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SECURITIES AND EXCHANGE COMMISSION

SEC FORM 17-A

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

OF THE CORPORATION CODE OF THE PHILIPPINES 1. For the fiscal year ended: August 31, 2014 2. SEC Identification Number: PW-364 3. BIR Tax Identification No.: 000-270-220-000 4. Exact name of Issuer as specified in its charter: VICTORIAS MILLING COMPANY, INC. 5. Plant site: Victorias City, Negros Occidental 6. (SEC Use Only)

7. VMC Compound Victorias City, Negros Occidental 6119 Address of office Postal Code 8. (034) 399-33-78; (034) 399-35-88 Issuer's telephone number, including area code 9. Not Applicable Former name, former address, and former fiscal year, if changed since last report. 10. Securities registered pursuant to Sections 8 and 12 of the SRC, or Sec. 4 and 8 of the RSA Title of Each Class Number of Shares of Common Stock

Outstanding and Amount of Debt Outstanding

(a) Common Stock (Par Value of P1.00 per share)

Authorized Capital Stock 2,563,035,708 shares Subscribed and Paid-up 2,367,524,384 shares Amount of Debt Outstanding as of August 31, 2014: ---------- 11. Are any or all of these securities listed on a Stock Exchange. Yes [ X ] No [ ] If yes, state the name of such stock exchange and the classes of securities listed therein: 12. Check whether the issuer:

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

Province, Country or other jurisdiction of incorporation or organization

Industry Classification Code:

Philippine Stock Exchange, - Common Stocks

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Yes [ X ] No [ ] (b) has been subject to such filing requirements for the past ninety (90) days. Yes [ X ] No [ ] 13. Aggregate market value of the voting stock held by non-affiliates: P10,651,267,297.60

(at P1.00 par value)

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

DURING THE PRECEDING FIVE YEARS:

14. Check whether the issuer has filed all documents and reports required to be filed by Section 17 of the Code subsequent to the distribution of securities under a plan confirmed by a court or the Commission.

Yes [ X ] No [ ]

DOCUMENTS INCORPORATED BY REFERENCE 15. Briefly describe the documents incorporated by reference and identify the part of the SEC Form 17-A

into which the document is incorporated: 2013-2014 Consolidated Financial Statements (Incorporated as reference for Item 7 of SEC Form 17- A)

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TABLE OF CONTENTS PART I - BUSINESS AND GENERAL INFORMATION Page Item 1. Business 4 Item 2. Property 12 Item 3. Legal Proceedings 13 Item 4. Submission of Matters to a Vote of Security Holders 14 PART II - OPERATIONAL AND FINANCIAL INFORMATION Item 5. Market for Issuer’s Common Equity and Related

Stockholder Matters 14

Item 6. Management's Discussion and Analysis or Plan of Operation.

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Item 7. Financial Statements 22 Item 8. Changes in and Disagreements With Accountants on

Accounting and Financial Disclosure 22

PART III - CONTROL AND COMPENSATION INFORMATION Item 9. Directors and Executive Officers of the Issuer 23 Item 10. Executive Compensation 26 Item 11. Security Ownership of Certain Beneficial Owners and

Management 27

Item 12. Certain Relationships and Related Transactions 27

PART IV – CORPORATE GOVERNANCE Item 13. Corporate Governance 27 PART V- EXHIBITS AND SCHEDULES

28 (a) Exhibits (b) Reports on SEC Form 17-C 28

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PART I- BUSINESS AND GENERAL INFORMATION

ITEM 1 - BUSINESS DESCRIPTION OF BUSINESS Victorias Milling Company, Inc. (VMC) is a domestic corporation located in Victorias City, Negros Occidental. Since its incorporation on May 7, 1919, VMC has been engaged in integrated raw and refined sugar manufacturing. It also operates engineering services and has the following subsidiaries:

DATE OF REGISTRATION

% Ownership

Description of Business

Victorias Foods Corporation (VFC)

February 24, 1993 100% produces and sells canned sardines, hot bangus, mackerel, luncheon meat, lechon paksiw, ham, bacon and other meat products

Canetown Development Corporation (CDC)

February 9, 1979 88% develops and sells real estate properties; develops, operates and sells memorial lots

Victorias Golf and Country Club, Inc. (VGCCI)

May 5, 1994 81% operates a golf club

Victorias Agricultural Land Corporation (VALCO)

June 30, 1987 100% acquires and owns agricultural lands and properties

BUSINESS DEVELOPMENT DURING THE PAST THREE (3) YEARS

VMC is serious in its efforts to further improve its efficiency as well as product quality and the same are manifested in different major expansion programs for the past three (3) years. The unprecedented expansion programs resulted to high milling efficiency rates for Crop Years 2009-2010 and 2010-2011 by milling 2,552,299 MT and 3,115,914 MT, respectively. For Crop Year 2011-2012, VMC milled 3,100,509 tonnes cane, producing 6,400,064 Lkg. raw sugar, slightly lower by 15,405 tonnes cane from last crop year’s 3,115,914 tonnes cane, lower by 99,491 tonnes cane or three (3%) percent from the projection of 3.2 million tonnes cane. Although this production is lower than the previous crop year, VMC has retained its leadership when it comes to tons cane milled in the province with 25.82% share. CURRENT STATUS OF REHABILITATION PROGRAM In 1997, VMC filed with the Securities and Exchange Commission (SEC) a Petition for the Declaration of Suspension of Payments, and for the Approval of a Rehabilitation Plan. VMC’s total principal obligations and interest at that time stood at P7.9 Billion. Part of the rehabilitation plan was the restructuring of P4.4 Billion of debt over a period of fifteen (15) years beginning on 1 September 2003. Over the years, VMC has continued to pay its creditors in accordance with the scheduled amortization payments of its restructured debts. In fiscal year 2013-2014, VMC paid in full the remaining restructured loans to its secured and unsecured creditors. Another component of the rehabilitation plan was the conversion of P2.4 Billion of debt into convertible notes (CNs) and the conversion of the CNs into equity in accordance with the conversion schedules as provided for in the Debt Restructuring Agreement (DRA). As of FY 2013-2014, VMC has converted a total of P702 Million convertible notes into common shares at the ratio of P1 convertible note to 1 common share. P273 Million worth of debts were converted in 2013, while P429 Million convertible notes were converted in previous years.

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By 2014, VMC has redeemed all of its convertible notes except those awaiting mandatory conversion amounting to P677.53 million The conversion of the notes into equity contributed significantly to the reversal of the previous negative net worth to a positive equity position of VMC. As of August 31, 2014, VMC’s net worth stood at P4.5 Billion. The continuous improvement in operations resulting to healthier bottom lines contributed to the reversal of the deficit since 2005 to positive earnings as of Aug 31, 2014 of P540 Million. VMC’s shares of stock (“VMC”) are listed in the Philippine Stock Exchange (PSE) and has resumed being traded in the Exchange on May 21, 2012 following the lifting by the Securities and Exchange Commission and the PSE of the temporary suspension of its trading.

Victorias Milling Company Inc. and Subsidiaries Schedule of Equity Conversion

As of August 31, 2014

For the year ended 8/31/2010 310,046,219.00 For the year ended 8/31/2011 118,628,250.00 For the year ended 8/31/2012 272,857,966.00 For the year ended 8/31/2013 70,049,966.00

As of August 31, 2014 771,582,401.00

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VMC Historical Raw and Refined Sugar Production

VMC Historical Production Levels (Raw and Refined from CY 2011 – 2012 up to 2013 – 2014)

RISKS The risks of the corporation can be classified into four general categories: (i) Operational risks; (ii) financial risks; (iii) regulatory risks, (iv) strategic risks, and (v) hazard risks. Operational Risk One of the major elements in the operational risks of the corporation is its raw materials supply chain. VMC currently gets its cane supply from district and non-district planters all over the Negros province. This yearly exercise has proven to be tests of skills in enticing planters to deliver canes to VMC through various incentives and programs as well as providing superior services and factory efficiencies. But this is not without stiff competition from other sugar mills and refineries. Financial Risk The Company’s financial instruments comprise of cash and cash equivalents, trade and other current receivables, advances to and from subsidiaries, other noncurrent assets, trade and other current payables and long-term debts. The main purpose of these financial instruments is to raise finances for the Company’s operations. To manage its credit risks, the Company trades only with recognized and creditworthy third parties. It is the Company’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis.

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Regulatory risk The Company is subject to laws and regulations in the Philippines in which it operates. The Company has established policies and procedures in compliance with local and other laws. Management performs regular reviews to identify compliance risks and to ensure that the systems in place are adequate to manage those risks. One key element is its compliance to environmental regulatory requirements. One of the longest running environmental issues is the Cease and Desist order issued to VMC in 1989 due to air pollution concerns. This was exacerbated with VMC being under rehabilitation, having financial constraints to invest on anti-pollution equipment. To date however, VMC has installed eight (8) scrubbers on its smoke stacks and expects to be fully compliant with the air emission standards of the DENR. Another imminent risk is the gradual tariff reduction on imported sugar, which, by 2015, will go down to only 5%. This exposes the sugar industry as a whole to global competition that if not prepared for, will drastically change the financial viability of the corporation, in particular. Strategic Risk Competition and industry changes form part of strategic risks to which VMC is exposed. The sugar industry has been threatened by the ethanol industry, which also uses sugarcane as raw material. Fortunately, the ethanol business has yet to stabilize as a new industry under threats from world oil prices. Change in customer demand is something that VMC should also be concerned of to ensure that its product specifications suit the dynamics of its customers. VMC is also fully exposed to the risks of the extreme weather conditions. The recent typhoon Yolanda is expected to cause damage to cane crops and thereby reduce tonnage. Since its business is agriculturally-based, weather is a very critical factor for a successful crop year. Low farm inputs from planters will translate to low production that will trigger stiff cane competition among sugar millers in the region and will affect the price following supply and demand forces. The numerous legal cases are likewise a source of risk for the Corporation. Collection cases versus the Corporation are currently under suspension, with VMC being under corporate rehabilitation. The potential impact of these cases on the corporation once the suspension is lifted is continually being assessed. GOVERNMENT LICENSES REQUIRED

The following are the permits/licenses secured by the Corporation with the different government agencies/entities, which are needed in its operations:

NAME OF LICENSE DESCRIPTION DATE SECURED EXPIRY DATE 01. CERTIFICATE OF ELECTRICAL INSPECTION

Electrical inspection certificate EEDL No. VI-01-2012 issued by DOLE for the VMC Sugar Factory.

December 10, 2013

December 10, 2014

02. PERMIT TO OPERATE VARIOUS STEAM TURBINES

Permit to operate GE, Siemens, Kawasaki and Shin Nippon Turbine Generators.

December 10, 2013

December 10, 2014

03. PERMIT TO OPERATE INTERNAL COMBUSTION ENGINE

Permit to operate CATERPILLAR Diesel Engine Generator. December 10, 2013

December 10, 2014

04. CERTIFICATE OF REGISTRATION

Certificate of Registration issued by the Department of Energy (DOE).

May 18, 2011 May 18, 2036

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05. MILLING LICENSE

License to operate a sugar mill and to have the centrifugal sugar stored in its mill site/subsidiary warehouses.

August 22, 2014 August 22, 2015

06. REFINING LICENSE

License to operate a sugar refinery and to have the refined sugar manufactured stored in its warehouse.

August 22, 2014 August 22, 2015

07. SUGAR TRADER CERTIFICATE OF REGISTRATION

Authority to withdraw purchased sugar from the warehouse of any sugar mill refinery.

August 4, 2014 August 31, 2015

08. MOLASSES TRADER CERTICATE OF REGISTRATION

Authority to withdraw molasses from the storage tanks of any sugar mill or refinery.

August 4, 2014 August 31, 2015

09. USFDA REGISTRATION

Registration subject to biennial audit and renewal; ensures that product is of export quality.

January 25, 2013 January 25, 2015

10. ISO CERTIFICATION

Certification that products and services meet the expectations of customers and applicable statutory and regulatory requirements, subject to annual surveillance and three year renewal audit.

November 25, 2012

November 24, 2015

11. HALAL CERTIFICATION

Certification that products and services are permissible under Islamic Law, subject to annual renewal – Raw Sugar and Refined Sugar.

November 24, 2013

November 23, 2014

12. GMP Good Manufacturing Practice ensures that products are consistently produced and controlled according to quality standards, subject to annual surveillance and three year renewal audit.

June 13, 2013 April 24, 2015

13. PDEA LICENSE Permit to use controlled chemicals for Refinery and Manapla Distillery Plant.

November 9, 2013 November 9, 2014

14. PERMIT TO OPERATE VARIOUS BOILER STEAM

Pursuant to Article 165, Chapter II, Book IV of the Labor Code of the Philippines (LCP), as amended and its implementing rules and regulations. Rule 1160 of the Occupational Safety and Health (OSHS), as amended.

July 23, 2014 August 14, 2014 July 4, 2014 July 10, 2014 Jan. 29, 2014

July 23, 2015 August 14, 2015 July 4, 2015 July 10, 2015 Jan. 29, 2015

15. PERMIT TO OPERATE STEAM BOILER (VMC MANAPLA DISTILLERY PLANT)

Pursuant to Article 165, Chapter II, Book IV of the Labor Code of the Philippines (LCP), as amended and its implementing rules and regulations. Rule 1160 of the Occupational Safety and Health (OSHS), as amended. Pressure not to exceed 100 psig.

August 29, 2014 August 29, 2015

16. PERMIT TO OPERATE VARIOUS PRESSURE VESSELS

Pursuant to Article 165, Chapter II, Book IV of the Labor Code of the Philippines (LCP), as amended and its implementing rules and regulations. Rule 1160 of the Occupational Safety and Health (OSHS), as amended. Pressure not to exceed 25 psig.

August 29, 2014 August 29, 2015

17.ENVIRONMENTAL COMPLIANCE CERTIFICATE

Certifying that VMC is granted Environmental Compliance Certificate (ECC) for the consolidation of four (4) ECC's and inclusion of six (6) existing production wells and four (4) monitoring wells of the Sugar Mill and Refinery Plant Project.

November 6, 2012 No expiry date

18. REGISTERED MARK

Registered Marks for Various Products September 22, 2008 May 25, 2009 October 23, 2009 June 2, 2011

September 22, 2018 May 25, 2019 October 23, 2019 June 2, 2021

19. BUSINESS PERMITS

For various products and services, i.e., raw and refined sugar, clinic and distillery.


December 31, 2014 December 31, 2014

20. FIRE SAFETY INSPECTION CERTIFICATE

Certificate of Safety and Protection of VMC's Business Establishment.


21. CERTIFICATE OF BUSINESS NAME REGISTRATION

Registration of Business Name of Victorias Milling Co., Inc. issued by the Department of Trade and Industry.

September 10, 2008

September 10, 2013

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22. LICENSE TO OPERATE

License to Operate as a Food Manufacturer of Sugar issued by the Department of Health Bureau of Food and Drugs Pursuant to Section 4(e) Chapter III of Republic Act No. 3720, otherwise known as the Foods, Drugs and Devices and Cosmetics Act.

March 21, 2012 April 24, 2015

23. CERTIFICATE OF ELIGIBILITY

Certificate of Eligibility issued by the Department of Agriculture certifying that VMC is an agriculture enterprise corporation engaged in Sugarcane Milling and therefore eligible for tariff-exempt importation of agricultural inputs, machinery and equipment.

October 9, 2014 October 9, 2015

24. BIR IMPORTER CLEARANCE CERTIFICATE

Certificate of Accreditation as Importer issued by the Bureau of Internal Revenue.

September 12, 2014

Provisional for 6-months period

25. ICARE CERTIFICATE OF ACCREDITATION

Certificate of Accreditation as Importer issued by the Bureau of Customs

September 12, 2014


26. CERTIFICATE OF REGISTRATION

Certificate of Registration issued by the Bureau of Customs (BOC).

September 12, 2014


27. NATIONAL WATER RESOURCES BOARD (NWRB) PERMIT

Permit to use water from various water sources. May 2012 Conditional permit until September 18, 2013

28. ENERGY REGULATORY COMMISSION CERTIFICATE OF COMPLIANCE

VMC is entitled to all the rights and privileges subject Section 38 of Republic Act No. 9136 (RA 9136).


All obligations of VMC pertinent to the abovementioned licenses and permits are religiously

followed by the Corporation. CANE SUPPLY

The total canes milled this Crop Year 2013-2014 reached 3,140,615 tons with a sugar production of 6,862,282.02 LKG. This year’s tonnage milled is short by 159,385 tons from our projection of 3.3 Million tons and also 67,974 tons lower from last year’s cane supply volume. Sugar produced was also lower by 1,718 and 159,537 LKG against our projection and last year’s production, respectively. Cane quality is maintained as of last crop year at 2.19 LKG/TC, which is higher by 11 cates against our projection this year of 2.08. Good factory efficiency coupled with good weather contributed a lot in maintaining this LKG/TC. SEGMENTATION OF CANE SOURCES

Canes milled from planters in nearby areas (0-50 kms.) dropped by six percentage (6%) points, from sixty six percentage (66%) points or 2,125,365 tons last year to sixty one percentage (61%) points or 1,911,657 tons this year. This shorter distance is primarily represented by district canes that succumbed to the devastation of Typhoon Yolanda, which resulted to lower cane productivity of these areas. The volume of canes contributed by medium distance (50-100 kms.) areas increased by two percentage (2%) points from eighteen percentage (18%) points or 564,836 tons last year, to twenty percentage (20%) points or 633,671 tons this year.

Tonnage milled from far distance (100 kms. and beyond) increased by three percentage (3%) points from sixteen percentage (16%) points or 518,386 tons to nineteen percentage (19%) points or 595,287 tons this year.

The increase in volume contribution from both medium and far distance is attributed to the

Selective Marketing Program (SMP) that assisted both central and southern planters in their out-of-pocket expense in bringing their canes to the VMC mill site.

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Relating to the province, VMC shared 23.73% on total cane of 13,232,469 million tonnes, a decrease of 1.99% points from 25.72% points of the previous year. The decrease of VMC’s share in the province is attributed to the delay in start-up and the devastating effect of the strong typhoon that hit Northern Negros especially the district area. SERVICES TO PLANTERS

Cane supply is VMC’s major contributor for success. Hence for many years, the Corporation has considered its services to planters to be as important as maintaining the high efficiency of its operations. Incentive Programs are launched every now and then and the farm road repairs activities are on-going.

OVER-ALL CANE SUPPLY TREND AND COMPETITION BASED ON SUGAR REGULATORY ADMINISTRATION RECORDS FOR CY 2011-2012 to CY 2013-2014

Cane supply for the last three years (C. Y. 2011-2012 to 2013-2014) was maintained above the 3

million mark. This was due to our maintained factory efficiency that is being sought for by more planters and also due to favorable weather that brought in higher cane productivity in the province. Moreover, better sugar prices gave sugarcane planters the opportunity to put in the necessary farm inputs to attain higher farm productivity.

Other mills have also implemented improvements in their factory especially on their capacity and

efficiency. Some have ventured into power generation. Because of this, competition of the sugar mills is getting stiffer in so far as their quest for bigger slice of the province’s cane supply is concerned.

2012-2013ACTUAL PROJECTION ACTUAL TCM PERCENT TCM PERCENT

I. VICT. MPLA, CADIZ AREAS

TCM 1,156,519.08 1,262,600 1,254,285.17 (106,081) -8% (97,766) -8%

LKG SUGAR 2,532,776.79 2,626,208 2,741,894.49 (93,431) -4% (209,118) -8%

LKG/TC 2.19 2.08 2.19 0.11 5% - 0%

II. OTHER AREAS

TCM 1,984,095.81 2,037,400 1,954,303.37 (53,304) -3% 29,792 2%

LKG SUGAR 4,329,505.23 4,237,792 4,279,924.38 91,713 2% 49,581 1%

LKG/TC 2.18 2.08 2.19 0.10 5% (0.01) 0%

III. GRAND TOTAL

TCM 3,140,614.89 3,300,000 3,208,588.54 (159,385) -5% (67,974) -2%

LKG SUGAR 6,862,282.02 6,864,000 7,021,818.87 (1,718) 0% (159,537) -2%

LKG/TC 2.19 2.08 2.19 0.11 5% (0.00) 0%

2013-2014 PROJ C. Y. 2012-2013INCREASE / (DECREASE)

CANE & SUGAR PRODUCTION COMPARATIVECrop Year 2013-2014 vs. Projection and Crop Year 2012-2013

CROP YEAR2013-2014

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SALE OF SUGAR AND BY-PRODUCTS The Corporation’s major source of cash is from sales of raw sugar mill share, tolling fees from refinery operations, and sales of by-products like molasses. The major buyers of VMC’s sugar products (sugar & molasses) are the sugar traders.

Raw sugar mill share refers to the Corporation’s share (30.5%) of raw sugar produced from canes supplied by the planters. The Corporation conducts a weekly sugar and molasses bidding in Bacolod City. As a service to its planters, VMC likewise includes the planters’ share in raw sugar and molasses in the bidding. Single price auction for both mill’s and planters’ share of the sugar is practiced by VMC, that is, the highest bid price will cover all sugar sold during the day. For Crop Year 2013-2014, VMC raw sugar volume was at 2,436,443.64 Lkg. with an average price of P1,357.31 totalling to P3.31B sales.

Refined Sugar is also called the “white sugar” while the raw sugar is commonly called as the “brown sugar.” The raw sugar goes through a process of refining and the result is the refined sugar. VMC produces two different types of refined sugar– premium and standard. These varieties differ mainly in color, moisture content, ash content, and final use. The premium type, for example, is mainly for industrial users such as beverage manufacturers. The standard type is both for industrial and household consumption.

