philippine Interpretations which were adopted starting January 1, 2010: New Interpretation Philippine Interpretation IFRIC 17, Distributions of Non-cash Assets to Owners, effective for annual periods beginning on or after July 1, 2009 Amendments to Standards PFRS 2, Share-based Payment Group Cash-settled Share-based Payment Transactions, effective for annual periods beginning on or after January 1, 2010 PFRS 3 (Revised), Business Combinations and PAS 27 (Amended), Consolidated and Separate Financial Statements, effective for annual periods beginning on or after July 1, 2009 PAS 39, Financial Instruments: Recognition and Measurement Eligible Hedged Items, effective for annual periods beginning on or after July 1, 2009 Improvements to PFRS (2009), effective for annual periods beginning on or after January 1, 2010 Improvement to PFRS 5, Noncurrent Assets Held for Sale and Discontinued Operations, effective for annual periods beginning on or after July 1, 2009 The above amended standards and new interpretation did not have an impact on the Companys financial position or performance. Future Changes in Accounting Policies Standards issued but not yet effective as of the date of the Companys financial statements are listed below. The Company intends to adopt these standards when they become effective. New Standard and Interpretations PFRS 9, Financial Instruments: Classification and Measurement, as issued in 2010, reflects the first phase of the work on the replacement of PAS 39 and applies to classification and measurement of financial assets and financial liabilities as defined in PAS 39. The standard is effective for annual periods beginning on or after January 1, 2013. In subsequent phases, hedge accounting and derecognition will be addressed. The completion of this project is expected in early 2011. The adoption of the first phase of PFRS 9 will have an effect on the classification and measurement of the Companys financial assets. The Company will quantify the effect in conjunction with the other phases, when issued, to present a comprehensive picture. Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate, becomes effective for annual periods beginning on or after January 1, 2012. This interpretation covers accounting for revenue and associated expenses by entities that undertake the construction of real estate directly or through subcontractors. This interpretation requires that revenue on construction of real estate be recognized only upon completion, except when such contract qualifies as construction contract to be accounted for under PAS 11, Construction Contracts, or involves rendering of services in which case revenue is recognized based on stage of completion. Contracts involving provision of services with the construction materials and where the risks and reward of ownership are transferred to the buyer on a continuous basis will also be accounted for based on stage of completion.

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Notes to Financial Statements

Philippine Interpretation IFRIC 19, Extinguishing Financial Liabilities with Equity Instruments, becomes effective for annual periods beginning on or after July 1, 2010. The interpretation clarifies that equity instruments issued to a creditor to extinguish a financial liability qualify as consideration paid. The equity instruments issued are measured at their fair value. In case that this cannot be reliably measured, the instruments are measured at the fair value of the liability extinguished. Any gain or loss is recognized immediately in the profit or loss. Amendments to Standards and Interpretation PFRS 7, Financial Instruments: Disclosures Transfers of Financial Assets, becomes effective for annual periods beginning on or after July 1, 2011. The amendments will allow users of financial statements to improve their understanding of transfer transactions of financial assets (for example, securitizations), including understanding the possible effects of any risks that may remain with the entity that transferred the assets. The amendments also require additional disclosures if a disproportionate amount of transfer transactions are undertaken around the end of a reporting period. PAS 12, Income Taxes Deferred Tax: Recovery of Underlying Assets, becomes effective for annual periods beginning on or after January 1, 2012. It provides a practical solution to the problem of assessing whether recovery of an asset will be through use or sale. It introduces a presumption that recovery of the carrying amount of an asset will normally be through sale. PAS 24, Related Party Disclosures, becomes effective for annual periods beginning on or after January 1, 2011. It clarified the definition of a related party to simplify the identification of such relationships and to eliminate inconsistencies in its application. The revised standard introduces a partial exemption of disclosure requirements for government-related entities. Early adoption is permitted for either the partial exemption for governmentrelated entities or for the entire standard. PAS 32, Financial Instruments: Presentation Classification of Rights Issue, becomes effective for annual periods beginning on or after February 1, 2010. It amended the definition of a financial liability in order to classify rights issues (and certain options or warrants) as equity instruments in cases where such rights are given pro rata to all of the existing owners of the same class of an entitys non-derivative equity instruments, or to acquire a fixed number of the entitys own equity instruments for a fixed amount in any currency. Philippine Interpretation IFRIC 14, Prepayments of a Minimum Funding Requirement, becomes applicable for annual periods beginning on or after January 1, 2011. The interpretation has been amended to permit an entity to treat the prepayment of a minimum funding requirement as an asset. The amendment should be applied to the beginning of the earliest period presented in the first financial statements in which the entity applied the original interpretation. This interpretation is to be applied retrospectively. Except for PFRS 9, the Company does not expect the above new standard, interpretations and amendments to have an impact on the financial statements as they are either not applicable to its current operations or has not entered into such transactions. Improvements to PFRS. Improvements to PFRS is an omnibus of amendments to PFRS. The Company did not adopt the following improvements as they are not yet effective as of December 31, 2010. The amendments listed below, are not expected to have an impact on the Companys financial statements: PFRS 3, Business Combinations, becomes effective for annual periods beginning on or after July 1, 2010. The improvements include: (a) clarification that the amendments to PFRS 7, Financial Instruments: Disclosures, PAS 32, and PAS 39 that eliminate the exemption for contingent consideration, do not apply to contingent consideration that arose from business combinations whose acquisition dates precede the application of PFRS 3 (as revised in 2008); (b) guidance that the choice of measuring non-controlling interests at fair value or at the proportionate share of the acquirees net assets applies only to instruments that represent present ownership interests and entitle their holders to a proportionate share of the net assets in the event of liquidation. All other components of non-controlling interest are measured at fair value unless another measurement basis is required by PFRS; and (c) clarification that the application guidance in PFRS 3 applies to all share-based payment transactions that are part of a business combination, including unreplaced and voluntarily replaced share-based payment awards. This standard is to be applied prospectively. PFRS 7, Financial Instruments, becomes effective for annual periods beginning on or after January 1, 2011. The amendment emphasizes the interaction between quantitative and qualitative disclosures about the nature and extent of risks associated with financial instruments. This standard is to be applied retrospectively. PAS 1, Presentation of Financial Statements, becomes effective for annual periods beginning on or after 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. This standard is to be applied retrospectively. PAS 27, Consolidated and Separate Financial Statements, becomes effective for annual periods beginning on or after July 1, 2009. The improvement 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. This standard is to be applied retrospectively.

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The Heart of Alaska

 Philippine Interpretation IFRIC 13, Customer Loyalty Programmes, becomes effective for annual periods beginning on or after January 1, 2011. The amendment clarifies the meaning of fair value in the context of measuring award credits under customer loyalty programmes. This interpretation is to be applied retrospectively.

3. Summary of Significant Accounting Judgments, Estimates and Assumptions

The preparation of the Companys financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenue, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting date. However, uncertainty about these estimates and assumptions could result in outcomes that could require a material adjustment to the carrying amounts of the affected asset or liability in the future. Judgments In the process of applying the Companys accounting policies, management has made the following judgments, apart from those involving estimations, which have the most significant effect on the amounts recognized in the financial statements: Functional Currency. The Company has determined that its functional currency is the Philippine Peso. It is the currency of the primary economic environment in which the Company operates. Lease Commitments - Company as Lessor. The Company has entered into lease agreements as a lessor. The Company has determined, based on the evaluation of the terms and conditions of the arrangements, that it retains all the significant risks and rewards of ownership of the properties and thus accounts for the contracts as operating leases. Rent income amounted to P0.4 million for the year ended December 31, 2008 (see Note 25). Lease Commitments - Company as Lessee. The Company has entered into various finance and operating lease agreements as a lessee. Under operating lease arrangements, management has determined that all the significant risks and benefits of ownership of the properties remain with the lessor and thus accounts for the contracts as operating leases. Rent expense amounted to P50.4 million, P43.9 million and P43.4 million for the years ended December 31, 2010, 2009 and 2008, respectively (see Notes 24 and 25). Under finance lease arrangement, management determined, based on the terms of the contract and substance of the transaction, that the Company has acquired the economic benefits for the use of the leased asset for the major part of its economic life in return for entering into an obligation to pay for that right an amount approximating, at the inception of the lease, the fair value of the assets and related finance charge. Accordingly, the lease was accounted for as finance lease. The carrying value of the packaging equipment held under finance leases and the corresponding finance lease obligations amounted to P34.9 million and P35.9 million, respectively, as of December 31, 2010 and P24.5 million and P31.5 million, respectively, as of December 31, 2009 (see Note 25). Estimates and Assumptions The key assumptions concerning the future and other key sources of estimation uncertainty at balance sheet date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Existing circumstances and assumptions about future developments however, may change due to market changes in circumstances beyond the control of the Company. Such changes are reflected in the assumptions when they occur. Estimating Allowance for Doubtful Accounts. The Company maintains an allowance for doubtful accounts at a level considered adequate to provide for potential uncollectible receivables. The level of allowance is evaluated by the Company on the basis of factors that affect the collectibility of the accounts. The review is accomplished using a combination of specific and collective assessment. The factors considered in specific impairment assessment are the length of the Companys relationship with customers, customers current credit status based on known factors, age of the accounts and other available information that will indicate objective evidence that the customers may be unable to meet their financial obligations. The collective impairment assessment is based on historical loss experience and deterioration in the market in which the customers operate. The amounts and timing of recorded provision for doubtful accounts for any period would differ if the Company made different assumptions or utilized different estimates. Trade and other receivables, net of allowance for doubtful accounts, amounted to P827.8 million and P893.6 million as of December 31, 2010 and 2009, respectively (see Note 7). In 2010, collectively impaired receivables amounting to P0.6 million were written-off and charged to allowance for doubtful accounts (see Note 7).

