SEC Registration Number - Universal · PDF fileSEC Registration Number ... Item 6...

9 1 7 0 SEC Registration Number

U N I V E R S A L R O B I N A C O R P O R A T I O N A N D S U B S I D I A R I E S

(Company’s Full Name)

1 1 0 E . R o d r i g u e z A v e n u e , B a g u m b a y a n , Q u e z o n C i t y

(Business Address: No. Street City/Town/Province)

Mr. Gerry N. Florencio 671-2935; 635-0751; 671-3954 (Contact Person) (Company Telephone Number)

0 9 3 0 1 7 - A Month Day (Form Type) Month Day

(Fiscal Year) (Annual Meeting)

(Secondary License Type, If Applicable)

Dept. Requiring this Doc. Amended Articles Number/Section Total Amount of Borrowings

Total No. of Stockholders Domestic Foreign

To be accomplished by SEC Personnel concerned

File Number LCU

Document ID Cashier

S T A M P S Remarks: Please use BLACK ink for scanning purposes.

COVER SHEET

SECURITIES AND EXCHANGE COMMISSION

SEC FORM 17-A

ANNUAL REPORT PURSUANT TO SECTION 17 OF THE SECURITIES REGULATION CODE AND SECTION 141

OF THE CORPORATION CODE OF THE PHILIPPINES 1. For the fiscal year ended September 30, 2006 2. SEC Identification Number 9170 3. BIR Tax Identification No. 000-400-016-000 4. Exact name of issuer as specified in its charter Universal Robina Corporation 5. Quezon City, Philippines Province, Country or other jurisdiction of incorporation or organization 6. Industry Classification Code: (SEC Use Only) 7. 110 E. Rodriguez Ave., Bagumbayan, Quezon City 1110 Address of principal office Postal Code 8. 671-2935;635-0751;671-3954 Issuer's telephone number, including area code 9. Not Applicable Former name, former address, and former fiscal year, if changed since last report. 10. Securities registered pursuant to Sections 8 and 12 of the SRC, or Sec. 4 and 8 of the RSA

Title of Each Class Number of Shares of Common Stock Outstanding and Amount of Debt

Common Shares, P1.00 Par value 2,221,851,481 shares

11. Are any or all of these securities listed on the Philippine Stock Exchange. Yes [ / ] No [ ]

12. Check whether the issuer:

a) has filed all reports required to be filed by Section 17 of the SRC and SRC Rule 17 thereunder or Section 11 of the RSA and RSA Rule 11(a)-1 thereunder, and Sections 26 and 141 of The Corporation Code of the Philippines during the preceding twelve (12) months (or for such shorter period that the registrant was required to file such reports);

Yes [ / ] No [ ] b) has been subject to such filing requirements for the past ninety (90) days. Yes [ / ] No [ ] 13. State the aggregate market value of the voting stock held by non-affiliates of the registrant.

The aggregate market value of the voting stock held by non-affiliates is P16,463,427,748.

APPLICABLE ONLY TO ISSUERS INVOLVED IN INSOLVENCY/SUSPENSION OF PAYMENTS PROCEEDINGS

DURING THE PRECEDING FIVE YEARS: 14. Check whether the issuer has filed all documents and reports required to be filed by Section 17 of

the Code subsequent to the distribution of securities under a plan confirmed by a court or the Commission.

Not Applicable

DOCUMENTS INCORPORATED BY REFERENCE If any of the following documents are incorporated by reference, briefly describe them and identify the part of SEC Form 17-A into which the document is incorporated:

a) Any annual report to security holders; None

b) Any proxy or information statement filed pursuant to SRC Rule 20 and 17.1(b); None

c) Any prospectus filed pursuant to SRC Rule 8.1-1 None

TABLE OF CONTENTS

Page No. PART I - BUSINESS AND GENERAL INFORMATION Item 1 Business 1 Item 2 Properties 11 Item 3 Legal Proceedings 12 Item 4 Submission of Matters to a Vote of Security Holders 12 PART II - OPERATIONAL AND FINANCIAL INFORMATION Item 5 Market for Registrant’s Common Equity and Related Stockholder Matters 13 Item 6 Management’s Discussion and Analysis or Plan of Operation 14 Item 7 Financial Statements 28 Item 8 Changes in and Disagreements with Accountants and Financial Disclosure 28 Item 9 Independent Public Accountant and Audit Related Fees 28 PART III - CONTROL AND COMPENSATION INFORMATION Item 10 Directors and Executive Officers of the Registrant 29 Item 11 Executive Compensation 34 Item 12 Security Ownership of Certain Beneficial Owners and Management 35 Item 13 Certain Relationships and Related Transactions 36 PART IV - CORPORATE GOVERNANCE Item 14 Corporate Governance 36 PART V - EXHIBITS AND SCHEDULES Item 15 (a) Exhibits 36 (b) Reports on SEC Form 17-C (Current Report) 36 SIGNATURES 38 INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES 40 INDEX TO EXHIBITS 138

PART I – BUSINESS AND GENERAL INFORMATION Item 1. Business Universal Robina Corporation (URC) is one of the largest branded food product companies in the Philippines and has a growing presence in other Asian markets. It was founded in 1954 when Mr. John Gokongwei, Jr. established Universal Corn Products, Inc., a cornstarch manufacturing plant in Pasig. The Company is involved in a wide range of food-related businesses, including the manufacture and distribution of branded consumer foods, production of hogs and day-old chicks, manufacture of animal and fish feeds, glucose and veterinary compounds, flour milling, and sugar milling and refining. The Company is the market leader in snack foods, candies, chocolates, biscuits, day-old chicks, and fish feeds. No material reclassifications, merger, consolidation, or purchase or sale of significant amount of assets (not ordinary) were made in the past three years. The Company’s financial condition has remained solid in the said period. The Company operates its food business through operating divisions and wholly owned or majority-owned subsidiaries that are organized into three core business segments: branded consumer foods, agro-industrial products and commodity food products. Branded consumer foods (BCF), including our packaging division, is the Company’s largest segment contributing about 75.6% of revenues for the fiscal year ended September 30, 2006. Established in the 1960s, the Company’s branded consumer foods division manufactures and distributes a diverse mix of snack, chocolate, candy, biscuit, bakery, beverage, noodles and tomato-based products. The manufacture, distribution, sales and marketing activities for the Company’s consumer food products are carried out mainly through the Company’s branded consumer foods group consisting of snack foods, beverage and grocery divisions, although the Company conducts some of its branded consumer foods operations through its wholly-owned or majority-owned subsidiaries and joint venture companies (i.e. Hunt-URC and Nissin-URC). The Company established URC-Packaging Division to engage in the manufacture of polypropylene films for packaging companies. The bi-axially oriented polypropylene plant (BOPP), located in Batangas, began commercial operation in June 1998. URC also formed Food Service and Industrial Division that supply BCF products in bulk to certain institutions like hotels, restaurants, and schools. In 2006, the company introduced carbonated and functional drinks( energy drink and fitness water) and operates PET bottle manufacturing plant to supply the packaging requirements of products in PET bottle format. The majority of the Company’s branded consumer foods business is conducted in the Philippines. In 2000, the Company began to expand its BCF business more aggressively into other Asian markets, primarily through its subsidiary, URC International and its subsidiaries in China: Tianjin Pacific Foods Co. Ltd., Shanghai Peggy Foods Co. Ltd., Xiamen-Tongan Pacific Foods Co. Ltd., Panyu Peggy Foods Co. Ltd. and URC Hongkong Co. Ltd. (formerly Hongkong Peggy Snack Foods Co. Ltd.); in Malaysia: URC Snack Foods (Malaysia) Sdn. Bhd. (formerly Pacific World Sdn. Bhd.) and Ricellent Sdn. Bhd.; in Thailand: URC (Thailand) Co. Ltd. (formerly Thai Peggy Foods Co. Ltd.); in Singapore: URC Foods (Singapore) Pte. Ltd. (formerly Pan Pacific Snacks Pte. Ltd.) and in 2002, in Indonesia: PT URC Indonesia. In 2006, the Company started operations in Vietnam through its subsidiary URC Vietnam Company Ltd. The Asian operations contributed about 22.1% of the Company’s revenues for the fiscal year ended September 30, 2006.

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The Company has a strong brand portfolio created and supported through continuous product innovation, extensive marketing and experienced management. Its brands are household names in the Philippines and a growing number of consumers across Asia are purchasing the Company’s branded consumer food products. The Company’s agro-industrial products segment operates three divisions, which engage in hog and poultry farming (Robina Farms or “RF”), the manufacture and distribution of animal feeds, glucose and soya products (Universal Corn Products or “UCP”), and the production and distribution of animal health products (Robichem). This segment contributed approximately 14.4% of the net sales and services in fiscal year 2006. The Company’s commodity food products segment engages in sugar milling and refining through its Sugar divisions URSUMCO, CARSUMCO and SONEDCO, and flour milling and pasta manufacturing through URC Flour division. In fiscal 2006, the segment contributed approximately 10.0% of aggregate net sales and services. The Company is a core subsidiary of JG Summit Holdings, Inc. (JGSHI), one of the largest conglomerates listed in the Philippine Stock Exchange based on total net sales. JGSHI has substantial interests in property development, hotel management, textiles, banking and financial services, telecommunications, petrochemicals, air transportation and business interests in other sectors, including power generation, printing, and insurance. The percentage contribution to the Company’s revenues for each of the three years in the period ended September 30, 2004, 2005 and 2006 by each of the Company’s principal business segments is as follows: For the fiscal years ended September 30 2004 2005 2006 Branded Consumer Foods 75.5% 76.2% 75.6% Agro-Industrial Products 13.4 13.5 14.4 Commodity Food Products 11.1 10.3 10.0 100.0% 100.0% 100.0% The geographic percentage distribution of the Company’s revenues for each of the three years in the period ended September 30, 2004, 2005 and 2006 is as follows: For the fiscal years ended September 30 2004 2005 2006 Philippines 77.7% 77.6% 77.9% ASEAN 21.0 20.9 19.1 China 1.3 1.5 3.0 100.0% 100.0% 100.0%

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Customers None of the Company’s businesses is dependent upon a single customer or a few customers that a loss of anyone of them would have a material adverse effect on the Company. The Company has no single customer that is based upon existing orders will account for 20.0% or more of the Company’s total sales. Distribution, Sales and Marketing The Company has developed an effective nationwide distribution chain and sales network that it believes provide its competitive advantage. The Company sells its branded food products primarily to supermarkets, as well as directly to top wholesalers, large convenience stores and two types of sub-distributors, large scale trading companies and independent business managers which in turn sell its products to other small retailers and down line markets through the Company’s Grandslam Program, an innovative distribution scheme for downscale accounts, which enabled URC Philippines to solidify its presence in sari-sari stores and groceries, effectively locking out competitors in the consumer foods segment in the Philippines. The Company’s branded consumer food products are distributed to approximately 114,000 outlets in the Philippines and sold through its direct sales force, regional distributors and independent business managers. URC intends to enlarge its distribution network coverage in the Philippines by increasing the number of retail outlets that its regional sales force and distributors directly service. By deploying larger and financially stronger regional distributors over the next two years, URC plans to increase the number of outlets serviced directly from 114,000 accounts being serviced as of fiscal year 2006 to 120,000 accounts . URC also plans to increase the product focus of its distribution network by ensuring that relevant products are targeted towards appropriate retail outlets. The branded consumer food products are generally sold by the Company either direct from delivery vans to small retail outlets or by traveling salesman to wholesalers or supermarkets, and regional distributors with delivery subsequently being undertaken by third party road carriers. Direct delivery sales are normally made on cash basis, while 15- to 30- day credit terms are extended to wholesalers, supermarkets and regional distributors. The Company believes that its emphasis on marketing, product innovation and quality, and strong brand equity has played a key role in its success in achieving leading market shares in the different categories where it competes . In particular, URC launched Jack and Jill as a master umbrella brand in order to enhance customer recognition of its products. URC devotes significant expenditures to support advertising and branding to differentiate its products and further expand market share both in the Philippines and in its overseas markets, including funding for advertising campaigns such as television commercials and radio and print advertisements, as well as promotions for new product launches by spending on average 8% of its branded consumer food division’s net sales per year. Competition The BCF business is highly competitive and competition varies by country, product category and segment. The Company believes that the principal competitive factors include price, taste, quality, convenience, brand recognition and awareness, advertising and marketing, availability of products and ability to get its product widely distributed. Generally, the Company faces competition from both local and multinational companies in all of its markets. Major competitors in the market segments in which it competes include, in the Philippines, Liwayway Manufacturing Corp., Columbia Foods

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International, General Milling Corporation, Republic Biscuit Corporation, Suncrest Foods Inc., Del Monte Phil. Inc., and Monde Nissin Corporation, Nestle Philippines Inc., San Miguel Pure Foods Company Inc. and Kraft Foods Inc., and internationally, Procter & Gamble, Effem Foods/Mars Inc., Lotte Group, Perfetti Van Melle Group, Mayora Inda PT, Calbee Group, Apollo Food, Frito-Lay, Nestlé S.A., Cadbury Schweppes plc, Groupe Danone S.A. and Kraft Foods International. Competition in the Philippine food and beverage industry is expected to increase in the future with increased liberalization of trade by the Philippine government and the predicted accompanying growth in imports due to the World Trade Organization (WTO) and ASEAN Free Trade Area (AFTA). Under the WTO, tariff rates on food and agricultural items are being decreased and import quotas are being eliminated among member countries, including the Philippines. AFTA is a free trade area formed by 10 southeast asian countries, including the Philippines. Under the AFTA, tariffs on manufactured goods, including processed agricultural products, are being minimized or eliminated over a 15-year period starting from January 1, 1993, and non-tariff barriers will be subsequently phased out. The day-old chicks market is cyclical, very competitive and principally domestic. The Company believes that the principal competitive factors are chick quality, supply dependability, price, low mortality rates, feed conversion efficiency and growth rates for broiler chicks. For layer chicks, competitive factors are productivity and disease resistance. The Company’s principal competitors are STS Corp. and Math Agro for broiler chicks and Bounty Farms, Inc. for layer chicks. The live hog market is highly fragmented, competitive and principally domestic. The Company believes that the principal competitive factors are quality, reliability of supply, price and proximity to market. The Company’s principal competitors are San Miguel Corp. (Monterey ) and Foremost Farms, Inc. The main competition is from backyard raisers who supply 70%-80% of the total pork requirement in the country. If tariffs are reduced, the Company believes that there will be minimal competition from imported pork because prices of imported pigs are significantly higher as a result of higher feed costs in their countries of origin. The commercial animal feed market is highly fragmented and its products compete primarily with domestic feed producers. As of September 30, 2006, there were 350 registered feed mills in the Philippines, 50% of which sell commercial feeds. URC believes the principal competitive factors are quality and price. The Company’s principal competitors are B-Meg and Purina Philippines, Inc. A number of multinationals including Pigrolac, CJ and Sun Jun of Korea, are also key players in the market. The animal health products market is highly competitive. The market is dominated by multinationals and the Company is one of only a few Philippine companies in this market. The Company’s principal competitors are Pfizer, Inc., Univet Pharmaceuticals Ltd., and Merial Limited, a company jointly owned by Merk and Co., Inc. and Aventis. S.A. The Company believes that the principal competitive factors are price, product effectiveness, quality and veterinary services. Enhancement and development of New Products The Company intends to continuously introduce innovative new products, product variants and line extensions in the snackfoods (snacks, biscuits, candies, chocolates and bakery), beverage and grocery (instant noodles, tomato-based) segments. This fiscal year alone, the Company’s Branded Consumer Foods has introduced 81 new products.

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The Company also plans to selectively enter and expand its presence in segments of the Philippine beverage market through the addition of branded beverage products designed to capture market share in niches that complement its existing branded snack food product lines. In fiscal year 2006, the Company has launched carbonated and functional drinks ( energy and fitness water). Moving forward, the Company aims to grow further with the expansion of its tea-based line and introduction of RTD juice in PET bottle format. Raw Materials A wide variety of raw materials are required in the manufacture of the Company’s food products, including corn, wheat, flour, sugar, glucose and potatoes, some of which are purchased domestically and some of which the Company imports. The Company imports all of its wheat supplies and substantially all of its palm oil and flavors and a large portion of its milk. For its international operations, the Company primarily imports potatoes and flavors. The Company also obtains a major portion of its raw materials from its agro-industrial and commodity food products divisions, such as glucose, flour and sugar. Flexible packaging materials are purchased both locally and from abroad (Korea and Japan), while Tetra-pak packaging is purchased from Singapore. The Company’s policy is to maintain a number of suppliers for its raw and packaging materials to ensure a steady supply of quality materials at competitive prices. However, the prices paid for raw materials generally reflect external factors such as weather conditions, commodity market fluctuations, currency fluctuations and the effects of government agricultural programmes. In the past year, the Company has experienced higher prices for certain core raw materials including wheat and cooking oils. While the Company has increased the prices of certain products to reflect the increased price of raw materials, it has not been able to pass through the full extent of such increases. In response to these developments, the Company realigned its resources to improve its operational efficiencies. This strategy includes manufacturing its products in countries where the raw materials are available at the lowest cost. For its day-old chicks business, the Company requires a number of raw materials, including parent stock for its layer chicks, grandparent stock for its broiler chicks and medicines and other nutritional products. The Company purchases the parent stock for its layer chicks from Hubbard ISA SAS in Canada and from Hy-Line International in the United States under exclusive distribution agreements for the Philippines. The Company purchases the grandparent stock for its broiler chicks from Hubbard ISA SAS in France under an exclusive distribution agreement for the Philippines. The Company purchases a significant amount of the vitamins, minerals, antibiotics and other medications and nutritional products used for its day-old chicks business from its Robichem division. The Company purchases vaccines from various suppliers, including Merial, Intervet Philippines, Inc. and Boehringer Ingelheim GmbH. For its live hog business, the Company requires a variety of raw materials, primarily imported breeding stocks. The Company purchases all of the feeds it requires from its Universal Corn Products division and substantially all of the minerals and antibiotics for its hogs from its Robichem division. The Company purchases vaccines, medications and nutritional products from a variety of suppliers based on the strengths of their products. Ample water supply is also available in its farms locations. The Company maintains approximately one month of inventory of its key raw materials. For its animal health products, the Company requires a variety of antibiotics and vitamins, which it acquires from suppliers in Europe and China. URC maintains approximately 90 days of inventory. For its commercial animal feed products, the Company requires a variety of raw materials, including corn, soya bean products, wheat, bran and pollard and fish meal. Starch and soya bean seeds, on the other

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hand, are required for its liquid glucose and soya bean products, respectively. The Company purchases corn locally from corn traders and internationally from suppliers in China and the United States. The Company imports soya bean seeds from suppliers in the United States. For its liquid glucose, the Company also requires solvents. The Company imports starch from a number of suppliers, primarily in Vietnam and Thailand. The Company purchases solvents for use in the manufacture of its soya products locally from Shell Chemicals Philippines, Inc. and Exxon-Mobil Petroleum & Chemical Holdings Inc. The Company maintains approximately two months’ physical inventory and one month’s in-transit inventory for its imported raw materials and approximately one month’s inventory for its local raw materials. The Company obtains sugar cane from local farmers. Competition for sugar cane supply is very intense and is a critical success factor for its sugar business. Additional requirements for the sugar cane milling process are either purchased locally or imported. The Company generally purchases wheat, the principal raw material for its flour milling and pasta business, through forward contracts from suppliers in the United States and Canada. The Company maintains a number of suppliers for its raw materials to ensure a steady supply of quality materials at competitive prices. The Company believes that alternative sources of supplies of the raw materials that it uses are readily available. The Company’s policy is to maintain approximately 30 to 45 days of inventory. Patents, Trademarks, Licenses, Franchises, Concessions or Labor Contract Intellectual property licences are subject to the provisions of the Philippine Intellectual Property Code. The Company owns a substantial number of trademarks registered with the Bureau of Trademarks of the Philippine Intellectual Property Office. In addition, certain of its trademarks have been registered in other Asian countries in which it operates. These trademarks are important in the aggregate because brand name recognition is a key factor in the success of many of the Company’s product lines. In the Philippines, the Company’s licensing agreements are registered with the Philippine Intellectual Property Office. The former Technology Transfer Registry of the Bureau of Patents, Trademarks and Technology Transfer Office issued the relevant certificates of registration for licensing agreements entered into by URC prior to January 1998. These certificates are valid for a 10-year period from the time of issuance which period may be terminated earlier or renewed for 10-year periods thereafter. After the Intellectual Property Code of the Philippines (R.A. No. 8293) became effective in January 1998, technology transfer agreements, as a general rule, are no longer required to be registered with the Documentation, Information and Technology Transfer Bureau of the Intellectual Property Office, but the licensee may apply to the Intellectual Property Office for a certificate of compliance with the Intellectual Property Code to confirm that the licensing agreement is consistent with the provisions of the Intellectual Property Code. In the event that the licensing agreement is found by the Intellectual Property Office to be not in compliance with the Intellectual Property Code, the licensor may obtain from the Intellectual Property Office a certificate of exemption from compliance with the cited provision. The Company also uses brand names under licences from third parties. These licensing arrangements are generally renewable based on mutual agreement. The Company’s licensed brands include: Swiss Miss milk shakes and cocoa mix for sale in the Philippines;

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Nissin’s Cup instant noodles for sale in the Philippines; and Hunt’s tomato and pork and bean products for sale in the Philippines.

URC has obtained from the Intellectual Property Office certificates of registration for its licensing agreements with Nissin-URC and Hunt-URC. The Company was also able to renew both its licenses for another term. Regulatory Overview As manufacturer of consumer food and commodity food (flour) products, the Company is required to guarantee that the products are pure and safe for human consumption, and that the Company conforms to standards and quality measures prescribed by the Bureau of Food and Drug. The Company’s sugar mills are licensed to operate by the Sugar Regulatory Administration. The Company renews its sugar milling licenses at the start of every crop year. All of the Company’s feed products have been registered with and approved by the Bureau of Animal Industry, an agency of the Department of Agriculture which prescribes standards, conducts quality control test of feed samples, and provides technical assistance to farmers and feed millers. Some of the Company’s projects, such as the sugar mill and refinery and poultry and hog farm operations, certain snacks products , BOPP packaging , Flexible packaging and PET bottle manufacturing , are registered with the Board of Investments (BOI) which allows the Company certain fiscal incentives. Effects of Existing or Probable Governmental Regulations on the Business The Company operates its businesses in a highly regulated environment. These businesses depend upon licenses issued by government authorities or agencies for their operations. The suspension or revocation of such licenses could materially and adversely affect the operation of these businesses. Research and Development The Company develops new products and variants of existing product lines, researches new processes and tests new equipment on a regular basis in order to maintain and improve the quality of the Company’s food products. In the Philippine operations alone, about P=29.3 million was spent for research and development activities for fiscal year 2006 and approximately P=16.2 million and P=14.1 million for fiscal years 2005 and 2004, respectively. The Company has research and development staff for its branded consumer foods and packaging divisions of approximately 98 people located in its research and development facility in Metro Manila. The Company also has research and development staff in each of its manufacturing facilities. In addition, the Company hires experts from all over the world to assist its research and development staff. The Company conducts extensive research and development for new products, line extensions for existing products and for improved production, quality control and packaging as well as customising products to meet the local needs and tastes in the international markets. The Company’s commodity foods division also utilises this research and development facility to improve their

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production and quality control. The Company also strives to capitalise on its existing joint ventures to effect technology transfers. The Company has dedicated research and development staff for its agro-industrial business of approximately fifteen persons. Its researchers are continually exploring advancements in breeding and farming technology. The Company regularly conducts market research and farm-test all of its products. The Company also has a diagnostic laboratory that enables it to perform its own serology tests. The Company offers its laboratory services directly to other commercial farms and Robichem provides certain of its laboratory services at a minimal cost as a service to some of its customers. Transactions with Related Parties The largest shareholders, JG Summit Holdings, Inc., is one of the largest conglomerates listed on the Philippine Stock Exchange based on total net sales. JG Summit provides the Company with certain corporate center services including corporate finance, corporate planning, procurement, human resources, legal and corporate communications. JG Summit also provides the Company with valuable market expertise in the Philippines as well as intra-group synergies. See Note 19 to Consolidated Financial Statements for transactions with other affiliates. Costs and Effects of Compliance with Environmental Laws The operations of the Company are subject to various laws enacted for the protection of the environment, including the Pollution Control Law (R.A. No. 3931, as amended by P.D. 984), the Solid Waste Management Act (R.A. No. 9003), the Clean Air Act (R.A. No. 8749), the Environmental Impact Statement System (P.D. 1586) and the Laguna Lake Development Authority (LLDA) Act of 1966 (R.A. No. 4850). The Company believes that it has complied with all applicable environmental laws and regulations, an example of which is the installation of wastewater treatments in its various facilities. Compliance with such laws has not had, and in the Company’s opinion, is not expected to have, a material effect upon the Company’s capital expenditures, earnings or competitive position. As of September 30, 2006, the Company has invested about P=333.3 million in wastewater treatment in its facilities in the Philippines. Employees and Labor As of September 30, 2006, the number of permanent full time employees engaged in the Company’s respective businesses is 8,435 and are deployed as follows: Business Company or Division Number

Branded consumer foods . . . . . . . . . . . BCF, Nissin-URC, Hunt-URC Packaging Division, URC Hotloops, URCICL

5,938

Agro-industrial products Agribusiness . . . . . . . . . . . . . . . . . . . Robina Farms 894 Livestock feeds, corn products, & vegetable oil . . .

UCP

315

Veterinary compounds . . . . . Robichem 100 Commodity food products Sugar . . . . . . . . . . . . . . . . . URSUMCO, SONEDCO, CARSUMCO 891 Flour . . . . . . . . . . . . . . . . . . . CMC 297 8,435

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Of the above, 2,048 are managerial and administrative staff. As at the same date, approximately 7,356 contractual and agency employees are engaged in the Company’s businesses. The Company does not anticipate any substantial increase in the number of its employees in 2006. For most of the companies and operating divisions, collective bargaining agreements between the relevant representatives of the employees’ union and the subsidiary or divisions are in effect. The collective bargaining agreements generally cover a five-year term with a right to renegotiate the economic provisions of the agreement after three years, and contain provisions for annual salary increases, health and insurance benefits, and closed-shop arrangements. The collective bargaining agreements are with 19 different unions. For fiscal 2006, six collective bargaining agreements were signed and concluded with the labor unions which are as follows: URC Administration union, URC Pampanga union , URC Canlubang union, Consolidated Workers union , Robina Farms – Antipolo union and CMC Dailies union. The Company believes that good labor relations generally exist throughout the Company’s subsidiaries and operating divisions. The Company has established non-contributory retirement plan covering all of the regular employees of URC. The plan provides retirement, separation, disability and death benefits to its members. The Company, however, reserves the right to change the rate and amounts of its contribution at anytime on account of business necessity or adverse economic conditions. The funds of the plan are administered and managed by the trustees. Retirement cost (gain) charged (credited) to operations, including amortization of past service cost, amounted to ( P=55.7) million in fiscal year 2006 and P=54.7 million in fiscal year 2005. Risks The major business risks facing the Company and its subsidiaries are as follows: 1) Competition The Company and its subsidiaries face competition in all segments of its businesses both in the Philippine market and in international markets where it operates. The Philippine food industry in general is highly competitive. Although the degree of competition and principal competitive factors vary among the different food industry segments in which the Company participates, the Company believes that the principal competitive factors include price, product quality, brand awareness and loyalty, distribution network, proximity of distribution outlets to customers, product variations and new product introductions. (See page 3, Competition, for more details)

The Company’s ability to compete effectively includes continuous efforts in sales and marketing of its existing products, development of new products and cost rationalization. 2) Financial Market The Company has foreign exchange exposure primarily associated with fluctuations in the value of the Peso against the U.S. dollar and other foreign currencies. The substantial majority of the Company’s revenues are denominated in Pesos, while certain of its expenses, including debt service and raw material costs, are denominated in U.S. dollars or based on prices determined in U.S. dollars. In

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addition, the majority of the Company’s debt is denominated in foreign currencies. Prudent fund management is employed to minimize effects of fluctuations in interest and currency rates. 3) Raw Materials The Company’s production operations depend upon obtaining adequate supplies of raw materials on a timely basis. In addition, its profitability depends in part on the prices of raw materials since a portion of the Company’s raw material requirements are imported including packaging materials. To mitigate these risks, alternative sources of raw materials are used in the Company’s operations. (See page 5, Raw Materials, for more details) 4) Food Safety Concerns The Company’s business could be adversely affected by the actual or alleged contamination or deterioration of certain of its flagship products, or of similar products produced by third parties. A risk of contamination or deterioration of its food products exists at each stage of the production cycle, including the purchase and delivery of food raw materials, the processing and packaging of food products, the stocking and delivery of the finished products to its customers, and the storage and display of finished products at the points of final sale. The Company conducts extensive research and development for new products, line extensions, for existing products and for improved production, quality control and packaging as well as customizing products to meet the local needs and tastes in the international markets for its food business. For its agro-industrial business, its researchers are continually exploring advancements in breeding and farming technology. The Company regularly conducts market research and farm-test all of its products. Moreover, the Company ensures that the products are safe for human consumption, and that the Company conforms to standards and quality measures prescribed by regulatory bodies such as Bureau of Food and Drug, Sugar Regulatory Administration, Bureau of Animal Industry, and Department of Agriculture. 5) Mortalities The Company’s agro-industrial business is subject to risks of outbreaks of various diseases. The Company faces the risk of outbreaks of hoof-and mouth disease, which is highly contagious and destructive to susceptible livestock such as hogs and avian influenza or bird flu for its chicken farming business. These diseases and many other types could result to mortality losses. Disease control measures were adopted by the Company to minimize and manage this risk. 6) Intellectual Property Rights Approximately 76% of the Company’s net sales and services in fiscal year 2006 were from its branded consumer food group. The Company has put considerable efforts to protect the portfolio of intellectual property rights, including through trademark registrations. Security measures are continuously taken to protect its patents, licenses and proprietary formulae against infringement and misappropriation.