Molasses is the by-product of both raw sugar and refined sugar operations. The amount of

molasses received by the Corporation at its raw sugar operations follows the same production sharing formula of raw sugar, i.e. to VMC and the balance, to planters. The major buyers of VMC’s molasses are Asian Alcohol, Distilleria de Bago, International Pharmaceutical Inc. and Balayan Distillers. For Crop Year 2013-2014, VMC Molasses volume was at 34,250.00 with an average price of P5,606.57 totalling to sales. VMC’s Breakdown of Revenues CY 2012-2013 & CY2013-2014 (in thousands) Separate Consolidated Particular 2013-2014 * 2012-2013 2013-2014 * 2012-2013

Raw sugar sales 3,157,293

2,746,646

3,157,293

2,746,646

Tolling revenues 1,399,690

1,366,154

1,399,690

1,366,154

Alcohol 212,058

57,149

212,058

57,149

Molasses 185,025

205,834

185,025

205,834

Others -

-

55,748

38,607

Total 4,954,066

4,375,783

5,009,814

4,414,390

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Aging of Accounts Receivable

As of August 31, 2014, below is the aging of accounts receivables for trade and other receivables: CONSOLIDATED RECEIVABLE - AGING CROP YEAR 2013-2014 (in thousands)

Account Total

Neither Past Due

nor Impaired

<30 Days

31-60 Days

61-90 Days

> 90 Days

Past Due and

Impaired

Trade 109,913

91,057

-

-

-

-

18,856

Advances to: -

Planter's

association 13,105

13,105

-

-

-

-

Suppliers 10,221

10,221

-

-

-

-

Officers and

employees 433

433

-

-

-

-

Other current receivables

7,313

5,778

-

-

-

-

1,535

Total 140,985

120,594

-

-

-

-

20,391

EFFECTS OF EXISTING ENVIRONMENTAL LAWS & REGULATIONS AND THE COSTS AND EFFECTS OF COMPLIANCE WITH THE SAID ENVIRONMENTAL LAWS & REGULATIONS

Aware of its corporate social responsibility to protect the environment, VMC had successfully installed its anti-pollution control equipment notwithstanding its dismal financial situation, not to mention being under Corporate Rehabilitation. VMC had already spent more than Two Hundred Million Pesos (P200,000,000) for its Anti-Pollution Control Equipment (APCE), plus Ten Million Pesos (P10,000,000) for its yearly maintenance.

Thus, while it is paramount for VMC to religiously undertake its rehabilitation endeavors by dedicating the biggest bulk of its resources to paying its creditors pursuant to the schedules mandated by its Approved Rehabilitation Plan, it also humbly acknowledges the importance of a healthy environment in the community. VMC MANPOWER

As of August 31, 2014, VMC has eight (8) executive officers, with 2,173 workers.

ITEM 2 – PROPERTY

The VMC main office, mill operations, and related facilities constitute the “heart” of the Corporation where the industrial complex in producing sugar and the residential community co-exist in a relatively harmonious environment. The total landholdings of the Corporation aggregate to 7,779,548 square meters. The main plant is situated in a 3,354,734 square meters of land within Victorias City. The Corporation landholdings include a 3,002,741 square meters land in Manapla, Negros Occidental, 815,915

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square meters in Cadiz City, 1,000 square meters in Bacolod City, 159 square meters in Talisay City, 4,089 square meters in Iloilo and 13,013 square meters property in Antipolo, Rizal.

However, practically all of the land holdings, including some plant and equipment of the Corporation, are under a Mortgage Trust Indenture (MTI) with a fair market value of almost P2.0 billion, as collateral to VMC loans in the past.

The following are the major operational machineries and equipment owned by VMC and located within its compound in Victorias City, Negros Occidental: a) A & C Mills; b) Various Boilers; c) Boiling House Equipment; d) Refinery; e) Powerhouse; f) other engineering equipment and machineries; g) Manapla Distillery.

These properties were mortgaged to VMC’s creditor banks. They are fully owned by VMC.

The following are the VMC Subsidiaries’ respective principal properties, machineries and equipment: 1) VICTORIAS GOLF & COUNTRY CLUB, INC. (VGCCI) - Clubhouse, 18-hole Golf Course, Office Room, Locker & Shower Room, Canteen & Kitchen, Pavilion, Basement, Green Mowers 22”, Five Gang Fairway Mower. 2) VICTORIAS FOODS CORPORATION (VFC) - Cold Storage 2 compressor 9 cooling PL-EVAP with motor, Steamer Vacuum Automatic Shin-1 for can size 211 x 300, Fish Processing Plant Building, Coldroom/Cold Storage, Blast Freezer, Refrigeration Equipment System, Boiler House, Tank & equipment, Waste Water Treatment Plant. 3) CANETOWN DEVELOPMENT CORPORATION (CDC) - Subdivision lots at Manapla and Victorias, Memorial Garden, Agricultural Land, VMC Engineering Complex Land Area. 4) VICTORIAS AGRICULTURAL LAND CORPORATION (VALCO) - Total of 3,058,178 square meters landholdings. Other VMC Properties:

1. 202.02 hectares of cane field located in Manapla and Cadiz City, Negros Occidental.

2. 113.5015 hectares of cane field located in Victorias City, Negros Occidental.

3. A parcel of land located at Bacolod City, Negros Occidental covered by TCT No. 183131 (Lot No. 26-B) and TCT No. 183132 (Lot No. 26-A).

4. 3.537 hectares of land located in Manapla, Negros Occidental is being utilized by VMC for its

distillery.

5. A part of a parcel of land located at Brgy. XVIII, Hda. Florencia, VMC Compound, Victorias City, Negros Occidental covered by TCT No. RT-105-75.

ITEM 3 – LEGAL PROCEEDINGS

Cases filed for and against VMC are being handled by the Corporation’s In-house Counsels and by its External Counsels.

The External Counsels are Hilado Hagad & Hilado Law Offices, Gabionza De Santos & Partners, Mirano Mirano Mirano & Mirano Law Offices, Hechanova Bugay & Vilchez, Quiason Makalintal Barot Torres Ibarra & Sison, Zambrano & Gruba Law Offices, Manuel Lao Ong & Linus Abaquin Law Firm, Torres & Sy Law Office and Puyat Jacinto & Santos Law Firm, Puno & Puno Law Offices, Roxas De Los

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Reyes Laurel Rosario & Leagogo Law Offices, Adarlo Caoile & Associates Law Offices, and Paner Hosaka & Ypil Attorneys-At-Law. ITEM 4 – SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS

Except for the matters taken up during the Annual Stockholders’ Meeting, there was no other matter submitted to a vote of security holders during the period covered by this report.

PART II – OPERATION AND FINANCIAL INFORMATION

ITEM 5 – MARKET FOR ISSUER’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Trading of VMC’s shares with the Philippine Stock Exchange (PSE) resumed on May 21, 2012 pursuant to the Order of the Securities and Exchange Commission (SEC) dated March 2, 2012 lifting the Order of Suspension of Trading of the shares of VMC.

The number of stockholders on record and common shares outstanding as of August 31, 2014 stood at 5,379 and 2,367,524,384, respectively.

VMC has neither declared cash nor stock dividend for the three most recent crop years. Top 20 Stockholders as of August 31, 2014

Name Citizenship No. of Shares Percentage (%) 1 PCD Nominee Corporation Filipino/Other Alien 1,911,745,145 80.75% 2. Tanduay Holdings, Inc. Filipino 170,133,159 7.19% 3. Narra Capital Invvestment Corp. Filipino 68,201,941 2.88% 4. FEBTC TA #401-00012 Filipino 27,360,373 1.16% 5. AB Capital & Invst. Corp-Trust & Invst. Div. Filipino 11,712,681 0.49% 6. East Asia (AEA) Capital Corporation Filipino 10,670,941 0.45% 7. North Negros Marketing Co., Inc. Filipino 10,173,459 0.43% 8. Bank of the Philippine Islands Filipino 5,658,157 0.24% 9. Liberty Trading/Navigation Co. Filipino 4,772,380 0.20% 10. ALRAC, Inc. Filipino 4,654,944 0.20% 11. FEBTC TA #401-00008 Filipino 4,159,990 0.18% 12. First E-Bank Corporation Filipino 3,832,214 0.16% 13. Victorias Insurance factors Corporation Filipino 3,456,975 0.15% 14. Makati Supermarket Corporation Filipino 3,146,973 0.13% 15. FEBTC A/C #341-00094 Filipino 2,876,448 0.12% 16. Senoron, Nelson W. Filipino 2,330,910 0.10% 17. Reicon Agricultural Enterprises, Inc. Filipino 2,127,326 0.09% 18. Victorias Agricultural Land Corp. Filipino 1,930,843 0.08% 19. Everett Steamship Corporation Filipino 1,607,845 0.07% 20. FGU Insurance Corporation Filipino 1,448,307 0.06% ITEM 6 – MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF ACTION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION The following management Discussion and Analysis should be read in connection with the submitted Audited Consolidated Financial Statements for the year ended August 31, 2014 and 2013.

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Amounts in Php Thousands 2014 2013 Amount PctParent Revenue 4,954,066 4,375,783 578,283 13%Raw sugar revenue 3,157,293 2,746,646 410,647 15%Tolling revenues 1,399,690 1,366,154 33,536 2%Molasses revenue 185,025 205,834 (20,809) -10%Alcohol revenue 212,058 57,149 154,909 271%Subsidiaries Revenue 55,748 38,607 17,141 44%Total Revenue 5,009,814 4,414,390 595,424 13%

Periods Ended August 31 Change

Amounts in Php Thousands 2014 2013 Amount Pct 2014 2013Cost of hauling 898,856 902,449 (3,593) 0% 18% 20%Repairs and maintenance 541,538 658,830 (117,292) -18% 11% 15%Materials and supplies 422,878 343,328 79,550 23% 8% 8%Depreciation 256,203 261,204 (5,001) -2% 5% 6%Professional fees and contracted services 240,267 309,555 (69,288) -22% 5% 7%Fuel and transportation 210,431 173,195 37,236 21% 4% 4%Direct Labor 81,884 6,658 75,226 1130% 2% 0.2%Input tax allocable to exempt sales 81,520 60,508 21,012 35% 2% 1%Light and water 72,700 63,464 9,236 15% 1% 1%Taxes and licenses 48,774 50,269 (1,495) -3% 1% 1%Rental 7,359 2,379 4,980 209% 0.1% 0%Others 34,271 46,371 (12,100) -26% 1% 1%Total cost of goods manufactured 2,896,681 2,878,210 18,471 1% 58% 65%Decrease (increase) in inventories 161,574 (62,642) 224,216 -358% 3% -1%Cost of Goods Sold and Services 3,058,255 2,815,568 242,687 9% 61% 64%

Periods Ended August 31 Change Pct to Rev

Results of Operations Revenues

The Parent company’s revenue accounted for 99% of the Group’s consolidated revenue for the year-to-date (YTD) August 31. It includes sales from raw sugar, refining service, molasses and distillery operations, which grew by13% in the YTD August 31 compared to same period in 2013.

Revenues from raw sugar increased by 15% for the year compared to 2013 due primarily to increase in volume sold by 8%.

Tolling fees from refining services also increased by 2% for the year compared to 2013 due mainly to increase of refined volume collected by 3%.

Revenues from distillery operations significantly increased by 271% due to increase in volume sold and selling price by 263% and 2%, respectively.

Cost of Goods Sold and Services Consolidated cost of goods sold and services increased by 9% or P0.24 million to P3 billion for the year compared to 2013. The following table summarizes the breakdown of the Group’s cost of sales as of August 31, 2014 and 2013 and the percentage of each cost item to total revenues.

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Amounts in Php Thousands 2014 2013 Amount Pct 2014 2013Selling ExpensesFreight and handling 20,579 9,529 11,050 116% 0.4% 0.2%Taxes and licenses 13,065 13,128 (63) 0% 0.3% 0.3%Rental 12,639 14,414 (1,775) -12% 0.3% 0.3%Materials and supplies 9,986 4,274 5,712 134% 0.2% 0.1%Depreciation 7,001 2,837 4,164 147% 0.1% 0.1%Salaries and employee benefits 4,935 2,482 2,453 99% 0.10% 0.06%Repairs and maintenance 2,772 4,063 (1,291) -32% 0.1% 0.1%Others 8,471 8,579 (108) -1% 0.2% 0.2%Total 79,448 59,306 20,142 25% 2% 1%

Provisions 207,274 527,953 (320,679) 0% 4.1% 11.96%Professional fees and contracted services 175,783 135,350 40,433 30% 4% 3%Travel and transportation 37,413 22,878 14,535 64% 1% 1%Salaries and employee benefits 29,500 17,964 11,536 64% 1% 0.4%Taxes and licenses 21,244 16,038 5,206 32% 0.4% 0.4%Depreciation 12,055 11,665 390 3% 0.2% 0.3%Representation and entertainment 7,815 7,173 642 9% 0.2% 0.2%Repairs and maintenance 5,635 4,836 799 17% 0.1% 0.1%Retirement benefits 3,895 6,734 (2,839) -42% 0.1% 0.2%Rental 1,528 840 688 82% 0.03% 0.02%Impairment losses 230 136,648 (136,418) -100% 0.00% 3.1%Others 34,091 19,197 14,894 78% 0.7% 0%Total 536,463 907,276 (370,813) -69% 11% 21%

Total Operating Expenses 615,911 966,582 (350,671) -36% 12% 22%

General and Administrative Expenses


The increase in volume of raw sugar and alcohol sold drove the increase in manufacturing expenses such as cost of hauling, materials and supplies, light and water.

Direct labor increased in 2014driven by investments on human resource in line with the Group’s thrust to improve organizational productivity competitiveness. This resulted to major reclassification of labor charges from contracted services to direct labor and recognition of salaries and benefits.

As a percent of revenues, cost of sales as of August 31, 2014 is lower by 3% compared to 2013.

Operating Expenses Consolidated operating expenses decreased by 36% or P0.35 million to P616 million for the year compared to 2013.The following table summarizes the breakdown of the Group’s expenses as of August 31, 2014 and 2013 and the percentage of each expense item to total revenues.

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Amounts in Php Thousands 2014 2013 Amount PctRental income 13,256 14,879 (1,623) -11%Interest income 11,041 38,546 (27,505) -71%Others 5,578 1,230 4,348 353%Gain on sale of property, plant and equipment 624 268 356 133%Gain on sale of inventory 434 - 434 Gain on extinguishment of liability 67 280,143 (280,076) -100%Foreign exchange gain - 8,334 (8,334) -100%Fair value gain on investment properties - 455,133 (455,133) -100%Curtailment gain - 19,731 (19,731) -100%Other Income 31,000 818,264 (787,264) -96%

Periods Ended August 31 Change

Amounts in Php Thousands 2014 2013 Amount Pct 2014 2013

Other Income 31,000 818,264 (787,264) -96% 0.6% 19%


Amounts in Php Thousands 2014 2013 Amount Pct 2014 2013

Other Expenses 59,796 48,631 11,165 23% 1.2% 1%


The increase in volume of raw sugar and alcohol sold drove the increase in selling expenses such as freight and handling and contracted services.

The increase in depreciation was due to VMC’s Raw House Upgrading and Modernization program, which aims for higher efficiency and competitiveness.

Salaries and employees benefits increased in 2014 driven by investments on human resource in line with the Group’s thrust to improve organizational productivity and competitiveness.

Additional provision was accrued to cover various legal claims. See Note 14 of the accompanying Consolidated Financial Statements for more information.

Operating Income Taking into account the factors discussed above, operating income for the year ended August 31, 2014 is higher by 111% or P703 million to P1.3 billion compared to same period in 2013. Other Income

Other Income in YTD August 31 decreased compared to the balance as of the same period last year due to the following:

Decrease in interest earned was due to the decline in cash resources after paying off the convertible notes and drop in money market placement rates.

Other Expenses

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Amounts in Php Thousands 2014 2013 Amount Pct 2014 2013Amortization of discount on provisions 39,341 38,824 517 1% 0.8% 1%Bank charges 405 552 (147) -27% 0.01% 0.01%Foreign exchange loss 379 67 312 466% 0.01% 0.002%Loss on disposal and retirement of property, plant nd equipment 56 - 56 0.001%Trust fees - 3,993 (3,993) -100% 0.09%Others 19,615 5,195 14,420 278% 0.4% 0.12%Other Income 59,796 48,631 11,165 23% 1.2% 1%

Pct to RevPeriods Ended August 31 Change

Amounts in Php Thousands 2014 2013 Amount Pct 2014 2013Interest on convertible notes 230,504 186,136 44,368 24% 4.6% 4%Interest on bank loans 109,419 (109,419) -100% 2.5%

230,504 295,555 (65,051) -22% 4.6% 7%


Amounts in Php Thousands 2014 2013 Amount Pct 2014 2013Current 305,255 407,897 (102,642) -25% 6% 9%Deferred (155,798) 20,894 (176,692) -846% -3.1% 0.5%Income Tax Expense 149,457 428,791 (279,334) -65% 3% 10%


Other Expense for the YTD August 31 increased compared to the balances of last year due to the following:

Finance Cost

Finance Cost for the YTD August 31decreased compared to the balance last 2013 due to the redemption of convertible notes. See Note 15 of the accompanying Audited Consolidated Financial Statements for more information. Income Taxes

The Group’s provision for income tax for the fiscal year 2014 declined compared to 2013 as an effect of the interest paid on full redemption convertible notes. Net Income Consolidated net income YTD August 2014 was P927 million, that is, P208 million or 29% higher than last year’s consolidated net income of P719 million. Net income margin (net income as a percentage of revenue) increased from 16% last year to 19% in for the fiscal year 2014 mainly due to the increase in gross profit and decrease in income tax expense.

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Amounts in Php Thousands 2014 2013 Amount PctASSETSCurrent AssetsCash and cash equivalents 1,039,829 863,822 176,007 20%Trade and other current receivables - net 120,594 446,129 (325,535) -73%Inventories - net 248,593 389,638 (141,045) -36%Other current assets 399,189 54,736 344,453 629%

Total Current Assets 1,808,205 1,754,325 53,880 3%Noncurrent AssetsProperty, plant and equipment - net 4,106,726 3,921,981 184,745 5%Investment properties 1,444,930 1,445,386 (456) -0.03%Other noncurrent assets - net 49,959 67,291 (17,332) -26%

Total Noncurrent Assets 5,601,615 5,434,658 166,957 3% 7,409,820 7,188,983 220,837 3%

LIABILITIES AND EQUITYCurrent LiabilitiesTrade and other current payables 976,056 351,134 624,922 178%Income tax payable 60,339 63,559 (3,220) -5%

Total Current Liabilities 1,036,395 414,693 621,702 150%Noncurrent LiabilitiesProvisions 1,088,556 841,941 246,615 29%Long-term debts - net of current portion - 2,544,633 (2,544,633) -100%Retirement benefit obligation 13,618 8,991 4,627 51%Due to a stockholder 6,000 6,000 - Deferred tax liabilities - net 447,291 568,687 (121,396) -21%

Total Noncurrent Liabilities 1,555,465 3,970,252 (2,414,787) -61%Total Liabilities 2,591,860 4,384,945 (1,793,085) -41%

EquityCapital stock 2,367,535 2,297,485 70,050 3%Convertible notes awaiting conversion 677,526 203,093 474,433 234%Interest on convertible notes awaiting conversion 550,906 135,803 415,103 Additional paid-in capital 292,264 244,621 47,643 19%Revaluation increment on property, plant and equipment 177,062 134,646 42,416 32%Retirement benefit reserve (1,988) (1,988)Retained Earnings (Deficit) 738,191 (212,071) 950,262 -448%Conversion feature on convertible notes - 472 (472)Treasury stock (11) (11) -

4,801,485 2,804,038 1,997,447 71%Non-controlling Interest 16,475 - 16,475 Total Equity 7,409,820 7,188,983 220,837 3%

ChangeAugust 31

Financial Condition

The Group’s consolidated total assets or total liabilities and equity as of August 31, 2014 amounted to P7.4 billion, a decrease by 3% from P7.2 billion at end of August 2013. The following explains the significant movements:

The Group’s cash and cash equivalents balance increased by P176 million or 20% to P1.04 billion due primarily to increase in revenues.

Receivables declined by P326 million or 73% to P121 million mainly due to lower business activity towards the end of the year.

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The decrease in inventories by P141 million or 36% to P249 million is chiefly driven by the increase in volume of raw sugar sold.

Trade and other current liabilities increased by P625 million or 178% to P976 million largely due to set up of liability for check payable to a CN holder and recognition of accrued expenses. See Note 13 of the accompanying Audited Consolidated Financial Statements for more information.

Income tax payable decreased by P3 million or 5% to P60 million. Taxable income was significantly reduced by payment of interest of convertible notes.

Provisions increased by P247 million or 29% to P1 billion to cover probable liability on various legal claims. See Note 14 of the accompanying Audited Consolidated Financial Statements for more information.

The redemption of convertible notes wiped out the remaining balance of Long-term Debts as of August 31, 2014.

The increase in Retirement benefit obligation by P5 million mainly refers to re-measurement losses on defined benefit plan with reference to the actuarial valuation made as of August 31, 2014.

Net deferred tax liabilities decreased by P121 million or 21% to P447 million, due to the increase of recognized deferred tax asset on additional provision for various legal claims and accrued expenses.

The increase in Capital stock by 3% or P70 million to P2.4 billion refers to actual conversion of certain convertible notes. See Note 16b of the accompanying Audited Consolidated Financial Statements for more information.

Convertible notes awaiting conversion increased by P890 million or 262% to P1.2 billion due to transfer/sale of certain convertible notes by primary/original note holders. As such, these transactions were booked as equity in accordance with the DRA. See Note 15b2 of the accompanying Audited Consolidated Financial Statements for more information.

Additional paid in capital likewise increased by P47 million or 19% to P292 million due to recognition as equity of accrued interest on convertible notes which were converted to common shares. Interest is not convertible to shares.

The increase in Revaluation increment on property, plant and equipment by P43 million refers to recognition of revaluation adjustments.

Retained earnings turned positive to P734 million from deficit of P212 million, with the net income attributable to equity holders for the YTD August 2014 of P950 million.

Liquidity and Capital Resources

Net cash provided by operating activities as of August 31, 2014 was P2.3 billion, 176% or P1.4billion higher compared to the net cash provided by operating activities of the same period in 2013 amounting to P0.82 million which was mainly contributed by stronger operating results.