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Notes to Financial Statements

Estimating Net Realizable Value of Inventories. The Company records a provision for excess of cost over the net realizable value of materials and supplies whenever the value of materials and supplies becomes lower than cost due to damage, physical deterioration, obsolescence, changes in price levels or other causes. The lower of cost or net realizable value of inventories is reviewed on a monthly basis. Materials and supplies identified to be obsolete and unusable are written-off and charged as expense for the year. The carrying values of inventories amounted to P2,117.7 million and P1,153.2 million as of December 31, 2010 and 2009, respectively (see Note 8). The provision for the excess of cost over the net realizable value of inventories amounted to P34.1 million in 2010 and P7.5 million in 2009 and 2008. The amount is included under Cost of sales - raw materials and inventories used. Estimating Useful Lives of Property, Plant and Equipment and Intangible Assets with Finite Useful Lives. The useful life of each of the Companys property, plant and equipment and intangible assets with finite useful lives is estimated based on the period over which the asset is expected to be available for use. Such estimation is based on a collective assessment of industry practice, internal technical evaluation and experience with similar assets. The estimated useful life of each asset is reviewed periodically and updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of the asset. It is possible, however, that future results of operations could be materially affected by changes in the amounts and timing of recorded expenses brought about by changes in the factors mentioned above. A reduction in the estimated useful life of any of these assets with finite useful lives would increase the recorded cost of sales and operating expenses and decrease noncurrent assets. In 2009, the Company changed the useful life of computer software license from 5 years to 3 years. The change in useful life resulted to a recognition of additional expense amounting to P4.6 million in 2009. Intangible Assets with Indefinite Useful Life. Intangible assets are regarded to have an indefinite useful life when, based on an analysis of all relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the Company. The carrying amount of trademarks with indefinite useful life amounted to P276.4 million as of December 31, 2010 and 2009 (see Note 11). Impairment of Assets Trademarks with Indefinite Useful Life The Company determines whether trademarks are impaired at least annually. This requires an estimation of the value in use of the trademarks. Estimating the value in use amount requires management to make an estimate of the expected future cash flows from the trademarks and to choose a suitable discount rate in order to calculate the present value of those cash flows. The relief-from-royalty-method was adopted in valuing the trademarks using discount rates of 14.1% in 2010 and 13.3% in 2009. The royalty rate applicable for both years was 5%. Managements estimates of future cash flows are based on the most recent budgets and forecasts for a maximum of five years. Cash flow projections until the end of an assets useful life are estimated by extrapolating the cash flow projections based on the financial budgets/forecasts using a growth rate for subsequent years. This rate is steady or declining, unless an increase in the rate matches objective information about patterns over the products lifecycle. The growth rate was zero. No impairment loss was recognized in 2010, 2009 and 2008. Other Nonfinancial Assets An impairment review is performed when certain impairment indicators are present. Determining the value of nonfinancial assets, which requires the determination of future cash flows expected to be generated from the continued use and ultimate disposition of such assets, requires the Company to make estimates and assumptions that can materially affect the financial statements. Future events could cause the Company to conclude that such assets are impaired. Any resulting impairment could have a material impact on the financial condition and results of operations of the Company. The preparation of the estimated future cash flows involves judgments and estimations. While the Company believes that its assumptions are appropriate and reasonable, significant changes in these assumptions may materially affect the Companys assessment of recoverable values and may lead to future additional impairment charges. Impairment loss amounting to P54.5 million was recognized in 2010 on certain idle machinery and equipment. Property, plant and equipment, net of accumulated depreciation, amounted to P1,562.8 million and P1,515.3 million as of December 31, 2010 and 2009, respectively (see Note 10). Intangible assets with finite useful lives, net of accumulated amortization, amounted to P1,034.0 million and P1,205.0 million as of December 31, 2010 and 2009, respectively (see Note 11).

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Realizability of Deferred Tax Assets. The Company reviews its deferred tax assets at each balance sheet date and reduces the carrying amount to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax assets to be utilized. The Companys assessment on the recognition of deferred tax assets is based on forecasted taxable income in subsequent periods. Deferred tax assets amounted to P274.0 million and P212.8 million as of December 31, 2010 and 2009, respectively (see Note 21). Pension Benefits. The present value of the pension obligations depends on certain 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 rate of return on plan assets and salary increase rate. Actual results that differ from the Companys assumptions are accumulated and amortized over future periods and, therefore, generally affect the recognized expense and recorded obligation in such future periods. The expected return on plan assets assumption is determined on a uniform basis, taking into consideration historical returns, asset allocation and future estimates of long-term investment returns. 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 on 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 liability. Other key assumptions for pension costs are based in part on current market conditions. Additional information is disclosed in Note 20. While it is believed that the Companys assumptions are reasonable and appropriate, significant differences in actual experience or significant changes in assumptions may materially affect the Companys pension obligations. The Company has net cumulative unrecognized actuarial loss amounting to P51.9 million as of December 31, 2010 and net cumulative unrecognized actuarial gains amounting to P10.9 million and P14.9 million as of December 31, 2009 and 2008, respectively. Net pension assets amounted to P44.8 million and P49.3 million as of December 31, 2010 and 2009, respectively (see Note 20). Share-based Payment. The fair value of equity instruments granted are based on market prices, if available, and takes into account the terms and conditions upon which those equity instruments were granted. In the absence of market prices, fair value is estimated, using a valuation technique to estimate what the price of those equity instruments would be on measurement date in an arms-length transaction between knowledgeable, willing parties. The valuation technique shall be consistent with generally accepted valuation techniques for pricing financial instruments, and shall incorporate all factors and assumptions that knowledgeable, willing market participants would consider in setting the price. Any changes in the option pricing model used and the inputs to that model, such as weighted average share price, historical daily volatility, expected daily volatility, dividend yield, risk-free interest rate risk and any other inputs to the model, including the method used and any other assumptions may materially affect the Companys value of equity-settled share options granted. The discussion on share-based payments is disclosed in Note 22. Fair Value of Financial Assets and Liabilities. The Company carries certain financial assets and liabilities at fair value, which requires extensive use of accounting estimates and judgments. Where the fair value of financial assets and financial liabilities recorded in the balance sheets cannot be derived from active markets, they are determined using valuation techniques including the discounted cash flows model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. The judgments include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments. The fair values of financial assets and liabilities as of December 31, 2010 and 2009 are disclosed in Note 27. Contingencies. The estimate of the probable costs for the resolution of possible claims has been developed in consultation with outside legal counsel handling the Companys defense in these matters and is based upon an analysis of potential results (see Note 30). Management and its legal counsel believe that the Company has substantial legal and factual bases for its position and is of the opinion that losses arising from these legal claims, if any, will not have a material adverse impact on the financial statements. There was no provision for contingencies in 2010, 2009 and 2008.

4. Summary of Significant Accounting and Financial Reporting Policies

Cash and Cash Equivalents Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less from the date of acquisition and are subject to an insignificant risk of change in value.

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Notes to Financial Statements

Short-term Investments Short-term investments include time deposits with original maturities of more than three months but less than one year. Financial Assets and Financial Liabilities Date of Recognition. The Company recognizes a financial asset or a financial liability in the balance sheets when it becomes a party to the contractual provisions of the instrument. In the case of a regular way purchase or sale of financial assets, recognition and derecognition, as applicable, is done using settlement date accounting. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the market place. Initial Recognition of Financial Instruments. Financial instruments are recognized initially at fair value, which is the fair value of the consideration given (in case of an asset) or received (in case of a liability). The initial measurement of financial instruments, except for those designated at fair value through profit or loss (FVPL), includes transaction cost. The Company classifies its financial instruments in the following categories: financial assets and financial liabilities at FVPL, loans and receivables, held-tomaturity (HTM) investments, available-for-sale (AFS) investments and other financial liabilities. The classification depends on the purpose for which the instruments are acquired and whether they are quoted in an active market. Management determines the classification at initial recognition and, where allowed and appropriate, re-evaluates this classification at every reporting date. Determination of Fair Value. The fair value of financial instruments traded in active markets at balance sheet date is based on their quoted market price or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs. When current bid and asking prices are not available, the price of the most recent transaction provides evidence of the current fair value as long as there has not been a significant change in economic circumstances since the time of the transaction. For all other financial instruments not listed in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include net present value techniques, comparison to similar instruments for which market observable prices exist, options pricing models and other relevant valuation models. Day 1 Difference. Where the transaction price in a non-active market is different from the fair value of other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable market, the Company recognizes the difference between the transaction price and fair value (a Day 1 difference) in the statements of comprehensive income, unless it qualifies for recognition as some other type of asset. In cases where use is made of data which is not observable, the difference between the transaction price and model value is only recognized in the statements of comprehensive income when the inputs become observable or when the instrument is derecognized. For each transaction, the Company determines the appropriate method of recognizing Day 1 difference amount. Subsequent Measurement of Financial Assets and Financial Liabilities Financial Assets at FVPL. Financial assets at FVPL include financial assets held for trading and financial assets designated upon initial recognition as at FVPL. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Derivatives, including separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Financial assets at FVPL are carried in the statements of financial position at fair value with changes in fair value recognized in the statements of comprehensive income. Derivatives embedded in host contracts are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts and the host contracts are not held for trading or designated at FVPL. These embedded derivatives are measured at fair value with changes in fair value recognized in the statements of comprehensive income. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required. The Company has no financial assets at FVPL as of December 31, 2010 and 2009. Loans and Receivables. Loans and receivables are nonderivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest method, less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortization is included in interest income in the statements of comprehensive income. The losses arising from impairment are recognized in the statements of comprehensive income as interest expense. Classified under this category are the Companys cash and cash equivalents, short-term investments, trade and other receivables and receivable from Manila Electric Company (Meralco), included under Trade and other receivables account in the balance sheets (see Note 27).

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HTM Investments. HTM investments are quoted nonderivative financial assets with fixed or determinable payments and fixed maturities for which the Companys management has the positive intention and ability to hold to maturity. Where the Company sells other than an insignificant amount of HTM investments, the entire category would be tainted and reclassified as AFS investments. After initial measurement, HTM investments are measured at amortized cost using the effective interest method, less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest method. The effective interest method amortization is included in interest income in the statements of comprehensive income. The losses arising from impairment are recognized in the statements of comprehensive income as interest expense. The Company has no financial assets classified as HTM investments as of December 31, 2010 and 2009. AFS Investments. AFS investments include equity and debt securities. Equity investments classified as AFS are those, which are neither classified as held for trading nor designated at FVPL. Debt securities in this category are those which are intended to be held for an indefinite period of time and which may be sold in response to needs for liquidity or in response to changes in the market conditions. After initial measurement, AFS investments are subsequently measured at fair value with unrealized gains or losses recognized as other comprehensive income in the AFS reserve until the financial asset is derecognized, at which time the cumulative gain or loss is recognized as an operating income, or determined to be impaired, at which time the cumulative loss is recognized in the statements of comprehensive income as finance costs and removed from the AFS reserve. The Companys investment in unlisted shares of stock is classified under this category (see Note 9). The Company acquired and holds the investment to earn dividends. The Company also intends to dispose the investment when the need arises. Financial Liabilities at FVPL. Financial liabilities are classified in this category if these result from trading activities or derivative transactions that are not accounted for as accounting hedges, or when the Company elects to designate a financial liability under this category. Gains and losses from fair value changes of liabilities classified as at FVPL are recognized in the statements of comprehensive income. Included in this category are the Companys derivative liabilities, shown under Trade and other payables account in the balance sheets (see Note 27). Other Financial Liabilities. This category pertains to financial liabilities that are not held for trading or not designated as at FVPL upon the inception of the liability. These include liabilities arising from operations or borrowings. Financial liabilities are recognized initially at fair value and are subsequently carried at amortized cost, taking into account the impact of applying the effective interest method of amortization (or accretion) for any related premium, discount and any directly attributable transaction costs. Gains and losses are recognized in the statements of comprehensive income when the loans and receivables are derecognized or impaired, as well as through the amortization process. This category includes trade and other payables (excluding derivative liabilities and payable to government agencies), acceptances payable, dividends payable and obligation under finance leases (see Note 27). Classification of Financial Instruments Between Debt and Equity A financial instrument is classified as debt if it provides for a contractual obligation to: deliver cash or another financial asset to another entity; or exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavorable to the Company; or satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares. If the Company does not have an unconditional right to avoid delivering cash or another financial asset to settle its contractual obligation, the obligation meets the definition of a financial liability. Derivative Financial Instruments and Hedging Freestanding Derivatives. The Company uses derivative financial instruments such as forward contracts to hedge the risks associated with foreign currency fluctuations. Such derivative financial instruments are initially recognized at fair value on the date on which the derivative contract is entered into and are subsequently re-measured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.

