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1 6 3 6 7 1 SEC Registration Number

P R I M E O R I O N P H I L I P P I N E S , I N C .

(Company’s Full Name)

2 0 / F L K G T O W E R , 6 8 0 1 A Y A L A A V E .

M A K A T I C I T Y

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

ATTY. DAISY L. PARKER 884-1106 (Contact Person) Amended (Company Telephone Number)

0 6 3 0 2 0 - I S Month Day (Form Type) Month Day

(Fiscal Year) (Amended DefinitiveInfo. Statement)

(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

P R O X Y This Proxy is being solicited by Prime Orion Philippines, Inc., for and on its behalf, in connection with its Annual Stockholders’ Meeting to be held on 22 November 2011 (Tuesday), at 2:00 p.m., at Ballroom 3, Third Floor, Mandarin Oriental Manila, Makati Avenue, Makati City. The Company shall be pleased to vote your securities in accordance with your wishes if you will execute this Proxy Form and return the same promptly. It is understood that if you sign without otherwise marking the form, the securities will be voted as recommended by the Board of Directors on all matters to be considered at the meeting. Hereunder are the matters to be taken up during the meeting. Please indicate your proposal selection by firmly placing an “X” in the appropriate box: 1. Approval of the Minutes of the 22 November 2010 Annual Stockholders’ Meeting Yes No Abstain 2. Approval of Annual Report for Fiscal Year 2010-2011 (including the Audited Consolidated Financial

Statements for the Fiscal Year Ended 30 June 2011) Yes No Abstain 3. Ratification of Corporate Acts of the Board of Directors and Management since the last Annual Meeting

Yes No Abstain 4. Election of Directors Vote for all nominees listed below: Felipe U. Yap David C. Go

Yuen Po Seng Daisy L. Parker Ronald P. Sugapong

Victor C. Say – Independent Director Ricardo J. Romulo – as Independent Director

Withhold authority to vote for all nominees above Withhold authority to vote for the nominees listed below __________________ ___________________ _________________ __________________ ___________________ _________________ 5. Confirmation of SyCip Gorres Velayo & Co. as external auditors for the ensuing fiscal year Yes No Abstain 6. At its discretion, the Board of Directors is authorized to vote on such matters as may properly come before

the meeting Yes No ___________________________ ____________________________ Printed Name of Stockholder Signature of Stockholder Date: ________________ N.B. Pursuant to the By-Laws, no proxy in favor of a third person who is not a bona fide registered stockholder of the

Corporation shall be recognized. All proxies must be returned to the offices of the Corporation not later than one (1) week prior to the meeting date. If the stockholder is a corporation, a Secretary’s Certificate quoting the Board Resolution authorizing the corporate officer who signed this proxy must be submitted.

SECURITIES AND EXCHANGE COMMISSION

SEC FORM 20-IS

INFORMATION STATEMENT PURSUANT TO SECTION 20 OF THE SECURITIES REGULATION CODE

1. Check the appropriate box:

[ ] Preliminary Information Statement [ x] Definitive Information Statement

2. Name of Registrant as specified in its charter PRIME ORION PHILIPPINES, INC.

REPUBLIC OF THE PHILIPPINES 3. Province, country or other jurisdiction of incorporation or organization 4. SEC Identification Number 163671 5. BIR Tax Identification Code 320-000-804-342 20/F LKG TOWER, 6801 AYALA AVENUE, MAKATI CITY 1200 6. Address of Principal Office Postal Code 7. Registrant’s telephone number, including area code (632) 884-1106 Date : 22 NOVEMBER 2011 (TUESDAY) Time : 2:00 P.M.

Place : BALLROOM 3, THIRD FLOOR, MANDARIN ORIENTAL MANILA 8. Date, Time and Place of the Meeting of Security Holders 9. Approximate Date on which the Information Statement is First to be Sent or given to Security Holders 27 OCTOBER 2011 10. In case of Proxy Solicitation: Name of Person Filing the Statement/Solicitor: PRIME ORION PHILIPPINES, INC.

Address and Telephone No.: 20/F LKG TOWER, 6801 AYALA AVE., MAKATI CITY (632) 884-1106 11. Securities registered pursuant to Sections 8 and 12 of the Code or Sections 4 and 8 of the RSA

(information on number of shares and amount of debt is applicable only to corporate registrants):

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

(As of 30 September 2011) Common 2,366,444,383 Loans Payable (consolidated) -nil-

12. Are any or all of registrant’s securities listed in a Stock Exchange?

Yes x No _______ Common Shares Philippine Stock Exchange

INFORMATION STATEMENT

Part I A. GENERAL INFORMATION

Date, time and place of meeting of security holders:

(1) Date: 22 November 2011 (Tuesday)

Time: 2:00 p.m. Place: Ballroom 3, Third Floor, Mandarin Oriental Manila, Makati Avenue, Makati City

Complete mailing address of principal office of the Registrant/Company:

20/F LKG Tower, 6801 Ayala Avenue, Makati City 1200

(2) Copies of this Information Statement will be sent to the Company’s shareholders beginning 27

October 2011. Dissenters' Right of Appraisal

Generally, a stockholder shall have the right to dissent and demand payment of the value of his shares in the instances stated in Section 81 of the Corporation Code, as follows: (a) amendment of the articles of incorporation which has the effect of changing or restricting the rights of any stockholders or class of shares; or authorizing preferences in any respect superior to those outstanding; or of extending or shortening the term of corporate existence; (b) in case of sale, lease, exchange, transfer, mortgage, pledge or disposition of all or substantially all of the corporate property and assets; and (c) in case of merger and consolidation.

The appraisal right abovementioned may be exercised by any stockholder who shall have voted against the proposed corporate action, by making a written demand on the corporation within 30 days after the date on which the vote was taken for payment of the fair value of his shares: Provided, That failure to make the demand within such period shall be deemed a waiver of the appraisal right. If the proposed corporate action is implemented or affected, the corporation shall pay to such stockholder, upon surrender of the certificate or certificates of stock representing his shares, the fair value thereof as of the day prior to the date on which the vote was taken, excluding any appreciation or depreciation in anticipation of such corporate action.

If within a period of 60 days from the date the corporate action was approved by the stockholders, the withdrawing stockholder and the corporation cannot agree on the fair value of the shares, it shall be determined and appraised by three disinterested persons, one of whom shall be named by the stockholder, another by the corporation, and the third by the two thus chosen. The findings of the majority of the appraisers shall be final, and their award shall be paid by the corporation within 30 days after such award is made: Provided, That no payment shall be made to any dissenting stockholder unless the corporation has unrestricted retained earnings in its books to cover such payment: and Provided, further, That upon payment by the corporation of the agreed or awarded price, the stockholder shall forthwith transfer his shares to the corporation.

The present meeting, is being called to approve the following matters:

(1) Approval of the Minutes of the Previous Stockholders’ Meeting dated 22 November 2010 (2) Approval of the Annual Report for Fiscal Year 2010-2011 (including the Audited Consolidated

Financial Statements for the Fiscal Year ended 30 June 2011) (3) Ratification of Acts of the Board of Directors and Officers since the last Annual Stockholders’

Meeting (4) Nomination and Election of Directors; and (5) Confirmation of External Auditors.

Given the foregoing, there is no basis for the exercise of appraisal right by a stockholder. Interest of Certain Persons in Matters to be Acted Upon

(1) There are no persons (including a director or executive officer of the Company) with substantial

interest, direct or indirect, in any matter to be acted upon at the annual meeting. (2) No director of the Company intends or has expressed an intention to oppose any action to be

taken during the annual meeting.

Definitive Information Statement Pursuant to Section 20 Securities Regulation Code Prime Orion Philippines, Inc.

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(3) The nominees for election as director of the Company are those listed in the proxy form and in

pages 4-7 hereof. The said nominees have no associates.

B. CONTROL AND COMPENSATION INFORMATION Voting Securities and Principal Holders Thereof

(1) Class of Securities (As of 30 September 2011)

No. of Shares No. of Votes to Class Outstanding which Entitled

COMMON 2,366,444,383 2,366,444,383 PREFERRED -0- -0-

Total 2,366,444,383 2,366,444,383

(2) The record date for shareholders who shall be entitled to vote has been fixed at 10 October 2011 in accordance with the By-laws of the Company and the rules of the Securities and Exchange Commission and the Philippine Stock Exchange. Solicitation of proxies shall be made on common stockholders as of record date as provided by the Company’s stock and transfer agent, Banco de Oro -Trust and Investments Group (BDO), starting on 27 October 2011.

(3) Under the Company’s By-laws, the election of directors shall be conducted in the manner

provided by the Corporation Code of the Philippines and with such formalities and machinery as the officer presiding at the meeting shall then and there determine.

Section 24 of the Corporation Code allows cumulative voting in the election of directors. Thus,

a stockholder may vote such number of shares for as many persons as there are directors to be elected, or he may cumulate his shares and give one candidate as many number of votes as the number of directors to be elected multiplied by the number of his shares shall equal, or he may distribute them on the same principle among as many candidates as he shall see fit; provided that the total number of votes cast by him shall not exceed the number of shares owned by him as shown in the books of the corporation multiplied by the total number of directors to be elected. In connection with the election of directors, discretionary authority to cumulate the votes is not solicited by the Corporation.

As for other matters in the agenda, each stockholder is entitled to one vote. (4) (a) Security Ownership of Certain Record and Beneficial Owners (more than 5%)

(As of 30 September 2011) Title of Class

Name & address of record owner & relationship with issuer

Name of Beneficial Owner & relationship with record owner

Citizen- ship

No. of Shares Held

Percent (%)

Common PCD Nominee Corp.* G/F Makati Stock Exchange, Ayala Ave., Makati City

Filipino 778,742,612 32.91%

Common PCD Nominee Corp. G/F Makati Stock Exchange, Ayala Ave., Makati City

Non-Filipino

602,378,279 25.46%

Common

Genez Investments Corp. (GIC)** 20/F LKG Tower, 6801 Ayala Ave., Makati City - Stockholder

GIC 20/F LKG Tower, 6801 Ayala Avenue, Makati City

Filipino

250,000,000 10.56%

Common Lepanto Consolidated Mining Co. (Lepanto Mining)*** 21/F Lepanto Bldg., 8747 Paseo de Roxas, Makati City -Stockholder

Lepanto Mining 21/F Lepanto Bldg., 8747 Paseo de Roxas, Makati City

Filipino 180,000,000 7.61%

Common F.Yap Securities, Inc.**** Filipino 126,581,700 5.35%


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17/F Lepanto Building, 8747 Paseo de Roxas, Makati City -Broker

Total 1,937,702,591 81.89% *PCD Nominee Corp.-a private company and wholly-owned subsidiary of the Philippine Central Depository Inc. (PCDI), is the registered owner of the POPI shares; however, beneficial ownership of such shares pertain to the PCD participants (brokers) and/or their clients (corporations or individuals) in whose names these shares are recorded in their respective books. As per PCD List of Beneficial Owners dated 30 September 2011, the following hold at least 5% of POPI’s voting stocks: (1) Guoco Assets (Philippines), Inc. (GAPI)-451,256,180 (19.07%); (2) David Go Securities Corp. (DGSC) -134,022,997 (9.71%) ; (3) Citibank N.A. -122,285,000 (8.86%); Quality Investments & Securities Corporation-112,814,000 (8.17%); and F. Yap Securities, Inc. -98,377,000 (7.13%). -There is no specific nominee to vote these shares as the shares are held by different brokers. Brokers issue the proxy as

per instructions of their principal-clients/beneficial owners of the shares. -GAPI, a company organized under Philippine laws, is 96.45%-owned by Singapore-based Guoco Assets Pte. Ltd.. The

Board of Directors of GAPI has authority to decide how the POPI shares will be voted. At present, GAPI lodged its 451,256,180 POPI shares with PCD. The POPI shares will be voted in accordance with the instructions of GAPI’s proxy.

**GIC is wholly-owned by Treasure-House Holdings Corporation (THHC), which is 40%-owned by Mr. Yuen Po Seng and his wife. (Aside from the 250 million POPI shares registered in GIC’s name, GIC has 17,954,037 POPI shares lodged with DGSC , for a total equity of 11.32% in POPI.) The GIC Board of Directors has the power to decide how the POPI shares will be voted.

***The Board of Directors of Lepanto Mining has the power to decide how the POPI shares will be voted. ****F.Yap Securities, Inc. holds the POPI shares in trust for its clients/beneficial owners and will vote the POPI shares in

accordance with the instructions of such beneficial owners. (b) Security Ownership of Management (as of 30 September 2011)

Title of Class Name of Beneficial Owner

Amount and Nature of Beneficial ownership

Citizenship Percent of Class

Common Felipe U. Yap 3,010,000 shares (d) Filipino 0.127% Common David C. Go 22,200,000 (d/i) Filipino 0.938% Common Yuen Po Seng 1 (d) Malaysian - Common Victor C. Say 23,500,000 (d/ i) Filipino 0.993% Common Ricardo J. Romulo 1 (d) Filipino - Common Daisy L. Parker 283,400 (d) Filipino 0.012% Common Ronald P. Sugapong 85,429 (d/ i) Filipino 0.004% Common Ma. Rhodora P. dela

Cuesta 111,450 (d) Filipino 0.005%

Total Holdings of Directors & Executive

Officers

49,190,281 2.079%

(c) Voting Trust Holders of 5% or More

There are no voting trust holders of 5% or more of the common shares.

(5) Change in Control of Registrant

There has been no change in the control of the Registrant since the beginning of its last fiscal year.

Directors and Executive Officers

(1) (a) The present directors of the Company (listed below) have been nominated for re-election in the

Company’s forthcoming elections. There were no other nominees for directors. The Articles of Incorporation and By-laws of the Company provide for a seven-member Board of Directors. The directors serve for a term of one year until the election and acceptance of their qualified successors. The list below includes the position/s in the Company held by the present directors of the Company as well as the directorships/officerships of the directors in other corporations. Except as indicated, the directors have held their directorships/officerships listed below for at least the past five years to the present. Director (Age)-Citizenship Name of Company Position (As of 30 September 2011)


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Felipe U. Yap (74) - Filipino Chairman (2000-Present) Prime Orion Philippines, Inc. Vice Chairman (1993-2000) Chairman of the Board Lepanto Consolidated Mining Company* (1988-present) and Chief Executive Officer Lepanto Investment and Development Corp. Diamant Boart Philippines, Inc. Diamond Drilling Corporation of the Philippines Far Southeast Gold Resources, Inc. Manila Mining Corporation* (1988-present) Shipside, Inc. Chairman of the Board Orion Land Inc. Tutuban Properties, Inc. Orion I Holdings Philippines, Inc. Lepanto Ceramics, Inc.

FLT Prime Insurance Corporation Zeus Holdings, Inc.* (Nov. 1998-present) Yapster e-Conglomerate

Kalayaan Copper-Gold Resources, Inc. Director Orion Property Development, Inc.

Lepanto Condominium Corporation Manila Peninsula Hotel, Inc.

Philippine Associated Smelting & Refining Corp. Philippine Fire & Marine Insurance Corp. Chairman Board of Governors, Philippine Stock Exchange, Inc. (2000-

2002) David C. Go (70) - Filipino Vice Chairman (1992 to Present) Prime Orion Philippines, Inc. Director (1989 to Present) Chairman OE Holdings, Inc. Orion Maxis Inc. 22Ban Marketing, Inc.** Kolin Philippines, Inc.

ACA & Company Chairman/President Orion Property Development, Inc. Orion Beverage, Inc. President Orion Land Inc.

Tutuban Properties, Inc. TPI Holdings Corporation Director ZHI Holdings, Inc. Orion I Holdings Philippines, Inc. O.Y.L. Holdings, Inc.**

Orion Solutions, Inc. Yuen Po Seng (52) - Malaysian President (11 Jan. 2002 to Present) Prime Orion Philippines, Inc. Exec.Vice Pres. (1993 to 10 Jan. 2002) Treasurer (1995 to 10 Jan. 2002) Director (1995 to Present) Chairman/President ZHI Holdings, Inc.


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Orion Solutions, Inc. Genez Investments Corporation Treasure-House Holdings Corporation O.Y.L. Holdings, Inc.** Luck Hock Venture Holdings, Inc.** President FLT Prime Insurance Corporation

Orion I Holdings Philippines, Inc. Lepanto Ceramics, Inc. BIB Aurora Insurance Brokers, Inc.

Zeus Holdings, Inc. * (Nov. 1998-present) Guoco Assets (Philippines), Inc. (Apr. 2011-present) Hong Way Holdings, Inc. (Apr. 2011-present) Director Cyber Bay Corporation* (1993-present)

Central Bay Reclamation & Development Corp.** Orion Land Inc. Tutuban Properties, Inc. TPI Holdings Corporation Orion Property Development, Inc. Orion Beverage, Inc. Guoman Philippines Incorporated OE Holdings, Inc.

Orion Maxis Inc. Hume Furniture (Philippines), Inc. (Dec. 2008-present)

Daisy L. Parker (47)- Filipino Director (2000-Present) Prime Orion Philippines, Inc. Corporate Secretary (1995-Present) Director/Corporate Secretary Orion Land Inc. Tutuban Properties, Inc. TPI Holdings Corporation

Orion Property Development, Inc. Orion Beverage, Inc. Luck Hock Venture Holdings, Inc.**

Orion I Holdings Philippines, Inc. O.Y.L. Holdings, Inc.** Lepanto Ceramics, Inc.

Zeus Holdings, Inc.* (March 2001-present) ZHI Holdings, Inc.

FLT Prime Insurance Corporation Orion Solutions, Inc. BIB Aurora Insurance Brokers, Inc.

OE Holdings, Inc. 22Ban Marketing, Inc.** Maxcellon Inc. Orange Grove Investments Corporation (Sept. 2011-present) Director Guoman Philippines Incorporated

Guoco Assets (Philippines), Inc. (Apr.2011-present) Hong Way Holdings, Inc. (Apr. 2011-present) Corporate Secretary Orion Maxis Inc. Genez Investments Corporation Treasure-House Holdings Corporation Max Limousine Service Inc. (Mar. 2011-present) Ronald P. Sugapong (44)-Filipino Director (2007-present) Prime Orion Philippines, Inc. Treasurer (2002-present)


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Director/Treasurer Orion Land Inc. Tutuban Properties, Inc. TPI Holdings Corporation Orion Property Development, Inc. Orion Beverage, Inc. Luck Hock Venture Holdings, Inc.**

Orion I Holdings Philippines, Inc. Lepanto Ceramics, Inc. O.Y.L. Holdings, Inc.** Zeus Holdings, Inc.* (March 2001-present) ZHI Holdings, Inc. Orion Solutions, Inc. Guoman Philippines Incorporated OE Holdings, Inc. Orion Maxis Inc. 22Ban Marketing, Inc. ** Guoco Assets (Philippines), Inc. (Apr. 2011-present) Hong Way Holdings, Inc. (Apr. 2011-present) Treasurer FLT Prime Insurance Corporation BIB Aurora Insurance Brokers, Inc. Victor C. Say (66) - Filipino (Independent Director, 2009-present) Director (1989 to Present) Prime Orion Philippines, Inc. Director SEATO Trading Co., Inc. San Juan Enterprises, Inc. Kolin Philippines, Inc.

Seven of Us Foods, Inc. Ricardo J. Romulo (78) - Filipino (Independent Director, 2002 to present) Director (1997 to Present) Prime Orion Philippines, Inc. Senior Partner Romulo Mabanta Buenaventura Sayoc & delos Angeles Chairman Cebu Air, Inc.*(26 Oct. 2010-present/ regular director) Federal Phoenix Assurance Co. Inc. Sime Darby Pilipinas, Inc. Towers Watson Philippines, Inc. Interphil Laboratories, Inc. Digital Telecommunications Phils., Inc.*(Nov. 1996-present/

regular director) Manchester International Holdings Unlimited Corporation*

(May 1996-present) Director BASF Philippines, Inc. FLT Prime Insurance Corporation

Honda Philippines, Inc. Johnson & Johnson (Phils.), Inc. Kraft Foods (Phils.), Inc. Maersk-Filipinas, Inc.

Philippine American Life and General Insurance Co. Zuellig Pharma Corporation JG Summit Holdings, Inc.* (July 2000-present / regular director) SM Development Corporation*(June 1984-present/independent

director) Trustee Equitable Foundation, Inc. IBM Philippines, Inc. Pension Plan * listed company **inactive


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All present directors of the Company have been nominated for re-election as directors for this fiscal year. The search and nomination of directors were conducted by the Nomination Committee (constituted on 22 November 2010) composed of the following: Messrs. Felipe U. Yap, Yuen Po Seng and Mr. Victor C. Say (Independent Director). In accordance with SRC Rule 38 and Section 2, Article III of the Company’s Amended By-laws, nomination for independent directors were conducted by the Nomination Committee prior to the stockholders’ meeting. The Nomination Committee prepares the Final List of Candidates which contain the information about all nominees for independent directors. Only such nominees whose names appear in the Final List of Candidates are eligible for election as independent directors. No other nomination shall be entertained after the Final List has been prepared or allowed on the floor during the annual stockholders’ meeting. In case of failure of election for independent directors, the Chairman of the meeting shall call a separate election during the same meeting to fill up the vacancy. Atty. Ricardo J. Romulo has been nominated as independent director of the Company for this fiscal year 2011-2012. Atty. Romulo was nominated by a stockholder of the Company, Mr. Daniel M. Javier, through a nomination letter dated 12 September 2011. As verified, Mr. Javier and Atty. Romulo are not related to each other. The Company has not engaged the services of the law firm of Romulo Mabanta Buenaventura Sayoc & delos Angeles for the last two years. Atty. Romulo has accepted his nomination as independent director. Mr. Victor C. Say was nominated as an independent director by a stockholder, Ms. Elizabeth O. Julian, on 16 September 2011. As verified, Mr. Say and Ms. Julian are not related to each other. Mr. Say has accepted his nomination as independent director.

(b) Significant Employees The Company’s entire work force is considered as significant employees. The entire work force is expected to work as a team to attain the Company’s objectives.

(c) Family Relationships

There are no family relationships (up to fourth civil degree) either by consanguinity or affinity among the abovenamed directors and executive officers.

(d) Involvement in Certain Legal Proceedings

The abovementioned directors and executive officers have not been involved in any of the following events or legal proceedings that occurred during the past five years up to the date of filing of this proxy statement which are material to an evaluation of the ability and integrity of the said directors and executive officers:

i) Any bankruptcy petition filed by or against any business of which such person was a general

partner or executive officer either at the time of the bankruptcy or within two years prior to that time;

ii) Any conviction by final judgment in a criminal proceeding, domestic or foreign, or being subject to a pending criminal proceeding, domestic or foreign, excluding traffic violations and other minor offenses;

iii) Being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, domestic or foreign, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities, commodities or banking activities; and

iv) Being found by a domestic or foreign court of competent jurisdiction (in a civil action), the Commission or comparable foreign body, or a domestic or foreign exchange or electronic marketplace or self-regulatory organization, to have violated a securities or commodities law, and the judgment has not been reversed, suspended, or vacated.

(e) Certain Relationships and Related Transactions

i) There has been no transaction during the last two years, or proposed transactions to which the

Company was or is to be a party, in which any of the following persons had or is to have a direct or indirect material interest:


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1) Any director or executive officer of the Company; 2) Any nominee for election as a director; 3) Any security holder named in Sections B (d) (1) and (2) above; and

4) Any member of the immediate family (including spouse, parents, children, siblings and in-laws) of any of the persons named in the immediately preceding subparagraphs (1) (2) and (3) hereof.

ii) The Company does not have a parent company as no one stockholder owns more than 50%

of its shares. As per the Company’s records, GAPI is the beneficial owner of 451,256,181 shares representing 19.07% of the outstanding capital stock of the Company. (At present, GAPI lodged its 451,256,180 POPI shares with the PCD.) GIC is the beneficial owner of 267,954,038 POPI shares, equivalent to 11.32% equity. (GIC lodged 17,954,037 of said POPI shares with DGSC while 1 share was assigned to its nominee, Mr. Yuen).

iii) The Company and its subsidiaries in their normal course of business, have entered into

transactions with related parties principally consisting of noninterest-bearing advances with no fixed repayment terms and are due and demandable. As disclosed in Note 18 of the Notes to Consolidated Financial Statements, the Company and the related parties have common stockholders. There were no sales and purchases made to related parties during the year. There were no ongoing contracts or other commitments as a result of the arrangement. The Company has no relationship that enables the parties to negotiate terms of material transactions that may not be available from other, more clearly independent, parties on an arm’s length basis.

(2) Disagreement with Registrant

No director has resigned or declined to stand for re-election to the Board of Directors since the date of the annual meeting of security holders because of a disagreement with the Company or any matter relating to the Company’s operations, policies or practices.

Compensation of Directors and Executives

(1) Information as to aggregate compensation paid or accrued during the last two fiscal years and the

ensuing fiscal year to the Company’s Chief Executive Officer and four other most highly compensated executive officers.

Summary Compensation Table Annual Compensation

Name

Fiscal Year Salary (in P000s)

Bonus (in P000s)

Other Annual Compensation (in (P000s)

Yuen Po Seng (President)

2009-2010 2010-2011 2011-2012

x x x

Ronald P. Sugapong (SVP-Group Finance Officer)

2009-2010 2010-2011 2011-2012

x x x

Daisy L. Parker (SVP-Chief Legal Counsel)

2009-2010 2010-2011 2011-2012

x x x

Ma. Rhodora P. dela Cuesta (VP-Legal Dept.)

2009-2010 2010-2011 2011-2012

x x x

Edwin M. Silang (AVP-Group HR)

2009-2010 2010-2011 2011-2012

x x x

CEO and four most highly compensated Exec. Officers

2009-2010 2010-2011 2011-2012 (projected)

P 19,645.07 21,911.25 24,102.38

P5,159.64 6,182.84 6,801.13

P2,458.09 824.74 907.22


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All officers and directors as a group unnamed

2009-2010 2010-2011 2011-2012 (projected)

P21,935.07 25,771.25 30,925.50

P5,159.64 6,182.84 6,801.12

P2,458.09 824.74 907.21

(2) Compensation of Directors/Executive Officers

Members of the Board of Directors are elected for a term of one year and serve until the election and acceptance of their qualified successors. They receive no compensation except reasonable director’s fee (and/or bonus) as fixed by the Board of Directors at the end of the fiscal year in accordance with the Company’s By-laws. The members of the Board who are executive officers of the Company are remunerated with a compensation package comprising of 13-month base pay. In addition, they may receive a performance bonus at yearend which the Board extends to the rest of the managerial, supervisory and rank and file employees.

(3) Employment Contracts/Termination of Employment/Change-in Control Arrangements –

The Executive Officers are regular employees of the Company and are remunerated with a compensation package (as mentioned in the foregoing paragraph) corresponding to their position/rank as provided in their respective standard engagement/employment contracts. There are no special terms or compensatory plans or arrangements relative to the resignation, termination of employment of such executive officers. However, such executive officer may receive compensation if he qualifies under the terms and conditions of the Company’s retirement benefit plan. Further, the Company has no change-in-control arrangements with its executive officers.

(4) Warrants and Options Outstanding The Company has no outstanding warrants and options.

Independent Public Accountants Upon the recommendation/approval of the Audit Committee of the Company as provided in the Company’s Revised Manual of Corporate Governance (Revised Manual) and in compliance with SRC Rule 68 (3)(b)(iv), Sycip Gorres Velayo & Co. (SGV) has been selected as external auditors of the Company for this fiscal year as in the previous years. The Company’s Audit Committee is composed of the following: (i) Atty. Ricardo J. Romulo (independent director) as Chairman; (ii) Ronald P. Sugapong-Member; and Mr. Victor C. Say (Independent Director)-Member. For fiscal year 2010/2011, the Partner-in-Charge assigned to handle the Company’s account for the next five (5) years or until 2015 is Ms. Alicia O. Lu. She replaced Mr. Jose Pepito E. Zabat III, the Partner-in-Charge from 2005-2010. This is In compliance with the policy to change the external auditor or rotation of partner every five years as provided in the Company’s Revised Manual. There has been no resignation, dismissal or change in the external auditors of the Company for the past three fiscal years. Neither was there any disagreement with auditors on matters relating to accounting principles or practices or financial disclosures for the same period. The auditors are expected to be present during the annual stockholders’ meeting of the Company. They are not expected to make a statement but may do so if they so desire. The auditors are ready to answer questions, if any, on the audited financial statements of the Company for the fiscal year ended 30 June 2011.