Net cash used in investing activities was P311 million as of August 31, 2014, which pertains to capital expenditures spending for factory machinery upgrades.

Net cash used in financing activities amounted to P1.8 billion as of August 31, 2014 due to

redemption of convertible notes and payments of the related accrued interest. Generally, there is a net increase in cash and cash equivalents by P176 million as of August 31, 2014.

Discussion and Analysis of Material Events and Uncertainties

1. There were no events or commitments that will result to material liquidity problem to the Group.

2. There were no material off-balance sheet transactions, arrangements or obligations entered to during the period.

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YTD ended August 31, 2014 YTD ended August 31, 2013Revenue 5.010 B 4.414 B% Growth (Decline) vs LY 13% -5%

YTD ended August 31, 2014 YTD ended August 31, 2013EBITDA 1.972 B 2.068 B% Growth (Decline) vs LY -5% 7%

YTD ended August 31, 2014 YTD ended August 31, 2013Net Income (in Php) 926.891 M 719.315 MPct to Revenues 19% 16%

As of May 31, 2014 As of August 31, 2013Return on Equity 19% 26%

3. All of the Group’s income arose from its continuing operations. 4. The sugar processing operations of the Group has milling and off-milling seasons. The

seasonality however, has no material effect on the financial condition or results of operation.

Discussion of the Company’s Top Five (5) Key Financial Performance Indicators

In line with the Group’s strategic and operational goals to improve its present level in the sugarcane industry in terms of production volume, efficiency and product quality, the financial performance is mainly determined by the following criteria: Revenue Revenue is the measure of all sales made by the Group from its normal business activities. It is used as an indication of earnings quality.

EBITDA EBITDA is the Group’s net income with interest, taxes, depreciation, and amortization added back to it, and is used to analyse current operational profitability without the effects of financing and accounting decisions.

Net Income Margin Net Income Margin is the measure of how efficient the Group is at converting revenue into actual profits. It is calculated by finding the earnings after interest and tax as a percentage of total revenues.

Return on Equity (ROE) ROE is the Group’s net income returned as a percentage of shareholders’ equity.

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YTD ended August 31, 2014 YTD ended August 31, 2013Earnings per share (in Php) 0.40 0.33

Basic Earnings per share (EPS) Basic EPS is used as a barometer to gauge the Group’s profitability per unit of shareholder ownership. It is calculated by dividing net income earned in a given reporting period by the weighted average number of shares outstanding during the same term.

ITEM 7 – FINANCIAL STATEMENTS

(Please see attached duly signed Corporation’s Consolidated Financial Statements as of August 31, 2014, together with the notarized Statement of Management’s Responsibility, which was prepared by R.G. Manabat & Co. (KPMG), the Corporation’s external auditor for crop year 2013-2014, as Exhibit “A“. ITEM 8 – CHANGES IN & DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There has been no disagreement with the external auditor on accounting, financial concerns, and

disclosures in the Financial Statements, which is attached hereto as Exhibit “A”. INFORMATION ON INDEPENDENT ACCOUNTANT

For Crop Year 2013-2014, the services of the accounting firm R.G. Manabat & Co. (KPMG), with office address at 9th Floor, KPMG Center, 6787 Ayala Avenue, Makati City, 1226, Metro Manila, Philippines, was engaged to be the Corporation’s External Auditors, in compliance with the Corporation’s Code of Corporate Governance that provides that the Corporation’s External Auditor shall be rotated or the handling partner shall be changed every five (5) years or earlier. EXTERNAL AUDIT FEES Audit and Audit-Related Fees

The aggregate fees billed for each of the last two (2) fiscal years for professional services rendered by the external auditor for the audit of the Corporation’s annual financial statements or services that are normally provided by the external auditor in connection with statutory and regulatory filings or engagement for those fiscal years were: CY 12-13 – P2,840,000.00 – net of VAT CY 13-14 – P 1,481,200.00 - net of VAT Tax Fees

There has been no fee billed for the last two (2) fiscal years for professional services rendered by the external auditor for tax accounting, compliance, advice, planning and any other form of tax services. Audit Committee’s Approval Policies and Procedures for the Above Services

The Audit Committee’s approval policies and procedures for the above services are as follows: 1. The Audit committee invites bidders for the external audit engagement for preliminary evaluation. 2. The Committee then presents to the bidders, the corporate profiles of the companies to be covered

by the audit.

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3. The Committee likewise presents its expectations on the deadline for the completion of the Audit and filing of the audited financial statement.

4. The bidders are required to make its corporate profiles, list of experiences, and proposed audit engagement fee.

5. The Committee evaluates the proposals and makes a choice. 6. The choice is announced during the Stockholder’s meeting.

PART III – CONTROL AND COMPENSATION INFORMATION

ITEM 9 – DIRECTORS AND EXECUTIVE OFFICERS OF THE ISSUER

VMC BOARD OF DIRECTORS

During VMC’s Annual Stockholder’s Meeting held on February 4, 2014, the following were elected as members of the VMC Board of Directors to serve as such from February 4, 2014 and until their successors shall have been duly elected and qualified:

1. Wilson T. Young, age 58, Filipino, current Chairman of Victorias Milling Company, Inc.’s Board. Director of BK Titans, Inc., Perf Restaurants, Inc. (franchisee of Burger King in the Philippines). He is also a member of the Board of Trustees of the University of the East and Vice-Chairman of the University of the East Ramon Magsaysay Memorial Medical Center, Inc., member of the International Board of Advisers of the Philippine School of Prosthetics and Orthotics, as well as member of the Board of the following foundations: Mithing Pangarap Foundation, Inc., Norfil Foundation, Inc., and the National Defense College of the Philippines Educational and Development Foundation, Inc. He also serves as member of the Board of Admissions of the National Defense College of the Philippines and Chairman of Total Credit Cooperative. He was formerly an instructor of Taxation and Accounting at Assumption College, San Lorenzo Makati and Financial Accounting at the Ateneo de Manila Loyola. A Certified Public Accountant and holds a Masters Degree in National Security Administration. Likewise he is a Director and/or Officer of various family-owned and controlled corporation and was a former Director and Officer of certain companies of the LT Group, Inc.

2. Anna Rosario V. Paner, age 43, Filipino, is VMC's Managing Director, Chief-Executive Officer

and Chair of the Legal Committee. She has been a private law practitioner since 1996 and is one of the founding partners of Paner Hosaka & Ypil Attorneys-at-Law. She currently chairs Victorias Foods Corporation and, for the past five (5) years, she has been connected with Philippine Opportunities for Growth, Income (SPV-AMC), Inc., Techbox International Inc. and Nota Bene as their director.

3. Eduardo V. Concepcion, age 61, is currently the President and Chief Operating Officer of

VMC. He graduated with Honors at the De la Salle University with a degree of Bachelor of Science in Chemical Engineering. He is a licensed Chemical Engineer and took his Master in Business Administration (without thesis) at University of San Agustin-Iloilo. He has served Central Azucarera de La Carlota, Inc. as Vice President/Resident Manager. Morever, he has rendered service to Ma-ao Sugar Central and Passi (Iloilo) Sugar Central, Inc. He has been working with the sugar industry for more than 39 years.

4. William Y. Chua, age 50, Filipino, is the President of Agro Bulk Marine Corporation, Wilch

Realty Corporation and MC Metroplex Holding Corp. He is also the Vice President of Oro Allado Commodities, Inc., Negros Ship-owners Association and Federation of Sugar Traders of the Phils.

5. Brian Keith F. Hosaka, age 43, Filipino, is the Corporate Secretary and Director of VMC. He is one of the founding partners of Paner Hosaka & Ypil Attorneys-at-Law. He graduated from the Ateneo de Manila University in 1993, and thereafter obtained a Juris Doctor degree from the Ateneo De Manila Law School in 1998. He was admitted to the Philippine BAR in 1999. He previously worked for the Supreme Court of the Philippines, and also served as Deputy General Counsel of the Integrated Bar of the Philippines (National Office) from 2006 to 2007.

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6. Lucio K. Tan, Jr., age 48, is presently one of the Directors of VMC. He was conferred a Master’s Degree under Executive Master of Business and Administration Program (EMBA) jointly by Kellogg School of Management of Northwestern University in the United States and Hong Kong University of Science and Technology was well as holding a BS in Civil Engineering from University of California, Davis. He is serving as the President and CEO of Tanduay Distiller’s Inc. and served MacroAsia Corporation in the same capacity. He is a member of the Board of Directors of the following companies: Phillip Morris Fortune Tobacco Corporation (PMFTC), Inc., Bulawan Mining Corporation, PNB Capital & Investment Corporation, PNB RCI Holding Co., Ltd., PNB (Eirope) PLC, Philippine Airlines, Inc., Air Philippines Corporation, MacroAsia Corporation, Tanduay Holdings, Inc., Allied Bankers Insurance Corporatiion and Eton Properties Philippines, Inc.

7. Michael G. Tan, age 48, Filipino, is presently the Chief Operating Officer of Asia Brewery, Inc.

and the President and Chief Operating Officer of LT Group, Inc. (formerly Tanduay Holdings Inc.). For the past five (5) years, he served as a director of the following corporations: Abacus Distribution Systems Philippines, Inc., Allied Banking Corporation, Eton Properties, Inc., Philippine National Bank and PMFTC.

8. Terence D. Son Keng Po, age 46, Filipino, is presently the Treasurer of the corporation.

Moreover he is the President of Victorias Foods Corporation (“VFC”). He is currently a Director of Victorias Golf & Country Club, Inc. (“VGCCI”) and Canetown Development Corporation (“CDC”). He served as a Director of Carval Investors Services and Cargill Financial Services International, Inc. (both subsidiaries of Cargill, Inc.).

9. Alberto P. Fenix, Jr., age 70, Filipino, is currently the Chairman of VMC’s Audit Committee.

He is also the Chairman and President of Fenix Management and Capital, Inc., Chairman of Newtech Pulp, Inc., President of Ivoclar Vivadent, Inc., and Executive Director of SPC Power Corporation, a publicly listed corporation. He also serves as an Officer and Director in the subsidiaries and affiliates of the above companies. He graduated from the Ateneo de Manila University with a bachelor’s degree in Mathematics, and holds Masters and Doctorate degrees in Industrial Management from the Sloan School of Management of the Massachusetts Institute of Technology. He was the 1998 and 1999 President of the Philippine Chamber of Commerce and Industry (PCCI), and up to the present, its Honorary President.

10. Alvin C. Yu, age 41, Filipino, is the President of Narra Capital Investment Corporation,

Bacolod DN Triumph Steel Corporation and Bacolod Twinstar Shipping Corporation. He is the Vice President of VCY Sales Corporation and the Manager of Bacolod Triumph Hardware. He graduated from the Ateneo de Manila University with a Management Engineering degree.

11. Martin C. Yu, age 39, is the President of Firefly Electric & Lighting Corporation from 2001 until

the present years. He is likewise a Director of VCY Sales Corporation since 1998. He took up Business Management in the Ateneo de Manila University.

In the subsequent organizational meeting of the Board of Directors, the following corporate officers were appointed –

1. Wilson T. Young, Chairman of the Board of Directors

2. Anna Rosario V. Paner, Vice Chairman of the Board of Directors

3. Eduardo V. Concepcion, President & Chief Operating Officer

4. Terence D. Son Keng Po, Treasurer

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5. Brian Keith F. Hosaka, Corporate Secretary

6. Eva A. Vicencio-Rodriguez, Assistant Corporate Secretary, and Compliance and Information Officer.

Executive Officers of VMC

1. Atty. Anna Rosario V. Paner, age 43, Filipino, a Bachelor of Laws degree holder and presently the Managing Director and CEO of the corporation.

2. Eduardo V. Concepcion, age 61, Filipino, a Bachelor of Science in Chemical Engineering

graduate and a Masters in Business Administration degree holder. He is presently the President and Chief Operating Officer of VMC.

3. Linley A. Retirado, age 53, Filipino, is currently occupying the position of the Chief Manufacturing Officer. He is a licensed Mechanical Engineer and presently the Chairman of the Board of the Philippine Sugar & Technologist Association, Inc. (PHILSUTECH). 4. Teresita V. Ilagan, age 55, Filipino, is the Chief Finance Officer of VMC She is concurrently Director and Treasurer of various VMC subsidiaries, particularly Canetown Development Corporation (CDC) and Victorias Agricultural Land Corporation (VALCO), Victorias Food Corporation (VFC) and Victorias Golf & Country Club Inc. (VGCCI). She is the Assistant Treasurer and the Liquidator of Victorias Quality Packaging Company, Inc. (VQPC). She is a Certified Public Accountant and a Masters in Business Administration degree holder.

5. Eva A. Vicencio-Rodriguez, age 46, Filipino, is the Acting Chief Administrative Officer of VMC. A BS Psychology and Bachelor of Laws graduate and is a degree holder of Masters in Business Administration. She is also the Assistant Corporate Secretary and Compliance Information Officer of the Corporation. She is likewise the Head of VMC’s Legal & Compliance Division and the Corporate Secretary of the following VMC subsidiaries: Victorias Foods Corporation (VFC), Victorias Golf & Country Club, Inc., Victorias Quality Packaging Company, Inc. (VQPC) and Canetown Development Corporation (CDC) where she likewise serves as a Director. She is also the Director of Victorias Agricultural Land Corporation (VALCO). To the knowledge and/or information of the Corporation, the above elected members of the Board of Directors, are not, presently or during the last (5) years, involved or have been involved in any legal proceedings affecting/involving themselves and/or their property before any court of law or administrative body in the Philippines or elsewhere and have not been convicted by final judgment of any offense, except as follows:

a. Vivian T. Tiongkiao vs. MERALCO, Paner, Hosaka, & Ypil Offices (PHY Law); ERC Case No. 2010-059CC. Complainant filed a complaint against MERALCO and PHY Law to ensure continued service of electricity by MERALCO to a condominium unit owned by PHY Law but occupied by Complainant. The case has been submitted for resolution;

b. Ernie V. Atanez et. al. vs. Firefly Electric & Lighting Corporation (FELCO), Martin Yu and Sherwin Yu, NLRC NCR Case No. 02-01885-14, and Rafael G. Escarda et. al. vs. Firefly Electric & Lighting Corporation (FELCO), Martin Yu and Sherwin Yu, NLRC NCR Case No. 03-0324040-14 (Consolidated Cases). Agency personnel filed an illegal dismissal case with monetary claims against FELCO before the Labor Arbiter’s Office. Martin Yu was impleaded in his capacity as President of FELCO. Immediately prior to the filing of the case, the agency personnel were employed with Total Staff Skills Corporation (TSSC), a registered job contractor. TSSC is now impleaded as a party respondent. The case is still pending mediation/conciliation.

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c. Richard T. Divinagracia and Clinton Cayao vs. Victorias Milling Company, Inc./Francis Ferraris, Dept. Head/Eduardo V. Concepcion, President, RAB VI Case No. 10-10978-14, and Rene Sobremisana vs. Victorias Milling Company, Inc. vs. Eduardo V. Concepcion, President and COO, RAB VI Case No. 10-10944-14. For illegal dismissal, and money claims.

The said persons mentioned above are not related to each other in any way. There is no person who is not a corporate officer of the Corporation who is expected to make a significant contribution to the business. The Corporation, however, engages the services of consultants. As of August 31, 2014, the Corporation has 8 consultants and none under special contract. There were no transactions during the last two years or any proposed transactions, to which the Corporation was or is to be a party, in which any director or officers, any nominee for election as a director, any security holder or any member of the immediate family of any of the person mentioned had or is to have a direct or indirect material interest. ITEM 10 – EXECUTIVE COMPENSATION

The top officers of the Corporation are its Managing Director and Chief Executive Officer (CEO), Atty. Anna Rosario V. Paner, President and Chief Operating Officer (COO), Mr. Eduardo V. Concepcion, Chief Finance Officer (CFO), Ms. Teresita V. Ilagan, Chief Manufacturing Officer (CMO), Mr. Linley A. Retirado, and Acting Chief Administrative Officer (CAO), Atty. Eva A. Vicencio-Rodriguez.

The total annual compensation paid to all executive officers was all paid in cash. The total annual compensation, which includes the basic salary, bonus and other compensation, for the past year amounts to Thirty Five Million Four Thousand Ninety Six Pesos (P35,004,096).

Annual Compensation

Salary Bonus and Other Compensation

Year 2015 (projected)

2014 2013 2015

2014 2013

Top 5 Most Highly Compensated Officers

15,185,000 15,166,280 22,387,332 not available 6,992,317 9,407,861

All other officers as a group unnamed 5,184,280 1,659,650 There are no other executive officers apart from the President and COO, the Managing

Director and CEO, the Chief Finance Officer (CFO), the Chief Manufacturing Officer (CMO) and Acting Chief Administrative Officer (CAO).

Compensation of VMC Board of Directors

There is no compensatory plan or arrangement including payments to be received from the registrant with respect to a named executive officer. Employment Contracts

The Corporation entered into a Consultancy Contract with Mr. Roy C. Hautea and Mr. Justo Arcadio M. Solatorio for the Corporation’s Special Projects. Change in Control

The conversion into equity of P1,528,674,469 worth of debt of VMC to creditor banks pursuant to the Approved Rehabilitation Plan resulted to change in control effective October 9, 2002, whereby the creditor banks acquired 69% of the ownership of VMC while the ownership of the existing stockholders prior to the conversion was reduced to 31%. As of August 30, 2014, the following are VMC’s principal stockholders: Premier Network International, Ltd - 27.125%; LT Group, Inc. – 17.514%; and Narra Capital Investments Corp. – 14.862%.

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ITEM 11 – SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Security Ownership of Certain Record and Beneficial Owners and Management

The following are known to VMC to be directly or indirectly the record or beneficial owner of more

than five percent (5%) of registrant’s voting securities (VMC has only one class of voting security, i.e. common shares) as of August 31, 2014:

TITLE of CLASS Name & Address of Record Owner and Relationship with Issuer

Citizenship Number of Shares Held

Percentage (%)

Common PCD Nominee Corporation Filipino/Other Alien

1,911,745,145 80.75%

Common Premier Network International Ltd. BVI 642,173,474 27.125% Common LT Group, Inc. Filipino 414,660,863 17.514% Common Narra Capital Investment Corporation Filipino 351,859,153 14.862% Security Ownership of Management as of August 31, 2014

TITLE of Class Name Citizenship No. of Shares Percentage (%)

Common Anna Rosario V. Paner–Managing Director & CEO

Filipino 1,002 0.000%

Common Eduardo V. Concepcion – President & COO Filipino 2,000 0.000% ITEM 12 – CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Mr. Alvin T. Yu and Mr. Martin T. Yu are brothers.

Mr. Michael G. Tan is related with Mr. Lucio K. Tan, Jr., the former being the brother of the latter.

PART IV – COPRORATE GOVERNANCE

ITEM 13 – CORPORATE GOVERNANCE COMPLIANCE WITH LEADING PRACTICES ON CORPORATE GOVERNANCE

VMC substantially adopted all the provisions of the Manual on Corporate Governance, as prescribed by SEC Memorandum No. 2, Series of 2002. Further, VMC is committed and is trying its best to comply with the provisions of the Corporation’s Manual on Good Corporate Governance.

Adherence thereof as well as to the other corporate principles and best practices is strongly advised all throughout VMC in all its activities and undertakings. ANNUAL CORPORATE GOVERNANCE REPORT (ACGR) Please refer to the attached Consolidated Changes and Updates in the Annual Corporate Governance Report (ACGR) dated September 6, 2014. DEVIATION There is no deviation from the provisions of the Manual on the election of independent directors, considering that the composition of the Corporation’s Board of Directors is determined under its rehabilitation plan.

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PART V- EXHIBITS AND SCHEDULES

A. EXHIBITS AND SCHEDULES

1. EXHIBIT “A” – Consolidated Audited Financial Statement as of August 31, 20142. EXHIBIT “B” – Reports on SEC Form 17-C3. EXHIBIT “C” – Consolidated Changes & Updates in the Annual Corporate Governance Report

B. REPORTS ON SEC FORM 17-C (EXHIBIT”B”)

1. Reported on August 5, 2014, election of Atty. Anna Rosario V. Paner as Vice-Chairman of the Board, to fill the vacancy caused by the resignation of Mr. Jose M. Chan, Jr. as Director of VMC, who was also the Vice-Chairman of the Board.

2. Reported on July 1, 2014, the reorganization of the Board Committees and the appointment of Atty. Eva A. Vicencio-Rodriguez as Acting Chief Administrative Officer.

3. Reported on June 6, 2014, the resignation of Mr. Jose M. Chan, Jr., and Mr. Enrique T. Chua as members of the Board of Directors. Elected Mr. Lucio K. Tan, Jr. and Atty. Brian Keith F. Hosaka to replace the directors for the remainder of their terms. Disclosed also the stockholders’ meeting of VMC’s subsidiaries, Victorias Agricultural Land Corp. (VALCO) and Victorias Foods Corp. (VFC) with its newly elected directors and officers. Amended its principal office and numbers of the Board of Directors on the Articles of Inc. and By Laws.

4. Reported on May 9, 2014, the approval of VMC’s listing application with the Philippine Stock Exchange, which was received by VMC on May 8, 2014.

5. Reported on April 24, 2014, the stockholders meeting of the subsidiaries of VMC, the Canetown Development Corp (CDC) and Victorias Golf & Country Club, Inc. (VGCCI), with its newly elected directors and officers. Amended its principal office and numbers of the Board of Directors on the Articles of Incorporation and By Laws of the corporation.

6. Reported on April 2, 2014, VMC, NACUSIP-LOVES and its national federation, NACUSIP-TUCP-ITUC, signed a five (5) year Collective Bargaining Agreement.