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Notes to Financial Statements

Embedded Derivatives. An embedded derivative is a component of a hybrid (combined) instrument that also includes a non-derivative host contract with the effect that some of the cash flows of the combined instrument vary in a way similar to a stand-alone derivative. The Company assesses whether embedded derivatives are required to be separated from host contracts when the Company first becomes a party to the contract. An embedded derivative is separated from the host contract and accounted for as a derivative if all of the following conditions are met: a) the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract; b) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and c) the hybrid or combined instrument is not recognized at FVPL. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required. As of December 31, 2010 and 2009, the Company does not have bifurcated derivatives. Derecognition of Financial Assets and Liabilities Financial Assets. A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognized when: the rights to receive cash flows from the asset have expired; the Company retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a pass-through arrangement; or the Company has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the Company has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Companys continuing involvement in the asset. Financial Liabilities. A financial liability is derecognized when the obligation under the liability is discharged or cancelled or has expired. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability and the difference in the respective carrying amounts is recognized in the statements of comprehensive income. Impairment of Financial Assets The Company assesses at each balance sheet date whether a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired, if and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (an incurred loss event) and that loss event has an impact on the estimated future cash flows of the financial asset or a group of financial assets that can be reliably estimated. Objective evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. Assets Carried at Amortized Cost. If there is objective evidence that an impairment loss on loans and receivables carried at amortized cost has been incurred, the amount of the loss is measured as the difference between the 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 (i.e., the effective interest rate computed at initial recognition). The Company first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that the group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment. The carrying amount of the asset shall be reduced through the use of an allowance account. The amount of the loss shall be recognized in the statements of comprehensive income. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. Interest income is recorded as part of finance income in the statements of comprehensive income. Loans and receivables together with the associated allowance are written-off when there is no realistic prospect of future recovery and all collateral has been realized or has been transferred to the Company. If, in a subsequent period, the amount of impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed by adjusting the allowance account. Any subsequent reversal of an impairment loss is recognized in the statements of comprehensive income, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date.

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Assets Carried at Cost. If there is objective evidence that an impairment loss has been incurred on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. AFS Investments. For AFS investments, the Company assesses at each balance sheet date whether there is objective evidence that an investment or group of investments is impaired. In the case of equity investments classified as AFS, this would include a significant or prolonged decline in the fair value of the investments below its cost. Significant is to be evaluated against the original cost of the investment and prolonged against the period in which the fair value has been below its original cost. Where there is evidence of impairment, the cumulative loss which is measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognized in profit or loss, is removed from other comprehensive income and recognized in profit or loss. Impairment losses on equity investments are not reversed through profit or loss; increases in their fair value after impairment are recognized directly as other comprehensive income. In the case of debt instruments classified as AFS investments, impairment is assessed based on the same criteria as financial assets carried at amortized cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortized cost and the current fair value, less any impairment loss on that investment previously recognized in profit or loss. Future interest income is based on the reduced carrying amount of the asset and is accrued based on the rate of interest used to discount future cash flows for the purpose of measuring impairment loss. The interest income is recorded as part of finance income. If, in a subsequent year, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in other comprehensive income, the impairment loss is reversed through profit or loss. Offsetting of Financial Instruments Financial assets and financial liabilities are offset and the net amount is reported in the balance sheets if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. This is not generally the case with master netting agreements, and the related assets and liabilities are presented gross in the balance sheets. Inventories Inventories are valued at the lower of cost and net realizable value. Costs incurred in bringing each product into its present location and condition are accounted for as follows: Finished goods cost includes direct materials, labor and a proportion of manufacturing overhead costs based on normal operating capacity using standard costing; and purchase cost using weighted average method.

Goods in transit, raw and packaging materials and spare parts, supplies and others

The net realizable value of finished goods is the estimated selling price in the ordinary course of business, less the estimated costs necessary to make the sale. The net realizable value of goods in transit, raw and packaging materials and spare parts, supplies and others is the current replacement cost. Property, Plant and Equipment Property, plant and equipment, except land, is stated at cost, excluding the costs of day-to-day servicing, less accumulated depreciation and amortization and any accumulated impairment in value. Cost includes the cost of replacing part of property, plant and equipment if such cost meets the recognition criteria. Land is stated at cost less any impairment in value. The initial cost of property, plant and equipment consists of its purchase price, including import duties, taxes and any directly attributable costs necessary in bringing the asset to its working condition and location for its intended use. Expenditures incurred after the item has been put into operation, such as repairs, maintenance and overhaul costs, are normally recognized as expense in the period such costs are incurred. When each major inspection is performed, its cost is recognized in the carrying amount of the property, plant and equipment as a replacement if the recognition criteria are satisfied. In situations where it can be clearly demonstrated that the expenditures have improved the condition of the asset beyond the originally assessed standard of performance, the expenditures are capitalized as additional costs of property, plant and equipment. Depreciation and amortization are computed using the straight-line method over the following estimated useful lives of the assets: Land improvements Buildings and leasehold improvements Machinery and equipment Transportation equipment Office furniture, fixtures and other equipment 20 years 15 years or term of the lease, whichever is shorter 10 years 35 years 3 years

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Notes to Financial Statements

The residual values, useful lives and method of depreciation and amortization of the assets are reviewed and adjusted, if appropriate, at each financial year-end. Fully depreciated assets are retained in the accounts until they are no longer in use and no further depreciation and amortization is credited or charged to current operations. Machinery and equipment under installation and machinery in-transit are stated at cost. These are not depreciated until such time that the relevant assets are available for use. Construction in-progress represents properties under construction and is stated at cost. This includes cost of construction, equipment and other direct costs. Construction in-progress is not depreciated until such time that the relevant asset is completed and becomes available for use. The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying values may not be recoverable. An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset, calculated as the difference between the net disposal proceeds and the carrying amount of the asset, is included in the statements of comprehensive income in the year the asset is derecognized. Intangible Assets Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses. Internally generated intangible assets, excluding any capitalized development costs, are not capitalized and expenditure is reflected in profit or loss in the year in which the expenditure is incurred. The useful lives of intangible assets are assessed to be either finite or indefinite. Research and Development Costs. Research costs are expensed as incurred. Development cost incurred on an individual project is carried forward when its future recoverability can reasonably be regarded as assured. Any expenditure carried forward is amortized in line with the expected future sales from the related project. License Brands, Trademarks and Computer Software License. The costs of license brands, trademarks and computer software license represent the purchase price at the date of acquisition. The Company assessed the useful lives of license brands and computer software license to be finite. The Company assessed the useful life of trademarks to be indefinite because they are expected to contribute net cash inflows indefinitely. License brands and computer software license are amortized over the economic useful life of the assets and are assessed for impairment whenever there is an indication that the assets may be impaired. The amortization period and the amortization method for license brands and computer software license with finite useful lives are reviewed at least each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and are treated as changes in accounting estimates. The amortization expense on license brands and computer software license are recognized in profit or loss in the expense category consistent with the function of the intangible assets. The amortization of license brands and computer software license is computed using the straight-line method over 10 years and 3 years, respectively. The amortization for computer software license commences when the asset is available for use. Trademarks with indefinite useful lives are not amortized but are tested for impairment annually, either individually or at the cash-generating unit level. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is made on a prospective basis. Gains and losses arising from derecognition of an intangible assets are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the statement of comprehensive income when the asset is derecognized. Impairment of Nonfinancial Assets with Definite Useful Lives The Company assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Company estimates the assets recoverable amount. An assets recoverable amount is the higher of an assets or cashgenerating units (CGU) fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, recent market transactions are taken into account, if available. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples or other available fair value indicators.

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The Company bases its impairment calculation on detailed budgets and forecast calculations which are prepared separately for each of the Companys cash-generating units to which the individual assets are allocated. These budgets and forecast calculations are generally covering a period of five years. For longer periods, a long-term growth rate is calculated and applied to project future cash flows after the fifth year. Impairment losses of continuing operations, including impairment on inventories, are recognized in the statements of comprehensive income in those expense categories consistent with the function of the impaired asset, except for a property previously revalued where the revaluation was taken to other comprehensive income. In this case, the impairment is also recognized in other comprehensive income up to the amount of any previous revaluation. Capital Stock Capital stock is measured at par value for all shares issued. Incremental costs incurred directly attributable to the issuance of new shares are shown in stockholders equity as a deduction from proceeds, net of tax. Proceeds and/or fair value of considerations received in excess of par value, if any, are recognized as additional paid-in capital. Treasury Stock Own equity instruments which are reacquired are deducted from stockholders equity. No gain or loss is recognized in the statements of comprehensive income on the purchase, sale, issuance or cancellation of the Companys own equity instruments. Any difference between the carrying amount and the consideration is recognized in additional paid-in capital. Revenue Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured, regardless of when the payment is being made. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duty. The Company assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. The Company has concluded that it is acting as a principal in all of its revenue arrangements. The following specific recognition criteria must also be met before revenue is recognized: Sales. Revenue is recognized when the significant risks and rewards of ownership of the goods have passed to the buyer, which is normally upon delivery. Sales returns and sales discounts are deducted from sales to arrive at net sales shown in the statements of comprehensive income. Interest. Interest is recognized as the interest accrues, taking into account the effective yield on the related asset. Rent. Rental income arising from operating leases on investment properties is accounted for on a straight-line basis over the lease terms and included in revenue due to its operating nature. Dividend. Revenue is recognized when the Companys right as a shareholder to receive the payment is established. Costs and Expenses Cost of sales and operating expenses are recognized as incurred. Leases The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. Company as Lessee. Leases which transfer to the Company substantially all the risks and benefits incidental to the ownership of the leased item are classified as finance leases and are recognized as assets and liabilities in the balance sheets at amounts equal, at the inception of the lease, to the fair value of the leased property or, if lower, at the present value of minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are directly charged against income. Leased assets are depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Company will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term. Leases which do not transfer to the Company substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognized as expense in the statements of comprehensive income on a straight-line basis over the lease term. Associated costs, such as maintenance and insurance, are expensed as incurred. Company as Lessor. Leases which do not transfer to the lessee substantially all the risks and benefits of ownership of the asset are classified as operating lease. Lease income from operating leases is recognized as income in the statements of comprehensive income on a straight-line basis over the lease term. Share-based Payment Transactions The key executives and members of management of the Company are granted options to purchase shares, subject to restrictions, terms and conditions provided in the Executive Employee Stock Option Plan (EESOP).