C. OTHER MATTERS

Action with Respect to Reports

Minutes of Annual Stockholders’ Meeting (ASM) dated 22 November 2010 will be submitted for approval of the stockholders. Among the matters included in said Minutes of ASM are the: (1) Approval of the Minutes of the Previous ASM dated 14 December 2009; (2) Approval of Annual Report (including the


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Audited Financial Statements for the Fiscal Year Ended 30 June 2010); (3) Ratification of the Acts of the Board of Directors and Officers; (4) Election of Directors; and (5) Confirmation of External Auditors. Further, Management will also submit for ratification of the stockholders all corporate acts of management for fiscal year 2010-2011 which include: (1) Report on Results of Operations for the Fiscal Year (FY) Ended 30 June 2010; (2) Approval of Audited Consolidated Financial Statements for the FY Ended 30 June 2010; (3) Setting the Date of Annual Stockholders’ Meeting; (4) Nomination of Independent Directors; (5) Creation of Special Committee of Inspectors for Validation of Proxies; (6) Approval of Quarterly Reports on Operations; (7) Sale of Mandaue Property; (8) Full Compliance of the terms of the Compromise Agreement with Asset Pool A (SPV-AMC), Inc.

(APA)/ Move for Joint Dismissal of All Cases between POPI Group and APA; (9) Appointment of Proxies for Stockholders’ Meetings of Subsidiaries; (10) Election of Officers, Compliance Officer and Board Committee Members under the Manual of

Corporate Governance and the Compliance Officer under the Anti-Money Laundering Manual; (11) Appointment of External Auditors; (12) Consideration of Employees’ Annual Employees’ Salary Increment and Year-end Bonus; (13) Purchase of Share of Stock of Makati (Sports) Club, Inc.; (14) Approval of Corporate Governance Guidelines Disclosure Survey; (15) Approval of Revised Manual of Corporate Governance; and (16) Other administrative matters (such as designation of bank signatories, confirmation of inter-

company advances, consideration of Directors and Board Committee members’ fees, opening of Investment Management Accounts, opening of account with the Registry of Scripless Securities, opening and updating of securities accounts, closing of bank account, etc.).

Management will also submit for approval of the stockholders the Company’s Audited Consolidated Financial Statements for the Fiscal Year ended 30 June 2011.

Voting Procedures

(1) the vote required for approval or election

Provided there is a quorum which shall consist of a majority of the outstanding capital stock of the Company (represented in person or by proxy), a majority of such quorum shall decide any question that may come before the meeting, save and except in those several matters in which the laws of the Philippines require the affirmative vote of a greater proportion (Section 4, Article II of the Company’s By-laws). Hence, the vote of a majority of the quorum shall be required for approval of the minutes of the previous meeting, annual report and ratification of corporate acts. For the election of directors, a majority of the outstanding capital stock of the Company is required to constitute a quorum. Provided there is a quorum, such candidates for the position of Director of the Company receiving the highest number of votes shall be declared elected (Section 7, Article II of the Company’s By-laws and Section 24 of the Corporation Code). (2) the method by which votes will be counted Each shareholder may vote in person or by proxy the number of shares of stock standing in his name on the books of the Company. Each share represents one vote. During the meeting, voting for the approval/ratification of the matters to be presented during the meeting shall be by viva voce. Counting of votes shall be supervised by the Corporate Secretary/Assistant Corporate Secretary and the stock transfer agent of the Company.

Part II Solicitation Information

The Proxy Form (attached to this Information Statement) is being solicited on behalf of Prime Orion

Philippines, Inc., in connection with its Annual Stockholders’ Meeting to be held on 22 November 2011.


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The Proxy Form will be sent to the security holders for and on behalf of the Company. A stockholder

who is unable to attend the said meeting may submit a duly accomplished proxy form attached to this Information Statement in order that his vote (on matters to be discussed during the meeting) will be counted. The Proxy Form must be signed, returned or filed with and received at the office of the Company not later than one week prior to the date of the meeting, in time for the validation of the proxies to be held not later than five (5) days before the meeting date. The validation of proxies has been set on 17 November 2011 at 2:00 p.m. at the office of the Company. The Special Committee of Inspectors (composed of the Company’s Corporate Secretary and/or Asst. Corporate Secretary, representative of the external auditor and representative of the stock and transfer agent) shall decide on all matters pertaining to the proxies received by the Company.

In case the Proxy form is returned by the shareholder signed but without any other markings, the shares

will be voted as recommended by the Board of Directors on all matters to be considered at the meeting. Revocability of the Proxy The shareholder may revoke the proxy issued by him at any time prior to its use by the party who is

thereby authorized to exercise the same. The Company’s By-Laws do not provide any formal procedure by which revocation shall be done. However, no proxy in favor of a third person who is not a bona fide registered shareholder of the Registrant, and no proxy bearing a signature which is not legally acknowledged, shall be recognized at any meeting unless such signature is known and recognized by the Secretary of the meeting.

Persons Making the Solicitation

(a) The solicitation of proxies is being undertaken by the Company (through the Corporate Secretary

and her staff) in order to obtain the required quorum and the required vote to approve the subject matters to be taken up in the annual meeting. None of the directors has informed the Company of any intention to oppose the matters to be taken up in the annual meeting.

(b) In addition to ordinary mail, the Company in coordination with its stock and transfer agent, BDO,

intends to utilize the courier service of The Varied Services, Incorporated (TVSI) (with office at Rm. 502 NFWCP Bldg., 962 J. Escoda cor. San Marcelino St., Manila), to undertake the delivery and/or mailing of the Information Statement (including the proxy form). Costs will be limited to the normal costs of such services. (c) The cost of distributing this Information Statement and of soliciting the relevant proxies shall be borne by the Company. As per TVSI, the distribution of the Information Statement will be subject to a stuffing fee of P2.00/pc. plus delivery charges. The charges for delivery by messengerial service within Metro Manila (except Pateros, Valenzuela, part of Taguig and areas in Muntinlupa beyond Ayala Alabang and Alabang proper) is P18.00/pc. (for mailers with weight of 1-200 grams; additional charge of P1.00 per additional 50 grams plus 12% VAT). Delivery of mailers to the provinces (Luzon, Visayas. Mindanao) and outside the Philippines will be through the postal service. Mailing costs (via ordinary mail) will include VSI’s stuffing/handling fee of P9.00/pc. plus the postage fee as follows:

Local Metro Manila - P=100.00/pc. Luzon/Vis Min - P=130.00/pc.

Asian countries - P=940.00/pc. Pacific and Mid-East - P=1,305.00/pc. U.S.A., Europe, Canada - P=1,685.00/pc. Central & South America, Africa - P=1,770.00/pc. (The above mailing charges are applicable for mailers weighing 501-1000 grams.)

The Company, through the office of the Corporate Secretary, will follow-up on the proxies of the stockholders of the Company. For practicality, the Company will focus on the top 20 stockholders of the Company. There will be random follow-ups with other stockholders. Whenever possible, the Company (through its messengers) will directly pick up the duly accomplished proxy forms from the stockholders. In some cases, stockholders may initially fax the proxy form and have the same picked up by the Company; stockholders may also mail back the proxy form to the Company. Interest of Certain Persons in Matters to be Acted Upon

Please refer to the information on pages 2-3 hereof.

Annex A PRIME ORION PHILIPPINES, INC.

Management Report FY 2010/2011

Prime Orion Philippines, Inc. (the “Company”) (then named Philippine Orion Properties, Inc.), was incorporated in 1989 as an investment holding company. The merger of the Company with First Lepanto Corporation (FLC) paved the way for the entry of the Guoco Group of Hong Kong [through its affiliate, Guoco Assets (Philippines), Inc. (GAPI)]; consequently, the Company was renamed as Guoco Holdings (Philippines), Inc. (GHPI). On 2 October 2001, GAPI and GHPI mutually agreed to terminate their Management Contract to enable GHPI to better position itself in the Philippines and capitalize on the local conditions existing at that time. Consequently, on 4 January 2002, GHPI changed its name to Prime Orion Philippines, Inc.. The Company, at present, has interests in real estate and property development, manufacturing and retailing/distribution, financial services and other allied services organized under the following intermediate holding companies: (i) Cyber Bay Corporation (formerly FLC), organized in 1989, with authority to carry on the general business of

dealing in real estate (including all improvements found thereon); (ii) Orion Land Inc., organized in 1996, with authority to purchase, own, hold, lease and dispose of real

properties; (iii) Orion I Holdings Philippines, Inc., organized in 1993, with authority to engage in the manufacture, importing,

selling and dealing in wholesale of various products, electronic equipment and materials/supplies used for the manufacture of said products; and

(iv) OE Holdings, Inc., organized in 1993, with authority to engage in investment holding activities. The Company has its principal office at 20th floor LKG Tower, 6801 Ayala Avenue, Makati City, with telephone number 884-1106. Business of Issuer The principal products and services of POPI’s holding and operating companies as of 30 September 2011 are as follows: Cyber Bay Corporation (CBC) CBC, a 22.28%-owned affiliate of POPI, holds 100% interest in Central Bay Reclamation and Development Corporation (CBRDC), the company tasked to reclaim and develop some 750 hectares along the Manila Bay area earmarked for development into a world-class integrated township to be called Cyber Bay City. With the Supreme Court’s declaration with finality of the nullity of the Amended Joint Venture Agreement (AJVA) between CBRDC and the Philippine Reclamation Authority (PRA) (formerly Public Estates Authority) covering the said project, all project development activities at the site have been suspended. On 10 August 2007, CBC filed a P10.2 billion claim with the PRA for reimbursement of all its expenses for the project. To date, said claim is still pending with the PRA. Orion Land Inc. (OLI) • Tutuban Properties, Inc. (TPI), a wholly-owned subsidiary, organized in 1990, holds the lease and

development rights over a 22-hectare market district in downtown Divisoria, the country’s oldest and biggest trading district. On the property sits the Tutuban Commercial Center, an integrated wholesale and retail complex recognized as the premier shopper’s bargain district in the Philippines. On 22 December 2009, TPI renewed its Contract of Lease with the Philippine National Railways (PNR) for another 25 years (5 September 2014 to 2039).

• TPI Holdings Corporation (THC), organized in 2005 as a wholly-owned subsidiary of TPI, holds the titles

to certain parcels of land in Calamba, Laguna. • Orion Property Development, Inc. (OPDI), another wholly-owned subsidiary, organized in 1993, handles

property acquisition and horizontal development. Its landholdings include: (i) a 33-hectare property in Sto. Tomas, Batangas (of which 18 hectares have been sold and pending completion/transfer to a third party buyer); (ii) a 44-hectare raw land in Kay-Anlog, Laguna (of which 13 lots, with an aggregate area of 119,282 sqm. will be transferred to the City Government of Calamba as settlement for the real property tax liability of LCI), and (iii) The Homelands subdivision located along National Highway in Calamba, Laguna; (iv) its first pocket commercial centre, the Trellis Pocket Centre, located along National

Prime Orion Philippines, Inc. Management Report 2010/2011

2

Highway, Calamba City, Laguna; (v) an additional 7,442 sqm. property known as the MARFA area at the back of The Homelands, to be developed and marketed as the premier section of The Homelands Subdivision; and (vi) a 639-sqm. lot along J.P. Rizal, Makati City, for development of a residential/commercial condominium.

Orion I Holdings Philippines, Inc. (OIHPI) • Lepanto Ceramics, Inc. (LCI), a wholly-owned subsidiary, is engaged in the manufacture of ceramic floor

and wall tiles under the brand name Lepanto. OE Holdings, Inc. (OEHI) • Orion Maxis Inc. (OMI), a wholly-owned subsidiary of OEHI, is engaged in the business of establishing,

developing and providing management and logistical infrastructure service and market incentive systems solutions, and other allied businesses and services. Appointed as the sales and marketing arm of LCI in 2008, OMI handles the distribution of Lepanto tiles. In addition to tile distribution, OMI, through its OMI Land Title Services Division, offers land titling services (such as title transfer, reconstitution of lost title, land verification and survey, real property tax assessment and payment, etc.). [Incorporated in 2000 (as 22ban.com), OMI was to intended to initially operate as an on-line shopping website that offers a wide variety of gifts and other items for all occasions. In September 2004, OMI amended its primary purpose to its present purpose.]

Other subsidiaries/affiliates of POPI include: • FLT Prime Insurance Corporation (FPIC)

FPIC, a 70%-owned subsidiary of POPI, was incorporated in 1977, and operates as a non-life insurance company. It offers wide range of insurance products/lines such as fire, marine cargo, motor car, bonds, accident & health, miscellaneous casualty, engineering and business care.

• Orion Solutions, Inc. (OSI)

OSI, a 100%-owned subsidiary, is engaged in the business of providing business software solutions and management/information technology (IT) consultancy services to individuals and corporations. (It was originally organized in 1994 as an investment holding company; however, in 2002, the company amended its purpose to providing management, technical and financial consultancy services. It again amended its purpose in 2005 to engage in business as a software solutions/IT consultancy services firm.) OSI is the IT subsidiary of the POPI Group and is an authorized Reseller in the Philippines of the Enterprise Retail Planning (ERP) Software Solution, Epicor 9, which is focused on sales and distribution for wholesale and retail, finance and discrete manufacturing.

• BIB Aurora Insurance Brokers, Inc. (BAIBI)

BAIBI, organized in 1960, a 20%-owned affiliate, is in the business of insurance brokering. Due to poor market conditions, BAIBI suspended its operations in 2002.

(ii) Percentage of Sales Contributed by Foreign Sales The target market for products of the Company and its subsidiaries is the domestic market. (iii) Distribution Methods Selling of real estate by OPDI is made either through: (i) direct selling to individual or corporate buyers, or (ii) brokers. LCI’s Lepanto products are distributed and sold through authorized distributors/dealers, consignees like Do-It-Yourself (DIY) stores, retail outlets and tie-ups with architects, contractors and known developers. Insurance products of FPIC are sold through direct selling or marketing by FPIC’s individual/ corporate agents, branches, brokers and partners. OMI promotes its land titling services by joining trade fairs, direct advertising through flyers/brochures and agreements with banks and developers.


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(iv) New Products or Services LCI continues to launch new tile designs, especially for its rustic tiles. FPIC continues to improve on its, and develop new, insurance products for its market/clients. (v) Competition The Company competes with other investment holding companies in the Philippines in terms of investment prospects. The Company’s core businesses continue to compete in their respective industries. However, competition is kept basically on a domestic level. The Company’s core businesses are as follows:

1. LCI - LCI competes in the ceramic tile manufacturing market. It faces competition with the local brands

as well as cheap-priced imported tiles. LCI has increased its efforts to reduce its operating cost by lowering total production cost by using alternative sources of raw materials and fuel, complemented by more efficient production cycle times, lower wastages and rationalization in its organizational structure. To remain competitive, LCI continues to introduce new product lines/designs and product innovation and has focused on rustic tile designs. To enable LCI to focus its efforts on tile manufacturing, OMI works as the sales and marketing arm of LCI. To ensure visibility and availability of its products, LCI operates a retail showroom at Tutuban Prime Block Building; its products are also available at the DIY stores and home depots (like MC Home Depot, Ace Hardware, Wilcon, Citihardware).

2. TPI - TPI operates the Tutuban Commercial Center in Manila, known as the premier bargain center in

the country. Its competitors include other mall operators/lessors within Metro Manila. TPI’s Night Market and Food Street operations continue to draw customer traffic. TPI has developed its Tutuban Mall eXhibit (TMX) area intended to be the venue for many events in Tutuban. TPI capitalizes on aggressive tri-media advertising and promotional campaigns to enhance customer awareness about Tutuban Center. With the renewal of its lease, TPI will commence the redevelopment of its existing buildings. As per plans, TPI will start redevelopment/refurbishment of its Cluster Building in November 2011. Recently, TPI has secured accreditation from the Department of Tourism as tourist destination.

3. FPIC – FPIC competes with other non-life insurance companies. To expand its customer base and

market share, FPIC maintains branches in Metro Manila, specifically, in Cubao, Caloocan and Alabang, and key cities in the provinces of Cavite, Cebu, Bacolod, Dagupan, Davao and Cagayan de Oro. To remain competitive, FPIC continues to develop diverse and customized products which cater to the unique needs of its target market- the retail market, and to improve its existing products and services to its customers. There was also increased focus on lines with high premium retention such as motor car, personal accident and residential accounts.

4. OMI - As for tile distribution, OMI competes with distributors of other tile manufacturers and importers.

OMI competes with other land title management service providers. (vi) Purchases of Raw Materials and Supplies The Company’s raw materials and supplies are purchased on a competitive basis from many different sources and are readily available. (vii) Customers POPI has a broad market base for its numerous product lines and is not dependent on a single customer or group of customers. For its real estate and property development operations, POPI’s potential customers include middle to high-income home buyers as well as real estate investors and developers. For its manufacturing operations, LCI’s ceramic tile products cater to the construction industry (including the renovation market) and its variety of products appeal to medium-end and low-end consumers. OMI targets known project developers and contractors. For 2011, LCI focused to define LCI’s expertise and reputation as the leading rustic ceramic tile designs. In line with the demand of its market, LCI will continue to develop innovative rustic designs to cater to the high-end market.


4

For its financial services, FPIC has non-life insurance products which cater to a variety of customers, individuals and corporations. (viii) Transactions with and/or Dependence on Related Parties The Company has limited transactions and/or dependence on its shareholders and/or related parties in view of existing laws on disclosure and/or requirement for prior approval of appropriate government agencies. (ix) Franchise The Company’s products are not covered by any franchise. (x) Government Approvals for Principal Services The following subsidiary/affiliates of the Company have been granted the necessary government approvals for their operations: On 29 August 1980, BAIBI, a 20%-owned affiliate, was granted a license by the Insurance Commission (IC) to operate as an insurance broker. BAIBI’s broking license has not been renewed as it has not resumed operations. On 9 March 1977, FPIC, a 70%-owned subsidiary, was also granted a license by the IC to operate as a non-life insurance company, which license is renewed annually. (xi) Effect of Existing or Probable Governmental Regulations Governmental regulations expected to materially affect the operations or business of POPI and certain of its subsidiaries are as follows: a) On LCI (i) On 11 April 2002, the Department of Trade and Industry (DTI), pursuant to Republic Act No. (R.A.) 8800

(Safeguard Measures Act), issued a decision imposing a definitive general safeguard duty on imported ceramic floor and wall tiles. The safeguard measure was extended in 2004 and 2007; a final extension of this definitive general safeguard measure for another four years was approved by DTI as per its Order dated 21 January 2008. [Under R.A. 8800 and its Implementing Rules, the effective period of the measure, including its extension, may not in the aggregate exceed 10 years; any further petition for safeguard measure for the same articles shall not be accepted within 2 years from expiration of the same.] For now, LCI and other local ceramic tile manufacturers are protected by the safeguard measure;

(ii) The implementation of the Bureau of Philippine Standards (BPS) product certification will deter the flooding of the market with cheap substandard tile products. Lepanto tiles received the BPS certification which confirms the quality of LCI’s tile products; and

(iii) Industrial facilities using bunker fuel will have to comply with the guidelines of the Department of Environment and Natural Resources (DENR) in connection with its implementation of RA 8747 or the Philippine Clean Air Act of 1999. The DENR is working on the guidelines for said industrial facilities particularly with respect to mass rating, emission trading and emission averaging.

b) On FPIC

On 18 February 2011, the Securities and Exchange Commission approved FPIC’s increase in paid-up capital to P125 million. Pursuant to Department of Finance Order No. 27-06, as amended, FPIC is required to increase its paid-up capital to P175 million by 31 December 2011.

(xii) Research and Development Activities Except for the development of new tile designs by LCI, there are no other research and development activities undertaken by the Company or its other subsidiaries. Budget for research is included in tile production cost. (xiii) Costs and Effects of Compliance with Environmental Laws Operations of its manufacturing company may be affected in the coming years with the implementation of R.A. 8747 and other environmental laws. Compliance with such environmental laws may entail additional investments and/or upgrades in facilities.


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(xiv) Employees As of 30 June 2011, the employees of POPI are as follows: Executives - 8 Managers - 7 Supervisors* - 10 *performs various clerical and administrative functions Rank & File - 11 ------- Total 36 The said employees have been seconded by POPI to its subsidiaries. Depending on its requirements and that of its subsidiaries, POPI may hire additional employees for the ensuing fiscal year. The Company has no workers’ unions and is not bound under any Collective Bargaining Agreement (CBA); neither are any of its employees involved in any strike or threatening to stage a strike against the Company. However, the Company’s subsidiaries namely, FPIC and LCI, have workers’ unions which have existing CBAs. LCI and its Union renewed their CBA last 21 October 2009. FPIC’s CBA was signed on 8 December 2010. Item 2. Properties The operations of the Company and most of its subsidiaries are conducted at the 20/F LKG Tower, 6801 Ayala Avenue, Makati City. The Company and its subsidiaries lease said office at the rate of P680.00 per sqm. (subject to annual escalation); the lease was recently renewed for another three (3) years or until 14 April 2013, renewable under such terms acceptable to the parties. LCI’s office and ceramic tile manufacturing operations are conducted in a plant in LCI’s 14.28-hectare property in Calamba, Laguna. TPI holds office at the 2nd Floor of Centermall Building of Tutuban Commercial Center at C.M. Recto Ave., Manila. FPIC’s Head Office leases the 16th floor of Pearlbank Centre located at 146 Valero St., Salcedo Village, Makati City, while its branches lease office spaces in Alabang, Davao City, Bacolod, Dagupan, Caloocan, Cubao, Cagayan de Oro, Cebu and Cavite. Other properties of the Company and its subsidiaries include: (i) a 232.98 sqm. condominium unit at Eurovilla III at Valero St., Makati City, which is presently used as the residence of one of the Company’s officers; (ii) Tutuban Commercial Center (comprised of Prime Block Mall, Cluster Buildings, Center Mall I and II, Robinsons’ Supermarket and Department Store building and Parking Tower) with a total area of about 165,000 square meters. The Tutuban Center sits on about 8.5 hectares of real property owned by the PNR and presently leased by TPI. The said lease was renewed last 22 December 2009 for another 25 years (5 September 2014 to 4 September 2039). The Renewal of Contract of Lease (starting 2014) provides for an expanded leased area, which would include: (a) Phase 1- existing 8.5 has.; (b) Phase IIA- approximately 5.8 has. (for land use); and (c) Phase IIB- approximately 5.8 has. (air rights); (iii) a 1.07 hectare lot in Mandaue City; and (iv) a 49.85 sqm. condominium unit at Makati Prime Tower (subject to notice of lis pendens registered by Prime Tower Property Group, Inc. in connection with its case against Titan-Ikeda Construction and Development Corporation). OPDI, which handles property acquisition and horizontal development, has the following properties/projects: (a) a 33-hectare property in Sto. Tomas, Batangas (about 18 hectares of which have been sold and pending completion/transfer to a third party buyer); (b) 44-hectare raw land in Kay-Anlog, Laguna (of which 13 lots, with an aggregate area of 119,282 sqm. which is in the process of being transferred to the City Government of Calamba); (c) about 13 residential lots in The Homelands Subdivision in Calamba, Laguna, with a total area of about 2,030 sqm.; (d) Trellis Pocket Centre, a 747-sqm. commercial project located along National Highway, Calamba; (e) additional 7,442 sqm. property known as the MARFA area at the back of The Homelands, intended to be developed and marketed as the premier section of The Homelands Subdivision; and (f) 639-sqm. property in J.P. Rizal, Makati City, to be developed as a commercial/residential condominium. The Company does not have plans to acquire any real property within the next twelve months. Item 3. Legal Proceedings (1) Legal Proceedings a. G.R. No. 197219 / CA GR CV No. 90499

Civil Case No. 68287 “Lavine Loungewear vs. First Lepanto-Taisho Insurance Corp. (now FPIC), et. al.”


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----------------------------------------------------------------------------------------------------------------- A complaint for sum of money (representing insurance proceeds) with issuance of Temporary

Restraining Order (TRO) and Injunction was filed on 24 January 2001 with the Pasig Regional Trial Court (RTC)-Branch 71, against the Company’s subsidiary, FPIC, by its insured, Lavine Loungewear Mfg. Inc. (Lavine). Prior to the filing of the suit, there was an intra-corporate dispute between two groups of stockholders of Lavine, each group claiming to be the owner of Lavine and therefore entitled to receive the insurance proceeds. Since FPIC could not determine which group of Lavine stockholders to pay, FPIC only made partial payment on the claim.

On 2 April 2001, the RTC rendered a Decision finding FPIC liable to pay Lavine the amount of P18,250,000 with 29% interest per annum from October 1998 until full payment. A Special Order for Execution Pending Appeal was also issued by the Court. As a result, certain assets of FPIC were garnished/attached. FPIC then filed a Petition with prayers for TRO and Injunction with the Court of Appeals (CA)-10th Division, which reliefs were granted. On 29 May 2003, the CA-10th Division, in its Consolidated Decision, ruled as follows: (1) setting aside the RTC Decision dated 2 April 2001; (2) declaring null and void the Special Order dated 17 May 2002 and the Writ of Execution dated 20 May 2002; (3) remanding the case to the lower court for pre-trial conference on the Second Amended Answer-in-Intervention; and (4) payment of proceeds to Lavine (if adjudged entitled to said proceeds) be withheld until a decision on the rightful members of the Board of Directors of Lavine is issued by the intra-corporate court. The Intervenors (a party to the intra-corporate dispute) filed a Motion for Reconsideration (MR) with the CA-10th Division, to which FPIC filed its Opposition dated 15 July 2003 together with a Motion for Immediate Lifting of Garnishment.

On 20 April 2004, the CA resolved to lift the order of levy and notices of garnishment on the real and personal properties and bank deposits of FPIC which were made pursuant to the Special Order dated 17 May 2002 and Writ of Execution dated 20 May 2003 which were declared null and void by the CA.

A Petition for Review (PR) was filed by Intervenors with the Supreme Court (SC) to set aside the CA Decision of 29 May 2003. The SC, in its Decision dated 25 August 2005, affirmed the CA Decision dated 29 May 2003. Said SC Decision became final and executory.

Separately, FPIC filed an appeal with the CA of the RTC Decision dated 1 April 2001. The records of the case have been forwarded to the CA on 28 January 2008. On 12 September 2008, FPIC received a Notice from the CA directing FPIC to file its appellant’s brief within 45 days from receipt of the notice or until 27 October 2008. FPIC filed its Appellant’s Brief with the CA on 6 November 2008. Intervenor-appellees Harish Ramnani, et.al filed an Amended Motion to Dismiss (MTD) Appeal of Defendant Equitable PCI-Bank dated 14 November 2008. Intervenor-Appellees filed its Consolidated Brief dated 8 January 2009 to which FPIC filed its Appellant’s Reply Brief dated 11 February 2009. Meanwhile, on 6 January 2009, Villaraza Cruz Marcelo & Angangco (VCMA) filed its Entry of Appearance as counsel for appellant Banco de Oro Unibank, Inc. (BDO) (formerly Equitable PCI Bank) and filed an Opposition to the Amended MTD filed by Intervenor-appellees.

The CA, in its Resolution dated 8 May 2009, resolved as follows: (i) the MTD filed by Intervenor-

appellees was denied; (ii) entry of appearance of counsel for BDO was noted; (iii) Appellee’s Brief filed by Lavine on 10 February 2009 (which was one day late) was admitted in the interest of justice; (iv) Reply Brief of defendant appellants Rizal Surety and Insurance Co., Tabacalera Insurance Co. and FPIC (which was filed late) were admitted; (v) BDO given an inextendible period of 45 days from notice within which to file appellant’s brief; and (vi) plaintiff-appellee’s Consolidated Brief was admitted without prejudice to filing of an appellee’s brief in response to appellant BDO.

BDO filed its Appellant’s brief to which intervenor-appellees filed their Appellee’s Brief. BDO in turn filed

a Reply Brief.

The CA issued a Decision dated 30 September 2010 which affirmed the RTC Decision dated 2 April 2002 in all respects except that it exempted BDO from paying 10% of the actual damages due and demandable as and by way of attorney’s fees. Briefly, the Decision ruled relative to FPIC that: (a) Intervention (by intervenors) was done and allowed so that the real representatives of party-plaintiff

could sue on behalf of the latter; (b) FPIC is liable for P18,250,000.00 because the insurance proceeds totaled P169,300,000.00 with

interest per lead adjuster’s valuation;


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(c) FPIC must pay interest as it did not file an interpleader and consignation suit for this purpose; (d) FPIC liable to pay 29% interest (i.e., twice the interest ceiling of 14.5%) as provided under Section

243 of the Insurance Code of 1978; and (e) FPIC is liable for attorney’s fees as it compelled plaintiff-appellee, through intervenors, to file the

instant suit to collect money due from it. On 5 November 2010, FPIC filed an MR of the CA Decision dated 30 September 2010.