7. Reported on March 31, 2014, the VMC Board of Directors approved the payment/redemption of convertible notes of up to about P600 Million Pesos, pursuant to the Alternative Rehabilitation Plan and the Debt Restructuring Agreement; submission to the PSE of the Corporate Governance Disclosure Survey for 2013; Revision of the Manual on Corporate Governance; proposed Collective Bargaining Agreement with NACUSIP-Labor Organization of VMC Employees (LOVES); and appointment of Ms. Judy Anne G. Tiongco as VMC’s Investor Relations Officer.

8. Reported on March 12, 2014, SEC Order dated March 3, 2014 on the Manifestation and Motion dated November 12, 2012 filed by VMC to amend Part IV of the ARP and Section 21 of the DRA were ordered amended.

9. Reported on February 21, 2014, the appointment of AB Stock Transfers Corporation as the Corporation’s new stock transfer agent effective April 1, 2014. Disclosed the payment/redemption of Convertible Notes (principal plus corresponding accumulated interest as of February 28, 2014) up to One Billion Four Hundred Twenty Million Pesos (Php1.420 Billion), pursuant to the Debt Restructuring Agreement. The appointment of Mr. Victor T. Yu as Acting Chief Administrative Officer.

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10. Reported on February 4, 2014, the result of the election of the members of the Board of Directors, Officers and the Board Committees with its corresponding composition. Appointed R.G. Manabat & Co. (KPMG) as the external auditors.

11. Disclosed on February 3, 2014 wherein the Board approved the recommendation of the Corporation’s Nomination Corporate Governance & Compliance Committee for the nomination of Mr. Michael G. Tan by Philippine National Bank, to the seat allocated for the Secured Creditors in the Board of VMC, in compliance with the Order of the Securities & Exchange Commission dated January 27, 2014 to elect its Board of Directors in accordance with the Approved Rehabilitation Plan and Debt Restructuring Agreement.

12. Reported on January 30, 2014, once again the release of the Stock Certificates on the converted Convertible Notes. Total Outstanding Shares per stock transfer agent is 2,367,524,384.

13. Reported on January 29, 2014, wherein Fidelity Stock Transfers, Inc. informed VMC of the release of the Stock Certificates on the converted Convertible Notes. Total outstanding shares per stock transfer agent is 2,366,304,199.

14. Reported on January 28, 2014, pursuant to an Order issued by the Securities and Exchange Commission of January 27, 2014 to elect its Board of Directors in accordance with the Approved Rehabilitation Plan and Debt Restructuring Agreement, where the Secured Creditors and Creditors with Debt Conversion will have one (1) seat and seven (7) seats respectively.

15. Reported on January 10, 2014, the creation of a new key position called Chief Administrative Officer, and the appointment of Mr. Eduardo V. Concepcion as the Chief Administrative Officer.

16. Reported on December 13, 2013, the conversion of P70, 049,966 Convertible Notes into equity equivalent to 70,049,966 shares, pursuant to the Debt Restructuring Agreement and the nominees to the VMC Board for the February 04, 2014 Annual Stockholders’ Meeting.

17. Reported on November 22, 2013, Board Actions as to the convening of the Annual Stockholders’ Meeting on February 4, 2014; Stockholders of record at the close of business on December 31, 2014, will be entitled to notice and to attend the meeting; Board seats for consideration at the Annual Stockholder’s Meeting shall be allocated as follows: four (4) for the Existing Stockholders and seven (7) for Creditors with Debt Conversion.

VICTORIAS MILLING COMPANY, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in Thousands, Except When Otherwise Stated) 1. Reporting Entity and Status of Operations

Reporting Entity Victorias Milling Company, Inc. (herein referred to as the “Parent Company” or “VMC”) was organized and registered originally on May 7, 1919 with the Philippine Securities and Exchange Commission (SEC) with an original corporate life of 50 years or until May 7, 1969. The corporate life was extended for an additional period of 50 years or until May 7, 2019. The primary purpose of the Parent Company is to operate mill and refinery facilities for sugar and allied products, as well as engineering services. On July 3, 2013, the SEC approved the Parent Company’s amended articles of incorporation to include, as among its business purposes, the ethanol and/or potable alcohol production, infrastructure, transportation, telecommunication, mining, water, power generation, recreation, and financial or credit consultancy. The Parent Company and following subsidiaries and associate (collectively herein referred to as the “Group”) were incorporated in the Philippines.

Percentage of Effective

Ownership Nature of Business Direct Indirect

Victorias Foods Corporation (VFC)

Food Processing and Canning 100 -


Agricultural Land Leasing and Cultivation 100 -


Real Estate Development and Selling 88 12

Victorias Golf and Country Club, Inc. (VGCCI) Non-profit Golf Facilities 81 -

Victorias Quality Packaging Company, Inc. (VQPC)

Manufacture of Bags and Packaging Materials 55 -

Victorias Industrial Gases Corporation (VIGASCO) Gas Dealership 30 -

The Parent Company’s percentages of ownership for the above subsidiaries and associate are the same for 2014, 2013 and 2012. In June 2012, the Board of Directors (BOD) of VQPC approved to cease VQPC’s operations effective July 2012. As at August 31, 2014, VQPC is undergoing liquidation process as approved by its BOD and stockholders.

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The Parent Company’s shares of stock are listed in the Philippine Stock Exchange (PSE) but the trading of its shares was temporarily suspended in 1997 on the ground of alleged fraudulent misrepresentation of material information in the Parent Company’s financial statements as well as in the continuing disclosure of VMC. Currently, VMC is under SEC receivership. In 2012, the SEC and the PSE lifted the order of suspension of the trading of VMC’s shares. Consequently, on May 21, 2012, trading resumed. In August 1999, SGS Yarsley International Certification Services issued an ISO 9002 certification to the Parent Company. The Parent Company then applied for certification and re-certifications, where the Parent Company is recommended for recertification and upgrading from ISO 9001:2000 to ISO 9001:2008 version. As at November 25, 2012, the Parent Company is already certified as ISO 9001:2008 version until November 24, 2015. The corporate office of VMC, its manufacturing plant and head office are located in VICMICO Compound, Victorias City, Negros Occidental. VFC VFC was registered and incorporated with the SEC on February 24, 1983 primarily to operate factories and other manufacturing facilities for the processing, preservation and packaging food products and selling the same at wholesale and retail. The corporate office and production plant of VFC is located at VICMICO Compound, Victorias City, Negros Occidental. VALCO VALCO was incorporated and registered with the SEC on June 30, 1987 primarily to acquire and own agricultural and other real estate properties, by purchase, lease or otherwise to improve and develop the same, and to plant thereon all kinds of farm products. The registered address of VALCO is at VICMICO Compound, Victorias City, Negros Occidental. CDC CDC was incorporated and registered with the SEC on February 19, 1974 primarily to purchase, develop, lease, exchange and sell real estate. CDC is effectively a wholly-owned subsidiary of the Parent Company through the 88% direct ownership and the 12% indirect ownership through VALCO. The registered address of CDC is at VICMICO Compound, Victorias City, Negros Occidental. VGCCI VGCCI is a non-profit corporation registered with the SEC on October 8, 1992 primarily to engage exclusively in social, recreational and athletic activities on a non-profit basis among its stockholders, the core of which will be the acquisition and maintenance of a golf course and tennis courts, residential and other similar facilities. The registered office of VGCCI is located in VICMICO Compound, Victorias City, Negros Occidental. VQPC VQPC was incorporated and registered with the SEC on May 14, 1990 primarily to engage in the manufacture and sale of polyethylene bags, boxes, packages and special packaging products. The registered address and production plant of VQPC is at VICMICO Compound, Victorias City, Negros Occidental.

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VQPC has accumulated deficit of P48.80 million, P49.56 million and P48.18 million and has capital deficiency of P18.80 million, P17.89 million and P15.35 million as at August 31, 2014, 2013 and 2012, respectively. Due to this, the non-controlling interest was already insufficient to absorb the share in the accumulated losses. Accordingly, all the accumulated losses in the prior years were charged to the retained earnings attributable to the equity holders of the Parent Company. All subsequent profits generated by VQPC, if any, will be credited to the retained earnings of the equity holders of the Parent Company until the non-controlling interest’s share of losses previously absorbed by the former has been recovered. VIGASCO VIGASCO, a 30%-owned associate, was incorporated and registered with the SEC on November 19, 1992 primarily to engage in importing, exporting, buying and selling, at wholesale or at retail, of gases, particularly oxygen, acetylene, hydrogen, liquefied petroleum gas and any types of gases. In July 2013, VMC’s BOD decided that VMC shall no longer nominate a member to the BOD of VIGASCO without prejudice to the other rights of VMC as a stockholder of VIGASCO. Due to the capital deficiency of VIGASCO resulting from operating losses, the investment is fully provided with allowance for impairment (see Note 12). Going Concern Issue, Management’s Assessment and Plans These consolidated financial statements of the Parent Company have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. As disclosed in Notes 2 and 16, the Parent Company is still under rehabilitation and debt restructuring programs. This condition indicates an uncertainty that may cast doubt on the Parent Company’s ability to continue as a going concern. Although the Parent Company has been in compliance with the debt restructuring program, its continued compliance is ultimately dependent on the sustainability of its profitable operations. The actions made by management during the past several years to improve the Group’s operations and its financial position achieved the following: Generated consolidated net income of P926.89 million, P719.3 million and P556.2

million as at August 31, 2014, 2013 and 2012, respectively; Significant improvements in the capital structure of the Group which are from a

capital deficiency to a consolidated net equity and from a deficit to retained earnings; Conversion of certain convertible notes to equity, in accordance with the Debt

Restructuring Agreement (DRA) (see Note 15b2iii); Resumption of the trading of the Parent Company’s shares in the Philippine Stock

Exchange (PSE) on May 21, 2012; Full payment of the Parent Company’s outstanding restructured loans in fiscal year

2013 (see Note 15a); and Redemption of all its convertible notes except those awaiting mandatory conversion

amounting to P677.53 million (see Note 15b2iii).

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The consolidated financial statements do not include any adjustment relating to the recoverability and classification of assets and the settlement of liabilities that may be necessary should the Group be unable to continue under a going concern basis. In its efforts to achieve continuing successful operations and effective implementation of the provisions of the rehabilitation plan, the Parent Company has continuously focused its corporate objectives, goals, strategies, and measures to attain sustainable financial stability through, among others: (a) synchronization of the refined sugar and raw sugar operations; (b) expansion of the boiling house to balance capacity with that of the A and C mills; (c) enhancement of mill efficiency; (d) increase profitability by addressing cost efficiency (which includes, among others, trimming down of corporate overtime expenses, minimizing contracted labor/services, and sourcing out and maximizing use of cheaper fuel substitutes instead of bunker fuel) and improving tolling fees; and (e) ongoing program of rightsizing manpower. Moreover, the Parent Company’s management has undertaken the following action plans to improve its financial position and its corporate governance structure: 1. Recapitalization and quasi-reorganization to reduce the deficit through reduction in

capital stock and application of appraisal increment as discussed in Note 16. 2. Conversion of debt into equity as discussed in Note 15. 3. Conversion of debt into convertible notes and ultimately, conversion of certain

convertible notes to equity as disclosed in Note 15. 4. Management of cash flows.

As provided for in Section 13 of the DRA, in the event that VMC’s net cash flows at the end of a crop year exceeds the projected net cash flows for that particular crop year, VMC shall prepay in inverse order the restructured loans without penalty equal to 75% of the incremental net cash flows (defined as net income after tax plus depreciation and other non-cash charges), as provided for in the Alternative Rehabilitation Plan (ARP). Furthermore, as per section 13.2 of the DRA, in the event that the restructured loans are fully settled before the fifteen (15) years repayment period, VMC cash flow in excess of Capital Expenditure requirements shall be used to pay/redeem the convertible note (principal plus accumulated interest).

5. Composition of the BOD and appointment of Management Committee (MANCOM) by the SEC. Effective December 16, 2002, the new BOD (which replaced the MANCOM) consists of the following: three representatives from the existing stockholders, one representative from the secured creditors, six representatives from creditors with debt conversion, and one joint venture partner. Further, the SEC issued an Order dated January 27, 2003 appointing Atty. Luis Ma. G. Uranza as the Rehabilitation Receiver to monitor every year, together with the new BOD elected and committees, the implementation of the ARP.

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On July 19, 2013, VMC filed a Manifestation and Motion dated July 18, 2013 with the SEC Special Hearing Panel 1. In the said pleading, VMC manifested that on May 31, 2013, VMC caused the full payment of its Restructured Loans under the ARP and DRA thereby rendering its loan obligations to its Secured Creditors and Creditors with Debt Conversion fully satisfied. Consequently, the Board seats reserved for the Secured Creditors and Creditors with Debt Conversion have become functus officio. VMC prayed that it be authorized to amend its ARP and DRA and be allowed to elect its Board pursuant to its By-Laws. In an Order dated January 27, 2014, the SEC Special Hearing Panel 1 denied the Manifestation and Motion dated July 18, 2013 of VMC. It also directed VMC to elect its Board of Directors in accordance with the ARP and DRA where the Secured Creditors and Creditors with Debt Conversion will have one (1) seat and seven (7) seats, respectively. On February 7, 2014, VMC filed with the SEC En Banc a Petition for Review on Certiorari (Re: Order dated January 27, 2014 issued by the SEC Special Hearing Panel 1) dated February 6, 2014, which was docketed as SEC En Banc Case No. 02-14-317. On December 1, 2014, VMC filed a Notice of Withdrawal of Petition for Review on Certiorari (Re: Order dated January 27, 2014 issued by the SEC Special Hearing Panel 1) dated February 6, 2014. On November 12, 2012, VMC filed a Manifestation and Motion dated November 12, 2012 with the SEC Special Hearing Panel 1 praying that VMC be authorized to amend its ARP and DRA to allocate the Board seat previously reserved to the Joint Venture Partner as an additional Board seat for Creditors with Debt Conversion because the joint venture partner opted not to convert the loan into equity but be paid instead. In an Order dated March 3, 2014, the SEC Special Hearing Panel 1 granted the Manifestation and Motion dated November 12, 2012 and ordered the amendment of Part IV (4) of the ARP and Section 21 of the DRA to read as follows: three (3) seats for existing shareholders, one (1) seat for secured creditors and seven (7) seats for creditors with debt conversion. On March 24, 2014, VMC filed with the SEC En Banc a Petition for Review on Certiorari (Re: Order dated March 3, 2014 issued by the SEC Special Hearing Panel 1) with Motion for Consolidation with SEC En Banc Case No. 02-14-317 dated March 21, 2014, which was docketed as SEC En Banc Case No. 03-14-322. On December 1, 2014, VMC filed a Notice of Withdrawal of Petition for Review on Certiorari (Re: Order dated March 3, 2014 issued by the SEC Special Hearing Panel 1) with Motion for Consolidation with SEC En Banc Case No. 02-14-317 dated March 21, 2014.

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2. Rehabilitation and Debt Restructuring Programs Discussed below are the series of events leading to the finalization of the rehabilitation and debt restructuring programs. Application for Suspension of Payment to Creditors On July 4, 1997, VMC filed with the SEC a Petition for the: (a) Declaration of Suspension of Payment to Creditors, (b) Approval of a Rehabilitation Plan, and (c) Appointment of a MANCOM which was tasked to submit a feasible and viable rehabilitation plan for VMC. Rehabilitation Plans and Amendments thereto: 1. Rehabilitation Plan as of September 25, 1998, subject to the terms of the First

Addendum to the Rehabilitation Plan dated February 5, 1999 and of the Second Addendum to the Rehabilitation Plan dated July 22, 1999, as approved by the SEC in its orders dated August 17 and 19, 1999, respectively, (herein collectively referred to as the “Original Rehabilitation Plan” or “ORP”). The salient features of the ORP follow: i. Reduction in the authorized capital stock of VMC from P2.7 billion consisting of

270 million shares of common stock at P10 par value per share to P495,957,670 consisting of 170,432,189 shares of common stock at P2.91 par value per share (see Note 16c.1);

ii. Fresh capital infusion of around P567 million through a public bidding which

was declared a failure for the reason that the deadline of submission of bids had expired without any bid having been submitted;

iii. The stockholders shall have no pre-emptive right to the increase of P1.5 billion shares of common stock or any shares to be issued to accommodate the conversion of any interests earned on the convertible notes to common shares;

iv. VMC shall honor its contractual obligations to the MJ Ossorio Pension Fund

retirees; v. Implementation of a business strategy for operating improvements, which

include manpower reduction, upgrading of certain mills and other equipment, and divestment of non-profitable business units;

vi. Sale of non-strategic assets and subsidiaries; vii. Restructuring of loans from banks; and

viii. Debt-to-equity conversion.

2. ARP as of May 11, 2000, as approved by the SEC in its Order dated November 29, 2000. In view of the failure of the public bidding to raise fresh capital of around P567 million, the MANCOM, as mandated by ORP, submitted an ARP on May 11, 2000 which was approved by the SEC on November 29, 2000.

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The basic features of the ARP follow: i. Increase in the authorized capital stock from P495.958 million consisting of

495.958 million shares of common stock at P1 par value per share to P4.605 billion consisting of 4.605 billion shares of common stock at P1 par value per share (see Note 16c.3). The new capital stock of P4.605 billion will be allocated among the initial paid-in capital of P1.596 billion, conversion of a portion of unsecured loan into convertible notes of VMC in the amount of P2.4 billion, and contingent Refined Sugar Invoice/Delivery Orders (RSDOs) of P630 million representing the principal amounts of loans allegedly obtained;

ii. Conversion into equity of all unpaid interest and part of the principal of the

unsecured loan amounting to P1.1 billion; iii. Conversion of a portion of unsecured loan into convertible notes amounting to

P2.4 billion; iv. Restructuring of the secured and unsecured loans amounting to P4.4 billion over

a period of fifteen years, including a 3-year grace period as to the principal, at 10% annual interest for peso loans and 6% for dollar loans; and

v. Call for an acceptable joint venture partner to provide additional cash of

approximately P300 million payable after three years or an option to convert the loan into equity.

All other terms and conditions of the ORP which have been previously approved by the SEC remain. The 15-year DRA took effect on September 1, 2003 (see Note 15). Since March 3, 2014, no further updates or revisions were made on the ORP, ARP and DRA.

Litigations against the ARP VMC’s former management, in their comments and replies filed with the SEC, manifests their strong opposition to the ARP. Also, three creditor banks, on various dates, filed their opposition to the ARP. After the conduct of litigation, the Supreme Court, in its Resolution dated May 28, 2010, denied the petition filed by Mr. Mañalac, et al. for failure to show any reversible error in the challenged decision and resolution as to warrant the exercise of its discretionary appellate jurisdiction. With the denial of the petition, there is no more legal impediment in the continued implementation of the ARP as approved by the SEC.

3. Basis of Preparation Statement of Compliance The consolidated financial statements have been prepared in compliance with Philippine Financial Reporting Standards (PFRSs). PFRSs are based on International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB). PFRSs consist of PFRSs, Philippine Accounting Standards (PASs), and Philippine Interpretations issued by the Financial Reporting Standards Council (FRSC). The Group’s consolidated financial statements as at and for year ended August 31, 2014 were approved and authorized for issue by the BOD on December 15, 2014.

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Basis of Measurement These consolidated financial statements have been prepared on the historical cost basis except for property, plant and equipment which are carried at revalued amounts and investment properties which are carried at fair value. Functional and Presentation Currency These consolidated financial statements are presented in Philippine peso, which is the Group’s functional currency. All financial information in Philippine peso has been rounded off to the nearest thousands, except when otherwise stated. Use of Estimates and Judgments The preparation of the consolidated financial statements in conformity with PFRSs requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised or in any future periods affected. In particular, information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amount recognized in the consolidated financial statements are discussed in Note 5.

4. Summary of Significant Accounting Policies The accounting policies set out below have been applied consistently to all years presented in these consolidated financial statements and have been applied consistently by the Group entities. Adoption of New or Revised Standards, Amendments and Improvements to Standards

and Interpretations The Group has adopted the following amendments to standards and interpretations starting September 1, 2013 and accordingly, changed its accounting policies. Except as otherwise indicated, the adoption of these amendments to standards and interpretations did not have any significant impact on the Group’s consolidated financial statements. Adopted on September 1, 2013 Presentation of Items of Other Comprehensive Income (Amendments to PAS 1). The

amendments: require that an entity present separately the items of other comprehensive income

that would be reclassified to profit or loss in the future if certain conditions are met from those that would never be reclassified to profit or loss;

do not change the existing option to present profit or loss and other comprehensive income in two statements; and

change the title of the statement of comprehensive income to the statement of profit or loss and other comprehensive income. However, an entity is still allowed to use other titles.

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The amendments do not address which items are presented in other comprehensive income or which items need to be reclassified. The requirements of other PFRSs continue to apply in this regard.

Disclosures: Offsetting Financial Assets and Financial Liabilities (Amendments to PFRS 7). These amendments include minimum disclosure requirements related to financial assets and financial liabilities that are: offset in the statement of financial position; or subject to enforceable master netting arrangements or similar agreements. They include a tabular reconciliation of gross and net amounts of financial assets and financial liabilities, separately showing amounts offset and not offset in the statement of financial position.

PFRS 10, Consolidated Financial Statements PFRS 10 introduces a new approach to determining which investees should be consolidated and provides a single model to be applied in the control analysis for all investees. An investor controls an investee when: it is exposed or has rights to variable returns from its involvement with that

investee; it has the ability to affect those returns through its power over that investee; and there is a link between power and returns. Control is re-assessed as facts and circumstances change. PFRS 10 supersedes PAS 27 (2008) and Philippine Interpretation SIC-12 Consolidation - Special Purpose Entities.

PFRS 12, Disclosure of Interests in Other Entities PFRS 12 contains the disclosure requirements for entities that have interests in subsidiaries, joint arrangements (i.e., joint operations or joint ventures), associates and/or unconsolidated structured entities, aiming to provide information to enable users to evaluate: the nature of, and risks associated with, an entity’s interests in other entities; and the effects of those interests on the entity’s financial position, financial

performance and cash flows.