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Notes to Financial Statements

The cost of equity-settled transactions, for awards granted after November 2002, is measured by reference to the fair value at the date on which they are granted. The fair value is determined using an appropriate pricing model, further details of which are disclosed in Note 22. The cost of equity-settled transactions is recognized with a corresponding increase in the stockholders equity, over the period in which the performance and/ or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (vesting date). The cumulative expense recognized for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Companys best estimate of the number of equity instruments that will ultimately vest. The amount reflected in the statements of comprehensive income represents the movement in cumulative expense recognized as of the beginning and end of the period. No expense is recognized for awards that do not ultimately vest. Where the terms of an equity-settled transaction award are modified, the minimum expense recognized is the expense as if the terms had not been modified, if the original terms of the award are met. An additional expense is recognized for any modification that increases the total fair value of the share-based payment transaction, or is otherwise beneficial to the employee as measured at the date of modification. Where an equity-settled award is cancelled, it is treated as if it vested on the date of cancellation, and any expense not yet recognized for the award is recognized immediately. This includes any award where non-vesting conditions within the control of either the entity or the employee are not met. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and the new award is treated as if it was a modification of the original award, as described in the previous paragraph. All cancellations of equity-settled transaction awards are treated equally. The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share (see Note 23). Pension Benefits The Company has a funded, noncontributory defined benefit retirement plan administered by a Board of Trustees covering all permanent employees. The cost of providing benefits under the defined benefit plan is determined using the projected unit credit actuarial valuation method. This method reflects service rendered by employees to the date of valuation and incorporates assumptions concerning employees projected salaries. Pension expense includes current service cost, interest cost, expected return on plan assets, amortization of unrecognized past service costs, recognition of actuarial gains (losses) and effect of any curtailments or settlements. Past service cost is amortized over a period until the benefits become vested. The portion of the actuarial gains and losses is recognized when it exceeds the corridor (10% of the greater of the present value of obligation or market related value of the plan assets) at the previous reporting date, divided by the expected average remaining working lives of active plan members. The defined benefit liability is the aggregate of the present value of the defined benefit obligation at balance sheet date and any actuarial gains and losses not recognized, reduced by past service cost not yet recognized and the fair value at balance sheet date of plan assets out of which the obligations are to be settled directly. If such aggregate is negative, the asset is measured at the lower of such aggregate or the aggregate of cumulative unrecognized net actuarial losses and past service cost and the present value of any economic benefits availed in the form of refund from the plan or reductions in the future contributions to the plan. If the asset is measured at the aggregate of cumulative unrecognized net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan, net actuarial losses of the current period and past service cost of the current period are recognized immediately to the extent that they exceed any reduction in the present value of those economic benefits. If there is no change or an increase in the present value of the economic benefits, the entire net actuarial losses of the current period and past service cost of the current period are recognized immediately. Similarly, net actuarial gains of the current period after the deduction of past service cost of the current period exceeding any increase in the present value of the economic benefits stated above are recognized immediately if the asset is measured at the aggregate of cumulative unrecognized net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan. If there is no change or a decrease in the present value of the economic benefits, the entire net actuarial gains of the current period after the deduction of past service cost of the current period are recognized immediately. Foreign Currency Transactions Transactions in foreign currencies are initially recorded at the functional currency rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency rate of exchange at balance sheet date. All exchange rate differences, including those arising on the settlement of monetary items at rates different from those at which they were recorded, are recognized in the profit or loss in the year in which the differences arise. Taxes Current Tax. Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at balance sheet date.

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Deferred Tax. Deferred tax is provided, using the balance sheet liability method, on temporary differences at balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognized for all taxable temporary differences, except when the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting income nor taxable income or loss. Deferred tax assets are recognized for all deductible temporary differences to the extent that it is probable that taxable income will be available against which the deductible temporary differences can be utilized except when the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting income nor taxable income or loss. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable income will be available to allow all or part of the deferred tax assets to be utilized. Unrecognized deferred tax assets are reassessed at each balance sheet date and are recognized to the extent that it has become probable that future taxable income will allow the deferred tax assets to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at balance sheet date. Deferred tax relating to items recognized directly as other comprehensive income is not recognized in profit or loss. Deferred tax items are recognized in correlation to the underlying transaction either in profit or loss or directly in other comprehensive income. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to offset current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. Sales Tax. Revenue, expenses and assets are recognized, net of the amount of sales tax, except: where the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the sales tax is recognized as part of the cost of acquisition of the asset or as part of the expense item as applicable; and receivables and payables that are stated with the amount of sales tax included. The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of Prepaid expenses and other current assets or Trade and other payables accounts in the balance sheets. Provisions Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessment of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as interest expense. Where the Company expects a provision to be reimbursed, the reimbursement is recognized as a separate asset but only when the receipt of the reimbursement is virtually certain. Contingencies Contingent liabilities are not recognized in the financial statements. They are disclosed in the notes to financial statements unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized in the financial statements but are disclosed in the notes to financial statements when an inflow of economic benefits is probable. Events After the Reporting Period Post year-end events that provide additional information about the Companys position at reporting period (adjusting events) are reflected in the financial statements. Post year-end events that are not adjusting events are disclosed in the notes to financial statements when material. Earnings Per Share (EPS) Basic EPS is calculated by dividing the net income for the year by the weighted average number of shares outstanding during the year. Diluted EPS is computed by dividing net income by the weighted average number of shares outstanding during the year, adjusted for the effects of dilutive stock options. Stock options are deemed to have been converted into shares on the date when the options were granted.

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Notes to Financial Statements

Operating Segments For purposes of segment reporting, the Company does not have other reportable segments other than milk manufacturing. Milk and non-milk products represent 99.64% and 0.36%, respectively, in 2010, and 98.82% and 1.18%, respectively, in 2009 and 2008 of the total sales.

5. Cash and Cash Equivalents

This account consists of: Cash on hand and in banks Short-term deposits 2010 P88,153,996 1,022,470,000 P1,110,623,996 2009 P248,764,066 608,290,000 P857,054,066

Cash in banks earn interest at the respective bank deposit rates. Short-term deposits are made for varying periods of up to three months depending on the immediate cash requirements of the Company, and earn interest at the respective short-term deposit rates. Interest income earned on cash in banks and short-term deposits amounted to P20.5 million, P18.4 million and P5.0 million in 2010, 2009 and 2008, respectively (see Note 19).

6. Short-term Investments
This account consists of investments in U.S. dollar time deposits with interest rates ranging from 0.88% to 2.25% and 1.25% to 2.40% in 2010 and 2009, respectively. Interest income earned from short-term investments amounted to P28.2 million and P6.2 million in 2010 and 2009, respectively and none in 2008 (see Note 19).

7. Trade and Other Receivables

This account consists of: Trade Advances to suppliers Non-trade Others (see Note 24) Less allowance for doubtful accounts 2010 P825,024,923 35,525,612 40,086,086 22,913,639 923,550,260 95,710,842 P827,839,418 2009 P849,112,452 84,682,312 35,840,175 20,278,471 989,913,410 96,346,642 P893,566,768

The terms and conditions of the above financial assets are as follows: Trade receivables are noninterest-bearing and are normally settled on a 30-day term. Advances to suppliers, non-trade and others are noninterest-bearing and are normally settled within the next financial year. The movements in the allowance for doubtful accounts are as follows: Individually Impaired P38,885,957 P38,885,957 Collectively Impaired P57,460,685 (635,800) P56,824,885 Total P96,346,642 (635,800) P95,710,842

At January 1, 2009/December 31, 2009 Write-off At December 31, 2010

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8. Inventories
This account consists of: 2010 At cost: Finished goods Goods in transit At net realizable value: Raw and packaging materials Spare parts, supplies and others P544,088,607 643,539,927 827,537,724 102,504,214 P2,117,670,472 2009 P232,317,108 335,496,014 481,673,471 103,694,800 P1,153,181,393

The cost of raw and packaging materials amounted to P866.4 million and P515.1 million as of December 31, 2010 and 2009, respectively. The cost of spare parts, supplies and others amounted to P155.7 million and P128.3 million as of December 31, 2010 and 2009, respectively.

9. Available-for-Sale Investments
This account consists of investments in unlisted shares of stock. The shares are unquoted and there are no reliable sources of fair market values. Consequently, the investments are stated at cost. Dividend income earned from these investments amounted to P0.001 million and P0.885 million in 2010 and 2008, respectively. There was no dividend income earned in 2009.

10. Property, Plant and Equipment

This account consists of: December 31, 2009 Cost Land and land improvements Buildings and leasehold improvements Machinery and equipment (see Note 25) Transportation equipment Office furniture, fixtures and other equipment Accumulated Depreciation and Amortization Land improvements Buildings and leasehold improvements Machinery and equipment Transportation equipment Office furniture, fixtures and other equipment Accumulated Impairment Loss Machinery and equipment Construction in-progress Machinery in-transit and under installation P54,474,137 680,859,231 1,609,047,724 100,727,579 117,077,172 2,562,185,843 16,124,550 142,899,720 950,792,199 70,976,414 104,009,400 1,284,802,283 1,277,383,560 21,775,677 216,098,698 P1,515,257,935 Disposals/ Retirements P (58,903,165) (12,529,710) (4,513,771) (75,946,646) (10,856,820) (12,018,460) (4,125,606) (27,000,886) (48,945,760) (P48,945,760) December 31, 2010 P55,772,420 732,697,321 1,949,036,881 109,813,503 128,237,582 2,975,557,707 18,809,629 183,746,797 1,075,380,021 80,540,152 109,106,936 1,467,583,535 54,455,722 1,453,518,450 6,087,588 103,204,567 P1,562,810,605

Additions P704,420 10,404,176 82,522,624 21,615,634 15,674,181 130,921,035 2,685,079 40,847,077 135,444,642 21,582,198 9,223,142 209,782,138 54,455,722 (133,316,825) 19,998,018 209,817,237 P96,498,430

Transfers P593,863 41,433,914 316,369,698 358,397,475 358,397,475 (35,686,107) (322,711,368) P

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Notes to Financial Statements

December 31, 2008 Cost Land and land improvements Buildings and leasehold improvements Machinery and equipment (see Note 25) Transportation equipment Office furniture, fixtures and other equipment Accumulated Depreciation and Amortization Land improvements Buildings and leasehold improvements Machinery and equipment Transportation equipment Office furniture, fixtures and other equipment P54,474,137 655,212,898 1,470,052,232 100,268,209 113,658,348 2,393,665,824 13,482,746 110,026,898 833,315,244 64,828,334 97,377,094 1,119,030,316 1,274,635,508 25,925,651 34,144,353 P1,334,705,512 Additions P 3,717,193 29,176,946 14,179,420 4,319,300 51,392,859 2,641,804 32,872,822 117,476,955 19,009,922 7,532,782 179,534,285 (128,141,426) 34,539,581 275,012,476 P181,410,631 Disposals/ Retirements P (13,720,050) (900,476) (14,620,526) (12,861,842) (900,476) (13,762,318) (858,208) (P858,208) Transfers P 21,929,140 109,818,546 131,747,686 131,747,686 (38,689,555) (93,058,131) P December 31, 2009 P54,474,137 680,859,231 1,609,047,724 100,727,579 117,077,172 2,562,185,843 16,124,550 142,899,720 950,792,199 70,976,414 104,009,400 1,284,802,283 1,277,383,560 21,775,677 216,098,698 P1,515,257,935

Construction in-progress Machinery in-transit and under installation

There was no capitalized interest in 2010, 2009 and 2008. In 2010, the Company recognized an impairment loss on certain idle machinery and equipment amounting to P54.5 million. The cost of fully depreciated property, plant and equipment that is still in use amounted to P613.5 million and P601.1 million as of December 31, 2010 and 2009, respectively.