The CA issued a Resolution dated 9 June 2011 which affirmed the 30 September 2010 CA Decision subject to the following modifications: 1. Phil Fire is liable to plaintiff-appellee through intervenors for the sum of P8,628,278.57 with 6%

interest per annum (p.a.) from 26 November 2001 and 12% p.a. from finality of the resolution until full paid;

2. Rizal Surety is liable for P10,616,608.10 with 6% interest p.a. from 26 November 2001 and 12% p.a. from finality of the resolution until fully paid;

3. FPIC is liable for the sum of P10,145,760.11 with 6% interest p.a. from 26 November 2001 and 12% p.a. from finality of resolution until fully paid;

4. Tabacalera Insurance is liable for the sum of P11,189,530.22 with 6% interest p.a. from 26 November 2001 and 12% from finality of resolution until fully paid;

5. Award of 10% attorney’s fees is deleted; 6. BDO’s MR on the issue of overpayment is remanded to the trial court for computation; 7. The loan mortgage annotations on TCT Nos. 2390684, CCT Nos. PT-1787185, PT-1787286 and

PT-1787387 are declared valid and subsisting until the obligations secured thereby shall have been completely discharged based on the trial court’s final computation; and

8. Amounts due to Lavine, through intervenors-crossclaimants-appellees, are subject to priority satisfaction of its remaining obligation to BDO, if any subsists based on trial court’s final computation as directed, and payment of docket fees corresponding to intervenors-crossclaimants-appellees’ money claims as prayed for in their Second Amended Answer–in-Intervention with Counterclaim dated 15 October 2001. Should the trial court’s final computation as required yield an overpayment, the same should be reimbursed to Lavine, through intervenor-crossclaimants-appellees.

Intervenors-Crossclaimants-Appellees filed a Motion for Partial Reconsideration (MPR) of the CA Resolution dated 9 June 2011. The CA in its Resolution dated 5 September 2011 denied the MPR for lack of merit. The Motion for Extension of Time to File Petition for Review on Certiorari filed by Phil Fire, and the Appeal by Certiorari filed by plaintiff-appellee Lavine filed before the SC were duly noted.

On 30 June 2011, FPIC filed a Motion for Extension of Time to File PR (under Rule 45 of the Rules of Court) of the CA Decision and CA Resolution with the SC. FPIC filed its PR on Certiorari with the SC on 29 July 2011. The petition is pending with the SC. Intervenors-crossclaimants-appellees have filed a Motion for Extension of Time to File PR dated 14 September 2011 with the SC.

b. Civil Case Nos. 02-586 [Makati RTC- Br. 62]/ CA G.R. CV No. 94985 02-587 [Makati RTC- Br. 59]/ CA G.R. CV No. 86623/ G.R. No. 177839 02-588 [Makati RTC-Br. 61]/ CA G.R. CV No. 92226/ G.R. No. 198039 “Chevron Philippines, Inc. (formerly Caltex) vs. FPIC, et.al.” ------------------------------------------------------------------------------------ Chevron Philippines, Inc. (Chevron) filed three civil cases against FPIC for recovery of sum of money

pursuant to the terms and conditions of the surety bonds issued by FPIC to secure each of the obligations of Peakstar Oil Corporation (Peakstar), Fumitechniks Corp. of the Philippines (Fumitechniks) and R.S. Cipriano Enterprises (Cipriano) to Chevron. In all these cases, FPIC cited as its defense that in the absence of written principal agreements (between Chevron and the three abovenamed obligors), the surety bonds (issued by FPIC), which are mere accessory contracts, could not have come into being or are void. (i) Peakstar Account (Civil Case No. 02-856)- Chevron filed a claim against FPIC for the

recovery of the sum of P26,257,712.58 before Makati RTC-Branch 62. FPIC filed a Motion to Strike Out Testimony and Evidence of Chevron’s witnesses on grounds that they were in violation of the Parol Evidence Rule, irrelevant and immaterial and unenforceable under the Statute of Frauds. The RTC granted FPIC’s Motion and the said testimonies and evidence were stricken off the records.


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Chevron filed an MR of the Order striking out the testimonies of the plaintiffs’ witnesses which was denied by the court. Chevron then filed a PR with the CA which was dismissed by the CA as per Decision dated 28 September 2007 which has become final and executory. In the RTC, FPIC finished its presentation of evidence and Formal Offer of Evidence (FOE). The parties were asked to file their respective Memoranda. On 26 September 2008, FPIC filed its Memorandum dated 20 September 2008. Chevron filed its Memorandum dated 18 September 2008 (received by FPIC on 2 October 2008). FPIC filed its Reply (to Plaintiff’s Memorandum) dated 6 October 2008. RTC issued a Decision dated 28 December 2009 in favor of Chevron which ordered FPIC to pay Chevron P26,257,712.58 plus interest starting 6 February 2009 until fully paid plus attorney’s fees and costs of suit. FPIC filed its Notice of Appeal on 5 February 2010. FPIC filed its Appellant’s Brief with the CA on 22 November 2011. The CA issued a Resolution dated 31 March 2011 which referred the parties to the Philippine Mediation Center-CA for mediation to give the parties one final chance to explore the possibility of amicable settling their dispute. Mediation proceeding was held on 29 July 2011. Mediation proceedings were terminated as the parties deemed it unlikely for the parties to reach a settlement in view of the legal issues involved. Case was referred back to CA for decision. FPIC filed a Manifestation and Submission dated 10 October 2011 with the CA informing the CA of the pendency of a similar case involving Chevron and FPIC (CA Case No. 92226) and that the MPR filed by Chevron in said case was already denied by the CA and Chevron has already filed a PR with the SC.

(ii) Fumitechniks Account (Civil Case No. 02-857)- Chevron filed a claim against FPIC in the amount of P15,314,265.76 with Makati RTC-Branch 59. As in the Peakstar case, FPIC filed a Motion to Strike Out Testimony and Evidence of the Chevron’s witnesses on grounds that they were in violation of the Parol Evidence Rule, irrelevant and immaterial and unenforceable under the Statute of Frauds. The case was submitted for decision upon filing by the parties of their respective memoranda.

On 5 August 2005, the RTC issued a Decision dismissing Chevron’s complaint as well as the counterclaims of FPIC. Chevron then filed an appeal with the CA. FPIC also interposed an appeal with the CA on the dismissal of its counterclaims. Upon filing of FPIC’s Appellant’s Brief and Appellee’s Brief and Reply (to plaintiff’s appellant’s brief), the case was deemed submitted for resolution. The CA issued a Decision dated 20 November 2006 which reversed the RTC Decision. FPIC filed an MR of the CA Decision, which was subsequently denied by the CA. On 26 June 2007, FPIC filed a PR with the SC (docketed as G.R. No. 177839). The Parties have submitted their respective Memoranda in 2008. Case deemed submitted for decision.

(iii) Cipriano Account (Civil Case No. 02-858)- A case against FPIC for recovery of sum of money

in the amount of P10 million was filed by Chevron with Makati RTC-Branch 61. Again, FPIC filed its Motion to Strike Out Evidence on the grounds that they were in violation of the Parol Evidence Rule, irrelevant and immaterial and unenforceable under the Statute of Frauds, which was denied by the court. FPIC then filed an MR of the Order denying FPIC’s Motion to Strike Out Evidence which has been submitted for resolution. After FPIC’s presentation of evidence, the case was submitted for decision.

On 8 August 2008, the RTC issued a Decision in favor of Chevron. FPIC filed a Notice of

Appeal to the CA. FPIC filed its Defendant-Appellant’s Brief with the CA on 10 July 2009. Chevron has filed its Appellee’s Brief, to which FPIC filed a Reply Brief.

On 4 May 2011, the CA issued its Decision which reversed the RTC Decision dated 8 August 2008 and dismissed the complaint a quo for lack of merit. Chevron filed an MPR dated 26 May 2011 for the reversal of the 4 May 2011 Decision. The CA, in its Resolution dated 3 August 2011, denied the Chevron’s MPR. Chevron filed PR with the SC.

c. The following tax cases filed by POPI’s subsidiaries were terminated within the FY ended 30 June 2011:


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(i) “TPI vs. CIR” (Court of Tax Appeals (CTA) Case No. 6570);

“CIR vs. TPI” (CTA EB Nos. 389, 391 and 418/ G.R. Nos. 188342 and 188354-55) Status: Case deemed closed and terminated -----------------------------------------------------------

This is a Petition for the cancellation and withdrawal of the alleged Deficiency Income Tax (DIT), expanded withholding tax and VAT for FY 1998 in the amount of P485,522,807.70 claimed against TPI. TPI’s witnesses testified that PNR has duly recorded and reported to the BIR the income payments in the form of rentals made by TPI from July 1997-June 1998; hence TPI could not be held liable for the alleged DIT. TPI filed its FOE on 10 October 2005 which was approved by the Court on 6 January 2006. The hearing date for presentation of BIR’s evidence was set on 29 March 2006. BIR filed a motion to reset said hearing to May. As the BIR failed to appear on said date, TPI moved that BIR be declared to have waived its right to present evidence. The Court granted TPI’s Motion and directed submission by the Parties of their respective Memoranda. TPI filed its Memorandum on 4 July 2006. BIR did not file its Memorandum. BIR filed an MR of the said Order, to which TPI filed its Opposition. On 8 September 2006, the Court granted BIR’s MR. Presentation of BIR’s evidence was set on 27 September 2006. BIR failed to appear on said hearing and TPI moved that BIR be deemed to have waived its right to present evidence which was granted by the CTA. BIR was ordered to submit its Memorandum on or before 2 November 2006; however, the BIR was able to file its Memorandum only on 4 December 2006. On 20 December 2007, the CTA (2nd Division) issued a Decision affirming the tax assessment against TPI in the reduced amount of P133,594,612.30. Both Parties filed an MR. Pending resolution of said motions, TPI availed of the tax amnesty and consequently filed a Motion for Partial Withdrawal of Petition. On 21 April 2008, the CTA issued a Partial Amended Decision which resolved two pending incidents: (i) it denied the MR but further reduced the amount of TPI’s tax liability of P133,460,700.64; and (ii) denied the Motion for Partial Withdrawal of Petition pursuant to its tax amnesty availment. On 13 May 2008, TPI filed an MR Ad Cautelam (re: denial of its Motion for Partial Withdrawal of Petition). The BIR filed a PR with the CTA en Banc (docketed as CTA EB No. 389). TPI also filed a PR with the CTA En Banc (docketed as CTA EB No. 391). TPI filed a Motion for Consolidation of Cases dated 27 August 2008. The CTA En Banc granted consolidation of the two cases and ordered the parties to file their respective Memoranda on 31 August 2008. The CTA (2nd Division) issued a Resolution dated 1 August 2008 which stated that considering that the 2nd Division has no more authority to act on TPI’s MR, TPI was directed to file anew its application for amnesty and to attach thereto certified copies with the CTA En Banc. On 12 August 2008, TPI filed an Urgent Motion for Clarification with the CTA 2nd Division. The CTA (2nd Division) issued a Resolution dated 26 August 2008 which directed TPI to file the Motion for Partial Withdrawal of Petition with the CTA En Banc for appropriate action. Meanwhile, on 22 August 2008, TPI filed a PR with the CTA En Banc to prevent the 1 August 2008 Resolution from becoming final (docketed as CTA EB Case No. 418) and prayed that TPI’s Motion for Partial Withdrawal of Petition be granted except for TPI’s supposed deficiency expanded withholding tax (EWT) liability. On 28 August 2008, TPI filed a Motion for Deferment of Submission of Memorandum in the consolidated cases until the issues in CTA EB No. 418 are resolved. A Motion for Consolidation of CTA Case No. 418 with CTA EB Nos. 389 and 391 was filed on even date which was granted by the CTA En Banc. On 28 January 2009, the CTA En Banc issued a Resolution finding that TPI complied with all the requirements of the Tax Amnesty Law. Accordingly, the CTA En Banc ordered the withdrawal of the Petition with respect to the deficiency tax assessments for income tax and VAT; only the issue on TPI’s alleged EWT liability was left for resolution by the CTA En Banc.


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On 21 April 2009, the CTA En Banc issued a Decision canceling the subject tax assessments except for TPI’s alleged tax liability for EWT in the amount of P434,743.52 plus 20% delinquency interest per annum, computed from 13 December 2002 until full payment. The BIR filed an MR but only with respect to the issue of TPI’s availment of tax amnesty. The CTA En Banc denied this motion and ruled that the validity of TPI’s tax availment can no longer be questioned considering that the Court’s 28 January 2009 resolution is already final. The Office of the Solicitor General (OSG) filed a PR on Certiorari dated 28 July 2009 with the SC (docketed as GR No. 188342). TPI filed a MTD on the ground that the same failed to comply with the Rules of Court on Verification and Certification against Forum Shopping. TPI received BIR’s Comment (filed by the OSG) on the MTD on 5 February 2010 and awaiting notice from SC. On 5 May 2010, TPI received a Motion to Admit filed by the OSG asking the SC to admit their Reply which was filed out of time. The SC, in a Notice dated 5 July 2010, granted the Motion to Admit Reply and directed the CTA to elevate the complete records of the case. The SC in its Resolution dated 20 October 2010 denied the petition for failure to sufficiently show any reversible error in the assailed judgment as to warrant the exercise of the SC’s discretionary appellate jurisdiction.

(ii) “TPI vs. CIR” (CTA Case No. 7536) – Status: Case deemed closed and terminated ------------------------------------------------------------

This is a Petition for cancellation and withdrawal of alleged DIT in the amount of P68,706,056.94 (for FY ended 30 June 2002) assessed against TPI. TPI filed the Petition on 30 October 2006. The BIR filed a Motion for Extension of Time to file its Answer until 8 December 2006, which motion was granted by the CTA. BIR failed to file its Answer on the set deadline, hence, TPI filed a Motion to Declare BIR in Default. On 23 January 2007, the BIR filed a Motion to Admit Answer. After the hearing held on 2 February 2007, the CTA resolved to admit BIR’s Answer. On 6 March 2008, TPI availed of the tax amnesty and moved for the partial withdrawal of its Petition on 13 March 2008. On 10 June 2008, the CTA in Division issued a Resolution allowing the withdrawal of the Petition with respect to the income tax and VAT assessments. Accordingly, only the issue on TPI’s alleged withholding tax liabilities was left for the Court’s resolution. TPI completed its presentation of evidence and made its FOE on 19 June 2008. On 17 February 2009, TPI filed a Supplemental FOE which was admitted by the CTA. Hearing for CIR’s presentation of evidence was set on 23 April 2009 but was re-set on 21 May 2009. The BIR presented its evidence during the hearing held on 9 June 2009 and 7 July 2009. BIR made its FOE on 12 August 2009. The CTA then directed both parties to file their respective Memoranda on or before 14 October 2009 after which the case shall be deemed submitted for decision. TPI filed its Memorandum on 13 October 2009 while the BIR filed a Motion to Admit Attached Memorandum on 27 November 2009 which was granted by the CTA. The CTA, in its Decision dated 13 December 2010, cancelled the CIR’s assessments for deficiency withholding tax on compensation and expanded withholding tax for the FY ending 30 June 2002, including increments, for lack of factual and legal bases.

d. Civil Case No. 08-679 “Quali Furn Marketing Corp. vs. FPIC” [Makati RTC Br. 59] -------------------------------------------------

A Complaint for specific performance and damages was filed with Makati RTC Branch 148 by insured against FPIC for payment of P20,000,000 for and as actual damages (with 24% interest thereon from 30 July 2007 until fully paid) as its claim under Fire Insurance Policy No. F-29577 issued by FPIC. FPIC denied the claim as the existence and value of the insured items have not been established by plaintiff.


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FPIC filed its Answer dated 16 October 2008. FPIC filed a Motion to Conduct Judicial Dispute Resolution dated 20 July 2009. The RTC granted the said Motion and set the Judicial Dispute Resolution on 16 September 2009. As no settlement was reached, the JDR was terminated and the case was re-raffled to Makati RTC Branch 59. Pre-trial was held on 12 March 2010. Presentation of plaintiff’s witnesses on-going.

e. Civil Case No. 3911-06-C “Fritta, S.L. vs. LCI” ------------------------------------

A case for collection of sum of money was filed by a supplier, Fritta, against LCI before Calamba RTC-Br. 92. Plaintiff Fritta is demanding payment in the principal amount of L332,452.73 (about P22,433,920.44), attorney’s fees of P500,000 plus costs of suit. On 5 April 2006, LCI filed an MTD on the grounds of lack of capacity to sue as Fritta is a foreign corporation and Fritta’s defective certification against forum shopping. On 8 June 2006, the RTC issued an Order denying LCI’s MTD. On 11 July 2006, LCI filed an MR of said Order, to which Fritta filed its Opposition. On 11 August 2008, LCI filed its Reply. The RTC issued an Order dated 17 October 2007 denying LCI’s MR. LCI then filed its Answer Ad Cautelam dated 17 November 2006 to which Fritta filed its Reply dated 12 December 2006. On 22 December 2006, LCI filed a Petition for Certiorari (PC) and Prohibition with prayer for the issuance of a TRO and/or Injunction (CA-G.R. SP No. 97331) with the CA, assailing the 8 June 2006 and 17 October 2007 Orders of the RTC. On 17 May 2007, the CA issued a Decision dismissing the PC and thereafter denied LCI’s MR. On 26 October 2007, LCI filed a PR with the SC (G.R. No. 179596). On 17 November 2008, the SC dismissed the PR. On 3 February 2009, LCI filed an MR to which Fritta filed its Comment/Opposition. The MR has been denied by the SC. Meanwhile, pre-trial was held on 29 May 2007. Fritta filed a Motion to Take Deposition (of its 3 witnesses in Spain) (MTTD) dated 11 June 2007 to which LCI filed its Opposition dated 27 June 2007. The RTC, in its Order dated 17 July 2007, granted Fritta’s MTTD. LCI filed an MR on the RTC Order dated 17 July 2007, which was denied by the RTC in its Order dated 2 October 2007. On 18 December 2007, LCI filed a PC (CA-G.R. SP No. 101754) with the CA, assailing the 17 July and 2 October 2007 Orders of the RTC. Upon order of the CA, both parties filed their respective Memoranda on 21 June 2008 (LCI) and 29 June 2008 (Fritta). On 7 February 2011, the CA issued a Decision dismissing the PC. On 21 February 2011, LCI filed an MR. On 29 April 2011, Fritta filed its Opposition to the MR. On 29 May 2011, LCI filed a Reply to the Opposition. The MR is now submitted for resolution. On 16 August 2007, in response to Fritta’s MTTD dated 11 June 2007, LCI filed a First Request for Admission (FRA) that Fritta’s witnesses in Spain could only read and write in Spanish and not in English. On 23 November 2007, Fritta belatedly filed a Motion to Admit Reply to Request for Admission (MARRA), attached to which were the answers of Fritta’s witnesses to the FRA. On 16 January 2008, the RTC issued an Order granting Fritta’s MARRA. LCI filed an MR. On 5 March 2008, the RTC denied LCI’s MR. On 9 May 2008, LCI filed a PC (CA G.R. SP No. 103576) with the CA, assailing the 16 January and 5 March 2008 Orders of the RTC. On 6 August 2008, Fritta filed its Comment to the PC. On 4 September 2008, LCI filed its Reply. On 27 August 2009, the CA rendered a Decision dismissing the PC. On 17 September 2009, LCI filed an MR. On 19 April 201, the CA issued a Resolution denying the MR. Consequently, on 7 June 2010, LCI filed a PR with the SC (G.R. No. 191991). On 6 September 2010, Fritta filed a Motion for Extension of Time to File Comment. On 7 October 2010, Fritta filed its Comment. The PR is now submitted for resolution. On 15 June 2007, Fritta filed a Manifestation to correct the Pre-trial Order dated 29 May 2007, specifically, to reflect therein that LCI admitted that: (1) it received Fritta’s products in good order; (2) for every transaction, Fritta issued a receipt to confirm payment; (3) the genuineness and due execution of the documents marked in evidence by plaintiff, Fritta. On 27 June 2007, LCI filed its Comment to the Manifestation, opposing the amendment of the Pre-trial Order. On 11 July 2007, Fritta filed its Reply. On 31 July 2007, LCI filed its Rejoinder. On 20 June 2008, the court amended the Pre-trial Order to reflect therein LCI’s admission that it received Fritta’s products in good order and that Fritta may avail itself of the modes of discovery as the need arises in the course of trial. On 16 July 2008, LCI


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filed an MR. On 12 August 2008, the RTC denied LCI’s MR. On 20 October 2008, LCI filed a PC (CA GR SP No. 105977) with the CA, assailing the 20 June and 12 August 2008 Order of the RTC. On 8 December 2008, Fritta filed its Comment/Opposition to the PC. Upon order of the CA, the parties filed their respective Memoranda on 20 February 2009 (LCI) and 15 March 2009 (Fritta). Meantime, on 1 April 2009, the CA resolved to refer the PC to the Philippine Mediation Center for the conduct of mediation proceedings. On 23 September 2009, as the parties were unable to reach a settlement after five mediation conferences, the Mediator declared failure of mediation and terminated the mediation proceedings. Thus on 28 September 2009, the CA issued a Resolution which deemed the PC submitted for decision. On 12 October 2009, the CA rendered a Decision dismissing the PC. On 3 November 2009, LCI filed an MR which was denied by the CA in its Resolution dated 16 December 2009. On 18 February 2010, LCI filed a PR with the SC (G.R. No. 190891), which was denied by the SC in a Resolution dated 22 March 2010, which Resolution has become final and executory. On 31 March 2008, Fritta filed a Notice to Take Deposition through Written Interrogatories of its Spanish witnesses. On 26 June 2008, the RTC issued an Order overruling LCI’s Objections. On 6 August 2008, LCI filed an MR, to which Fritta filed its Opposition. On 18 September 2008, LCI filed its Reply to Fritta’s Opposition. On 30 September 2008, the RTC denied LCI’s MR. On 12 December 2008, LCI filed a PC (CA G.R. SP No. 106903) with the CA. On 25 February 2009, Fritta filed its Comment/Opposition to the PC. On 9 March 2009, LCI filed its Reply. On 19 March 2009, the CA required the parties to file their Memoranda. LCI filed its Memorandum on 1 April 2009 while Fritta filed its Memorandum on 21 April 2009. On 13 August 2009, the CA dismissed the PC. On 8 September 2009, LCI filed an MR. On 19 April 2010, the CA issued a Resolution denying the MR. On 7 June 2010, LCI filed a PR with the SC (G.R. No. 191992). The SC, in a Resolution dated 4 August 2010, dismissed the PR, which Resolution has become final and executory. On 19 August 2009, by virtue of the CA’s dismissal of the Petition in CA G.R. SP No. 106903, Fritta served upon LCI the Notice to Take Deposition through Written Interrogatories, setting the deposition of Fritta’s witnesses on 25 September 2009 at the Philippine Embassy in Madrid, Spain. On 18 May 2010, the CA issued an Order setting the date of the marking of the Answer to Written Interrogatories on 6 July 2010 and giving LCI 30 days from 18 May 2010 to file the Cross-Interrogatories. LCI served Cross-Interrogatories on 17 June 2010. Trial on 5 October 2010 was reset to 15 February 2011 to give time to the Department of Foreign Affairs (DFA) to arrange taking of deposition of Fritta’s witness using LCI’s cross-interrogatories. Hearing on 15 February 2011 was reset to 5 April 2011 due to lack of notice from the DFA regarding the deposition. Hearing on 5 April 2011 was reset to 2 August 2011 upon Fritta’s manifestation that the deposition in the Philippine Consulate in Madrid, Spain would take place in the second week of May 2011. Hearing on 2 August 2011 was reset to 8 November 2011 due to lack of notice from the DFA regarding the deposition of Fritta’s witnesses. In the meantime, on 30 May 2011, LCI filed a Motion to Amend Pre-Trial Order (PTO) (to include issue of whether LCI was aware that Fritta was doing business on the Philippines without license). On 9 June 2011, Fritta filed its Opposition. On 14 June 2011, LCI filed Reply. On 6 July 2011, the RTC issued an Order denying the Motion to Amend PTO. On 9 August 2011, LCI MR. On 2 September 2011, the Court issued an Order denying the MR.

f. LCI’s Real Property Tax Assessment/Warrant of Levy ----------------------------------------------------------------------------

In August 2006, LCI received from the Office of the City Treasurer of Calamba (OCTC) a Notice of Delinquency on Real Property Tax (RPT) (due on buildings and machineries located in Barangays Tulo and Makiling), in the amount of P84,344,676.25 (including penalties), covering the period from the 4th quarter of 1999 up to 2006. On 12 December 2006, LCI sent a letter dated 17 November 2006 to the Office of the City Assessor reiterating its request (made in April 2005) for a review and reappraisal of LCI’s machineries and equipment as a major portion thereof were already fully depreciated and have not been operational for several years. There was, however, no response to LCI’s letter. On 31 July 2007, as the RPT remained unpaid, LCI received copies of the OCTC’s Final Notices of Delinquency (FNDs), directing LCI to settle its RPT delinquency, in the total amount of P98,466,645.72, covering the period from the 4th quarter of 1999 to 2007.


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On 15 August 2007, LCI submitted its letter-response to the FNDs, requesting for a reduction on LCI’s tax payables on the grounds that: 1) LCI has provided significant contributions to Calamba’s economy and employment level; 2) some of the machineries and equipment subject of the FNDs were almost fully depreciated; and 3) the Calamba CityGgovernment’s right to collect RPT due from 1999 to 2001 has already prescribed. On 14 September 2007, LCI submitted a letter of even date to the OCTC following up on its request for review and reappraisal of its machineries and equipment, stressing that the value of such properties have already substantially depreciated. On 10 October 2007, the OCTC sent a letter dated 5 October 2007 to LCI advising it that its request for re-appraisal of the said buildings and machineries would have no effect on its outstanding RPT payables subject of the FNDs, as any such re-appraisal cannot be given retroactive effect. Further, the OCTC demanded that LCI settle its RPT delinquency within 5 days from receipt of the letter. On 19 October 2007, LCI sent a letter to the OCTC requesting that the penalties and surcharges and the RPT due from 1999 to 2001 (which have already prescribed) be deducted from its tax payables, and proposed that the remaining P44,842,850.40 be paid over a period of 5 years. Sometime in August 2008, LCI received a Schedule of Compromise Agreement from the OCTC whereby LCI would pay the total amount of P121,672,975.31, covering LCI’s supposed tax delinquency from the 4th quarter of 1999 up to 2008, in 8 installments. (However, the installment dates were not specified.) On 2 September 2008, LCI sent a letter dated 28 August 2008 to the OCTC requesting for a waiver of the penalties and surcharges (amounting P46,376,922.81) and proposing that the principal RPT due in the amount of P75,296,052.50 be paid by way of dacion of various real properties located in Calamba, Laguna. There was, however, no response to this letter. On 16 October 2008, LCI received a Warrant of Levy dated 11 August 2008 issued by the OCTC on LCI’s buildings and machineries, directing LCI to settle its RPT delinquency, amounting to P121,672,975.31, within 10 days from notice; otherwise, its buildings and machineries would be sold at a public auction. On 23 October 2008, LCI sent a letter dated 22 October 2008 to the OCTC requesting for an additional period of 30 days from 26 October 2008 or until November 25 2008, within which to submit a reasonable settlement proposal on its outstanding RPT delinquency, and for the implementation of the Warrant of Levy to be held in abeyance. The OCTC granted LCI’s request. On 25 November 2008, after discussions with the City Government of Calamba (CGC) and the OCTC regarding the settlement of the tax delinquency, LCI submitted a letter to the OCTC, together with an initial check payment of P2 million, reiterating the request for the implementation of the Warrant of Levy to be held in abeyance pending discussions on a definitive payment arrangement in February, March, April 2009. LCI paid another P1 million to the OCTC. On 29 April 2009, LCI received a Notice of Real Property Tax Delinquency (NRPTD) from the OCTC regarding LCI’s real property tax arrears in the amount of P131,591,748.09. On 20 July 2009, LCI submitted a letter to the OCTC offering to dacion several real properties in Calamba as payment for the arrears, and requesting the deferment of the auction sale of the LCI properties subject of the NRPTD set on 8 September 2009. OCTC agreed to exclude LCI properties in the auction. On 26 October 2009, the Sangguniang Panlungsod of Calamba (SP-Calamba) passed Resolution No. 286, Series of 2009 granting relief from payment of interests and penalties on RPT arrearages from 2008 and prior years on the condition that the delinquencies are settled from 2 November 2009 to 31 March 2010. On 29 March 2010, the SP-Calamba passed Resolution No. 101, Series of 2010 authorizing Calamba Mayor Joaquin Chipeco, Jr. to enter into a Memorandum of Agreement (MOA) with LCI and OPDI whereby OPDI will convey its properties in Brgy. Kay-Anlog, Calamba to the CGC as settlement or in exchange for the RPT obligations of LCI amounting to P75,078,200. On 30 March 2010, the MOA was signed and executed. Transfer of titles over the Kay-Anlog properties in the name of CGC is ongoing.

Item 4. Submission of Matters to a Vote of Security Holders No matter was submitted to a vote of the security holders of the Company during the fourth quarter of the fiscal year.