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Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance (Amendments to PFRS 10, PFRS 11, and PFRS 12) The amendments simplify the process of adopting PFRSs 10 and 11, and provide relief from the disclosures in respect of unconsolidated structured entities. Depending on the extent of comparative information provided in the financial statements, the amendments simplify the transition and provide additional relief from the disclosures that could have been onerous. The amendments limit the restatement of comparatives to the immediately preceding period; this applies to the full suite of standards. Entities that provide comparatives for more than one period have the option of leaving additional comparative periods unchanged. In addition, the date of initial application is now defined in PFRS 10 as the beginning of the annual reporting period in which the standard is applied for the first time. At this date, an entity tests whether there is a change in the consolidation conclusion for its investees.

PFRS 13, Fair Value Measurement PFRS 13 replaces the fair value measurement guidance contained in individual PFRSs with a single source of fair value measurement guidance. It defines fair value, establishes a framework for measuring fair value and sets out disclosure requirements for fair value measurements. It explains how to measure fair value when it is required or permitted by other PFRSs. It does not introduce new requirements to measure assets or liabilities at fair value, nor does it eliminate the practicability exceptions to fair value measurements that currently exist in certain standards.

PAS 19, Employee Benefits (Amended 2011) The amended PAS 19 includes the following requirements: actuarial gains and losses are recognized immediately in other comprehensive

income; this change removes the corridor method and eliminate the ability for entities to recognize all changes in the defined benefit obligation and in plan assets in profit or loss; and

interest income on plan assets recognized in profit or loss is calculated based on the rate used to discount the defined benefit obligation.

The impact of the adoption of these amendments to PAS 19 was applied prospectively starting September 1, 2013 since the Group has assessed that the retrospective effect of the adjustments will not have a material effect on the consolidated financial statements as at and for the year ended August 31, 2013 and to the Group's opening balance of deficit as at September 1, 2012. The summary of quantitative impact of the adoption of the above amendments to PAS 19 is presented in Note 31 to the consolidated financial statements.

PAS 28, Investments in Associates and Joint Ventures (2011) PAS 28 (2011) supersedes PAS 28 (2008) Investments in Associates. PAS 28 (2011) makes the following amendments: PFRS 5, Non-current Assets Held for Sale and Discontinued Operations applies

to an investment, or a portion of an investment, in an associate or a joint venture that meets the criteria to be classified as held for sale; and

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on cessation of significant influence or joint control, even if an investment in an associate becomes an investment in a joint venture or vice versa, the entity does not remeasure the retained interest.

Annual Improvements to PFRSs 2009 - 2011 Cycle - various standards contain

amendments to five standards with consequential amendments to other standards and interpretations. The amendments are effective for annual periods beginning on or after September 1, 2013. The following are the said improvements or amendments to PFRSs, none of which has a significant effect on the consolidated financial statements of the Group. PAS 1, Presentation of Financial Statements - Comparative Information beyond

Minimum Requirements. This is amended to clarify that only one comparative period - which is the preceding period - is required for a complete set of financial statements. If an entity presents additional comparative information, then that additional information need not be in the form of a complete set of financial statements. However, such information should be accompanied by related notes and should be in accordance with PFRSs. For example, if an entity elects to present a third statement of comprehensive income, then this additional statement should be accompanied by all related notes, and all such additional information should be in accordance with PFRSs. However, the entity need not present: o other primary statements for that additional comparative period, such as a

third statement of cash flows; or o the notes related to these other primary statements.

PAS 1, Presentation of the Opening Statement of Financial Position and Related Notes. This is amended to clarify that: o the opening statement of financial position is required only if:

- a change in accounting policy; - a retrospective restatement; or - a reclassification has a material effect upon the information in that statement of financial position;

o except for the disclosures required under PAS 8, notes related to the opening statement of financial position are no longer required; and

o the appropriate date for the opening statement of financial position is the beginning of the preceding period, rather than the beginning of the earliest comparative period presented. This is regardless of whether an entity provides additional comparative information beyond the minimum comparative information requirements.

The amendment explains that the requirements for the presentation of notes related to additional comparative information and those related to the opening statement of financial statements are different, because the underlying objectives are different. Consequential amendments have been made to PFRS 1 and PAS 34, Interim Financial Reporting.

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PAS 16, Property, Plant and Equipment - Classification of Servicing Equipment. This is amended to clarify the accounting of spare parts, stand-by equipment and servicing equipment. The definition of ‘property, plant and equipment’ in PAS 16 is now considered in determining whether these items should be accounted for under that standard. If these items do not meet the definition, then they are accounted for using PAS 2, Inventories.

PAS 32, Financial Instruments Presentation - Income Tax Consequences of

Distributions. This is amended to clarify that PAS 12, Income Taxes applies to the accounting for income taxes relating to: distributions to holders of an equity instrument; and transaction costs of an equity transaction. This amendment removes a perceived inconsistency between PAS 32 and PAS 12. Before the amendment, PAS 32 indicated that distributions to holders of an equity instrument are recognized directly in equity, net of any related income tax. However, PAS 12 generally requires the tax consequences of dividends to be recognized in profit or loss. A similar consequential amendment has also been made to Philippine Interpretation IFRIC 2, Members’ Share in Co-operative Entities and Similar Instruments.

New Standards, Amendments and Improvements to Standard and Interpretation Not Yet Adopted

A number of new standards, amendments and improvements to standards and interpretations are effective for annual periods beginning after January 1, 2013, and have not been applied in preparing these consolidated financial statements. Except as otherwise indicated, none of these is expected to have a significant effect on the consolidated financial statements. Those which may be relevant to the Group are set out below. The Group does not plan to adopt these standards early. To be Adopted on September 1, 2014 Offsetting Financial Assets and Financial Liabilities (Amendments to PAS 32).

These amendments clarify that: An entity currently has a legally enforceable right to set-off if that right is:

o not contingent on a future event; and o enforceable both in the normal course of business and in the event of default,

insolvency or bankruptcy of the entity and all counterparties; and Gross settlement is equivalent to net settlement if and only if the gross settlement

mechanism has features that: o eliminate or result in insignificant credit and liquidity risk; and o process receivables and payables in a single settlement process or cycle.

These amendments are effective for annual periods beginning on or after January 1, 2014 and are to be applied retrospectively.

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Recoverable Amount Disclosures for Non-financial Assets (Amendments to PAS 36). These narrow-scope amendments to PAS 36 address the disclosure of information about the recoverable amount of impaired assets if that amount is based on fair value less costs of disposal. The amendments clarified that the scope of those disclosures is limited to the recoverable amount of impaired assets that is based on fair value less costs of disposal.

The amendments are to be applied retrospectively for annual periods beginning on or after January 1, 2014. Earlier application is permitted for periods when the entity has already applied PFRS 13. To be Adopted on September 1, 2016 PAS 16 and PAS 38: Clarification of Acceptable Methods of Depreciation

Prohibits revenue-based depreciation methods and generally presumes that such methods are an inappropriate basis for amortizing intangible assets.

PAS 27: Equity Method in Separate Financial Statements Allows entity to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements.

To be Adopted on September 1, 2017 PFRS 15, Revenue from Contracts with Customers

Establishes when revenue should be recognised, how it should be measured and what disclosures about contracts with customers are needed.

To be Adopted on September 1, 2018 PFRS 9, Financial Instruments

PFRS 9 replaces PAS 39, Financial Instruments: Recognition and Measurement and supersedes the previously published versions of PFRS 9 that introduced new classifications and measurement requirements (in 2009 and 2010) and a new hedge accounting model (in 2013). PFRS 9 includes revised guidance on the classification and measurement of financial assets, including a new expected credit loss model for calculating impairment, guidance on own credit risk on financial liabilities measured at fair value and supplements the new general hedge accounting requirements published in 2013. PFRS 9 incorporates new hedge accounting requirements that represent a major overhaul of hedge accounting and introduce significant improvements by aligning the accounting more closely with risk management relating to the impairment of financial assets and hedge accounting. PFRS 9 supersedes PAS 39, Financial Instructions: Recognition and Measurement.

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements. Principles of Consolidation The consolidated financial statements include the accounts of the Parent Company, as well as those of its subsidiaries enumerated in Note 1 to the consolidated financial statements.

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Subsidiaries are entities controlled by the Parent Company. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases, except for VGCCI (see Note 12). The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Group. All significant intercompany balances and transactions have been eliminated in the consolidated financial statements. The consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances. Loss of Control Upon the loss of control, the Group derecognizes the assets and liabilities of the subsidiary, any non-controlling interests and other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognized in profit or loss. If the Group retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently, it is accounted for as an equity-accounted investee or as an available-for-sale (AFS) financial asset depending on the level of influence retained. Transactions Eliminated on Consolidation Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealized gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment. Investments in Subsidiaries and Associate A subsidiary is an entity that is controlled by a company while an associate is an entity in which a company has significant influence, but no control, over the financial and operating policies. An investor determines whether it is a parent by assessing whether it controls one or more investees. An investor considers all relevant facts and circumstances when assessing whether it controls an investee. An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. It is presumed to exist when another entity holds between 20 to 50 percent of the voting power of an entity. Investments in unconsolidated subsidiary and in an associate are recognized at cost in the Group’s consolidated financial statements, less any impairment loss. If there is objective evidence that the investments will not be recovered, an impairment loss is provided. Impairment loss is measured as the difference between the carrying amount of the investment and the present value of the estimated cash flows discounted at the current market rate of return for similar financial assets. The amount of the impairment loss is recognized in profit or loss.

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Non-controlling Interests Non-controlling interest represents the portion of profit or loss and the net assets not held by the Group and are presented separately in the consolidated statements of comprehensive income and within equity in the consolidated statements of financial position, separately from Parent Company’s equity, if positive. However, if losses applicable to the non-controlling interests exceeded the non-controlling interest in the subsidiary’s equity, the excess, and any further losses applicable to the non-controlling interests, are allocated against the majority interest, except to the extent that the non-controlling interest has a binding obligation and is able to make an additional investment to cover the losses. If the subsidiary subsequently reports profits, such profits are allocated to the majority interest until the non-controlling interest’s share of losses previously absorbed by the majority has been recovered. Operating Segments Operating segments provide services that are subject to risks and returns that are different from those of other operating segments. The Group’s businesses are operated and organized according to the nature of business provided, with each segment representing a strategic business unit. Operating results of the Group’s operating segments are reviewed by the BOD, the chief operating decision maker (CODM) of the Group, to make decisions about resources to be allocated to each segment and assess its performance, and for which discrete financial information is available. The Group’s only reportable geographical segment is the Philippines. Revenue Recognition Revenue is recognized to the extent that it is probable that economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable, net of trade discounts and volume rebates, and represents amounts receivable for goods and services provided in the normal course of business. The following specific recognition criteria must also be met before revenue is recognized: Sales of Raw Sugar and Molasses

Revenue is recognized upon invoicing which coincides with endorsement and transfer of quedans and molasses warehouse receipts, respectively, when the customer has accepted the products.

Tolling Revenues Revenue is recognized when the tolling services have been rendered based on the tolling agreement.

Sale of Alcohol Revenue is recognized upon invoicing which coincides with the delivery of the alcohol.

Interest Income Interest is recognized as interest accrues, taking into account the effective yield of the asset.

Rental Income Rental income is recognized on a straight-line basis over the lease term for non-cancellable leases and the terms of the lease for cancellable leases.

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Other Income Other income such as income from scrap sales, gains from disposal is recorded when earned. Other income also includes sales of goods which is recognized when the Group has transferred to the buyer the significant risks and rewards of ownership of the goods and the Group has not retained the continuing managerial involvement to the degree usually associated with ownership and effective control over the goods sold.

Cost and Expense Recognition Costs and expenses are recognized in profit or loss upon utilization of the service or at the date they are incurred. Borrowing costs not capitalized are charged to income in the period in which they are incurred using the effective interest rate method. Financial Assets The Group recognizes a financial asset in the consolidated statements of financial position when it becomes a party to the contractual provisions of the instrument. The Group’s financial assets are categorized under loans and receivables. Loans and Receivables Loans and receivable are financial assets with fixed or determinable payments that are not quoted in an active market. They are not entered into with the intention of immediate or short-term resale or are not classified as held for trading, held-to-maturity (HTM) investments, available-for-sale (AFS) financial assets or financial assets at fair value through profit or loss (FVPL). These are initially recognized at fair value plus any directly attributable transaction cost and subsequently carried at amortized cost using the effective interest rate method, less allowance for impairment loss. These are included as current assets if maturity is within twelve (12) months from the reporting date. Otherwise, these are classified as noncurrent assets. The Group’s financial assets categorized under loans and receivables include cash and cash equivalents and receivables [presented in the consolidated statements of financial position as “Trade and other current receivables” (excluding advances to suppliers) and “Advances to an unconsolidated subsidiary” accounts, part of “Other current assets” account representing cash and cash equivalents reserved for payment to East West Banking Corporation, and as part of “Other noncurrent assets” account representing the cash and cash equivalents reserved for debts repayment]. Cash and Cash Equivalents Cash and cash equivalents, which are stated in face value, include cash on hand and in banks and other short-term highly liquid investments with original maturities of three months or less, which are subject to insignificant risk of change in value and are used by the Group in management of its short-term commitments. Impairment of Financial Assets The Group assesses at each reporting date whether there is objective evidence that a financial asset maybe impaired. A financial assets is deemed to be impaired 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 and that loss event has an impact on the estimated future cash flows of the financial asset that can be reliably estimated.

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Financial Assets at Amortized Cost If there is objective evidence that an impairment loss on loans and receivables carried at amortized cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition). The carrying amount of the asset shall be reduced either directly or through use of an allowance account. The amount of the loss shall be recognized in profit or loss. The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and the group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment. If, in a business period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in profit or loss, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date. Financial Assets Carried at Cost If there is objective evidence that an impairment loss on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Derecognition 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 right 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 the consideration that the Group could be required to repay.

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Financial Liabilities These are recognized when the Group becomes a party to the contractual agreements of the instrument, normally in the period in which the related money, goods or services are received or when a legally enforceable claim against the Group is established. The Group’s financial liabilities are categorized as other financial liabilities. Other Financial Liabilities These include non-derivative liabilities that are not carried at fair value through profit or loss (FVPL) and are recognized initially at fair value and carried at amortized cost with amortization determined using the effective interest rate method. The Group’s financial liabilities categorized under other financial liabilities include long-term debt and other financial liabilities [presented in the consolidated statements of financial position as “Trade and other current payables” (excluding payables to government and customers’ deposits) and “Due to a stockholder” accounts]. Derecognition 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 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 profit or loss. Offsetting Financial Assets and Liabilities Financial assets and financial liabilities are offset and reported at net amount in the consolidated statements of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is intention to settle on a net basis, or realize the asset and settle the liability simultaneously. This is not generally the case with master netting agreements and the related assets and liabilities are presented at gross in the consolidated statements of financial position. Inventories Inventories are valued at the lower of cost and net realizable value (NRV). Costs incurred in bringing each product to its present location or condition, are accounted for as follows: Sugar Inventory, Alcohol Inventory and Manufactured and Fabricated Products - determined using weighted average method; cost includes direct materials, labor and a proportion of manufacturing overhead costs based on normal operating capacity. Unbilled Tolling Cost - consists mainly of direct labor and overhead components based on normal operating capacity, and are determined on weighted average method. Real Estate Held for Sale - determined using specific identification method; cost includes purchase price of subdivision and memorial park lots plus development cost. Materials and Supplies - determined using weighted average method; cost includes purchase and other directly attributable costs determined based on their original purchase price.

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Jobs in Progress - determined using the specific identification method; cost includes direct materials, labor and a proportion of manufacturing overhead costs based on normal operating capacity. For sugar inventory, alcohol inventory and manufactured and fabricated products, unbilled tolling costs, jobs in progress, and real estate held for sale, NRV is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. For materials and supplies, the NRV is the current replacement cost. The Group considers any deterioration, damage, breakage, age and technological changes in estimating the NRV. Biological Assets Biological asset pertains to the accumulated costs of purchasing, cultivating and propagating the live and unharvested fish. Since there is no active market for the biological asset and due to the absence of a reliable estimate to measure the fair value less estimated point-of-sale costs, biological asset is measured at cost less any impairment in value as permitted under PAS 41, Biological Assets. Upon harvesting the fish, the corresponding cost is charged to operations. Property, Plant and Equipment Property, plant and equipment, except for projects under construction (which are carried at cost less accumulated impairment losses), are carried at revalued amounts less accumulated depreciation and impairment losses, if any. The revalued amount is the fair value at the date of revaluation less any subsequent accumulated depreciation and subsequent impairment losses. Revaluation is performed by an independent firm of appraisers with sufficient regularity to ensure that the carrying amount of the asset does not differ materially from that which would be determined using fair values at the reporting date. The net appraisal increase resulting from the revaluation is credited to “Revaluation increment on property, plant and equipment” account (net of corresponding deferred tax liability) in the consolidated statements of financial position and consolidated statements of changes in equity. The amount of revaluation increment absorbed through depreciation and revaluation increment approved by the SEC for quasi-reorganization are transferred directly to retained earnings. Initially, an item of property, plant and equipment is measured at its cost, which comprises its purchase price and any directly attributable costs of bringing the asset to the location and condition for its intended use. Subsequent costs that can be measured reliably are added to the carrying amount of the asset when it is probable that future economic benefits associated with the asset will flow to the Group. The costs of day-to-day servicing of an asset are recognized as an expense in the period in which they are incurred. All costs that are directly and clearly associated with the construction of certain property, plant and equipment, including borrowing costs, are capitalized. Projects under construction, included in property, plant and equipment, represent structures under construction and are stated at cost. These include cost of construction and other direct costs. Projects under construction are not depreciated until such time as the relevant assets are completed and put into operational use.

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Major spare parts and stand-by equipment qualify as property, plant and equipment when the Group expects to use them during more than one period. Similarly, if the spare parts and servicing equipment can be used only in connection with an item of property, plant and equipment, they are accounted for as property, plant and equipment. Estimated future dismantlement costs of items of property, plant and equipment arising from legal or constructive obligations are recognized as part of property, plant and equipment and are measured at present value at the time when the obligation was incurred. Depreciation is computed using the straight-line method over the assets’ estimated useful lives. The estimated useful lives are as follows:

Number of Years

Land improvements 12.5 Buildings and structures 20 Community buildings and equipment 20 Machinery and equipment 3 - 20

The estimated useful lives, as well as the depreciation method, are reviewed at each reporting date to ensure that the period and method of depreciation are consistent with the expected pattern of economic benefits from those assets. Stand-by equipment should be depreciated from the date it is made available for use over the shorter of the life of the stand-by equipment or the life of the asset the stand-by equipment is part of, while major spare parts should be depreciated over the period starting when it is brought into service, continuing over the lesser of its useful life and the remaining expected useful life of the asset to which it relates. Fully depreciated assets are retained in the accounts until they are no longer in use and no further charge for depreciation is made in respect of those assets. When an asset is disposed of, or is permanently withdrawn from use and no future economic benefits are expected from its disposal, the cost and related accumulated depreciation and impairment losses, if any, are removed from the accounts and any resulting gain or loss arising from the retirement or disposal is recognized in profit or loss. The carrying amount of the Group’s property, plant and equipment is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its recoverable amount. The recoverable amount of the Group’s property, plant and equipment is the higher between their fair values less cost of disposal and value in use. If the carrying amount of the Group’s asset is decreased as a result of revaluation, this decrease is recognized as other comprehensive loss to the extent of any credit balance existing in the revaluation increment in respect of that asset. The excess of such decrease over the existing balance in the revaluation increment is recognized in the consolidated statements of comprehensive income. An increase in the carrying amount of the Group’s property, plant and equipment is recognized in the consolidated statements of comprehensive income to the extent that it reverses a revaluation decrease of the same asset previously recognized in profit or loss.

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Investment Properties Investment properties composed of land and building, which are properties held by the Group either to earn rentals or for capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes. Investment properties are initially measured at cost. Subsequently, investment properties are measured at fair value with any change therein recognized in the consolidated statements of comprehensive income following the fair value model. Gains or losses arising from changes in the fair value of investment properties are included in profit or loss for the period in which they arise. Investment property is derecognized when either it has been disposed of or when it 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 profit or loss in the year of retirement or disposal. Transfers are made to investment property only when there is a change in use evidenced by ending of owner-occupation or commencement of an operating lease to another party. When the use of a property changes such that it is reclassified as property, plant and equipment, its fair value at the date of reclassification becomes its cost for subsequent accounting. Transfers from investment property carried at fair value to owner-occupied property or inventories shall be its fair value at the date of change in use in accordance with PAS 16, Property, Plant, and Equipment, or PAS 2, Inventories. Impairment of Nonfinancial Assets The carrying amount of the Group’s nonfinancial assets which include property, plant and equipment are reviewed for at each reporting date to determine whether there is any indication of impairment. If such indication exists, the asset’s recoverable amount is estimated. The recoverable amount of an asset or cash-generating unit is the greater of the asset’s fair value less costs of disposal and value in use. Fair value less costs of disposal is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, less the costs of disposal. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs. An impairment loss is recognized whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses, if any, are recognized in profit or loss unless the asset is carried at revalued amounts. Any impairment loss on a revalued asset is treated as a revaluation decrease. All assets are subsequently reassessed for indications that an impairment loss previously recognized may no longer exist and the carrying amount of the asset is adjusted to the recoverable amount resulting in the reversal of the impairment loss.

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An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation, if no impairment loss had been recognized. A reversal of an impairment loss in respect of a revalued asset is recognized in profit or loss to the extent that it reverses an impairment loss that was previously recognized in the profit or loss. Any additional increase in the carrying amount of the asset is treated as a revaluation increase. Fair Value Measurement When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible and is categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows: Level 1: quoted prices (unadjusted) in active markets for identical assets or

liabilities. Level 2: inputs other than quoted prices included in Level 1 that are observable for

the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices).