11. Intangible Assets

This account consists of: Cost Balance as January 1, 2009/2010 Additions Balance as of December 31, 2009/2010 Accumulated Amortization Balance as of January 1, 2009 Amortization during the year Balance as of December 31, 2009 Amortization during the year (see Note 18) Balance as of December 31, 2010 Net Book Value December 31, 2010 December 31, 2009 Trademarks (see Note 25) P276,423,000 276,423,000 P276,423,000 276,423,000 License Brands (see Note 25) P1,623,577,000 1,623,577,000 270,596,167 162,357,700 432,953,867 162,357,700 595,311,567 P1,028,265,433 1,190,623,133 Computer Software P25,906,896 25,906,896 1,727,126 9,787,405 11,514,531 8,635,899 20,150,430 P5,756,466 14,392,365 Total P1,925,906,896 1,925,906,896 272,323,293 172,145,105 444,468,398 170,993,599 615,461,997 P1,310,444,899 1,481,438,498

Trademarks have indefinite useful life. The remaining amortization life of license brands and computer software license are 6.3 years and 0.7 years, respectively.

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12. Trade and Other Payables

This account consists of: Trade Accruals for: Selling and marketing expenses Employee-related expenses (see Note 17) Importation charges, royalty and other expenses Payable to government agencies Derivative liabilities (see Note 27) Others 2010 P781,207,427 870,675,426 255,262,400 121,790,261 51,314,358 15,772,597 P2,096,022,469 2009 P700,052,873 701,309,055 194,279,807 148,658,454 74,123,906 404,382 20,990,648 P1,839,819,125

The terms and conditions of the above liabilities follow: Trade payables are noninterest-bearing and are normally settled on 60day term. Accruals, payable to government agencies and other payables are normally settled within the next financial year. Derivative liabilities arise from currency forward contracts outstanding as at balance sheet date.

13. Capital Stock

The composition of the Companys capital stock is as follows: 2010 Par value - P1 Authorized Issued: Balance at beginning of year Issuance (see Note 22) Balance at end of year Treasury stock: Balance at beginning of year Acquisition Balance at end of year The issuance of capital stock pertains to shares issued under the Companys EESOP. The cost of treasury stock acquired during the year amounted to P50.5 million, P62.4 million and P256.4 million as of December 31, 2010, 2009 and 2008, respectively, or an average price of P4.46, P4.24 and P4.24 a share as of December 31, 2010, 2009 and 2008, respectively. 1,000,000,000 968,074,878 3,357,700 971,432,578 83,002,676 7,325,000 90,327,676 Number of Shares 2009 1,000,000,000 967,094,878 980,000 968,074,878 68,243,676 14,759,000 83,002,676 2008 1,000,000,000 966,204,878 890,000 967,094,878 15,368,734 52,874,942 68,243,676

14. Retained Earnings

Cash dividends declared amounted to P433.8 million, P177.5 million and P277.8 million in 2010, 2009 and 2008, respectively. On May 4, 2010, the BOD approved the declaration of cash dividends of P0.50 per share, composed of a regular cash dividend of P0.075 per share and a special cash dividend of P0.05 per share, paid on June 30, 2010 to all stockholders of record as of June 4, 2010, and another special cash dividend of P0.375 per share, paid at P0.125 per share on September 30, 2010, December 29, 2010 and March 30, 2011 to all stockholders of record as of September 6, 2010, December 3, 2010 and March 4, 2011, respectively.

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Notes to Financial Statements

On the same date, the BOD approved additional appropriations of P450.0 million, out of the Companys retained earnings, broken into P300.0 million and P150.0 million for various capital investment projects and share buy-back program, respectively. On May 12, 2009, the BOD approved the declaration of cash dividends of P0.20 per share, composed of a regular cash dividend of P0.05 per share, paid on June 30, 2009 to all stockholders of record as of June 5, 2009, and a special cash dividend of P0.15 per share, paid at P0.05 per share on September 30, 2009, December 29, 2009 and March 30, 2010 to all stockholders of record as of September 7, 2009, December 3, 2009 and March 5, 2010, respectively. On May 13, 2008, the BOD approved the declaration of cash dividends of P0.30 per share, composed of a regular cash dividend of P0.05 per share and special cash dividend of P0.025 per share, paid on June 30, 2008 to all stockholders of record as of June 4, 2008, and another special cash dividend of P0.225 per share, paid at P0.075 per share on September 30, 2008, December 29, 2008 and March 30, 2009 to all stockholders of record as of September 5, 2008, December 3, 2008 and March 6, 2009, respectively. On February 12, 2008, the BOD approved additional appropriations of P380.0 million, out of the Companys retained earnings, for various capital investment projects. On August 7, 2008 and November 11, 2008, the BOD approved additional appropriations of P100.0 million and P200.0 million, respectively, out of the Companys retained earnings, for the share buy-back program. Consequently, the retained earnings account is restricted for the payment of dividends to the extent of P2,477.6 million and P1,977.0 million as of December 31, 2010 and 2009, respectively, representing appropriations of P2,075.0 million and P1,625.0 million as of December 31, 2010 and 2009, respectively, and the cost of treasury stock amounting to P402.6 million and P352.0 million as of December 31, 2010 and 2009, respectively. As of December 31, 2010 and 2009, the Companys unappropriated retained earnings is in excess of 100% of its paid-up capital. The Company intends to use the excess retained earnings for future dividend declaration and business expansion.

15. Cost of Sales

This account consists of: Raw materials and inventories used Utilities Personnel expenses (see Note 17) Depreciation (see Note 18) Rent, repairs, maintenance and others (see Notes 24 and 25) 2010 P6,434,772,797 415,606,430 343,155,543 151,916,427 213,198,899 P7,558,650,096 2009 P5,866,592,967 293,758,067 331,074,957 128,878,885 201,217,477 P6,821,522,353 2008 P7,059,557,980 294,932,550 290,751,637 125,035,662 133,537,992 P7,903,815,821

16. Operating Expenses

This account consists of: Selling and marketing Personnel expenses (see Note 17) Depreciation and amortization (see Note 18) Impairment loss (see Note 10) Taxes and licenses Rent (see Notes 24 and 25) Transportation and travel Utilities Communication Entertainment, amusement and recreation Others 2010 P1,402,036,395 405,055,736 228,859,310 54,455,722 35,285,863 31,890,573 23,978,737 11,745,022 7,934,000 3,332,755 72,721,086 P2,277,295,199 2009 P1,172,994,473 326,156,617 222,800,505 19,396,026 23,662,156 21,623,809 9,130,349 7,738,145 2,366,657 63,641,319 P1,869,510,056 2008 P1,019,404,148 232,494,508 200,108,732 28,088,518 30,529,962 23,674,024 9,294,338 8,210,411 2,274,006 45,842,923 P1,599,921,570

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17. Personnel Expenses

Personnel expenses consist of: Salaries, wages and employee benefits Share-based payment transactions (see Note 22) Pension expense (see Note 20) Trainings and others 2010 P697,873,283 21,664,311 17,694,600 10,979,085 P748,211,279 2009 P626,567,089 4,545,973 16,077,762 10,040,750 P657,231,574 2008 P501,359,317 6,630,559 6,641,300 8,614,969 P523,246,145

18. Depreciation and Amortization

This account is distributed as follows: 2010 Property, plant and equipment (see Note 10): Cost of sales (see Note 15) Operating expenses Investment properties Operating expenses (see Note 25) Intangible assets Operating expenses (see Note 11) P151,916,427 57,865,711 170,993,599 P380,775,737 2009 P128,878,885 50,655,400 172,145,105 P351,679,390 2008 P125,035,662 35,031,172 992,734 164,084,826 P325,144,394

19. Interest Income

This account represents income from the following sources: Cash in bank and short-term deposits (see Note 5) Short-term investments (see Note 6) 2010 P20,509,915 28,238,820 P48,748,735 2009 P18,402,507 6,243,740 P24,646,247 2008 P4,952,263 P4,952,263

20. Pension Plan

The following tables summarize the components of net pension expense recognized in the statements of comprehensive income and the funded status and amounts recognized in the balance sheets for the pension plan: Net Pension Expense Current service cost Interest cost on benefit obligation Expected return on plan assets Net pension expense Net Pension Assets Defined benefit obligation Fair value of plan assets Unrecognized net actuarial gains (losses) Net pension assets 2010 P486,786,900 (479,697,500) 7,089,400 (51,925,538) (P44,836,138) 2009 P410,228,026 (470,344,174) (60,116,148) 10,855,710 (P49,260,438) 2008 P371,527,400 (438,518,800) (66,991,400) 14,923,500 (P52,067,900) 2010 P21,283,900 37,408,600 (40,997,900) P17,694,600 2009 P19,707,270 37,152,740 (40,782,248) P16,077,762 2008 P17,915,700 25,816,800 (37,091,200) P6,641,300

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Notes to Financial Statements

The changes in the present value of the defined benefit obligation are as follows: Defined benefit obligation, January 1 Interest cost on benefit obligation Current service cost Actuarial losses (gains) on obligations Actual benefits paid Defined benefit obligation, December 31 The changes in the fair value of plan assets are as follows: Fair value of plan assets, January 1 Expected return on plan assets Actuarial gains (losses) on plan assets Contributions Actual benefits paid Fair value of plan assets, December 31 Actual return on plan assets The plan assets consist of the following: Cash in banks Investments held for trading Receivables Investment properties 2010 P37,633,770 130,493,503 16,503,656 295,066,571 P479,697,500 2009 P11,057,794 150,484,581 13,735,228 295,066,571 P470,344,174 2008 P28,019,579 103,129,551 12,303,100 295,066,570 P438,518,800 2010 P470,344,174 40,997,900 27,369,326 13,270,300 (72,284,200) P479,697,500 P68,367,226 2009 P438,518,800 40,782,248 (4,067,790) 13,270,300 (18,159,384) P470,344,174 P36,714,458 2008 P414,273,710 37,091,200 (8,547,110) 3,556,500 (7,855,500) P438,518,800 P28,544,100 2010 P410,228,026 37,408,600 21,283,900 90,150,574 (72,284,200) P486,786,900 2009 P371,527,400 37,152,740 19,707,270 (18,159,384) P410,228,026 2008 P372,739,549 25,816,800 17,915,700 (37,089,149) (7,855,500) P371,527,400

The overall expected rate of return on plan assets is determined based on the market prices prevailing on that date, applicable to the period over which the obligation is to be settled. These are reflected in the principal assumptions below. The principal assumptions used in determining pension obligations of the Companys plan are shown below: Discount rate Expected rate of return on plan assets Salary increase rate The amounts for current and previous periods are as follows: Fair value of plan assets Defined benefit obligation Surplus (Deficit) The amounts of experience adjustments are as follows: 2010 Gain (loss) on experience adjustments on: Pension obligation Plan assets (P90,150,574) 27,369,326 2009 P (4,067,790) 2008 P37,089,149 (8,547,110) 2007 P (12,568,744) 2006 P25,706,300 27,606,000 2010 P479,697,500 (486,786,900) (P7,089,400) 2009 P470,344,174 (410,228,026) P60,116,148 2008 P438,518,800 (371,527,400) P66,991,400 2007 P414,273,710 (372,739,549) P41,534,161 2006 P388,715,700 (342,306,100) P46,409,600 2010 7.25% 8.65% 9.25% 2009 10% 9.3% 8% 2008 10% 9.3% 8%

The Company expects to contribute P19.5 million to the fund in 2011. The expected benefit payments in 2011 amounted to P10.1 million.