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PART II - OPERATIONAL AND FINANCIAL INFORMATION

Item 5. Market for Issuer’s Common Equity and Related Stockholder Matters A. Market Information The Company’s Common Shares are listed and principally traded in the PSE. The high and low sales prices* of the Company’s securities for each quarter are indicated in the table below:

High Low Fiscal Year 2012 (July 2011-June 2012) 1st Quarter (Jul. 2011-Sept. 2011) P0.82 P0.44 Fiscal Year 2011 (July 2010-June 2011)

1st Quarter (Jul. 2010-Sept. 2010) P0.49 P0.39 2nd Quarter (Oct. 2010-Dec. 2010) 0.48 0.425 3rd Quarter (Jan. 2011-Mar. 2011) 0.73 0.45 4th Quarter (Apr. 2011-Jun. 2011) 0.59 0.45

Fiscal Year 2010 (July 2009-June 2010)

1st Quarter (Jul. 2009-Sept. 2009) P0.67 P0.25 2nd Quarter (Oct. 2009-Dec. 2009) 0.45 0.36 3rd Quarter (Jan. 2010-Mar. 2010) 0.53 0.41 4th Quarter (Apr. 2010-Jun. 2010) 0.50 0.38

Stock price as of latest practicable trading date of 19 October 2011: P0.54 per share. *provided by PSE Corporate Planning & Research Section B. Holders The number of shareholders of record as of 30 September 2010 was 974. Common shares outstanding as of the same period were 2,366,444,383. Top 20 stockholders* (as of 30 September 2011): Name No. of Shares Subscribed % to Total 1. PCD Nominee Corporation 778,742,612 32.91% 2. PCD Nominee Corporation (non-Filipino) 602,378,279 25.46 3. Genez Investments Corporation 250,000,000 10.56 4. Lepanto Consolidated Mining Co. 180,000,000 7.61 5. F. Yap Securities, Inc. 126,581,700 5.35 6. Dao Heng Securities (Phils.), Inc. 34,521,000 1.46 7. Guoco Securities (Phils.), Inc. 30,082,000 1.27 8. Caridad Say 24,707,000 1.04 9. YHS Holdings Corporation 22,900,000 0.97 10. Victor Say 21,500,000 0.91 11. Gilbert Dee 19,598,000 0.83 12. SEC Account FAO: Various Customers of Guoco Securities (Philippines), Inc. 18,511,380 0.78 13. G.D. Tan & Co., Inc. 17,480,400 0.74 14. David C. Go 16,000,000 0.68 15. Dao Heng Securities (Phils.), Inc. A/C# M0002-A 14,000,000 0.59 16. Cualoping Securities Corporation 12,728,700 0.54 17 David Go Securities Corp. 12,097,120 0.51 18 David Go Securities Corp. A/C # 1085 11,816,000 0.50 19. R.G. Palanca & Co., Inc. 7,495,000 0.32 20. Eleonor Go 6,900,000 0.29 ------------------ ---------


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Total 2,208,039,191 93.32% =========== ==== *based on the report dated 30 September 2011 of Stock and Transfer Agent, Banco de Oro Unibank, Inc.-Trust and Investments Group C. Dividends There were no dividend declarations for the years 2009 to 2011. D. Recent Sales of Unregistered Securities The Company has not sold any unregistered securities within the past three fiscal years. Management's Discussion and Analysis or Plan of Operation Fiscal Year 2011 Consolidated Results of Operations The Group ended the fiscal year with a net income of P273.1 million which was significantly lower than the P1.95 billion income reported last year. Net income from last year included a one-time gain of P1.54 billion arising from the settlement of loans of the Group. A significant portion of last year’s profit also included gain on sale of asset done to generate cash flow for the repayment of Group loans. Revenue from mall operations slightly grew to P505 million from P498 million, while the Insurance business provided the most significant result with revenues increasing by 25% to P184 million. The motor car business continues to spearhead growth increasing by 47% during the period. However, consolidated revenues decreased by 6.5% to P1.33 billion as Net Sales from tile business went down to P640 million due to lower sales volume as sales and marketing efforts focused on value-added products and designs which provide better prices and margins. For the fiscal year ended, consolidated cost and expenses decreased by 9% as operating expenses went down by 12% though tempered by the 11% increase in insurance underwriting cost. The decrease in operating expenses was attributable to lower professional fees incurred for the fiscal year. Though insurance underwriting cost increased, this was mainly due to higher commission expense arising from the 25% growth in revenue. Underwriting cost as percentage of Net Premiums Earned (NPE) significantly improved, as it went down to 79% from 88% last fiscal year. TPI Overall, TPI showed a 21% growth as its net income registered at P54 million for the fiscal year ended, compared to P45 million net income last year. Income from mall operations grew by 23% as growth in rental revenue from night market operations and semi-permanent carts tempered lower income generated from parking and exhibits. Overhead cost decreased by 12% due to lower professional fees paid during the period. FPIC For the fiscal year ended, FPIC showed a significant turn-around as it posted a net income of P21.7 million as against the P8.8 million net loss last year. The substantial development was attributable to the considerable growth in NPE (24%), increase in Commission Income (34%) and improvement in Investment Income (17%), coupled by reduced underwriting cost ratio from 88% to 79%. Retention ratio has also improved by 15%, from P149 million last year to P167 million this year, as Net Premiums Retained (NPR) from motor car business grew by 21% or P16.5 million higher than last year. LCI LCI ended the fiscal year with a net loss of P51 million as compared to P50 million last year, which was 2% higher than last year, excluding gain on settlement of debt. Net sales dropped by 7% as sales volume declined, cushioned by the increase in sales price.


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Prospects for the future TPI expects the full turnover of the remaining 12 hectares from PNR by 31 December 2011 as well as the completion of PNR’s Master Development Plan for its own areas covered under the Renewal of Contract of Lease. From there, TPI will proceed with the redevelopment of Phase II-A based on the TPI masterplan developed with the Palafox Architects. For Phase II-A, envisioned developments stretching from Mayhaligue to Tayuman will include an auto-city/bike depot, a restaurants’ row/strip mall, review centers/ educational institutions, and a commercial pocket center. Initial plans for all these have been drafted and detailed planning will proceed once turnover is complete. With the finalization of PNR’s masterplan for its own land-use on areas covered under Phase II-B, TPI is considering warehouses, storage centers and deck parking as utilization of its air rights in said area. Looking ahead, FPIC has opened a new branch in Imus, Cavite, to beef up its presence and to service the CALABARZON area. To sustain the growth of its motor car line, FPIC forged new tie-ups with various major car dealers and with other motor car service providers. It has increased the number of accredited repair shops nationwide to better serve its clients. It has also embarked on cross-selling of other product lines particularly, its residential insurance package using its present data base. Accident & Health lines were also re-packaged and new products were developed to suit its present clients. With these new programs, FPIC expects sustainable growth this 2012 of its NPR that will translate to a higher Net Income for the company. Moving forward, while the focus will remain on pushing the higher margin rustic products, LCI and its exclusive marketing partner, OMI, will have to run a tighter production and sales operations. The focus will now be on more efficient production runs (reduced wastages, better formulation, managed overheads) and growing the business with key retail partners. Key Performance Indicators

Current ratio shows the Group’s ability to meet its short term financial obligation. As of 30 June 2011, the Group has P1.47 worth of current asset for every peso of current liabilities as compared to P1.32 as of 30 June 2010. The increase was attributable to the settlement of outstanding obligation. The Group has sufficient current assets to support its current liabilities as of the period. Debt to Equity ratio indicates the extent of the Group’s debt which is covered by shareholders’ fund. It reflects the relative position of the equity holders. The higher the ratio, the greater the risk being assumed by the creditors. A lower ratio generally indicates greater long term financial safety. Compared to 30 June 2010, debt-to-equity ratio improved as a result of increase in equity for the current period by 10%.

Key Variable and Other Qualitative and Quantitative Factors Ratios Formula 30-Jun-11 30-Jun-10 Current Ratio Current Assets 1.47:1 1.32:1 Current liabilities 2,349,468 / 1,601,889 2,215,319 / 1,679,876 Debt to Equity Ratio Total Liabilities 1.22 :1 1.35 : 1 Equity 2,389,551 / 1,964,744 2,471,188 / 1,831,762 Capital Adequacy Ratio Equity 0.444 :1 0.419:1 Total Assets 1,964,744 / 4,428,967 1,831,762 / 4,369,805 Book Value per Share Equity 0.8300 0.7738 Total # of shares 1,964,744 /2,367,149 1,831,762 / 2,367,149 Income per Share Net Income 0.115 0.824 Total # of Shares 273,109 / 2,367,149 1,951,325 / 2,367,149


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Capital Adequacy Ratio is computed by dividing the Total Stockholders’ Equity over Total Assets. It measures the financial strength of the Group. As of 30 June 2011, the Group’s Capital Adequacy Ratio is 0.444 compared to last year’s 0.419. Improvement was attributable to increased equity as of the period. Book value per share measures the recoverable amount in the event of liquidation if assets are realized at book value. As of 30 June 2011, the Group has book value per share of P0.83. Income per share is calculated by dividing net income by the weighted average number of shares issued and outstanding. As of 30 June 2011, the Group reported a P0.115 income per share as compared to last year’s P0.824 per share.

(i) Any known trends, demands, commitments, events or uncertainties that will have a material impact on issuer’s liability.

There are no known trends or any known demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in the Group’s liquidity increasing or decreasing in any material way.

(ii) Events that will trigger direct or contingent financial obligation that is material to the Group, including any default or acceleration of an obligation There are no known events that will trigger direct or contingent financial obligation that is material to the Group, including any default or acceleration of an obligation.

(iii) Material off-balance sheet transactions, arrangements, obligations (including contingent

obligations), and other relationships with unconsolidated entities or other persons created during the reporting period.

There are no known off-balance sheet transactions, arrangements, obligations (including contingent obligations), during the period.

(iv) Material Commitment for Capital Expenditure

The Group has not entered into any material commitment for capital expenditure.

(v) There are no known trends, events or uncertainties that have material impact on net sale/revenues/income from continuing operation.

(vi) The Group did not recognize income or loss during the year that did not arise from continuing

operations.

(vii) There are no known causes for material change (of material item) from period to period.

(viii) There are no known seasonal aspects that had a material effect on the financial condition or results of operations.

Financial Condition Total Assets of the Group slightly increased to P4.43 billion from P4.37 billion last year. Total current assets and total current liabilities stood at P2.3 billion and P1.6 billion, respectively. Proceeds from disposal of Available for Sale (AFS) Investments and net result of operations of TPI resulted to increased Cash and Cash Equivalents. As a result of the sale, AFS investments dropped by 34%. Advance rental of TPI to PNR increased the Receivables by 7%. Inventories increased by 24% due to higher inventory volume. Decrease in Leasehold Rights represents amortization recognized during the period. Decrease in Investment Property was due to disposal of real estate property and depreciation as of the period. Property, Plant and Equipment slightly increased due to additional acquisition softened by recognition of depreciation for the period. Decrease in Held to Maturity (HTM) Investments was due to withdrawal of matured investments. Other Non-current Assets decreased due to application of deposits as payment to current charges within the fiscal year. Overall, the Group registered a decrease in Total Liabilities of 3% from 30 June 2010. Total Current Liabilities decreased by 5% as the Group fully settled the remaining balance of the cost of property acquired, hence accounts payable and accrued expenses decreased by 6%, softened by the increase in rental deposit and


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advances by 2%. Decrease in Unrealized Valuation Gain was attributable to disposal of AFS investments as of the period. Financing Through Loans As of the reporting period, the Group has no outstanding loan from any financial institution. Fiscal Year 2010 Consolidated Results of Operations The Group ended the fiscal year with a consolidated net income of P1.95 billion compared to last year’s net loss of P289.9 million. The EBITDA of the Group, excluding gain from extinguishment of debt, gain on sale of assets and reversal of probable losses, has considerably improved by 440% for the year, compared to the 29% growth last year. Consolidated revenues, which are composed of merchandise sales, rental revenue, insurance premiums and commissions and real estate sales, posted a growth of 9.90% this fiscal year. Increase was greatly attributable to real estate sales, as the Group sold its property assets to fund settlement of its loans and other obligations. Insurance premiums also increased by 45% as the Group intensified its motor car business. While average rate escalation contributed to 6% increase in rental revenue. Merchandise sales was posted at P703.6 million, which is 3% less from preceding year’s sales of P721.8 million. Operating expenses went down by 10% as the Group continued to improve its business processes and rationalize its organizational structure. Cost of goods sold and services dropped by 10% as a result of improved production cycle times, lower wastages and lower cost of energy. However, the significant increase in insurance underwriting deductions, which is 96% higher than last year due to increase in claims and losses arising from property damages brought by typhoons “Ondoy” and “Peping” in 2009 that almost doubled the insurance losses this fiscal year, neutralized the reduction in operating expenses and cost of goods sold and services. Overall, consolidated costs and expenses remained at P1.5 billion at the end of 30 June 2010. The Group also reported an income from extinguishment of debt of P1.25 billion, arising from the full settlement of the Group’s remaining loans, and gain from sale of a portion of its property in Mandaue, Cebu amounting to P420.1 million. Financial Condition For the fiscal year 2010, the consolidated resources of the Group remained at P4.3 billion. Total current assets of P2.2 billion, was slightly higher by 2% than last year due to appreciation of the market value of AFS investments coupled by significant increase in insurance receivables, and substantial decrease in cash and cash equivalents. Reduction in cash and cash equivalents by 71% was brought about by the settlement of the Group’s remaining loan obligations. Decrease in inventories of 7% was attributable to reduced production cost. Decrease in held-to-maturity investments was a result of reclassification of funds to cash equivalents and AFS. Net decrease in investment property, leasehold rights and property, plant and equipment was attributable to disposal of an investment property and, amortization and depreciation for the period. Increase in other non-current assets was due to deferred reinsurance premium and capitalization of development cost of pocket commercial center in Calamba, Laguna. Total current liabilities stood at P1.7 billion, which is 56% lower than last year. The substantial movement was attributable to the full settlement of the outstanding loan obligations of the Group during the year. The full extinguishment of the loan obligations resulted to the reversal of the related accrued interest, penalties and provision for probable losses, hence accounts payable and accrued expenses dropped by 28%. Accrual of retirement benefits for the period resulted to increase in retirement obligation. Repayment of advances resulted to reduction in amounts owed to related parties. By and large, the Group’s total liabilities went down by 46% from 30 June 2009. On the other hand, improvement in market prices of securities held by the Group resulted to increase in unrealized valuation gain. Financing through Loans On 10 August 2009, the Group entered into a Compromise Agreement with Asset Pool A (SPV-AMC), Inc. (APA) to settle the remaining loans of the Group which were acquired by APA from the Group’s creditors. The Group and APA agreed for the full and complete settlement of the Group’s loan obligations with principal amount of about


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P1.5 billion for a total consideration of P680 million (the “Compromise Amount”) which shall be payable within a period of 18 months. Upon execution of the Agreement, the Group paid the amount of P200 million. Also on 10 August 2009 and 18 December 2009, the Group sold portions of its investment property located in Mandaue, Cebu to partly fund the settlement of the Compromise Amount. The corresponding cash proceeds and installment receivables arising from the sales totaling P430 million were assigned to APA as partial settlement of the Compromise Amount. On 15 March 2010, the balance of the Compromise Amount in the amount of P49.5 million was fully paid by Group. Accordingly, the Group’s outstanding loan obligations of P1.5 billion as of 30 June 2009 was fully paid by 15 March 2010. LCI For the year, LCI was able to reduce its operating loss by 75%, from P161 million in 2009 to P41 million in 2010, as it continued to improve its operational performance and strengthen its production efficiency while lowering wastages. LCI’s continuing path to recovery remains hinged on improvements in its production efficiency. It envisaged to fully utilize its existing jumbo kilns, hence increasing its monthly output by 25%. Moving a step further, LCI implemented its Energy Conservation Project during the year to address the volatility and surging prices of fuel. This project, which uses alternative fuels, intends to reduce fuel consumption in power production and will be operational by November 2010. Once operational, the project will help bring LCI forward to a better energy source and will reduce fuel cost by 24%. Overall, it is expected to lower total production cost by 9%. OMI OMI’s efforts to pave the way for enabling growth in its revenues and market reach were hinged on stronger retail sales operations, expanded market coverage across current sales territories, and improved client servicing. These endeavors cleared the path for OMI to achieve a more significant presence in the industry, as it drumbeats for Lepanto Tiles, its banner brand and product. Retail sales rose exponentially this fiscal year, as a result of new strategies implemented by the retail sales team. OMI matched its major retail partners’ aggressive expansion this year, and it did so by shifting its product mix focus to define Lepanto’s expertise and reputation as the leading rustic ceramic tile manufacturer in the country. With this thrust, OMI solidified Lepanto as a brand of choice with the most expansive selection of rustic tiles in the local market. OMI has undertaken retail measures such as the employment of an efficient network of merchandisers to ensure that all retail outlets were properly branded, stocked with ample fast-moving items, and equipped with merchandising support. With this sustained dedication of the retail sales team, their ability to be one step ahead of their customers, and knowledge of what the market needs, it is expected that retail sales will grab a bigger share of the total sales volume in the near future. OMI also widened Lepanto’s reach in 2010 with the signing up of new distributors in Isabela, Bicol, Iloilo, Davao, and General Santos thus furthering Lepanto’s visibility. Marketing supports were provided to distributors while presence through sub-dealer networks and project bids were increased. All these expansion activities are part of OMI’s roadmap for its distributor business channel, which aims to pull all stops for Lepanto to remain competitive and leverage on its strengths over competitors. Moving forward, OMI is tapping a handful of key distributors with potential for business growth with customized business programs designed specifically for those particular distributors’ network needs. TPI Amid the growing competition within the Divisoria area, TPI occupancy remained stable. As a result, revenue growth from mall operations went up by 6% from P487.9 million in 2009 to P516 million in 2010. Rental revenues from pre-designated areas as well as those from night market operations and other ancillary sources all contributed to this performance. Meanwhile, sustained efforts in cost management paid off as TPI’s operating expenses stood at 5% lower than the previous year. As a result, the company’s net income (before depreciation on revaluation increments) increased to P55 million from P13 million in 2009.


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TPI’s renewal of its lease contract with the PNR for another 25 years beginning 2014 underpinned the most important development for the year. The lease renewal agreement which covers a total of 20 hectares of PNR property will allow Tutuban to make full-use of the current 8.5 hectares where Tutuban Mall is situated as well as an additional 11.5 hectares of combined land and air rights use. As nearby areas continue to transform the landscape of Divisoria with new structures of commercial viability, TPI has re-energized itself after successfully inking its renewal contract with the PNR. As early as now, TPI has started crafting its redevelopment and expansion plans that will ensure leadership for Tutuban Mall and has already commissioned as partners in these redevelopment programs the likes of CB Richard Ellis, INSPIRE Consultants and Palafox Architects. Expectations abound for the unveiling of a new masterplan before the end of 1st quarter of 2011. As the saying goes, “Full steam ahead!” Expect vitality with the changes that will unravel as TPI journeys in the next 25 years and anticipate the grandeur of Tutuban Mall relived, revealed and revitalized for the years to come! FPIC The first half of the fiscal year ending 2010 shows the non-life insurance industry experiencing one of the largest combined claims in its history. With Typhoon Ondoy and Pepeng hitting Metro Manila and Northern Luzon respectively in a span of two weeks, total estimated losses for the whole industry runs around P18 billion. FPIC was not spared from this calamity. As a result, FPIC posted a net loss of P11.2 million. With the continued success of its marketing program, FPIC’s Gross Premiums Written (GPW) increased by 69% from P155.6 million in 2009 to P262.8 million in 2010, whilst NPR also increased by 61% from P109.9 million in 2009 to P177.4 million in 2010. This was attributed to the highly retained line of business such as motor car, personal accident and residential accounts. Looking ahead, FPIC’s major thrust is to sustain the growth it has achieved in the last two years as it focuses on the development of new products, competitive pricing, targeting new markets as well as new producers, and a fast & efficient claims handling. Quality Service and Client Satisfaction will remain its priority. Prospects for the Future The Group will enter 2011 with the momentum from our landmark achievements in 2010. Moving forward, the Group will also have, on top of the full utilization of Tutuban’s current 8.5-hectare location, additional 11.5 hectares of combined land use and air rights of PNR property. As nearby areas continue to transform the landscape of Divisoria with new structures of commercial viability, Tutuban Mall has re-energized itself after successfully inking its renewal contract with the PNR. As early as now, TPI has started crafting its redevelopment and expansion plans that will ensure leadership for Tutuban Mall. Looking ahead, FPIC’s major thrust is to sustain the growth it has achieved for the last two years as it focuses on the development of new products, competitive pricing, targeting new markets as well as new producers, and a fast & efficient claims handling. Quality Service and Client Satisfaction will remain its priority. Moving a step further, LCI implemented its Energy Conservation Project during the year to address the volatility and surging prices of fuel. This project, which uses alternative fuels, intends to reduce fuel consumption in powder production and will be operational by November 2010. On the other hand, OMI is tapping a handful of key distributors with potential for business growth with customized business programs designed specifically for those particular distributors’ network needs. Key Variable and Other Qualitative and Quantitative Factors The Top 5 Key Performance Indicators of the Group are as follows: Ratios Formula 30-Jun-10 30-Jun-09 Current Ratio Current Assets 1.32:1 0.57:1 Current liabilities 2,214,721 / 1,679,876 2,165,028 / 3,797,857 Debt to Equity Ratio Total Liabilities 1.35 :1 -14.48 : 1 Equity 2,471,188 / 1,831,762 4,590,144 / -317,044 Capital Adequacy Ratio Equity 0.419 :1 -0.073:1


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Total Assets 1,831,762 / 4,369,805 -317,044 / 4,343,859 Book Value per Share Equity 0.7738 -0.1339 Total # of shares 1,831,762 /2,367,149 -317,044 / 2,367,149 Income (Loss) per Share Net Income(Loss) 0.824 -0.122 Total # of Shares 1,951,325 / 2,367,149 -289,450 / 2,367,149 Current ratio shows the Group’s ability to meet its short term financial obligation. As of 30 June 2010, the Group has sufficient current assets to support its current liabilities as evidenced by increase in current assets, from P0.57 centavos in 2009 to P1.32 for the period, vis-à-vis its current liabilities. Significant increase in receivables and higher market value of available for sale investments contributed to a better current ratio for this period. Debt to Equity ratio indicates the extent of the Group’s debt which is covered by shareholders’ fund. It reflects the relative position of the equity holders. For fiscal year 2010, the Group’s debt to equity ratio has improved, from negative P14.48 last year to positive P1.35 this year. Improvement was attributable to recognition of gain on extinguishment of debt as well as gain on sale of a portion of the investment property. Capital Adequacy Ratio is computed by dividing the Total Stockholders’ Equity over Total Assets. It measures the financial strength of the Group. As of 30 June 2010, the Group’s Capital Adequacy Ratio showed a 6.74% improvement, from negative 0.073 of the previous year to positive 0.419 this year. Similarly, recognition of gain on extinguishment of debt and gain on sale of portion of the investment property contributed to a higher equity this year. Book value per share measures the recoverable amount in the event of liquidation if assets are realized at book value. As of 30 June 2010, the Group posted a book value per share of positive P0.77 compared to negative P0.13 in the previous year. Earnings per share is calculated by dividing net income by the weighted average number of shares issued and outstanding. As of 30 June 2010, the Group showed an income of P0.824 per share compared to loss of P0.122 per share in 2009.

(i) Any known trends, demands, commitments, events or uncertainties that will have a material impact on the Group’s liability.

On 26 July 2010, the Group and APA have fully complied the terms and conditions enumerated in the Compromise Agreement (i.e. the Group has fully settled with APA the Compromise Amount, and APA has released to the Group the remaining properties held as collaterals). Accordingly, the Group and APA have jointly moved for the dismissal of all pending cases between the Group and APA.







(v) There are no known trends, events or uncertainties that have material impact on net sale/revenues/income from continuing operation.


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(vi) The Group did not recognize income or loss during the year that did not arise from continuing

operations.



Fiscal Year 2009 Consolidated Results of Operations In FY 2009, the Group posted a consolidated net loss of P289.9 million as compared to last year’s net income of P19.6 million. However, by isolating the effect of consolidated gain on extinguishment of debt and the reversal of payable last year, the EBITDA of the Group reflected an improvement of 29% to P54 million this fiscal year. Consolidated revenues consist of merchandise sales, rental revenue, insurance premiums and commission and real estate sales. Although Consolidated Revenues remained flat at P1.3 billion, rental revenue improved by 5% as a result of rental rate escalation. Merchandise sales registered at P721.8 million, showing a reduction of 2% from the preceding year’s P736.8 million. Insurance premiums and commissions slightly increased by 1% from P100.8 million to P101.7 million. The Group’s effort resulted in the reduction of consolidated costs and expenses by 4% from P1.58 billion to P1.52 billion. The decrease was complemented by lower production cost led by the continuous drive to improve production cycle times, lower wastages and rationalize organizational structure coupled by lower cost of energy. Likewise, there was improvement on insurance underwriting cost attributable to better claims management resulting to 9% decrease in underwriting cost as compared to the same period last year. Operating expenses were kept at P0.5 million. The Group also reported a reduced financing cost during the period arising from the settlement and acquisition of loans by an affiliate last year. Dividend income included in “Others–net” account represents return of the Group’s investment in Pepsi-Cola Products Philippines, Inc. which was 14% lower as compared to last year. Financial Condition The Group’s consolidated resources registered at P4.3 billion, a 9% decrease from P4.8 billion as of 30 June 2008. Main sources of cash and cash equivalents as of 30 June 2009 were cash flows from operating activities amounted to P83 million. Decrease in AFS investments is mainly attributable to the lower market value of an investment and disposal of shares of stocks. As a result of the decline in market value Unrealized valuation loss on AFS investments was recognized during the period. Receivables dropped by 13% on account of improved collections. Inventories also decreased by 13% due to lower stock level. Other Current Assets increased by 11% arising from the additional creditable withholding tax during the period. Held to maturity Investment increased by 18% due to additional investment. The net decrease in Investment property, Property, plant and equipment and Leasehold rights is attributable to the amortization and depreciation for the period. The change in income tax rate from 35% to 30% effective 1 January 2009 resulted to a 15% and 12% decrease on Deferred Income Tax assets and Deferred Income Tax liability, respectively. Surety bond deposit included in Other Non-Current Assets in FY 2008 was reclassified to cash resulting to a 38% decrease in Non-Current Assets. Overall, the reduction in total assets is attributed to lower market value and disposal of AFS investments and net value of Property, plant and equipment, Investment property and Leasehold rights due to depreciation and amortization during the period. On the other hand, the Group’s total current obligations slightly increased by 2%, from P3.7 billion to P3.8 billion due to accrued provision for probable losses negated by the 48% decrease in Amounts Owed to Related Parties. Retirement benefits were paid during the year, that resulted to a 13% decrease in Retirement obligation as of end of the year. LCI While market share continues to be pressured by the increasing volume of cheaper imported tiles, LCI managed its financials for the year by lowering total input production cost by 19%. It complemented lower cost of energy for the year with a more efficient operation that included improvement in production cycle times, lower wastages and a rationalization of its organizational structure. As a result, LCI ended the fiscal year with a lower net loss of P161 million from previous year’s net loss of P199 million.