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

If the inputs used to measure the fair value of an asset or a liability might be categorized in different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The group recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred. Further information about the assumption made in measuring fair values is included in Notes 10 and 11 to the consolidated financial statements. Equity Instruments An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Capital stock is classified as equity and is determined using the nominal value of shares that have been issued. Additional paid-in capital (APIC) includes any premiums received on the initial issuance of capital stock. Any transaction costs associated with the issuing of shares are deducted from additional paid-in capital, net of any related income tax benefits. When capital stocks are repurchased, the amount of the consideration paid, which includes directly attributable costs, net of any tax effects, is recognized as a deduction from equity. Repurchased shares are classified as treasury stock and are presented as a deduction from total equity. When treasury shares are sold or reissued subsequently, the amount received is recognized as an increase in equity, and the resulting surplus or deficit on the transaction is transferred to/from retained earnings, after considering any remaining APIC related to treasury stock, if any. Compound financial instruments issued by the Group comprise convertible notes that can be converted to capital stock at the option of the holder, and the number of shares to be issued does not vary with changes in their fair value.

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The liability component of a compound financial instrument is recognized initially at the fair value of a similar liability that does not have an equity conversion option. The equity component is recognized initially as the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts. Earnings per Share (EPS) The Group presents both basic and diluted EPS. Basic EPS is computed by dividing the consolidated net income applicable to common shareholders by the weighted average number of common shares outstanding during the year, adjusted for treasury stock, and with retroactive adjustments for stock splits. Diluted EPS is computed in the same manner as basic EPS except that the net income attributable to common shareholders and the weighted average number of shares outstanding are adjusted for the effects of all dilutive potential common shares. The Group’s potential common shares comprise of convertible notes. Borrowing Costs Borrowing costs are generally recognized as expense in the period in which these costs are incurred, except to the extent that they are capitalized as being directly attributable to the acquisition, construction or production of a qualifying asset which necessarily takes a substantial period of time to prepare for its intended use or sale. Leases - Operating Lease Leases which do not transfer to the lessee substantially all the risks and benefits of ownership of the asset are classified as operating leases. Group as a Lessor Lease income under operating leases is recognized as income in the consolidated statements of comprehensive income on a straight-line basis over the lease term. Group as a Lessee Operating lease payments are recognized in profit or loss on a straight-line basis over the lease term. The Group determines whether an arrangement is, or contains a lease based on the substance of the arrangement. It makes an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. Retirement Benefits The Group’s net obligation in respect of the defined benefit plan is calculated by estimating the amount of the future benefit that employees have earned in the current and prior periods, discounting that amount and deducting the fair value of any plan assets. The calculation of defined benefit obligation is performed on a periodic basis by a qualified actuary using the projected unit credit method. When the calculation results in a potential asset for the Group, the recognized asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan.

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Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognized immediately in Other Comprehensive Income (OCI). The Group determines the net interest expense or income on the net defined benefit liability or asset for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then net defined benefit liability or asset, taking into account any changes in the net defined liability or asset during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to the defined benefit plan are recognized in profit or loss. When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognized immediately in profit or loss. The Group recognizes gains and losses on the settlement of a defined benefit plan when the settlement occurs. Termination Benefits Termination benefits are recognized as an expense when the Group is committed demonstrably, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognized as an expense if the Group has made an offer of voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably. If benefits are payable more than 12 months after the reporting period, then they are discounted to their present value. Short-term Employee Benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognized for the amount expected to be paid such as those for salaries and wages, social security contributions, short-term compensated absences, bonuses and non-monetary benefits. Foreign Currency Transactions and Translations Transactions in foreign currencies are translated into Philippine peso using the exchange rates prevailing at the time of such transactions. Monetary assets and liabilities denominated in foreign currencies are translated using exchange rates prevailing at reporting date. Foreign exchange gains or losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies are recognized in the consolidated statements of comprehensive income. Income Tax Income tax expense comprises of current and deferred taxes. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income. Current tax is the expected tax payable or receivable on the taxable income or loss for the year using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Current income tax payable also includes any tax liability arising from the declaration of dividends.

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Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for: temporary differences on the initial recognition of assets or liabilities in a transaction

that is not a business combination and that affects neither accounting nor taxable profit or loss;

temporary differences related to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future; and

taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously. A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. A deferred tax liability is recognized whenever recovery or settlement of the carrying amount of an asset or liability would make future tax payment larger than they would if such recovery or settlement were to have no tax consequence. Deferred tax liability is recognized in respect of asset revaluations and foreign exchange gains. Related Parties A related party relationship exists when one party has the ability, directly or indirectly, 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 relationships also exist between and/or among entities which are under common control with the reporting enterprise, or between, and/or among the reporting enterprise and its key management personnel, directors, or its stockholders. Related parties may be individuals or corporate entities. In considering each possible related party relationship, attention is directed to the substance of the relationship, and not merely the legal form. Provisions and Contingencies A provision is a liability of uncertain timing or amount. It is recognized when the Group has a legal or constructive obligation as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made.

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When it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote. A contingent asset is an asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity. This is not recognized in the consolidated financial statements but disclosed when an inflow of economic benefit is probable. Events After the Reporting Period The Group identifies post year-end events as events that occurred after the reporting date but before the date when the consolidated financial statements were authorized for issue. Any post year-end events that provide additional information about the Group’s consolidated statements of financial position at the reporting date (adjusting events) are recognized in the consolidated financial statements. Events that are not adjusting events are disclosed in the notes to the consolidated financial statements when material.

5. Accounting Estimates and Judgments The consolidated financial statements prepared in accordance with PFRSs requires management to make judgments, estimates and assumptions that affect amounts reported in the consolidated financial statements and related disclosures. In preparing these consolidated financial statements, the management made its best judgments and estimates of certain amounts, giving due consideration to materiality. The Group believes that the following represents a summary of these significant estimates and judgments and related impact and associated risks in the consolidated financial statements. Determining Functional Currency Based on the economic substance of the 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. It is the currency that mainly influences the sale of goods and services and the cost of these goods and services. Operating Lease Commitments The Group has leased out certain investment properties to a related party and to third parties under the operating lease arrangements. The Group has determined that all significant risks and rewards of ownership of these spaces remain with the Group (see Notes 11 and 27). The Group has also leased from a related party for an office space and for certain machineries and equipment from third parties. The Group has determined that all significant risks and rewards of ownership of these properties remain with the lessors (see Note 27).

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Distinction between Investment Property from Owner-occupied Property and from Property Held for Sale

The Group determines whether a property qualifies as investment property, owner-occupied property or property held for sale. In making its judgment, the Group considers whether the property generates cash flows largely independent of the other assets held by an entity. Property and equipment or owner-occupied properties generate cash flows that are attributable not only to property but also to the other assets used in the production or supply process. Real estate inventories are held for sale in the ordinary course of business (real estate inventories) while investment property is held primarily to earn rental and capital appreciation and is not substantially for use by, or in the operations of the Group. The Group has determined that its building and land under operating lease and land held for capital appreciation are classified as investment properties (see Note 11). Land and building used in the operation of the Group are classified as owner-occupied properties (see Note 10). Determination of whether the Group is Acting as a Principal or an Agent The Group assesses its revenue arrangements against the following criteria to determine whether it is acting as a principal or an agent: whether the Group has primary responsibility for providing the services; whether the Group has discretion in establishing prices; and, whether the Group bears the credit risk. If the Group has determined that it is acting as a principal, the Group recognizes revenue on a gross basis with the amount remitted to other party being accounted as part of costs and expenses. If the Group has determined that it is acting as an agent, only the net amount retained is recognized as revenue. The Group assessed its revenue arrangements and concluded that it is acting as principal in all arrangements. Estimating Impairment Losses on Receivables The Group maintains an allowance for impairment losses on receivables consisting of trade and other current receivables at a level considered adequate to provide for potential uncollectible receivables. The level of this allowance is evaluated by the Group on the basis of factors that affect the collectability of the accounts. These factors include, but are not limited to, the length of the Group’s relationship with its customers, their payment behavior and known market factors. The Group reviews the age and status of receivables and identifies accounts that are to be provided with allowance on continuous basis. The amount and timing of recorded expenses for any period would differ if the Group made different judgment or utilized different estimates. As at August 31, 2014, 2013 and 2012, the carrying amount of the Group’s trade and other current receivables amounted to P120.59 million, P446.13 million and P133.19 million, respectively (see Note 7).

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Estimating NRV of Inventories In estimating NRV of inventories, management takes into account the most reliable evidence available at the time the estimates are made. The Group’s business is subject to changes which may cause inventory obsolescence and the nature of the Group’s inventories is susceptible to physical deterioration, damage, breakage and technological changes. Moreover, future realization of the carrying amounts of inventories is affected by price changes in the market. These aspects are considered key sources of estimation uncertainty and may cause significant adjustments to the Group’s inventories within the next financial year. The carrying amount of inventories as at August 31, 2014, 2013 and 2012 amounted to P248.59 million, P389.64 million and P349.19 million, respectively (see Note 8). Estimating Useful Lives of Property, Plant and Equipment The Group estimates useful lives of property, plant and equipment based on the period over which the assets are expected to be available for use. The Group reviews regularly the estimated useful lives of property, plant and equipment based on factors that include asset utilization, internal technical evaluation, technological changes, environmental and anticipated use of the assets tempered by related industry benchmark information. It is possible that future results of operation could be materially affected by changes in these estimates brought about by changes in factors mentioned. A reduction in the estimated useful lives of property, plant and equipment would increase depreciation and decrease noncurrent assets. As at August 31, 2014, 2013 and 2012, the aggregate carrying amount of the Group’s property, plant and equipment amounted to P4.11 billion, P3.92 billion and P3.83 billion, respectively (see Note 10). Estimating Fair Value The fair value of the Group’s property, plant and equipment and investment properties are determined from market-based evidence by appraisal that was undertaken by an independent firm of appraisers in calculating such amounts. While management believes that the assumptions and market-based evidences used are reasonable and appropriate, significant differences in actual experience or significant changes in the assumptions may materially affect the valuation of the Group’s property, plant and equipment and investment properties. However, management believes that the carrying amounts of property, plant and equipment and investment properties as of August 31, 2014, 2013 and 2012 do not differ materially from that which would be determined using appraised value and fair value at reporting date. As at August 31, 2014, 2013 and 2012, the aggregate carrying amount of the Group’s property, plant and equipment amounted to P4.11 billion, P3.92 billion and P3.83 billion, respectively (see Note 10). The aggregate carrying amount of the Group’s investment properties amounted to P1.44 billion, P1.45 billion and P1.01 billion as at August 31, 2014, 2013 and 2012, respectively (see Note 11).

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Recoverability of Deferred Tax Assets The Group reviews its deferred tax assets at each reporting date and reduces the carrying amount to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based on the likely timing and level of future taxable profits together with future tax planning strategies. However, there is no assurance that the Group will utilize all or part of the deferred tax assets. Any deferred tax asset will be re-measured if it might result to derecognition in cases where the expected tax law to be enacted will impose a possible risk on its realization. As at August 31, 2014, 2013 and 2012, the Group’s recognized deferred tax assets amounted to P418.38 million, P273.20 million and P202.21 million, respectively (see Note 24). As at August 31, 2014, 2013 and 2012, the Group’s unrecognized deferred tax assets amounted to P19.51 million, P1.07 billion and P994.79 million, respectively (see Note 24). Estimating Retirement Benefit Obligation The determination of the Group’s retirement liability and cost is dependent on the selection of certain assumptions used by actuaries in calculating such amounts. The Group believes that the assumptions are reasonable and appropriate. The Group’s assumptions are described in Note 25 to consolidated financial statements. Significant differences in the actual experience or significant changes in the assumptions may materially affect the retirement cost and retirement liability. Net retirement benefit cost amounted to P3.90 million and P15.28 million in 2014 and 2012, respectively, while net retirement income amounted to P13.00 million in 2013. Retirement benefits obligation amounted to P13.62 million, P8.99 million and P88.78 million as at August 31, 2014, 2013 and 2012, respectively (see Note 25). Revenue Recognition The Group’s revenue recognition policies require the use of estimates and assumptions that may affect the reported amounts of revenues and receivables. Differences between the amounts initially recognized and actual settlements are taken up in the accounts upon reconciliation. However, there is no assurance that such use of estimates may not result to material adjustments in future periods. Impairment of Non-financial Assets The Group assesses at each reporting date whether there is an indication that the carrying amount of an asset may be impaired. If such indication exists, the Group makes an estimate of the assets’ recoverable amount. At the reporting date, the Group assesses whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. The Group assesses impairment on assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The factors that the Group considers important which could trigger an impairment review include the following: significant underperformance relative to the expected historical or projected future

operating results;

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significant changes in the manner of use of the acquired assets or the strategy for overall business; and

significant negative industry or economic trends.

As at August 31, 2014, 2013 and 2012, the carrying amounts of property, plant and equipment and other noncurrent assets approximate their fair values. Estimating Provisions and Contingencies The Group is currently involved in various legal proceedings (see Note 28) which are still pending resolution or under suspension in view of the Parent Company’s rehabilitations status. Estimates of probable costs for the resolution of these claims have been developed in consultation with the legal counsels handling the defense in these matters and are based upon an analysis of potential results. Group’s management and legal counsels have made judgment that, while the legal proceedings are legally defensible, they cannot anticipate with certainty the progress and the outcome of the legal proceedings, the appreciation of the available evidences by the relevant courts or tribunal involved and the evolution of jurisprudence or similar cases that will be decided by the highest court, which will be relevant to pending cases. With due consideration of prior decision involving similar cases and for prudent financial reporting, the Group recognized provisions (see Note 14). The Group discounts its provisions over the period such provisions are expected to be settled. The discount rate used by the Group is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the provisions at the time these provisions have been determined and recognized. Specifically, this discount rate represents a risk-free rate plus a risk premium. The risk-free rate is derived from Philippine treasury bill rate and the risk premium is calculated by making reference to the volatility of market lending rates published by the Bangko Sentral ng Pilipinas (BSP). The carrying value of the provisions recognized as at August 31, 2014, 2013 and 2012 amounted to P1.09 billion, P841.94 million and P554.34 million, respectively (see Note 14). The estimated amount of gross undiscounted provision (including imputed finance cost) amounted to P1.30 billion as of August 31, 2014. It is possible, however, that future results of operations could be materially affected by changes in the estimates or in the effectiveness of the Group’s strategies relating to the foregoing proceedings.

6. Cash and Cash Equivalents Details of this account at August 31 follow:

2014 2013 2012

Cash on hand and in banks P148,581 P498,982 P279,963 Cash equivalents 891,248 364,840 806,529

P1,039,829 P863,822 P1,086,492

Cash in banks earns interest at the respective bank deposit rates.

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Cash equivalents are composed of short-term placements with maturities ranging from 30 to 90 days, and bear annual interest rates of 0.5% to 3.0% in 2014, 0.875% to 3.875% in 2013 and 1.3% to 4.1875% in 2012. Cash and cash equivalents permanently set aside for checks payable to East West Banking Corporation (EWB) are presented as part of “Other current assets” account (see Note 9). Cash and cash equivalents earmarked as reserves for debt repayment were presented as part of “Other noncurrent assets” account as at August 31, 2012 and were used to fully pay the outstanding restructured loans in 2013 (see Notes 12 and 15a). Total interest income on cash and cash equivalents, including those earmarked principally as reserves for debt repayment and payment to EWB, amounted to P11.04 million, P38.55 million and P76.23 million in 2014, 2013 and 2012, respectively (see Notes 12 and 22).

7. Trade and Other Current Receivables Details of this account at August 31 follow:

2014 2013 2012

Trade P109,913 P455,535 P133,060 Advances to:

Planter’s association 13,105 1,201 2,551 Suppliers 10,221 4,817 7,447 Officers and employees 433 695 647

Other current receivables 7,313 2,978 7,878

140,985 465,226 151,583Less allowance for impairment losses

on trade and other current receivables 20,391 19,097 18,389

P120,594 P446,129 P133,194

The average credit period taken on sale of goods and services is from 30 to 60 days. Other current receivables consist of receivables from a financial institution, receivable from installment contract and loaned lots to buyers of one subsidiary and accrued interest receivables, cash in a closed bank, due from insurer and other non-trade receivables from other companies. The cash in a closed bank amounting to P500 thousand as at August 31, 2012 was recovered from the Philippine Deposit Insurance Corporation (PDIC) in 2013 and is presented net of amount not recoverable (see Notes 12 and 23). Due from insurer which amounts to P2.1 million as at August 31, 2014 relates to the insurance claims of the Group for the damaged property, plant and equipment and sugar stocks caused by Typhoon Yolanda.

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Movements in the allowance for impairment losses on receivables follow:

Note 2014 2013 2012

Balance, beginning of year P19,097 P18,389 P18,374 Allowance from previously

unconsolidated subsidiary 1,342 - - Amounts written-off as

uncollectible (245) (97) - Impairment losses for the year 23 197 805 15

P20,391 P19,097 P18,389

8. Inventories The carrying amounts of inventories follow:

2014 2013 2012

At NRV: Materials and supplies P136,274 P158,878 P167,163 Unbilled tolling cost 18,901 60,600 72,066

155,175 219,478 239,229At cost:

Alcohol 32,352 1,844 24,726 Real estate held for sale 21,691 23,518 20,180 Sugar 19,806 132,810 59,973 Manufactured and fabricated

products 15,042 10,092 4,279 Jobs in progress 4,527 1,896 803

93,418 170,160 109,961

P248,593 P389,638 P349,190

Cost of inventories stated at NRV amounted to P166.34 million, P251.17 million and P248.73 million as at August 31, 2014, 2013 and 2012, respectively. The movement in the allowance to reduce materials and supplies and unbilled tolling cost to NRV follows:

Note 2014 2013 2012

Balance at beginning of year P31,693 P9,499 P8,394 Write-down of inventory for

the year 21 - 22,194 3,711 Written-off of inventory

during the year - - (2,606)Recovery during the year 21 (20,529) - -

P11,164 P31,693 P9,499

The cost of inventories recognized as an expense is presented as “Cost of goods sold and services” account and includes decrease in inventories of P161.57 million in 2014, increase in inventories of P62.64 million in 2013 and decrease in inventories of P605.92 million in 2012 (see Note 21).

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Recovery during the year refers to inventories previously provided with allowance but sold in 2014 amounting to P20.53 million. In 2014, inventories with total carrying value of P962 thousand were damaged by Typhoon Yolanda. Of the total amount, P402 thousand were covered by insurance for which the Parent Company filed the corresponding insurance claims (see Note 7). The remaining balance amounting P560 thousand which was not covered by insurance was charged to profit or loss as part of “Others” under “Other income (expenses)” (see Note 22). Materials and supplies and unbilled tolling cost were stated at NRV which were lower than their corresponding costs. Management believes that the recorded allowance to reduce materials and supplies and unbilled tolling cost to NRV is adequate.

9. Other Current Assets Details of this account at August 31 follow:

Note 2014 2013 2012

Cash and cash equivalents permanently set aside for checks payable to EWB 13, 15 P366,126 P - P -

Prepaid expenses 16,704 8,455 7,598 Input value-added tax VAT) 14,126 20,673 31,953 Biological assets 1,948 100 - Creditable withholding tax 285 216 796Advances to an

unconsolidated subsidiary 26a - 25,292 25,722

P399,189 P54,736 P66,069

Prepaid expenses consist of advance payments for real property tax, and other supplies. For the period ended August 31, 2012, due to VQPC’s plan to cease operations, the remaining input VAT amounting to P716 thousand in 2013 and P837 thousand in 2012 which pertain to VQPC was derecognized since they will no longer be recoverable. This was recorded as part of “Impairment losses” under “General and administrative expenses” in the consolidated statements of comprehensive income (see Note 23). Starting 2013, VFC started operating an aquaculture farm to cultivate and propagate live fish that is needed as raw materials in its production of canned goods. The accumulated costs of purchasing, cultivating and propagating the live and unharvested fish are capitalized as “Biological asset”. Due to the absence of an active market and basis of a reliable estimate to measure fair value, VFC measured its biological assets at cost less any impairment in value. Upon harvesting the fish, the corresponding cost is charged to operations.

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VFC is exposed to a number of risks related to its aquaculture operations: Regulatory and Environmental Risks VFC is subject to laws and regulations in the Philippines in which it operates. VFC has established environmental policies and procedures aimed at compliance with local environmental and other laws. Management performs regular reviews to identify environmental risks and to ensure that the systems in place are adequate to manage those risks. Supply and Demand Risks VFC is exposed to risks arising from fluctuation in the price and sales volume of livestock. When possible, the VFC manages the risk by aligning its harvest volume to market supply and demand. Climate and Other Risks VFC’s livestock is exposed to the risk of damage from climatic changes, diseases and other natural forces. VFC has extensive processes in place aimed at monitoring and mitigating those risks, including regular inspections and pest control.