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21. Income Tax

The components of the Companys net deferred tax assets are as follows: 2010 Deferred tax assets: Accrued expenses Allowance for: Doubtful accounts Inventory obsolescence Unamortized portion of past service costs Unrealized foreign exchange loss - net Share-based payment Deferred interest income Deferred tax liability Pension assets P186,422,824 28,713,253 27,644,803 17,426,423 9,964,082 3,866,961 274,038,346 (13,450,843) P260,587,503 2009 P137,489,367 28,903,993 17,414,803 23,404,358 4,011,997 1,489,800 48,203 212,762,521 (14,778,133) P197,984,388

Accrued expenses mainly represent accruals for outside services and other expenses for which the related withholding taxes have not yet been remitted by the Company to the Bureau of Internal Revenue (BIR). The reconciliation between the statutory tax rates and the Companys effective tax rates on income before income tax is as follows: 2010 Provision for income tax at statutory income tax rate Income tax effects of: Income tax holiday (see Note 29) Interest income subjected to final tax Nondeductible interest expense Dividend income exempt from tax Change in enacted tax rates and others Effective income tax rate 30.00% (7.64% ) (0.63% ) 0.03% 0.53% 22.29% 2009 30.00% (10.77%) (0.43%) 0.08% (0.48%) 18.40% 2008 35.00% (4.24%) (0.40%) 0.21% (0.07%) 2.38% 32.88%

In 2009, the corporate income tax rate was reduced from 35% to 30% in accordance with Republic Act No. 9337. The change in enacted tax rates was considered in the computation of deferred income tax.

22. Share-based Payment

On February 12, 2002, the BOD approved the provisions of the EESOP, administered by a committee, with the following terms: Participants Number of common shares available for EESOP Exercise price Key executives and members of management as recommended by the Committee to the BOD, subject to restrictions, terms and conditions provided in the EESOP 5% of the outstanding capital stock Not less than 90% of the average closing price of the Companys stock as stated in the Philippine Stock Exchanges daily quotation sheet for the past 30 trading days immediately preceding the date of grant 1/3 on the effectivity of the grant, 1/3 after one year from the effectivity of the grant, and 1/3 after two years from the effectivity of the grant After the lapse of the three-year duration of any grant

Vesting Expiration

The BOD granted additional shares of 2,100,000 and 4,740,000 in 2010 and 2008, respectively, for the EESOP with the same provisions as the previous EESOP. There have been no cancellations or modifications to the EESOP in 2010 and 2009.

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Notes to Financial Statements

Total additional paid-in capital arising from share-based payment amounted to P21.7 million, P7.8 million and P6.6 million as of December 31, 2010, 2009 and 2008, respectively. Total expense arising from share-based payment amounted to P21.7 million, P4.5 million and P6.6 million in 2010, 2009 and 2008, respectively (see Note 17). The following table illustrates the number and weighted average exercise price (WAEP) of and movements in share options: Number 4,330,000 (3,357,700) 2,100,000 (180,000) (40,000) 2,852,300 1,452,300 2010 WAEP P4.32 4.68 7.40 3.53 7.40 P5.39 P5.17 2009 Number 5,310,000 (980,000) 4,330,000 2,750,000 WAEP P4.31 4.29 P4.32 P4.32 Number 2,160,000 (890,000) 4,740,000 (700,000) 5,310,000 1,780,000 2008 WAEP P3.18 3.45 4.50 3.18 P4.40 P4.31

Balance at beginning of year Exercised during the year (see Note 13) Additional shares granted during the year Expired during the year Forfeited during the year Balance at end of year (see Note 23) Exercisable at end of year

The options that have been exercised have an exercise price ranging from P3.53 to P7.40 in 2010, P3.53 to P4.50 in 2009 and P3.18 to P4.50 in 2008. The average fair value of the shares as of the exercise dates was P10.09 in 2010, P6.34 in 2009 and P5.15 in 2008. Options not exercised from the 2007 grant of 180,000 shares and 2005 grant of 700,000 shares expired in 2010 and 2008, respectively. No options expired in 2009. Options forfeited from the 2010 grant of 40,000 shares were due to the resignation of a grantee in 2010. The weighted average remaining contractual life for the outstanding share options is 2 years as of December 31, 2010. The fair value of the option was determined using the option pricing model, taking into account the terms and conditions upon which the options were granted. The dates of grant were May 4, 2010 and May 5, 2008. The following table lists the inputs to the model used as of the grant date: Dividend yield Historical daily volatility Risk-free interest rate risk Expected daily volatility Weighted average share price 2010 3.21% 2.00% 4.04% to 5.48% 2.00% P6.23 2008 5.76% 2.00% 4.12% to 7.83% 2.00% P5.21

The expected life of the share options is based on historical data and current expectations and is not necessarily indicative of exercise patterns that may occur. The expected daily volatility reflects the assumption that the historical volatility is indicative of future trends, which may not necessarily be the actual outcome.

23. EPS Computation

(a) Net income Number of shares issued and outstanding at beginning of year Weighted average number of shares issued during the year Weighted average number of treasury stock acquired during the year (b) Weighted average number of shares outstanding during the year Adjustment for potential common shares: Number of shares under the stock option (see Note 22) Number of shares that would have been issued at fair value related to the exercise of the stock option (c) Weighted average number of shares issued and outstanding adjusted for potential common shares Basic EPS (a/b) Diluted EPS (a/c) 2010 P1,815,598,965 885,072,202 2,238,288 (6,714,583) 880,595,907 2,852,300 (1,125,679) 882,322,528 P2.0618 P2.0577 2009 P1,409,388,720 898,851,202 200,125 (12,329,583) 886,721,744 4,330,000 (2,421,127) 888,630,617 P1.5894 P1.5860 2008 P291,098,723 950,836,144 665,000 (29,193,535) 922,307,609 5,310,000 (4,357,282) 923,260,327 P0.3156 P0.3153

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24. Related Party Disclosures

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Transactions with related parties include the following: a. The Company has the following transactions with GenOSI, Inc. (GenOSI) and Wentworth Development Corporation (WDC), affiliates (companies with stockholders common to the Company): Amount of Transactions During the Year P289,510 224,966 378,548 2,561,355 2,275,718 1,018,836

GenOSI WDC

Nature of Transactions Sale of raw material inventories and share in corporate expenses Rent and share in corporate expenses

Year 2010 2009 2008 2010 2009 2008

Receivables* P107,273 125,408 57,512 16,035 22,196 139,242

*Included under Trade and other receivables account in the balance sheets. b. The Company has a five-year and ten-year lease agreements with WDC starting March 1, 2010 and September 22, 2009 for the renewed lease of provincial office space and a parcel of land, respectively. The annual lease payments for the whole term of the lease of provincial space amounted to P1.2 million in 2010 and P0.6 million in 2009 and 2008. Rent expense for the parcel of land amounted to P1.2 million and P0.3 million in 2010 and 2009, respectively. The Company leases the land where its manufacturing plant is situated from Alaska Milk Corporation Retirement Plan (AMC Retirement Plan) for a period of 25 years starting November 9, 2004. The annual lease payments for the whole term of the lease amount to P15.6 million. On January 1, 2006, the Company entered into another 25 years lease agreement with AMC Retirement Plan for the lease of land adjacent to where the manufacturing plant is situated. The lease is renewable at the option of the Company. Rent expense amounted to P13.2 million in 2010, 2009 and 2008. d. The Company recognizes incentives to the members of the BOD, management and employees based on a certain percentage of operating income, which amounted to P135.4 million in 2010, P110.0 million in 2009 and P27.0 million in 2008. The compensation of key management personnel of the Company, by benefit type, follows: Short-term employee benefits Post-retirement benefits Share-based payments 2010 P131,812,643 27,570,286 4,037,969 P163,420,898 2009 P114,575,145 4,708,758 2,014,890 P121,298,793 2008 P86,279,910 1,704,608 2,115,148 P90,099,666

c.

e.

25. Agreements
License and Purchase Agreements On April 16, 2007, the Company signed a license agreement with Socit Des Produits Nestl S.A. (Nestl) granting the Company an exclusive license to manufacture and sell Nestles Carnation and Milkmaid brands for canned milk products. Royalty expense is computed at 5% of net sales. On the same date, the Company also acquired the liquid milk trademarks from Nestl. Distribution Agreement On August 18, 2005, the Company entered into a Distribution Agreement with Kellogg Asia Marketing, Inc. (Kellogg), designating the Company as distributor of Kellogg products within the territory specified in the agreement. In consideration of the services rendered by the Company, Kellogg shall pay the Company a fee equivalent to a certain percentage of the price list to trade as stated in the agreement. The agreement was discontinued in May 2010.

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Notes to Financial Statements

Lease Agreements As Lessee

The Company has a lease agreement with a third party for the lease of land and warehouse in Cainta, which expired on September 30, 2008.
expense amounted to P6.2 million in 2008.

Rent

The Company has lease agreements with various third parties for the lease of land and warehouse in different provinces for a period of one (1) year,
automatically renewable every year. Rent expense amounted to P7.1 million in 2010, P6.8 million in 2009 and P7.8 million in 2008.

In 2009, the Company has cancellable lease agreements with third parties for the lease of pallets and a provincial warehouse for a period of more than
one (1) year. Rent expense amounted to P12.1 million and P7.4 million in 2010 and 2009, respectively.