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7) Weather and Catastrophe Severe weather condition may have an impact on some aspects of the Company’s business, such as its sugar cane milling operations due to reduced availability of sugar cane. Weather condition may also affect the Company’s ability to obtain raw materials and the cost of those raw materials. Moreover, Philippines has experienced a number of major natural catastrophes over the years including typhoons, droughts, volcanic eruptions, and earthquakes. The Company and its subsidiaries continually maintain sufficient inventory level to neutralize any shortfall of raw materials from major suppliers whether local or imported. 8) Environmental Laws and Other Regulations The Company is subject to numerous environmental laws and regulations relating to the protection of the environment and human health and safety, among others. The nature of the Company’s operations will continue to subject it to increasingly stringent environmental laws and regulations that may increase the costs of operating its facilities above currently projected levels and may require future capital expenditures. The Company is continually complying with environmental laws and regulations, such as the wastewater treatment plants as required by the Department of Environment and Natural Resources, to lessen the effect of these risks. The Company shall continue to adopt what it considers conservative financial and operational policies and controls to manage the various business risks it faces. Item 2. Properties The Company operates the following manufacturing/farm facilities located in the following:

Location (Number of facilities) Type of Facility Owned/Rented Condition

Pasig City (4) Branded consumer food plants, feedmills and flourmill

Owned Good

Libis, Quezon City (1) Branded consumer food plant Owned Good Canlubang, Laguna (1) Branded consumer food plant Owned Good Mandaue City, Cebu (2) Branded consumer food plant,

poultry farm and feedmill Owned Good

Luisita, Tarlac (1) Branded consumer food plant Owned Good Davao City, Davao (3) Branded consumer food plant

(idle) and flourmill Owned Good

San Fernando, Pampanga (2) Branded consumer food plants Owned Good Dasmariñas, Cavite (2) Branded consumer food plants Owned Good Cagayan de Oro (1) Branded consumer food plant Owned Good Antipolo, Rizal (3) Poultry, veterinary medicine

plant and piggery farms Rented Good

Taytay, Rizal Poultry farm Rented Good Teresa, Rizal (3) Poultry and piggery farms Owned Good Angono, Rizal (1) Poultry farm Owned Good San Miguel, Bulacan (3) Poultry and piggery farms Owned Good Novaliches, Quezon City (1) Piggery farm Owned Good

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Location (Number of facilities)

Type of Facility Owned/Rented Condition

San Juan, Batangas Piggery farm Owned Good Manjuyod, Negros Oriental (1) Sugar mill Owned Good Piat, Cagayan (1) Sugar mill Owned Good Kabankalan, Negros Occidental (2) Sugar mill Owned Good Simlong, Batangas (1) BOPP plant Owned Good Calamba, Laguna (1) Branded consumer food plant Rented Good Bukidnon (1) White Potato Project Owned Good (Idle) Samutsakhorn Industrial Estate, Samutsakhorn, Thailand (1)

Branded consumer food plant Owned Good

Pasir Gudang, Johor, Malaysia (1) Branded consumer food plant Owned Good Shiqiao Town, Guandong, China (1) Branded consumer food plant Owned Good Xiamen, Fujian, China (1) Branded consumer food plant Owned Good (Idle) Tianjin Economic Development Area, Tianjin, China (1)

Branded consumer food plant Owned Good (Idle)

Shanghai, China (1) Branded consumer food plant Owned Good Industrial Town, Indonesia (1) Branded consumer food plant Owned Good VSIP, Bin Duong Province, Vietnam (1)

Branded consumer food plant Owned Good

The Company intends to expand the production and distribution of the branded consumer food products internationally through the addition of manufacturing facilities located in geographically desirable areas, especially in the ASEAN countries, the realignment of the production to take advantage of markets that are more efficient for production and sourcing of raw materials, and increased focus and support for exports to other markets from the manufacturing facilities. It also intends to enter into alliances with local raw material suppliers and distributors. Sugar mill facilities in Kabankalan, Negros Occidental with net book value of P=97.3 million in fiscal 2006 and 2005, were used to secure the loan from Philippine Sugar Corporation. (See Note 18, Long-term Debt, to the Consolidated Financial Statements for more details) Annual lease payment for Calamba plant for fiscal year 2006 amounted to P=18.5 million pesos. Lease contract is renewable annually. Land in Taytay, Rizal and Antipolo, Rizal where farm’s facilities are located , are owned by an affiliate and are rent-free. Item 3. Legal Proceedings The Company is subject to lawsuits and legal actions in the ordinary course of its business. The Company or any of its subsidiaries is not a party to, and its properties are not the subject of, any material pending legal proceedings that could be expected to have a material adverse effect on the Company’s financial position or results of operations. Item 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report

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PART II - OPERATIONAL AND FINANCIAL INFORMATION

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters Market Information The principal market for URC’s common equity is the Philippine Stock Exchange. Sales prices of the common stock follow:

High Low Fiscal Year 2006 Oct. to Dec. 2005 P=19.50 P=15.75 Jan. to Mar. 2006 20.75 17.25 Apr. to Jun. 2006 23.75 17.25 Jul. to Sep. 2006 20.25 17.05

Fiscal Year 2005 Oct. to Dec. 2004 P=10.00 P=9.10 Jan. to Mar. 2005 12.75 9.30 Apr. to Jun. 2005 17.25 12.00 Jul. to Sep. 2005 17.75 15.75

As of January 10, 2007, the latest trading date prior to the completion of this annual report, sales prices of the common stock is at P= 19.00 and P= 18.50, respectively, for high and low. The number of shareholders of record as of September 30, 2006 was approximately 1,294. Common shares outstanding as of September 30, 2006 were 2,221,851,481. List of Top 20 Stockholders of Record September 30, 2006

Name of Stockholders

Number of Shares Held

Percent to Total Outstanding

JG Summit Holdings, Inc. 1,314,435,609 59.16% PCD Nominee Corporation (Non-Filipino) PCD Nominee Corporation ( Filipino) Elizabeth Y. Gokongwei &/or John Gokongwei, Jr Litton Mills, Inc. . Marcia Gokongwei Sy &/or Elizabeth Gokongwei Hope Gokongwei Tang &/or Elizabeth Gokongwei Faith Gokongwei Ong &/or Elizabeth Gokongwei Lisa Yu. Gokongwei &/or Elizabeth Gokongwei

831,000,506 61,075,027 2,479,400 2,237,434

575,000 575,000 575,000 575,000

37.40 2.75

0.11 0.10 0.03 0.03 0.03 0.03

Robina Gokongwei Pe &/or Elizabeth Gokongwei Flora Ng Siu Kheng

575,000 379,500

0.03 0.02

Eng Si Co Lim 345,000 0.02 Consolidated Robina Capital Corporation 253,000 0.01

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Name of Stockholders Number of

Shares Held Percent to Total

Outstanding Gilbert U. Du &/or Fe Socorro R. Du 188,485 0.01 Cely C. Reaport &/or Senen C. Reaport Lily Christina G. Ngochua Pan Malayan Management & Investment Corporation Pua Yok Bing JG Summit Capital Services Corporation

151,800 151,800 142,692 142,485 127,765

0.01 0.01 0.01 0.01 0.01

Shipside, Inc. 126,500 0.01 Calvin Chua 126,500 0.01 Eloisa Tantuco 121,440 0.01 Catalino S. Ngochua Pablo Son Keng Po Pedro Sen

86,020 85,514 75,900

0.00 0.00 0.00

Phimco Industries Provident Fund

72,864

0.00

2,216,680,241 99.77%

Recent Sales of Unregistered Securities Not applicable. All shares of the Company are listed on the Philippine Stock Exchange. Dividends The Company paid dividends as follows: For fiscal year 2006, stock dividends equivalent to 15% of total issued and outstanding shares was declared to all stockholders of record as of January 14, 2006 and issued on February 7, 2006 and cash dividend of P=0.54 per share was declared to all stockholders of record as of May 19, 2006 and paid on June 15, 2006. For fiscal year 2005, cash dividend of P=0.30 per share was declared to all stockholders of record as of June 3, 2005 and paid on June 29, 2005. For fiscal year 2004, cash dividend of P=0.30 per share was declared to all stockholders of record as of June 20, 2004 and paid on July 14, 2004. Item 6. Management’s Discussion and Analysis or Plan of Operation The following discussion should be read in conjunction with the accompanying consolidated financial statements and notes thereto, which form part of this Report. The consolidated financial statements and notes thereto have been prepared in accordance with the Philippine Financial Reporting Standards (PFRS). The comparative figures for fiscal 2005 had been restated to reflect the changes in accounting policies as a result of the transition to PFRS.

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Results of Operations Fiscal Year 2006 Compare to Fiscal Year 2005 URC posted a consolidated net sales and services of P=35.2 billion for the fiscal year ended September 30, 2006, a 12.8% increase over the same period last year. The principal reasons for this increase were as follows:

• Net sales in URC’s branded consumer foods segment, including the packaging division, increased by P2.8 billion, or 11.8%, to P26.6 billion in fiscal 2006 from P23.8 billion recorded in fiscal 2005. This increase was primarily due to an 11.4 % increase in net sales of URC ‘s international operations and 12.0% increase in net sales from URC’s domestic operations. The increase in URC’s domestic branded consumer foods substantially came from the tremendous growth in sales of beverage products like coffee and tea . Sales of its other core product categories like snacks ,candies and chocolates have also shown favorable sales performances..

• Net sales in URC’s agro-industrial segment amounted to P5.1 billion in fiscal 2006, an

increase of P867.9 million or 20.6% from P 4.2 billion recorded in fiscal 2005. The increase was substantially driven by URC’s animal feeds business, which reported an increase in net sales of 40.9% to P 2.2 billion in fiscal 2006 from P1.6 billion recorded in fiscal 2005 as a result of higher sales volume of feeds. The major driver for the favorable result is the continuous success of its Uno and Stargain hog feeds in terms of market coverage and positive feedback on marketing undertakings to establish brand equity. Likewise, livestock business improved its revenue by 8.6% due to higher sales volume for both piggery and poultry products.

• Net sales in URC’s commodity foods segment increased by P303.5 million, or 9.5%, to

P3.5 billion in fiscal 2006 from P3.2 billion recorded in fiscal 2005. The principal reason was the increased net sales from URC’s sugar business by 24.9% due mainly to higher selling prices this year. Flour business increased by P130.1 million or 5.2% to P 2.6 billion in fiscal 2006 from P 2.5 billion in fiscal 2005.

URC’s cost of sales and services consist primarily of raw and packaging materials costs, direct labor costs and overhead. Costs of sales and services increased by P3.1 billion, or 13.1%, to P26.4 billion in fiscal 2006 from P23.3 billion recorded in fiscal 2005. This increase was due mainly to higher costs for major raw and packaging materials used in snacks, candies, chocolates, biscuits and flour products, such as wheat , potatoes, coffee beans, and major raw materials for animal feeds such as soya and for our BOPP films such as resin. The increased cost of raw materials reflected the general increase in many commodity prices during this period while the increased cost of packaging materials reflected the increased price of many oil-based products during this period. URC’s gross profit increased by P932.3 million, or 11.8%, to P8.8 billion in fiscal 2006 from P7.9 billion recorded in fiscal 2005. URC’s gross profit as a percentage of net sales remains flat at 25% . URC’s operating and other administrative expenses consist primarily of salaries, wages and other staff costs, advertising and promotion costs, freight and other selling expenses, depreciation, repairs and

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maintenance expenses and other administrative expenses. Operating and other administrative expenses increased by P712.0 million, or 13.1%, to P6.2 billion in fiscal 2006 from P5.5 billion recorded in fiscal 2005. This increase resulted primarily from the following factors:

• an increase in freight and other selling expenses which increased by P420.9 million, or 28.9%, to P1.9 billion in fiscal 2006 from P1.5 billion recorded in fiscal 2005 due to increased sales volume and freight rate charges associated with higher fuel prices;

• increased advertising and promotion costs by 27.7% both from URC’s domestic and

international operations due to new products launched this year and support for Jack and Jill Mega branding.

As a result of the above factors, income after operating and other administrative expenses increased by P220.3 million, or 9.0% to P2.7 billion in fiscal 2006 from P2.4 billion recorded in fiscal 2005. URC’s income after operating and other administrative expenses by segment was as follows:

• Income after operating and other administrative expenses in URC’s branded consumer foods segment, including the packaging division, increased by P.18.2 million to P982.1 million in fiscal 2006 from P963.9 million in fiscal 2005 . Though income after operating and other administrative expenses from domestic operations went up by 16.8% to P1.5 billion in fiscal 2006 from P1.3 billion in fiscal 2005 , this was trimmed down by operating losses incurred by URC’s international operations which increased to P551.4 million in fiscal 2006 from P349.3 million in fiscal 2005. Increased operating losses in international operations was primarily a result of higher cost for manpower , advertising and promotional expenses and freight and handling .

• Income after operating and other administrative expenses in URC’s agro-industrial segment

increased by P137.7 million or 26.5% to P656.6 million in fiscal 2006 from P518.9 million in fiscal 2005 due to improved sales volume of animal feeds business and favorable gross margin.

• Income after operating and other administrative expenses in URC’s commodity foods

segment increased by P64.4 million, or 6.7%, to P1.0 billion in fiscal 2006 from P954.7 million in fiscal 2005 due to increased net sales of sugar which was principally driven by the increase in average selling price.

URC’s mark-to-market gain on financial instrument at fair value through profit and loss represents increase in market value of investments in bonds and securities. URC’s foreign exchange losses in fiscal 2006 represent losses on account of appreciation of Philippine Pesos vis-a vis US dollar URC’s investment income consists of investment in financial instrument and dividend income on investment in equity securities. Investment income increased by 21.5% to P2.3 billion in fiscal 2006 from P1.9 billion in fiscal 2005. The increase was due in part to additional interest earned from investing a significant portion of the proceeds of the primary offering of the Company’s common shares on February 14, 2006. In addition, URC received higher dividends in fiscal 2006 from its equity security investments.

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URC’s principal investments accounted for under the equity method were: Hunt Universal Robina Corporation (“Hunt-URC”) (its joint venture) and Robinsons Land Corporation. Equity in net earnings of investees increased to P320.0 million in fiscal 2006 from P244.6 million recorded in fiscal 2005 due mainly to higher equity in net earnings from investment in Robinsons Land Corporation as a result of higher income of Robinsons Land Corporation. Finance costs consist mainly of interest expense which increased by 7.4%, to P2.3 billion in fiscal 2006 from P2.1 billion recorded in fiscal 2005 due primarily to the additional interest payable on the U.S.$200 million guaranteed notes issued in January 2005 and bank loans obtained in fiscal 2006. Impairment loss represents impairment of the goodwill allocated to China subsidiaries amounting to P240.7 million. Other income (charges )- net consists of , among others, loss on bond investments, severance pay and other expenses. In fiscal 2006, URC had other charges -net of P156.0 million , lower by 36.8% from P246.9 million other charges- net recorded fiscal 2005. URC recognized a provision from income tax in fiscal 2006 of P382.4 million , a decrease of 22.5% from P493.4 million in fiscal 2005. The decrease in provision for current income tax was mainly due to lower taxable income resulting from availment of income tax holiday incentive by a certain subsidiary. The decrease in provisioning for deferred income tax was due to lower unrealized foreign exchange gain recognized. Minority interest represents primarily the share in net loss (income) attributable to minority shareholders of the following subsidiaries of URC: URC International, URC’s direct subsidiary in which it holds approximately a 77.0% economic interest and Nissin-Universal Robina Corporation (“Nissin-URC”), URC’s 65.0%-owned subsidiary. Minority interests in net loss of subsidiaries went down from P124.6 million recorded in fiscal 2005 to P107.8 million in fiscal 2006 due to higher net income of NUR which partially offset the increase in net loss of URC International. Net income attributable to equity holders of the parent increased by P492.7 million, or 19.5%, to P3.0 billion in fiscal 2006 from P2.5 billion in fiscal 2005 as a result of the factors discussed above. URC generated an EBITDA (earnings before interest, taxes, depreciation and amortization) of P8.1 billion for the current fiscal year 2006, 18.1% more than P=6.9 billion it had in fiscal year 2005. The Company will continue to expand its regional operations and domestically firm up its leadership in its core categories and has again set an aggressive target on the ensuing year to maintain its dominance in the Philippine market as well as in the ASEAN regional market. The Company is not aware of any material off-balance sheet transactions, arrangements, and obligations (including contingent obligations), and other relationship of the Company with unconsolidated entities or other persons created during the reporting period that would have a significant impact on the Company’s operations and/or financial condition.

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Fiscal Year 2005 Compare to Fiscal Year 2004 Universal Robina Corporation (URC) posted a consolidated net sales and services of P=30.9 billion for the fiscal year ended September 30, 2005, a 13.3% increase over the same period last year. The principal reasons for this increase were as follows:

• Net sales in URC’s branded consumer foods segment, including the packaging division, increased by P3.2 billion, or 15.7%, to P23.8 billion in fiscal 2005 from P20.5 billion recorded in fiscal 2004. This increase was primarily due to a 14.8% increase in net sales from URC’s international operations, principally Thailand, Indonesia, Malaysia and China, and a 16.1% increase in net sales from URC’s domestic operations. URC’s domestic branded consumer food operations benefited from increased sales of beverage products, as well as increased sales volumes of its products in core categories such as snacks, candy, chocolate, noodle and biscuit segments which were supported by strong exports. Sales in Thailand benefited primarily from strong sales of biscuits and wafers produced at its new biscuit plant in Thailand. Increased sales in China were driven by candies and snacks, and sales in Indonesia by snacks.

• Net sales in URC’s agro-industrial segment amounted to P3.9 billion in fiscal 2005, an

increase of P222.7 million or 6.1% from P3.7 billion recorded in fiscal 2004. This increase in net sales was due primarily to URC’s animal feeds business, which reported an increase in net sales of 16.7% to P1.6 billion in fiscal 2005 from P1.3 billion recorded in fiscal 2004 as a result of higher sales volume and selling prices.

• Net sales in URC’s commodity foods segment increased by P167.8 million, or 5.5%, to

P3.2 billion in fiscal 2005 from P3.0 billion recorded in fiscal 2004. The principal reason for the increase was increased net sales from URC’s flour business. Net sales of flour increased by 12.7% due to increased sales volume, which was offset by a decrease of 14.0% in net sales of sugar. The decrease in net sales of sugar in fiscal 2005 was due to an increase in the proportion of sugar sold within URC for internal consumption, as URC does not recognize such intercompany sales as net sales on a consolidated basis.

URC’s cost of sales and services consist primarily of raw and packaging materials costs, manufacturing costs and direct labor costs. Costs of sales and services increased by P2.6 billion, or 12.6%, to P22.9 billion in fiscal 2005 from P20.4 billion recorded in fiscal 2004. This increase resulted principally from increased sales volumes and generally higher costs for many major raw materials and packaging materials used in snacks, candies, chocolates, biscuits and flour products, such as coffee, wheat and potatoes, and major raw materials for animal feeds such as soya and for our BOPP films such as resin. The increased cost of raw materials reflected the general increase in many commodity prices during this period while the increased cost of packaging materials reflected the increased price of many oil-based products during this period. URC’s gross profit increased by P1.1 billion, or 15.4%, to P7.9 billion in fiscal 2005 from P6.9 billion recorded in fiscal 2004, as the increase in net sales was greater than the increase in cost of sales. URC’s gross profit as a percentage of net sales increased marginally to 25.7% in fiscal 2005 from 25.2%in fiscal 2004.

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URC’s operating expenses consist primarily of salaries, wages and other staff costs, advertising and promotion costs, freight and other selling expenses, depreciation, repairs and maintenance expenses and other administrative expenses. Operating expenses increased P654.0 million, or 13.6%, to P5.5 billion in fiscal 2005 from P4.8 billion recorded in fiscal 2004. This increase resulted primarily from the following factors:

• an increase in freight and other selling expenses which increased by P218.5 million, or 17.7%, to P1.5 billion in fiscal 2005 from P1.2 billion recorded in fiscal 2004 due to higher volumes of exports and increased freight rate charges associated with higher fuel prices;

• an increase in salaries, wages and other staff costs (which increased by P225.4 million, or

29.4%, to P991.8 million in fiscal 2005 from P766.4 million in fiscal 2004) due to hiring of new employees in connection with expansion of URC’s international operations, particularly in China and Vietnam, and the hiring of a dedicated beverage products sales force in the Philippines; and

• increased advertising and promotion costs both from URC’s domestic and international

operations, which offset a P180.7 million, or 42.6%, decrease in depreciation, repairs and maintenance expenses to P243.5 million in fiscal 2005 from P424.2 million recorded in fiscal 2004 resulting from certain plant, property and equipment becoming fully depreciated in fiscal 2005. As a result of the above factors, income from operations increased by P405.2 million, or 19.7%, to P2.5 billion in fiscal 2005 from P2.1 billion recorded in fiscal 2004, and income from operations as a percentage of net sales increased slightly to 8.0% in fiscal 2005 from 7.5% recorded in fiscal 2004. URC’s income from operations by segment was as follows:

• Income from operations in URC’s branded consumer foods segment, including the packaging division, increased to P949.3 million in fiscal 2005 from P898.4 million recorded in fiscal 2004. Though the increase in income from domestic operations was 21.2% to P1.3 billion from P1.1 billion, this was trimmed down by higher operating losses incurred by URC’s international operations, which increased from an operating loss of P165.5 million in fiscal 2004 to an operating loss of P340.1 million in fiscal 2005. The higher operating loss in international operations was primarily a result of higher manpower costs from the hiring of new employees and increased costs associated with greater advertising and promotional activity for new products and introduction of Jack and Jill megabrand.

• Income from operations in URC’s agro-industrial segment increased by P56.1 million to

P524.4 million in fiscal 2005 from P468.3 million in fiscal 2004 due to greater net sales from URC’s animal feeds business and improved gross margin as a result of higher selling prices.

• Income from operations in URC’s commodity foods segment increased by P298.5 million, or

43.3%, to P987.2 million in fiscal 2005 from P688.7 million in fiscal 2004 due to increased net sales from flour products which was principally driven by volume increase.

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Other income (charges) - net consists primarily of investment income, interest and other financing charges, equity in net earnings of associate companies, as well as other miscellaneous income and expenses. URC realized other income of P289.7 million in fiscal 2005 compared to other charges of P256.2 million in fiscal 2004. The principal reasons for this shift from a net charge position to a net income position were an increase in investment income, equity in net earnings of unconsolidated associate companies and other net income, offset by higher interest and finance charges. Specifically:

• URC’s investment income consists of interest income from cash and cash equivalents and temporary investments. Investment income increased by 32.6% to P1.9 billion in fiscal 2005 from P1.4 billion in fiscal 2004. This increase was due in part to the additional interest income from investing a significant portion of the proceeds of U.S.$200 million of guaranteed notes issued in January 2005 in temporary investments. In addition, URC earned higher returns in fiscal 2005 on its cash time deposits.

• URC’s principal investments accounted for under the equity method were its joint ventures:

Hunt Universal Robina Corporation, or (“Hunt-URC”) and Robinsons Land Corporation. Equity in net earnings of investees increased to P244.6 million in fiscal 2005 from P184.8 million recorded in fiscal 2004 due mainly to higher equity in net earnings from investment in Robinsons Land Corporation as a result of higher income of Robinsons Land Corporation.

• Others - net consists of, among other things, amortization of deferred charges, foreign

exchange gains or losses, gain on sale of certain property and equipment and other expenses, such as severance pay to retired employees, net of other income. In fiscal 2005, URC had other net income of P250.9 million compared to other net charges of P331.7 million in fiscal 2004 due to recovery in market value of marketable securities and gain on sale of temporary investments and fixed assets in fiscal 2005.

• Interest and other financing charges consists of interest expense. Interest and other financing

charges increased by 36.6%, to P2.1 billion in fiscal 2005 from P1.5 billion recorded in fiscal 2004 due primarily to the additional interest payable on the U.S.$200 million of guaranteed notes issued in January 2005, coupled with the increase in the amount of interest payable on URC’s foreign currency-denominated indebtedness due to depreciation in fiscal 2005 in the exchange rate of the peso to other foreign currencies.

URC recognized a net provision from income tax in fiscal 2005 of P470.8 million compared to a net benefit from income tax of P10.2 million in fiscal 2004. The increase in provisioning for current income tax was mainly due to a combination of higher taxable income resulting from increased gross income, particularly from URC’s sugar business, and the expiration of an exemption from income tax on URC’s sales in Thailand in fiscal 2005. The increase in provisioning for deferred income tax was due to an increase in unrealized gain on excess of market value over cost of URC’s hog stocks. Minority interests represents primarily the share in net loss (income) attributable to minority shareholders of the following subsidiaries of URC: URC International, URC’s direct subsidiary in which it holds approximately a 77.0% economic interest, Nissin-Universal Robina Corporation (“Nissin-URC”), URC’s 65.0%-owned subsidiary and Southern Negros Development Corporation, URC’s 94.0%-indirectly owned subsidiary. Minority interests in net loss of subsidiaries was

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P124.6 million in fiscal 2005 compared to P66.2 million recorded in fiscal 2004. The increase in minority interests in fiscal 2005 reflects the increase in loss from URC International. Net income increased by P528.8 million, or 28.2%, to P2.4 billion in fiscal 2005 from P1.9 billion in fiscal 2004 as a result of the factors discussed above. URC generated an EBITDA (earnings before interest, taxes, depreciation and amortization) of P7.0 billion for the current fiscal year 2005, 24.5% more than P=5.6 billion it had in fiscal year 2004. The Company will continue to expand its regional operations and domestically firm up its leadership in its core categories and has again set an aggressive target on the ensuing year to maintain its dominance in the Philippine market as well as in the ASEAN regional market. The Company is not aware of any material off-balance sheet transactions, arrangements, and obligations (including contingent obligations), and other relationship of the Company with unconsolidated entities or other persons created during the reporting period that would have a significant impact on the Company’s operations and/or financial condition Fiscal Year 2004 Compared to Fiscal Year 2003 Universal Robina Corporation (URC) registered a consolidated net sales and services of P27.2 billion for the fiscal year ended September 30, 2004, a 16.3% increase over the same period last year despite highly competitive environment and depressed economic condition marked by political and security concerns. Revenue growth was led again by the solid performance of its core business, Branded Consumer Foods (BCF) business, particularly its expanding international operations in Southeast Asia, and improved revenues of its Agro-industrial and Commodity foods businesses, notably farms and sugar businesses, respectively. The Company’s gross margin improved by 13.5% to P6.9 billion compared to the same period last year of P6.0 billion. Income from operations likewise went up by 38.2% to P2.1 billion from P1.5 billion last year due to significant increase in sales, which covered for the slight increase in operating expenses. Operating expenses increased by 5.5% to P4.8 billion as a result of expanding regional operations and sustained marketing activities. As a result of better performance of all business segments, net income for fiscal year 2004 climbed to P1.9 billion, a remarkable 32.6% increase over P1.4 billion recorded last year. Consequently, earnings per share was P1.11, better than last year’s P0.84. The Branded Consumer Foods (BCF) business unit, including the packaging division, posted a net sales and services value growth of 13.9 % to P20.5 billion compared to the same period last year of P18.0 billion. This was attributed to URC International revenue growth of 34.4% and the continued strength of the Company’s products in core categories such as snacks, candy, chocolate, noodle and biscuit segments complemented by strong exports. The Company expects a continued strong performance of the Branded Consumer Foods in the domestic front and ASEAN region as well, with new and exciting product launches, intensive marketing and advertising efforts and extensive distribution network.

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The Agro-industrial business unit reported a net sales of P3.7 billion, 20.0% higher than last year. The increase in net sales resulted from improvement in prices of feeds and farm products, and higher volume sold by the farm business. URC’s Commodity Foods business unit generated a net sales of P3.0 billion, 29.7% higher compared to last year of P2.3 billion. The increase was due to higher selling prices of flour products and higher volume sold by the flour and sugar businesses. Cost of sales and services increased by P3 billion or 17.3% to P20.4 billion from P17.4 billion last year. The increase was due to higher sales volume and costs of major raw and packaging materials used in our snacks, candies, chocolates, biscuits and flour and feed products. Other income (charges) - net was P(256.2) million for the current fiscal year compared to P(93.5) million the previous fiscal year. Variance was caused mainly by recording of foreign exchange losses. Provision for income tax this year was substantially lower due to higher non-taxable income and recognition of benefit from deferred income tax on provision for impairment losses on idle fixed assets, unrealized foreign exchange losses, provision for doubtful accounts, among others. Minority interest in net loss of subsidiaries was P66.2 million or P20.0 million lower from last year’s P86.2 million due to improvement in results of operations of subsidiaries. URC generated an EBITDA (earnings before interest, taxes, depreciation and amortization and other non-cash items) of P5.6 billion for the current fiscal year 2004, 16.5% more than P=4.8 billion it had in fiscal year 2003. The Company will continue to expand its regional operations and domestically firm up its leadership in its core categories and has again set an aggressive target on the ensuing year to maintain its dominance in the Philippine market as well as in the ASEAN regional market. The Company is not aware of any material off-balance sheet transactions, arrangements, and obligations (including contingent obligations), and other relationship of the Company with unconsolidated entities or other persons created during the reporting period that would have a significant impact on the Company’s operations and/or financial condition. Financial Condition The Company’s financial position remained strong. URC is highly liquid having a current ratio of 3.0:1 as of September 30, 2006 from 4.5:1 as of September 30, 2005. Financial debt to equity ratio has improved further to 0.8:1 versus 1.0:1 as of September 30, 2005. Total assets amounted to P59.7 billion, up by 8.8% from P54.9 billion as of September 30, 2005 . Book value per share increased to P14.05 from P13.02 as at September 30, 2005. The Company’s cash requirements generally have been funded through cash flow from operations. The net cash flow provided by operating activities for the fiscal year ended September 30, 2006 amounted to P3.8 billion. On the other hand, net cash used in investing activities for the period amounted to P310.3 billion substantially due to funds used for acquisitions of property, plant and

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equipment , increase in due from affiliated companies and other non current assets, net of proceeds on sale of temporary investments and marketable securities, and receipt of dividends. Net cash provided by financing activities was P 1.6 billion , which was substantially due from proceeds of follow on offering of primary common shares and availment of short term borrowings, net of payment of loans and cash dividends. The additional investment in property, plant and equipment amounting to P5.8 billion represents investments in a new production line for the C2 brand tea-based beverage, snack production facility in Vietnam, expansion of production facility in Thailand, expansion project for sugar mill and hog farm, among others. The Company budgeted about P7.1 billion for capital expenditures (including maintenance capex) and investment for fiscal year 2007 which consist of the following: • P5.6 billion for continued expansion of the Branded Consumer Foods operations primarily in a

multi-product beverage line in PET bottles in the Philippines and expansion projects for the biscuit lines in Thailand, Vietnam and China;

• P934.8 million for the expansion of the raw milling capacity and new refinery in SONEDCO; and • P580.2 million for additional manufacturing facilities for URC’s agro-industrial division

particularly in the piggery and feeds operations. No assurance can be given that the Company’s capital expenditures plan will not change or that the amount of capital expenditures for any project or as a whole will not increase in future years from current expectations. As of September 30, 2006, the Company is not aware of any events that will trigger direct or contingent financial obligation that is material to the Company, including any default or acceleration of an obligation.

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Material Changes in the 2006 Financial Statements (Increase/Decrease of 5% or more versus 2005)

Income statements – Year ended September 30, 2006 versus Year ended September 30, 2005 12.8% increase in net sales and services was principally due to the following: URC’s branded consumer foods segment, including the packaging division registered net sales and services of P26.6 billion in fiscal 2006, 11.8% higher from P23.8 billion recorded in fiscal 2005. This increase was primarily due to an 11.4 % increase in net sales of URC ‘s international operations and 12.0% increase in net sales from URC’s domestic operations. The increase in URC’s domestic branded consumer foods substantially came from the tremendous growth in sales of beverage products like coffee and tea . Sales of its other core product categories like snacks ,candies and chocolates have also shown favorable sales performances.

URC’s agro-industrial segment reported net sales and services amounting to P5.1 billion in fiscal 2006, an increase of P867.9 million or 20.6% from P 4.2 billion recorded in fiscal 2005. The increase was substantially driven by URC’s animal feeds business, which reported an increase of 40.9% to P 2.2 billion in fiscal 2006 from P1.6 billion recorded in fiscal 2005 due higher sales volume of feeds. Livestock business also improved its revenue by 8.6% due to higher sales volume for both piggery and poultry products. URC’s commodity foods segment increased by P303.5 million, or 9.5%, to P3.5 billion in fiscal 2006 from P3.2 billion recorded in fiscal 2005. The principal reason was the increased net sales from URC’s sugar business by 24.9% due mainly to higher selling prices this year. Flour business increased by P130.1 million or 5.2% to P 2.6 billion in fiscal 2006 from P 2.5 billion in fiscal 2005. 13.1% increase in cost of sales and services This increase resulted principally from increased sales volume, higher costs for imported raw materials and packaging materials used in snacks, candies, chocolates, biscuits, and flour products and an increase in costs of certain major raw materials for animal feeds such as soya and for our BOPP films such as resin. The increased cost of raw materials reflected the general increase in many commodity prices during this period including wheat and cooking oils while the increased cost of packaging materials reflected the increased price of many oil-based products during this period. 13.1% increase in operating and other administrative expenses This was primarily due to extensive advertising and promotion activities by the Branded Consumer Foods business unit and increase in freight and other selling expenses due to higher volume of sales and upward adjustment in freight rate. 87.2% increase in mark-to-market gain on financial instruments at fair value through profit and loss Due to increase in market value of investments in bonds and securities. 250.6% Decrease in foreign exchange gain Due to appreciation of Philippine peso vis a vis US dollar

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21.5% Increase in investment income Due to additional interest income from investing a significant portion of the proceeds of the follow on offering of the Company’s common shares and higher dividends received from equity security investments. 30.8% increase in equity in net earnings Due to higher equity in net earnings from investment in Robinsons Land Corporation. 7.4% increase in finance costs Due to additional interest paid on guaranteed notes issued in January 2005 and bank loans obtained during the year. Impairment loss Represents impairment of the goodwill allocated to China subsidiaries amounting to P240.7 million. 36.8% Decrease in other charges -net Due to decrease in loss on sale of bond investments. 22.5% decrease in provision for income tax The decrease in provision on current income tax was mainly due to lower taxable income resulting from availment of income tax holiday incentive by a certain subsidiary. The decrease in provisioning for deferred income tax was due to lower unrealized foreign exchange gain. 13.4% decrease in minority interest Due to increase in net income of certain subsidiary which partially offset the increase in net loss of URC International. Balance sheets – September 30, 2006 versus September 30, 2005 542 8% increase in cash and cash equivalents Due to higher money market placements and cash in bank from the proceeds of the follow on offering of primary common shares. 21.0% decrease in financial assets at fair value through profit and loss Due to sale of bond investments and impact of peso appreciation vis-a-vis US dollar net of increase in market values of securities held. 20.6% increase in trade and other receivables – net Due to higher trade receivables as a result of increase in sales . 33.8% increase in due from affiliated companies Due to increase in advances to affiliated companies arising from the normal course of business. 5.5% decrease in inventories-net Due decrease in materials in transit and raw materials inventory, partially offset by the increases in work in process, containers and packaging materials , spare part and supplies inventories . 13.4% decrease in other current assets Due to amortization of prepaid items.