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The year also saw LCI introducing three color extensions to the much-demanded PINOS rustic series, and in March 2009’s WORLDBEX event, LCI launched six new designs that further strengthened its command on the rustic tiles market. LCI is looking ahead to a stronger year with its focus on a more efficient operation hinged on the use of alternative sources of energy and fuel. It will also concentrate on coming up with more stylish and elegant designs while educating the public on quality, based on its vision to promote “Filipino Elegance Built To Last”. OMI This year, OMI assumed the role as LCI’s full-fledged sales and marketing arm. From a distributor’s role, OMI was given the freehand in sales operations, territory management, branding, and merchandising of Lepanto tiles. It was tasked to focus on improving service levels to more than 300 dealers, developers, architectural firms and contractors as well as increase the consumers’ awareness of the Lepanto brand. OMI ensured product availability not only to the dealer network but to the end-consumers as well. The presence of Lepanto tiles in major DIY depots such as Wilcon Builders, The Home Depot Group, ACE Hardware, MC Home Depots (Ortigas and Fort Bonifacio), and CITIHARDWARE was stabilized. As a result, DIY sales volume has picked up dramatically this year growing by 15% from last year. In addition, OMI’s efforts have paved the way for Lepanto tiles’ increased involvement in major projects of known developers like Avida Land, Robinsons Land, Phinma Property Holdings Inc., DM Consunji Inc., Eton Properties, Cumberland Development Corp., SM Development Corp., and Sta. Lucia Realty. New designs were added to the Rustic Series, Lepanto’s bestselling line among architect and developer clients. This rustic series are tiles with textured or patterned design made on a sculptured mold. Such designs are suitable for indoor and outdoor application. New colors for a number of current Rustic designs were also released to even enhance the variety of products offered to the market. Meanwhile, the Classic Series continues to dominate sales among distributors, maintaining its strong performance among Lepanto’s designs. More tile designs are bound to be introduced in the coming months, ensuring clients that OMI and Lepanto are attuned to the latest trends and needs of the market. OMI’s marketing team was formalized with the aim of creating and implementing initiatives that would generate greater brand exposure. A merchandising blitz campaign was launched, to brand all distributors’ outlets properly. In June 2009, the tagline “Filipino Elegance Built to Last” was developed alongside the new OMI logo and brochures. It is OMI’s vision that Lepanto tiles will regain a stronghold in the industry and be the preferred choice of architects, contractors, developers and the mass market. With recent changes in organizational structure that will allow for realignment of functions while maintaining a lean team, OMI intends to intensify efforts to promote the Lepanto brand such as trendsetting and introduction of innovative tile designs, presence in unconquered territories, and superior customer service for its new and loyal customers. TPI Fueled by an expanded revenue base and a strong commitment towards cost rationalization, TPI was able to grow its EBITDA by 26.5%, thus lowering its net loss by 32% compared to last year. TPI’s gross revenues rose by 5% from the previous year’s performance. As occupancy remained stable, revenues from the mall’s core leasable areas improved by 4% from last year’s P323 million to P335 million with modest fixed rental rate increases and growth in percentage of sales income. Other rental sources also grew by 9% with the night market operations growing by 54% from previous year. The financial performance was further enhanced by a more effective cost management program which reduced power costs resulting in overall costs increases of only 0.5% from previous year. Committed to its aim of being the premiere wholesale and retail center in the Divisoria area, TPI continues to pursue redevelopment efforts to enhance its buildings and facilities from outside and within, alongside sustained marketing programs and promotional campaigns to continually echo its presence in the market. These developments are envisioned to support overall mall business strategy to deliver the Best Shopping Proposition for its target market.


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FPIC With the slowdown of the economy in the last quarter of 2008, FPIC still managed to post an 18% growth in GPW from the previous year’s performance. This was brought about by the significant growth attained during the last half of the fiscal year attributable to its tie-up with various distribution channel partners and the recruitment of productive agents and brokers. Though retention ratio went down slightly to 63% from previous year’s 64%, the actual amount of retention increased by 16% from last year’s P84.5 million to P97.9 million brought about by the increase in the motor car insurance business. FPIC also showed a moderate growth in retention in its property and marine lines. Earned Premiums continued to increase from last year’s P86 million to the current year’s P89 million. Loss ratio also showed a remarkable improvement from previous year’s 26% to this year’s loss ratio of 19%. This is due to the efficient handling of claims and the prudent underwriting measures implemented during the fiscal year. With the streamlining of operations in the early part of 2008 and the implementation of other efficient cost cutting measures, the effects of which were felt in the second half of the fiscal year, FPIC was able to improve its General & Administrative Expense ratio to 60% from last year’s 69%. Looking ahead with its structure in place, FPIC is confident that it could sustain its present growth and at the same time provide its clients the best service it can offer. Causes Underlying Losses and Steps Taken to Address these Causes The operations of the Group have been severely affected by the interest costs of its loans that remain unsettled as of end of June 2009 both for the Company and LCI. Moreover, the business operation of LCI continued to be hampered by the high cost of energy and the influx of imports.

Though the foregoing significantly impacted the overall financial condition of the Group, the other companies in the Group showed positive outcome. TPI continued to provide positive results, improving its EBITDA by almost 27%. FPIC, on the other hand, continue to show a double digit growth in production, growing by 18% from previous year. Though TPI reported a net loss, this was mainly brought about by non-cash expenses such as amortization of revaluation reserve on investment properties.

The management has undertaken initiatives to address both the operational and financial viability of the Group as follows:

a. Debt restructuring and reduction (including dacion en pago arrangements and loan repayments), divestment of non-core and non-profitable assets and additional capital infusion.

On 10 August 2009, in line with its debt restructuring program, the Group executed the Compromise Agreement for the settlement of its remaining loans of P1.5 billion for a total consideration of P680 million. With the compromise settlement, the Group was able to reverse its Capital Deficiency position in FY2009 to a positive Equity of P1.9 billion by end of September 2009.

In line with the asset rationalization, the Group has been working on the sale of its non-core assets. Proceeds from the sale will be utilized to settle its loan and provide working capital for its business.

b. Strengthening of core assets through the implementation of operating programs such as efficiency

improvement, cost reduction, rightsizing and productivity enhancement.

Prospects for the Future Moving forward, the Group will focus on its core competence. TPI has developed an innovative concept for a Commerce and Trade Mall Complex which will define the trend of shopping within the Tutuban district. Other projects of the Group are being studied and are expected to contribute to the Group’s growth. The Group will soon launch its first pocket commercial development in Laguna called the Trellis Pocket Center, which is expected to be operational within the 3rd Quarter of FY2010. Key Variable and Other Qualitative and Quantitative Factors The top 5 Performance Indicators of the Group are as follows:


25

Ratios Formula 30-Jun-09 30-Jun-08 Current Ratio Current Assets 0.57:1 0.63:1 Current liabilities 2,165,028 / 3,797,857 2,338,373 / 3,733,870 Debt to Equity Ratio Total Liabilities -14.48:1 36:1 Equity 4,590,144 / -317,044 4,564,153 / 125,667 Capital Adequacy Ratio Equity -0.073:1 0.026:1 Total Assets -317,044 / 4,343,859 125,667 / 4,762,019 Book Value per Share Equity -0.1339 0.0531 Total # of shares -317,044 /2,367,149 125,667 / 2,367,149 Income (Loss) per Share Net Income(Loss) -0.12 0.01 Total # of Shares -289,865 / 2,367,149 19,597 / 2,367,149 Current ratio shows the Group’s ability to meet its short term financial obligation. As of 30 June 2009, the Company has only P0.57 cents worth of current assets for every peso of liabilities as compared to last year’s P0.63. The decrease is attributable to lower market value of Available for sale investments. As of the period, the Group is still unable to support its current liabilities. Debt to Equity ratio indicates the extent of the Group’s debt which is covered by shareholder’s fund. It reflects the relative position of the equity holders. As of 30 June 2009, the Group is in a Capital Deficiency position. Capital Adequacy Ratio is computed by dividing the Total Stockholders’ Equity over Total Assets. It measures the financial strength of the Group. Compared to the same period last year, the Group’s Capital Adequacy Ratio this year decreased by 381%. Book value per share measures the recoverable amount in the event of liquidation if assets are realized at book value. As of 30 June 2009, the Group has book value per share of (P0.1339). Loss per share is calculated by dividing net loss by the weighted average number of shares issued and outstanding. As of 30 June 2009, the Group reported a (P0.12) loss per share as compared to last year’s P0.01 net income per share.

(i) Any known trends, demands, commitments, events or uncertainties that will have a material impact on the Group’s liability.

On 10 August 2009, the Group and APA entered into a Compromise Agreement for the full settlement of the Group’s remaining loans which were acquired by APA from the Group’s creditors. The parties agreed on the compromise amount of P680.0 million payable as follows: (1) P200.0 million upon signing of the Compromise Agreement; (2) P245.1 million to be funded from the proceeds of the sale of POPI’s Mandaue Property; and (3) the balance amounting to P234.9 million to be paid within a period of 540 days from execution of the Compromise Agreement.







26


(v) There are no known trends, events or uncertainties that have material impact on net

sale/revenues/income from continuing operation. (vi) The Group did not recognize income or loss during the year that did not arise from continuing

operations.



Information on Independent Auditors (1) External Audit Fees and Services (a) Audit and Audit-Related Fees

(1) The aggregate fees billed by the auditors for FY 2011 amounted to about P2.4 million. This amount was the same as the auditors’ fee for FY 2010.

(2) There are no known assurance and related services rendered by the external auditor aside from the services stated above.

(b) Tax Fees

The External Auditor did not render tax services or non-audit work for the Company in FY 2011 and FY 2010.

(c) All Other Fees

No known Other Services were rendered by external auditor aside from that stated above for FY 2011 and 2010.

Audit and Audit-Related Fees are as follows: 2011 2010

Professional Fees P2,122,500 P2,122,500 Value Added Tax 254,700 254,700 Total Audit Fees P2,377,200 P2,377,200

(d) The Audit Committee performs oversight functions over the Corporation’s external auditors in

accordance with the Company’s Revised Manual of Corporate Governance (“Revised Manual”). It reviews and approves all reports of the external auditors prior to presentation to the Board of Directors for approval. The Audit Committee discusses with the external auditor the scope and expenses for the audit prior to conduct of the audit. It evaluates and recommends to the Board of Directors the external auditors of the Company for the ensuing fiscal year.

(2) There were no changes in or disagreements with the Company’s accountants/auditors on accounting principles and practices or financial disclosures during the fiscal year and the past two fiscal years. Neither was there any resignation, dismissal or cessation of service of the external auditors of the Company for the past three fiscal years.

Compliance with Corporate Governance The Company filed its Revised Manual on 28 February 2011 to include mandatory provisions of the Revised Code of Corporate Governance being implemented by the SEC (as per SEC Memorandum Circular No. 6, Series of 2009). As in the past years, the Company has substantially complied with its Revised Manual with the election of two independent directors to the Company’s Board of Directors. The Company has, for the last eight years, complied with the requirement for the creation of the Audit, Compensation, and Nomination and Election Committees and the election of the members of each committee; the regular conduct of meetings of the Board, certification on attendance in meetings of the directors and committee members; adherence to the written Code of Conduct/Policy Manual prepared by its Human Resources Department, and adherence to applicable accounting standards and disclosure requirements. Pursuant to the Revised Manual, the Audit Committee reviews the quarterly and annual financial statements before their submission to the Board.


27

The Revised Manual provides in detail the qualifications and disqualifications of the Board of Directors. The duties and functions of the directors are also provided in the Revised Manual. The performance of the directors will be measured against the criteria established in the Manual. Also, in compliance with the requirements of the PSE, the Company established its official website, www.primeorion.com, on 16 June 2008. This website is updated regularly and contains all the corporate information on the business and management of the Group, corporate governance reports and disclosures made by the Company. A Full Business Interest Disclosure Form has been adopted and has been accomplished by the directors and key officers of the Company. All the directors have attended a corporate governance seminar. Policies and procedures for the identification of potential conflicts of interest involving the Company’ directors and officers are currently being developed. The Company and its operating subsidiaries prepare and adhere to their respective business plans, budget and marketing plans. The Management prepares and submits to the Board, on a regular basis, financial and operational reports which enable the Board and Management to assess the effectiveness and efficiency of the Company and its operating subsidiaries. Pursuant to the requirements of the SEC, the Company’s Corporate Secretary/Compliance Officer submitted to the SEC the required yearly certification on the extent of compliance by the Company with its Revised Manual (SEC Form MCG-2002). The Company has included as part of its Revised Manual, the adoption of the SEC Corporate Governance Scorecard for evaluation of its compliance with the Revised Manual, and the annual submission of the CG Scorecard to the SEC. There were no major deviations to the Revised Manual. The Company will continue to work on its systems and procedures to improve compliance with the Revised Manual. Audited Consolidated Financial Statements(F/S) of the Company Please refer to attached F/S for the FY ended 30 June 2011. Interim Financial Statements of the Company The Company’s SEC 17-Q (Quarterly Report) for the Quarter ended 30 September 2011 will be distributed to its stockholders during their annual stockholders’ meeting on 22 November 2011.

Prime Orion Philippines, Inc. and Subsidiaries

Consolidated Financial Statements June 30, 2011 and 2010 and Years Ended June 30, 2011, 2010 and 2009 and Independent Auditors’ Report SyCip Gorres Velayo & Co.

*SGVMC410063*

INDEPENDENT AUDITORS’ REPORT The Stockholders and the Board of Directors Prime Orion Philippines, Inc. We have audited the accompanying consolidated financial statements of Prime Orion Philippines, Inc. and its subsidiaries, which comprise the consolidated statements of financial position as at June 30, 2011 and 2010 and the consolidated statements of income, consolidated statements of comprehensive income, consolidated statements of changes in equity (capital deficiency) and consolidated statements of cash flows for the years ended June 30, 2011, 2010 and 2009, and a summary of significant accounting policies and other explanatory information. Management’s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Philippine Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Philippine Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation and fair presentation of the consolidated 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 Company’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 consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

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 Accreditat ion No. 0012-FR-2

A member firm of Ernst & Young Global Limited

*SGVMC410063*

- 2 -

Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Prime Orion Philippines, Inc. and its subsidiaries as at June 30, 2011 and 2010, and their financial performance and their cash flows for the years ended June 30, 2011, 2010 and 2009, in accordance with Philippine Financial Reporting Standards. SYCIP GORRES VELAYO & CO. Alicia O. Lu Partner CPA Certificate No. 0062493 SEC Accreditation No. 0661-AR-1 Tax Identification No. 102-090-613 BIR Accreditation No. 08-001998-66-2009, June 1, 2009, Valid until May 31, 2012 PTR No. 2641535, January 3, 2011, Makati City September 20, 2011

*SGVMC410063*

PRIME ORION PHILIPPINES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Amounts in Thousands, Except Par Value and Number of Shares) June 30 2011 2010

ASSETS Current Assets Cash and cash equivalents (Note 4) P=386,654 P=135,323 Receivables (Note 5) 664,060 622,398 Inventories (Note 6) 287,593 232,409 Real estate held for sale and development (Note 7) 396,851 400,410 Amounts owed by related parties (Note 18) 2,209 4,939 Available-for-sale (AFS) investments (Note 9) 433,203 636,919 Other current assets (Note 8) 178,898 182,921 Total Current Assets 2,349,468 2,215,319 Noncurrent Assets Investments in associates (Note 11) 530,931 530,755 Leasehold rights (Note 25) 22,092 31,019 Held-to-maturity (HTM) investments (Note 10) 2,000 18,285 Investment properties (Note 13) 657,508 686,061 Property, plant and equipment (Note 12) 655,103 660,706 Deferred income tax assets (Note 22) 89,575 85,625 Other noncurrent assets (Note 14) 122,290 142,035 Total Noncurrent Assets 2,079,499 2,154,486 TOTAL ASSETS P=4,428,967 P=4,369,805

LIABILITIES AND EQUITY Current Liabilities Accounts payable and accrued expenses (Note 15) P=1,393,014 P=1,474,276 Rental and other deposits (Note 16) 205,921 202,535 Amounts owed to related parties (Note 18) 2,954 3,065 Total Current Liabilities 1,601,889 1,679,876 Noncurrent Liabilities Retirement benefit obligation (Note 21) 68,077 62,139 Deferred income tax liabilities (Note 22) 191,115 200,703 Subscriptions payable (Note 11) 528,470 528,470 Total Noncurrent Liabilities 787,662 791,312 Total Liabilities 2,389,551 2,471,188

(Forward)

*SGVMC410063*

- 2 - June 30 2011 2010 Equity Attributable to Equity Holders of the Parent Capital stock - P=1 par value

Authorized - 2,400,000,000 shares Issued and subscribed - 2,367,149,383 shares

(net of subscriptions receivable of P=300,797) P=2,066,352 P=2,066,352 Additional paid-in capital 829,904 829,904 Revaluation increment on property, plant and equipment

(Note 12) 188,170 193,299 Revaluation reserve on investment properties (Note 13) 215,709 225,799 Unrealized valuation gain on AFS investments (Note 9) 52,432 186,133 Deficit (1,387,823) (1,669,725) 1,964,744 1,831,762 Non-Controlling Interests 74,672 66,855 Total Equity 2,039,416 1,898,617 TOTAL LIABILITIES AND EQUITY P=4,428,967 P=4,369,805 See accompanying Notes to Consolidated Financial Statements.

*SGVMC410063*

PRIME ORION PHILIPPINES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Amounts in Thousands, Except Earnings (Loss) Per Share) Years Ended June 30 2011 2010 2009

REVENUE Merchandise sales - net P=639,918 P=703,625 P=721,762 Rental (Note 13) 505,242 498,555 470,165 Insurance premiums and commissions 184,385 147,271 101,694 Real estate sales – 72,296 – 1,329,545 1,421,747 1,293,621

COSTS AND EXPENSES Cost of goods sold and services (Note 19) 612,051 655,242 725,825 Operating expenses (Note 19) 410,811 465,823 511,106 Rent and utilities 227,567 221,303 228,725 Insurance underwriting deductions 126,231 113,351 57,805 Cost of real estate sold – 49,021 – 1,376,660 1,504,740 1,523,461

OTHER INCOME (CHARGES) Gain (loss) on sale of assets (Notes 9 and 13) 240,200 420,127 (3,375) Recovery of allowance for impairment losses on

receivables (Note 5) 36,628 8,559 2,957 Interest and others - net (Note 20) 16,190 21,453 (34,392) Dividend income (Notes 9 and 11) 14,414 22,540 15,933 Foreign exchange gains (losses) - net (4,234) 6,971 1,388 Equity in net income of associates (Note 11) 176 234 252 Gain on extinguishment of debt (Note 17) – 1,544,914 – Reversal of (provision for) probable losses 19,340 – (83,423) Others - net 22,493 31,853 34,924 345,207 2,056,651 (65,736)

INCOME (LOSS) BEFORE INCOME TAX 298,092 1,973,658 (295,576)

BENEFIT FROM (PROVISION FOR) INCOME TAX - net (Note 22) (24,983) (22,333) 6,126

NET INCOME (LOSS) P=273,109 P=1,951,325 (P=289,450)

ATTRIBUTABLE TO: Equity holders of the Parent P=266,683 P=1,953,964 (P=289,865) Non-Controlling Interests 6,426 (2,639) 415 P=273,109 P=1,951,325 (P=289,450)

EARNINGS (LOSS) PER SHARE (Note 23) Basic and diluted, for income (loss) for the year

attributable to ordinary equity holders of the Parent P=0.11 P=0.82 (P=0.12)

See accompanying Notes to Consolidated Financial Statements.

*SGVMC410063*

PRIME ORION PHILIPPINES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Amounts in Thousands) Years Ended June 30 2011 2010 2009

NET INCOME (LOSS) P=273,109 P=1,951,325 (P=289,450)

OTHER COMPREHENSIVE INCOME (LOSS) Unrealized valuation gain (loss) on AFS investments (Note 9) (133,701) 196,103 (154,701) Revaluation reserve on investment properties,

net of tax (Note 13) 10,090 10,090 45,292 Revaluation increment on property, plant and

equipment, net of tax (Note 12) 5,129 5,129 4,944 (118,482) 211,322 (104,465)

TOTAL COMPREHENSIVE INCOME (LOSS) P=154,627 P=2,162,647 (P=393,915)

ATTRIBUTABLE TO: Equity holders of the Parent P=144,814 P=2,164,025 (P=392,475) Non-Controlling Interests 9,813 (1,378) (1,440) P=154,627 P=2,162,647 (P=393,915) See accompanying Notes to Consolidated Financial Statements.

*SGVMC410063*

PRIME ORION PHILIPPINES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (CAPITAL DEFICIENCY) FOR THE YEARS ENDED JUNE 30, 2011, 2010 and 2009 (Amounts in Thousands)

Capital Stock

Additional Paid-in Capital

Revaluation Increment on

Property, Plant and

Equipment (Note 12)

Revaluation Reserve on Investment Properties (Note 13)

Unrealized Valuation

Gain (Loss) on AFS Investments

(Note 9) Deficit

Non-Controlling

Interests Total

Balances at June 30, 2008 P=2,066,352 P=829,904 P=203,372 P=281,181 P=144,137 (P=3,399,279) P=72,199 P=197,866

Net income (loss) for the year – – – – – (289,865) 415 (289,450) Other comprehensive income (loss) for the year: – –

Unrealized valuation gain on AFS investments – – – – (152,846) – (1,855) (154,701) Revaluation increment on property, plant and

equipment, net of tax – – (4,944) – – 4,944 – – Revaluation reserve on investment properties, net of tax – – – (45,292) – 45,292 – –

Total comprehensive income (loss) for the year – – (4,944) (45,292) (152,846) (239,629) (1,440) (444,151)

Balances at June 30, 2009 2,066,352 829,904 198,428 235,889 (8,709) (3,638,908) 70,759 (246,285) Net income (loss) for the year – – – – – 1,953,964 (2,639) 1,951,325 Other comprehensive income (loss) for the year: – –

Unrealized valuation loss on AFS investments – – – – 197,089 – 1,261 198,350 Amount removed from equity – – – – (2,247) – – (2,247) Revaluation increment on property, plant and


Total comprehensive income (loss) for the year – – (5,129) (10,090) 194,842 1,969,183 (1,378) 2,147,428

Acquisition of non-controlling interests (2,526) (2,526)

Balances at June 30, 2010 P=2,066,352 P=829,904 P=193,299 P=225,799 P=186,133 (P=1,669,725) P=66,855 P=1,898,617

(Forward)

*SGVMC410063*

- 2 -

Capital Stock

Additional Paid-in Capital

Revaluation Increment on

Property, Plant and

Equipment (Note 12)

Revaluation Reserve on Investment Properties (Note 13)

Unrealized Valuation

Gain (Loss) on AFS Investments

(Note 9) Deficit

Non-Controlling

Interests Total


Net income for the year – – – – – 266,683 6,426 273,109 Other comprehensive income (loss) for the year: – – – – – – – –

Amount removed from equity – – – – (107,493) – – (107,493) Unrealized valuation gain on AFS investments – – – – (26,208) – 1,391 (24,817) Revaluation increment on property, plant and


Total comprehensive income (loss) for the year – – (5,129) (10,090) (133,701) 281,902 7,817 140,799


See accompanying Notes to Consolidated Financial Statements.

*SGVMC410063*

PRIME ORION PHILIPPINES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in Thousands) Years Ended June 30 2011 2010 2009

CASH FLOWS FROM OPERATING ACTIVITIES Income (loss) before income tax P=298,092 P=1,973,658 (P=295,576) Adjustments for: Loss (gain) on sale of assets (Notes 9, 11, 12 and 13) (240,200) (420,127) 3,375 Depreciation and amortization (Notes 12, 13 and 25) 79,741 77,763 195,484 Provision for (reversal of) impairment and

probable losses (19,340) – 83,423 Retirement expense (Note 21) 19,117 12,760 6,751 Interest income (Note 20) (18,301) (21,830) (35,560) Dividend income (Notes 9 and 11) (14,414) (22,540) (15,933) Provision for impairment losses on:

Receivables (Note 5) 4,610 17,156 1,582 Amounts owed by related parties (Note 18) 1,423 1,726 923 Other current assets (Note 8) 128 61 8,738

Net unrealized foreign exchange losses (gains) 4,234 (6,971) (1,388) Interest expense and bank charges (Note 20) 2,111 377 69,952 Equity in net income of associates (Note 11) (176) (234) (252) Gain on extinguishment of debt (Notes 17) – (1,544,914) – Operating income before working capital changes 117,025 66,885 21,519 Decrease (increase) in: Receivables (46,194) (193,245) 59,269 Inventories (55,184) 18,332 36,884 Real estate held for sale and development 3,559 (12,379) (2,469) Other current assets 3,895 (10,616) (20,406) Increase (decrease) in: Accounts payable and accrued expenses (111,327) 52,803 (53,688) Rental and other deposits 3,386 5,454 7,754 Net cash flows generated from (used in) operations (84,840) (72,766) 48,863 Interest received 18,301 21,830 35,560 Net cash flows from (used in) operating activities (66,539) (50,936) 84,423

CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of AFS investments 254,949 10,141 4,356 Proceeds from sale of assets 88,569 24,697 776 Acquisitions of: Property, plant and equipment (33,563) (28,166) (16,043) AFS investments (36,604) – – Investment properties (7,121) – (3,860) Decrease (increase) in: Other noncurrent assets 19,745 (48,423) 57,708 HTM investments 16,285 1,646 (3,016) Amounts owed by related parties 1,307 (1,469) (1,772) Dividends received (Notes 9 and 11) 14,414 22,740 15,933 Net cash flows from (used in) investing activities 317,981 (18,834) 54,082 (Forward)

*SGVMC410063*

- 2 - Years Ended June 30 2011 2010 2009

CASH FLOWS FROM FINANCING ACTIVITIES Decrease in amounts owed to related parties (P=111) (P=13,582) (P=41) Payments of: Loans payable – (34,853) – Long-term debt – (31,190) – Convertible note – (183,453) – Acquisition of non-controlling interests – (1,265) – Cash used in financing activities (111) (264,343) (41)

NET INCREASE (DECREASE) IN CASH

AND CASH EQUIVALENTS 251,331 (334,113) 138,464

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 135,323 469,436 330,972

CASH AND CASH EQUIVALENTS AT END OF YEAR (Note 4) P=386,654 P=135,323 P=469,436 See accompanying Notes to Consolidated Financial Statements.

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PRIME ORION PHILIPPINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Corporate Information and Status of Operations

Prime Orion Philippines, Inc. (POPI; the Parent Company) was incorporated and registered with the Philippine Securities and Exchange Commission (SEC) on May 19, 1989. The Parent Company’s registered office address is 20th Floor LKG Tower, 6801 Ayala Avenue, Makati City. The Parent Company’s primary purpose is to acquire by purchase, exchange, assign, donate or otherwise, and to hold, own and use, for investment or otherwise and to sell, assign, transfer, exchange, lease, let, develop, mortgage, pledge, traffic, deal in and with, and otherwise operate, enjoy and dispose of any and all properties of every kind and description and wherever situated, as and to the extent permitted by law, including but not limited to, buildings, tenements, warehouses, factories, edifices and structures and other improvements, and bonds, debentures, promissory notes, shares of capital stock, or other securities and obligations, created, negotiated or issued by any corporation, association, or other entity, domestic or foreign. Prime Orion Philippines, Inc. and its subsidiaries, collectively referred to as “the Group”, have principal business interests in real estate and property development, financial services and manufacturing and distribution (see Note 24). The management continues to strengthen its core assets through the implementation of operating programs such as efficiency improvement, cost reduction, right sizing and productivity enhancement. Management believes that in proper time, full implementation of these initiatives could translate to positive results for the Group. The consolidated financial statements of the Group as at June 30, 2011 and 2010 and for years ended June 30, 2011, 2010 and 2009 were approved and authorized for issue by the Board of Directors (BOD) on September 20, 2011.

2. Basis of Preparation, Statement of Compliance and Summary of Significant Accounting

Policies Basis of Preparation The consolidated financial statements have been prepared on a historical cost basis, except for AFS investments that are carried at fair values. The consolidated financial statements are presented in Philippine peso, which is the Group’s functional and presentation currency and all values are rounded to the nearest thousand (P=000), except when otherwise indicated. Statement of Compliance The consolidated financial statements of the Group have been prepared in compliance with Philippine Financial Reporting Standards (PFRS).

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Basis of Consolidation The consolidated financial statements include the accounts of the Parent Company and its subsidiaries as at June 30, 2011 and 2010:

Nature of Business Effective Percentage

of Ownership 2011 2010 Real Estate, Property Development

and Others:

Orion Land, Inc. (OLI) and Subsidiaries:

OLI Real Estate and Investment

Holding Company

100.00

100.00 Tutuban Properties, Inc. (TPI)

and Subsidiaries:

TPI Real Estate, Mall Operations 100.00 100.00 22BAN Marketing, Inc. * Other Business Activities 100.00 100.00

TPI Holdings Corporation (TPIHC) Investment Holding Company 100.00 100.00 Orion Property Development, Inc. (OPDI)

and Subsidiary:

OPDI Real Estate Development 100.00 100.00 Orion Beverage, Inc. (OBI) * Manufacturing 100.00 100.00 Luck Hock Venture Holdings, Inc. Other Business Activities 60.00 60.00 Manufacturing and Distribution: Orion I Holdings Philippines, Inc. (OIHPI)

and Subsidiaries:

OIHPI Financial Holding Company

100.00

100.00

Lepanto Ceramics, Inc. (LCI) Manufacture of Ceramic Floor and

Wall Tiles 100.00 100.00 OYL Holdings, Inc. Financial Holding Company 60.00 60.00 Financial Services and Others: OE Holdings, Inc. (OEHI) and Subsidiaries: OEHI Wholesale and Trading 100.00 100.00

Orion Maxis Inc. Marketing and Administrative

Services 100.00 100.00 ZHI Holdings, Inc. (ZHI) Financial Holding Company 100.00 100.00 FLT Prime Insurance Corporation (FPIC) Non-Life Insurance Company 70.00 70.00

Orion Solutions, Inc. (OSI) Management Information

Technology Consultancy Services 100.00 100.00 * Inactive

All of the above companies are incorporated and based in the Philippines. Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. Consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances. All significant intercompany transactions and balances between and among the Group, including intercompany profits and unrealized profits, have been eliminated in the consolidation.