On October 23, 2007, the Company entered into a 7-year finance lease agreement with Tetra Pak Philippines, Inc. for a packaging equipment at a total

consideration of US$0.7 million or P31.3 million, discounted at 5.8% per annum based on treasury bill rate. Also, on February 1, 2010, the Company entered into a 6-year finance lease with Tetra Pak Philippines, Inc. for another packaging equipment for a total consideration of US$0.3 million or P12.9 million, discounted at 6.6% per annum based on treasury bill rate. The aggregate interest expense on obligation under finance leases amounted to P2.1 million and P1.9 million in 2010 and 2009, respectively. The packaging equipment were received on September 26, 2008 and November 30, 2010 for the 7-year and 6-year finance lease agreements, respectively. The related liabilities were shown as obligation under finance leases in the balance sheets amounting to P35.9 million and P31.5 million as of December 31, 2010 and 2009, respectively. Future and present values of lease payments are as follows: Minimum Payments P8,403,024 30,442,662 2,393,217 41,238,903 5,373,066 35,865,837 7,227,315 P28,638,522 2010 Present Value of Payments P7,227,315 11,263,594 17,374,928 35,865,837 35,865,837 7,227,315 P28,638,522 2009 Minimum Payments P4,019,227 16,442,291 16,147,112 36,608,630 5,124,155 31,484,475 4,019,227 P27,465,248 Present Value of Payments P4,019,227 12,792,236 14,673,012 31,484,475 31,484,475 4,019,227 P27,465,248

Within one year After one year but not more than five years More than five years Total minimum lease payments Less: Total interest expense Present value of minimum lease payments Less: Current portion Noncurrent portion

As of December 31, 2010 and 2009, the aggregate carrying value of packaging equipment amounted to P34.9 million and P24.5 million, respectively. As Lessor

The Company leased a condominium property for a period of three (3) years until March 31, 2008.
February 29, 2008. Rent income amounted to P0.3 million in 2008.

The lease was, however, pre-terminated on

The Company had a lease agreement with a third party for the lease of a condominium property for a period of one (1) year until February 29, 2008.
In 2008, the Company sold the condominium property. Rent income amounted to P0.2 million in 2008. The Company has no lease agreements as lessor in 2010 and 2009.

26. Financial Risk Management Objectives and Policies

The Companys principal financial instruments, other than derivatives, comprise cash and cash equivalents and short-term investments. The main purpose of these financial instruments is to finance the Companys operations. The Company has other financial assets and liabilities such as trade and other receivables, AFS investments, receivable from Meralco, trade and other payables, acceptances payable, dividends payable and obligation under finance leases arising from its operations. The Company also enters into currency forward contracts to manage the foreign currency risks arising from the Companys operations and its sources of finance.

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The main risks arising from the Companys financial instruments are foreign currency risk, credit risk, interest rate risk and liquidity risk. The BOD and management review and agree on the policies for managing each of these risks and they are summarized below. Foreign Currency Risk The Companys exposure to foreign currency risk pertains to foreign-currency denominated monetary assets and liabilities. The Companys financial position or performance can be affected by the movements in the P/US$ exchange rates. The following table shows the Companys foreign currency-denominated monetary assets and liabilities and their Philippine Peso equivalents as at December 31: US$ Current financial assets: Cash and cash equivalents Short-term investments Trade and other receivables Current financial liabilities: Acceptances payable Obligation under finance leases (including noncurrent portion and accrued interest) Net financial assets $277,082 41,833,574 672,330 42,782,986 16,076,243 818,108 16,894,351 $25,888,635 2010 PhP P12,147,275 1,833,983,891 29,474,947 1,875,606,113 704,782,480 35,865,837 740,648,317 P1,134,957,796 2009 US$ $3,890,416 22,609,599 1,570,193 28,070,208 12,123,913 681,482 12,805,395 $15,264,813 PhP P179,737,219 1,044,563,465 72,542,917 1,296,843,601 560,124,762 31,484,475 591,609,237 P705,234,364

In translating the foreign currency-denominated monetary assets and liabilities into Philippine Peso amounts, the exchange rates used were P43.84 to US$1.00 and P46.20 to US$1.00, the Philippine Peso to U.S. Dollar exchange rates as at December 31, 2010 and 2009, respectively. To manage foreign currency risks, stabilize cash flows and improve investment and cash flow planning, the Company enters into currency forward contracts aimed at reducing and/or managing the adverse impact of changes in foreign exchange rates on operating results and cash flows. The following table demonstrates the sensitivity to a reasonably possible change in US$ exchange rate, with all other variables held constant, of the Companys income before income tax and management incentive bonus (due to revaluation of monetary assets and liabilities). There is no impact on stockholders equity other than those already affecting profit or loss: Effect on Income Before Income Tax and Management Incentive Bonus P17.1 million increase 4.3 million decrease

2010 2009

Increase (Decrease) in P to US$ 1 P0.66 (0.28)

A movement in the opposite direction would have increased/decreased income before income tax and management incentive bonus by the same amount. The decrease in P to US$ rate means stronger Philippine Peso against the U.S. Dollar while an increase in P to US$ rate means stronger US Dollar against the Philippine Peso. In 2009, the impact of the outstanding foreign currency forward contracts is immaterial. Credit Risk The Company trades only with recognized, creditworthy third parties. It is the Companys policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis with the result that the Companys exposure to bad debts is not significant. The Company does not grant credit terms without the specific approval of the credit departments under the direction of credit committee. Moreover, the credit committee regularly reviews the age and status of outstanding accounts receivable. There are no significant concentrations of credit risk. The Companys exposure to credit risk arises from default of the counterparties, with a maximum exposure equal to the carrying amount of financial assets of the Company, which comprise cash and cash equivalents, short-term investments, AFS investments, trade and other receivables and receivable from Meralco.

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Notes to Financial Statements

As of December 31, 2010 and 2009, the aging analysis of the Companys financial assets is as follows: Neither Past Due nor Impaired P1,108,985,482 1,833,983,891 2,556,403 460,128,377 35,525,612 55,304,393 P3,496,484,158 2010 Past Due but Not Impaired <30 Days 30-60 Days P P 249,326,638 P249,326,668 27,554,398 P27,554,398 Impaired P 88,015,510 7,695,332 P95,710,842 Total P1,108,985,482 1,833,983,891 2,556,403 825,024,923 35,525,612 62,999,725 P3,869,076,036

Cash and cash equivalents* Short-term investments AFS investments Trade and other receivables: Trade Advances to suppliers Non-trade and others
*Excluding cash on hand.

Cash and cash equivalents* Short-term investments AFS investments Trade and other receivables: Trade Advances to suppliers Non-trade and others Receivable from Meralco**

Neither Past Due nor Impaired P855,516,202 1,044,563,465 2,556,403 579,990,947 84,682,312 47,196,392 3,296,039 P2,617,801,760

2009 Past Due but Not Impaired <30 Days 30-60 Days P 160,032,052 P160,032,052 Impaired P 90,720,427 5,626,215 P96,346,642 Total P855,516,202 1,044,563,465 2,556,403 849,112,452 84,682,312 52,822,607 3,296,039 P2,892,549,480

18,369,026 P18,369,026

** Excluding cash on hand. ** Included under Trade and other receivables account in the 2009 balance sheet.

As of December 31, 2010 and 2009, the credit quality of the Companys financial assets is as follows: 2010

Cash and cash equivalents* Short-term investments AFS investments Trade and other receivables
* Excluding cash on hand.

Neither Past Due Nor Impaired High Grade Standard Grade P1,108,985,482 P 1,833,983,891 2,556,403 349,877,424 201,080,928 P3,292,846,797 P203,637,331

Past Due or Impaired P 372,591,908 P372,591,908

Total P1,108,985,482 1,833,983,891 2,556,403 923,550,260 P3,869,076,036

Cash and cash equivalents* Short-term investments AFS investments Trade and other receivables Receivable from Meralco**

Neither Past Due Nor Impaired High Grade Standard Grade P P855,516,202 1,044,563,465 2,556,403 482,788,190 229,081,461 3,296,039 P2,382,867,857 P234,933,903

2009

Past Due or Impaired P 274,747,720 P274,747,720

Total P855,516,202 1,044,563,465 2,556,403 986,617,371 3,296,039 P2,892,549,480

** Excluding cash on hand. ** Included under Trade and other receivables account in the 2009 balance sheet.

High grade receivables are from key accounts and wholesalers who are highly reputable, progressive and consistently pay before their maturity dates. Standard grade receivables are from other key accounts and medium-sized customers that normally pay within their due dates, while those with past due or impaired accounts are from customers who exceeded their credit terms.

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Cash and cash equivalents and short-term investments are considered high grade as management deals only with top banks in the Philippines. AFS investments are considered standard grade by management as these are realized upon sale when the need arises. All other financial assets were assessed by management as standard grade as these are realized within the normal terms. Interest Rate Risk Interest rate risk arises on interest-bearing financial instruments recognized in the balance sheets. The Company ensures that all interest-bearing loans and borrowings are either short-term or made at a fixed rate of interest. The Company is no longer exposed to interest rate risk as of December 31, 2010 and 2009. As of December 31, 2008, the Companys bank loans have floating interest rates but payable within one month after the balance sheet date. Hence, the Company is not sensitive to interest rate changes. Liquidity Risk The Companys exposure to liquidity risk pertains to difficulty in raising funds to meet obligations associated with financial liabilities. The Companys objective is to maintain a balance between continuity and flexibility through the use of internally generated funds and banks. The Company regularly evaluates its projected and actual cash flow information and continuously assess conditions in the financial markets. The Companys financial assets, which have maturity of less than 12 months and used to meet its short term liquidity needs, are cash and cash equivalents and short-term investments amounting to P2,944.6 million and P1,901.6 million as of December 31, 2010 and 2009, respectively. The tables below summarize the maturity profile of the Companys financial liabilities based on contractual undiscounted payments as of December 31: 2010 3 to 12 Months P105,579,413 8,403,024 P113,982,437 Over 1 Year P 32,835,879 P32,835,879 Total P2,044,708,111 704,782,480 125,099,266 41,238,903 P2,915,828,760

Trade and other payables* Acceptances payable Dividends payable Obligation under finance leases (including current portion)

On Demand P P

Less than 3 Months P1,939,128,698 704,782,480 125,099,266 P2,769,010,444

* Excluding payable to government agencies amounting to P51.3 million, which is not considered as a financial liability.

Trade and other payables* Acceptances payable Dividends payable Obligation under finance lease (including current portion)

On Demand P P

Less than 3 Months P1,605,537,880 560,124,762 52,097,499 P2,217,760,141

2009 3 to 12 Months P160,157,339 4,019,227 P164,176,566 Over 1 Year P 32,589,403 P32,589,403 Total P1,765,695,219 560,124,762 52,097,499 36,608,630 P2,414,526,110

* Excluding payable to government agencies amounting to P74.1 million, which is not considered as a financial liability.

Capital Management The primary objective of the Companys capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximize shareholder value. The Company manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders, payoff existing debts, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes during the years ended December 31, 2010 and 2009. The Company monitors its capital gearing by measuring the ratio of debt to total stockholders equity. Debt includes bank loans, trade and other payables, acceptances payable, dividends payable and obligation under finance leases. The Companys policy is to keep the gearing ratio at 70:30. As of December 31, 2010 and 2009, the Companys ratios of debt to total stockholders equity are 33:67 and 35:65, respectively.