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6.9% increase in investments and advances Due to increase in equity in net earnings of unconsolidated associate companies. 20.1% increase in property, plant and equipment Primarily due to additional investments in a new production line for the C2 brand tea-based beverage, snack production facility in Vietnam, expansion of production facility in Thailand, expansion projects for sugar mills and RF hog farm, among others. 7.4% increase in biological assets Due to increase in population of live stocks. 38.9% increase in net pension assets Due to increase in returns on retirement plan assets. 20.1% increase in other noncurrent assets-net Due to acquisition of trademark for ACES brand in China. 81.4% increase in loans payable Due to additional short-term bank loans obtained. 32.2% increase in accounts payable and accrued expenses Due to increase in trade payables in relation to increase in purchases and accrued freight. 46.2% decrease in trust receipts and acceptances payable Due to settlement of trust receipts payable. 66.7% decrease due to affiliated companies Due to payment of advances from affiliates in the normal course of business. 14.7% increase in income tax payable Due to lower excess tax credit from prior year. 74.5% increase in deferred income tax- net Due to recognition of deferred tax liability on unrealized foreign exchange gain and undistributed income of foreign subsidiaries 14.5% decrease in long term debt ( including current portion) Due to long term debt amortization and impact of stronger peso vis a vis US dollar. 31.7% increase in capital stock Mainly due to issuance of additional common shares for stock dividend and follow on offering in February 2006. 63.8% increase in additional paid in capital Mainly due to recording of excess of offering price over par value of common shares sold. 22.9% decrease in cumulative translation adjustment Due to increase in value of Philippine peso against foreign currencies.

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10.1% increase in retained earnings Mainly due to income earned during the fiscal year reduced by cash dividends paid. 20.8% decrease in minority interests Mainly due to higher net loss incurred by a foreign subsidiary. The Company’s key performance indicators are employed across all businesses. Comparisons are then made against internal target and previous period’s performance. The Company and its significant subsidiaries’ top five (5) key performance indicators are as follows: (in Million PhPs) Universal Robina Corporation (Consolidated) FY 2006 FY 2005 Index Revenues 35,184 31,199 113 EBIT 2,657 2,437 109 EBITDA 8,095 6,853 118 Net Income 3,019 2,526 119 Total Assets 59,690 54,884 109 Universal Robina (Cayman), Ltd. FY 2006 FY 2005 Index Revenues 718 588 122 EBIT 716 586 122 EBITDA 1,272 1,269 100 Net Income 971 908 107 Total Assets 287 3,427 8 URC Philippines, Limited FY 2006 FY 2005 Index Revenues 379 644 59 EBIT 355 619 57 EBITDA 2,106 2,032 104 Net Income 355 619 57 Total Assets 22,767 27,850 82 Nissin – URC FY 2006 FY 2005 Index Revenues 926 853 109 EBIT 59 43 139 EBITDA 104 84 124 Net Income 48 37 132

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Total Assets 681 625 109 Majority of the above key performance indicators were within targeted levels. Item 7. Financial Statements The consolidated financial statements and schedules listed in the accompanying Index to Financial Statements and Supplementary Schedules (page 40) are filed as part of this Form 17-A (pages 41 to 137 ). Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None. Item 9. Independent Public Accountants and Audit Related Fees Independent Pubic Accountants The Corporation’s independent public accountant is the accounting firm of the Sycip, Gorres , Velayo & Co. The same accounting firm id tabled for reappointment for the current year at the annual meeting of stockholders. The representatives of the principal accountant have always been present at prior year’s meetings and are expected to be present at the current year’s annual meeting of stockholders. They may also make a statement and respond to appropriate questions with respect to matters for which their services were engaged. The current handling partner of SGV & Co. has been engaged by the Corporation as of the fiscal year 2003 and is expected to be rotated every five (5) years. Audit-Related Fees The following tables sets out the aggregate fees billed for each of the last three fiscal years for professional services rendered by Sycip, Gorres Velayo & Co. Fiscal Year 2004 Fiscal Year 2005 Fiscal Year 2006 ( In pesos) __________________________________________________________________________________ Audit and Audit-Related Fees P6,404,370 P9,604,000 P9,929,820 Fees for services that are normally provided by the external auditor in connection with statutory and regulatory filings or engagements 4,304,370 4,604,000 4,429,820 Professional fees for due diligence review for Bond/shares offering 2,100,000 5,000,000 5,500,000 Tax Fees none none none Other Fees 900,000 none none Total P7,304,370 P9,604,000 P9,929,820

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PART III - CONTROL AND COMPENSATION INFORMATION Item 10. Directors and Executive Officers of the Registrant

Position Name Age Citizenship Director, Chairman Emeritus

John L. Gokongwei, Jr.

80

Filipino

Director, Chairman and Chief Executive Officer James L. Go 67 Filipino Director, President and Chief Operating Officer Lance Y. Gokongwei 39 Filipino Director, Vice President Patrick Henry C. Go 36 Filipino Director Frederick D. Go 37 Filipino Director Johnson Robert G. Go, Jr. 41 Filipino

Director Robert G. Coyiuto, Jr. 55 Filipino Independent Director Wilfrido E. Sanchez 69 Filipino Independent Director Oscar S. Reyes 60 Filipino Executive Vice President Bienvenido S. Bautista 59 Filipino Executive Vice President Patrick O. Ng 62 Singaporean Senior Vice President – Chief Financial Officer Eugenie M.L. Villena 58 Filipino Senior Vice President – Corporate Controller Constante T. Santos 58 Filipino First Vice President – Controller Geraldo N. Florencio 54 Filipino Vice President Jeanette U. Yu 53 Filipino

Vice President – Treasurer Ester T. Ang 48 Filipino

Corporate Secretary Rosalinda F. Rivera 36 Filipino All of the above directors have served their respective offices since April 20, 2006. There are no directors who resigned or declined to stand for re-election to the board of directors since the date of the last annual meeting of stockholders for any reason whatsoever.

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Messrs. Wilfrido E. Sanchez and Oscar S. Reyes are the independent directors of the Company. The Directors of the Company are elected at the annual stockholders’ meeting to hold office until the next succeeding annual meeting and until their respective successors have been elected, appointed or shall have been qualified. Officers are appointed or elected annually by the Board of Directors at its first meeting following the Annual Meeting of Stockholders, each to hold office until the corresponding meeting of the Board of Directors in the next year or until a successor shall have been elected, appointed or shall have qualified. All of the above directors and officers have no involvement in any pending legal proceedings during the past five (5) years. A brief description of the directors and executive officers’ business experience and other directorships held in other reporting companies are provided as follows: John L. Gokongwei, Jr. founded URC in 1954 and has been the Chairman Emeritus of URC effective January 1, 2002. He had been Chairman of the Board until his retirement and resignation from this position effective December 31, 2001. He continues to be a member of URC’s Board and is the Chairman Emeritus of JG Summit and certain of its subsidiaries. He also continues to be a member of the Executive Committee of JG Summit. He is currently the Chairman of the Gokongwei Brothers Foundation, Inc., Deputy Chairman and Director of United Industrial Corporation, Ltd. and Singapore Land, Ltd., and a director of JG Summit Capital Markets Corporation, Digital Telecommunications Phils., Inc., Oriental Petroleum and Minerals Corporation, First Private Power Corporation and Bauang Private Power Corporation. He is also a non-executive director of A. Soriano Corporation and Philex Mining Corporation. Mr. Gokongwei received a Master’s degree in Business Administration from De La Salle University and attended the Advanced Management Program at Harvard Business School. James L. Go is the Chairman and Chief Executive Officer of URC. He had been President and Chief Executive Officer and was elected to his current position effective January 1, 2002 upon the resignation of Mr. John Gokongwei, Jr. as Chairman. He is also the Chairman and Chief Executive Officer of JG Summit and as such, he heads the Executive Committee of JG Summit. He is currently the Chairman and Chief Executive Officer of Robinsons Land Corporation (“RLC”), JG Summit Petrochemical Corporation, Manila Midtown Hotels and Land Corporation, Litton Mills, Inc., CFC Corporation, Universal Robina Sugar Milling Corporation, Southern Negros Development Corporation, Robinsons, Inc., and Oriental Petroleum and Minerals Corporation (“OPMC”). He is also the President and a Trustee of the Gokongwei Brothers Foundation, Inc. and a director and Vice Chairman of Digital Telecommunications Phils., Inc. He is also a director of First Private Power Corporation, Bauang Private Power Corporation, OPMC, Cebu Air, Inc., Panay Electric Co., United Industrial Corp., Ltd., Singapore Land, Ltd., Marina Center Holdings, Inc. and JG Summit Capital Markets Corporation. He received a Bachelor of Science degree and a Master of Science degree in Chemical Engineering from the Massachusetts Institute of Technology. Mr. James L. Go is a brother of Mr. John Gokongwei, Jr. and joined URC in 1964. Lance Y. Gokongwei is the President and Chief Operating Officer of URC. He had been Executive Vice President and was elected President and Chief Operating Officer effective January 1, 2002. He is the President and Chief Operating Officer of JG Summit Holdings, Inc. and JG Summit Petrochemical

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Corporation and the Vice Chairman and Deputy Chief Executive Officer of Robinsons Land Corporation and Litton Mills, Inc. He is also the President and Chief Executive Officer of Cebu Air, Inc. and Digital Telecommunications Phils., Inc., Chairman of Robinsons Savings Bank, President of Digital Information Technology Services, Inc., Vice Chairman of JG Summit Capital Markets Corporation, and a director of OPMC, United Industrial Corporation, Ltd., and Singapore Land, Ltd. He is also trustee, secretary and treasurer of Gokongwei Brothers Foundation, Inc. He received a Bachelor of Science degree in Economics and a Bachelor of Science degree in Applied Science from the University of Pennsylvania. Mr. Lance Y. Gokongwei is the son of Mr. John Gokongwei, Jr. and joined URC in 1988. Patrick Henry C. Go is a director and Vice President of URC. He is also a director of JG Summit Holdings, Inc., RLC, CFC Corporation, JG Cement Corporation, Robinsons Savings Bank and JG Summit Petrochemical Corporation where he is also First Vice President for Sales and Marketing. He is a trustee of the Gokongwei Brothers Foundation, Inc. He received a Bachelor of Science degree in Management from the Ateneo de Manila University and attended the General Manager Program at Harvard Business School. Mr. Patrick Henry C. Go is a nephew of Mr. John Gokongwei, Jr. Frederick D. Go has been a director of URC since June 2001. He is the President and Chief Operating Officer of RLC. He is an alternate director of United Industrial Corporation and Singapore Land Limited. He also serves as a director of RLC, Big R Stores, Inc., Robinsons Convenience Stores, Inc., Robinsons Recreation Corporation, JG Summit Petrochemical Corporation, Robinsons Savings Bank, CFC Corporation, Robinsons Handyman, Inc., Robinsons Venture Corporation, Robinsons-Abenson Appliances Corporation, Cebu Light Industrial Park, Philippine Hotels Federation and Philippine Retailers Association. He received a Bachelor of Science degree in Management Engineering from the Ateneo de Manila University. Mr. Frederick D. Go is Mr. John Gokongwei, Jr.’s nephew. Johnson Robert G. Go, Jr. was elected director of the Company on May 5, 2005. He is the President and Chief Operating Officer of Litton Mills, Inc. effective August 28, 2006, the textile manufacturing business of JG Summit. He is also a director of Robinsons Land Corporation, Robinsons Savings Bank and CFC Corporation. He is also the President of Robinsons Convenience Stores, Inc. He was elected director of JG Summit on August 18, 2005 and was elected trustee of the Gokongwei Brothers Foundation, Inc. on September 1, 2005. He received a Bachelor of Arts degree in Interdisciplinary Studies (Liberal Arts) from the Ateneo de Manila University. He is a nephew of Mr. John Gokongwei, Jr. Robert G. Coyiuto, Jr. - director of URC. He is also an independent director of RLC. He is Chairman of Prudential Guarantee & Assurance, Inc., PGA Cars, Inc., and Nissan North Edsa, and Vice-Chairman of First Guarantee Life Assurance Company, Inc. He is also President and Chief Operating Officer of Oriental Petroleum and Minerals Corporation and President of PGA Sompo Japan Insurance, Inc. He is Chairman of Pioneer Tours Corporation and a director of Canon Marketing (Philippines) Inc. and Destiny Financial Plans. Wilfrido E. Sanchez has been an independent director of URC since 1995. He is also an independent director of EEI Corporation, Kawasaki Motor Corp., NYK-TDG Maritime Academy and Rizal Commercial Banking Corporation. Mr. Sanchez is a director of Transnational Plans, Inc., Dolphin Ship Management, Inc., Adventure International Tours, Inc., Transnational Diversified Group, Inc., Transnational Diversified Corporation, Magellan Capital Holdings Corporation, Center for Leadership & Change, Inc., House of Investment, Inc., Omico Corporation, Amon Trading Corporation, Grepalife Asset Management Corporation, Grepalife Fixed Income Corporation, and JVR Foundation.

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Oscar S. Reyes has been an independent director of URC since October 28, 2002. He was also a member of the advisory board of JG Summit Holdings, Inc. from August 2001 up to March 28, 2005 and is a director/adviser of Pilipinas Shell Petroleum Corporation as well as other major corporations. He was Country Chairman and Chief Executive Officer of various Shell companies in the Philippines after holding various positions in the institution worldwide. He was Chairman of the Philippine Institute of Petroleum, Inc. and Director and Treasurer of the Management Association of the Philippines, trustee of Philippine Business for Social Progress, Philippine Business for the Environment and Asia-Europe Foundation of the Phils., Inc. He was the United Nations National Ambassador for HIV-AIDS in the Philippines Bienvenido S. Bautista was appointed Executive Vice President of URC on April 1, 2004. He is also Managing Director of the URC Branded Consumer Foods Group in the Philippines and Indonesia. Prior to joining URC, he was Chairman of Kraft Foods Philippines and Vice President and Area Director of Kraft Foods International in South/Southeast Asia. He was formerly President of San Miguel Brewing Philippines and of San Miguel Foods Group, President and General Manager of Kraft General Foods Phil., Corporate Marketing Director of Wyeth Philippines, Inc., President and General Manager of PT Warner Lambert Indonesia, and National Sales Director - Pharmaceuticals of Pfizer, Inc. He was the first Asian and first Filipino to be appointed as Chair of the Jakarta International School (1986-87) and in 1994 he was awarded the Agora Award for “Excellence in Marketing Management” by the Philippine Marketing Association. Mr. Bautista received his degree of Bachelor of Science in Economics from the Ateneo de Manila University. He received his Master’s degree in Business Management from, and majored in Marketing and Finance at, the Ateneo Graduate School of Business. Patrick O. Ng is an Executive Vice President of URC. He is also managing director of URC International Co. Ltd., URC Asean Brands Company Limited, Hongkong China Foods Company Limited, and a director of URC Hong Kong Ltd., Panyu Peggy Foods Co. Ltd., Shanghai Peggy Foods Co. Ltd. and Tianjin Pacific Foods Co. Ltd. Mr. Ng joined URC in 1967 and has held various positions in the JG Group including as Vice President of the manufacturing division of CFC Corporation and Vice President and General Manager of Litton Mills, Inc. He received a Bachelor of Science degree in Engineering from the Ateneo de Manila University. Eugenie M.L. Villena is the Senior Vice President — Chief Financial Officer of URC. She is also Senior Vice President and Chief Financial Officer — Treasurer of JG Summit. Prior to joining URC, she worked for Bancom Development Corporation, Philippine Pacific Capital Corporation and Pacific Basin Securities, Co., Inc. She is a member of the Financial Executives Institute of the Philippines. She received her Bachelor of Science degree in Business Administration and Master’s degree in Business Administration from the University of the Philippines. Constante T. Santos is the Senior Vice President — Corporate Controller of URC. He is also Senior Vice President — Corporate Controller of JG Summit. Prior to joining URC in 1986, he practiced public accounting with SyCip, Gorres, Velayo & Co. in the Philippines and Ernst & Whinney in the United States. He is a member of the Philippine Institute of Certified Public Accountants. Mr. Santos received his Bachelor of Science degree in Business Administration from the University of the East and attended the Management Development Program at the Asian Institute of Management. Geraldo N. Florencio is the First Vice President — Controller of URC. Prior to joining URC in 1992, he practiced public accounting with SyCip, Gorres, Velayo & Co. in the Philippines. He is a member

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of the Philippine Institute of Certified Public Accountants. Mr. Florencio received a Bachelor of Science degree in Business Administration from the Philippine School of Business Administration. He also attended the Management Development Program at the Asian Institute of Management. Jeanette U. Yu is Vice President of URC. She is also the Vice President-Treasurer of Cebu Air, Inc., Chief Financial Officer of Oriental Petroleum and Minerals Corporation, and the Senior Vice President and Treasurer of JG Summit Capital Markets Corporation. Prior to joining URC in 1980, she worked for AEA Development Corporation and Equitable Banking Corporation. Ms. Jeanette U. Yu received her Bachelor of Science degree in Business Administration from St. Theresa’s College in Quezon City. Ester T. Ang is the Vice President – Treasurer of URC. Prior to joining URC in 1987, she worked with Bancom Development Corporation and Union Bank of the Philippines. Ms. Ester Ang, received her Bachelor of Science degree in Accounting from Ateneo De Davao University in Davao City. Rosalinda F. Rivera was appointed Corporate Secretary of URC on May 22, 2004 and has been Assistant Corporate Secretary since May 2002. She is also Corporate Secretary of JG Summit, RLC, JG Summit Petrochemical Corporation, CFC Corporation and JG Cement Corporation. Prior to joining URC, she was a Senior Associate at Puno and Puno Law Offices. She received a Juris Doctor degree from the Ateneo de Manila University School of Law and a Master of Law degree in International Banking from the Boston University School of Law. She was admitted to the Philippine Bar in 1995. The members of the Company’s board of directors and executive officers can be reached at the address of its registered office at 110 E. Rodriguez Avenue, Bagumbayan, Quezon City, Philippines. Involvement in Certain Legal Proceedings of Directors and Executive Officers None of the members of the Board of Directors and Executive Officers of the Company are involved in the any criminal, bankruptcy or insolvency investigations or proceedings. Family Relationships Mr. James L. Go is a brother of Mr. John Gokongwei, Jr. while Mr. Lance Y. Gokongwei is his son. Mr. Patrick Henry C. Go, Mr. Frederick D. Go and Mr. Johnson Robert G. Go, Jr. are the nephews of Mr. John Gokongwei, Jr.

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Item 11. Executive Compensation The following summarizes certain information regarding compensation paid or accrued during the last two (2) fiscal years and to be paid in the ensuing fiscal year to the Company’s Directors and Executive Officers: Estimated - FY2007 Actual Salary Bonus Other Total 2006 2005 Chairman of the Board and four most highly compensated Executive Directors/Officers

P=28,612,283

P=300,000

P=90,000

P=29,002,283

P=26,569,801

P=24,433,288

All officers and directors as a group unnamed

75,661,638

600,000

210,000

76,471,638

70,064,347

60,802,341

The following are the five (5) highest compensated directors and/or executive officers of the Company: 1. Director, Chairman Emeritus – John Gokongwei, Jr.; 2. Director, Chairman and Chief Executive Officer – James L. Go; 3. Director, President and Chief Operating Officer – Lance Y. Gokongwei; 4. Executive Vice President - Bienvenido S. Bautista; and 5. Executive Vice President – Patrick Ng. Standard Arrangements There are no standard arrangements pursuant to which directors of the Company are compensated, or are to be compensated, directly or indirectly, for any services provided as a director for the last completed fiscal year and the ensuing year. Other Arrangements There are no other arrangements pursuant to which directors of the Company are compensated, or are to be compensated, directly or indirectly, for any services provided as a director for the last completed fiscal year and the ensuing year. Employment Contracts and Termination of Employment and Change-in-Control Arrangement There are no special employment contracts between the Corporation and the named executive officers There are no compensatory plan or arrangement with respect to a named executive officer. Warrants and Options Outstanding There are no outstanding warrants or options held by the Corporation’s CEO, the named executive officers and all officers and directors as a group.

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Item 12. Security Ownership of Certain Beneficial Owners and Management (1) Security Ownership of Certain Record and Beneficial Owners As of September 30, 2006, URC knows no one who beneficially owns in excess of 5% of URC’s common stock except as set forth in the table below.

Title of Class

Name and Address

of record/beneficial owner

Name of beneficial owner and relationship

with record owner

Amount and nature of record/beneficial ownership (“r”or“b”)

Citizenship

Percent of class

Common

JG Summit Holdings,Inc. 1 43/F, Robinsons Equitable-PCI Tower ADB Avenue corner Poveda Street, Pasig City

(See Note 1)

1,314,435,609 (r)

Filipino

59.16%

Common PDC Nominee Corporation (Non – Filipino) G/F Makati Stock Exchange Bldg.6767 Ayala Ave. Makati City2

(See Note 2) 831,000,506 (r) Filipino 37.40%

(2) Security Ownership of Management

Title of Class Name of beneficial owner Position

Amount & nature of beneficial ownership

Citizenship % to Total

Outstanding Common John L. Gokongwei, Jr. Director, Chairman Emeritus 2,479,401 Filipino 0.11%Common James L. Go Director, Chairman & CEO 1 Filipino ** Common Lance Y. Gokongwei Director, President & COO 1 Filipino * Common Bienvenido S. Bautista Executive Vice President 3,795 Filipino * Common Patrick Henry C. Go Director, Vice President 45,540 Filipino * Common Frederick D. Go Director 11,501 Filipino * Common Johnson Robert G. Go, Jr. Director 1 Filipino * Common Robert Coyiuto, Jr. Director 1 Filipino * Common Wilfrido E. Sanchez Director (Independent) 1 Filipino * Common Oscar S. Reyes Director (Independent) 1 Filipino *

1 As of September 30, 2006, Mr. John L. Gokongwei, Jr., Chairman Emeritus of JG Summit Holdings, Inc. (JGSHI), holds 1,875,481,099 shares representing

27.6% of the total outstanding shares of the said Corporation. The Chairman and the President are both empowered under the By-Laws of JGSHI to vote any and all shares owned by JGSHI, except as otherwise directed by the Board of Directors. The incumbent Chairman and Chief Executive Officer and President and Chief Operating Officer of JGSHI are Mr. James L. Go and Mr. Lance Y. Gokongwei, respectively.

2 PCD Nominee Corporation, a wholly owned subsidiary of Philippine Central Depository , Inc. (“PCD”), is the registered owner of the shares in the books of

the Corporation’s transfer agent in the Philippines. The beneficial owners of such shares are PCD’s participants , who hold the shares in their behalf, and their clients. PCD is a private company organized by the major institutions actively participating in the Philippine capital markets to implement an automated book-entry system of handling securities transactions in the Philippines. Out of this account, “Hongkong and Shanghai Banking Corp. Ltd.-Clients’ Acct” and “Standard Chartered Bank” holds for various trust accounts the following shares of the Corporation as of September 30, 2006

No. of Shares % to outstanding The Hongkong and Shanghai Banking Corp.Ltd-Clients’ Acct 491,654,203 22.13% Standard Chartered Bank 208,460,477 9.38 * less than 0.01%

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(3) Voting Trust Holders of 5% or more There are no persons holding more than 5% of a class under a voting trust or similar agreement. Item 13. Certain Relationships and Related Transactions The Company, in its regular conduct of business, had engaged in transactions with its major stockholder, JG Summit Holdings, Inc. and its affiliated companies. See Note 19 (Related Party Disclosures) of the Notes to Consolidated Financial Statements (page 110) in the accompanying Audited Financial Statements filed as part of this Form 17-A.

PART IV – CORPORATE GOVERNANCE

Item 14. Corporate Governance Adherence to the principles and practices of good corporate governance, as embodied in its Corporate Governance Manual, has been reinforced by continuous improvement by the Company. This to ensure that good governance and management practices are observed by the Company The Board of Directors has approved its Corporate Governance Compliance Evaluation System in late 2003 in order to check and assess the level of compliance of the Company with leading practices on good corporate governance as specified in its Corporate Governance Manual and pertinent SEC Circulars. The System likewise highlights areas for compliance improvement and actions to be taken. One of the system’s output is the Annual Corporate Governance Self Rating Form submitted to the SEC and PSE on or before January 30 of every year starting with calendar year 2003. Likewise, URC has consistently striven to raise its level of reporting by adopting and implementing prescribed Philippine Financial Reporting Standards.

PART V - EXHIBITS AND SCHEDULES Item 15. Exhibits and Reports on SEC Form 17-C (a) Exhibits - See accompanying Index to Exhibits (page __) The following exhibit is filed as a separate section of this report: (18) Subsidiaries of the Registrant The other exhibits, as indicated in the Index to Exhibits are either not applicable to the Company

or require no answer. (b) Reports on SEC Form 17-C

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UNIVERSAL ROBINA CORPORATION LIST OF CORPORATE DISCLOSURES/REPLIES TO SEC LETTERS

UNDER SEC FORM 17-C APRIL 1, 2006 TO SEPTEMBER 30, 2006

DATE OF DISCLOSURE

DESCRIPTION

April 21, 2006 Notice of Cash Dividend Declaration April 21, 2006 Election of directors

April 21, 2006 Results of the Organizational Meeting of the Board of Directors

April 24, 2006 Clarification of the news article entitled “900 could lose jobs as Pasig gov’t closes Robina factory”.

July 7, 2006 Approval to transfer in the name of the Corporation common shares of RLC previously acquired from Express Holdings, Inc.

August 7, 2006 Number of RLC shares agreed to be offered by the Corporation I connection with the primary and secondary offering of RLC shares.

September 13, 2006

September 27, 2006

Clarification on the news article “ URC ethanol plants gets incentives”. Execution by the Corporation of a Deed of Assignment regarding Service Contract No. 41

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UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES

FORM 17- A, Item 7 Page No. Consolidated Financial Statements Statement of Management’s Responsibility for Financial Statements 41 Report of Independent Auditors 42 Consolidated Balance Sheets as of September 30, 2006 and 2005 44 Consolidated Statements of Income for each of the three years in the period ended September 30, 2006 46 Consolidated Statements of Changes in Stockholders’ Equity for each of the three years in the period ended September 30, 2006 47 Consolidated Statements of Cash Flows for each of the three years in the period ended September 30, 2006 49 Notes to Consolidated Financial Statements 51 Supplementary Schedules Report of Independent Auditors on Supplementary Schedules 127 A. Marketable Securities - (Current Marketable Equity Securities and Other Short-Term Cash Investments) 128 B. Amounts Receivable from Directors, Officers, Employees, Related Parties and Principal Stockholders (Other than Affiliates) 129 C. Non-Current Marketable Equity Securities, Other Long-Term Investments in Stock, and Other Investments 130 D. Indebtedness to Unconsolidated Subsidiaries and Affiliates 131 E. Property, Plant and Equipment 132 F. Accumulated Depreciation 133 G. Intangible Assets - Other Assets 134 H. Long-Term Debt 135 I. Indebtedness to Affiliates and Related Parties (Long-Term Loans from Related Companies) 136 J. Guarantees of Securities of Other Issuers ** K. Capital Stock 137 ______ * Not applicable per section 1(b) (xii), 2(e) and 2 (I) of SRC Rule 68 ** These schedules, which are required by Section 4(e) of SRC Rule 68, have been omitted because they are either not required, not applicable or the information required to be presented is included/shown in the related URC & Subsidiaries’ consolidated financial statements or in the notes thereto.

*SGVMC100000*

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INDEPENDENT AUDITORS’ REPORT The Stockholders and the Board of Directors Universal Robina Corporation 110 E. Rodriguez Avenue Bagumbayan, Quezon City We have audited the accompanying financial statements of Universal Robina Corporation and Subsidiaries, which comprise the consolidated balance sheets as at September 30, 2006 and 2005, and the consolidated statements of income, consolidated statements of changes in equity and consolidated cash flow statements for the three year ended September 30, 2006, 2005 and 2004, and a summary of significant accounting policies and other explanatory notes. Management’s 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. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. 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 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 auditor’s 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 entity’s 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 entity’s 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.

SGV & Co is a member practice of Ernst & Young Global

SGV & CO SyCip Gorres Velayo & Co. 6760 Ayala Avenue 1226 Makati City Philippines

Phone: (632) 891-0307 Fax: (632) 819-0872 www.sgv.com.ph BOA/PRC Reg. No. 0001 SEC Accreditation No. 0012-F

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Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Universal Robina Corporation and Subsidiaries as of September 30, 2006 and 2005, and of its financial performance and its cash flows for the years ended September 30, 2006, 2005 and 2004 in accordance with Philippine Financial Reporting Standards. SYCIP GORRES VELAYO & CO. Arnel F. de Jesus Partner CPA Certificate No. 43285 SEC Accreditation No. 0075-A Tax Identification No. 152-884-385 PTR No. 0266544, January 2, 2007, Makati City January 16, 2007

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- 44 - UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS September 30

2006 2005

(As restated) ASSETS Current Assets Cash and cash equivalents (Notes 4, 6, 19 and 33) P=5,979,875,395 P=930,303,344 Financial assets at fair value through profit and loss (Notes 5, 7 and 33)

17,889,646,288 –

Temporary investments - net (Notes 5 and 7) – 21,753,976,562 Marketable securities - at market (Notes 5 and 7) – 896,641,788 Trade and other receivables - net (Notes 4, 5, 8 and 33) 4,641,130,961 3,849,423,174 Due from affiliated companies (Note 19) 476,981,668 356,382,031 Inventories - net (Notes 4 and 9) 5,391,590,367 5,707,795,188 Other current assets (Note 10) 122,596,044 141,540,931 Total Current Assets 34,501,820,723 33,636,063,018 Noncurrent Assets Investments and advances (Notes 4 and 11) 1,958,480,986 1,831,925,876 Property, plant and equipment - net (Notes 4, 5, 13 and 18) 20,563,902,523 17,124,655,357 Investment properties (Note 12) 86,200,074 89,798,319 Biological assets - bearer (Notes 5 and 14) 817,003,453 760,642,410 Net pension assets (Note 26) 236,346,400 170,110,800 Other noncurrent assets - net (Note 15) 1,526,190,756 1,271,065,155 Total Noncurrent Assets 25,188,124,192 21,248,197,917 P=59,689,944,915 P=54,884,260,935 LIABILITIES AND EQUITY Current Liabilities Loans payable (Notes 4, 16 and 33) P=4,026,417,791 P=2,219,274,415 Accounts payable and accrued expenses (Note 17, 19 and 33) 4,142,156,464 3,132,995,550 Trust receipts and acceptances payable (Notes 9 and 33) 661,147,316 1,229,056,178 Due to affiliated companies (Note 19) 159,322,664 477,744,763 Income tax payable 144,210,996 125,741,036 Current portion of long-term debt (Notes 4, 18 and 33) 2,534,798,394 372,891,534 Total Current Liabilities 11,668,053,625 7,557,703,476 Noncurrent Liabilities Deferred income tax - net (Notes 4, 5 and 30) 294,958,956 169,044,879 Long-term debt - net of current portion (Notes 4, 18 and 33) 16,499,917,160 21,897,308,402 Total Noncurrent Liabilities 16,794,876,116 22,066,353,281 28,462,929,741 29,624,056,757 (Forward)

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September 30

2006 2005

(As restated) Equity attributable to equity holders of the parent: Capital stock (Notes 20 and 31) 2,221,851,481 1,686,479,549 Additional paid-in capital (Note 20) 11,207,662,356 6,843,501,476 Deposits for future stock subscriptions (Notes 20 and 31) 26,043,533 26,043,533 Cumulative translation adjustments (Notes 4 and 20) 765,869,023 993,318,822 Retained earnings (Notes 4 and 21) 16,254,343,977 14,762,281,005 30,475,770,370 24,311,624,385 Minority Interests 751,244,804 948,579,793 Total Equity 31,227,015,174 25,260,204,178 P=59,689,944,915 P=54,884,260,935 See accompanying Notes to Consolidated Financial Statements.

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- 46 - UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Years Ended September 30

2006 2005

(As restated) 2004

(As restated)

NET SALES AND SERVICES (Notes 4, 19 and 27) 35,183,814,854 P=31,199,275,746 P=27,357,877,956

COST OF SALES AND SERVICES (Notes 3, 4, 19, 22, 24 and 25) 26,359,974,231 23,307,712,686 20,479,438,029

GROSS PROFIT 8,823,840,623 7,891,563,060 6,878,439,927

OPERATING AND OTHER ADMINISTRATIVE EXPENSES (Notes 19, 23, 24, 25 and 26) (6,166,039,097) (5,454,038,003) (4,776,661,968)

MARK-TO-MARKET GAIN ON FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS (Note 7) 923,670,697 493,318,452 395,893,483

FOREIGN EXCHANGE GAINS (LOSSES) (259,222,224) 172,389,517 (107,213,560)

INVESTMENT INCOME (Notes 4, 7 and 28) 2,319,815,409 1,908,880,098 1,439,276,063

EQUITY IN NET EARNINGS (Note 11) 319,996,500 244,623,123 184,764,758

FINANCE COSTS (Notes 4, 13, 18 and 29) (2,271,950,902) (2,114,784,811) (1,548,580,869)

IMPAIRMENT LOSS (Notes 13 and 15) (240,688,815) – (297,275,729)

OTHER INCOME (CHARGES) - Net (155,966,428) (246,871,545) (117,638,986)

INCOME BEFORE INCOME TAX AND MINORITY INTEREST 3,293,455,763 2,895,079,891 2,051,003,119

PROVISION FOR (BENEFIT FROM) INCOME TAX (Note 30)

Current 256,450,512 259,557,329 109,907,979 Deferred 125,914,077 233,851,091 (105,044,993) 382,364,589 493,408,420 4,862,986

NET INCOME P=2,911,091,174 P=2,401,671,471 P=2,046,140,133 ATTRIBUTABLE TO:

Equity holders of the parent P=3,018,916,609 P=2,526,249,661 P=2,112,320,173 Minority interest (107,825,435) (124,578,190) (66,180,040) P=2,911,091,174 P=2,401,671,471 P=2,046,140,133

Basic and Diluted Earnings Per Share attributable to common equity holders of the parent (Notes 20 and 31) P=1.42 P=1.30 P=1.09

See accompanying Notes to Consolidated Financial Statements.