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Non-controlling interests represent interests in certain subsidiaries not held by the Group. The equity, net income and other comprehensive income attributable to non-controlling interests are shown separately in the consolidated statement of financial position, consolidated statement of income and consolidated statement of comprehensive income, respectively. Changes in Accounting Policies The accounting policies adopted are consistent with those of the previous financial year except for the following new and amended PFRS, Philippine Accounting Standards (PAS) and Philippine Interpretations which were adopted as at July 1, 2010. New Interpretation • Philippine Interpretation International Financial Reporting Interpretations Committee (IFRIC)

19, Extinguishing Financial Liabilities with Equity Instruments, effective for annual periods beginning on or after July 1, 2010

Amendments and Improvements to Standards • Amendments to PFRS 2, Group Cash-settled Share-based Payment Transactions, effective for

annual periods beginning on or after January 1, 2010 • Amendment to PAS 32, Financial Instruments: Presentation, Classification of Rights Issues,

effective for annual periods beginning on or after February 1, 2010 • Improvements to PFRSs in 2009 • Improvements to PFRSs in 2010 The new, revised, amended and improved standards and/or interpretations that have been adopted are deemed to have no impact on the financial position or performance of the Group. Standards or interpretations or amendments to standards that have been adopted and that are deemed to have an impact on the financial statements or performance of the Group are described below:

Improvements to PFRSs in 2009 The omnibus amendments to PFRSs issued in 2009 were issued primarily with a view of removing inconsistencies and clarifying wording. The adoption of the following amendments resulted in changes to accounting policies but did not have any significant impact on the financial position or performance of the Group. • PAS 7, Cash Flows Statements, explicitly states that only expenditure that results in

recognized asset can be classified as a cash flow from investing activities.

• PAS 39, Financial Instruments: Recognition and Measurement, clarifies the following: − that the prepayment option is considered closely related to the host contract when the

exercise price of a prepayment option reimburses the lender up to the approximate present value of lost interest for the remaining term of the host contract.

− that the scope exemption for contracts between an acquirer and a vendor in a business combination to buy or sell an acquiree at a future period applies only to binding forward contracts, and not derivative contracts where further actions by either party are still to be taken.

− that gains or losses on cash flow hedges of a forecast transaction that subsequently results in a recognition of a financial instrument or on cash flow hedges of recognized financial instruments should be reclassified in the period that the hedged forecast cash flows affect the statement of comprehensive income.

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Future Changes in Accounting Policies The Group did not early adopt the following standards, amendments, improvements and Philippine interpretations: Effective beginning July 1, 2011: • Amendments to PAS 24, Related Party Disclosures, was amended in response to concerns

that the previous disclosure requirements and the definition of a “related party” were too complex and difficult to apply in practice, especially in environments where government control is pervasive. The amended standard addresses these concerns by providing a partial exemption for government-related entities and by providing by simplifying the definition of a related party and removing inconsistencies. The amended standard is effective for annual periods beginning on or after January 1, 2011, with earlier application permitted.

• Amendments to PFRS 7, Financial Instruments: Disclosures - Transfers of Financial Assets, effective for annual reporting periods beginning on or after July 1, 2011. The amendments will allow users of financial statements to improve their understanding of transfer transactions of financial assets (for example, securitization), including understanding the possible effects of any risks that may remain with the entity that transferred the assets. The amendments also require additional disclosures if a disproportionate amount of transfer transactions are undertaken around the end of a reporting period.

• Amendment to Philippine Interpretation IFRIC 14, Prepayments of a Minimum Funding Requirement, which is itself an interpretation of PAS 19, The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction, applies in the limited circumstances when an entity is subject to minimum funding requirements and makes an early payment of contributions to cover those requirements. The amendment permits such an entity to treat the benefit of such an early payment as an asset and is effective for annual periods beginning on or after January 1, 2011, with early adoption permitted.

Improvements to PFRSs in 2010 The omnibus amendments to PFRS issued in 2010 were issued primarily with a view of removing inconsistencies and clarifying wording. The amendments are effective for annual periods beginning on or after January 1, 2011, except when otherwise stated. • PFRS 7, Financial Instruments: Disclosures, emphasizes the interaction between quantitative

and qualitative disclosures and the nature and extent of risks associated with financial instruments. The amendment will be applied retrospectively.

• PAS 1, Presentation of Financial Statements, clarifies that an entity will present an analysis of other comprehensive income for each component of equity, either in the statement of changes in equity or in the notes to the financial statements. The amendment will be applied retrospectively.

• Philippine Interpretation IFRIC 13, Customer Loyalty Programmes, clarifies that when the fair value of award credits is measured based on the value of the awards for which they could be redeemed, the amount of discounts or incentives otherwise granted to customers not participating in the award credit scheme, is to be taken into account. The amendment will be applied retrospectively.

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Effective beginning July 1, 2012: • Amendment to PAS 12, Income Taxes - Deferred Tax: Recovery of Underlying Assets,

effective for annual periods beginning on or after January 1, 2012. The amendment provides a practical solution to the problem of assessing whether recovery of an asset will be through use or sale. It introduces a presumption that recovery of the carrying amount of an asset will, normally, be through sale.

Effective beginning July 1, 2013: • PFRS 9, Financial Instruments: Classification and Measurement, introduces new

requirements on the classification and measurement of financial assets. It uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the many different rules in PAS 39, Financial Instruments: Recognition and Measurement. The approach in the new standard is based on how an entity manages its financial instruments (its business model) and the contractual cash flow characteristics of the financial assets. The new standard also requires a single impairment method to be used, replacing the many different impairment methods in PAS 39. The standard’s effective period for mandatory adoption is on January 1, 2013. Earlier application is permitted for financial statements beginning on or after January 1, 2010 in the Philippines.

The Group does not expect any significant impact in the financial statements when it adopts the above standards, amendments, improvements and Philippine interpretations. The revised and additional disclosures provided by the standards, amendments, improvements and interpretations will be included in the financial statements when these are adopted in 2012 to 2014, when applicable. Summary of Significant Accounting Policies Financial Instruments - Initial Recognition Financial assets and liabilities within the scope of PAS 39 are classified as financial assets and liabilities at fair value through profit or loss (FVPL), loans and receivables, HTM investments, AFS investments and other financial liabilities. The Group determines the classification of its financial assets and liabilities at initial recognition. Management determines the classification of its financial instruments at initial recognition and, where allowed and appropriate, re-evaluates such designation at every end of the reporting period. All financial instruments are recognized initially at fair value plus, in the case of investments not at FVPL, directly attributable transaction costs. Purchases or sales of financial instruments that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognized on the trade date (i.e., the date that the Group commits to purchase or sell the asset). The Group’s financial instruments are in the nature of loans and receivables, AFS investments, HTM investments and other financial liabilities as at June 30, 2011 and 2010.

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Financial Instruments - Subsequent Measurement The subsequent measurement of financial instruments depends on their classification as follows: Loans and Receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest rate (EIR) method, less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fee or costs that are an integral part of the EIR. The EIR amortization is included in interest income in the consolidated statement of income. The losses arising from impairment are recognized in the consolidated statement of income. Loans and receivables are included in current assets if maturity is within twelve (12) months from the end of the reporting period. Otherwise, these are classified as noncurrent assets. The Group’s loans and receivables include cash and cash equivalents, receivables and amounts owed by related parties (see Notes 4, 5, and 18). HTM Investments Quoted 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. Where the Group sells other than an insignificant amount of HTM investments, the entire category would be tainted and reclassified as AFS investments and the Group will be precluded from using the HTM investments account for the current period and for the next two succeeding periods from tainting date. After initial measurement, HTM investments are measured at amortized cost using the EIR method. Amortized cost is calculated taking into account any discount or premium on or acquisition and for that are integral parts of the EIR rate. Gains and losses are recognized in the consolidated statement of income when the investments are derecognized or impaired, as well as through the amortization process. As at June 30, 2011 and 2010, the Group’s HTM investments include investments in debt securities (see Note 10). AFS Investments AFS investments are those which are designated as such or do not qualify to be classified or designated as at FVPL, HTM investments or loans and receivables. Financial assets may be designated at initial recognition as AFS if they are purchased and held indefinitely, and may be sold in response to liquidity requirements or changes in market conditions. AFS investments are included in current assets if it is expected to be realized or disposed of within twelve (12) months from the end of the reporting period. Otherwise, these are classified as noncurrent assets. AFS investments are measured at fair value. The unrealized gains and losses arising from the fair valuation of AFS investments are excluded from consolidated statement of income and are reported as “Unrealized valuation gains (losses) on AFS investments” in the statement of changes in equity. Unquoted AFS investments, where there is no reliable basis of their fair values, are measured at cost less impairment loss.

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When the security is disposed of, the cumulative gain or loss previously recognized in equity is recognized in the consolidated statement of income. Where the Group holds more than one investment in the same security, these are deemed to be disposed of on a first-in first-out basis. Interest earned on holding AFS investments are reported as interest income using the EIR. Dividends earned on holding AFS investments are recognized in the comprehensive statement of income under when the right of payment has been established. The losses arising from impairment of such investments are recognized in the consolidated statement of income. The Group’s listed and nonlisted equity securities and quoted and unquoted debt securities are classified under this category (see Note 9). Other Financial Liabilities After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the EIR 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 statement of income when the liabilities are derecognized as well as through the amortization process. The Group’s other financial liabilities include accounts payable and accrued expenses, amounts owed to related parties and rental and other deposits (see Notes 15, 16 and 18). Determination of Fair Value of Financial Instruments The fair value of financial instruments that are actively traded in organized financial markets is determined by reference to the quoted market prices (bid price for long positions and ask price for short positions) at the close of business at the end of the reporting period, without any reduction for transaction costs. When current bid and ask prices are not available, the price of the most recent transaction provides evidence of the current fair value as long as there has not been a significant change in economic circumstances since the time of the transaction. For all other financial instruments not listed in an active market, fair value is determined using valuation technique. Valuation techniques include net present value techniques, comparison to similar instruments for which market observable prices exist, option pricing models and other relevant valuation model. “Day 1” Difference Where the transaction price in a non-active market is different to the fair value from other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable market, the Group recognizes the difference between the transaction price and fair value (a “Day 1” difference) in the consolidated statement of income unless it qualifies for recognition as some other type of asset or liability. In cases where the data used is not observable, the difference between the transaction price and model value is only recognized in the consolidated statement of income when the inputs become observable or when the instrument is derecognized. For each transaction, the Group determines the appropriate method of recognizing the “Day 1” difference amount. Offsetting of Financial Instruments Financial assets and financial liabilities are only offset and the net amount reported in the consolidated statement of financial position when there is a legally enforceable right to set off the recognized amounts and the Group intends to either settle on a net basis, or to realize the asset and the liability simultaneously.

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Impairment of Financial Assets The Group assesses at each end of the reporting period whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred “loss event”) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. Financial Assets Carried at Amortized Cost For financial assets carried at amortized cost, the Group first assesses individually whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. 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 there is objective evidence that an impairment loss 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 (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial assets original EIR. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in profit or loss. Loans and receivables, together with the associated allowance, are written off when there is no realistic prospect of future recovery. If, in a subsequent year, the amount of the estimated impairment loss decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date. AFS Investments For AFS investments, the Group assesses at each end of the reporting period whether there is objective evidence of impairment. In case of equity investments classified as AFS investments, this would include a significant or prolonged decline in the fair value of the investments below its cost. “Significant” is to be evaluated against the original cost of the investment or “prolonged” against the period in which the fair value has been below its original cost. Where there is evidence of impairment, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized as other comprehensive income in the consolidated statement of comprehensive income - is removed from equity and recognized in the consolidated statement of income. Impairment losses on AFS investments are not reversed through profit or loss while increases in fair value after impairment are recognized directly in other comprehensive income in equity.

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In the case of debt instruments classified as AFS investments, impairment is assessed based on the same criteria as financial assets carried at amortized cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortized cost and the current fair value, less any impairment loss on that investment previously recognized in profit or loss. Future interest income continues to be accrued based on the reduced carrying amount and is accrued based on the rate of interest used to discount future cash flows for the purpose of measuring impairment loss. The interest income is recorded in the consolidated statement of income. If, in subsequent year, the fair value of a debt instrument increased and the increase can be objectively related to an event occurring after the impairment loss was recognized in the statement of income, the impairment loss is reversed through the consolidated statement of income. Derecognition of Financial Instruments Financial Assets A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized when:

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

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

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

• the Group has transferred its rights to receive cash flows from the asset and either: (a) has transferred substantially all the risks and rewards of the asset; or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

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. Financial Liabilities A financial liability is derecognized when the obligation under the liability is discharged, cancelled or has expired. 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 statement of income. Inventories Inventories are valued at the lower of cost and net realizable value (NRV).

Costs incurred in bringing each product to its present location are accounted for as follows: • Raw materials, factory supplies and spare parts - purchase cost on a moving-average method;

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• Finished goods and work in progress - direct materials, labor, and proportion of manufacturing overhead based on normal operating capacity.

The NRV is the selling price in the ordinary course of business, less costs of marketing and distribution. Investments in Associates Investments in shares of stock in which the Group has an effective interest of at least 20% or where it has, at least, ability to exercise significant influence over the investee’s operating and financial policies are accounted for under the equity method of accounting. Under the equity method, the investments are carried in the consolidated statement of financial position at cost adjusted for the equity in consolidated statement of income and changes in the investee’s equity account since the date of acquisition. Dividends received are treated as a reduction in the carrying value of the investments. The reporting dates of the associates and the Group are identical and the associates’ accounting policies conform to those used by the Group for like transactions and events in similar circumstances. The associate is accounted for under equity method from the date the Group obtains significant influence. In the Parent Company’s separate financial statements, investments in associates are accounted for at cost less impairment losses. The effective percentages of ownership in investments in associates for June 30, 2011 and 2010 are as follows:

Effective Percentage

of Ownership 2011 2010 Cyber Bay Corporation (Cyber Bay) and Subsidiary: Cyber Bay 22.28 22.28 Central Bay Reclamation and Development Corporation (Central Bay) 22.28 22.28 BIB Aurora Insurance Brokers, Inc. (BAIBI) 20.00 20.00

Real Estate Held for Sale and Development Real estate held for sale and development is carried at the lower of cost and NRV. NRV is the selling price in the ordinary course of business less the costs of completion, marketing and distribution. Cost includes acquisition cost of the land plus development and improvement costs. Borrowing costs incurred on loans obtained to finance the improvements and developments of real estate held for sale and development are capitalized while development is in progress. Leasehold Rights Leasehold rights are stated at cost and are amortized on a straight line basis over the remaining term of the lease from the start of commercial operations.

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Investment Properties The Group’s investment properties include properties utilized in its mall operations, held for rentals or for capital appreciation. Investment properties are stated at cost less accumulated depreciation and any accumulated impairment losses. The carrying amount includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met; and excludes the costs of day-to-day servicing of an investment property. Leasehold improvements under investment properties (including buildings and structures) on the leased land are carried at cost less accumulated depreciation and any impairment in value.

An investment property is derecognized either when it has 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 statement of income in the period of retirement or disposal. Transfers are made to investment property when, and only when, there is a change in use, evidenced by ending of owner-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. Leasehold improvements and investment properties are amortized on a straight-line basis over the estimated useful lives or the term of the lease, whichever is shorter. The lease contract on a land where the investment property is located is for twenty five (25) years, which is also the amortization period of the investment property. In December 2009, the lease contract on a land where the Group’s primary investment property (see Note 13) is located, was renewed. As a result of the lease renewal, and the review of the estimated useful life and amortization period of the said investment property, management came to a conclusion that there has been a significant change in the expected pattern of economic benefits from the said property of the Group. As a result, in 2010, the Group prospectively revised the remaining amortization period of this property from an average of twenty five (25) years (which is the shorter of the lease term and the estimated useful life) to thirty five (35) years. These changes have been accounted for as a change in accounting estimates. The Group transfers directly to deficit the realized portion of the revaluation reserve on investment properties at deemed cost. Accordingly, an amount corresponding to the difference between the depreciation based on the revalued carrying amount (deemed cost) of the properties and depreciation based on the properties original cost is transferred annually from “Revaluation reserve on investment properties” account at deemed cost to “Deficit” account in the consolidated statement of financial position. The amount transferred is net of the related deferred income tax liability. Property, Plant and Equipment Property, plant and equipment are carried at cost less accumulated depreciation and amortization and any impairment in value, except for land and building, together with their improvements, which are stated at appraised values as determined by an independent firm of appraisers. The excess of appraised value over the acquisition costs of the properties is shown as “Revaluation increment on property, plant and equipment” under the equity section of the consolidated statement of financial position and in the consolidated statement of changes in equity. An amount

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corresponding to the difference between the depreciation and amortization based on the revalued carrying amount of the properties and depreciation and amortization based on the original cost is transferred annually from “Revaluation increment in property, plant and equipment” to “Deficit” account in the consolidated statement of financial position. The amount transferred is net of the related deferred income tax liability. The initial cost of property, plant and equipment consists of its purchase price, including import duties, taxes and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditures incurred after the property, plant and equipment have been put into operation, such as repairs and maintenance, are normally charged to operations in the year in which the costs are incurred. In situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property, plant and equipment beyond its originally assessed standard of performance, the expenditures are capitalized as an additional cost of property, plant and equipment. When assets are retired or otherwise disposed of, the cost and the related accumulated depreciation and amortization and any impairment in value are removed from the accounts and any resulting gain or loss is credited to or charged against current operations. Depreciation and amortization is calculated on a straight-line basis over the estimated useful lives of the assets as follows:

Years Land improvements 30 Buildings and improvements 30 Leasehold improvements 3-5 Machinery and equipment 5-10 Transportation equipment 5 Furniture, fixtures and equipment 3-5

Leasehold improvements are amortized on a straight-line basis over their estimated useful lives or the term of the lease, whichever is shorter. An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the consolidated statement of income in the year the asset is derecognized. The residual values, useful lives and depreciation method are reviewed and adjusted if appropriate, at each end of the reporting period. Fully depreciated assets are retained in the accounts until these are no longer in use. When assets are sold or retired, the cost and the related accumulated depreciation and amortization and any impairment in value are eliminated from the accounts and any gain or loss resulting from their disposal is included in the consolidated statement of income.

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Impairment of Nonfinancial Assets The Group assesses at each end of the reporting period whether there is an indication that a nonfinancial asset may be impaired when events or changes in circumstances indicate the carrying values may not be recoverable. If any such indication exists or when annual impairment testing for a nonfinancial asset is required, the Group makes an estimate of the nonfinancial asset’s recoverable amount. A nonfinancial asset’s estimated recoverable amount is the higher of the nonfinancial asset’s or cash-generating unit’s fair value less costs to sell and its value in use and is determined for an individual nonfinancial asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying values exceed the estimated recoverable amounts, the assets are considered impaired and are written down to their estimated recoverable amounts. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses of continuing operations are recognized in the consolidated statement of income in those expense categories consistent with the function of the impaired asset. An assessment is made at each end of the reporting period as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the nonfinancial asset’s recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the nonfinancial asset is increased to its estimated recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation and amortization, had no impairment loss been recognized for the nonfinancial asset in prior years. Such reversal is recognized in the consolidated statement of income unless the nonfinancial asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase. Revenue Recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably. The following specific recognition criteria must also be met before revenue is recognized: Merchandise sale Revenue from sale of merchandise is recognized upon passage of title which coincides with the delivery of the goods. Rental Lease is recognized as income over the terms of the lease of mall spaces on a straight-line basis. Real estate sales Revenue from sale of real estate is recognized on an accrual basis in accordance with the terms and conditions of the sales contract.

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Insurance premiums and commissions Premiums from insurance contracts are recognized as revenue over the period of the contracts using the 24th method. The portion of the premiums written that relates to the unexpired periods of the policies at end of the reporting period is accounted for as “Reserve for unearned premiums” included in the “Accounts payable and accrued expenses” account in the consolidated statement of financial position. The related insurance premiums ceded that pertain to the unexpired periods at the end of the reporting period are accounted for as “Deferred reinsurance premiums” shown as part of “Other noncurrent assets” in the consolidated statement of financial position. The net changes in these accounts between ends of the reporting periods are charged or credited to income for the year. Interest Revenue is recognized as the interest accrues (using the EIR 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). Dividend Income Dividend income is recognized when the Group’s right to receive the payment is established. Amounts Owed by and to Related Parties Related party relationship exists when one party has the ability to control, directly or indirectly through one or more intermediaries, the other party or exercise significant influence over the other party in making financial and operating decisions. Such relationship also exists between and/or among entities, which are under common control with the reporting enterprises and its key management personnel, directors or its stockholders. In considering each related party relationship, attention is directed to the substance of the relationship, and not merely the legal form. Claims The liabilities for unpaid claim costs (including incurred but not reported losses) and claim adjustment expenses relating to insurance contracts are accrued when insured events occur. The liabilities for unpaid claims are based on the estimated ultimate cost of settling the claims. The method of determining such estimates and establishing reserves is continually reviewed and updated. Changes in estimates of claim costs resulting from the continuous review process and differences between estimates and payments for claims are recognized as income or expense for the period in which the estimates are changed or payments are made. Estimated recoveries on settled and unsettled claims are evaluated in terms of the estimated realizable values of the salvaged recoverables and deducted from the liability for unpaid claims. The unpaid claim costs are accounted as Claims Payable under “Accounts payable and accrued expenses” account in the consolidated statement of financial position.

Income Taxes Current Income Tax Current income 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 income tax rates and income tax laws used to compute the amount are those that are enacted or substantively enacted as at the end of the reporting period. Current income tax relating to items recognized directly in equity is recognized in equity and not in the profit or loss in the consolidated statement of income. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

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Deferred Income Tax Deferred income tax is provided using the liability method on temporary differences at the end of the reporting period between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognized for all taxable temporary differences, except:

• where the deferred income tax liability arises from the initial recognition of goodwill or of an

asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

• in respect of taxable temporary differences associated with investments in foreign subsidiaries

and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred income tax assets are recognized for all deductible temporary differences, carry-forward benefits of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax credits and unused tax losses can be utilized except: • where the deferred income tax asset relating to the deductible temporary difference arises

from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

• in respect of deductible temporary differences associated with investments in foreign subsidiaries and interests in joint ventures, deferred income tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable income will be available against which the temporary differences can be utilized.

The carrying amount of deferred income tax assets is reviewed at each end of the reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Unrecognized deferred income tax assets are reassessed at each end of the reporting period and are recognized to the extent that it has become probable that future taxable income will allow the deferred income tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at each end of the reporting period. Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss. Deferred tax items are recognized in correlation to the underlying transaction either in the consolidated statement of income or directly in equity. 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 income taxes relate to the same taxable entity and the same taxation authority.

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Retirement Benefit Costs The Group has a defined benefit retirement plan which requires contributions to be made to separately administered funds. The cost of providing benefits under the defined benefit plan is determined using the projected unit credit actuarial valuation method. Actuarial gains and losses are recognized as income or expense when the net cumulative unrecognized actuarial gains and losses for each individual 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 at that date. These gains or losses are recognized over the expected average remaining working lives of the employees participating in the plan. The past service cost is recognized as an expense on a straight-line basis over the average period until the benefits become vested. If the benefits are already vested immediately following the introduction of, or changes to, a retirement plan, past service cost is recognized immediately. The defined benefit liability is the aggregate of the present value of the defined benefit obligation and actuarial gains and losses not recognized and reduced by past service cost not yet recognized and the fair value of plan assets out of which the obligations are to be settled directly. If such aggregate is negative, the asset is measured at the lower of such aggregate or the aggregate of cumulative unrecognized net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan. Leases The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset. A reassessment is made after inception of the lease only if one of the following applies: a. There is a change in contractual terms, other than a renewal or extension of the

arrangement;

b. A renewal option is exercised or extension granted, unless the term of the renewal or extension was initially included in the lease term;

c. There is a change in the determination of whether fulfillment is dependant on a specified asset; or

d. There is a substantial change to the asset. Where a reassessment is made, lease accounting shall commence or cease from the date when the change in circumstances gave rise to the reassessment for scenarios (a), (c) or (d) and at the date of renewal or extension period for scenario (b). Group as a Lessor Leases where the Group does not transfer substantially all the risks and benefits of ownership of the assets are classified as operating leases. Initial direct costs incurred in negotiating operating leases are added to the carrying amount of the leased asset and recognized over the lease term on the same bases as the rental income. Contingent rents are recognized as revenue in the period in which they are earned. Group as a Lessee Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognized as an expense in the consolidated statement of income on a straight-line basis over the lease term.

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Borrowing Costs Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the respective assets. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. Foreign Currency Transactions The consolidated financial statements are presented in Philippine peso, which is the Group’s functional and presentation currency. The Group determines its own functional currency and items included in the consolidated financial statements are measured using that functional currency. Transactions in foreign currencies are initially recorded in Philippine peso based on the exchange rates prevailing at the dates of the transactions. Exchange rate differences arising from the settlement of monetary items at rates different from those at which they were initially recorded are recognized in the consolidated statement of income in the period in which they arise. At year-end, monetary assets and liabilities denominated in foreign currencies are restated at closing rate and any exchange differentials are credited to or charged against income. Nonmonetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. 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. Capital Stock Common shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds. The excess of proceeds from issuance of shares over the par value of shares are credited to the additional paid-in capital. Basic Earnings (Loss) Per Share Earnings (loss) per share is computed by dividing the net income (loss) for the year, attributable to the equity holders of the Parent Company, by the weighted average number of common shares issued and outstanding during the year. The weighted average number of common shares outstanding during the period and for all years presented are adjusted for events, other than the conversion of potential common shares, that have changed the number of common shares outstanding, without a corresponding change in resources. 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 some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate financial asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the consolidated statement of income, net of any reimbursement. 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 and others.

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Contingencies Contingent liabilities are not recognized in the consolidated financial statements. These are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized in the consolidated financial statements but are disclosed in the notes to consolidated financial statements when an inflow of economic benefit is probable.

Events after the Reporting Period Post year-end events that provide additional information about the Group’s financial position at end of the reporting period (adjusting events) are reflected in the consolidated financial statements. Post year-end events that are not adjusting events are disclosed in the notes to consolidated financial statements when material.

3. Summary of Significant Accounting Judgments, Estimates and Assumptions

The preparation of the consolidated financial statements in accordance with PFRS requires the Group to make judgments and estimates that affect the reported amounts of assets, liabilities, income and expenses and disclosure of contingent assets and contingent liabilities. Future events may occur which will cause the judgments assumptions used in arriving at the estimates to change. The effects of any change in judgments and estimates are reflected in the consolidated financial statements as they become reasonably determinable. Judgments, estimates and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. However, actual outcome can differ from these estimates. 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: Determining Functional Currency Based on the economic substance of underlying circumstances relevant to the Group, the functional currency of the Group has been determined to be the Philippine peso. The Philippine peso is the currency of the primary economic environment in which the Group operates and it is the currency that mainly influences the underlying transactions, events and conditions relevant to the Group. Assessing Operating Lease Commitments - Group as Lessor The Group has entered into commercial property leases on its investment property portfolio. The Group has determined that it retains all the significant risks and rewards of ownership of these properties which are leased out under operating lease arrangements. Assessing Operating Lease Commitments - Group as Lessee The Group has entered into a lease agreement for the corporate office space and a subsidiary’s mall operations. The Group has determined that it does not obtain all the significant risks and rewards of ownership of the assets under operating lease arrangements.