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10. Property, Plant and Equipment Movements in this account are as follows:

Land and Land

Improvements

Buildings and

Structures

Community Buildings

and Equipment

Machinery and

Equipment

Projects Under

Construction Total Measurement Basis Revalued Revalued Revalued Revalued At Cost

Cost Balance, August 31, 2012 P109,779 P647,624 P28,206 P4,124,710 P502,776 P5,413,095 Additions - - - 5,630 315,596 321,226 Retirements/disposals - - - (1,894) - (1,894)Transfer to investment property (1,335) (11,730) - - - (13,065) Adjustments (145) (658) - - - (803) Completed projects awaiting

completion documents 1,223 5 - 135,579 (136,807) - Completed projects 9,633 11,603 - 275,359 (296,595) -

Balance, August 31, 2013 119,155 646,844 28,206 4,539,384 384,970 5,718,559 Assets of previously

unconsolidated subsidiary 66,190 13,096 - 4,595 - 83,881 Reclassification of completed

projects 7,130 2,767 437 485,198 (495,532) - Additions 1,523 4,041 - 2,148 308,669 316,381 Disposals - - - (1,927) (1,865) (3,792)

Balance, August 31, 2014 193,998 666,748 28,643 5,029,398 196,242 6,115,029

Accumulated Depreciation and Impairment Losses - Cost

Balance, August 31, 2012 82,006 470,055 21,695 2,464,943 - 3,038,699Depreciation 4,717 18,978 518 177,418 - 201,631 Transfer to investment property - (6,634) - - - (6,634)Retirements/disposals - - - (1,894) - (1,894) Adjustments - - 2,168 - - 2,168

Balance, August 31, 2013 86,723 482,399 24,381 2,640,467 - 3,233,970 Assets of previously

unconsolidated subsidiary 38,503 11,388 - 3,462 - 53,353 Depreciation 8,211 17,083 404 209,164 - 234,862 Disposals - - - (1,756) - (1,756)

Balance, August 31, 2014 133,437 510,870 24,785 2,851,337 - 3,520,429

Appraisal Increase Balance, August 31, 2012 508,385 27,666 130,978 1,940,450 - 2,607,479Revaluation adjustments (97,112) 620,075 (130,978) 2,235,850 - 2,627,835 Retirements/disposals - - - (399) - (399)

Balance, August 31, 2013 411,273 647,741 - 4,175,901 - 5,234,915 Assets of previously

unconsolidated subsidiary 136,936 1,731 - 4,787 - 143,454Increase (decrease) during the year - - - - - - Disposals - - - (13,513) - (13,513)Reclassification - (1,013) - (10,047) - (11,060)

Balance, August 31, 2014 548,209 648,459 - 4,157,128 - 5,353,796

Accumulated Depreciation and Impairment Losses - Appraisal Increase

Balance, August 31, 2012 94,440 106,793 117,364 832,085 - 1,150,682 Depreciation 1,221 305 764 71,785 - 74,075 Retirements/disposals - - - (399) - (399) Revaluation adjustments 35,702 495,880 (118,128) 2,159,711 - 2,573,165

Balance, August 31, 2013 131,363 602,978 - 3,063,182 - 3,797,523Assets of previously

unconsolidated subsidiary 20,680 1,730 - 3,527 - 25,937 Depreciation 8,285 21,280 - 10,832 - 40,397 Disposal - - - (11,127) - (11,127) Reclassification - (1,013) - (10,047) - (11,060)

Balance, August 31, 2014 160,328 624,975 - 3,056,367 - 3,841,670

Carrying Amount At August 31, 2014 P448,442 P179,362 P3,858 P3,278,822 P196,242 P4,106,726



Certain land and buildings of VMC that were formerly leased by a third party are now being utilized by VMC for its distillery operations which started in November 2011. Accordingly, these assets which have carrying values of P7.92 million were transferred to property, plant equipment from investment properties (see Note 11).

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The fair value measurement for the net appraisal increase of property, plant and equipment amounting to P1.51 million has been categorized as a level 2 based on the inputs to the valuation technique used (see Note 4). The Group’s property, plant and equipment were appraised by an independent appraiser. The latest appraisal was conducted on August 31, 2013. The carrying value of property, plant and equipment is net of allowance for impairment losses amounting to P418.0 million which relates to the following:

Note

Machinery and

Equipment Land and Land Improvements

Building and Structures Total

Balance, August 31, 2011 P331,774 P2,065 P80,438 P414,277 Impairment loss recognized 23 1,200 - 850 2,050

Balance, August 31, 2012 332,974 2,065 81,288 416,327 Impairment loss recognized 23 1,668 - - 1,668

Balance, August 31, 2013 334,642 2,065 81,288 417,995 Impairment loss recognized 23 - - - -

Balance, August 31, 2014 P334,642 P2,065 P81,288 P417,995

The carrying amounts of the Group’s property, plant and equipment had these been carried at cost less accumulated depreciation and impairment losses, follow (in thousands):

Land and Land

Improvements

Buildings and

Structures

Community Buildings

and Equipment

Machinery and

Equipment Total

At August 31, 2014 P60,563 P155,878 P3,858 P2,178,059 P2,398,358

At August 31, 2013 P32,432 P164,445 P3,825 P1,898,917 P2,099,619

At August 31, 2012 P26,599 P177,569 P6,511 P1,660,941 P1,871,620

A summary of depreciation on cost and on appraisal increase and the distribution follows:

Note 2014 2013 2012

Depreciation on: Cost P234,862 P201,631 P196,404 Appraisal increase 40,397 74,075 78,453

P275,259 P275,706 P274,857

Depreciation charged to: Cost of goods sold and

services 21 P256,203 P261,204 P255,839 Selling expenses 23 7,001 2,837 2,672General and administrative

expenses 23 12,055 11,665 16,346

P275,259 P275,706 P274,857

As at August 31, 2014, the Parent Company acquired or constructed and installed certain air and water pollution control devices to comply with the order of the Department of Environment and Natural Resources (DENR) accumulating to P349.28 million. Moreover, the Parent Company is committed for acquisition or construction and installation of more similar pollution control devices amounting to P40 million as at August 31, 2014 (see Note 28c).

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On September 1, 2003, Parent Company’s land, building and machineries and equipment with a carrying value of P2.48 billion are used as mortgage lien for loans under the Mortgage Trust Indenture (MTI) (see Notes 15a and 15b2i). In 2014, property, plant and equipment with total carrying value of P1.87 million were damaged by Typhoon Yolanda. Of the total amount, P1.69 million were covered by insurance and which the Parent Company filed the corresponding insurance claims (see Note 7). The remaining balance amounting P172 thousand which was not covered by insurance was charged to profit or loss as part of “Others” under “Other income (expenses)” (see Note 22).

11. Investment Properties The details of this account as at August 31 follow:

Note Land Building Total

Balance, August 31, 2012 P945,935 P63,696 P1,009,631 Transfer from property, plant

and equipment 10 1,335 5,096 6,431 Reclassification of

“Land under dispute” to “Other noncurrent assets” 12 (25,809) - (25,809)

Fair value gain 22 429,319 25,814 455,133

Balance, August 31, 2013 1,350,780 94,606 1,445,386 Reclassification of

“Land under dispute” to “Other noncurrent assets” 12 (456) - (456)

Balance, August 31, 2014 P1,350,324 P94,606 P1,444,930

“Land under dispute” represents parcels of land, with an aggregate area of 2,534,620 square meters, subjected to Voluntary Offer to Sell. As the Parent Company is yet to agree on the valuation and consideration for the said properties, the same are still carried in the books of the Parent Company (see Note 12). Certain land and buildings of VMC that were formerly leased by a third party are now being utilized by VMC for its distillery operations which started in November 2011. Accordingly, these assets which have carrying values of P7.92 million were transferred to property, plant and equipment from investment properties (see Note 10). The fair value measurement for the investment property amounting to P1.44 million has been categorized as a level 2 based on the inputs to the valuation technique used (see Note 4). The Group’s investment properties were appraised by an independent appraiser who holds a recognized and relevant professional qualification and has recent experience in the location and category of the investment property being valued. The latest appraisal was conducted on August 31, 2013. The cost of the investment properties amounted to P62.23 million in 2014, P62.69 million in 2013 and P65.48 million in 2012.

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Of the total investment properties, P1.2 billion has been leased out under several short-term and cancellable operating leases to third parties and the P176.62 million is deemed held for capital appreciation. The total rental income earned from the investment properties for the years ended August 31, 2014, 2013 and 2012 amounted to P13.26 million, P14.88 million and P15.99 million, respectively (see Note 22). Direct expenses incurred for the Group’s investment properties amounted to P53.59 million, P52.85 million and P53.89 million in 2014, 2013 and 2012, respectively.

12. Other Noncurrent Assets Details of this account at August 31 follow:

Note 2014 2013 2012

Cash surety bonds 28b P32,087 P34,195 P33,982 Land under dispute 11 26,265 25,809 - Investments in an

unconsolidated subsidiary and an associate 5,727 21,407 21,407

Cash and cash equivalent reserved for debt repayment - - 1,770,892

64,079 81,411 1,826,281 Less allowance for

impairment losses: Cash in a closed bank 8,393 8,393 7,893 Investment in associate 5,727 5,727 5,727

14,120 14,120 13,620

P49,959 P67,291 P1,812,661

Cash and cash equivalents reserved for debt repayment consist of cash in bank and short-term placements earmarked for payment to creditors (see Note 15). In 2013, the Parent Company settled its outstanding restructured loans (see Note 15a). Cash surety bonds pertain to cash collateral for the labor cases against the Parent Company (see Note 28b). It includes cash in a closed bank amounting to P8.39 million (net of the P500 thousand recovered from PDIC in 2013 - see Note 7) which was fully provided with allowance for impairment. “Land under dispute” represents parcels of land, with an aggregate area of 2,534,620 square meters, subjected to Voluntary Offer to Sell. As the Parent Company is yet to agree on the valuation and consideration for the said properties, the same are still carried in the books of the Parent Company (see Note 11). The costs of investments in an unconsolidated subsidiary and in associate are as follows:

2014 2013 2012

Subsidiary: VGCCI P - P15,680 P15,680

Associate: VIGASCO 5,727 5,727 5,727

P5,727 P21,407 P21,407

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VGCCI is included in the consolidated financial statements as at and for the year ended August 31, 2014 on a prospective basis due to materiality consideration. The net assets of VGCCI as at September 1, 2013 amounting to P94.52 million which were previously not included in the consolidated financial statements are recognized in the consolidated statement of comprehensive income in 2014 as part of “Other expenses” under “Other income (expenses)” account amounting to P3.34 million (see Note 22) and as “Revaluation increment on property, plant and equipment” amounting to P82.26 million (see Note 10). The movement in the allowance for impairment loss follows: Note 2014 2013 2012

Balance at beginning of year P14,120 P13,620 P5,727 Provision for impairment

losses during the year 23 - 500 7,893

P14,120 P14,120 P13,620

13. Trade and Other Current Payables This account is composed of the following:

Note 2014 2013 2012

Checks payable to EWB 9, 15, 29 P366,126 P - P - Trade suppliers 226,090 242,635 216,992 Customers’ deposits 86,451 40,786 27,634 Liens payable 15,773 11,454 7,303 Accrued:

Real property taxes 15,631 14,655 14,582 Interest on bank loans 15b3 - - 54,978 Expenses 242,792 - -

VAT, withholding and other taxes 11,517 21,570 15,275

Retention payable 4,838 8,192 6,005 Social amelioration fund - 7,717 25,091 Association dues 1,639 1,488 1,545 Others 5,199 2,637 2,297

P976,056 P351,134 P371,702

Management considers that the carrying amount of trade and other current payables approximates fair value due to their short-term maturities. Generally, trade and other current payables are payable within 90-120 days. Accrued expenses consist of accrual for cost of cane hauling, salaries and employee benefits, light and water, fuel and transportation and among others.

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As disclosed in Note 15a, on February 28, 2014 (partial redemption) and April 4, 2014 (final redemption), the remaining convertible notes were paid pursuant to ARP, DRA and convertible note provisions. However, in letter a dated February 28, 2014, EWB informed VMC of its decision not to avail of the redemption and thus refused to accept and returned the check payments. Thereafter, exchanges of communications between VMC and EWB ensued as follows:

In a letter to EWB dated March 4, 2014, VMC pointed out and reiterated that the

redemption is mandatory and is not a matter for EWB to avail or not of the redemption.

In a letter to VMC dated March 7, 2014, EWB reiterated its position that its right to convert is superior over the right of VMC to redeem pursuant to the provisions of the convertibles notes.

In a letter to EWB dated March 10, 2014, VMC pointed out that the ARP, DRA and convertible notes provisions have not granted EWB the right or option to refuse any payment/redemption made under Section 13.2 of the DRA and that the redemption was not made during the applicable conversion period.

In a letter to EWB dated March 26, 2014, VMC delivered again the check payments to EWB and further clarifying that VMC has ceased to recognize any interest to the portion redeemed since the redemption date and that necessary action will be taken to protect and preserve the interest and rights of VMC and its stakeholders.

In a letter to VMC dated March 31, 2014, EWB advised VMC that it is selling its convertible notes following the approval of its board of directors.

In a letter to EWB dated April 1, 2014, VMC delivered again the check payments to EWB for the partial redemption of the convertible notes.

In a letter to VMC dated April 2, 2014, EWB reiterated its previous advice that it does not intent to avail of VMC’s offer for redemption and returned the check payments.

In a letter to EWB dated April 3, 2014, VMC delivered to EWB check payment for the final redemption of convertible notes.

In a letter to VMC dated April 4, 2014, EWB refused and returned again the check payments of VMC and reiterated its position not to avail of the redemption.

On September 26, 2014, VMC subsequently consigned the checks totaling to P366.13 million to the SEC-appointed rehabilitation receiver for custodianship in view of the unwarranted refusal by EWB. Subsequently, EWB, in a letter dated October 14, 2014, gave VMC a notice that it is exercising its option to convert its convertible notes in accordance with Section 16 (h) of the DRA. VMC, in return, informed EWB, in a letter dated October 15, 2014, that there are no more outstanding convertible notes in VMC’s records and that the said convertible notes had been paid/redeemed already and that the checks issued by VMC for the payment have been consigned with the SEC-appointed rehabilitation receiver in view of EWB’s refusal to accept the same (see Note 29).

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Subsequently, on November 11, 2014, EWB filed a motion dated November 5, 2014 with the SEC asking SEC to compel VMC to allow EWB to exercise its option for the conversion of the unconverted convertible notes. In response to the order of the SEC dated November 13, 2014, VMC and the SEC-appointed rehabilitation receiver filed their comments on the motion to the SEC on December 9 and December 2, 2014, respectively. The SEC-appointed rehabilitation receiver’s comments submitted to the SEC include a recommendation for the denial of the motion filed by EWB. To date, the SEC has yet to act on the motion filed by EWB (see Note 29). In consultation with its legal counsel, the Parent Company’s management is of the opinion that the tender of payment made to EWB extinguished the said convertible notes, related accrued interest and EWB’s right for further interest due to the following: VMC complied the ARP, DRA and convertible note provisions on the mandatory

pre-payment or redemption of convertible notes; The redemption is mandatory which is equally applicable to both VMC (mandated to

redeem) and EWB (mandated to receive and accept payment); It is stated in the convertible notes that VMC can redeem the convertible notes

anytime after giving notice to the holders; Similar to the other note holders, VMC sent notice of redemption to EWB on

February 24, 2014 and March 31, 2014 (see Note 15a); Except EWB, all other convertible note holders accepted the payments; VMC earnestly delivered the checks payable on various dates to EWB which were

received by the latter but EWB unjustifiably refused and returned the check payments; and,

VMC subsequently consigned the checks totaling to P366.13 million to the SEC-appointed rehabilitation receiver for custodianship on September 26, 2014 in view of the unwarranted refusal by EWB.

Accordingly, as at August 31, 2014, the convertible notes and the related accrued interest were extinguished and the checks payable to EWB were temporarily presented as “Checks payable to EWB”, part of “Trade and other current payables” account. A corresponding amount of cash and cash equivalents was permanently set aside by VMC (see Note 9). Moreover, VMC did not anymore accrue interest related to EWB’s convertible notes subsequent to the effective date of redemption. In 2014 and 2013, as a result of the reconciliations made, VQPC have recognized a gain on extinguishment of liability amounting to P0.07 million and P1.0 million, respectively. This is recorded as part of “Gain on extinguishment of liabilities” under “Other income (expenses)” in the consolidated statements of comprehensive income (see Note 22).

14. Provisions The Group is currently involved in various legal proceedings (see Note 28) which are still pending resolution or under suspension in view of the Parent Company’s rehabilitations status. Estimates of probable costs for the resolution of these claims have been developed in consultation with the legal counsels handling the defense in these matters and are based upon an analysis of potential results.

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The Group’s management and legal counsels have made judgment that, while the legal proceedings are legally defensible, they cannot anticipate with certainty the progress and the outcome of the legal proceedings, the appreciation of the available evidences by the relevant courts or tribunal involved and the evolution of jurisprudence or similar cases that will be decided by the highest court, which will be relevant to pending cases. With due consideration of prior decision involving similar cases and for prudent financial reporting, the Group recognized provisions as follows:

Note 2014 2013 2012

Balance at beginning of year P841,941 P554,340 P509,734 Provision during the year 23 207,274 527,953 - Litigation settlement - (279,176) - Amortization of discount 22 39,341 38,824 44,606

Ending balance P1,088,556 P841,941 P554,340

The undiscounted amount and the related unamortized discount as at August 31 follow:

2014 2013 2012

Undiscounted amount P1,067,618 P917,000 P917,000Provision during the year 228,286 590,008 - Extinguished liability - (439,390) -

1,295,904 1,067,618 917,000 Unamortized discount (207,348) (225,677) (362,660)

P1,088,556 P841,941 P554,340

In consultation with the legal counsels, management believes that the provision recognized sufficiently represents the amount of probable liability that the Group may settle in the event that the cases as discussed in Note 28 to the consolidated financial statements will ultimately be decided against the Group. On a regular basis, the provisions are re-evaluated and recalculated to consider latest available information and estimates. If the resulting difference between the original amount and the recalculated amount is significant, an adjustment is recognized. Based on the re-assessments made, additional provisions with a present value of P207.27 million (gross undiscounted amount of P228.29 million) in 2014 and P527.95 million (gross undiscounted amount of P590.01 million) in 2013 was recognized. Moreover, in 2013, provision with a carrying value of P279.18 million (gross undiscounted amount of P439.39 million) was derecognized following dismissal by the SEC of the total claims of a claimant-bank (see Note 28a). Consequently, the favorable decision resulted to a gain on extinguishment of liability in the amount of P279.18 million (see Note 22).

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15. Long-term Debt a. Composition of Parent Company’s Long-term Debts

As to currency denomination:

Note 2014 2013 2012

Restructured loans: Foreign currency

denominated P - P - P331,514Philippine peso

denominated - - 2,000,910

- - 2,332,424 Convertible notes 15b2 - 1,504,328 1,520,878 Accrued interest on

convertible notes 15b2 - 1,203,463 1,202,171

- 2,707,791 5,055,473 Less unamortized interest

and discounts 15b2 - 163,158 228,566

- 2,544,633 4,826,907 Less current portion - - 358,834

P - P2,544,633 P4,468,073

As to security:

2014 2013 2012

Secured P - P - P1,006,811 Unsecured - 2,707,791 4,048,662

P - P2,707,791 P5,055,473

Except for convertible notes that are considered mandatorily converted in accordance with Section 16(k) of the DRA amounting to P677.53 million as of August 31, 2014, (see Note 15b2iii), in 2014, the BOD of the Parent Company approved the payment/redemption of convertible notes (principal plus corresponding accumulated interest) pursuant to ARP, DRA and convertible note provisions. For this purpose, notice of payment/redemption of convertible notes was sent on February 24, 2014 (for partial redemption) and on March 31, 2014 (for final redemption) to all of the convertible note holders who were eventually paid on February 28, 2014 and April 4, 2014. However, in letter a dated February 28, 2014, EWB informed VMC of its decision not to avail of the redemption and thus refused to accept and returned the check payments. Thereafter, exchanges of communications between VMC and EWB ensued as disclosed in Note 13. On various dates, the check payments were delivered by VMC but EWB also refused and returned the check payments. Such check payments are temporarily presented as “Checks payable to EWB”, under the “Trade and other current payables” account as VMC’s management, in consultation with its legal counsel, is of the opinion that the tender of payment made to EWB extinguished the convertible notes and related accrued interest (see Note 13). The total payments made by the Parent Company to redeem the convertible notes amounted to P1.768 billion consisting of P959 million principal and P809 million accrued interest.

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On May 31, 2013, the Parent Company fully paid the outstanding restructured loans (see Notes 6 and 12). Accordingly, on July 17, 2013, the Parent Company demanded trustee-banks for the release of properties under the MTI and secondary MTI. The trustee-banks did not comply with the demand. Accordingly, the Parent Company filed with the SEC a motion to secure the release of the mortgage lien under the MTI and secondary MTI on July 25, 2013. As at report date, SEC is yet to act on the Parent Company’s petition.

b. Debt Restructuring Agreement As discussed in Note 2 to the consolidated financial statements, a key element of the ARP is the restructuring of the above loans from banks and financial institutions. Consequently, the Parent Company and the secured and unsecured creditors executed a DRA dated April 29, 2002. As stated in the DRA, secured creditors are VMC creditors who are holding on to valid Mortgage Participation Certificates (MPC) to the extent of the amount loaned to VMC and covered by said MPCs while all other VMC creditors shall be deemed as unsecured creditors, provided, however, that loan facilities and/or credit accommodations granted by the secured creditors to VMC that are not directly collateralized, secured, or covered by the MPC shall, for all intents and purposes, be considered unsecured loan facilities and/or credit accommodations and will be governed by the same terms and conditions as the loan facility and/or credit accommodations of the unsecured creditors. This DRA took effect on September 1, 2003 and which provides, among others, for the following: 1. Conversion of P1.1 billion loans into equity.

On October 9, 2002, loans from unsecured creditors of P1.1 billion were converted into common shares of VMC at a ratio of P1 of debt to P1 of common shares with a par value of P1.

2. Conversion of P2.4 billion loans into convertible notes. Features of the convertible notes September 1, 2003, the unsecured creditors proportionately converted, on a mandatory basis, P2.4 billion of their principal loans into convertible notes. The convertible notes bear an annual interest of 8% which is cumulative and payable only in respect of those convertible notes which have not been actually converted into common stock of the Parent Company. The conversion resulted to the recognition of an equity component of the convertible feature (presented in the consolidated statements of financial position as “Conversion feature on convertible notes” account). This will be reclassified to “Additional paid-in capital” upon conversion of the related convertible notes. Starting September 1, 2003, annual interest of 8% has been accrued in respect of all outstanding convertible notes. The convertible notes provide for a term of payment of 15 years from the effectivity date of the DRA (herein referred to as the “restructuring date”).