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UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Attributable to Equity Holders of the Parent

Preferred Stock(Notes 20 and

31)Common Stock

(Notes 20 and 31)

Additional Paid-in Capital (Note 20)

Deposits for Future Stock Subscriptions

(Notes 20 and 31)

Cumulative Translation

Adjustments (Note 20)

Unappropriated Retained Earnings (Note 21)

Appropriated Retained Earnings

(Note 21)

Attributable to Minority Interest

Equity

Total Equity As of September 30, 2005, as previously stated P=– P=1,686,479,549 P=6,843,501,476 P=26,043,533 P=1,064,556,292 P=11,506,933,778 P=3,000,000,000 P=948,579,793 P=25,076,094,421 Effect of changes in accounting policies (Note 3) – – – – (71,237,470) 255,347,227 – –

184,109,757

As of October 1, 2005, as restated – 1,686,479,549 6,843,501,476 26,043,533 993,318,822 11,762,281,005 3,000,000,000 948,579,793 25,260,204,178 Cumulative effect of change in accounting policy for financial instruments as of October 1, 2005 (Note 3) – – – – – (75,100,307) – –

(75,100,307) At October 1, 2005, as adjusted – 1,686,479,549 6,843,501,476 26,043,533 993,318,822 11,687,180,698 3,000,000,000 948,579,793 25,185,103,871 Net income for the year – – – – – 3,018,916,609 – (107,825,435) 2,911,091,174 Changes during the year – – – – (227,449,799) – – (89,509,554) (316,959,353) Total income (expense) recognized for the year – – –

–(227,449,799) 3,018,916,609 – (197,334,989)

2,594,131,821

Issuance of shares – 282,400,000 4,364,160,880 – – – – – 4,646,560,880 Cash dividends (Note 21) – – – – – (1,198,781,398) – – (1,198,781,398) Stock dividends (Note 21) – 252,971,932 – – – (252,971,932) – – – Balances at September 30, 2006 P=– P=2,221,851,481 P=11,207,662,356 P=26,043,533 P=765,869,023 P=13,254,343,977 P=3,000,000,000 P=751,244,804 P=31,227,015,174

Attributable to Equity Holders of the Parent


31)Common Stock

(Notes 20 and 31)



(Notes 20 and 31)





(Note 21)


Equity

Total Equity As of September 30, 2004, as previously stated P=– P=1,686,479,549 P=6,843,501,476 P=26,043,533 P=1,062,297,225 P=9,608,438,564 P=3,000,000,000 P=1,093,649,532 P=23,320,409,879 Effect of changes in accounting policies (Note 3) – – –

– (77,339,410) 133,536,645 – –

56,197,235

As of October 1, 2004, as restated – 1,686,479,549 6,843,501,476 26,043,533 984,957,815 9,741,975,209 3,000,000,000 1,093,649,532 23,376,607,114 Net income for the year, as restated – – – – – 2,526,249,661 – (124,578,190) 2,401,671,471 Changes during the year – – – – 8,361,007 – – (20,491,549) (12,130,542) Total income (expense) recognized for the year – – –

– 8,361,007 2,526,249,661 – (145,069,739)

2,389,540,929

Cash dividends (Note 21) – – – – – (505,943,865) – – (505,943,865) Balances at September 30, 2005 P=– P=1,686,479,549 P=6,843,501,476 P=26,043,533 P=993,318,822 P=11,762,281,005 P=3,000,000,000 P=948,579,793 P=25,260,204,178

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Attributable to Equity Holders of the Parent


31)Common Stock

(Notes 20 and 31)



(Notes 20 and 31)





(Note 21)


Equity

Total Equity As of September 30, 2003, as previously stated P=– P=1,686,479,549 P=6,843,501,476 P=26,043,533 P=1,028,044,149 P=8,238,707,332 P=3,000,000,000 P=1,160,454,466 P=21,983,230,505 Effect of changes in accounting policies (Note 3) – – –

– (71,237,470) (103,108,431) – –

(174,345,901)

As of October 1, 2004, as restated – 1,686,479,549 6,843,501,476 26,043,533 956,806,679 8,135,598,901 3,000,000,000 1,160,454,466 21,808,884,604 Net income for the year, as restated – – – – – 2,112,320,173 – (66,180,040) 2,046,140,133 Changes during the year – – – – 28,151,136 – – (624,894) 27,526,242 Total income (expense) recognized for the year – – –

– 28,151,136 2,112,320,173 – (66,804,934)

2,073,666,375

Cash dividends (Note 21) – – – – – (505,943,865) – – (505,943,865) Balances at September 30, 2004 P=– 1,686,479,549 P=6,843,501,476 P=26,043,533 P=984,957,815 P=9,741,975,209 P=3,000,000,000 P=1,093,649,532 P=23,376,607,114

See accompanying Notes to Consolidated Financial Statements.

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- 49 - UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended September 30

2006 2005

(As restated) 2004

(As restated)

CASH FLOWS FROM OPERATING ACTIVITIES

Income before income tax and minority interest P=3,293,455,763 P=2,895,079,891 P=2,051,003,119 Adjustments for: Depreciation, amortization and impairment loss

(Note 24)

2,529,808,269 1,843,595,350 2,028,658,267 Gain arising from changes in fair value less

estimated point-of-sale costs of swine stocks (Note 14)

(244,709,188) (340,923,379) (124,677,393) Net unrealized foreign exchange loss (gain) 259,222,224 (172,389,517) 107,213,560 Investment income (2,319,815,409) (1,908,880,098) (1,439,276,063) Finance costs 2,271,950,902 2,114,784,811 1,548,580,869 Amortization of debt issuance costs 19,739,316 26,725,131 26,725,155 Equity in net earnings of investees (Note 11) (319,996,500) (244,623,123) (184,764,758) Gains arising from changes in fair value of

financial assets at fair value through profit and loss

(923,670,697) (493,318,452) (395,893,483) Loss on reacquisition of long-term debt 14,523,978 – – Loss (gain) on sale of:

Marketable securities (185,830,148) – – Property and equipment (15,321,831) (66,441,653) (4,300,029)

Temporary investments (64,705,415) (64,033,979) 199,903,608 Operating income before working capital

changes

4,314,651,264 3,589,574,982 3,813,172,852 Decrease (increase) in: Trade and other receivables (945,277,727) (296,972,571) (491,318,464) Inventories 316,204,821 (347,523,096) (1,126,779,998) Other current assets 18,944,885 (14,861,094) 346,382 Increase (decrease) in: Accounts payable and accrued expenses 1,112,947,872 (143,522,830) 758,166 Trust receipts and acceptances payable (567,908,862) 7,379,377 932,602,669 Due to affiliated companies (318,422,099) 144,967,586 (159,695,676) Cash generated from operations 3,931,140,154 2,939,042,354 2,969,085,931 Interest received 2,473,385,348 1,702,810,195 1,461,014,597 Income taxes paid (237,980,553) (179,372,435) (120,677,660) Interest paid (2,375,737,859) (1,906,301,983) (1,545,336,643) Net cash provided by operating activities 3,790,807,090 2,556,178,131 2,764,086,225

(Forward)

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Years Ended September 30

2006 2005

(As restated) 2004

(As restated)

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisitions of property, plant and equipment (Note 13)

(5,830,795,216) (P=3,646,648,409) (P=2,279,020,790)

Proceeds from sale of property and equipment 328,575,448 208,282,311 43,112,925 Net (acquisition) disposal of: Financial assets at fair value through profit and loss

5,305,631,278 – –

Temporary investments – (9,195,370,783) 3,081,574,852 Marketable securities – – 6,393,019 Decrease (increase) in: Due from affiliated companies (120,599,637) (2,709,479) (4,722,698) Investments and advances 22,049,905 78,021,541 (542,064,902) Biological assets 180,609,264 (210,165,177) 85,418,293 Other noncurrent assets (Note 15) (495,814,416) (107,165,549) 66,219,631

Net pension asset (66,235,600) 40,908,700 – Acquisition of subsidiary - net of cash acquired

(Note 11)

– – (19,761,966) Dividends received (Note 11) 171,391,485 114,619,657 19,999,943 Proceeds from sale of marketable securities 194,870,469 – – Net cash provided by (used in) investing activities (310,317,020) (12,720,227,188) 457,148,307

CASH FLOWS FROM FINANCING ACTIVITIES

Availments of: Short-term borrowings 2,230,655,543 – – Long-term debt – 11,132,000,000 – Payments of: Short-term borrowings (423,512,167) (1,249,733,248) (641,424,579) Long-term debt (3,596,331,326) (498,757,403) (787,059,399)

Cash dividends (1,198,781,397) (505,943,862) (505,943,865) Decrease in equity attributable to minority interest

in consolidated subsidiaries

(89,509,553) (20,491,549) (624,894) Proceeds from issuance of common shares 4,646,560,881 – – Net cash provided by (used in) financing activities 1,569,081,981 8,857,073,938 (1,935,052,737)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

5,049,572,051 (1,306,975,119) 1,286,181,795

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

930,303,344 2,237,278,463 951,096,668

CASH AND CASH EQUIVALENTS AT END OF YEAR

P=5,979,875,395 P=930,303,344 P=2,237,278,463 See accompanying Notes to Consolidated Financial Statements.

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UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Corporate Information

Universal Robina Corporation (referred herein as the “Parent Company” or “URC”) is a stock corporation organized under the laws of the Philippines and is a publicly listed company resulting from the public offering of its common stock in March 1994. The Company is a core subsidiary of J.G. Summit Holdings, Inc. (“JGSHI”), one of the largest diversified conglomerates in the Philippines. The registered office address of URC is 110 E. Rodriguez Avenue, Bagumbayan, Quezon City, Philippines.

Certain operations of URC and its subsidiaries and associates (referred herein as the “Group”) are

registered with the Board of Investments (BOI) as pioneer and nonpioneer activities. As a registered enterprise, the Group is subject to some requirements and is entitled to avail of incentives provided for under the Agriculture Investments Act (Presidential Decree (P.D.) No. 1159), Investment Incentives Act (Republic Act (R.A.) No. 5186), Export Incentives Act (R.A. No. 6135), as amended, and Omnibus Investments Code of 1987 (Executive Order No. 226).

The operations of the Group are regulated by certain laws. The production, sale, distribution and

advertisement of food products are regulated by the Philippine Bureau of Food and Drugs, which implements the Consumer Act of the Philippines (R.A. No. 7394) and the Foods, Drugs, Devices and Cosmetics Act (R.A. No. 3720). The Consumers Act and the Foods, Drugs, Devices and Cosmetics Act prescribe the minimum guidelines for safety and quality of food and food products and minimum branding and labeling requirements for the same. The Philippine Bureau of Animal Industry implements the Livestock and Poultry Feed Act (R.A. No. 1556 as amended by P.D. 7) and regulates the importation and breeding of livestock, such as poultry and swine.

The principal activities of the Group are described in Note 4 in the segment reporting.

2. Basis of Financial Statement Preparation

The accompanying consolidated financial statements of the Group have been prepared in compliance with Philippine Financial Reporting Standards (PFRS). This is the Group’s first annual consolidated financial statements prepared in compliance with PFRS.

As part of the transition to PFRS, the Group adopted new and revised accounting standards that are based on revised International Accounting Standards (IAS) and new International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). The Financial Reporting Standards Council (FRSC) has renamed the standards that it has issued to correspond better to the issuances of IASB. PAS corresponds to adopted IAS, while PFRS corresponds to adopted IFRS. Previously, accounting standards issued by the FRSC were designated as Statements of Financial Accounting Standards (SFAS).

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The Group applied PFRS 1, First-time Adoption of PFRS, in preparing the consolidated financial statements, with October 1, 2003 as the date of transition. The Group applied the new accounting policies to all the years presented, except those relating to the classification and measurement of financial instruments and unrecognized cumulative actuarial gains and losses at the date of transition. An explanation of how the adoption of PFRS has affected the reported financial position, financial performance and cash flows of the Group is provided in Note 3.

The functional currency of the Parent Company is the Philippine Peso. The consolidated financial statements of the Group are presented in Philippine Pesos and have been prepared under the historical cost convention method, except for financial assets at fair value through profit and loss (FVPL), derivative financial instruments and hog market stock, which are measured at fair value. 3. Changes in Accounting Policies

As stated in Note 2, these are the Group’s first annual consolidated financial statements in compliance with PFRS. The transition to PFRS resulted in certain changes to the Group’s previous accounting policies (previous Philippine GAAP). The comparative figures for 2005 and 2004 were restated to reflect the changes in accounting policies as a result of the transition to PFRS, except those relating to financial instruments. The Group has made use of the exemption available under PFRS 1, and as allowed by the Philippine Securities and Exchange Commission (SEC), to apply PAS 32, Financial Instruments: Disclosure and Presentation, and PAS 39, Financial Instruments: Recognition and Measurement, to financial instruments outstanding as of October 1, 2005. The cumulative effect of adopting PAS 39 was charged to Retained earnings as of October 1, 2005. The policies applied to financial instruments beginning October 1, 2005 and prior to October 1, 2005 are disclosed separately (Note 4).

The principal effects of the changes in accounting policies as a result of the adoption by the Group of new and revised accounting standards follow:

• PFRS 1, requires an entity to comply with each PFRS effective at the reporting date for its first

PFRS financial statements. The Group has adopted PFRS for these financial statements as of September 30, 2006, and restated the comparative amounts for the years ended September 30, 2005 and 2004, except for the following courses of action that have been allowed under PFRS 1:

Corridor Approach on Actuarial Gains or Losses on Defined Benefit Plan The Group has chosen not to recognize cumulative actuarial gains or losses that resulted from the measurement of pension obligation under a defined benefit plan using the “corridor approach” in accordance with PAS 19, Employee Benefits. Instead, the Group has elected to recognize all cumulative actuarial gains and losses at the date of transition to PFRS. Subsequent to date of transition to PFRS, actuarial gains and losses are recognized as income or expense when the net cumulative unrecognized actuarial gains and losses on the plan at the end of the previous reporting year exceeded 10% of the higher of the defined benefit obligation and the fair value of plan assets

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as at that date. These gains and losses are recognized over the expected average remaining working lives of the employees participating in the plan.

Classification and Measurement of Financial Instruments

The Group applied PAS 32 and PAS 39 to financial instruments outstanding as of October 1, 2005.

Business Combinations, Goodwill and Impairment The Group has elected not to restate any business combinations that occurred before the date of transition to PFRS.

• PFRS 3, Business Combinations, requires all business combinations within its scope to be

accounted for by applying the purchase method. The pooling of interests method is no longer permitted. In addition, this standard requires the acquirer to initially measure separately the identifiable assets, liabilities and contingent liabilities at their fair values at acquisition date, irrespective of the extent of any minority interest.

PFRS 3 also requires goodwill in a business combination to be recognized by an acquirer as an asset from the acquisition date, initially measured as the excess of the cost of the business combination over the acquirer’s interest in the net fair value of the acquiree’s identifiable assets and liabilities. Further, the amortization of goodwill acquired in a business combination is prohibited; instead, goodwill is to be tested annually, or more frequently, if events or changes in circumstances indicate that the goodwill might be impaired.

The adoption of PFRS 3 resulted in the Group ceasing annual goodwill amortization and commencing testing for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. Under previous Philippine GAAP, goodwill was amortized over twenty years. The adoption of PFRS 3 also resulted in the reversal of negative goodwill amounting to P=36.7. The adoption increased consolidated net income by P=167.9 million and P=205.4 million for the years ended September 30, 2005 and 2004, respectively. Consolidated retained earnings increased by P=373.3 million as of October 1, 2005, and P=205.4 million as of October 1, 2004.

In 2006, the Group recognized impairment loss on goodwill amounting to P=240.7 million

(Note 15).

• PFRS 5, Noncurrent Assets Held for Sale and Discontinued Operations, specifies the accounting for assets held for sale and the presentation and disclosure requirements for discontinued operations. Under this standard, qualifying noncurrent assets or disposal groups held for sale shall be carried at fair value less costs to sell if this amount is lower than its carrying amount less accumulated impairment losses.

As of September 30, 2006, 2005 and 2004, the Group had no noncurrent assets held for sale.

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• PAS 19 prescribes the accounting and disclosures by employers for employee benefits (including

short-term employee benefits, post-employment benefits, other long-term employee benefits and termination benefits). For post-employment benefits classified as defined benefit plans, the standard requires: (a) the use of the projected unit credit method to measure an entity’s obligations and costs; (b) an entity to determine the present value of defined benefit obligations and the fair value of any plan assets with sufficient regularity; and (c) the recognition of a specific portion of net cumulative actuarial gains and losses when the net cumulative amount exceeds 10% of the greater of the present value of the defined benefit obligation or 10% of the fair value of the plan assets, but also permits the immediate recognition of these actuarial gains and losses.

The adoption of PAS 19 decreased consolidated net income by P=50.2 million for the year ended September 30, 2005. Consolidated retained earnings increased by P=166.6 million and P=216.8 million as of October 1, 2005 and 2004, respectively.

• PAS 21, The Effects of Changes in Foreign Exchange Rates, results in the elimination of the

capitalization of foreign exchange losses related to the acquisition of property, plant and equipment.

The standard further requires an entity to determine its functional currency and measure its results and financial position in that currency. Translation procedures are specified when the presentation currency used for reporting differs from the entity's functional currency.

As allowed under PAS 21, Goodwill and any fair value adjustments arising on the acquisition of

a foreign subsidiary prior to October 1, 2004 will now be treated as assets and liabilities of the Company rather than as assets and liabilities of the foreign subsidiary. Therefore, those goodwill and fair value adjustments either are already expressed in the Company’s functional currency or are non-monetary foreign currency items, which are reported using the exchange rate at

October 1, 2004.

Goodwill arising from acquisitions of foreign operations subsequent to October 1, 2004 and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisitions are now treated as assets and liabilities of the foreign operation and translated at the exchange rate at date of acquisition.

PAS 21 also provides that when there is a change in an entity’s functional currency, the entity shall apply the translation procedures applicable to the new functional currency prospectively from the date of change. The effect of a change in functional currency is accounted for prospectively and an entity translates all items into the new functional currency using the exchange rate at the date of change. The resulting translated amounts for non-monetary items are treated as their historical cost.

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The adoption of PAS 21 decreased cumulative translation adjustment by P=71.2 million, P=77.3 million, and P=51.6 million as of October 1, 2005, 2004 and 2003. It also decreased retained earnings by P=158.6 million, P=191.1 million, and P=204.2 million as of October 1, 2005, 2004 and 2003, respectively.

• PAS 32 covers the disclosure and presentation of all financial instruments. The standard requires

more comprehensive disclosures about an entity’s financial instruments, whether recognized or unrecognized in the consolidated financial statements. New disclosure requirements include terms and conditions of financial instruments used by the entity, types of risks associated with financial instruments (market risk, foreign exchange risk, price risk, credit risk, liquidity risk and cash flow risk), fair value information of both recognized and unrecognized financial assets and financial liabilities, and the entity’s financial risk management policies and objectives. The standard also requires financial instruments to be classified as liabilities or equity in accordance with its substance and not its legal form. The standard also requires presentation of financial assets and financial liabilities on a net basis when, and only when, an entity: (a) currently has a legally enforceable right to set off the recognized amounts; and (b) intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.

This standard also requires financial instruments to be classified as either liabilities or equity in accordance with its substance and not its legal form.

As allowed by the Philippine SEC and PFRS 1, the classification of financial instruments as of September 30, 2005 and 2004 under the previous GAAP was retained.

• PAS 39 establishes the accounting and reporting standards for the recognition and measurement

of the entity’s financial assets and financial liabilities. PAS 39 requires a financial asset or a financial liability to be recognized initially at cost, including related debt issuance costs. Subsequent to initial recognition, an entity should measure financial assets at their fair values, except for loans and receivables and HTM investments which are measured at amortized cost using the effective interest method. Financial liabilities are subsequently measured at amortized cost, except for liabilities designated as at FVPL and derivatives which are subsequently measured at fair value. PAS 39 also requires an entity to assess at each balance sheet date whether there is any objective evidence that a financial asset or a group of financial asset is impaired.

Previously, the Group capitalized debt issuance costs related to its loan borrowings. Upon adoption of PAS 39, these debt issuance costs were included as part of the related loan and amortized over the term of the loan using effective interest method at prevailing market rates. Consolidated retained earnings increased by P=29.9 million as of October 1, 2005.

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PAS 39 also establishes the accounting and reporting standards requiring that every derivative instrument (including certain derivatives embedded in other contracts) be recorded in the consolidated balance sheets as either an asset or liability measured at its fair value. PAS 39 requires that changes in the derivative’s fair value be recognized currently in the consolidated statements of income unless specific hedges allow a derivative’s gains and losses to offset related results on the hedged item in the consolidated statements of income, or deferred in the equity as cumulative translation adjustment. PAS 39 requires that an entity must formally document, designate and assess the effectiveness of transactions that receive hedge accounting treatment.

The Group adopted the fair valuation method for all its derivative transactions. These transactions are recorded at fair value and fair value changes are reflected in the consolidated statements of income.

As allowed by the Philippine SEC and PFRS 1, the adoption of PAS 39 did not result in the restatement of prior year’s financial statements. The recognition and measurement of financial instruments as of September 30, 2005 and 2004 under previous Philippine GAAP were retained. The cumulative effects of the changes in accounting policies as a result of the adoption of PAS 39 was charged to consolidated retained earnings as of October 1, 2005.

• PAS 40, Investment Property, establishes the accounting and reporting standards for investment

property. Investment property is property (land or a building or both) held (by the owner or by the lessee under a finance lease) to earn rentals or for capital appreciation or both, rather than for: (a) use in the production or supply of goods or supply of goods or services or for administrative purposes; or (b) sale in the ordinary course of business. Under this standard, an entity is permitted to choose either the fair value model or cost model in the subsequent measurement of a qualifying investment property. Fair value model requires an investment property to be measured at fair value with fair value changes recognized directly in the consolidated statements of income. Cost model requires an investment property to be measured at cost less any accumulated depreciation and impairment loss.

The adoption of PAS 40 resulted in the reclassification of the carrying value of the portion of a building being leased to related parties amounting to P=89.8 million and P=93.4 million as of October 1, 2005 and 2004, respectively, from property, plant and equipment to investment property. The Group chose the cost model approach in the measurement of their investment property.

• PAS 41, Agriculture, prescribes the accounting treatment for biological assets during the period

of growth, degeneration, production and procreation, and for the initial measurement of agricultural produce at point of harvest. It requires measurement at fair value less estimated point-of-sale costs from initial recognition of biological assets up to the point of harvest, other than when the fair value cannot be measured reliably on initial recognition.

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The adoption of PAS 41 did not affect the consolidated statements of income for the years ended

September 30, 2005 and 2004, and the beginning consolidated retained earnings as of October 1, 2005, 2004 and 2003, as biological assets requiring fair valuation have been reported previously at their market values. However, the adoption of PAS 41 resulted in the reclassification of the carrying value of the biological assets amounting to P=760.6 million as of October 1, 2005 and 2004. Previously, these were presented as part of inventory.

Revised Accounting Standards

• PAS 16, Property, Plant and Equipment, (a) provides additional guidance and clarification on

recognition and measurement of items of property, plant and equipment; (b) requires the capitalization of the costs of asset dismantling, removal or restoration as a result of either acquiring or having used the asset for purposes other than to produce inventories during the period; and (c) requires measurement of an item of property, plant and equipment acquired in exchange for a nonmonetary asset, or a combination of monetary and nonmonetary assets, at fair value unless the exchange transaction lacks commercial substance. Under the previous version of this standard, an entity measured such acquired asset at fair value unless the exchanged assets were similar. The standard also provides that each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item shall be depreciated separately.

Major spare parts and servicing equipment items qualifying as property, plant and equipment that were previously classified as part of inventories have been reclassified to property, plant and equipment. The reclassification amounted to P=204.3 million as of September 30, 2005 and 2004.

The adoption of the following revised accounting standards did not have a material effect on the Group’s consolidated financial statements. Additional disclosures required by the revised accounting standards were included in the accompanying consolidated financial statements, where applicable.

• PAS 1, Presentation of Financial Statements, (a) provides a framework within which an entity

assesses how to present fairly the effects of transactions and other events; (b) provides the base criteria for classifying liabilities as current or noncurrent; (c) prohibits the presentation of income from operating activities and extraordinary items as separate line items in the consolidated statements of income; and (d) specifies the disclosures about key sources of estimation, uncertainty and judgments that management has made in the process of applying the entity’s accounting policies (Note 5).

• PAS 2, Inventories, reduces the alternatives for measurement of inventories by disallowing the

use of the last in, first out formula. Moreover, the revised accounting standard does not permit foreign exchange differences arising directly on the recent acquisition of inventories invoiced in a foreign currency to be included in the cost of inventories.

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• PAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, (a) removes the

concept of fundamental error and the allowed alternative to retrospective application of voluntary changes in accounting policies and retrospective restatement to correct prior period errors;

(b) updates the previous hierarchy of guidance to which management refers and whose applicability it considers when selecting accounting policies in the absence of standards and interpretations that specifically apply; (c) defines material omissions or misstatements; and (d) describes how to apply the concept of materiality when applying accounting policies and correcting errors.

• PAS 10, Events After the Balance Sheet Date, provides a limited clarification of the accounting

for dividends declared after the balance sheet date.

• PAS 17, Leases, provides a limited revision to clarify the classification of a lease of land and buildings and prohibits expensing of initial direct costs in the financial statements of the lessors.

• PAS 24, Related Party Disclosures, provides additional guidance and clarity in the scope of the

standard, the definitions and disclosures for related parties. It also requires disclosure of the total compensation of key management personnel and by benefit types (Note 19).

• PAS 27, Consolidated and Separate Financial Statements, reduces alternatives in accounting for

subsidiaries in consolidated financial statements and in accounting for investments in the separate financial statements of a parent, venturer or investor. Investments in subsidiaries will be accounted for either at cost or in compliance with PAS 39 in the separate financial statements. Equity method of accounting will no longer be allowed in the separate financial statements. This standard also requires strict compliance with adoption of uniform accounting policies and requires the parent to make appropriate adjustments to the subsidiary’s financial statements to conform them to the parent’s accounting policies for reporting like transactions and other events in similar circumstances.

• PAS 28, Investments in Associates, reduces alternatives in accounting for associates in

consolidated financial statements and in accounting for investments in the separate financial statements of an investor. Investments in associates will be accounted for either at cost or in compliance with PAS 39 in the separate financial statements. Equity method of accounting will no longer be allowed in the separate financial statements. This standard also requires strict compliance with adoption of uniform accounting policies and requires the investor to make appropriate adjustments to the associate’s financial statements to conform them to the investor’s accounting policies for reporting like transactions and other events in similar circumstances.

• PAS 31, Interests in Joint Ventures, reduces the alternatives in accounting for interests in joint

ventures in consolidated financial statements. Interests in joint ventures will be accounted for either at cost or in compliance with PAS 39. The standard allows the equity method of accounting as an alternative to proportionate consolidation.

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• PAS 33, Earnings Per Share, prescribes principles for the determination and presentation of

earnings per share for entities with publicly traded shares, entities in the process of issuing ordinary shares to the public, and any entities that calculate and disclose earnings per share. The standard also provides additional guidance in computing earnings per share including the effects of mandatorily convertible instruments and contingently issuable shares, among others.

• PAS 36, Impairment of Assets, requires annual impairment test of intangible asset with an

indefinite useful life which includes goodwill acquired in a business combination, whether or not there is an indication of impairment.

• PAS 38, Intangible Assets, provides additional clarification on the definition and recognition of

certain intangibles. Moreover, this revised accounting standard requires that an intangible asset with an indefinite useful life should not be amortized but will be tested for impairment by comparing its recoverable amount with its carrying amount annually and whenever there is an indication that the intangible asset may be impaired.

Change in Accounting for Pre-milling Costs Starting on October 1, 2005, the Group changed its accounting for pre-milling costs in the production of sugar that were incurred during post-milling season. These pre-milling costs are now included in the consolidated statements of income when incurred. These costs are previously deferred and charged to production costs only in the next applicable sugar crop year which coincides with the milling season. The effect of the change in accounting policy was determined restrospectively and prior years consolidated financial statements have been restated in accordance with PAS 8. The change in accounting policy (decreased) increased consolidated net income by (P=28.3 million) and P=18.1 million for the years ended September 30, 2005 and 2004, respectively. The retained earnings account decreased by P=125.9 million, P=97.6 and P=115.7 million as of October 1, 2005, 2004 and 2003, respectively.