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Estimates and Assumptions The key estimates and assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period, 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. Estimating Allowance for Impairment Losses on Receivables and Amounts Owed by Related Parties The Group reviews its receivables and amounts owed by related parties at each end of the reporting period to assess whether an allowance for impairment should be recorded in the consolidated statement of income. In particular, judgment by management is required in the estimation of the amount and timing of future cash flows when determining the level of allowance required. Such estimates are based on assumption about a number of factors and actual results may differ, resulting in future changes to the allowance. For the amounts owed by related parties, the Group uses judgment, based on the best available facts and circumstances, including but not limited to, assessment of the related parties’ operating activities (active or dormant), business viability and overall capacity to pay, in providing allowance against the recorded receivable amounts. For the receivables, the Group evaluates specific accounts where the Group has information that certain customers or third parties are unable to meet their financial obligations. Facts, such as the Group’s length of relationship with the customers or other parties and the customers’ or other parties’ current credit status, are considered to ascertain the amount of allowance that will be provided. The allowances are evaluated and adjusted as additional information is received. Total receivables and amounts owed by related parties amounted to P=666.3 million and P=627.3 million as at June 30, 2011 and 2010, respectively. Total allowance for impairment losses on receivables and amounts owed by related parties amounted to P=343.1 million and P=379.l million as at June 30, 2011 and 2010, respectively (see Notes 5 and 18). Estimating Allowance for Inventory Losses The Group maintains an allowance for inventory losses. The level of this allowance is evaluated by management on the basis of factors that affect the recoverability of the inventory. These factors include, but are not limited to, the physical condition and location of inventories on hand, the fluctuations of price or cost directly relating to events occurring after the end of the period to the extent that such events confirm conditions existing at the end of the period, and the purpose for which the inventory item is held. Inventories amounted to about P=287.6 million and about P=232.4 million as at June 30, 2011 and 2010 respectively, net of allowance for inventory losses amounting to about P=36.4 million and about P=29.1 million, respectively (see Note 6). Estimating Allowances for Impairment Losses of AFS Investments The Group recognizes impairment losses on AFS investments when there has been a significant or prolonged decline in the fair value of such investments below its cost or where other objective evidence of impairment exists. The determination of what is ‘significant’ or ‘prolonged’ requires judgment. For equity instruments when determining whether the decline in value is significant, the Group considers historical volatility of share price (i.e., the higher the historical volatility, the greater the decline in fair value before it its likely to be regarded as significant) and the period of

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time over which the share price has been depressed (i.e., a sudden decline is less significant than a sustained fall of the same magnitude over a longer period). For debt instruments, impairment is assessed based on the same criteria as financial assets carried at amortized cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortized cost and the current fair value, less any impairment loss on that investment previously recognized in profit or loss. Total allowance for impairment losses on AFS investments amounted to P=8.6 million and nil as at June 30, 2011 and 2010, respectively (see Note 9). The carrying amount of the Group’s AFS investments is P=433.2 million and P=636.9 million as at June 30, 2011 and 2010, respectively (see Note 9). Estimating Allowance for Impairment Losses of Investments in Associates PFRS requires that an impairment review be performed when certain impairment indicators are present. Determining the fair value of investments in associates, which requires the determination of future cash flows expected to be generated from the continued use and ultimate disposition of such asset, requires the Group to make estimates and assumptions that can materially affect its financial statements. Future events could cause the Group to conclude that the investment is impaired. Any resulting impairment loss could have a material adverse impact on the statement of financial position and statement of income. No impairment losses on its investments in associates were recognized in 2011 and 2010. Allowance for impairment losses on investments in associates amounted to P=725.0 million as at June 30, 2011 and 2010 (see Note 11). The carrying value of investments in associates as at June 30, 2011 and 2010, amounted to P=530.9 million and P=530.8 million, respectively (see Note 11). Estimating Useful Lives of Property, Plant and Equipment, Investment Properties and Leasehold Rights The estimated useful lives used as bases for depreciating the Group’s property, plant and equipment, investment properties and leasehold rights were determined on the basis of management’s assessment of the period within which the benefits of these asset items are expected to be realized taking into account actual historical information on the use of such assets as well as industry standards and averages applicable to the Group’s assets. The Group estimates 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 the factors mentioned above. A reduction in the estimated useful lives of property, plant and equipment and investment properties would increase depreciation and amortization and decrease property, plant and equipment and investment properties. Investment properties are amortized on a straight line basis over the estimated useful lives or the term of the lease, whichever is shorter. The lease contract on a land where the investment property is located is for twenty five (25) years, which is also the amortization period of the investment property. In December 2009, the lease contract is renewed. As a result of the lease renewal and

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the review of the estimated useful life and amortization periods of the said investment property, management came to a conclusion that there has been a significant change in the expected pattern of economic benefits from the said property of the Group. As a result, in 2010, the Group prospectively revised the remaining amortization period of this property from an average twenty five (25) years (which is shorter of the lease term and the estimated useful life) to thirty five (35) years. These changes have been accounted for as a change in accounting estimates. The net book value of property, plant and equipment amounted to P=655.1 million and P=660.7 million as at June 30, 2011 and 2010, respectively (see Note 12). The net book value of investment properties amounted to P=657.5 million and P=686.1 million as at June 30, 2011 and 2010, respectively (see Note 13). The net book value of leasehold rights amounted to P=22.1 million and P=31.0 million as at June 30, 2011 and 2010, respectively (see Note 16). Estimating Allowance for Impairment Losses of Property, Plant and Equipment The Group assesses impairment on property, plant and equipment 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 financial statements.

These assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss would be recognized whenever evidence exists that the carrying value is not recoverable. For purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows. An impairment loss is recognized and charged to earnings if the discounted expected future cash flows are less than the carrying amount. Fair value is estimated by discounting the expected future cash flows using a discount factor that reflects the risk-free rate of interest for a term consistent with the period of expected cash flows. There were no impairment loss recognized in 2011 and 2010. As at June 30, 2011 and 2010, the carrying amounts of property, plant and equipment amounted to P=655.1 million and P=660.7 million, respectively (see Note 21).

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Estimating Allowance for Impairment Losses of Investment Properties Assets are reviewed and tested whenever there is indication of impairment and at least at each end of the reporting period. The Group maintains allowances for impairment losses at a level considered adequate to provide for potential losses on investment properties. No impairment losses were recognized in 2011 and 2010. The carrying value of investment properties amounted to P=657.5 million and P=686.1 million as at June 30, 2011 and 2010 (see Note 13). Estimation for Allowance for Impairment Losses on Other Current and Noncurrent Assets The Group provides allowance for losses on other current assets when they can no longer be realized. The amounts and timing of recorded expenses for any period would differ if the Group made different judgments or utilized different estimates. An increase in allowance for losses would increase recorded expenses and decrease other current assets.

There were no impairment losses recognized in 2011 and 2010. As at June 30, 2011 and 2010, the carrying value of other current assets amounted to P=178.9 million and P=182.9 million, respectively (see Note 8) and the carrying value of other noncurrent assets amounted to P=122.3 million and P=142.0 million, respectively (see Note 14). Assessing Realizability of Deferred Income Tax Assets The Group reviews the carrying amounts of deferred income tax assets at each end of the reporting period 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 its deferred income tax assets to be utilized. Deferred income tax assets recognized in the books amounted to P=89.6 million and P=85.6 million as at June 30, 2011 and 2010, respectively. Temporary differences for which no deferred income tax asset was recognized amounted to P=468.5 million and P=479.2 million as at June 30, 2011 and 2010, respectively (see Note 22). Determining Present Value of Retirement Benefit Cost The determination of the Group’s retirement benefit obligation and expense is dependent on the selection of certain assumptions used by actuaries in calculating such amounts. Those assumptions include, among others, discount rates, expected returns on plan assets and salary increase rates. In accordance with PFRS, actual results that differ from the Group’s assumptions, subject to the 10% corridor tests, are accumulated and amortized over future periods and therefore, generally affect the recognized expense and recorded benefit 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 Group’s accrued retirement benefit obligation and annual retirement expense. Retirement benefit obligation amounted to P=68.1 million and P=62.1 million as at June 30, 2011 and 2010, respectively (see Note 21). Estimating 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 inside and outside legal counsel handling the defense in these matters and is based upon an analysis of potential results. It is possible, however, that future results of operations could be materially affected by changes in estimates or in the effectiveness of the strategies relating to these proceedings.

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Estimating Fair Values of Financial Instruments Where the fair value of financial assets and financial liabilities recorded in the consolidated statement of financial position cannot be derived from active markets, they are determined using valuation techniques including the discounted cash flows model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. The judgments include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments. Any change in the fair value of these financial instruments would directly affect the consolidated statement of income and consolidated statement of changes in equity. Fair values of financial assets as at June 30, 2011 and 2010 amounted to P=1.5 billion and P=1.4 billion, respectively, while the fair values of financial liabilities as at June 30, 2011 and 2010 amounted to P=1.6 billion and P=1.5 billion, respectively (see Note 28).

4. Cash and Cash Equivalents

2011 2010 (In Thousands) Cash on hand and in banks P=43,652 P=87,580 Short-term investments 343,002 47,743 P=386,654 P=135,323

Cash in banks earn interest at the respective bank deposit rates. Short-term investments are made for varying periods of up to three (3) months depending on the immediate cash requirements of the Group and earn interest at the respective short-term investment rates. Interest earned from cash in banks amounted to P=0.1 million, P=0.3 million and P=0.8 million as at June 30, 2011, 2010 and 2009, respectively. Interest earned from short-term investments amounted to P=6.6 million, P=5.0 million and P=14.1 million as at June 30, 2011, 2010 and 2009, respectively (see Note 20).

5. Receivables

2011 2010 (In Thousands) Trade debtors P=289,363 P=263,719 Insurance receivables 396,124 393,639 Manila Electric Company (Meralco) refund – 2,711 Others 233,665 254,852 919,152 914,921 Less allowance for impairment losses 255,092 292,523 P=664,060 P=622,398

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Trade debtors are non-interest bearing and are generally on thirty (30) days’ term. Insurance receivables consist of premiums receivable, due from ceding companies, reinsurance recoverable on paid losses -facultative, funds held by ceding companies and other reinsurance accounts receivables. Other receivables include receivables of OLI from Cosco Land Corporation (CLC) amounting to P=167.9 million and P=204.4 million as at June 30, 2011 and 2010, respectively. These receivables are collateralized by the shares of stock of Cyber Bay owned by CLC. The receivables from CLC are fully provided with allowance. The Group was able to collect P=36.6 million and P=8.6 million in 2011 and 2010, respectively. Movements of allowance for impairment losses on receivables are as follows:

Trade debtors Insurance

receivables Others Total (In Thousands) At July 1, 2008 P=47,159 P=3,032 P=236,158 P=286,349 Provision during the year 1,582 – – 1,582 Recovery during the year (306) – (2,651) (2,957) At June 30, 2009 48,435 3,032 233,507 284,974 Provision during the year

(see Note 19) 8,747 8,409 – 17,156 Reversal during the year (1,048) – – (1,048) Recovery during the year – – (8,559) (8,559) At June 30, 2010 56,134 11,441 224,948 292,523 Provision during the year

(see Note 19) 4,610 – – 4,610 Reversal during the year (2,597) – (2,816) (5,413) Recovery during the year – – (36,628) (36,628) At June 30, 2011 P=58,147 P=11,441 P=185,504 P=255,092

Interest earned from receivables amounted to P=0.4 million, P=0.5 million and P=0.7 million as at June 30, 2011, 2010 and 2009, respectively (see Note 20).

6. Inventories

2011 2010 (In Thousands) At NRV: Finished goods P=212,885 P=157,106 Work-in-process 9,905 13,062 Raw materials 22,773 23,524 Factory supplies and spare parts 40,555 31,772 286,118 225,464 At cost: Materials in-transit 1,475 6,945 P=287,593 P=232,409

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Movements in the allowance for inventory losses are as follows:

2011 2010 (In Thousands) Beginning balance P=29,148 P=32,294 Provision (recovery) 7,237 (3,146) Ending balance P=36,385 P=29,148

7. Real Estate Held for Sale and Development

Real estate held for sale pertains to land located in Calamba, Laguna and Sto. Tomas, Batangas and is valued at cost. On March 30, 2010, an agreement was made and executed among the City Government of Calamba, Laguna (“the City”), LCI and OPDI for the assignment of the City’s real property tax receivable from LCI to OPDI to the extent of the value of the property. OPDI delivered certain real estate properties to the City for a total consideration of P=72.8 million (see Note 17).

8. Other Current Assets

2011 2010 (In Thousands) Creditable withholding taxes - net of allowance for impairment losses amounting to P=16,381 in 2011 and 2010 P=140,146 P=138,746 Input value added tax (VAT) - net of allowance for impairment losses amounting to P=2,384 and P=2,256 in 2011 and 2010, respectively 36,772 43,886 Prepayments 1,980 289 P=178,898 P=182,921

Movements in the allowance for impairment losses are as follows:

2011 2010 (In Thousands) Beginning balance P=18,637 P=18,576 Provision (see Note 19) 128 61 Ending balance P=18,765 P=18,637

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9. AFS Investments

2011 2010 (In Thousands) Listed equity securities P=270,633 P=488,072 Quoted debt securities 130,597 117,329 Unquoted debt securities 18,774 17,919 Nonlisted equity securities - net of allowance for impairment losses amounting to P=8.6 million and nil as at June 30, 2011 and 2010, respectively 13,199 13,599 P=433,203 P=636,919

In 2011 and 2010, the Group sold certain listed equity securities and recognized a gain on sale of P=155.6 million and P=2.0 million, respectively. In 2011, management assessed that there is a significant doubt regarding recoverability of AFS investment amounting to P=8.6 million. Certain AFS investments are reserved investments in accordance with the provisions of the Insurance Code as security for the benefit of policy holders and creditors of the FPIC. On February 28, 2007, OBII and The Nassim Fund, a foreign private investment company, entered into a deed of sale of shares of stock representing OBII’s 17.64% equity in Pepsi Cola Products Philippines Inc. (PCPPI). As a result of the sale, the Group’s management determined that the remaining equity interest in PCPPI of 4.52% will be classified as AFS investment. Prior to the sale of PCPPI shares, the Group classified the PCPPI investment as investment in an associate. In March 2007, Asset Pool A (SPV-AMC), Inc. (APA) filed a Complaint for rescission of the dead of sale of shares of stock in PCPPI against OIHPI, certain individual defendants, OBII, Hong Way Holdings, Inc. (HWHI), Nassim Capital Pte. Ltd. (Nassim Capital) and OLI. APA claimed that it was a purchaser of LCI loans from Bank of the Philippine Islands (BPI) of which OIHPI was the surety. APA alleged that the alienation of the PCPPI shares by OBII was grossly undervalued and made in fraud of creditors to defeat the claim of APA against OIHPI and LCI. APA, likewise, prayed for the issuance of a Temporary Restraining Order (TRO) and/or Writ of Preliminary Injunction (Injunction), freezing the proceeds of the sale and, after trial on the merits, the rescission of the sale to OLI, HWHI and Nassim Capital. While the trial is on-going, POPI, LCI, OIHPI and APA entered into a Compromise Agreement on August 10, 2009. After full compliance by the parties with their obligations in the Court of Appeals (CA), APA and OIHPI filed a Joint Motion to Dismiss on July 26, 2010. OLI filed a Manifestation on August 4, 2010 adopting APA and OIHPI’s Joint Motion to Dismiss and waiving its compulsory counterclaims against APA and cross-claims against OBII. On August 16, 2010, the SC issued a Resolution granting the parties’ Joint Motion to Dismiss and declaring the case closed and terminated. Entry of judgment was made on October 1, 2010.

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Below is the rollforward of the unrealized valuation gain (loss) on AFS investments:

Equity HoldersNon-Controlling

Interests Total (In Thousands) At June 30, 2009 (P=8,709) (P=1,383) (P=10,092) Gain (loss) recognized directly

in equity 197,089 1,261 198,350 Amount removed from equity and

recognized in consolidated statement of comprehensive income (2,247) – (2,247)

At June 30, 2010 186,133 (122) 186,011 Loss recognized directly

in equity (P=26,208) P=1,391 (P=24,817) Amount removed from equity and

recognized in consolidated statement of comprehensive income (107,493) – (107,493)

At June 30, 2011 P=52,432 P=1,269 P=53,701 The Group received cash dividends on AFS investments amounting to P=14.4 million, P=22.5 million and P=15.0 million as at June 30, 2011, 2010 and 2009, respectively. Interest earned from AFS investments amounted to P=9.7 million, P=11.8 million and P=13.3 million for the years ended June 30, 2011, 2010 and 2009, respectively (see Note 20).

10. HTM Investments

As at June 30, 2011 and 2010, HTM investments at amortized cost amounted to P=2.0 million and P=18.3 million, respectively. HTM investments are reserved investments in accordance with the provisions of the Insurance Code as security for the benefit of policy holders and creditors of the FPIC. These are investments in government debt securities with interest rates ranging from 5.00% to 11.88% and 6.88% to 12.0% in 2011 and 2010, respectively. These investments have maturity dates starting from July 2010 to July 2013. In 2011, significant investments have matured. Interest earned from HTM investments amounted to P=1.4 million, P=2.4 million and P=1.5 million as at June 30, 2011, 2010 and 2009, respectively (see Note 20).

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11. Investments in Associates

2011 2010 (In Thousands)

Acquisition costs: Balances at beginning and end of year P=1,416,101 P=1,416,101 Accumulated equity in net losses of associates:

Balances at beginning of year (160,323) (160,357) Equity in net income of associates 176 234 Dividends received – (200) Balances at end of year (160,147) (160,323) 1,255,954 1,255,778 Less allowance for impairment losses 725,023 725,023 P=530,931 P=530,755

Summarized combined financial statement information of associates follow:

2011 2010 (In Thousands) Current assets P=621,728 P=619,801 Noncurrent assets 1,738 1,815 Current liabilities 4,711,011 4,478,391 Revenue 173,405 2,119 Costs and expenses 404,260 983 Net income (loss) (231,294) 731

Cyber Bay and Central Bay On April 25, 1995, Central Bay, a wholly-owned subsidiary of Cyber Bay, entered into a Joint Venture Agreement with the Philippine Reclamation Authority (PRA; formerly Public Estates Authority) for the complete and entire reclamation and horizontal development of a portion of the Manila-Cavite Coastal Road and Reclamation Project (the Project) consisting of three partially reclaimed and substantially eroded islands (the Three Islands) along Emilio Aguinaldo Boulevard in Parañaque and Las Piñas, Metro Manila, with a combined total area of 157.8 hectares, another area of 242.2 hectares contiguous to the Three Islands and, at Central Bay’s option as approved by the PRA, an additional 350 hectares more or less to regularize the configuration of the reclaimed area.

On March 30, 1999, the PRA and Central Bay executed an Amended Joint Venture Agreement (AJVA) to enhance the Philippine Government’s share and benefits from the Project which was approved by the Office of the President of the Philippines on May 28, 1999. On July 9, 2002, the SC (in the case entitled “Francisco Chavez vs. Amari Coastal Bay and Reclamation Corp.”) issued a ruling declaring the AJVA null and void. Accordingly, PRA and Central Bay were permanently enjoined from implementing the AJVA. On July 26, 2002, Central Bay filed a Motion for Reconsideration (MR) of said SC decision. On May 6, 2003, the SC En Banc denied with finality Central Bay’s MR. On May 15, 2003, Central Bay filed a Motion for Leave to Admit Second MR. In an En Banc Resolution of the SC dated July 8, 2003, the SC resolved to admit the Second MR of Central Bay.

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On November 11, 2003, the SC rendered a 7-7 split decision on Central Bay’s Second MR. Because of the new issues raised in the SC’s latest resolution that were never tried or heard in the case, Central Bay was constrained to file on December 5, 2003 a Motion for Re-deliberation of the SC’s latest resolution which motion was denied with finality by the SC. With the nullification of the AJVA, Central Bay has suspended all Project operations. On August 10, 2007, in view of the failure by the PRA to comply with its obligations and representations under the AJVA, Cyber Bay and Central Bay have filed their claims for reimbursement of Project expenses in the amount of P=10.2 billion with the PRA. Cyber Bay and Central Bay provided the PRA with the summary and details of their claims on September 5, 2007. On July 15, 2008, Cyber Bay sent a follow-up letter to the PRA. The PRA, in its letter dated July 18, 2008, informed Cyber Bay that its claim is still being evaluated by the PRA. As at June 30, 2011, the claim is still being evaluated by the PRA. The carrying value of investment in Cyber Bay as at June 30, 2011 and 2010 amounting to P=528.5 million represents the Parent Company’s unpaid subscription in Cyber Bay. The related liability is presented as “Subscriptions Payable” in the consolidated statement of financial position.

12. Property, Plant and Equipment

As at June 30, 2011

Leasehold Improvements

Machinery and Equipment

Transportation Equipment

Furniture, Fixtures and

Equipment Total(In Thousands)

At cost: At beginning of year P=26,867 P=2,066,164 P=43,592 P=109,399 P=2,246,022Additions 18 24,677 2,675 5,782 33,152Disposals – – (611) – (611)Write off (5,670) – – (15,034) (20,704)At end of year 21,215 2,090,841 45,656 100,147 2,257,859

Accumulated depreciation and amortization and allowance for impairment losses:

At beginning of year 21,633 2,047,479 30,641 92,426 2,192,179Depreciation and amortization (see Note 19) 207 4,052 3,767 7,935 15,961

Disposals – – (611) – (611)Write off (5,670) – – (15,034) (20,704)At end of year 16,170 2,051,531 33,797 85,327 2,186,825

Net book value P=5,045 P=39,310 P=11,859 P=14,820 P=71,034

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Land and Improvements

Buildings and Improvements Total

(In Thousands) At revalued amounts: At beginning of year P=307,580 P=536,560 P=844,140 Additions – 411 411

At end of year 307,580 536,971 844,551 Accumulated depreciation and

amortization:

At beginning of year 14,508 222,769 237,277 Depreciation (see Note 19) 1,280 21,925 23,205

At end of year 15,788 244,694 260,482 Net book value P=291,792 P=292,277 P=584,069 As at June 30, 2010

Leasehold Improvements

Machinery and Equipment

Transportation Equipment

Furniture, Fixtures and

Equipment Total (In Thousands)

At cost: At beginning of year P=26,846 P=2,054,988 P=36,509 P=104,371 P=2,222,714 Additions 21 11,176 10,285 6,684 28,166 Disposals – – (3,202) (1,656) (4,858)At end of year 26,867 2,066,164 43,592 109,399 2,246,022

Accumulated depreciation and amortization and allowance for impairment losses:

At beginning of year P=20,842 P=2,044,527 P=30,948 P=85,356 P=2,181,673 Depreciation and amortization (see Note 19) 791 2,952 2,895 7,903 14,541

Disposals – – (3,202) (833) (4,035)At end of year 21,633 2,047,479 30,641 92,426 2,192,179

Net book value P=5,234 P=18,685 P=12,951 P=16,973 P=53,843

Land and

Improvements Buildings and

Improvements Total (In Thousands) At revalued amounts: At beginning and end of year P=307,580 P=536,560 P=844,140 Accumulated depreciation and

amortization:

At beginning of year 13,228 200,853 214,081 Depreciation (see Note 19) 1,280 21,916 23,196

At end of year 14,508 222,769 237,277 Net book value P=293,072 P=313,791 P=606,863

Certain items of property, plant and equipment identified as idle and included under machinery and equipment classification were written down to their estimated recoverable amounts. Had land and improvements and buildings and improvements been carried at cost, the net book values of these assets would be P=315.3 million and P=330.7 million as at June 30, 2011 and 2010, respectively.

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As at June 30, 2011 and 2010, a subsidiary continues to utilize fully depreciated property, plant and equipment with an aggregate acquisition cost amounting to P=2.6 billion.

13. Investment Properties

As at June 30, 2011

BuildingLand and LandImprovements

Machinery and Equipment Total

(In Thousands) At cost:

At beginning of year P=2,120,552 P=13,667 P=17,378 P=2,151,597 Additions 7,121 – – 7,121 Disposals – (4,026) – (4,026) At end of year 2,127,673 9,641 17,378 2,154,692

Accumulated depreciation:

At beginning of year 1,452,327 – 13,209 1,465,536 Depreciation (see Note 19) 31,510 138 – 31,648 At end of year 1,483,837 138 13,209 1,497,184

Net book value P=643,836 P=9,503 P=4,169 P=657,508

As at June 30, 2010

BuildingLand and LandImprovements

Machinery and Equipment Total

(In Thousands) At cost:

At beginning of year P=2,120,552 P=36,387 P=17,378 P=2,174,317Disposals – (22,720) – (22,720)At end of year 2,120,552 13,667 17,378 2,151,597

Accumulated depreciation:

At beginning of year 1,421,228 – 13,209 1,434,437Depreciation (see Note 19) 31,099 – – 31,099At end of year 1,452,327 – 13,209 1,465,536

Net book value P=668,225 P=13,667 P=4,169 P=686,061 The Parent Company’s certain investment property were sold to fund the settlement of the Group’s obligation to APA. The sale resulted in the recognition of gain amounting to P=84.4 million and P=417.6 million for the years ended June 30, 2011 and 2010, respectively, in the consolidated statement of income. Investment properties of TPI substantially represent leasehold improvements on the land leased from Philippine National Railways (PNR) which are utilized in TPI’s mall operations and held for rentals. Upon adoption of PAS 40, Investment Property, TPI chose the cost model and continues to carry these investment properties at deemed cost using their revalued amount as allowed under PFRS. On June 30, 2011 and 2010, the net book values of these properties follow:

2011 2010 (In Thousands) At net book value:

Original cost P=329,928 P=345,655 Revaluation reserve 308,156 322,570

P=638,084 P=668,225

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Rental revenue from investment properties amounted to P=505.2 million, P=498.6 million and P=470.1 million in 2011, 2010 and 2009, respectively. Expenses arising from investment properties amounted to P=444.6 million, P=447.7 million and P=527.3 million in 2011, 2010 and 2009, respectively. The fair value of the investment properties, which has been determined based on the latest valuations performed by Cuervo Appraisers, Inc. date July 31, 2009, exceeds its carrying cost. Cuervo Appraisers, Inc. is an industry specialist in valuing these types of investment properties. The aggregate fair value of investment properties amounted to P=2.7 billion. TPI depreciates certain investment properties over the term of the leases or estimated useful lives, whichever is shorter. On September 11, 2009, the BOD approved for the renewal of the lease contract (see Note 25) with PNR which is set to expire in 2014. On December 22, 2009, the Group and PNR agreed to renew the lease contract on a PNR land, where the Group’s investment property is located, for another twenty five (25) years beginning September 5, 2014. As a result of the lease renewal, and the review of the amortization period and estimated useful life of the said investment property, management came to a conclusion that there has been a significant change in the expected pattern of economic benefits from the said property of the Group. As a result, in 2010, the Group prospectively revised the remaining amortization period of this property from an average of twenty five (25) years (which is the shorter of the lease term and the estimated useful life) to thirty five (35) years. These changes have been accounted for as change in accounting estimates. Depreciation on revaluation reserve on investment properties at deemed cost amounted to P=14.4 million, P=14.4 million and P=67.4 million in 2011, 2010 and 2009, respectively.

14. Other Noncurrent Assets

2011 2010 (In Thousands) Deferred reinsurance premiums P=48,871 P=52,876 Miscellaneous deposits 41,172 52,383 Deferred input VAT 17,940 20,153 Prepaid expenses 8,826 8,013 Others 5,481 8,610 P=122,290 P=142,035

Deferred reinsurance premiums pertain to the unexpired periods of the reinsurance premiums ceded at end of the reporting period. Miscellaneous deposits includes rental and security deposit paid which are refundable at the end of the contract.

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15. Accounts Payable and Accrued Expenses

2011 2010 (In Thousands) Trade payables P=295,029 P=324,168 Accrued expenses 502,842 540,011 Claims payable 259,450 282,121 Reserve for unearned premiums 126,659 126,622 Nontrade payables 84,636 81,715 Due to reinsurers and ceding companies 48,871 50,085 Others 75,527 69,554 P=1,393,014 P=1,474,276

Terms and conditions of the above payables:

• Trade payables and accrued expenses are noninterest-bearing and are normally settled on thirty (30) days’ term.

• All other payables are noninterest-bearing and have an average term of one (1) year.

16. Rental and Other Deposits

2011 2010 (In Thousands) Rental deposits P=93,803 P=93,890 Security deposits 87,485 85,303 Customer deposits 8,155 6,985 Construction bond 7,873 7,972 Other deposits 8,605 8,385 P=205,921 P=202,535

Deposits include rental, customer, security, construction bond and other deposits paid by tenants to the Group on the leased properties which are refundable at the end of the contract.

17. Gain on Extinguishment of Debt In previous years, the Group and APA have pending cases regarding the latter’s acquisition of the Group’s loans from different bank creditors. On August 10, 2009, the Group and APA entered into a compromise agreement for the full settlement of the Group’s loan obligations totaling P=2.2 billion, including the related accrued interests. On March 15, 2010, the Parent Company fully settled the remaining compromise amount of P=49.2 million to APA. As a result of the full settlement of the compromise amount, the Group recognized a gain of P=1.5 billion in the 2010 consolidated statement of income.

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Subsequently, the Group and APA have jointly moved for the dismissal of all pending cases between the Group and APA which the SC issued a Resolution granting the parties’ Joint Motion to Dismiss and declaring the case closed and terminated. Entry of judgment was made on October 1, 2010. With the settlement of the loans, the Group has no longer outstanding obligations to third party financial institutions as at June 30, 2010. As mentioned in Note 7, an agreement was executed among the City, LCI and OPDI for the assignment of the City’s real property tax receivable from LCI. OPDI delivered certain real estate properties to the City. The real property tax assessment amounted to P=75.0 million while the recorded obligation amounted to P=113.9 million, resulting to a gain of P=38.9 million in the 2010 consolidated statement of income.