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Notes to Financial Statements

Details are as follows: 2010 P2,096,022,469 704,782,480 125,099,266 35,865,837 2,961,770,052 6,046,101,480 P9,007,871,532 33% 2009 P1,839,819,125 560,124,762 52,097,499 31,484,475 2,483,525,861 4,677,406,770 P7,160,932,631 35%

Trade and other payables Acceptances payable Dividends payable Obligation under finance leases (including current portion) Total debt (a) Total stockholders equity Total debt and stockholders equity (b) Gearing ratio (a/b)

27. Financial Assets and Liabilities

Fair Value of Financial Instruments The following tables set forth the carrying values and estimated fair values of financial assets and liabilities, by category and by class, recognized as of December 31, 2010 and 2009: 2010 Carrying Value P1,110,623,996 1,833,983,891 827,839,418 3,772,447,305 2,556,403 P3,775,003,708 2009 Carrying Value P857,054,066 1,044,563,465 890,270,729 3,296,039 2,795,184,299 2,556,403 P2,797,740,702

Financial Assets Loans and receivables: Cash and cash equivalents Short-term investments Trade and other receivables Receivable from Meralco (see Note 30) AFS investments Financial Liabilities Financial liabilities at FVPL - derivative liabilities (see Note 12) Other financial liabilities: Trade and other payables* Acceptances payable Dividends payable Obligation under finance leases

Fair Value P1,110,623,996 1,833,983,891 827,839,418 3,772,447,305 2,556,403 P3,775,003,708

Fair Value P857,054,066 1,044,563,465 890,270,729 3,296,039 2,795,184,299 2,556,403 P2,797,740,702

P P,044,708,111 704,782,480 125,099,266 35,865,837 P2,910,455,694

P 2,044,708,111 704,782,480 125,099,266 35,341,398 P2,909,931,255

P404,382 1,765,290,837 560,124,762 52,097,499 31,484,475 P2,409,401,955

P404,382 1,765,290,837 560,124,762 52,097,499 30,128,513 P2,408,045,993

* Excluding payable to government agencies amounting to P51.3 million and P74.1 million as of December 31, 2010 and 2009, respectively, the amounts of which are not considered as financial liabilities. The balance also excludes derivative liabilities amounting to P0.4 million as of December 31, 2009 the amounts of which are considered as financial liabilities at FVPL.

Cash and Cash Equivalents, Short-term Investments, Trade and Other Receivables, Trade and Other Payables, Acceptances Payables and Dividends Payable. The carrying values of these financial assets and liabilities approximate their fair values primarily due to the short-term nature of these financial instruments. AFS Investments. AFS investments consist of unquoted shares of stock. Consequently, the investments are carried at cost less any allowance for impairment losses because fair value cannot be measured reliably due to the unpredictable nature of cash flows and lack of suitable methods of arriving at a reliable fair value. Receivable from Meralco. Receivable from Meralco pertains to Meralco refund as disclosed in Note 30. Due to its short-term nature, the carrying value of the receivable approximates its fair value in 2009. Obligation under Finance Leases. The estimated fair value is based on the discounted value of future cash flows using applicable rates for similar types of instruments. Discount rates used were 3.5% to 6.2% and 5.6% to 7.6% as of December 31, 2010 and 2009, respectively. Derivative Liabilities. The fair value is based on quotes provided by counterparty bank.

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Fair Value Hierarchy The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data. There were no financial instruments measured and carried at fair value as of December 31, 2010. In 2009, the only financial instrument of the Company measured and carried at fair value pertains to derivative liabilities from its outstanding currency forward contracts. These are classified under Level 2 in the fair value hierarchy. There were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements during the years ended December 31, 2010 and 2009. Derivative Instruments The Company uses short-term forward contracts to manage its foreign currency exposure arising from importations. As of December 31, 2009, the Company has outstanding buy US$/sell P forward transactions with total notional amount of US$385,000 and weighted average forward rate of P47.30:$1.00. These forward contracts matured on various dates in 2010. The net negative fair value of the outstanding forward contracts as of December 31, 2009 amounted to P0.40 million. The movements in fair value of derivative instruments follow: 2010 (P404,382) 1,030,407 (626,025) P 2009 (P514,571) 4,001,715 (3,891,526) (P404,382)

Balance at beginning of year Net changes in fair value during the year [included in foreign exchange gain (loss) account in the statements of comprehensive income] Fair value of settled contracts Balance at end of year

28. Notes to Statements of Cash Flows

Noncash Transactions The principal noncash transactions under investing activities pertain to the acquisition of packaging equipment through finance leases amounting to P13.3 million and P26.2 million in 2010 (see Note 25) and the reclassification of the condominium property from investment properties to property, plant and equipment amounting to P18.6 million in 2008 (see Note 10).

29. Registration with the Board of Investments

On September 7, 2006, the Board of Investments (BOI) approved the Companys application for registration of its Anhydro Plant 2 Project as a pioneer project under Executive Order No. 226, also known as the Omnibus Investments Code of 1987. The registration entitles the Company to certain tax and other incentives. The certificate of registration was issued by the BOI on January 10, 2007. On December 19, 2006, the BOI approved the Companys appeal for the grant of a 6-year income tax holiday (ITH) incentive, which the Anhydro Plant 2 Project is entitled to as a pioneer project. The ITH incentive will start in May 2007 or the actual start of the Projects commercial operations, whichever is earlier. Total tax incentives availed of in 2010, 2009 and 2008 amounted to P178.6 million, P185.9 million and P18.4 million, respectively.

30. Other Matters

Refund from Meralco As a customer of Meralco, the Company expects to receive a refund for some of its previous billings under Phase IV of Meralcos refund scheme. Under the Meralco refund scheme, the refund may be received through postdated checks or as a fixed monthly credit to bills with cash option. The Company intends to recover the amount through fixed monthly credit to bills with cash option, starting 2006 up to 2010. In 2006, the Company recognized a receivable from

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Notes to Financial Statements

Meralco amounting to P12.6 million, net of unearned interest income of P3.6 million and income from the refund of P12.6 million (included in Cost of sales). The receivable was discounted using an effective interest rate of 11.7%. The current portion of the receivable, included in Trade and other receivables, amounted to P3.1 million net of unearned interest income of P0.2 million as of December 31, 2009. As of December 31, 2009, interest income earned, which is charged against cost of sales amounted to P0.4 million. Bank Loan The outstanding Philippine Peso-denominated short-term loan as of December 31, 2008 were settled during the first half of 2009. The loans bear interest rate of 8.25%. Interest expense, recorded under Interest expense on bank loans account in the statements of comprehensive income, amounted to P2.5 million and P60.3 million for the years ended December 31, 2009 and 2008, respectively. Casualty Loss The Company incurred casualty losses amounting to P156.5 million due to damages in inventories and equipment caused by Typhoon Ondoy which hit the country in September 2009. Lawsuits The Company is either a defendant or plaintiff in several civil cases primarily involving collection of receivables and labor cases. Based on the representation of the Companys external legal counsel, management is of the opinion that the resolution of such cases will not have a material adverse effect on the Companys financial position and results of operations.

31. Supplementary Tax Information under Revenue Regulation No. 15-2010

The Bureau of Internal Revenue has issued Revenue Regulation (RR) No. 15-2010 which requires certain tax information to be disclosed in the notes to the financial statements. The additional required disclosures are discussed below. The Company reported and/or paid the following types of taxes in 2010: Value Added Tax (VAT) The Companys sales are subject to output value added tax (VAT) while its importations and purchases from other VAT-registered individuals or corporations are subject to input VAT. The VAT rate is 12%. a. Net Sales/Receipts and Output VAT declared in the Companys VAT returns for 2010 Net Sales P12,160,288,109 10,181,480 12,170,469,589 2,425,810 P12,172,895,399 Output VAT P1,459,234,573 1,221,778 1,460,456,351 P1,460,456,351

Taxable Sales: Sale of goods Sale of services Commissions Leasing income Others Zero-rated Sales Exempt Sales

Zero-rated sales of goods and services consists of those rendered to persons or entities whose exemptions are provided under special laws or international agreements to which the Philippines is a signatory.

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b.

Input VAT declared in the Companys VAT returns for 2010

Balance at January 1 Current years domestic purchases/payments or importations for: Goods for resale/manufacture or further processing Goods other than for resale or manufacture Capital goods subject to amortization Capital goods not subject to amortization Services ledged under cost of goods sold Services lodged under other accounts Claims for tax credit/refund and other adjustments Total claims at December 31 Unamortized input VAT for carryover in 2011 Information on the Companys importations for 2010

P 940,332,385 20,136,679 77,676 163,035,725 1,123,582,465 4,001,436 P1,127,583,901 P22,679,146

Total landed cost of imports Customs duties/Tariffs Others Balance at December 31, 2010 Other Taxes and Licenses for 2010 Taxes and licenses, local and national, include real estate taxes, licenses and permit fees for 2010: Included in Cost of Sales Excise taxes Gross receipt tax Documentary stamp taxes Fringe benefits taxes Real estate taxes License and permits fees Others Total Included in Operating Expenses Excise taxes Documentary stamp taxes Fringe benefits taxes Real estate taxes License and permits fees Others

P5,360,502,658 29,516,550 P5,390,019,208

P 82,970 1,104 52,597 P136,671 18,485 12,120,670 3,742,508 19,283,004 121,196 35,285,863 P35,422,534

Withholding Taxes Withholding taxes on compensation and benefits Expanded withholding taxes Final withholding taxes Tax Assessments and Cases The Company has no ongoing tax assessments and cases as of December 31, 2010. P95,977,583 75,053,413 86,361,279 P257,392,275

2010 Annual Report

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Corporate & Shareholder Information

Corporate Office
Alaska Milk Corporation 6th Floor Corinthian Plaza 121 Paseo de Roxas, Makati City, Philippines Tel. Nos. : (632) 840-4500 (632) 840-5921 to 39 Fax No. : (632) 894-4929 Corporate website: www.alaskamilk.com.ph

Transfer Agent / Shareholder Services

Securities Transfer Services, Inc. Ground Floor, Benpres Building Exchange Road corner Meralco Avenue Pasig City, Philippines Tel. No. : (632) 490-0060 Fax No. : (632) 631-7148

Production Facilities
San Pedro Complex Magsaysay Road San Pedro, Laguna, Philippines Tel. Nos. : (632) 847-8001 to 10 Fax No. : (632) 808-2424

Investor Relations
6th Floor Corinthian Plaza 121 Paseo de Roxas, Makati City, Philippines Tel. Nos. : (632) 840-4500 (632) 840-5921 to 39 Fax No. : (632) 894-4929 E-mail: investorrelations@alaskamilk.com.ph

Legal Counsel
Esguerra & Blanco Law Offices 4th Floor S&L Building Dela Rosa corner Esteban Streets Legaspi Village, Makati City, Philippines

Stock Listing
Philippine Stock Exchange Ticker Symbol: AMC

Independent Auditor
Sycip Gorres Velayo & Co. 6760 Ayala Avenue Makati City, Philippines

80

The Heart of Alaska

2010 Annual Report

81

6/F Corinthian Plaza, 121 Paseo de Roxas, Makati City, Philippines Tel. Nos.: (632) 840-4500, 840-5921 up to 39 I Fax: (632) 894-4929 www.alaskamilk.com.ph