The increasing (decreasing) effects of the adoption of new and revised accounting standards and the change in accounting for pre-milling costs on the Group’s consolidated financial statements follow (refer to succeeding pages):

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Consolidated Balance Sheets

At October 1, 2003 (Date of Transition) At October 1, 2004 At September 30, 2005

Item Previous

GAAP

Effect of Transition

to PFRS PFRS Previous

GAAP



GAAP


to PFRS PFRS ASSETS Current Assets Cash and cash equivalents P=951,096,668 P=– P=951,096,668 P=2,237,278,463 P=– P=2,237,278,463 P=930,303,344 P=– P=930,303,344 Temporary investments - net 15,062,272,436 – 15,062,272,436 12,143,020,441 – 12,143,020,441 21,753,976,562 – 21,753,976,562 Marketable securities 730,111,457 – 730,111,457 757,385,456 – 757,385,456 896,641,788 – 896,641,788 Trade and other receivables - net 2,868,385,942 – 2,868,385,942 3,346,380,700 – 3,346,380,700 3,849,423,174 – 3,849,423,174 Due from affiliated companies 218,431,365 – 218,431,365 353,672,552 – 353,672,552 356,382,031 – 356,382,031 Inventories - net (a) 4,597,374,044 (754,740,755) 3,842,633,289 5,774,089,468 (754,740,755) 5,019,348,713 6,672,701,120 (964,905,932) 5,707,795,188 Other current assets (b) 225,606,875 (115,685,864) 109,921,011 224,272,707 (97,592,870) 126,679,837 267,399,248 (125,858,317) 141,540,931 Total Current Assets 24,653,278,787 (870,426,619) 23,782,852,168 24,836,099,787 (852,333,625) 23,983,766,162 34,726,827,267 (1,090,764,249) 33,636,063,018 Noncurrent Assets Investments and advances 1,260,370,930 – 1,260,370,930 1,779,943,951 – 1,779,943,951 1,831,925,876 – 1,831,925,876 Investment properties - net (c) – 96,994,809 96,994,809 – 93,396,564 93,396,564 – 89,798,319 89,798,319 Biological assets (a) – 550,477,233 550,477,233 550,477,233 550,477,233 – 760,642,410 760,642,410 Property, plant and equipment - net (c) 15,225,691,159 (140,751,750) 15,084,939,409 15,520,784,949 (108,938,086) 15,411,846,863 17,184,214,864 (59,559,507) 17,124,655,357 Deferred income tax - net – – – 36,095,850 – 36,095,850 – – – Pension asset - net (d) – 216,790,000 216,790,000 – 216,790,000 216,790,000 – 170,110,800 170,110,800 Other noncurrent assets (e) 1,421,717,753 (51,646,228) 1,370,071,525 1,075,400,580 128,094,787 1,203,495,367 969,030,423 302,034,732 1,271,065,155 Total Noncurrent Assets 17,907,779,842 671,864,064 18,579,643,906 18,412,225,330 879,820,498 19,292,045,828 19,985,171,163 1,263,026,754 21,248,197,917 P=42,561,058,629 (P=198,562,555) P=42,362,496,074 P=43,248,325,117 P=27,486,873 P=43,275,811,990 P=54,711,998,430 P=172,262,505 P=54,884,260,935 LIABILITIES AND

STOCKHOLDERS’ EQUITY

Current Liabilities Loans payable P=4,110,432,242 P=– P=4,110,432,242 P=3,469,007,663 P=– P=3,469,007,663 P=2,219,274,415 P=– P=2,219,274,415 Accounts payable and accrued expenses (d) 3,025,675,642 – 3,025,675,642 3,073,806,052 – 3,073,806,052 3,138,766,050 (5,770,500) 3,132,995,550 Trust receipts and acceptances payable 289,074,132 – 289,074,132 1,221,676,801 – 1,221,676,801 1,229,056,178 – 1,229,056,178 Due to affiliated companies 485,221,061 – 485,221,061 332,777,177 – 332,777,177 477,744,763 – 477,744,763 Income tax payable 56,325,823 – 56,325,823 45,556,142 – 45,556,142 125,741,036 – 125,741,036 Current portion of long-term debt 344,612,150 – 344,612,150 320,161,156 – 320,161,156 372,891,534 – 372,891,534 Total Current Liabilities 8,311,341,050 – 8,311,341,050 8,462,984,991 – 8,462,984,991 7,563,473,976 (5,770,500) 7,557,703,476 Noncurrent Liabilities Deferred income tax - net (f) 84,046,676 (43,807,896) 40,238,780 – (28,710,362) (28,710,362) 175,121,631 (6,076,752) 169,044,879 Long-term debt – net of current portion 12,182,440,398 – 12,182,440,398 11,464,930,247 – 11,464,930,247 21,897,308,402 – 21,897,308,402 Total Noncurrent Liabilities 12,266,487,074 (43,807,896) 12,222,679,178 11,464,930,247 (28,710,362) 11,436,219,885 22,072,430,033 (6,076,752) 22,066,353,281 Total Liabilities 20,577,828,124 (43,807,896) 20,534,020,228 19,927,915,238 (28,710,362) 19,899,204,876 29,635,904,009 (11,847,252) 29,624,056,757 (Forward)

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At October 1, 2003 (Date of Transition) At October 1, 2004 At September 30, 2005

Item Previous

GAAP



GAAP



GAAP


to PFRS PFRS Stockholders’ Equity Equity attributable to equity holders

of the parent:

Capital stock P=1,686,479,549 P=– P=1,686,479,549 P=1,686,479,549 P=– P=1,686,479,549 P=1,686,479,549 P=– P=1,686,479,549 Additional paid-in capital 6,843,501,476 – 6,843,501,476 6,843,501,476 – 6,843,501,476 6,843,501,476 – 6,843,501,476 Deposits for future stock

subscriptions 26,043,533 – 26,043,533

26,043,533 – 26,043,533 26,043,533 – 26,043,533 Cumulative translation adjustments (e) 1,028,044,149 (51,646,228) 976,397,921 1,062,297,225 (77,339,410) 984,957,815 1,064,556,292 (71,237,470) 993,318,822 Retained earnings (g) 11,238,707,332 (103,108,431) 11,135,598,901 12,608,438,564 133,536,645 12,741,975,209 14,506,933,778 255,347,227 14,762,281,005 20,822,776,039 (154,754,659) 20,668,021,380 22,226,760,347 56,197,235 22,282,957,582 24,127,514,628 184,109,757 24,311,624,385 Minority interest 1,160,454,466 – 1,160,454,466 1,093,649,532 – 1,093,649,532 948,579,793 – 948,579,793 Total Stockholders’ Equity 21,983,230,505 (154,754,659) 21,828,475,846 23,320,409,879 56,197,235 23,376,607,114 25,076,094,421 184,109,757 25,260,204,178 P=42,561,058,629 (P=198,562,555) P=42,362,496,074 P=43,248,325,117 P=27,486,873 P=43,275,811,990 P=54,711,998,430 P=172,262,505 P=54,884,260,935

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Consolidated Net Income

2005 2004 2003

Item Previous GAAP Effect of

Transition

PFRS

Previous GAAP Effect of

Transition PFRS

Previous GAAP Effect of

Transition PFRS NET SALES AND SERVICES P=– P=31,199,275,746 P=– P=31,199,275,746 P=27,357,877,956 P=– P=27,357,877,956 P=23,414,734,363 P=– P=23,414,734,363 COST OF SALES AND SERVICES (b) 23,279,447,239 28,265,447

23,307,712,686

20,497,531,023 (18,092,994) 20,479,438,029 17,371,895,968 16,211,862 17,388,107,830

GROSS PROFIT 7,919,828,507 (28,265,447) 7,891,563,060 6,860,346,933 18,092,994 6,878,439,927 6,042,838,395 (16,211,862) 6,026,626,533 OPERATING AND OTHER ADMINISTRATIVE EXPENSES (5,458,909,637) 4,871,634

(5,454,038,003)

(4,804,877,386) 28,215,418 (4,776,661,968) (4,555,050,657) – (4,555,050,657) MARK-TO-MARKET GAIN ON FINANCIAL ASSETS AT FVPL 493,318,452 –

493,318,452

395,893,483 – 395,893,483 323,840,562 – 323,840,562 FOREIGN EXCHANGE GAINS AND (LOSSES) 172,389,517 –

172,389,517

(107,213,560) – (107,213,560) 291,493,310 – 291,493,310

INVESTMENT INCOME 1,908,880,098 – 1,908,880,098 1,439,276,063 – 1,439,276,063 980,456,992 – 980,456,992 EQUITY IN NET EARNINGS OF INVESTEES 244,623,123 –

244,623,123

184,764,758 – 184,764,758 41,262,628 – 41,262,628

FINANCE COSTS (2,114,784,811) – (2,114,784,811) (1,548,580,869) – (1,548,580,869) (1,150,241,552) – (1,150,241,552) IMPAIRMENT LOSS – – – (297,275,729) – (297,275,729) – – – OTHER INCOME (CHARGES) (414,709,550) 167,838,005 (246,871,545) (323,073,183) 205,434,197 (117,638,986) (580,319,128) – (580,319,128) INCOME BEFORE INCOME TAX AND MINORITY INTEREST 2,750,635,699 144,444,192

2,895,079,891

1,799,260,510 251,742,609 2,051,003,119 1,394,280,550 (16,211,862) 1,378,068,688 PROVISION FOR (BENEFIT FROM) INCOME TAX

Current 259,557,329 – 259,557,329 109,907,979 – 109,907,979 160,197,714 – 160,197,714 Deferred 211,217,481 22,633,610 233,851,091 (120,142,526) 15,097,533 (105,044,993) (93,852,357) 3,567,209 (90,285,148) 470,774,810 22,633,610 493,408,420 (10,234,547) 15,097,533 4,862,986 66,345,357 3,567,209 69,912,566 Net income, as restated (g) P=2,279,860,889 P=121,810,582 P=2,401,671,471 P=1,809,495,057 P=236,645,076 P=2,046,140,133 P=1,327,935,193 (P=19,779,071) P=1,308,156,122

The effects of the transition on the 2003 consolidated net income is reflected as an adjustment against the opening balance of the consolidated retained earnings as of October 1, 2003.

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The effects of transition to PFRS as they apply to the Group’s basic and diluted earnings per share (EPS) are set forth below:

2005 2004 As previously reported P=1.08 P=0.84 Adjustments on issuance of stock dividends 0.15 0.11 PFRS Adjustments:

PAS 19 (0.02) – PAS 21 0.02 0.02 PAS 36 0.08 0.11 Effect of change in accounting policy for pre-

milling costs

(0.01)

0.01 As restated P=1.30 P=1.09

(a) The adjustments to Inventories consist of:

October 1, 2003 October 1, 2004 September 30, 2005 Reclassification of Inventories to Property, plant and equipment

(P=204,263,522)

(P=204,263,522)

(P=204,263,522)

Reclassification of Inventories to Biological assets

(550,477,233)

(550,477,233)

(760,642,410)

(P=754,740,755) (P=754,740,755) (P=964,905,932) The inventories reclassified represent major spare parts that qualified for recognition as property, plant and equipment, as the Group expects to use these over more than one period. These spare parts can be used only in connection with an item of property, plant and equipment; thus, these are accounted for as property, plant and equipment.

(b) The adjustment to the following accounts represent the effect of the change in accounting policy for pre-milling costs:

As of and for the year ending

October 1, 2003 As of and for the year ending

October 1, 2004 As of and for the year ending

September 30, 2005 Other current assets (P=115,685,864) (P=97,592,870) (P=125,858,317) Cost of sales 16,211,862 (18,092,994) 28,265,447

(P=99,474,002) (P=115,685,864) (P=97,592,870)

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(c) The adjustments to Property, plant and equipment consist of:

October 1, 2003 October 1, 2004 September 30, 2005

Reversal of undepreciated capitalized foreign exchange losses (P=248,020,462) (P=219,805,044) (P=174,024,710) Reclassification of Inventories to Property, plant and equipment 204,263,522 204,263,522

204,263,522

Reclassification of Property, plant and equipment to Investment property (96,994,809) (93,396,564) (89,798,319)

(P=140,751,749) (P=108,938,086) (P=59,559,507)

(d) The adoption of PAS 19 resulted in the recognition of net pension assets amounting to P=216.8 million as of September 30, 2004 and 2003, and P=170.1 million as of September 30, 2005. It also resulted in the reversal of accrued retirement expense amounting to P=5.8 million as of September 30, 2005.

(e) The adjustments to Other noncurrent assets consist of:

October 1, 2003 October 1, 2004 September 30, 2005Reversal of negative goodwill P=– P=36,738,207 P=36,738,207 Reversal of goodwill amortization – 168,695,990 336,533,995 Reversal of the related cumulative translation adjustments on the goodwill

(51,646,228) (77,339,410)

(71,237,470) (P=51,646,228) P=128,094,787 P=302,034,732

(f) The adjustments to Deferred income tax assets (liabilities) consist of: October 1, 2003 October 1, 2004 September 30, 2005Effect of change in accounting for capitalized foreign exchange losses - net

(P=43,807,896) P=28,710,362

(P=15,394,083)

Effect of change in accounting for employee benefits – –

9,317,331

(P=43,807,896) P=28,710,362 (P=6,076,752)

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(g) The adjustments to beginning retained earnings and consolidated net income consist of:

October 1, 2003 October 1, 2004 September 30, 2005Adjustments to Retained earnings beginning:

Effect of change in accounting for pre-milling costs (P=99,474,002)

(P=115,685,864) (P=97,592,870)

Effect of change in accounting for capitalized foreign exchange losses - net (200,645,358)

(204,212,567) (191,094,682) Effect of change in accounting for employee benefits 216,790,000

216,790,000 216,790,000

Effect of change in accounting for impairment of assets –

– 205,434,197

(83,329,360) (103,108,431) 133,536,645Adjustments to Net income: Effect of change in accounting for pre-milling costs (16,211,862)

18,092,994 (28,265,447)

Effect of change in accounting for capitalized foreign exchange losses - net (3,567,209)

13,117,885 32,464,055 Effect of change in accounting for employee benefits –

– (50,226,031)

Effect of change in accounting for impairment of assets –

205,434,197 167,838,005

(19,779,071) 236,645,076 121,810,582Total (P=103,108,431) P=133,536,645 P=255,347,227

PFRS and International Financial Reporting Interpretations Committee (IFRIC) Effective in 2006, 2007 and 2008

2006

• Amendments to PAS 19, Employee Benefits and PAS 1, Presentation of Financial Statements - Actuarial Gains and Losses, Group Plans and Disclosures. The amendment on PAS 19 allows the Group to recognize actuarial gains and losses outside of the profit or loss, in addition to the previous options of recognizing such gains and losses directly in profit or loss or using the corridor approach. When the Group adopts this new option, it must prepare a Statement of Recognized Income and Expense instead of a Statement of Changes in Equity. Changes in equity resulting from transactions with owners in their capacity as owners, all other movements in equity reserves and a reconciliation of retained earnings from the beginning of the period to the end of the period may only be presented in the notes. New disclosures were also introduced that are applicable to defined benefit plans. The Group will not adopt the option to recognize gains and losses outside of the profit or loss. The required revised disclosure will be included in the consolidated financial statements when the amendments are adopted on October 1, 2006.

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• Amendments to PAS 21, The Effects of Changes in Foreign Exchange Rates. The amendment

clarifies that monetary items (receivables or payables) between any subsidiary of a group and a foreign operation (rather than being restricted to arrangements between a parent and its subsidiary) may form part of the group’s investment in that foreign operation (and therefore foreign exchange gains and losses are taken to equity on consolidation if settlement of the loan is neither planned nor likely to occur in the foreseeable future). It also allows monetary items that form part of a reporting entity’s net investment in a foreign operation to be denominated in a currency other than the functional currency of either the parent of the operation itself. The Group will assess its receivables or payables which may be considered part of the Group’s net investment.

• Amendments to PAS 39, Financial Instruments: Recognition and measurement. This

amendment restricts the use of the option to designate any financial asset or liability to be held at fair value through the profit or loss to the situations in which (a) it eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets or liabilities, or recognizing the gains and losses on them on different bases (‘accounting mismatch’); (b) a group of financial assets and/or or liabilities is managed and its performance is evaluated on a fair value basis, or (c) it is a hybrid instrument (i.e., a financial instrument with an embedded derivative), unless: (i) the embedded derivative does not significantly modify the cash flows otherwise required by the contract, or, (ii) with little or no analysis it would be concluded that the conditions necessary to separate an embedded derivative are not met. The Group will reassess all financial instruments that were previously designated at FVPL. The Group will also revisit their documented risk management policies and investment strategies as they relate to the management of their financial instruments, to insure these are robust enough to allow assessment of items to which the option should be applied.

• Amendments to PAS 39, Financial Instruments: Recognition and Measurement and PFRS 4,

Insurance Contracts – Financial Guarantee Contracts. This amendment required financial guarantee contracts to be accounted for as financial instruments by the issuer. Such contracts are recognized initially at fair value and subsequently carried at the higher of that initial value and the value that would recognized if PAS 37, Provisions, Contingents Liabilities and Contingent Assets or PAS 18, Revenue was applied. An issuer may explicitly state that it regards such contracts as insurance contracts, in which case the entity may choose to apply either PAS 39 Financial Instruments: Recognition and Measurement or PFRS 4, Insurance Contracts to such contracts. These elections are made on an individual contract basis and are irrevocable.

This requirement applies equally to the separate financial statements of entities within a group

for guarantees provided on behalf of or to other group entities. The Group will evaluate all financial guarantee contracts it issued, and determine the fair value for recognition in the consolidated financial statements.

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• PFRS 6, Exploration for and Evaluation of Mineral Resources. This standard requires a

Company to develop its own accounting policy for the recognition and measurement of exploration and evaluation of assets without specifically considering the requirements of paragraphs 11 and 12 of PAS 8. The standard also requires companies engaged in the exploration for and evaluation of mineral resources to disclose information about exploration and evaluation assets, the level at which such assets are assessed for impairment and any impairment losses recognized. The Group will not adopt PFRS 6 because it is not involved in any exploration activities and evaluation of mineral resources.

• IFRIC 4, Determining whether an arrangement contains a Lease. This Interpretation establishes

criteria to be used to assess whether a lease is contained in an arrangement that is not in the legal form of a lease. Essentially, any arrangement that conveys the right to use a specific asset in return for payments will be considered as a lease. The Interpretation includes criteria to help assess whether the contract, at the date of inception, relies on a specific asset or not, and whether the arrangement provide for the right to use the asset.

Determining whether there is the right to use the asset involves a consideration of the

relationship between the contracted quantity of product/service and the asset’s capacity, the pricing terms and the decision-making related to the operation of the asset concerned.

After a lease is identified, an assessment is undertaken to identify what type of lease it is -

operating or finance - in order to determine the accounting and disclosures necessary. The Group will review all arrangement for the supply of goods and services to assess whether or not a lease exist, and establish processes for making this assessment when new contracts are entered into in the future.

• IFRIC 5, Rights to Interests Arising from Decommissioning, Restoration and Environmental

Rehabilitation Funds. IFRIC 5 sets out the accounting treatment for interests in funds established to finance the decommissioning or the restoration of assets or environmental rehabilitation (decommissioning costs). The contributor to the fund must recognize a liability for its obligation to pay decommissioning costs, and separately recognize its interest fund, unless the contributor has legally transferred its obligation to the fund, with no recourse to the contributor. The contributor recognizes its interest in the fund (a) in accordance with PAS 27, Consolidated and Separate Financial Statements, PAS 28, Investments in Associates or PAS 31, Interests in Joint Ventures, if it controls, has significant influence over or jointly controls the interest, or if none of these exist, (b) it recognizes a right to receive reimbursement from the fund in accordance with PAS 37, Provisions, Contingent Liabilities and Contingent Assets, in which case the reimbursement is recognized only when it is virtually certain that it will be received if the contributor settles the obligation. Changes in the carrying value of the reimbursement right are recognized in the profit or loss.

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Contributors are required to disclose the nature of their interest in the fund and any restrictions on access to the assets in the fund. When reimbursement rights are recognized in accordance with PAS 37, the related disclosures required by that Standard must also be made. The Group will review the conditions of all such schemes to determine whether or not the liability is transferred to the scheme without recourse, or whether it remains with the entity, and to identify precisely the impact of any decision-making given to the entity about how the funds are to be invested and / or managed.

• IFRIC 6, Liabilities arising from Participating in a Specific Market – Waste Electrical and

Electronic Equipment. This interpretation requires that liabilities relating to waste management in respect of sales of historical household equipment to be recognized when the Group participates in the market during the relevant measurement period. This interpretation will have no material impact to the consolidated financial statements, as the Group is not involved in the sale of household electrical equipment.

• IFRIC 8, Scope of PFRS 2. This interpretation clarifies that PFRS 2, Share-based Payment, will

apply to any arrangement when equity instruments are granted or liabilities (based on a value of the Group’s equity instruments) are incurred by the Group, when the identifiable consideration appears to be less than the fair value of the instruments given. The adoption of this interpretation will not impact the consolidated financial statements, as the Group has no share-based payments.

2007

• PFRS 7, Financial Instruments - Disclosures. PFRS 7 includes all of the disclosure

requirements relating to financial instruments and will replace the disclosure section of PAS 32 Financial Instruments: Disclosure and Presentation and all of PAS 30 Disclosures in the Financial Statements of Banks and Similar Financial Institutions. PAS 32 will then contain only presentation requirements for financial instruments. The most significant additional disclosure requirements of PFRS 7 (compared to PAS 32 and PAS 30) are as follows: (a) qualitative risk disclosures are to include information on the processes that an entity uses to manage and measure its risks, (b) quantitative data about the exposure to each type of risk (including credit risk, liquidity risk and market risk) arising from financial instruments, (c) information about the credit quality of financial assets that are neither past due nor impaired, (d) an analysis of financial assets that are past due or impaired, including a description of collateral held as security and its fair value, (e) a market risk sensitivity analysis which includes the effect of a reasonably possible change in the risk variables, along with the methods and assumptions used in preparing the analysis. The Group will assess whether the processes and systems in place are capable of collecting these information and making any necessary changes. The Group will reassess to determine whether documented policies are comprehensive and complete. The amendment requires presentation of comparative information in the financial statements.

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• Amendments to PAS 1, Presentation of Financial Statements - Capital Disclosure. This

amendment, which is effective for annual periods beginning on or after January 1, 2007, requires entities to disclose information that enables readers to evaluate the entity’s objectives, policies and processes for managing capital. The disclosures are based on information provided internally to key management personnel, and will include: (a) the objectives, procedures and policies used to manage capital (b) a description of what the entity manages as capital, the nature of any externally imposed capital requirements (if any) and how it meets objectives for managing capital, (c) quantitative information about what the entity manages as capital and any changes from the prior period, (d) whether the entity complied with externally imposed capital requirements and the consequences of any non-compliance, (if applicable). The Group will consider what information is currently used internally and how this is to be incorporated into the disclosures.

• PFRS 8, Operating Segments. This amendment, which is effective for annual periods beginning

on or after January 1, 2009, was issued as part of the convergence project with the US Financial Accounting Standards Board. This new standard replaces PAS 14 Segment Reporting and adopts a management approach to segment reporting as required in the US Standard SFAS 131 Disclosures about Segments of an Enterprise and Related Information. The information reported would be that which management uses internally for evaluating the performance of operating segments and allocating resources to those segments. This information may be different from that reported in the balance sheet and income statement and entities will need to provide explanations and reconciliations of the differences. As the information required to be disclosed will likely be readily available as it is already used internally, the Group will reassess to determine whether additional processes should be put into place to reconcile information to the consolidated balance sheets and consolidated statements of income.

• IFRIC 7, Applying the Restatement Approach under PAS 29 Financial Reporting in

Hyperinflationary Economies. IFRIC 7 requires entities to apply PAS 29 Financial Reporting in Hyper-inflationary Economies in the reporting period in which an entity first identifies the existence of hyperinflation in the economy of its functional currency as if the economy had always been hyperinflationary. Therefore (a) non-monetary items measured at historical cost are restated to reflect the effect of inflation from the date the asset was acquired or liability was incurred until the closing date of the reporting period. (b) non-monetary items measured at amounts current at dates other than acquisition, are restated to reflect the effect of inflation from the last remeasurement date until the closing date if the reporting period. (c) deferred tax items in the opening balance sheet (of the reporting period and comparative period) are remeasured in accordance with PAS 12 Income Taxes after restatement of the non-monetary items, by applying the measuring unit current at the relevant opening balance sheet date. These remeasured deferred tax items are restated for the change in the measuring unit from the opening balance sheet date to the closing balance sheet date of the relevant period. The Group will assess the impact of this IFRIC.

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• IFRIC 9, Reassessment of Embedded Derivatives. IFRIC 9 requires an entity to assess whether a

contract contains an embedded derivative at the date an entity first become a party to the contract and prohibits reassessment unless there is change to the contract that significantly modifies the cash flows. The Group will reassess to determine whether or not embedded derivatives were assessed at the date of transition to PFRS rather than at the date of entering into the contract. This IFRIC requires the Group to revisit and revise accounting for embedded derivatives.

• IFRIC 10, Interim financial Reporting and Impairment. IFRIC 10 addresses an inconsistency

between PAS 34, Interim Financial Reporting and the impairment requirements relating to goodwill in PAS 36, Impairment of Assets and equity instruments classified as available for sale in PAS 39 Financial Instruments: Recognition and Measurement. The Interpretation states that the specific requirements of PAS 36 and PAS 39 take precedence over the general requirements of PAS 34 and, therefore, any impairment loss recognized for these assets in an interim period may not be reversed in subsequent interim periods. The Group will assess impact of this IFRIC.

• IFRIC 11, Group and Treasury Share Transactions. This interpretation requires arrangements

whereby an employee is granted rights to a Group’s equity instruments to be accounted for as an equity-settled scheme by the Group even if: (a) the Group chooses or is required to buy those equity instruments (e.g. treasury shares) from another party, or (b) the shareholders of the Group provide the equity instruments needed. The adoption of this interpretation will not impact the consolidated financial statements.

2008 • IFRIC 12, Service Concession Arrangements. This interpretation outlines an approach to

account for contractual arrangements arising from entities providing public services. It provides that the operator should not account for the infrastructure as property, plant and equipment, but recognize a financial asset and/or an intangible asset. This interpretation will not have an impact on the consolidated financial statements of the Group since the Group is not involved in providing public services.

Effect on the 2006 Statements of Cash Flows There are no material differences between the consolidated statements of cash flows prepared under PFRS and the consolidated statements of cash flows presented under the previous GAAP.

4. Summary of Significant Accounting Policies Basis of Consolidation

The consolidated financial statements include the financial statements of the Parent Company and its wholly and majority-owned subsidiaries as of September 30 of each year presented. The financial statements of the subsidiaries are prepared for the same reporting year as the Parent Company, using the same accounting policies.

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Subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases.

The consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances. All significant intercompany transactions and balances, including intercompany profits and unrealized profits and losses, are eliminated in consolidation.

Acquisitions of subsidiaries are accounted for using the purchase method. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair value at the acquisition date, irrespective of the extent of any minority interest.

Any excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities represents goodwill.

Any excess of the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of business combination, after reassessment, is recognized in the consolidated statements of income on the date of acquisition.

The consolidated financial statements include the financial statements of the Parent Company and the following wholly and majority owned subsidiaries:

Country of Effective Percentage

of Ownership Subsidiaries Incorporation Direct Indirect

CFC Corporation Philippines 100.00 – Universal Robina (Cayman, Ltd.) Cayman Islands 100.00 – URC Philippines, Limited British Virgin Islands 100.00 – Universal Robina Sugar Milling

Corporation (URSUMCO) Philippines 100.00 – Southern Negros Development

Corporation (SONEDCO) Philippines – 94.00 CFC Clubhouse, Incorporated Philippines 100.00 – CFC Clubhouse Property, Inc. Philippines 100.00 – URC International Co. Ltd. British Virgin Islands 77.00 – Hong Kong China Foods Co., Ltd. British Virgin Islands – 77.00 URC Asean Brands Co., Ltd. British Virgin Islands – 77.00 URC Hong Kong Hong Kong – 100.00

(Forward)

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Country of Effective Percentage

of Ownership Subsidiaries Incorporation Direct Indirect

Tianjin Pacific Foods Manufacturing Co., Ltd. China

– 100.00

Shanghai Peggy Foods Co., Ltd. China – 100.00 Xiamen Tongan Pacific Food Co.,

Ltd. China –

100.00 URC Foods (Singapore) Pte. Ltd.

(formerly Pan Pacific Snacks Pte. Ltd.) Singapore

– 100.00

URC (Thailand) Co., Ltd. (formerly Thai Peggy Foods Co. Ltd.) Thailand – 100.00

Panyu Peggy Foods Co., Ltd. China – 90.00 URC Snack Foods (Malaysia) Sdn.

Bhd. (formerly Pacific World Sdn. Bhd.) Malaysia – 91.52

Ricellent Sdn. Bhd. Malaysia – 54.03 PT URC Indonesia Indonesia – 100.00 URC Vietnam Co., Ltd. Vietnam – 100.00 Nissin – URC Philippines 65.00 – URCCC Philippines 100.00 –

Minority interests represent the portion of profit or loss and net assets in subsidiaries which are not wholly owned.

Revenue Recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized:

Sale of Goods

Revenue from sale of goods is recognized when the significant risks and rewards of ownership of the goods have passed to the buyer and the amount of revenue can be measured reliably. Revenue is measured at the fair value of the consideration received or receivable, net of any trade discounts, prompt payment discounts and volume rebates.

Rendering of Services Service fees from tolling activities are recognized as revenue when the related services have been

rendered. Interest

Interest is recognized as it accrues (using the effective interest method, that is, the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument to the net carrying amount of the financial asset).

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Dividends Dividend income is recognized when the shareholder’s right to receive the payment is established.

Rent Rental income is accounted for on a straight-line basis over the lease term.

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 and that are subject to an insignificant risk of changes in value.

Financial Instruments Accounting Policies Effective October 1, 2005

Financial Assets Financial instruments are recognized initially at fair value of the consideration given (in the case of an asset) or received (in the case of a liability). The fair values of the consideration given or received are determined by reference to the transaction price or other market prices. If such market prices are not reliably determinable, the fair value of the consideration is estimated as the sum of all future cash payments or receipts, discounted using the prevailing market rates of interest for similar instruments with similar maturities. The initial measurement of financial instruments, except for those designated at fair value through profit or loss, includes transaction costs.

All regular way purchases and sales of financial assets are recognized on the trade date (i.e. the date that the Group commits to purchase the asset). Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the marketplace.

The subsequent measurement bases for financial instruments depend on its classification. Financial instruments that are classified as held-to-maturity (HTM), loans and receivables, and financial liabilities other than liabilities measured at FVPL are measured at amortized cost using the effective interest method. Investments are classified as HTM when those are nonderivatives with fixed or determinable payments and fixed maturity that the Group has positive intention and ability to hold to maturity. Investments to be held for an undefined period are not included in this classification. Other long-term investments that are intended to be HTM, such as bonds, are subsequently measured at amortized cost. This cost is computed as the amount initially recognized minus principal repayments, plus or minus the cumulative amortization using the effective interest method of any difference between the initially recognized amount and the maturity amount. This calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums and discounts. Amortization of discounts, premiums and transaction costs are taken directly to the consolidated statements of income. For investments carried at amortized cost, gains and losses are recognized in income when the investments are derecognized or impaired, as well as through the amortization process.

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Changes in the fair value of financial assets and liabilities measured at fair value of: (a) all derivatives (except those eligible for hedge accounting); (b) other items that are held for trading; and (c) any item designated as held “at FVPL” at origination, are taken directly to the consolidated statements of income. Changes in the fair value of investments classified as available-for-sale (AFS) securities are recognized in equity, except for foreign exchange fluctuations on available-for-sale debt securities and the related effective interest which are taken directly to the consolidated statements of income. These changes in fair values are recognized in equity until the investment is sold, collected or otherwise disposed of, or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in the consolidated statements of income.

The financial assets of the Group consist of the following categories:

Financial assets at FVPL Financial assets classified as held for trading are included in the category financial assets at FVPL. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Gains or losses on investments held for trading are recognized in the consolidated statements of income.

HTM investments Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as HTM when the Group has the positive intention and ability to hold to maturity. Investments intended to be held for an undefined period are not included in this classification. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortized cost using the effective interest method. Gains and losses are recognized in consolidated statements of income when the loans and receivables are derecognized or impaired, as well as through the amortization process.

The Group’s loans and receivables include trade and other receivables.

A provision for impairment losses on trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Said provision is recognized in the consolidated statements of income. Doubtful accounts are written off when identified.

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AFS investments AFS investments are those non-derivative financial assets that are designated as AFS or are not classified in any of the three preceding categories. AFS investments include financial assets not quoted in an active market and are classified as AFS when purchased and held indefinitely, but which the Group anticipates to sell in response to liquidity requirements or in anticipation of changes in interest rates or other factors. Financial assets may be designated under this category provided such are not held for trading.

AFS investments are carried at fair value. The fair value of investments that are actively traded in organized financial markets is determined by reference to quoted market bid prices at the close of business on the balance sheet date. For investments where there is no active market, the fair value is determined using valuation techniques. Such techniques include using arm’s length market transactions; reference to the current market value of another instrument, which is substantially the same; discounted cash flow analysis and option pricing models.

After initial recognition, changes in the fair value of AFS investments are recognized in equity, except for the foreign exchange fluctuations on AFS debt securities and the related effective interest which are taken directly to the consolidated statements of income. These changes in fair values are recognized in equity until the investment is sold, collected or otherwise disposed of, or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in the consolidated statements of income.

AFS investments including investments in unquoted equity investments where the Group’s ownership interest is less than 20% or where control is likely to be temporary are initially recorded at cost, being the fair value of the investment at the time of acquisition inclusive of direct acquisition charges associated with the investment. In subsequent measurement, the Group carries such investments at cost due to the unpredictable nature of future cash flows and the lack of other suitable methods for arriving at a reliable fair value.

Derecognition Financial instruments are recognized in the consolidated balance sheets when the Group becomes a party to the contractual provisions of the instrument. A financial asset (or where applicable, a part of a group of financial assets) is derecognized when:

• the rights to receive cash flows from the assets have expired;

• the Group retains the right to receive cash flows from the asset, but has assumed an obligation to

pay them in full without material delay to a third-party under a “pass-through” arrangement; or

• the Group has transferred substantially all the risks and rewards of the asset, or has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

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Where the Group has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Group’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

Where continuing involvement takes the form of a written and/or purchased option (including cash-settled option or similar provision) on the transferred asset, the extent of the Group’s continuing involvement is the amount of the transferred asset that the Group may repurchase, except that in the case of a written put option (including a cash-settled option or similar provision) on an asset measured at fair value, the extent of the Group’s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price.

Financial Liabilities All loans and borrowings are initially recognized at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the effective interest method. Gains and losses are recognized in the consolidated statements of income when liabilities are derecognized as well as though amortization process.

Financial liabilities are derecognized when the obligation is extinguished. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the consolidated statements of income.

Derivative Instruments The Group enters into short-term deliverable and nondeliverable currency forward contracts and options to manage its exchange exposure related to short-term foreign currency-denominated monetary assets and liabilities (Note 33).

Derivative financial instruments are recognized and measured in the consolidated balance sheets at fair values. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedge of an identified risk and qualifies for hedge accounting treatment.

Other Derivative Instruments Not Accounted for as Hedges Certain freestanding derivative instruments that provide economic hedges under the Group’s policies either do not qualify for hedge accounting or are not designated as accounting hedges. Changes in the fair values of derivative instruments not designated as hedges are recognized immediately in the consolidated statements of income.

The mark-to-market gains or losses on these contracts as well as the other types of derivative

contracts are considered in the determination of consolidated net income.

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The Group has no financial instruments that are qualified or designated as hedging instruments.

Accounting Policies Prior to October 1, 2005 Financial assets are initially recorded at cost at the time of acquisition, which are generally measured at the purchase price of the assets, or the fair values of the assets given up or the security received in the exchange and other costs directly related to the acquisition. Any premiums or discounts included in the carrying amounts of the instruments are amortized on a straight-line basis over the term of the instruments.

Temporary investments are comprised of long-term debt securities and marketable equity securities.

Investments in marketable securities classified as current are stated at the lower of the aggregate cost or market value, determined at the balance sheet date. The amount by which aggregate cost exceeds market value is accounted for as a valuation allowance and changes in the valuation allowance are included in the consolidated statements of income. Realized gains and losses from the sale of current marketable securities are included in the consolidated statements of income.