18. Related Party Transactions

Parties are considered to be related if one party has the ability to control, directly or indirectly, the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals or corporate entities. The Parent Company and its subsidiaries, in their normal course of business, have entered into transactions with related parties principally consisting of noninterest-bearing advances with no fixed repayment terms and are due and demandable. Account balances with related parties, other than intra-group balances which are eliminated in consolidation, are as follows:

2011 2010 (In Thousands) Amounts owed by related parties: Cyber Bay and Subsidiary (see Note 11) P=87,344 P=85,939 Guoman Philippines, Inc. 1,632 1,627 HWHI – 1,841 Others 1,228 2,104 90,204 91,511 Less allowance for impairment losses 87,995 86,572 P=2,209 P=4,939

Movements of allowance for impairment losses on amounts owed by related parties are as follows:

2011 2010 (In Thousands) Beginning balance P=86,572 P=84,846 Provision (see Note 19) 1,423 1,726 Ending balance P=87,995 P=86,572

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2011 2010 (In Thousands) Amounts owed to related parties: OYL Overseas, Ltd. P=2,673 P=2,673 Others 281 392 P=2,954 P=3,065

The related parties described above have common stockholders. Compensation of key management personnel, including retirement and other benefits, amounted to and P=70.8 million, P=72.6 million, and P=64.2 million in 2011, 2010 and 2009, respectively.

19. Cost of Goods Sold and Services and Operating Expenses

2011 2010 2009 (In Thousands) Utilities and fuel P=332,351 P=334,350 P=315,805 Personnel expenses 244,179 222,567 221,956 Material used and changes in inventories 118,533 181,450 236,831 Depreciation and amortization

(see Notes 12, 13 and 25) 79,741 77,763 195,484 Supplies and repairs 75,247 62,562 61,985 Marketing expenses 48,563 51,998 52,944 Taxes and licenses 27,244 28,822 40,517 Professional and legal fees 17,378 69,448 21,129 Rental 12,471 10,441 12,927 Communication and transportation 11,698 15,190 16,834 Insurance 10,669 10,550 10,197 Provision for impairment losses

(see Notes 5, 8 and 18) 6,161 18,943 9,471 Representation 2,580 2,061 2,447 Others 36,047 34,920 38,404 P=1,022,862 P=1,121,065 P=1,236,931

The cost of goods sold of LCI, a subsidiary, amounted to P=611.9 million, P=638.4 million and P=701.5 million in 2011, 2010 and 2009, respectively.

20. Interest Income and Interest Expense and Bank Charges

Interest income are from:

2011 2010 2009 (In Thousands) Cash in banks (see Note 4) P=116 P=252 P=817 Short-term investments (see Note 4) 6,588 4,976 14,100 Receivables (see Note 5) 413 544 682 AFS investments (see Note 9) 9,744 11,824 13,303 HTM investments (see Note 10) 1,440 2,355 1,483 Others – 1,879 5,175 P=18,301 P=21,830 P=35,560

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Interest expense and bank charges consist of:

2011 2010 2009 (In Thousands) Interest expense on: Loans payable P=313 P=– P=25,471 Long-term debt – – 44,114 Bank charges 237 377 367 Others 1,561 – – P=2,111 P=377 P=69,952

21. Retirement Plan

The Group has a funded, noncontributory retirement plan covering all its regular employees. The plan provides for retirement, separation, disability and death benefits to its members. The normal retirement benefit is based on a percentage of the employee’s final monthly salary for every year of credited service. The latest independent actuarial valuation dated August 15, 2011 was determined using the projected unit credit method in accordance with PAS 19, Employee Benefits. The following tables summarize the funded status and amounts recognized in the consolidated statements of financial position, and the components of the net retirement costs recognized in the consolidated statements of income for the retirement plan:

2011 2010 (In Thousands) Retirement benefit obligation:

Present value of obligation (PVO) P=139,322 P=118,191 Fair value of plan assets (50,141) (35,847) Unfunded obligation 89,181 82,344 Unrecognized actuarial losses (16,677) (15,828) Unrecognized transitional liability – (908) Unrecognized past service cost - non-vested (4,427) (3,469)

P=68,077 P=62,139 2011 2010 2009 (In Thousands) Retirement costs:

Interest cost on retirement obligation P=11,422 P=6,835 P=8,173 Current service cost 9,390 7,450 7,512 Expected return on plan assets (2,832) (1,760) (2,492) Actuarial loss (gain) 691 (211) (1,710) Past service cost - non-vested 446 446 446 Transitional liability recognized

during the year – – 80 Curtailment gain – – (5,258)

P=19,117 P=12,760 P=6,751

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Movements in the retirement obligation are as follows:

2011 2010 (In Thousands) Balances at beginning of year P=62,139 P=51,379 Benefit expense 19,117 12,760 Actual contributions (13,179) (2,000) Balances at end of year P=68,077 P=62,139

Changes in the PVO are as follows:

2011 2010 (In Thousands) Balances at beginning of year P=118,191 P=84,476 Current service cost 9,390 7,450 Interest cost 11,422 6,835 Benefits paid (4,899) (7,002) Actuarial loss 5,218 26,432 Balances at end of year P=139,322 P=118,191

Changes in fair value of plan assets are as follows:

2011 2010 (In Thousands) Balances at beginning of year P=35,847 P=31,626 Actual contributions 13,179 2,000 Expected return on plan assets 2,832 1,760 Actuarial loss on plan assets 3,182 7,463 Benefits paid (4,899) (7,002) Balances at end of year P=50,141 P=35,847

The categories of plan assets as a percentage of fair value of the total plan assets are as follows:

2011 2010 Cash 12.54% 1.52%Receivables 0.78% 1.15%Loans and discounts 4.09% 3.98%Investment in securities 45.67% 56.31%Shares of stocks 7.30% 9.68%Trust fund investments 29.62% 27.36% 100.00% 100.00%

As at June 30, 2011 and 2010, retirement plan assets of the Group include investments in government and other securities with total fair value of P=36.7 million P=31.6 million, respectively. The Group expects to contribute P=10.0 million to the retirement plan in 2012.

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The principal assumptions used to determine pension for the Group are as follows:

2011 2010 2009Discount rates 9.0% 8.0% 8.2%Expected rates of return on plan assets 8.0% 9.0% 8.0%Salary increase rate 7.0% 7.0% 6.0%

Amounts for the current and previous three years are as follows:

2011 2010 2009 2008

Defined benefit obligation P=139,322 P=118,191 P=84,476 P=81,729 Plan assets 50,141 35,847 31,626 31,147 Experience adjustment on

plan liabilities - loss (gain) (7,649) 23,435 (10,942) (3,694)

Experience adjustment on plan assets - gain (loss) 12,871 7,463 (7,473) (2,163)

22. Income Taxes

Provision for (benefit from) income tax consists of:

2011 2010 2009 (In Thousands) Current P=28,563 P=35,827 P=6,984 Deferred (3,580) (13,494) (13,110) P=24,983 P=22,333 (P=6,126)

The reconciliation of the statutory income tax rates to the effective income tax rates follows:

2011 2010 2009 At statutory tax rates 30% 30% (32.5%) Additions to (reductions in) income taxes resulting from:

Unrecognized deferred income tax assets 5.9 1.6 34.9

Exempt income from dividend (1.5) (0.3) (1.8) Gain on sale of investments (24.2) (6.4) 0.4 Interest income subjected to final

taxes (1.8) (0.3) (4.0) Write-off of allowance for

impairment losses – – 1.5 Effect of change in tax rate – – (0.6) Exempt income from extinguishment

of debt –

(23.5)

– At effective tax rates 8.4% 1.1% (2.1%)

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The significant components of the net deferred tax assets and liabilities of the Group are as follows:

2011 2010 (In Thousands) Deferred income tax assets on: Unamortized deferred costs P=16,514 P=22,018 Rent received in advance 15,314 16,581 Allowance for impairment losses on

receivables, other current assets, inventory losses and others 9,230 9,230

Accrued retirement 8,177 5,091 Deferred acquisition costs 29,270 22,296 Others 11,070 10,409 P=89,575 P=85,625

Deferred income tax liabilities on: Revaluation reserve on investment properties P=92,447 P=96,771 Revaluation increment on property, plant, and

equipment 80,643 82,842 Undepreciated capitalized rent, interest and

customs duties 18,025 21,090 P=191,115 P=200,703

Deferred income tax assets are recognized only to the extent that taxable income will be available against which the deferred income tax assets can be used. The Group reassesses the unrecognized deferred income tax assets on the following deductible temporary differences and recognizes a previously unrecognized deferred income tax asset to the extent that it has become probable that future taxable income would allow the deferred income tax asset to be recovered:

2011 2010 (In Thousands) Allowance for impairment losses on receivables,

other current assets, inventories and others P=124,325 P=129,944 Provision for accrued expenses and others 97,166 88,766 Net operating loss carryover (NOLCO) 108,475 118,177 Provisions for retirement 18,562 14,823 Minimum corporate income tax (MCIT) 5,150 5,103 Unrealized foreign exchange losses 114,888 122,429 P=468,566 P=479,242

As at June 30, 2011, the Group has NOLCO that can be claimed as deduction from future taxable income and MCIT that can be used against payment of regular income tax as follows: NOLCO:

Year incurred Available until Balance (In Thousands) 2009 2012 P=201,340 2010 2013 88,186 2011 2014 72,056

P=361,582

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The following are the movements in NOLCO as at June 30, 2011 and 2010:


Beginning balances P=393,923 P=599,347 Additions 72,056 70,061 Expirations (104,397) (275,485) Ending balances P=361,582 P=393,923

As at June 30, 2011, the Group has MCIT which may be utilized as deduction from future taxable income as follows:

Year incurred Available until Balance (In Thousands) 2009 2012 P=1,136 2010 2013 2,468 2011 2014 1,546

P=5,150 The following are the movements in MCIT as at June 30, 2011 and 2010:


Beginning balances P=5,103 P=5,314 Additions 1,546 – Expirations (1,499) (211) Ending balances P=5,150 P=5,103

23. Earnings (Loss) Per Share

The following table presents information necessary to calculate basic earnings (loss) per share:

2011 2010 2009 a. Net income (loss) attributable to

equity holders of the Parent P=266,683 P=1,953,964 (P=289,865) b. Weighted average number of shares 2,367,149 2,367,149 2,367,149 Basic earnings (loss) per share (a/b) P=0.11 P=0.82 (P=0.12)

24. Segment Information

Business Segments The Group’s operating businesses are organized and managed separately according to the nature of services provided and the different markets served, with each segment representing a strategic business unit.

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The industry segments where the Parent Company and its subsidiaries and associates operate are as follows: • Financial services - insurance and related brokerage • Real estate - property development • Manufacturing and distribution - manufacture and distribution of beverage and ceramic tiles

Financial information about the operations of these business segments is summarized as follows:

2011

Holding

Company

Real Estate and Property Development

Financial Services

Manufacturing and

Distribution Total (In Thousands) Revenue P=– P=505,242 P=184,385 P=639,918 P=1,329,545 Net income (loss) 74,578 244,190 8,630 (54,289) 273,109 Depreciation and amortization 1,571 48,054 3,824 28,922 82,371 Equity in net income of associates – – 176 – 176 Total assets 649,859 1,878,525 606,380 1,294,202 4,428,967 Capital expenditures 1,194 2,529 4,789 25,051 33,563 Investment in associates 528,470 – 2,461 – 530,931 Total liabilities 554,461 597,962 516,907 720,223 2,389,551

2010

Holding

Company


Financial Services

Manufacturing and

Distribution Total (In Thousands) Revenue P=– P=570,851 P=147,271 P=703,625 P=1,421,747 Net income (loss) 1,443,607 89,749 (14,178) 432,147 1,951,325 Depreciation and amortization 1,262 43,911 4,256 28,334 77,763 Equity in net income of associates – – 234 – 234 Total assets 524,756 1,941,941 628,194 1,274,913 4,369,805 Capital expenditures 1,039 9,353 4,551 13,223 28,166 Investment in associates 528,470 – 2,284 – 530,755 Total liabilities 552,542 637,676 542,640 738,329 2,471,188

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2009

Holding

Company


Financial Services

Manufacturingand

Distribution Total (In Thousands) Revenue P=– P=470,165 P=101,694 P=721,762 P=1,293,621 Net income (loss) (85,946) (34,334) 4,819 (173,989) (289,450) Depreciation and amortization 699 151,526 4,082 39,177 195,484 Equity in net income of associates – – 252 – 252 Total assets 727,182 1,858,190 388,423 1,370,064 4,343,859 Capital expenditures 1,371 1,534 2,096 11,042 16,043 Investment in associates 528,470 – 2,251 – 530,721 Total liabilities 2,136,295 612,955 544,301 1,296,593 4,590,144

Geographical Segments

The Group does not have geographical segments. 25. Long-term Lease

On August 28, 1990, a subsidiary, through a deed of assignment, acquired all the rights, titles, interests and obligations of Gotesco Investment, Inc. on a contract of lease of the land owned by PNR for the Tutuban Terminal and where the TPI’s mall is located. The contract provided for a payment of a guaranteed minimum annual rental plus a certain percentage of gross sales. The lease covers a period of twenty five (25) years until 2014 and is automatically renewable for another twenty five (25) years subject to compliance with the terms and conditions of the lease agreement. On September 11, 2009, the BOD approved for the renewal of the lease contract with PNR which is set to expire on September 4, 2014. Subsequently, on December 22, 2009, TPI renewed its lease contract with PNR for another twenty five (25) years beginning September 5, 2014, the end of the original lease agreement. Rent expense charged to operations amounted to P=122.1 million, P=108.9 million and P=106.2 million in 2011, 2010 and 2009, respectively. As at June 30, 2011, the aggregate annual commitments on these existing lease agreements for the succeeding years are as follows:

2011 2010 (In Thousands) Less than 1 year P=97,125 P=94,500 More than 1 year but not more that 5 years 555,628 528,846 More than 5 years 3,561,288 3,685,195 P=4,214,041 P=4,308,541

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Leasehold rights pertaining to the leased property has a book value of P=22.1 million and P=31.0 million as at June 30, 2011 and 2010, respectively. Movements in the carrying value of the rights are presented below.

2011 2010 (In Thousands) Beginning balances P=31,019 P=39,946 Amortization (see Note 19) (8,927) (8,927) Net book values P=22,092 P=31,019

26. Contingencies

The Group is contingently liable for lawsuits or claims, and assessments, which are either pending decision by the courts or under negotiation. Management and its legal counsels believe that the eventual outcome of these lawsuits or claims will not have a material effect on the consolidated financial statements. 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.

27. Financial Risk Management Objectives and Policies and Capital Management

The Group’s principal financial instruments are cash and cash equivalents, receivables, accounts payable and accrued expenses, amounts owed by / to related parties and rental and other deposits. The Group has various other financial instruments such as AFS and HTM investments which arise directly from operations. The main risks from the use of financial instruments are liquidity risk, credit risk, foreign currency risk, equity price risk and interest rate risk. Liquidity Risk Liquidity risk is the risk that the Group will encounter difficulty in meeting financial obligations due to shortage of funds. In the management of liquidity, the Group monitors and maintains a level of cash deemed adequate by the management to finance the Group’s operations and mitigate the effects of fluctuations in cash flows. The table summarizes the maturity profile of the Group’s financial assets held for liquidity purposes and financial liabilities based on contractual undiscounted payments as at June 30, 2011 and 2010.

2011

On

demand Less than 3 months

3 to 12 months 1-5 years > 5 years Total

(In Thousands) Financial Assets: Loans and Receivables

Cash and cash equivalents P=386,654 P=– P=– P=– P=– P=386,654 Receivables Trade debtors 183,651 37,196 10,369 – – 231,216 Insurance receivables 272,689 44,328 67,666 – – 384,683 Others 41,830 6,331 – – – 48,161

(Forward)

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On



Amounts owed by related parties P=2,209 P=– P=– P=– P=– P=2,209

AFS Investments Listed equity securities 270,633 – – – – 270,633 Quoted debt securities 130,597 – – – – 130,597 Unquoted debt securities 18,774 – – – – 18,774 Nonlisted equity securities 13,199 – – – – 13,199 HTM Investments – – – 2,000 – 2,000

1,320,236 87,855 78,035 2,000 – 1,488,126

Financial liabilities: Other Financial Liabilities:

Accounts payable and accrued expenses 787,231 187,583 297,616 95,043 – 1,367,473

Amounts owed to related parties 2,954 – – – – 2,954

Rental and other deposits 37,598 16,689 63,005 88,630 – 205,922 827,783 204,272 360,621 183,673 – 1,576,349

P=492,453 (P=116,417) (P=282,586) (P=181,673) P=– (P=88,223)

2010

On



(In Thousands) Financial assets: Loans and Receivable

Cash and cash equivalents P=135,323 P=– P=– P=– P=– P=135,323 Receivables Trade debtors 143,437 450 63,698 – – 207,585 Insurance receivables 293,336 64,628 24,234 – – 382,198 Meralco refund 2,711 – – – – 2,711 Others 29,904 – – – – 29,904 Amounts owed by related

parties 4,939 – – – – 4,939 AFS Investments

Listed equity securities 488,072 – – – – 488,072 Quoted debt securities 117,329 – – – – 117,329 Unquoted debt securities 17,919 – – – – 17,919 Nonlisted equity securities 13,599 – – – – 13,599

HTM Investments – – 10,000 2,194 6,091 18,285 1,246,569 65,078 97,932 2,194 6,091 1,417,864

Financial liabilities: Other Financial Liabilities

Accounts payable and accrued expenses 906,234 214,127 220,770 – – 1,341,131

Amounts owed to related parties 3,065 – – – – 3,065

Rental and other deposits 796 31,979 73,526 96,234 – 202,535 910,095 246,106 294,296 96,234 – 1,546,731

P=336,474 (P=181,028) (P=196,364) (P=94,040) P=6,091 (P=128,867)

Credit Risk With respect to credit risk from other financial assets of the Group, which mainly comprise of cash, excluding cash on hand, amounts owed by related parties, AFS investments and HTM investments, the exposure of the Group to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments.

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There are no significant concentrations of credit risk in the Group. Credit quality of neither past due nor impaired financial asset The credit quality of financial assets is being managed by the Group by grouping its financial assets into two: (a) High grade financial assets are those that are current and collectible; (b) Standard grade financial assets need to be consistently followed up but are still collectible. The tables below show the credit quality by class of financial assets based on the Group’s credit rating system:

2011

Neither past due nor

impaired Past due or

High grade Standard

grade individually

impaired Total (In Thousands) Loans and Receivables Cash and cash equivalents P=386,110 P=– P=– P=386,110 Receivables Trade debtors 98,593 85,058 105,712 289,363 Insurance receivables 210,908 61,781 123,435 396,124 Others 41,830 – 191,835 233,665 Amounts owed by

related parties 2,209 – 87,995 90,204 AFS Investments Listed equity securities 270,633 – – 270,633 Quoted debt securities 130,597 – – 130,597 Unquoted debt securities 18,774 – – 18,774 Nonlisted equity securities 4,539 – 8,660 13,199 HTM Investments 2,000 – – 2,000 P=1,166,193 P=146,839 P=517,637 P=1,830,669

2010



High grade Standard

grade Individually

Impaired Total (In Thousands) Loans and Receivables Cash and cash equivalents P=134,778 P=– P=– P=134,778 Receivables Trade debtors 82,025 61,412 120,282 263,719 Insurance receivables 224,702 68,633 100,304 393,639 Meralco refund 2,711 – – 2,711 Others 28,798 1,107 224,947 254,852 Amounts owed by related

parties 4,939 – 86,572 91,511 (Forward)

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High grade Standard

grade Individually

Impaired Total AFS Investments Listed equity securities P=488,072 P=– P=– P=488,072 Quoted debt securities 117,329 – – 117,329 Unquoted debt securities 17,919 – – 17,919 Nonlisted equity securities 13,599 – – 13,599 HTM Investments 18,285 – – 18,285 P=1,133,157 P=131,152 P=532,105 P=1,796,414

The tables below show the aging analyses of past due but not impaired receivables per class that the Group held as at June 30, 2011 and 2010. A financial asset is past due when a counterparty has failed to make payment when contractually due.

2011


impaired

Past due but not impaired

Less than 30

31 to 60 days

61 to 90days

More than 91 days

Individually Impaired

Total

(In Thousands) Loans and Receivables Cash and cash

equivalents P=386,110 P=– P=– P=– P=– P=– P=386,110 Receivables Trade debtors 183,651 17,982 15,259 3,955 10,369 58,147 289,363 Insurance receivables 272,689 20,327 13,795 10,206 67,666 11,441 396,124 Others 41,830 6,331 – – – 185,504 233,665 Amounts owed by

related parties 2,209 – – – – 87,995 90,204 AFS Investments Listed equity securities 270,633 – – – – – 270,633 Quoted debt securities 130,597 – – – – – 130,597 Unquoted debt

securities 18,774 – – – – – 18,774 Nonlisted equity

securities 4,539 – – – – 8,660 13,199 HTM Investments 2,000 – – – – – 2,000 P=1,313,032 P=44,640 P=29,054 P=14,161 P=78,035 P=351,747 P=1,830,669

2010 Neither past

due nor impaired

Past due but not impaired

Less than 30

31 to 60 days

61 to 90days

More than91 days

Individually Impaired

Total

(In Thousands) Loans and Receivables Cash and cash equivalents P=134,778 P=– P=– P=– P=– P=– P=134,778 Receivables Trade debtors 143,437 228 222 63,698 56,134 263,719 Insurance receivables 293,336 39,163 17,083 8,382 24,234 11,441 393,639 Meralco refund 2,711 – – – – – 2,711 Others 29,904 – – – – 224,948 254,852 Amounts owed by

related parties 4,939 – – – – 86,572 91,511 AFS Investments Listed equity securities 488,072 – – – – – 488,072 Quoted debt securities 117,329 – – – – – 117,329 Unquoted debt securities 17,919 – – – – – 17,919 Nonlisted equity

securities 13,599 – – – – – 13,599 HTM Investments 18,285 – – – – – 18,285 P=1,264,309 P=39,391 P=17,305 P=8,382 P=87,932 P=379,095 P=1,796,414

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The table below shows the gross maximum exposure to credit risk for the components of the consolidated statements of financial position of the Group, without considering the effects of collateral, credit enhancements and other credit risk mitigation techniques.

Gross Maximum Exposure 2011 2010

(In Thousands) Loans and Receivables

Cash and cash equivalents P=386,110 P=134,778 Receivables Trade debtors 231,216 207,585 Insurance receivables 384,683 382,198 Meralco refund – 2,711 Others 48,161 29,904 Amounts owed by related parties 2,209 4,939

AFS Investments Listed equity securities 270,633 488,072 Quoted debt securities 130,597 117,329 Unquoted debt securities 18,774 17,919 Nonlisted equity securities 13,199 13,599

HTM Investments 2,000 18,285 Total P=1,487,582 P=1,417,319

Foreign Currency Risk The Group’s foreign currency risk results primarily from movements of the Philippine Peso against the US Dollar. The Group’s foreign currency risk arises primarily from its trade payables. The Group monitors and assesses cash flows from anticipated transactions and financing agreements denominated in US Dollar. The table below summarizes the Group’s exposure to foreign currency risk as at June 30, 2011 and 2010. Included in the table are the Group’s assets and liabilities at carrying amounts:

2011 2010 Peso Peso US Dollar Equivalent US Dollar Equivalent (In Thousands) Financial Asset: Cash in bank $42 P=1,802 $25 P=1,128 Financial Liability: Accounts payable 1,284 55,644 1,172 52,736 Net financial liability ($1,242) (P=53,842) ($1,147) (P=51,608)

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The following table presents the impact on the Group’s income before income tax due to changes in the fair value of its financial assets and liabilities, brought about by a reasonably possible change in the US$/P= exchange rate (holding all other variables constant) as at June 30, 2011 and 2010.

Change in Effect on currency Income rate before tax (In Thousands) 2011 +5.00% (P=2,692) -5.00% 2,692 2010 +5.00% (2,580) -5.00% 2,580

There is no other impact on the Group’s equity other than those already affecting the consolidated statement of income. Equity Price Risk Equity price risk is the risk that the fair values of equities decrease as the result of change in the levels of equity indices and the value of individual stock. The equity price risk exposure arises from the Group’s investment in stocks. Equity investment of the Group is categorized as AFS investments. The Group measures the sensitivity to its equity securities by using Philippine Stock Exchange index fluctuations and its effect to respective share prices. The basic sensitivity analysis assumes that the stock’s standard deviation on its historical yield for the past one year provides the basis for reasonably possible change in prices of the stock investment. In establishing the relative range of stock investment yields based on historical standard deviation for one year. The following table demonstrates the sensitivity to reasonable possible change in equity prices, with all other variables held constant:

Change in Equity Effect on price index Equity (In Thousands) 2011 Upper Limit +15.38% P=26,868 Lower Limit -15.38% (26,868) 2010 Upper Limit +18.42% 80,245 Lower Limit -18.42% (80,245)

The impact on the Group’s equity already excludes the impact on transactions affecting the consolidated statement of income.

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Interest Rate Risk The Group’s exposure to the risk for changes in market interest rate relates to quoted debt instruments. The Group regularly monitors the market interest rate movements and manages its interest rate risks by using a mix of fixed and variable rates.

The sensitivity to a reasonably possible change in the interest rate (in basis points), with all other variables held constant, of the Group’s equity as at June 30, 2011 and 2010 are as follows:

Change in interest rates

(in basis points) Sensitivity

to equity 2011 +141 P=1,841 -141 (1,841) 2010 +145 P=1,701 -145 (1,701)

The impact on the Group’s equity is caused by the changes in the market value of quoted debt due to interest rate movements. The impact of the movement of interest rate on the Group’s floating rate debt is not significant. Capital Management The primary objective of the Group’s capital management is to ensure the Group’s ability to continue as a going concern and pay the Group’s currently maturing obligations. The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes as at June 30, 2011 and 2010.

As at June 30, 2011 and 2010, the Group considers the following accounts as capital:

2011 2010 Capital stock P=2,066,352 P=2,066,352 Additional paid-in capital 829,904 829,904 P=2,896,256 P=2,896,256

28. Financial Instruments

Fair Values of Financial Instruments 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: Cash and Cash Equivalents The carrying amount of cash and cash equivalents approximates its fair value due to the short-term maturity of this financial instrument.

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Receivables and Accounts Payable and Accrued Expenses The carrying amounts receivables and trade and other payables approximate their fair values due to their short-term nature. AFS Investments AFS equity investments that are listed are based on their bid prices as at June 30, 2011 and 2010. AFS debt investments that are quoted are based on market prices. Unquoted AFS debt investments are based on market prices for similar investments. Nonlisted AFS equity investments are based on cost less impairment, if any, since its fair value cannot be determined reliably. HTM Investments HTM investments are based on quoted price.

2011 2010

Carrying Amounts Fair Values

Carrying Amounts Fair Values

(In Thousands) Financial assets:

Loans and Receivables Cash and cash equivalents P=386,654 P=386,654 P=135,323 P=135,323 Receivables

Trade debtors 231,216 231,216 207,585 207,585 Insurance receivables 384,683 384,683 382,198 382,198 Meralco refund – – 2,711 2,711 Others 48,161 48,161 29,904 29,904

Amounts owed by related parties 2,209 2,209 4,939 4,939

1,052,923 1,052,923 762,660 762,660 AFS Investments

Listed equity securities 270,633 270,633 488,072 488,072 Quoted debt securities 130,597 130,597 117,329 117,329 Unquoted debt securities 18,774 18,774 17,919 17,919 Nonlisted equity securities 13,199 13,199 13,599 13,599 433,203 433,203 636,919 636,919

HTM Investments 2,000 2,204 18,285 18,260 P=1,488,126 P=1,488,330 P=1,417,864 P=1,417,839 Financial liabilities:

Other Financial Liabilities Accounts payable and

accrued expenses P=1,367,473 P=1,367,473 P=1,341,131 P=1,341,131 Amounts owed to related

parties 2,954 2,954 3,065 3,065 Rental and other deposits 205,922 205,922 202,535 202,535 P=1,576,349 P=1,576,349 P=1,546,731 P=1,546,731

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Fair Value Hierarchy The following table shows the financial instruments recognized at fair value, analyzed between those whose fair value is based on:

• Quoted prices in active markets for identical assets of liabilities (Level 1);

• Those involving inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (Level 2); and

• Those with inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3).

2011

Level 1 Level 2 Level 3 TotalAFS investments: Listed equity securities P=270,633 P=– P=– P=270,633 Quoted debt securities 130,597 – – 130,597 Unquoted debt securities – 18,774 – 18,774 P=401,230 P=18,774 P=– P=420,004

2010

Level 1 Level 2 Level 3 TotalAFS investments: Listed equity securities P=488,072 P=– P=– P=488,072 Quoted debt securities 117,329 – – 117,329 Unquoted debt securities – 17,919 – 17,919 P=605,401 P=17,919 P=– P=623,320

During the year, there are no transfers between Level 1 and 2 fair value measurements, and no transfers into and out of Level 3 fair value measurement.

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