The cost of marketable securities used for determining the gain or loss on the sale of such securities is computed using the average method.

Investments in long-term debt securities are carried at amortized cost less any provision for permanent impairment in value.

Investments in shares of stock of companies in which the Group does not exercise significant influence are initially carried at cost, being the fair value of the consideration given and including acquisition charges associated with the investment. Any substantial and presumably permanent decline in the value of investments in shares of stock was set up as an allowance with the corresponding loss taken to the consolidated statements of income.

Derivative financial instruments are recognized and measured in the consolidated balance sheets at fair values. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedge of an identified risk and qualifies for hedge accounting treatment. The objective of hedge accounting is to match the impact of the hedged item and the hedging instrument in the consolidated statements of income. To qualify for hedge accounting, the hedging relationship must comply with strict requirements such as the designation of the derivative of an identified risk exposure, hedge documentation, probability of occurrence of the forecasted transaction in a cash flow hedge, assessment and measurement of hedge effectiveness, and reliability of the measurement bases of the derivative instruments.

Impairment of Financial Assets An assessment is made at each balance sheet date whether there is objective evidence that a specific financial or nonfinancial asset may be impaired. If such evidence exists, any impairment loss is recognized in the consolidated statements of income.

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The Group assesses at each balance sheet date whether a financial or group of financial assets is impaired. The impairment is determined as follows:

Assets carried at amortized cost If there is objective evidence that an impairment loss on financial assets carried at amortized cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the asset’s original effective interest rate. The carrying amount of the asset shall be reduced either directly or through use of an allowance account. The amount of the loss shall be recognized in the consolidated statements of income.

The Group 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 exist 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 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.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in the consolidated statements of income, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date.

Assets carried at cost If there is objective evidence that an impairment loss 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 unquoted equity instrument has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset.

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Inventories Inventories, including goods-in-process, are valued at the lower of cost or net realizable value (NRV). Costs incurred in bringing each product to its present location and conditions are accounted for as follows:

Finished goods, work-in-process, raw materials, containers and packaging materials

- cost is determined using the average method; finished goods and work-in-process include direct materials and labor, and a proportion of manufacturing overhead costs based on actual goods processed and produced

Spare parts and supplies - cost is determined using the average method

Materials-in-transit - cost is determined using the specific identification method

NRV is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

Investments in Associates and Joint Ventures

Accounting Policies Effective October 1, 2005 Investments in associates and joint ventures are accounted for under the equity method of accounting. An associate is an entity in which the Group has significant influence and which is neither a subsidiary nor a joint venture. A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control, and a jointly controlled entity is a joint venture that involves the establishment of a separate entity in which each venturer has an interest.

Investments in associates and joint ventures are carried in the consolidated balance sheets at cost plus post-acquisition changes in the Group’s share in the net assets of the investees, less any impairment in value. The consolidated statements of income reflect the Group’s share in the results of operations of these investees. Unrealized gains arising from intercompany transactions are eliminated to the extent of the Group’s interest thereon. Unrealized losses are eliminated similarly but only to the extent that there is no evidence of impairment of the asset transferred. After application of the equity method, the Group determines whether it is necessary to recognize any additional impairment loss with respect to the Group’s net investment in the associate and joint venture.

Dividends received are treated as a reduction of the carrying value of the investments. Where there has been a change recognized directly in the investees’ equity, the Group recognizes its share of any changes and discloses this, when applicable, in the consolidated statements of changes in equity.

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If the Group’s share of losses of an associate equals or exceeds its interest in the associate, the Group discontinues recognizing its share of further losses. The interest in the carrying amount of the investment in associate includes any long-term interest that, in substance form part of the Group’s net investment in the associate. After the Group’s interest is reduced to zero, additional losses are provided for, and a liability is recognized, only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate. If the associate subsequently reports profits, the Group resumes recognizing its share of those profits only after its share of the profits equals its share of the losses not recognized.

The Group’s investments in associates and joint ventures include goodwill on acquisition, net of any impairment in value. The goodwill is not amortized but reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value of the goodwill may be impaired.

The reporting dates of the investee companies and the Group are identical and the investee companies’ accounting policies conform to those used by the Group for like transactions and events in similar circumstances.

Accounting Policies Prior to October 1, 2005 The goodwill that is included in the carrying amount of the investments in associates and joint ventures are amortized on a straight-line basis.

Investment in shares of stock of companies in which the Group does not exercise significant influence (neither an associate nor a joint venture) are carried at cost less any significant and apparently permanent decline in aggregate carrying values of these investments.

Property, Plant and Equipment Property, plant and equipment, except land, are carried at cost less accumulated depreciation and amortization and accumulated provision for impairment losses, if any. Cost of an item of property, plant and equipment comprises of its purchase price and any cost attributable in bringing the asset to its intended location and working condition. Cost also includes: (a) interest and other financing charges on borrowed funds used to finance the acquisition of property and equipment to the extent incurred during the period of installation and construction; and (b) asset retirement obligation (ARO) specifically for property, plant and equipment installed/constructed on leased properties.

Land is stated at cost less any impairment in value.

Subsequent costs are capitalized as part of property, plant and equipment only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged against current operations as incurred.

The carrying values of property, plant and equipment are reviewed for impairment when events or changes in the circumstances indicate that the carrying values may not be recoverable.

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Effective October 1, 2005, foreign exchange differentials arising from the acquisition of property, plant and equipment are charged against current operations and no longer capitalized. Projects under construction are transferred to the related property and equipment account when the construction or installation and related activities necessary to prepare the property, plant and equipment for their intended use are completed, and the property and equipment are ready for service.

Depreciation and amortization of property, plant and equipment commence once the property, plant and equipment are available for use (i.e. when it is in the location and condition necessary for it to be capable of operating in the manner intended by the Group). Depreciation and amortization are computed using the straight-line method over the estimated useful life (EUL) of the assets regardless of utilization.

Leasehold improvements are amortized over the shorter of their EUL or the corresponding lease terms.

The EUL of property and equipment are reviewed annually based on expected asset utilization as anchored on business plans and strategies that also consider expected future technological developments and market behavior to ensure that the period of depreciation and amortization is consistent with the expected pattern of economic benefits from items of property and equipment.

The EUL of property, plant and equipment of the Group follow:

Years

Land improvements 20 Buildings and improvements 10-30 Machinery and equipment 10 Transportation equipment 5 Furniture, fixture and equipment 5

An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. 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 item) is included in the consolidated statements of income in the year the item is derecognized.

Major spare parts and stand-by equipment items that the Group expects to use over more than one period and can be used only in connection with an item of property, plant and equipment are accounted for as property, plant and equipment. Depreciation and amortization on these major spare parts and stand-by equipment commence once these have become available for use (i.e. when it is in the location and condition necessary for it to be capable of operating in the manner intended by the Group). Depreciation and amortization are computed using the straight-line method over the EUL of the assets regardless of utilization.

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Investment Properties Investment properties are measured initially at cost, including transaction costs, less accumulated depreciation and impairment loss. The carrying amount includes the cost of replacing part of an existing investment property at the time that costs is incurred if the recognition criteria are met; and excludes the costs of day-to-day servicing of an investment property. The depreciation is calculated on a straight-line basis over the estimated useful lives of the assets. The EUL of investment properties range from 10 to 30 years.

Investment properties are derecognized when either they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognized in the consolidated statements of income in the year of retirement or disposal.

Transfers are made to investment property when, and only when, there is a change in use, evidenced by ending of owner-occupation, commencement of an operating lease to another party or ending of construction or development. Transfers are made from investment property when, and only when, there is a change in use, evidenced by commencement of owner-occupation or commencement of development with a view to sale.

For transfers from investment property to owner-occupied property to inventories, the deemed cost of property for subsequent accounting is its fair value at the date of change in use. If the property occupied by the Group as an owner-occupied property becomes an investment property, the Group accounts for such property in accordance with the policy stated under Property, plant and equipment up to the date of change in use. When the Group completes the construction or development of a self-constructed investment property, any difference between the fair value of the property at that date and its previous carrying amount is recognized in the consolidated statements of income in the period of transfer.

Biological Assets

The biological assets of the Group are divided into two major categories with sub-categories as follows:

Swine livestock - Breeders (livestock bearer) - Weanlings (breeders’ offsprings intended to be sold as breeders) - Fatteners / Finishers (breeders’ offsprings unfit to become breeders;

intended for the production of meat) Poultry livestock - Breeders (livestock bearer) - Chicks (breeders’ offsprings intended to be sold as breeders)

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A biological asset shall be measured on initial recognition and at each balance sheet date at its fair

value less estimated point-of-sale costs, except for a biological asset where fair value is not clearly determinable. The Group is unable to measure fair values reliably for its poultry livestock breeders in the absence of: (a) available market determined prices or values; and (b) alternative estimates of fair values are determined to be clearly unreliable; thus, these biological assets are measured at cost less accumulated depreciation and any accumulated impairment losses. However, once the fair values become reliably measurable, the Group will measure these biological assets at their fair values less estimated point-of-sale costs.

Biological Assets at Cost

Cost of an item of biological asset comprises its purchase price and any costs attributable in bringing the biological asset to its location and conditions intended by management.

Depreciation is computed using the straight-line method over the EUL of the biological assets, regardless of utilization. The EUL of biological assets is reviewed annually based on expected utilization as anchored on business plans and strategies that considers market behavior to ensure that the period of depreciation is consistent with the expected pattern of economic benefits from items of biological assets. The EUL of biological assets ranges from 2 to 3 years.

The carrying values of biological assets are reviewed for impairment when events or changes in the

circumstances indicate that the carrying values may not be recoverable. Biological Assets Carried at Fair Values Swine weanlings and fatteners / finishers are measured at their fair values less point-of-sale costs.

The fair values are determined based on current market prices of livestock of similar age, breed and genetic merit. Point-of-sale costs include commissions to brokers and dealers, nonrefundable transfer taxes and duties. Point-of-sale costs exclude transport and other costs necessary to get the biological assets to the market.

A gain or loss on initial recognition of a biological asset at fair value less point-of-sale costs and

from a change in fair value less estimated point-of-sale costs of a biological asset shall be included in the consolidated statements of income in the period in which it arises.

Agricultural Produce Agricultural produce is the harvested product of the Group’s biological asset. A harvest occurs when

agricultural produce is either detached from the bearer biological asset or when the asset’s life processes of the agricultural produce ceases. A gain or loss arising on initial recognition of agricultural produce at fair value less estimated point-of-sale cost shall be included in the consolidated statements of income in the period in which it arises. The agricultural produce in swine livestock is the weanling that transforms into fatteners / finishers, while the agricultural produce in poultry livestock is the hatched chick.

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Pre-milling Costs URSUMCO and its subsidiary, SONEDCO, use the sugar crop year as the basis for revenue and expense recognition in its operations. Pre-milling costs incurred during the year, which are applicable to the next crop year, are deferred and will be charged to production costs when regular milling for the next crop year commences. The crop year begins and ends on July 1 and June 30, respectively.

As discussed in Note 2, the Group changed its accounting policy on pre-milling costs and starting on October 1, 2005, pre-milling costs are reported as expenses in the profit or loss in the year these are incurred.

Goodwill Goodwill represents the excess of the cost of the acquisition over the fair value of identifiable net assets of the investee at the date of acquisition which is not identifiable to specific assets. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill on acquisitions is not amortized but is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.

For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units. Each unit or group of units to which the goodwill is so allocated:

• represents the lowest level within the Group at which the goodwill is monitored for internal

management purposes; and

• is not larger than a segment based on either the Group’s primary or secondary reporting format determined in accordance with PAS 14, Segment Reporting.

Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash generating units) to which the goodwill relates. Where the recoverable amount of the cash-generating unit (or group of cash generating units) is less than the carrying amount, an impairment loss is recognized. Where goodwill forms part of a cash-generating unit (or group of cash generating units) and part of the operation within that unit are disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured on the basis of the relative fair values of the operation disposed of and the portion of the cash-generating unit retained.

If the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities exceeds the costs of the business combination, the acquirer shall recognize immediately in the consolidated statements of income any excess remaining after reassessment.

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Intangible Assets Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is the fair value as at the date of acquisition. Subsequently, intangible assets are measured at cost less accumulated amortization and provisions for impairment losses, if any. The useful lives of intangible assets with finite life are assessed at the individual asset level. Intangible assets with finite life are amortized over their useful life. Periods and method of amortization for intangible assets with finite useful lives are reviewed annually or earlier when an indicator of impairment exists.

Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash-generating unit level. Such intangible assets are not amortized. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is made on a prospective basis.

Software acquisition costs Costs incurred to acquire computer software (not an integral part of its related hardware) and bring it to its intended use are capitalized as intangible assets. Costs directly associated with the development of identifiable computer software that generate expected future benefits to the Group are recognized as intangible assets. These costs are amortized over the estimated useful life of the computer software ranging from 3 to 5 years. All other costs of developing and maintaining computer software programs are recognized as expense when incurred.

A gain or loss arising from derecognition of an intangible asset is measured as the difference between the net disposal proceeds and the carrying amount of the asset and is recognized in the consolidated statements of income when the asset is derecognized.

Impairment of nonfinancial assets

Where an indicator of impairment exists, the Group makes a formal estimate of recoverable amount. An asset’s recoverable amount is calculated as the higher of an asset’s value in use or its net selling price.

An impairment loss is recognized whenever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the higher of an asset’s net selling price and value in use. The net selling price is the amount obtainable from the sale of an asset in an arm’s length transaction while value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. Recoverable amounts are estimated for individual assets or, if it is not possible, for the cash-generating unit to which the asset belongs.

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A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the recoverable amount of an asset, but not to an amount higher than the carrying amount that would have been determined (net of any depreciation and amortization) had no impairment loss been recognized for the asset in prior years. A reversal of an impairment loss is credited to income for the period.

Short-term and Long-term Debt All loans and borrowings are initially recognized at cost, being the fair value of the consideration received less directly attributable debt issuance costs.

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the effective interest method. Amortized cost is calculated by taking into account any issue costs, and any discount or premium on settlement.

Gains and losses are recognized in the consolidated statements of income when the liabilities are derecognized or impaired, as well as through the amortization process.

Debt Issuance Costs

Accounting Policies Effective October 1, 2005 Effective October 1, 2005, debt issuance costs were amortized using the effective interest method and the balance of unamortized debt issuance costs are netted against the related carrying value of the debt instrument in the consolidated balance sheets. When the related instrument is retired, the related unamortized debt issuance costs at the date of retirement are charged against current operations.

Accounting Policies Prior to October 1, 2005 Issuance, underwriting and other related expenses incurred in connection with the issuance of debt instruments are deferred and amortized over the terms of the instruments using the straight-line method.

Cumulative Redeemable Preferred Shares Cumulative redeemable preferred shares that exhibit characteristics of a liability are recognized as a liability in the consolidated balance sheets. The corresponding dividends on those shares are charged as interest expense in the consolidated statements of income. Upon issuance, cumulative redeemable preferred shares are carried as a noncurrent liability on the amortized cost basis until extinguished on redemption. There are no issuances of preferred shares (Note 20).

Treasury Shares Treasury shares are recorded at cost and are presented as a deduction from equity. When the shares are retired, the capital stock account is reduced by its par value. The excess of cost over par value upon retirement is debited to the following accounts in the order given: (a) additional paid-in capital to the extent of the specific or average additional paid-in capital when the shares were issued, and (b) retained earnings.

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Provisions Provisions are recognized when the Group 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. Where the Group expects a provision to be reimbursed, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. 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 assessments 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. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate.

Pension Cost Pension cost is actuarially determined using the projected unit credit method. This method reflects services rendered by employees up to the date of valuation and incorporates assumptions concerning employees’ projected salaries. Actuarial valuations are conducted with sufficient regularity, with option to accelerate when significant changes to underlying assumptions occur. Pension cost includes current service cost, interest cost, expected return on any plan assets, actuarial gains and losses, past service cost and the effect of any curtailment or settlement.

The net pension asset recognized by the Group in respect of the defined benefit pension plan is the lower of: (a) the fair value of the plan assets less the present value of the defined benefit obligation at the balance sheet date, together with adjustments for unrecognized actuarial gains or losses and past service costs that shall be recognized in later periods; or (b) the total of any 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 future contributions to the plan.

A portion of actuarial gains and losses is recognized as income or expense if the cumulative

unrecognized actuarial gains and losses at the end of the previous reporting period exceeded the greater of 10% of the present value of defined benefit obligation or 10% of the fair value of plan assets. These gains and losses are recognized over the expected average remaining working lives of the employees participating in the plan.

Income Taxes 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 substantially enacted at the balance sheet date. Deferred income tax is provided using the balance sheet liability method on temporary differences, with certain exceptions, at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

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Deferred income tax liabilities are recognized for all taxable temporary differences, with certain exceptions. Deferred income tax assets are recognized for all deductible temporary differences, carry forward benefit of unused tax credits from excess of minimum corporate income tax (MCIT) over the regular corporate income tax and unused net operating loss carryover (NOLCO), to the extent that it is probable that taxable income will be available against which the deductible temporary differences and carry forward of unused tax credits and NOLCO can be utilized. Deferred income tax liabilities are not provided on nontaxable temporary differences associated with investments in domestic subsidiaries, associates and interests in joint ventures. With respect to investments in foreign subsidiaries, associates and interests in joint ventures, deferred income tax liabilities are recognized except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable income will be available to allow the deferred income tax assets to be utilized. Unrecognized deferred income 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 asset to be recovered.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantially enacted at the balance sheet date.

Income tax relating to items recognized directly in equity is recognized in equity and not in the consolidated statements of income.

Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Leases Finance leases, which transfer substantially all the risks and benefits incidental to ownership of the leased item, are capitalized at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income.

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Capitalized leased assets are depreciated over the shorter of the estimated useful lives of the assets and the respective lease terms.

Leases where the Group retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognized as an expense in the consolidated statements of income on a straight-line basis over the lease term. Indirect costs incurred in negotiating an operating lease are added to the carrying value amount of the leased asset and recognized over the lease term on the same bases as the lease income. Minimum lease payments are recognized on a straight-line basis while the variable rent is recognized as an expense based on the terms of the lease contract.

Borrowing Costs

Borrowing costs are generally expensed as incurred. Interest and other finance costs incurred during the construction period on borrowings used to finance the construction of an asset are capitalized to the appropriate asset accounts. Capitalization of borrowing costs commences when the activities to prepare the asset are in progress and expenditures and borrowing costs are being incurred. The capitalization of these borrowing costs ceases when substantially all the activities necessary to prepare the asset for sale or its intended use are complete. If the carrying amount of the asset exceeds its recoverable amount, an impairment loss is recorded. Capitalized borrowing cost is based on the applicable weighted average borrowing rate.

Interest expense on loans is recognized using the effective interest method over the term of the loans.

Foreign Currency Translation/Transactions The functional and presentation currency of the Parent Company and its Philippine subsidiaries (except certain consolidated foreign subsidiaries), is the Philippine Peso. Each entity in the Group determines its own functional currency and items included in the consolidated financial statements of each entity are measured using that functional currency. Transactions in foreign currencies are initially recorded in the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate prevailing at the balance sheet date. All differences are taken to the consolidated statements of income with the exception of differences on foreign currency borrowings that provide a hedge against a net investment in a foreign entity. These are taken directly to equity until the disposal of the net investment, at which time they are recognized in the consolidated statements of income. Tax charges and credits attributable to exchange differences on those borrowings are also dealt with in equity. Nonmonetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of initial transaction. Nonmonetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

Goodwill arising from acquisitions of foreign operations and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisitions are now treated as assets and liabilities of the foreign operation and translated at the exchange rate at date of acquisition.

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The functional currency of the foreign subsidiaries follows:

Country of Functional

Subsidiaries Incorporation Currency Universal Robina (Cayman), Ltd. Cayman Islands US DollarsURC Philippines, Limited British Virgin Islands US DollarsURC International Co. Ltd. British Virgin Islands US DollarsHong Kong China Foods Co. Ltd. British Virgin Islands US DollarsURC Asean Brands Co. Ltd. British Virgin Islands US DollarsURC Hong Kong Company Limited (formerly Hong

Kong Peggy Snacks Foods Co., Limited) Hong Kong HK Dollars

Tianjin Pacific Foods Manufacturing Co., Ltd. China Yuan Shanghai Peggy Foods Co., Ltd. China Yuan Xiamen Tongan Pacific Food Co., Ltd. China Yuan URC Foods (Singapore) Pte. Ltd. (formerly Pan Pacific

Snacks Pte. Ltd.) Singapore Singapore Dollars USURC (Thailand) Co., Ltd. (formerly Thai Peggy

Foods Co. Ltd.) Thailand Thai Baht Panyu Peggy Foods Co., Ltd. China Yuan URC Snack Foods (Malaysia) Sdn. Bhd. (formerly

Pacific World Sdn. Bhd.) Malaysia Malaysian Ringgit Ricellent Sdn. Bhd. Malaysia Malaysian Ringgit

PT URC Indonesia Indonesia Indonesia Rupiah URC Vietnam Co., Ltd. Vietnam Vietnam Dong

As at the reporting date, the assets and liabilities of these foreign subsidiaries are translated into the presentation currency of the Group at the exchange rate prevailing at the balance sheet date and their statements of income are translated at the weighted average exchange rates for the period. The exchange differences arising on the translation are taken directly to a separate component of equity. On disposal of a foreign entity, the deferred cumulative amount recognized in equity relating to that particular foreign operation shall be recognized in the consolidated statements of income.

Earnings Per Share Basic EPS is computed by dividing net income applicable to common stock of the Parent Company (net income less dividends on preferred stock) by the weighted average number of common shares issued and outstanding during the year, adjusted for any subsequent stock dividends declared. Diluted EPS is computed by dividing net income applicable to common stock of the Parent Company plus interest and amortization expense (net of income tax) on securities assumed to be converted by the weighted average number of common shares issued and outstanding during the year after giving effect to assumed conversion of potential common shares and the retroactive effect of stock dividends declared.

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Segment Reporting The primary segment reporting format is determined to be business segments as the Group’s risks and rates of return are affected predominantly by differences in the products and services produced. Secondary information is reported geographically. The operating businesses are organized and managed separately according to the nature of the products and services provided, which each segment representing a strategic business unit that offers different products and serves different markets.

The Group derives its revenues from the following reportable segments:

• Branded consumer food products - manufactures and distributes a diverse mix of snack foods,

instant coffee products, instant noodles, chocolates, soft and hard candies, biscuits, tomato-based products and ready-to-drink beverages. This segment also includes the packaging division which manufactures bi-axially polypropylene films primarily used in packaging. In 2006, the Group operates PET bottle manufacturing plant to supply the packaging requirements of products in PET bottle format.

• Agro-industrial products - engages in hog and poultry farming, manufactures and distributes

animal feeds and soya products and manufactures and distributes animal health products.

• Commodity food products - engages in sugar milling and refining, and flour milling and pasta manufacturing.

The Group generally accounts for inter-segment sales and transfers as if the sales or transfers were to third parties at current market prices. Inter-segment sales and transfers were eliminated in the consolidated statements of income.

The Group’s geographical segments are based on the location of the Group’s assets. Sales to external customers disclosed in geographical segments are based on the geographical location of its customers.

Business Segments The financial information about the operations of these business segments is summarized as follows

(in thousands): 2006

Branded Consumer

Food Products

Agro- Industrial Products

Commodity Food

Products Total Net sales and services (Note 27) P=26,596,744 P=5,082,759 P=3,504,312 P=35,183,815 Segment results (income from operations) P=982,096 P=656,639 P=1,019,067 P=2,657,802

(Forward)

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Branded Consumer

Food Products


Commodity Food

Products Total Segment assets P=25,027,816 P=3,351,385 P=5,273,461 P=33,652,662 Investments and advances – – – 1,958,481 Offshore institutions and others – – – 24,078,802 P=25,027,816 P=3,351,385 P=5,273,461 P=59,689,945 Segment liabilities P=5,718,080 P=501,244 P=1,129,802 P=7,349,126 Offshore institutions and others – – – 21,113,804 P=5,718,080 P=501,244 P=1,129,802 P=28,462,930 Other segment information: Impairment losses on goodwill and property, plant and equipment items P=240,688 – – P=240,688 Capital expenditure P=5,830,795

2005

Branded Consumer

Food Products


Commodity Food

Products Total Net sales and services (Note 27) P=23,783,623 P=4,214,865 P=3,200,788 P=31,199,276 Segment results (income from operations) P=963,923 P=518,901 P=954,701 P=2,437,525 Segment assets P=21,559,405 P=3,325,589 P=4,611,224 P=29,496,218 Investments and advances – – – 1,831,926 Offshore institutions and others – – – 23,556,117 P=21,559,405 P=3,325,589 P=4,611,224 P=54,884,261 Segment liabilities P=5,304,898 P=797,110 P=1,525,615 P=7,627,623 Offshore institutions and others – – – 21,996,434 P=5,304,898 P=797,110 P=1,525,615 P=29,624,057 Other segment information: Capital expenditure P=3,646,648

2004

Branded Consumer

Food Products


Commodity Food

Products Total Net sales and services (Note 27) P=20,548,955 P=3,775,951 P=3,032,972 P=27,357,878 Segment results (income from operations) P=944,240 P=462,314 P=695,223 P=2,101,778 Segment assets P=19,368,173 P=2,545,690 P=4,426,743 P=26,340,606 Investments and advances – – – 1,910,462 Offshore institutions and others – – – 14,997,257 P=19,368,173 P=2,545,690 P=4,426,743 P=43,248,325 Segment liabilities P=4,184,969 P=666,514 P=1,671,505 P=6,522,988 Offshore institutions and others – – – 13,404,927 P=4,184,969 P=666,514 P=1,671,505 P=19,927,915 Other segment information: Capital expenditure P=2,279,021

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Geographical segments The financial information about the operations of these geographical segments is summarized as

follows (in thousands): 2006

Domestic Foreign Total Net sales and services P=27,378,125 P=7,805,690 P=35,183,815 Segment results (income from operations) P=3,209,201 (P=551,399) P=2,657,802 Segment assets P=23,705,718 P=9,946,944 P=33,652,662 Investments and advances – – 1,958,481 Offshore institutions and others – – 24,078,802 P=23,705,718 P=9,946,944 P=59,689,945 Segment liabilities P=985,048 P=6,364,078 P=7,349,126 Offshore institutions and others – – 21,113,804 P=985,048 P=6,364,078 P=28,462,930 Other segment information: Impairment losses on goodwill and property, plant and equipment items P=240,688 P=240,688 Capital expenditure P=5,830,795

2005

Domestic Foreign Total Net sales and services P=24,208,482 P=6,990,794 P=31,199,276 Segment results (income from operations) P=2,786,820 (P=349,295) P=2,437,525 Segment assets P=18,783,296 P=10,712,922 P=29,496,218 Investments and advances – – 1,831,926 Offshore institutions and others – – 23,556,117 P=18,783,296 P=10,712,922 P=54,884,261 Segment liabilities P=1,176,623 P=6,451,000 P=7,627,623 Offshore institutions and others – – 21,996,434 P=1,176,623 P=6,451,000 P=29,624,057 Other segment information: Capital expenditure P=3,646,648

2004

Domestic Foreign Total Net sales and services P=21,270,022 P=6,087,856 P=27,357,878 Segment results (income from operations) P=2,187,861 (P=86,083) P=2,101,778 Segment assets P=18,214,805 P=8,125,801 P=26,340,606 Investments and advances – – 1,910,462 Offshore institutions and others – – 14,997,257 P=18,214,805 P=8,125,801 P=43,248,325 Segment liabilities P=4,519,347 P=2,003,641 P=6,522,988 Offshore institutions and others – – 13,404,927 P=4,519,347 P=2,003,641 P=19,927,915 Other segment information: Capital expenditure P=2,279,021

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The foreign segment includes operations located in Indonesia, Malaysia, Thailand, Singapore, Vietnam and China.

Contingencies

Contingent liabilities are not recognized in the consolidated financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognized in the consolidated financial statements but disclosed when an inflow of economic benefits is probable.

Subsequent Events Post-year-end events that provide additional information about the Group’s position at the balance sheet date (adjusting events) are reflected in the consolidated financial statements. Post-year-end events that are not adjusting events are disclosed in the notes to the consolidated financial statements, when material.

5. Significant Accounting Estimates and Judgments

PAS 1, which was adopted by the Group effective October 1, 2005, requires disclosures about key sources of estimation uncertainty and judgments that management has made in the process of applying accounting policies. The following presents a summary of these significant estimates and judgments:

Judgments In the process of applying the Group’s 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 consolidated financial statements:

Revenue recognition

The Group’s revenue recognition policies require use of estimates and assumptions that may affect the reported amounts of revenue and receivables.

Contingencies The Group is currently involved in various legal proceedings. The estimate of the probable costs for the resolution of these claims has been developed in consultation with outside counsel handling the defense in these matters and is based upon an analysis of potential results. The Group currently does not believe these proceedings will have a material effect on the Group’s financial position. It is possible, however, that future results of operations could be materially affected by changes in the estimates or in the effectiveness of the strategies relating to these proceedings (Note 32).

Estimates The key assumptions concerning the future and other sources of estimation uncertainty at the 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.

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Estimated allowance for impairment losses on receivables The Group maintains allowances for impairment losses on receivables at a level considered adequate to provide for potential uncollectible receivables. The level of this allowance is evaluated by the management on the basis of factors that affect the collectibility of the accounts. These factors include, but are not limited to, the length of relationship with the customer, the customer’s payment behavior and known market factors. The Group reviews the age and status of receivables, and identifies accounts that are to be provided with allowances on a continuous basis. The Group provides full allowance for receivables that it deems uncollectible.

The amount and timing of recorded expenses for any period would differ if the Group made different judgments or utilized different estimates. An increase in the allowance for impairment losses on receivables would increase recorded operating expenses and decrease current assets.

As of September 30, 2006 and 2005, total receivables, net of allowance for impairment losses, amounted to P=4,641.1 million and P=3,849.4 million, respectively (Note 8).

EUL of property, plant and equipment and investment properties

The Group estimated the useful lives of its property, plant and equipment and investment properties based on the period over which the assets are expected to be available for use. The estimated useful lives of property, plant and equipment and investment properties are reviewed at least annually and are updated if expectations differ from previous estimates due to physical wear and tear and technical or commercial obsolescence on the use of these assets. It is possible that future results of operations could be materially affected by changes in these estimates brought about by changes in factors mentioned above. A reduction in the estimated useful lives of property, plant and equipment and investment properties would increase depreciation expense and decrease noncurrent assets.

As of September 30, 2006 and 2005, property plant and equipment amounted to P=20,563.9 million

and P=17,124.7 million, respectively (Note 13). Fair values of biological assets The fair values are determined based on current market prices of livestock of similar age, breed and

genetic merit. Point-of-sale costs include commissions to brokers and dealers, nonrefundable transfer taxes and duties. Point-of-sale costs exclude transport and other costs necessary to get the biological assets to the market. The fair values are reviewed and updated if expectations differ from previous estimates due to changes brought by both physical change and price changes in the market. It is possible that future results of operations could be materially affected by changes in these estimates brought about by the changes in factors mentioned.

As of September 30, 2006 and 2005, biological assets amounted to P=817.0 million and

P=760.6 million, respectively (Note 14).

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Impairment of nonfinancial assets The Group assesses the impairment of assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The factors that the Group considers important which could trigger an impairment review include the following:

• significant underperformance relative to expected historical or projected future operating results; • significant changes in the manner of use of the acquired assets or the strategy for overall

business; and • significant negative industry or economic trends.

In determining the present value of estimated future cash flows expected to be generated from the continued use of the assets, the Group is required to make estimates and assumptions that can materially affect the consolidated financial statements.

As of September 30, 2006 and 2005, the balances of the Group’s nonfinancial assets, net of accumulated depreciation and amortization and accumulated provisions for impairment losses follow (Notes 11, 12 and 13):

2006 2005

(As Restated) Property, plant and equipment - net P=20,563,902,523 P=17,124,655,357 Investment property - net 86,200,074 89,798,319 Investments and advances 1,958,480,986 1,831,925,876

Deferred income tax The Group reviews the carrying amounts of deferred income taxes at each balance sheet date and reduces deferred income tax assets to the extent that it is no longer probable that sufficient taxable income will be available to allow all or part of the deferred income tax assets to be utilized. However, there is no assurance that the Group will generate sufficient taxable income to allow all or part of deferred income tax assets to be utilized.

Net deferred income tax liabilities amounted to P=295.0 million and P=169.0 million as of

September 30, 2006 and 2005, respectively (Note 30).

Financial assets and liabilities The Group carries certain financial assets and liabilities at fair value, which requires extensive use of accounting estimates and judgment. While significant components of fair value measurement were determined using verifiable objective evidence (i.e., foreign exchange rates, interest rates, volatility rates), the amount of changes in fair value would differ if the Group utilized different valuation methodologies and assumptions. Any changes in fair value of these financial assets and liabilities would affect profit and loss and equity.

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The fair value of financial assets and liabilities as of September 30, 2006 and 2005 amounted to P=28,511 million and P=27,883 million, and P=27,430 million and P=28,852 million, respectively (Note 33).

Pension and other retirement benefits The determination of the obligation and cost of retirement and other employee benefits is dependent on the selection of certain assumptions used in calculating such amounts. Those assumptions include, among others, discount rates, expected returns on plan assets and salary increase rates and price for the retirement of pension (Note 26). Actual results that differ from the Group’s assumptions are accumulated and amortized over future periods and therefore, generally affect the recognized expense and recorded obligation in such future periods.

While the Group believes that the assumptions are reasonable and appropriate, significant differences between actual experiences and assumptions may materially affect the cost of employee benefits and related obligations.

The Group also estimates other employee benefits obligation and expense, including the cost of paid leaves based on historical leave availments of employees, subject to the Group’s policy. These estimates may vary depending on the future changes in salaries and actual experiences during the year.

As of September 30, 2006 and 2005, the balances of the Group’s net pension asset aunrecognized actuarial gain or loss follow:

2006 2005

(As Restated) Net pension asset P=236,346,400 P=170,110,800 Unrecognized actuarial gain 18,565,205 68,316,196

6. Cash and Cash Equivalents This account consists of:

2006 2005 Cash on hand P=116,309,197 P=62,223,777 Cash in banks 1,047,715,315 443,195,958 Short-term investments 4,815,850,883 424,883,609

P=5,979,875,395 P=930,303,344 Cash in banks earns interest at the respective bank deposit rates. Cash equivalents are made for

varying periods of up to three months and earn interest at the respective short-term deposit rates. Due to the short-term nature of such transactions, the carrying values of the short-term investments approximate the fair value of the cash equivalents.

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7. Financial Assets at FVPL

As of September 30, 2006, this account consists of:

Private bonds P=10,429,537,504 Government securities 6,307,880,191 Equity securities 1,152,228,593

P=17,889,646,288

The net mark-to-market gain of financial assets at FVPL amounted to P=923,670,697 in 2006.

The carrying values as of September 30, 2006 have been determined as follows:

At October 1, 2005 (As restated) P=28,975,226,438 Additions 8,079,186,678 Disposals (20,088,437,525) Fair value gains 923,670,697 At September 30, 2006 P=17,889,646,288

As of September 30, 2005, these investments were classified as temporary investments and marketable securities. Details are as follows:

Private bonds P=10,071,944,984 Government securities 11,682,031,578 Equity securities 896,641,788

P=22,650,618,350 8. Trade and Other Receivables

This account consists of:

2006

2005 (As restated)

Trade P=3,607,949,891 P=2,801,338,039 Interest 466,237,843 619,807,782 Advances to supplier 198,747,463 341,200,173 Others 728,301,310 544,124,961

5,001,236,507 4,306,470,955 Less allowance for doubtful accounts 360,105,546 457,047,781

P=4,641,130,961 P=3,849,423,174

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Trade receivables are non interest-bearing and are generally on 30-90 days’ term. The interest

receivable pertains mainly to interest income earned on financial assets. Total receivables from related parties as of September 30, 2006 and 2005 amounted to

P=26.4 million and P=34.5 million, respectively. These are included in the trade receivables account. The other receivables account consists of the following:

2006 2005 Advances to officers, employees and suppliers P=201,649,638 P=122,255,508 Claims receivable 25,683,038 17,594,351 Other receivables 500,968,634 404,275,102

728,301,310 544,124,961 Less allowance for doubtful accounts 100,274,109 131,428,322 P=628,027,201 P=412,696,639

The rollforward analysis of the allowance for doubtful accounts follow:

2006 2005

(As restated) Balance at beginning of year P=457,047,781 P=298,980,889 Additional provision for doubtful accounts during

the year 43,290,658 223,518,513 Amounts written off (140,232,893) (65,451,621)Balance at end of year P=360,105,546 P=457,047,781

9. Inventories


2006 2005

(As restated) Finished goods P=1,192,363,771 P=1,237,537,219 Goods in process 154,977,829 94,166,963 Raw materials 1,791,184,352 2,006,916,066 Containers and packaging materials 915,193,405 775,114,133 Spare parts and supplies 710,790,467 509,426,409 Less: allowance for inventory write-down (101,388,287) (44,336,788) 4,663,121,537 4,578,824,002 Materials-in-transit 728,468,830 1,128,971,186

P=5,391,590,367 P=5,707,795,188

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The write-down recognized as expense amounted to P=57.0 million, P=23.4 million and P=53.0 million in 2006, 2005 and 2004, respectively. As discussed in Note 2, the Group considers any adjustment necessary for obsolescence in

determining NRV. Under the terms of the agreements covering liabilities under trust receipts totaling P=661.1 million and

P=1,230.0 million as of September 30, 2006 and 2005, respectively, certain inventories have been released to the Group in trust for the banks. The Parent Company is accountable to these banks for the trusteed merchandise or their sales proceeds.

10. Other Current Assets


2006 2005

(As restated) Prepaid insurance and other expenses P=114,196,426 P=130,495,071 Others 8,399,618 11,045,860

P=122,596,044 P=141,540,931 As discussed in Note 3, starting on October 1, 2005, the Group changed its accounting for pre-

milling costs that were incurred during post milling season. These pre-milling costs are now included in profit or loss. These costs were previously deferred and charged to production costs only in the next applicable sugar crop year which coincides with the milling season.

Derivative assets amounting to P=3.20 million were included under other assets. This consists of P=0.14 million currency forwards and P=3.06 million currency options. 11. Investments and Advances This account consists of:

2006 2005

(As restated) Acquisition cost P=1,197,593,846 P=1,197,593,846 Accumulated equity in net earnings: Balance at beginning of year 612,282,125 482,278,659 Equity in net earnings for the year 319,996,500 244,623,123 Dividends received (171,391,485) (114,619,657) Balance at end of year 760,887,140 612,282,125 Advances – 22,049,905

P=1,958,480,986 P=1,831,925,876

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The Parent Company has equity interest in Hunt-Universal Robina Corporation (HURC), a joint venture. The joint venture entity manufactures and distributes food products under the Hunt’s brand name, which is under exclusive license to HURC in the Philippines.

URC also has an interest in Robinsons Land Corporation (RLC), where it exercises significant influence. In 2004, URC received, by way of assignment, shares of stock of RLC in full settlement for the JGSHI notes that matured amounting to P=564.3 million. This was accounted for at carrying amounts since the transaction was between related parties namely, JGSHI, the transferor and ultimate Parent Company, and URC, the transferee and subsidiary.

Subsequent Event In October 2006, the Group disposed the RLC shares it held, including the shares amounting to P=564.3 million it received from JGSHI by way of assignment, for a total consideration of about P=4.9 billion where a gain of about P=3.0 billion was recognized.

The percentage of ownership over the associate and joint venture follows:

Country of Investee Companies Incorporation RLC Philippines 19% HURC Philippines 50%

Summarized financial information of investee companies that are accounted for under the equity method follows:

HURC RLC

2006P=000

2005P=000

2006 P=000

2005P=000

Current assets 245,786 213,747 3,689,732 2,726,792Noncurrent assets 2,702 3,463 29,069,664 22,994,986Current liabilities (176,214) (144,425) (12,728,197) (7,562,147)Noncurrent liabilities – – (5,405,441) (4,523,855)Revenue 558,417 483,788 6,643,111 5,119,258Costs and expenses (521,587) (438,351) (4,355,652) 3,760,507Net income 36,830 31,579 1,724,996 1,231,895

The advances in 2005 include investments in allied undertakings outside the Philippines.

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12. Investment Properties This account consists of:

2006 2005 Cost P=107,947,364 P=107,947,364

Accumulated depreciation: Balance at beginning of the year 18,149,045 14,550,800 Depreciation for the year 3,598,245 3,598,245 Balance at end of the year 21,747,290 18,149,045

Net Book Value P=86,200,074 P=89,798,319 Total rental income earned from investment properties amounted to P=50.0 million, P=53.3 million and

P=51.0 million for the years ended September 30, 2006, 2005 and 2004, respectively. The rental income is shown as part of the “Other income (charges)” account in the consolidated statements of income.

The fair value of investment properties as of September 30, 2006 amounted to P=240.0 million. 13. Property, Plant and Equipment

The rollforward analysis of this account follows: September 30, 2006

Land

(Note 17)

Land

Improvements

Buildings and

Improvements

Machinery and

Equipment

Transportation

Equipment

Furniture,

Fixture and

Equipment

Construction

in Progress

Equipment

in Transit Total

Cost

At October 1, 2005 P=875,814,973 P=1,247,270,922 P=5,404,710,282 P=21,323,566,820 P=1,532,088,249 P=1,093,223,914 P=564,652,478 P=574,592,107 P=32,615,919,745

Additions 82,919,739 321,786,331 912,799,970 2,135,914,709 153,795,249 311,338,569 480,889,910 1,431,350,739 5,830,795,216

Retirements/disposal (252,073,629) (116,456,870) (27,001,112) (99,319,774) (16,838,048) – – (511,689,433)

Reclassifications and others 63,132 164,811,932 1,123,001,083 75,184,454 49,231,020 (454,026,060) (302,564,673) 655,700,888

At September 30, 2006 958,734,712 1,317,046,756 6,365,865,314 24,555,481,500 1,661,748,178 1,436,955,455 591,516,328 1,703,378,173 38,590,726,416 (Forward)

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Land

(Note 17)

Land

Improvements

Buildings and

Improvements

Machinery and

Equipment

Transportation

Equipment

Furniture,

Fixture and

Equipment

Construction

in Progress

Equipment

in Transit Total

Accumulated Depreciation,

Amortization and

Impairment Loss

At October 1, 2005 – 434,792,801 2,203,534,785 11,012,754,417 1,132,179,340 708,003,045 – – 15,491,264,388

Depreciation, amortization

and impairment loss (Note 21) 215,529,734 273,250,625 1,543,260,456 127,398,568 126,081,826 – – 2,285,521,209

Retirements/disposal – (5,793,493) (128,888,350) (95,580,181) (4,141,943) – – (234,403,967)

Reclassifications and others 36,010,258 335,359,215 76,504,829 24,139,269 12,428,692 – – 484,442,263

At September 30, 2006 686,332,793 2,806,351,132 12,503,631,352 1,188,136,996 842,371,620 – – 18,026,823,893

Net book value as of

September 30, 2006 P=958,734,712 P=630,713,963 P=3,559,514,182 P=12,051,850,148 P=473,611,182 P=594,583,835 P=591,516,328 P=1,703,378,173 P=20,563,902,523

September 30, 2005

Land

(Note 17)

Land

Improvements

Buildings and

Improvements

Machinery and

Equipment

Transportation

Equipment

Furniture,

Fixture and

Equipment

Construction

in Progress

Equipment

in Transit Total

Cost

At October 1, 2004 P=860,053,707 P=842,016,886 P=4,920,697,414 P=19,344,981,698 P=1,385,017,013 P=987,544,038 P=525,195,846 P=231,562,252 P=29,097,068,854

Additions 15,761,266 405,254,036 487,254,657 1,948,609,948 171,948,826 105,820,156 48,720,141 463,279,379 3,646,648,409

Retirements/disposal – – – (292,041,883) (25,036,750) (71,818) – – (317,150,451)

Reclassifications and others – – (3,241,789) 322,017,057 159,160 (68,462) (9,263,509) (120,249,524) 189,352,933

At September 30, 2005 875,814,973 1,247,270,922 5,404,710,282 21,323,566,820 1,532,088,249 1,093,223,914 564,652,478 574,592,107 32,615,919,745

Accumulated Depreciation, Amortization and Impairment Loss

At October 1, 2004 – 258,743,464 1,972,940,444 9,751,169,957 1,001,131,740 655,456,052 – – 13,639,441,657

Depreciation, amortization

and impairment loss

(Note 21) – 176,049,337 230,041,987 1,274,335,582 107,079,463 52,490,736 – – 1,839,997,105

Retirements/disposal – – – (151,139,684) (24,113,852) (56,257) – – (175,309,793)

Reclassifications and others – – 552,354 138,388,562 48,081,989 112,514 – – 187,135,419

At September 30, 2005 – 434,792,801 2,203,534,785 11,012,754,417 1,132,179,340 708,003,045 – – 15,491,264,388

Net book value as of September 30, 2005 P=875,814,973 P=812,478,121 P=3,201,175,497 P=10,310,812,403 P=399,908,909 P=385,220,869 P=564,652,478 P=574,592,107 P=17,124,655,357

In 2004, impairment loss amounting to P=150.1 million represent the write-down in the net book value of idle machinery and equipment items to nil amounts in the branded segment. The impairment loss was determined using the net selling price as the net realizable value.

Depreciation and amortization charged to operations amounted to P=2,289.1 million in 2006,

P=1,843.6 million in 2005, P=2,028.7 million in 2004.

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As discussed in Note 3, PAS 21 provides restrictive conditions for the capitalization of foreign

exchange losses. The net cumulative capitalized foreign exchange losses amounted to P=187.1 million, net of accumulated depreciation of P=100.9 million as of September 30, 2006 and 2005. Upon the adoption of PAS 21 on October 1, 2005, the Group adjusted previously recorded undepreciated capitalized foreign exchange losses against beginning retained earnings and prior years’ consolidated financial statements have been restated.

There are no capitalized borrowing costs in 2006, 2005 and 2004, as funds used for the construction

of qualifying assets are sourced from internally generated funds.

The total costs of fully depreciated property, plant and equipment that are still in use amounted to P=6,411.0 million as of September 30, 2006.

Property, plant and equipment with an aggregate net book values of P=97.3 million has been pledged

as security for long-term debts.

The Group has contractual commitments for the acquisitions of machinery and equipment with a total contract value of P=1,315.6 million as of September 30, 2006. These acquisitions are intended for the expansion of the production capacities for the beverage and sugar businesses of the Group.

14. Biological Assets This account consists of: September 30, 2006 Swine

(At fair value) Poultry

(At cost)

Mature Immature Mature At October 1, 2005 P=504,844,065 P=224,602,896 P=88,759,302 P=818,206,263 Additions 1,659,396,764 66,583,548 125,517,604 1,851,497,916 Disposal (1,742,678,885) (192,062,936) (117,051,610) (2,051,793,431) Gain arising from changes in fair value less estimated point-of-sale costs

133,853,626

110,855,562

–

244,709,188

At September 30, 2006 555,415,570 209,979,070 97,225,296 862,619,936

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Swine


(At cost)

Mature Immature Mature Accumulated Depreciation At October 1, 2005 – – (57,563,853) (57,563,853) Additions – – (73,762,770) (73,762,770) Disposal – – 85,710,140 85,710,140 Net P=555,415,570 P=209,979,070 P=51,608,813 P=817,003,453 September 30, 2005 Swine


(At cost)

Mature Immature Mature At October 1, 2004 P=398,932,774 P=107,307,813 P=81,844,496 P=588,085,083 Additions 1,308,648,397 64,793,359 133,786,513 1,507,228,269 Disposal (1,335,421,402) (155,737,359) (126,871,707) (1,618,030,468) Gain arising from changes in fair value less estimated point-of-sale costs

132,684,296

208,239083

–

340,923,379

At September 30, 2005 504,844,065 224,602,896 88,759,302 818,206,263 Accumulated Depreciation At October 1, 2004 – – (37,607,850) (37,607,850) Additions – – (96,912,312) (96,912,312) Disposal – – 76,956,309 76,956,309 Net P=504,844,065 P=224,602,896 P=31,195,449 P=760,642,410 The Group has about 190,385, 172,331 and 158,710 heads of swine as of September 30, 2006, 2005

and 2004, respectively, and about 425,539, 349,409, and 33,052 heads of poultry as of September 30, 2006, 2005 and 2004, respectively.

15. Other Noncurrent Assets This account consists of:

2006 2005 Goodwill - net P=844,548,190 P=1,085,237,005 Trademark 190,223,400 – Miscellaneous deposits 65,184,054 60,988,528 Others 426,235,112 124,839,622 P=1,526,190,756 P=1,271,065,155

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In March 2000, URCICL formed two wholly owned subsidiaries namely Hong Kong China Foods

Co. Ltd. and URC Asean Brands Co. Ltd. These companies were incorporated in British Virgin Islands. These two wholly-owned subsidiaries acquired majority ownership of certain companies in the Asian region for approximately P=2.8 billion. The excess of the acquisition cost over the fair values of the net assets acquired resulted in goodwill. The goodwill arising from these acquisitions has been translated at the applicable year-end exchange rate. The acquisition of SONEDCO in 1988 also resulted in goodwill. As discussed in Note 2, the Group has elected not to restate any business combinations that occurred before the date of transition to PFRS. Instead, the carrying amount of goodwill at transition date will be tested at least annually for impairment.

The rollforward analysis of the goodwill account follows:

2006 2005

(As restated) Cost P=1,085,237,005 P=1,085,237,005 Impairment loss (240,688,815) – Net P=844,548,190 P=1,085,237,005

Due to continued losses from operations in China subsidiaries, the allocated goodwill on these

subsidiaries has been written down and an impairment loss amounting to P=240.7 million was recognized.

As discussed in Note 3, negative goodwill amounting to P=36.7 million has been charged to the

retained earnings beginning October 1, 2005 and 2004. The trademark has an indefinite useful life. 16. Loans Payable

This account includes short-term clean loans obtained from local banks. Interest is based on prevailing market rates and these are repriced quarterly. Interests on the loans are paid as they become due. Accrued interest payable on the above loans amounted to P=9.4 million and P=5.2 million as of September 30, 2006 and 2005, respectively, and is shown as part of “Accrued expenses” under the “Accounts payable and Accrued expenses” account in the consolidated balance sheets (Note 17).

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17. Accounts Payable and Accrued Expenses This account consists of:

2006

2005 (As restated)

Accounts payable - trade P=2,764,524,367 P=1,510,800,222Accrued expenses (Note 16) 1,040,466,083 1,104,680,388Advances from stockholders (Note 19) 111,249,863 269,077,808Customers’ deposits 74,158,180 87,769,543Others 151,757,971 160,667,589 P=4,142,156,464 P=3,132,995,550

The terms and conditions relating to related parties are discussed in Note 19.

Accounts payable - trade are noninterest-bearing and are normally settled on a monthly basis.

The details of the accrued expenses account follow:

2006 2005 Accrued advertising and promotions P=394,057,469 P=482,511,664 Accrued interest expense 359,113,003 462,899,960 Accrued freight and handling costs 61,234,898 51,112,026 Others 226,060,713 108,156,738 P=1,040,466,083 P=1,104,680,388

Accrued expenses are normally settled monthly throughout the financial year. Derivative liabilities amounting to P=12.5 million were included under other liabilities in 2006. This consists of P=0.20 million currency forwards and P=12.3 million currency options.

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18. Long-term Debt


2006 2005 Foreign Currencies: Balance of US$200 million, 8.25% Guaranteed

Notes Due 2012, interest payable on January 20 and July 20 of each year starting

January 20, 2005

P=10,042,000,000 P=11,202,000,000 Balance of US$125 million, 9% Guaranteed

Notes Due 2008, interest payable on February 6 and August 6 of each year starting August 6, 2003

6,276,250,000 7,001,250,000 Balance of US$100 million, 8 3/8% Guaranteed

Notes Due December 2006, interest payable on June 19 and December 19 of each year

1,869,908,313 2,905,127,240 Balance of loans from a foreign bank, payable in 10 to 16 equal semi-annual amortization

229,849,990 364,000,841

Balance of loans from a foreign bank, payable in 14 equal semi-annual amortization

155,480,237

223,018,406

Philippine Pesos:

Balance of restructured loans from Philippine Sugar Corporation payable in 25 equal annual amortizations

52,416,293

63,050,972 Balance of a five-year promissory note payable

in 6 semi-annual amortization with remaining balance at maturity

500,000,000 700,000,000 19,125,904,833 22,458,447,459 Debt issuance costs 91,189,279 188,247,523 19,034,715,554 22,270,199,936 Less: Current portion 2,534,798,394 372,891,534 P=16,499,917,160 P=21,897,308,402

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Guaranteed Notes Due 2012 On January 14, 2005, URC Philippines, Limited, a wholly owned subsidiary, issued US$200 million,

8.25% Guaranteed Notes Due 2012 (Notes due 2012) guaranteed by the Parent Company. Unless previously redeemed or purchased and cancelled, the Notes due 2012 will be redeemed at their principal amount, plus accrued and unpaid interest, on January 20, 2012. Underwriting fees and other expenses incurred in connection with the issuance of the Notes due 2012 have been deferred and are being amortized over the terms of the respective debt securities issued. The unamortized balance of the related debt issuance costs amounted to P=65.0 and P=145.3 million as of September 30, 2006 and 2005, respectively.

Guaranteed Notes Due 2008

On February 5, 2003, URC Philippines, Limited issued US$125 million, 9% Guaranteed Notes Due 2008 (Notes due 2008) guaranteed by the Parent Company. Unless previously redeemed or purchased and cancelled, the Notes due 2008 will be redeemed at their principal amount, plus accrued and unpaid interest, on February 6, 2008. The unamortized balance of the related debt issuance costs amounted to P=25.6 million and P=40.4 million as of September 30, 2006 and 2005, respectively.

Guaranteed Notes Due 2006 On December 19, 1996, Universal Robina (Cayman) Ltd., a wholly owned subsidiary, issued US$100 million, 8 3/8% Guaranteed Notes Due 2006 (Notes due 2006) guaranteed by the Parent Company. Unless previously redeemed or purchased and cancelled, the Notes due 2006 will be redeemed at their principal amount, plus accrued and unpaid interest, on December 19, 2006.

On May 2006, guaranteed notes with a face value of $28.633 million were redeemed.

The unamortized balance of the related debt issuance costs amounted to P=0.6 million and P=2.5 million as of September 30, 2006 and 2005, respectively.

Foreign Bank Loans The Parent Company entered into two credit-term loan facilities with Bayerische Hypo-UND Vereinsbank AG (Vereinsbank), Munich to finance the supply of certain property, plant and equipment for its biaxially-oriented polypropylene film plant. The details of the loans are as follows:

2006 2005 Maturity Date Interest Rate Interest Payment Date

P=229,849,990 P=364,000,841 April 30, 2008 EURIBOR/USD LIBOR ranging

from 2.822% to 4.257% per

annum

October and April

These loans contain negative covenants that, among others, prohibit merger or consolidation with other entities, dissolution, liquidation or winding-up except with any of its subsidiaries; prohibit purchase or redemption of any issued shares or reduction of registered and paid-up capital or distribution of assets resulting in capital base impairment.

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The Parent Company also entered into credit-term loan facilities with Bayerische Hypo-UND

Vereinsbank AG (Vereinsbank), Munich to finance the supply of certain property and equipment for its flour mill plant. The outstanding balance bears interest at floating rate based on USD LIBOR plus certain margins per annum. This loan is payable in fourteen equal, consecutive, semi-annual payments starting 6 months after the weighted average delivery period of all units or, at the latest, starting 6 months after August 1, 2002, whichever date shall occur earlier, with the last repayment installment due October 15, 2009. These loans contain negative covenants that, among others, prohibit merger or consolidation with other entities, dissolution, liquidation or winding-up except with any of its subsidiaries; prohibit purchase or redemption of any issued shares or reduction of registered and paid-up capital or distribution of assets resulting in capital base impairment.

The loans in foreign currencies were converted using the September 30, 2006 and 2005 closing rates of P=50.210 to US$ and P=56.010 to US$1, respectively.

Philippine Sugar Corporation The loan is payable in 25 equal annual amortization of P=9.9 million and bears interest at 7.5% per annum. Unpaid interest on the loan amounted to P=3.6 million and P=3.5 million as of September 30, 2006 and 2005, respectively.

Five-Year Promissory Note The Parent Company obtained a five-year loan from Metropolitan Bank and Trust Company, payable in 6 semi-annual amortization of P=100 million to commence on the 30th of the month from draw date, with the remaining balance payable at maturity. The loan, which bears interest at prevailing market rates, is used to finance capital expenditures relative to expansion of snackfood, candy and biscuits operations of the branded consumer foods segment. The loan is collateralized by negative pledge on certain assets. The loan agreement contains certain provisions which, among others, impose negative covenants relating to the Parent Company’s ownership structure and nature of business, merger or consolidation with another entity, and acquisition of its own capital stock. Total interest expense and other related charges on all of these long-term debts amounted to P=1,832.0 million, P=1,741.8 million and P=1,044.9 million for the years ended September 30, 2006, 2005 and 2004, respectively.

19. Related Party Disclosures

Transactions with related parties The Group, in its regular conduct of business, has engaged in transactions with its major stockholder, JGSHI, and its affiliated companies. These transactions principally consist of sales, purchases and interest-bearing advances, at prevailing market rates, to and from these companies.

The following describes the transactions and related amounts which have been entered into with related parties as of and for the years ended September 30, 2006, 2005 and 2004.

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Sales to affiliated companies amounted to P=586.3mmillion in 2006, P=460.9 million in 2005 and P=336.3 million in 2004.

Other related party transactions include: (a) purchases of polypropylene resin for bi-axially oriented polypropylene film amounting to P=568.3 million, P=750.4 million and P=795.7 million for the years ended September 30, 2006, 2005 and 2004, respectively, from JG Summit Petrochemical Corporation (Petrochem); (b) power purchase amounting to P=129.0 million, P=199.3 million and P=99.1 million for the years ended September 30, 2006, 2005 and 2004, respectively, from Litton Mills, Inc. and Petrochem; (c) rental expenses of certain properties amounting to P=27.6 million, P=19.5 million in 2005 and P=15.8 million in 2004 from JGSHI; and (d) rental income of certain properties amounting to P=42.3 million, P=32.6 million and P=50.8 million for the years ended September 30, 2006, 2005 and 2004, respectively, mostly from Digital Telecommunications Philippines, Inc. (Digitel).

JGSHI also provides the Group certain corporate services including corporate finance, corporate

planning, procurement, human resources, legal and corporate communications. As of September 30, 2006 and 2005, the net due from (to) related parties amounted to P=317.7 million

and (P=121.4) million, respectively. Outstanding balances as of year end are unsecured and interest free. As of September 30, 2005 and 2004, the Group has not made any provision for doubtful amounts owed by related parties. This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates.

The Group also maintains savings and current accounts and time deposits with Robinsons Savings Bank, an affiliated local commercial bank. The balances are as follows:

2006 2005 Savings and current accounts P=4,999,815 P=268,075 Short-term investments – 91,213,171 P=4,999,815 P=91,481,246

Loans from shareholders As of September 30, 2006 and 2005, the Group has outstanding advances from stockholders of the

Group amounting to P=111.25 million and P=269.10 million, respectively. The advances are included in the “Accounts payable and accrued expenses” account in the consolidated balance sheets and bear interest at prevailing market rates.

Compensation for key management personnel amounted to P=584.6 million, P=517.3 million and P=496.8 million in 2006, 2005 and 2004, respectively.

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20. Capital Stock and Cumulative Translation Adjustments

Capital stock On October 7, 2005, the BOD approved the increase in the authorized capital stock from P=2,000,000,000 divided into 1,998,000,000 common shares and 2,000,000 preferred shares both at P=1 par value per share to P=3,000,000,000 divided into 2,998,000,000 common shares and 2,000,000 preferred shares both at P=1 par value per share. On a special meeting of the stockholders held on November 22, 2005, the stockholders also approved the above increase in the authorized capital stock and the 15% stock dividends to all stockholders of record as of January 14, 2006, which was subsequently approved by the SEC on December 16, 2005. On December 19, 2005, the SEC authorized the issuance of 252,971,932 common shares with P=1 par value per share or P=252, 971,932 to cover the 15% stock dividends declared by the BOD and ratified by the stockholders.

The transaction costs on the issuance of additional common shares in February 2006 have been accounted for as a deduction against additional paid-in capital and this amounted to P=19.3 million.

The authorized preferred stock is 12% cumulative, nonparticipating, nonvoting and redeemable at par

upon dissolution and liquidation of the Parent Company. The authorized preferred stock is 2,000,000 shares at par value of P1 per share. There are no issuances of preferred stock.

The authorized common stock is 2,998,000,000 shares in 2006 and 1,998,0000,000 shares in 2005 and 2004 at par value of P=1 per share. A reconciliation of the number of common shares outstanding as of September 30, 2006, 2005 and 2004 follows:

2006 2005 2004

Beginning of the year 1,686,479,549 1,686,479,549 1,686,479,549 Issuances during the year 535,371,932 – – End of the year 2,221,851,481 1,686,479,549 1,686,479,549

On August 3, 2001, the Parent Company’s BOD approved the issuance of 55,659,008 shares to

JGSHI, Robinson’s Supermarket Corporation, and its major stockholder in exchange for two (2) parcels of land and certain marketable securities, respectively, valued at P=250,465,533. This is reflected as “Deposits for future stock subscriptions” in the consolidated balance sheets. On June 19, 2003, the SEC approved the issuance of 49,871,556 shares for the two (2) parcels of land. The remaining 5,787,452 shares are subject to the approval of the SEC.

Cumulative translation adjustments The cumulative translation adjustments account is used to record the exchange differences arising

from the translation of the financial statements of foreign subsidiaries.

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21. Retained Earnings Appropriation

In December 2003, the BOD approved the appropriation of retained earnings amounting to P=3.0 billion for plant expansion.

Dividends declared The Parent Company’s BOD declared cash dividends in favor of all its stockholders as follows:

2006 2005 2004 Date of declaration April 20, 2006 May 5, 2005 May 4, 2004 Dividend per share P=0.54 P=0.30 P=0.30 Total dividends P=1,198.8 million P=505.9 million P=505.9 million Date of record May 19, 2006 June 3, 2005 June 20, 2004 Date of payment June 15, 2006 June 29, 2005 July 14, 2004

Policy on dividends

The Group intends to maintain an annual cash dividend payment ratio of 50% of the Group’s consolidated net income from the preceding fiscal year, subject to the requirements of the applicable laws and regulations and the absence of circumstances which may restrict the payment of such dividends. The BOD may, at any time, modify such dividend payment ratio.

22. Cost of Sales and Services


2006

2005 (As restated)

2004 (As restated)

Raw materials used P=19,975,260,129 P=16,640,705,039 P=15,020,126,478 Direct labor (Note 25) 741,356,852 669,759,560 760,571,580 Other manufacturing costs (Notes 24 and 25)

5,659,055,964 6,078,021,097 5,041,847,612

Total manufacturing cost 26,375,672,945 23,388,485,696 20,822,545,670 Goods in process (60,810,866) (10,830,264) (20,696,212) Cost of goods manufactured 26,314,862,079 23,377,655,432 20,801,849,458 Finished goods 45,112,152 (69,942,746) (322,411,429) P=26,359,974,231 P=23,307,712,686 P=20,479,438,029

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23. Operating and Other Administrative Expenses This account consists of:

2006 2005

(As restated) 2004

(As restated) Personnel expense (Note 25) P=1,046,561,391 P=1,032,734,740 P=766,433,261 Advertising and promotion 2,347,929,155 1,838,916,104 1,741,969,942 Freight and other selling expenses 1,874,294,290 1,453,400,399 1,234,915,048 Depreciation, impairment, repairs

and maintenance (Note 24)

270,033,107

243,501,008 424,173,251 Other administrative expenses 627,221,154 885,485,752 609,170,466

P=6,166,039,097 P=5,454,038,003 P=4,776,661,968

Revenue Regulation (RR) No. 10-2002 defines expenses to be classified as EAR expenses and sets a limit for the amount that is deductible for tax purposes. EAR expenses are limited to 0.5% of net sales for sellers of goods or properties or 1% of net revenue for sellers of services. For sellers of both goods or properties and services, an apportionment formula is used in determining the ceiling on such expenses. Entertainment and representation (EAR) expenses amounted to P=19.2 million in 2006, P=14.6 million in 2005 and P=11.3 million in 2004.

24. Depreciation and Amortization

Depreciation and amortization are distributed as follows:

2006 2005

(As restated) 2004

(As restated) Cost of sales and services P=1,813,572,239 P=1,513,518,513 P=1,404,500,544 Operating and other administrative expenses

177,414,814

151,957,986 397,032,084

Other charges 298,132,401 178,118,851 227,125,639 P=2,289,119,454 P=1,843,595,350 P=2,028,658,267

25. Personnel Expenses

Personnel expenses consist of:

2006 2005

(As restated) 2004

(As restated) Salaries, wages and other staff cost P=1,365,897,499 P=1,258,083,567 P=1,217,985,716 Employee benefits 500,440,853 403,502,033 357,183,564 Pension expense (income) (Note 26) (55,723,791) 54,732,596 – P=1,810,614,561 P=1,716,318,196 P=1,575,169,280

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The above amounts are distributed as follows:

2006 2005 2004 Cost of sales and services P=764,053,170 P=683,583,456 P=808,736,019 Operating and other administrative expenses

1,046,561,391

1,032,734,740 766,433,261

P=1,810,614,561 P=1,716,318,196 P=1,575,169,280 26. Retirement Costs

As discussed in Note 2 to the consolidated financial statements, the Group adopted PAS 19 effective October 1, 2005. The information below includes the disclosure requirements under this new standard:

Retirement Plans The Parent Company has a funded, noncontributory defined benefit retirement plan covering all its regular employees. The plan provides retirement, separation, disability and death benefits to its members. The Parent Company, however, reserves the right to discontinue, suspend or change the rates and amounts of its contributions at any time on account of business necessity or adverse economic conditions. The retirement fund is being administered and managed by certain stockholders, as trustee.

The latest actuarial valuation was made on December 22, 2006.

Pension expense charged to operations, including amortization of past service cost, amounted to (P=55.7) million in 2006 and P=54.7 million in 2005.

2006 2005 Present value of unfunded obligation P=753,987,300 P=593,828,500 Fair value of plan assets (1,162,943,500) (1,098,144,300) Excess of fair value of plan assets over present value of unfunded obligation (408,956,200) (504,315,800) Unrecognized actuarial loss (gain) - net (18,565,205) (68,316,196) Net pension asset (P=427,521,405) (P=572,631,996)Asset limit to be recognized in consolidated balance sheets (P=236,346,400) (P=170,110,800) Net pension asset in excess of the asset ceiling not recognized in the consolidated balance sheets (P=191,175,005) (P=402,521,196)

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Asset limits to be recognized in the consolidated balance sheets were determined as follows:

2006 2005 Present value of available future contributions P=236,346,400 P=170,110,800 Unrecognized actuarial loss - net – – Asset ceiling limit to be recognized in the consolidated balance sheets P=236,346,400 P=170,110,800

Movements in the fair value of plan assets follow:

2006 2005 Balance at beginning of year P=1,098,144,300 P=1,027,773,000 Expected return on plan assets 76,195,900 71,609,400 Actual contributions 5,770,500 5,770,500 Benefits paid (25,034,700) (15,333,900) Actuarial gain - net 7,867,500 8,325,300 Balance at end of year P=1,162,943,500 P=1,098,144,300 Actual return on plan assets P=79,934,700 P=79,934,700

Changes in the present value of the defined benefit obligation follow:

2006 2005 Balance at beginning of year P=593,828,500 P=438,717,300 Current service cost 35,275,200 26,159,500 Interest cost 67,463,600 58,780,200 Benefits paid (35,546,509) (23,387,296) Actuarial loss - net 92,966,509 93,558,796 Balance at end of year P=753,987,300 P=593,828,500

Components of retirement expense in the consolidated statements of income follow:

2006 2005 Current service cost P=35,275,200 P=26,159,500 Interest cost 67,463,600 58,780,200 Expected rate of return on plan assets (76,195,900) (71,609,400) Net actuarial loss (gain) recognized during the year

(82,266,691)

41,402,296

(P=55,723,791) P=54,732,596

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The assumptions used to determine retirement benefits of the Group follow:

2006 2005 Discount rate 11.90% 13.94%Salary rate increase 6.00% 6.00%Expected rate of return on plan assets 6.94% 6.96%Turn over rate 0% - 15% 0% - 15%

The discount rate used as of September 30, 2006 for the determination of the projected

pension obligation for the fiscal year 2006 to 2007 was 8.80%. The plan assets consist of the following:

2006 2005 Cash P=26,130 P=24,827 Receivables 1,289,301,558 1,207,826,532 Liabilities (126,384,188) (109,707,059) P=1,162,943,500 P=1,098,144,300

The group expects to contribute about P=11.4 million into the pension fund for the annual period

ending September 30, 2007. 27. Net Sales and Services This account consists of:

2006 2005 2004 Sale of goods and services P=32,634,185,065 P=28,912,271,738 P=25,276,021,317 Sale of agricultural produce 2,304,920,601 1,946,080,629 1,957,179,246 Gain from change in fair value less point-of-sale costs of biological assets 244,709,188 340,923,379 124,677,393 P=35,183,814,854 P=31,199,275,746 P=27,357,877,956

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28. Investment Income This account consist of:

2006 2005 2004 Interest income on financial assets at FVPL P=2,044,697,457 P=1,764,739,009 P=1,349,423,791 Interest income on cash and cash equivalents 96,913,776 102,388,986 49,611,822 Dividend income 177,903,257 41,526,253 40,076,892 Others 300,919 225,850 163,558 P=2,319,815,409 P=1,908,880,098 P=1,439,276,063

29. Finance Costs This account consist of:

2006 2005 2004 Interest expense on long-term debt P=1,814,587,075 P=1,720,652,986 P=1,041,618,864 Interest expense on loans payable 443,065,132 368,178,926 493,018,284 Other financing charges 623,001 2,298,019 2,749,522 Others 13,675,694 23,654,880 11,194,199 P=2,271,950,902 P=2,114,784,811 P=1,548,580,869

30. Income Taxes

The significant components of the Parent Company’s deferred income tax assets and liabilities represent the deferred income tax effects of the following:

2006 2005

(As restated) Deferred tax assets: Allowance for doubtful accounts P=174,591,181 P=165,336,869 Provision for inventory write down 13,615,167 13,615,167 Allowance for mortality 9,586,407 9,586,407 197,792,755 188,538,443 Deferred tax liabilities: Undistributed income of foreign subsidiaries 273,437,500 218,750,000 Unrealized foreign exchange gain (loss) 98,620,522 (3,862,106) Gain arising from changes in fair value less

estimated point-of-sale costs of swine stocks

88,477,912 119,323,183 Others 32,215,777 23,372,245

492,751,711 357,583,322 Net deferred tax liabilities (P=294,958,956) (P=169,044,879)

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The reconciliation of statutory income tax rate to effective income tax rate follows:

2006 2005 2004Statutory income tax rate 34.75% 32.00% 32.00%Additions (reductions): Net income of foreign subsidiaries for

which no tax was provided (14.87) (14.74) (30.61) Equity in net earnings of investees not

subject to tax (3.49) (2.82) (1.15) Decline in value of marketable securities (3.55) (1.47) – Interest income subject to final tax (0.19) (0.32) (0.14) Reduction in allowable interest expense 0.14 0.04 0.04 Interest income exempt from tax (4.88) (0.35) (0.07) Others 3.70 4.70 (0.07)Effective income tax rate 11.61% 17.04% –%

Republic Act (RA) No. 9337 RA No. 9337 was recently enacted into law amending various provisions in the existing 1997 National Internal Revenue Code. Among the reforms introduced by the said RA, which became effective on November 1, 2005, are as follows: • Increase in the corporate income tax rate from 32% to 35% with a reduction thereof to 30%

beginning January 1, 2009; • Increase in value-added tax (VAT) rate from 10% to 12%, effective February 1, 2006 as

authorized by the Philippine president pursuant to the recommendation of the Secretary of Finance subject to compliance to certain economic conditions;

• Revised invoicing and reporting requirements for VAT; • Expanded scope of transactions subject to VAT; and • Provided thresholds and limitations on the amounts of VAT credits that can be claimed.

31. Basic and Diluted Earnings Per Share The basic and diluted EPS amounts were computed as follows:

2006 2005 2004 Net income P=3,018,916,609 P=2,526,249,661 P=2,112,320,173 Divide by the weighted average number of shares 2,127,851,482 1,939,451,481 1,939,451,481 P=1.42 P=1.30 P=1.09

The basic and diluted EPS for the years ended September 30, 2005 and 2004 have been retroactively adjusted to take into account the effects of the increase in the authorized capital stock, a portion of which was subscribed by way of stock dividends. There are no potential dilutive common shares during the year.

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32. Commitments and Contingencies

The Group has contingent liabilities arising in the ordinary conduct of business which are either pending decision by the courts or are being contested, the outcome of which are not presently determinable. In the opinion of management and its legal counsel, the eventual liability under these labor-related claims, if any, will not have a material or adverse effect on the Group’s financial position and results of operations. The information usually required by PAS 37, Provisions, Contingent Liabilities and Contingent Assets, is not disclosed on the grounds that it can be expected to prejudice the outcome of pending litigations.

Capital commitments As of September 30, 2006, the Group had commitments of P=1,315.6 million, principally relating to the expansion and completion of sugar refinery and production lines for SONEDCO and branded consumer food division, respectively. These commitments are for the acquisition of new machinery and equipment items.

Lease Commitments (a) Operating lease commitments - Group as lessee

The Group leases land where certain of its facilities are located. The operating lease agreements are for periods ranging from 1 to 99 years from the date of the contracts and are renewable under certain terms and conditions. The Group’s rentals incurred on these leases (included in “Operating and other administrative expenses’ account in the consolidated statements of income) amounted to P=62.4 million, P=46.5 million and P=35.9 million for the years ended September 30, 2006, 2005 and 2004, respectively.

The minimum annual rental income under this operating lease amounts to P=35.9 million.

(b) Operating lease commitments - Group as lessor

The Group has entered into a one-year renewable, noncancellable lease with Digitel covering land and building where Digitel’s office spaces are located. The future minimum lease receivable under this operating lease amounts to P=33.6 million.

33. Financial Instruments

Financial Risk Management Objectives and Policies

The main purpose of the Group’s financial instruments is to fund its operations and for capital expenditures. The main risks arising from the use of financial instruments are interest rate risk, foreign currency risk, credit risk, and liquidity risk. The Group also enters into derivative transactions, the purpose of which is to manage the currency risk arising from its financial instruments.

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The BOD reviews and approves the policies for managing each of these risks. The Group monitors market price risk arising from all financial instruments and regularly reports financial management activities and the results of these activities to the BOD.

The Group’s risk management policies are summarized below:

Interest Rate Risk The Group’s exposure to market risk for changes in interest rates relates primarily to the Group’s long-term debt obligations.

The Group’s policy is to manage its interest cost using a mix of fixed and variable rate debt. The Group’s policy is to manage its interest cost using a mix of fixed and variable rate debt. The Group’s policy has been revised, to target a ratio of 98% fixed rate USD debt to total USD debt, and 10% fixed rate PHP debt to total PHP debt.

As of September 30, 2006, 95% of the Group’s borrowings are at a fixed rate of interest.

Foreign Exchange Risk The Group’s foreign exchange risk results primarily from movements of the Philippine Peso (PHP) against the United States Dollar (USD) with respect to USD-denominated financial assets (such as cash and cash equivalents and short-term investments and financial instruments at FVPL) and USD-denominated financial liabilities. Majority of revenues are generated in PHP, while substantially all of capital expenditures are in USD. In addition, 97% of debt as of September 30, 2006 was denominated in USD.

Credit Risk Customers are subject to standard credit evaluation and verification procedures. The Credit and Collection Department of the Group continuously provides credit notification and implements various credit actions, depending on assessed risks, to minimize credit exposure. Receivable balances of trade customers are being monitored on a regular basis and appropriate credit treatments are executed for overdue accounts. Likewise, other receivable balances are also being monitored and subjected to appropriate actions to manage credit risk.

With respect to credit risk arising from the other financial assets of the Group, which comprise cash

and cash equivalents, and financial assets at FVPL, the Group’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments. The Group has a counterparty credit risk management policy which allocates investment limits based on counterparty credit ratings and credit risk profile.

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The credit risk is concentrated to the following customers:

Type of customer Percentage Related parties 20.0% Unaffiliated parties: Supermarkets and convenience stores 41.4 Distribution companies 38.6 80.0 Total 100.0%

Liquidity Risk The Group seeks to manage its liquidity profile to be able to finance capital expenditures

and service maturing debts. To cover its financing requirements, the Group intends to use internally generated funds and available long-term and short-term credit facilities.

As part of its liquidity risk management, the Group regularly evaluates its projected and actual cash flows. It also continuously assesses conditions in the financial markets for opportunities to pursue fund raising activities, in case any requirements arise. Fund raising activities may include bank loans, export credit agency facilities, and capital market issues.

Financial Risk on Biological Assets The Group is exposed to financial risks arising from changes in market prices of livestock and meat

products. The Group does not anticipate that livestock and meat products will decline significantly in the foreseeable future and, therefore, has not entered into derivative or other contracts to manage the risk of a decline in market prices. The Group reviews its outlook for market prices regularly in considering the need for active financial risk management.

Financial Assets and Liabilities

The table below presents a comparison by category of carrying amounts and estimated fair values of all the Group’s financial instruments as of September 30, 2006:

Carrying Value Fair Value (In Thousand Pesos) Financial assets: Cash and cash equivalents P=5,979,875 P=5,979,875 Financial instruments at FVPL 17,889,646 17,889,646 Trade and other receivables - net 4,641,131 4,641,131 Financial liabilities: Loans payable 4,026,418 4,026,418 Accounts payable and accrued expenses 4,142,156 4,142,156 Trust receipts and acceptances payable 661,147 661,147 Long-term debt (including current portion) 19,034,716 19,052,963

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Fair values of financial assets are estimated as follows:

The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate such value:

Nonderivative Financial Instruments The fair values of cash and cash equivalents, financial instruments at FVPL and trade and other receivables are approximately equal to their carrying amounts.

For variable rate loans that reprice every three months, the carrying value approximates the fair value because of recent and regular repricing based on current market rates. For variable rate loans that reprice every six months, the fair value is determined by discounting the principal amount plus the next interest payment using the prevailing market rate for the period up to the next repricing date. The variable rate PHP loans reprice every three months.

For fixed rate loans, the fair values are determined by discounting the principal amount using the prevailing market rate. The subsequent sections will discuss the Group’s derivative financial instruments according to the type of financial risk being managed and the details of derivative financial instruments that are categorized into those accounted for as hedges and those that are not designated as hedges.

Foreign exchange and interest rate risks Information on the Group’s foreign currency-denominated monetary assets and liabilities and their Philippine peso equivalents as of September 30, 2006 are as follows:

US Dollar Peso Equivalent Assets Cash and cash equivalents $97,269 P=4,883,876 Financial assets at FVPL 314,747 15,803,447 Trade and other receivables - net 33,127 1,663,307 Other current assets 4,916 246,832 $450,059 22,597,462 Liabilities Loans payable 35,765 1,795,761 Accounts payable and accrued expenses 18,545 931,144 Current portion of long-term debt 3,173 159,316 Long-term debt (net of current portion) 372,992 18,727,929 430,475 21,614,150

Net foreign currency-denominated assets $19,584 P=983,312

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The following table shows information about the Group’s financial instruments that are exposed to interest rate risk and presented by maturity profile.

Freestanding Derivatives

Freestanding derivatives that are not designated as hedges consist of:

Currency Forwards Currency Options Derivative assets P=141,090 P=3,059,007 Derivative liabilities 197,074 12,293,954 Notional amount (in US$) 800,000 41,000,000 Maturity Less than a year Less than a year

These are included under “Other current assets” and “Accounts payable and accrued expenses” in the consolidated balance sheets. Mark-to-market changes on these instruments are accounted for directly in the consolidated statements of income and this amounted to P=1.5 million for the year ended September 30, 2006.

34. BOI Incentives Parent Company

Under the terms of its registration with BOI, the Parent Company is entitled, among others, to the following incentives:

a. Income tax holiday; b. Tax credits on taxes and duties on raw materials and supplies used in the manufacture of export

products and forming parts thereof; c. Tax credit on domestic capital equipment; d. Tax and duty-free importation of capital equipment; e. Exemption from wharfage dues and any export tax, duty, impost and fees; and f. Other non-fiscal incentives that may be applicable.

Within a year 1 to 5 years Above 5 yearsTotal

(In USD)Total

(in PHP)Premium and

Issuance CostsCarrying Value

(In PHP)Liabilities: Long-term debt (including current portion) US$ guaranteed notes $44,916,123 $125,000,000 $200,000,000 $369,916,123 P=18,573,488,540 P=91,189,279 P=18,482,299,261 Interest rate USD LIBOR + 0.75% 9.00% 8.25%Philippine peso P=500,000,000 P=52,416,293 P=552,416,293 552,416,293 Interest rate 7.50% P=19,125,904,833 P=91,189,279 P=19,034,715,554

*SGVMC100000*

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URSUMCO The five (5) year income tax holiday granted to URSUMCO under its old BOI registration as a new domestic producer of refined sugar in 1995 expired in 2000. However, the following incentives are still available to URSUMCO under its old BOI registration:

a. Tax credits on taxes and duties on raw materials and supplies used in the manufacture of export

products and forming parts thereof; b. Additional deduction from taxable income on wages subject to certain terms and conditions; c. Exemption from wharfage dues and any export tax, duty impost and fees for ten (10) years from

date of registration; d. Exemption from taxes and duties on imported spare parts and suppliers for certain producers at

least 70% of production; and e. Other non-fiscal incentives that may be applicable.

In 2004, the URSUMCO applied for a new registration with the BOI as expanding producer of refined sugar and molasses. The application for registration for the new activity was approved and granted by the BOI in April 2004. Under the terms of its new registration, URSUMCO is entitled, among others, to the following incentives:

a. Income tax holiday for a period of three (3) years from April 2004 or actual start of operations,

whichever is earlier; b. Tax credits on taxes and duties on raw materials and supplies used in the manufacture of export

products and forming parts thereof for ten (10) years from start of commercial operations; c. Additional deduction from taxable income on wages subject to certain terms and conditions; d. Exemption from wharfage dues and any export tax, duty impost and fees for ten (10) years from

date of registration; e. Exemption from taxes and duties on imported spare parts and suppliers for export producers with

Customs Bonded Manufacturing Warehouse exporting at least 70% of production; and f. Importation of consigned equipment for a period of ten (10) years from date of registration.

SONEDCO

Under the terms of its registration with BOI, SONEDCO is entitled, among others, to the following incentives:

a. Tax credit on capital equipment; b. Tax and duty-free importation of capital equipment; and c. Tax credit for taxes and duties on raw materials used for its export products and forming part

thereof.

CFC Clubhouse Property, Inc. This subsidiary manufactures PET bottles for use as packaging materials for the beverage division.

*SGVMC100000*

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Under the terms of its registrations with BOI, CFC Property Clubhouse, Inc. is entitled, among others, to the following incentives:

a. Income tax holiday; b. Additional deduction from taxable income on wages subject to certain terms and conditions; c. Employment of foreign nationals; d. Tax credits on taxes and duties on raw materials and supplies used in the manufacture of export

products and forming parts thereof for ten (10) years from start of commercial operations; e. Simplification of customs procedures for the importation of equipment, spare parts, raw materials

and supplies; f. Access to Customs Bonded Manufacturing Warehouse subject to Custom rules and regulations

provided firm exports at least 70% of production output; g. Exemption from wharfage dues and any export tax, duty, impost and fees Exemption from taxes

and duties on imported spare parts and suppliers for export producers with Customs Bonded Manufacturing Warehouse exporting at least 70% of production; and

h. Importation of consigned equipment for a period of ten (10) years from date of registration. 35. Supplementary Cash Flow Information

In 2006, the noncash financing activity pertains to the issuances of shares of stock through the application of stock dividends amounting to P=253 million.

In 2004, the noncash investing activity pertains to receipt ‘by way of assignment’ of RLC shares in

full settlement of the P=564.3 million worth of JGSHI notes that matured. 36. Approval of the Consolidated Financial Statements

The accompanying consolidated financial statements of the Group were authorized for issue by the audit committee and the BOD on January 16, 2007.

*SGVMC100000*

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Independent Auditors’ Report On Supplementary Schedule The Stockholders and the Board of Directors Universal Robina Corporation 110 E. Rodriguez Avenue Bagumbayan, Quezon City We have audited in accordance with Philippine Standards on Auditing, the consolidated financial statements of Universal Robina Corporation and Subsidiaries included in this Form 17-A and have issued our report thereon dated January 16, 2007. Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The schedules listed in the Index to Financial Statements and Supplementary Schedules are the responsibility of the Company's management. These schedules are presented for purposes of complying with Securities Regulation Code Rule 68 and are not part of the basic consolidated financial statements. These schedules have been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly state in all material respect the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. SYCIP GORRES VELAYO & CO. Arnel F. de Jesus Partner CPA Certificate No. 43285 SEC Accreditation No. 0075-A Tax Identification No. 152-884-385 PTR No. 0266544, January 2, 2007, Makati City January 16, 2007

SGV & Co is a member practice of Ernst & Young Global

SGV & CO SyCip Gorres Velayo & Co. 6760 Ayala Avenue 1226 Makati City Philippines

Phone: (632) 891-0307 Fax: (632) 819-0872 www.sgv.com.ph BOA/PRC Reg. No. 0001 SEC Accreditation No. 0012-F

UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIESSCHEDULE A - FINANCIAL ASSETS AT FVPL

(CURRENT MARKETABLE EQUITY SECURITIES ANDOTHER SHORT-TERM INVESTMENTS)

SEPTEMBER 30, 2006

Number of Value BasedShares or on MarketPrincipal Amount Quotations at Income

Name of Issuing Entity and Amount of Bonds Shown in the Balance Sheet ReceivedDescription of Each Issue and Notes Balance Sheet Date and Accrued

Temporary investments P 16,737,417,695 P 16,737,417,695 P 1,764,739,009

P 16,737,417,695 P 16,737,417,695 P 1,764,739,009

Marketable securities P 1,152,228,593 P 1,152,228,593 P 41,526,253

P 1,152,228,593 P 1,152,228,593 P 41,526,253

- 128 -

UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIESSCHEDULE B - ADVANCES TO OFFICERS AND EMPLOYEES

RECEIVABLE FROM DIRECTORS, OFFICERS, EMPLOYEES, RELATEDPARTIES AND PRINCIPAL STOCKHOLDERS (OTHER THAN RELATED PARTIES)

SEPTEMBER 30, 2006

Beginning Ending BalanceName of Debtor Balance Additions Collections Current Non-Current Total

P - P - P - P - P - P -

Total P - P - P - P - P - P -

- 129 -

UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIESSCHEDULE C - LONG-TERM INVESTMENTS IN SECURITIES

(NONCURRENT MARKETABLE EQUITY SECURITIES,OTHER LONG-TERM INVESTMENTS IN STOCK,

AND OTHER INVESTMENTS)SEPTEMBER 30, 2006

BEGINNING BALANCE ADDITIONS DEDUCTIONS ENDING BALANCE

Number NumberShares Equity in Shares

of Principal Earnings (Losses) Distribution of of PrincipalName of Issuing Entity and Amount of Amount in of Investees Earnings by Amount of Amount inDescription of Investment Bonds and Notes Pesos for the Period Others Investees Others Bonds and Notes Pesos

Robinson's Land Incorporated 435,747,367 P 1,741,767,454 P 301,520,000 P P (151,391,543) P 0 435,747,367 P 1,891,895,911 P 0HUNT- Universal Robina Corporation 1,400,000 68,108,517 18,476,500 (19,999,942) 0 1,400,000 66,585,075 0

Total 437,147,367 P 1,809,875,971 P 319,996,500 P 0 P (171,391,485) P 0 437,147,367 P 1,958,480,986 P 0

5,845,304Note: Description of investments Percentage of ownership

HUNT- Universal Robina Corporation 50%Robinson's Land Corporation 19%

DividendsReceived/accrued

fromInvestments NotAccounted forby the Equity

Method

- 130 -

UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIESSCHEDULE D - ADVANCES TO UNCONSOLIDATED

SUBSIDIARIES AND AFFILIATESSEPTEMBER 30, 2006

Beginning Ending

Name of Affiliate Balance Balance

Hunt - Universal Robina Corporation 30,420,018 32,564,115

Robinsons Supermarket 6,550,249 1,301,414

Digital Telecommunications Philippines., Inc. 161,654,769 190,783,939

Cebu Air, Inc. 26,643,557 31,157,291

Robinsons Land Corporation 4,237,531 3,996,832

Cebu Pacific Manufacturing Corporation 10,138,027

Chic Centre Corp. 4,469,726 4,741,004

Cebu Industrial 7,466,934 -

Hello Snacks Food Corporation 31,014,633

Hongkong Peggy Foods 58,031,128

Big R Store 1,465,873 1,448,109

Robinson's Convenient Store 2,106,417 1,851,841

Litton Mills, Inc. 147,720,037

JG Summit Group 36,173,092

Terai Industrial Corporation 9,736,125

Others 12,183,169 15,507,869

P 356,382,031 P 476,981,668

See Note 19 to the Consolidated Financial Statements.

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UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIESSCHEDULE E - PROPERTY, PLANT AND EQUIPMENT

SEPTEMBER 30, 2006

Other Changes-

Beginning Additions at Additions Ending

Classification Balance Cost Retirements (Deductions) Balance

Cost:

Land P 875,814,973 P 82,919,739 P 0 P 0 P 958,734,712

Land improvements 1,247,270,922 321,786,331 252,073,629 63,132 1,317,046,756

Buildings and improvements 5,404,710,282 912,799,970 116,456,870 164,811,932 6,365,865,314

Machinery and equipment 21,323,566,820 2,135,914,709 27,001,112 1,123,001,083 24,555,481,500

Transportation equipment 1,532,088,249 153,795,249 99,319,774 75,184,454 1,661,748,178

Furniture, fixtures and equipment 1,093,223,914 311,338,569 16,838,048 49,231,020 1,436,955,455

Equipment in transit 574,592,107 1,431,350,739 0 (302,564,673) 1,703,378,173

Construction in progress 564,652,478 480,889,910 0 (454,026,060) 591,516,328P 32,615,919,745 P 5,830,795,216 P 511,689,433 P 655,700,888 P 38,590,726,416

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UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIESSCHEDULE F - ACCUMULATED DEPRECIATION

SEPTEMBER 30, 2006

Additions Other Changes-

Beginning Charged to Costs Additions Ending

Description Balance and Expenses Retirements (Deductions) Balance

Cost:

Land improvements P 434,792,801 P 215,529,734 P 0 P 36,010,258 P 686,332,793

Buildings and improvements 2,203,534,785 273,250,625 5,793,493 335,359,215 2,806,351,132

Machinery and equipment 11,012,754,417 1,543,260,456 128,888,350 76,504,829 12,503,631,352

Transportation equipment 1,132,179,340 127,398,568 95,580,181 24,139,269 1,188,136,996

Furniture, fixtures and equipment 708,003,045 126,081,826 4,141,943 12,428,692 842,371,620P 15,491,264,388 P 2,285,521,209 P 234,403,967 P 484,442,263 P 18,026,823,893

- 133 -

UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIESSCHEDULE G - OTHER ASSETS

SEPTEMBER 30, 2006

Deductions/Amortizations Other Changes-Beginning Additions Charged to cost Charged to Additions Ending

Description Balance at cost and expenses Other accounts (deductions) Balance

Goodwill P 1,085,237,005 P 0 P 240,688,815 P 0 P P 844,548,190 Trademark 0 190,223,400 190,223,400 Miscellaneous deposits 60,988,528 0 0 0 4,195,526 65,184,054 Others 124,839,622 0 0 0 301,395,490 426,235,112

P 1,271,065,155 P 190,223,400 P 240,688,815 P 0 P 305,591,016 P 1,526,190,756

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UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIESSCHEDULE H - LONG-TERM DEBT

SEPTEMBER 30, 2006

Amount Amount Amount

Name of Issuer and Authorized by Shown as Shown as

Type of Obligation Indenture Current Long-Term Total Remarks

URC Philippines, Ltd. 8.25%

Guarantedd Notes Due 2012 $ 200,000,000 P 0 P 10,042,000,000 P 10,042,000,000 See Note below

URC Philippines, Ltd. 9%

Guarantedd Notes Due 2008 $ 125,000,000 0 6,276,250,000 6,276,250,000 - do -

Bayerische Vereinsbank AG Euro 11,430,473 44,422,925 111,057,312 155,480,237 - do -

$ 6,236,038 114,924,995 114,924,995 229,849,990 - do -

Philippine Sugar Corporation 0 5,542,161 46,874,132 52,416,293 - do -

Metrobank and Trust Co. 0 500,000,000 0 500,000,000 - do -

Universal Robina (Cayman), Ltd. 8 3/8%

Guaranteed Notes Due 2006 $ 64,727,000 1,869,908,313 0 1,869,908,313 - do -

P 2,534,798,394 P 16,591,106,439 P 19,125,904,833

Less: Debt Issuance Cost 0 91,189,279 91,189,279

2,534,798,394 16,499,917,160 19,034,715,554

Note: The terms, interest rate, collaterals and other relevant information

are shown in the Notes to Consolidated Financial Statements.

- 135 -

UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIESSCHEDULE I - ADVANCES FROM UNCONSOLIDATED

SUBSIDIARIES AND AFFILIATESSEPTEMBER 30, 2006

Beginning EndingName of Affiliate Balance Balance

JG Summit Petrochemical Corp. 4,353,006 34,549,094Hongkong Peggy Foods - 49,416,775Litton Mills, Inc. 76,304,923Terai Industrial Corp. 28,731,925Pan Pacific Investment Co. Ltd. 215,433,895 3,904,581Solid Finance 59,285,027 39,660,442 Xiamen Ting teng 20,827,991 19,090,896Shanghai Ting - 8,328,835JG Summit Group 68,502,438Others 4,305,558 4,372,041

P 477,744,763 P 159,322,664

See Note 19 to the Consolidated Financial Statements.

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UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIESSCHEDULE K - CAPITAL STOCK

SEPTEMBER 30, 2006

Preferred stock - P1 par value 2,000,000 None

Common stock - P1 par value 2,998,000,000 2,221,851,481 2,692,043 1,317,053,808 902,105,630

Directors,Officers

andEmployees

Number ofShares Reserved

for Options, Warrants,Conversions, and

Other Rights

Number ofShares Issued

andOutstanding

Affiliates Others

Number ofShares

Authorized

Number of Shares Held By

Directors,Officers

andEmployees

Number ofShares Reserved

for Options, Warrants,Conversions, and

Other Rights

Number ofShares Issued

andOutstanding

Affiliates Others

Number ofShares

AuthorizedTitle of Issue

Number of Shares Held By

- 137 -

-138-

UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIES

INDEX TO EXHIBITS

FORM 17-A No Page No,

(3) Plan of Acquisition, Reorganization, Arrangement, Liquidation, or Succession * (5) Instruments Defining the Rights of Security Holders, Including Indentures * (8) Voting Trust Agreement * (9) Material Contracts *

(10) Annual Report to Security Holders, Form 17-Q or Quarterly Report to Security Holders * (13) Letter re: Change in Certifying Accountants *

(16) Report Furnished to Security Holders *

(18) Subsidiaries of the Registrant 139

(19) Published Report Regarding Matters Submitted To Vote of Security Holders * (20) Consent of Experts and Independent Counsel * (21) Power of Attorney *

(29) Additional Exhibits Letter re Disclosure Rules on Executive Compensation * ___________ *These Exhibits are either not applicable to the Company or require no answer.\

-139- EXHIBIT 18 SUBSIDIARIES OF THE REGISTRANT

Universal Robina Corproration has the following subsidiaries that are directly and indirectly owned:

Country of Percentage of Ownership

Investee Companies Incorporation Direct Indirect

CFC Corporation Philippines 100.00 – Universal Robina (Cayman, Ltd.) Cayman Islands 100.00 – URC Philippines, Limited British Virgin Islands 100.00 – Universal Robina Sugar Milling

Corporation (URSUMCO) Philippines 100.00 – Southern Negros Development Corporation

(SONEDCO) - do - – 94.00 CFC Clubhouse, Incorporated (formerly

CFC Keebler, Incorporated) - do - 100.00 – CFC Clubhouse Property, Inc. (formerly

CFC Keebler Property, Inc.) - do - 100.00 – URC International Co. Ltd. (URCICL) British Virgin Islands 77.00 – Hong Kong China Foods Co., Ltd. - do - – 77.00 URC Asean Brands Co., Ltd. - do - – 77.00 URC Hong Kong Company Limited

(formerly Hong Kong Peggy Snacks Foods Co., Limited) Hong Kong – 100.00

Tianjin Pacific Foods Manufacturing Co., Ltd. China

– 100.00

Shanghai Peggy Foods Co., Ltd. - do - – 100.00 Xiamen Tongan Pacific Food Co., Ltd. - do - – 100.00 URC Foods (Singapore) Pte. Ltd. (formerly

Pan Pacific Snacks Pte. Ltd.) Singapore

– 100.00 URC (Thailand) Co., Ltd. (formerly Thai

Peggy Foods Co. Ltd.) Thailand – 100.00 Panyu Peggy Foods Co., Ltd. China – 90.00 URC Snack Foods (Malaysia) Sdn. Bhd.

(formerly Pacific World Sdn. Bhd.) Malaysia – 91.52 Ricellent Sdn. Bhd. - do - – 54.03 PT URC Indonesia Indonesia – 100.00 Nissin – Universal Robina Corporation Philippines 65.00 – URC Confectionary Corporation [(URCCC)

(formerly JOYCO – Univeral Robina Corporation)] - do -

100.00

– URC Vietnam Co., Ltd. Vietnam – 100.00

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