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i. Collateral for issuance of convertible notes: The collateral for issuance of convertible notes is under Section 17 of the DRA which read as follows: a) The secured creditors which converted their principal loan into

convertible notes shall have a first mortgage on VMC’s fixed assets (excluding identified non-core assets for disposal and MTI properties), in addition to their first mortgage under the existing MTI pursuant to the terms and conditions of the DRA. A list of VMC’s fixed assets which shall be used as collateral for those holding convertible notes can be found in the Annex G of the DRA.

b) The unsecured creditors which converted their principal loan into convertible notes shall have a second mortgage on VMC’s fixed assets listed in Annex G of the DRA (excluding identified non-core assets for disposal and MTI properties), in addition to their second mortgage under the secondary MTI pursuant to the terms and conditions of the DRA.

c) As security for the prompt and effective repayment and compliance by

VMC of any or all obligations arising from VMC’s issuance of the convertible notes, including payment of interests and other fees due thereon, VMC hereby creates, establishes and constitutes in favor of the secured creditors, which converted their principal loan into convertible notes, pari passu and in such proportion to the amount of convertible notes they are respectively holding, a first mortgage over VMC’s fixed assets (excluding identified non-core assets for disposal and MTI properties), in addition to their first mortgage under the MTI.

d) As security for the prompt and effective repayment and compliance by

VMC of any or all obligations arising from VMC’s issuance of the convertible notes, including payment of interests and other fees due thereon, VMC hereby creates, establishes and constitutes in favor of the unsecured creditors, which converted their principal loan into convertible notes, pari passu and in such proportion to the amount of convertible notes they are respectively holding, a second mortgage over VMC’s fixed assets (excluding identified non-core assets for disposal and MTI properties), in addition to their second mortgage under the secondary MTI.

e) The mortgage lien created, established and constituted in favor of the secured creditors as first mortgagee and unsecured creditors as second mortgagee shall cover only those VMC fixed assets that are not subject of any encumbrances or liens in favor of any party. It is hereby understood by the parties that the mortgage lien created shall not in any way novate any provisions, terms and conditions of any existing mortgage nor prejudice or diminish the rights, benefits and privileges of any existing mortgagees.

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ii. Convertibility Feature: The convertible notes shall be converted at the option of the holders thereof into common shares of the Company at the ratio of one (1) convertible note to one (1) common share of the Company, subject to the following schedule: a) Maximum of 20% of the original issue amount of the convertible notes

may be converted within a period beginning on the 31st day after the end of the 3rd year from issue date and shall expire 60 days thereafter (the “First conversion period”);

b) Maximum of 20% of the original issue amount of the convertible notes

may be converted within a period beginning on the 31st day after the end of the 4th year from issue date and shall expire 60 days thereafter (the “Second conversion period”);

c) Maximum of 20% of the original issue amount of the convertible notes

may be converted within a period beginning on the 31st day after the end of the 5th year from issue date and shall expire 60 days thereafter (the “Third conversion period”);

d) Maximum of 20% of the original issue amount of the convertible notes

may be converted within a period beginning on the 31st day after the end of the 6th year from issue date and shall expire 60 days thereafter (the “Fourth conversion period”);

e) Any or all outstanding unconverted convertible notes which were not

covered during the First, Second, Third and Fourth conversion periods may be converted within a period beginning on the 31st day after the end of the 7th year from issue date and shall expire 60 days thereafter (the “Fifth conversion period”);

f) After the Fifth conversion period, a maximum of 13% of the outstanding

unconverted convertible notes may be converted per year from the 8th year to the 14th year. The convertible notes may be converted within a period beginning on the 31st day after the end of each succeeding year from the Fifth conversion period and shall expire 60 days thereafter. The term “Outstanding Unconverted Convertible Notes” is defined as the principal amount of the Convertible Notes outstanding as of 92nd day after the end of the 7th year; and,

g) Any or all convertible notes which were not converted during the

previous conversion periods may be converted within a period beginning on the 60th day before the end of the 15th year from issue date and shall expire 30 days thereafter (the “Final conversion period”).

The aggregate amount of convertible notes that may be converted into common shares of the Company shall not exceed 20% of the original issue amount of the convertible notes for each year covering the conversion beginning on the third year to the sixth year from the issue date of the convertible notes. For the period beginning the eight year to the fourteenth year, the annual aggregate amount of convertible notes that may be converted into common shares of the Company shall not exceed 13% of the outstanding unconverted notes.

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As stated in the convertible note, the issuer, shall have the option to redeem the convertible note by paying the convertible note holder in cash an amount equivalent to the subscription price, plus all accrued interest beginning at the end of the third (3rd) year from the issue date and ending on the last day of the fifteen (15th) year from issue date (the “Final Redemption Date”). The issuer may exercise its option to redeem the convertible note at any time prior to final redemption date by sending written notice thereof to the convertible note holder, which notice, when so sent, shall be deemed final and irrevocable. The above provisions were religiously complied on the February 28, 2014 and April 4, 2014 redemption of convertible notes. Also, under the DRA, the buyer of the convertible note from the original holder shall convert the notes into common shares of the Company in accordance with the schedule of the convertibility feature of Section 16 (h) of the DRA. Section 16 (g) of the DRA further provides that interest is payable only at the final redemption date and in respect only to those convertible note which have not been actually converted to common shares of the Parent Company.

iii. Conversions to common shares Conversions to common shares of certain convertible notes amounting to P70.05 million in 2014, P272.86 million in 2013 and P118.63 million in 2012 (see Note 16b) were made in accordance with the schedule of the convertibility feature of Section 16 (h) of the DRA. The conversions resulted to the recognition of “Additional paid-in capital” for the related accrued interest payable. Moreover, certain convertible notes and the related accrued interest payable with the total amount of P1.23 billion (principal amount is P677.53 million), P338.90 million (principal amount is P203.09 million) and P658.18 million (principal amount is P459.40 million) as at August 31, 2014, 2013 and 2012, respectively, were recognized as equity as they are considered mandatorily converted in accordance with provision of Section 16 (k) of the DRA which requires that all transferred/sold convertible notes are to be converted to common shares in accordance with the schedule of the convertibility feature of Section 16 (h) of the DRA. The convertible notes and the related accrued interest payable are presented in the consolidated statements of financial position as “Convertible notes awaiting conversion” and “Interest on convertible notes awaiting conversion” account, respectively. These convertible notes and related accrued interest payable are no longer recognized as financial liability as the Parent Company has ceased to have a present obligation as the DRA provides for mandatory conversion upon transfer/sale of convertible notes. These will be converted to common shares as soon as the schedule of the convertibility feature of Section 16 (h) of the DRA permits the conversion.

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The outstanding balance of the convertible notes is carried at present value using effective interest of 5.397%. Total finance costs incurred on convertible notes amounted to P230.50 million in 2014, P186.14 million in 2013 and P137.22 million in 2012. As at August 31, 2014, 2013 and 2012, the balance of the accrued interest on the convertible notes amounted to nil, P1.20 billion, P1.20 billion, respectively.

3. Restructuring of the remaining balance of the loans (herein referred to as “Restructured loans”). On April 29, 2002, the unsecured and secured creditors restructured the remaining balance of their loans (after the debt-to-equity conversion and the debt conversion to convertible notes), with annual interest of 10% for Philippine peso-denominated loans and 6% for the U.S. dollar-denominated loans payable quarterly in arrears. The restructuring provides for a term of payment of 15 years from September 1, 2003, the restructuring date, with a 3-year grace period from the restructuring date. Details of finance cost as follow:

2014 2013 2012

Interest on convertible notes P230,504 P186,136 P137,218 Interest on bank loans - 109,419 230,258

P230,504 P295,555 P367,476

As disclosed in Note 15a, the Parent Company fully paid the outstanding restructured loans on May 31, 2013. The outstanding balance of the accrued interest on bank loans amounted to nil as at August 31, 2014 and 2013 and P54.98 million as at August 31, 2012 (see Note 13).

4. Secured creditors and/or unsecured creditors who are actually and physically holding legitimate and valid VMC sugar quedans as a form of security as of restructuring date shall be considered as other secured creditors to the extent of the valid sugar quedans they are physically and legitimately holding. The outstanding principal loans, including interest, held by these creditors holding sugar quedans as collateral shall have the same terms and conditions as that of the restructured loans of the unsecured creditors under the DRA, including a restructuring period of 15 years.

5. Restructuring of the RSDO Claims, arising from RSDO purportedly issued by VMC which was used by NONEMARCO, Inc. to obtain loans for the latter’s own use and pending litigation before the SEC, under the same terms and conditions as that of the unsecured creditors once VMC is found liable by final judgment.

6. Restructuring of the trade liabilities as follows: 25% during the first year of rehabilitation, 37.5% during the second year of rehabilitation, and 37.5% during the third year of rehabilitation.

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The DRA became effective on September 1, 2003 (also known as the restructuring date) upon the occurrence of the following conditions as per Section 36 of the DRA, among others: 1. Conversion of P1.1 billion loans into equity; 2. Conversion of P2.4 billion loans into convertible notes; 3. Generation of the required minimum cash capital infusion of P300 million; 4. Election of a new Board of Directors; and 5. Receipt of certain documents by the creditors as provided for in the DRA

(i.e., promissory notes, etc.).

c. Cash Infusion by a Strategic Investor As part of the provision of the rehabilitation program, the Company obtained a P300 million loan from a strategic investor, Tanduay Holdings, Inc. The loan was fully paid in 2008 in accordance with the terms of the loan.

d. Compliance with the DRA As at August 31, 2014, 2013 and 2012, VMC is in compliance with the provisions of the DRA. No further updates or revisions were made on the ORP, ARP and DRA as of reporting date.

16. Capital Management The Group manages its capital to ensure that the Group will be able to continue as a going concern while maximizing the return on the investments of stockholders. The Parent Company is governed by its ARP as submitted and approved by SEC. The details of these plans or programs are disclosed in Note 2. The capital structure of the Group consists of equity attributable to the stockholders comprising of the capital stock and deficit while debt is defined as long and short-term borrowings, as disclosed in Note 15. a. Debt to Total Asset Ratio

The debt to total assets ratio of the Group as at August 31, 2014, 2013 and 2012, which has been within the Group’s acceptable range as set by the BOD, is calculated as follows:

2014 2013 2012 (In Thousands Except Ratio Information)

Debt P - P2,544,633 P4,826,907 Total assets 7,409,820 7,188,983 8,288,430

0:1 0.35:1 0.58:1

The amount of debt being considered in the above ratio pertains only to total debts covered by DRA.

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b. Capital Stock

Details of the capital stock of the Parent Company follow:

2014 2013 2012

Authorized: Common shares - P1 par value

2,563,035,708 shares P2,563,036 P2,563,036 P2,563,036

Issued and outstanding: Balance at beginning of year-

2,297,484,948 shares in 2014, 2,024,626,981 shares in 2013 and 1,905,998,732 shares in 2012 P2,297,485 P2,024,627 P1,905,999

Conversion of convertible notes (Note 15b2iii): Conversion to 70,049,966

272,857,966 and 118,628,250 shares at P1 per share by certain secondary note holders in December 2013, 2012 and 2011, respectively 70,050 272,858 118,628

Issued shares 2,367,535 2,297,485 2,024,627 Treasury shares (Note 16f) (11) (11) (11)

Outstanding shares P2,367,524 P2,297,474 P2,024,616

Except for the conversion of certain convertible notes to common shares as disclosed above, there was no other movement on capital stock for the years ended August 31, 2014, 2013 and 2012. The conversion of certain convertible notes to common stock is provided for in the DRA.

c. Recapitalization and Quasi-reorganization The SEC approved the following recapitalization programs: 1. The authorized capital stock was reduced initially from P2.7 billion consisting of

270 million shares with par value of P10 per share to P495,957,670 consisting of 170,432,189 shares with par value of P2.91 per share (see Note 2.1.i).

2. The reduction in par value likewise resulted in the reduction of the subscribed

capital stock from P1,704,321,890 consisting of 170,432,189 shares with a par value of P10 per share to P495,957,670 consisting of 170,432,189 shares with a par value of P2.91 per share. The par value of the capital stock was then further reduced from P2.91 to P1, simultaneous thereto, the subscribed capital stock was increased from P170,432,189 consisting of 170,432,189 shares at par value of P2.91 per share to P495,957,670 consisting of 495,957,670 shares at par value of P1 per share through a stock split. The resulting reduction surplus of P1,208,364,220 (P1,704,321,890 less P495,957,670) was used to partially wipe out the deficit of the Parent Company.

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3. SEC issued a certificate of filing of certificate of increase in capital stock dated

October 2, 2002 approving the Parent Company’s increase in the authorized capital stock from P495,957,670 consisting of 495,957,670 common shares at par value of P1 per share to P2,563,035,708 consisting of 2,563,035,708 shares of common stock at par value of P1 per share. The increase in the authorized capital stock was a partial implementation by the Parent Company of the ARP’s provision on the increase in authorized capital stock as approved by the SEC on November 29, 2000 (see Note 2.2.i). However, the approval by the SEC on the increase in authorized capital stock was subject to condition that the Parent Company shall submit to the SEC all duly executed deeds of assignment evidencing the creditors’ assignment of a portion of their unpaid loans as payment for the subscription of the increase in the Parent Company’s authorized capital stock. On June 17, 2009, which was within the extended period requested for submission of all the duly executed deeds of assignment, the Parent Company submitted the required documents to the SEC. In an order dated March 26, 2009, the SEC’s Company Registration and Monitoring Department revoked the Parent Company’s certificate of increase in capital stock dated October 2, 2002 due to alleged non-compliance with the conditions provided in the grant of the same. On December 20, 2012, the SEC granted the Parent Company’s petition for lifting the order of revocation.

d. Partial Wipe-out of Deficit On September 2, 2002, the SEC approved the quasi-reorganization of the Parent Company through the application of revaluation increment of P3,195,367,390 to partially wipe out the deficit of P7,823,474,147 as at August 31, 2002. For purpose of dividend declaration, any retained earnings of the Parent Company shall be restricted to the extent of deficit wiped out by the revaluation increment and reduction of the subscribed capital stock.

e. Conversion of Debt into Equity As discussed in Note 15, the unsecured creditors converted proportionately P1.1 billion of their loans into common stock of the Parent Company at a ratio of P1 of debt to P1 of common stock. The said conversion resulted in a change in management control of the Parent Company effective October 9, 2002, whereby the creditor controls 69% of the ownership of the Parent Company while the existing stockholders prior to the conversion was reduced to 31%. Since December of 2010, movement in common stock pertains to the conversion of convertible notes to common stock amounting to P701.54 million (Note 16b).

f. Treasury Stock The Parent Company had an Employees Stock Ownership Plan (ESOP) which was administered by a Board of Administrators appointed by the former Board of Directors of the Group. The ESOP allocated approximately 18 million shares from the Group’s authorized and unissued shares of capital stock. This ESOP gave permanent and regular employees the right to subscribe to a minimum of 100 shares and to a maximum of 5,000 shares at a discounted prevailing market value price. Since August 19, 1998, the implementation of the ESOP has been permanently suspended.

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The treasury shares as at August 31, 2014, 2013 and 2012 represented the ESOP shares withdrawn, decrease in treasury shares due to recapitalization, and investments of the consolidated subsidiaries in the Group, as follows:

2014 2013 2012

ESOP shares withdrawn P54 P54 P54 Decrease in shares held in treasury

due to retirement (4) (4) (4)Decrease in treasury shares due to

recapitalization (39) (39) (39)

P11 P11 P11

The Group’s overall capital management strategy remains unchanged from 2010. The Group is not subject to externally-imposed capital requirements.

17. Non-controlling Interest The Group has a non-controlling interest in VGCCI and VQPC. The details of which are as follows: August 31, 2014 VGCCI VQPC*

Percentage of non-controlling interests 19% 45% Carrying amount of non-controlling interests P16,475 P -

Net income attributable to non-controlling interests P845 P -

Other comprehensive income attributable to non-controlling interests P15,630 P -

* The non-controlling interest in VQPC was charged to the retained earnings attributable to the equity holders of the Parent Company.

The following are the audited condensed financial information of investments in subsidiaries with non-controlling interest (amounts in thousands):

August 31, 2014 August 31, 2013 VGCCI VQPC VGCCI VQPC

Total assets P145,141 P283 P157,976 P3,023 Total liabilities 58,434 18,260 63,458 20,913

Net assets (liabilities) P86,707 (P17,977) P94,518 (P17,890)

Revenue P7,745 P - P8,389 P -

Net loss (P7,816) (P87) (P6,380) (P2,544)Other comprehensive income (loss) - - 42,918 -

(P7,816) (P87) P36,538 (P2,544)

Cash flows provided by (used in) operating activities (P1,257) (P1,047) P1,906 (P2,763)

Cash flows provided by (used in) investing activities - 2,754 (865) 5

Cash flows provided by (used in) financing activities (402) (1,765) (426) 2,570

NET INCREASE (DECREASE) IN CASH (P1,659) (P58) P615 (P188)

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Non-controlling Interest in VQPC from Prior Years As disclosed in Note 1 to the consolidated financial statements, the non-controlling interest was already insufficient to absorb the share in the accumulated losses. Accordingly, all the accumulated losses in the prior years were charged to the retained earnings attributable to the equity holders of the Parent Company.

18. Earnings Per Share a. Basic Earnings Per Share (EPS)

Note 2014 2013 2012

(In Thousands, Except Per Share Data)

Net income attributable to equity holders of the Parent Company P926,046 P719,315 P556,180

Beginning shares of stock outstanding 2,297,485 2,024,627 1,905,999

Weighted average number of shares resulting from the conversion of convertible notes 46,700 181,905 79,085

Deduct Treasury stock 16f (11) (11) (11)

Total weighted average number of shares of stock outstanding after conversion of convertible notes 2,344,174 2,206,521 1,985,073

Basic EPS P0.40 P0.33 P0.28

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b. Diluted EPS

Note 2014 2013 2012 (In Thousands, Except Per Share Data)

Net income attributable to equity holders of the Parent Company P926,046 P719,315 P556,180

Add back interest expense on convertible notes 15b3 230,504 186,136 137,218

Net income after adjustment 1,156,550 905,451 693,398


Add: Assumed issued common shares through conversion of convertible notes 1,228,432 1,798,374 2,019,822

Total weighted average number of shares actually issued and assumed issued through conversion of remaining convertible notes 3,572,606 4,004,895 4,004,895

Diluted EPS P0.32 P0.23 P0.17

As at August 31, 2014, the Parent Company has only convertible notes awaiting conversion amounting to P1.23 billion, while in 2013 and 2012, the Parent Company has outstanding convertible notes, including convertible notes awaiting conversion, amounting to P1.71 billion and P1.98 billion, respectively, which have been considered as dilutive potential common shares for 2014, 2013 and 2012 as their conversion to common shares would decrease the basic EPS from continuing ordinary operations for these years. The convertible notes which have outstanding balance of nil, P1.50 billion and P1.52 billion in 2014, 2013 and 2012, respectively, have been recorded in the books of account in accordance with the terms of the DRA as discussed in Note 15b2.

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19. Operating Segment Data

Operating Segments The Group is organized into the following operating units - sugar milling, food processing, real estate, leasing, distillery operations and entertainment. A detailed description of each segment is set below. Sugar Milling Revenues from sugar milling consist of the following: a. sale of raw sugar and molasses (mill share) b. tolling fees For its raw sugar and molasses operations, the Parent Company operates a raw sugar mill with a daily capacity of 15,000 metric tons. Cane supply is sourced from both district and non-district planters who have milling contracts with VMC. The production sharing agreement is 69.5% for planters and 30.5% for VMC. The Parent Company also operates a refinery plant with a daily capacity of 25,000 Lkg. (1 Lkg = 50 kilograms). To ensure maximum utilization of the refinery, VMC also provides toll refinery services to traders and planters for their raw sugar milled by other sugar centrals. Total sales to external customers to whom the Parent Company made sales equal to or more than 10% of the total reported revenues amounted to P2.9 billion, P2.4 billion and P2.5 billion in 2014, 2013 and 2012, respectively. Food Processing This segment is involved primarily in processing canned sardines and bangus in different variants such as tomato-based and chili-based, among others. In December 2002 and January 2003, this segment introduced the luncheon meat and lechon paksiw product lines, respectively. Moreover, in May 2003, this segment re-operated its slaughterhouse operations which had been closed for years. Real Estate This segment is involved in the development and sale of subdivision and memorial lots. Among its projects are Phases I to III of Canetown Subdivision and the St. Joseph Memorial Garden which are both located in Victorias City. These projects were initially intended to provide for the housing and personal needs of the officers and employees of the Group. In recent years, however, certain lots had also been made available to the general public. Leasing This segment derives income from the lease of certain parcels of land to planters. Distillery Operations The Parent Company’s alcohol distillery division, which resumed operations in November 2011, started commercial operations in March 2013. For its operations, the division operates an alcohol production with an actual daily capacity of 25,000 liters and with molasses as the primary raw material. Molasses is sourced from sugar operations which produces it as a by-product.

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Entertainment This segment derives income from membership fees when billed and when corresponding service is rendered. Segment Revenue and Expense The sugar operations production output is limited to servicing the needs of the domestic market. Its customers consist of sugar traders, sugar centrals, distributors, among others, which are generally situated in various parts of the Philippines, particularly the provinces of Negros Occidental, Iloilo and Metro Manila. Joint revenues and expenses are allocated to the various business segments. All other segment revenues and expenses are directly attributable to the segments. Segment Assets and Liabilities Segment assets include all operating assets used by a segment and consist principally of operating cash, receivables, inventories, prepaid expenses, and property, plant and equipment, net of related allowance and depreciation. The carrying amount of certain assets used jointly by the various segments is allocated to the segments on a reasonable basis. Segment liabilities include all operating liabilities and consist principally of trade payables, accruals, value added tax and other taxes, and customers’ deposits. Segment assets and liabilities do not include deferred income taxes. Inter-segment Transfers Segment revenues, expenses and results include transfers between business segments. Such transfers are accounted for at competitive market prices for similar goods, except for inter-departmental services being performed by the engineering division which are charged at cost. These transfers are eliminated in the consolidation of the accounts.

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2014 (In Millions) Sugar Food Real Distillery Elimination Milling Processing Estate Leasing Operation Entertainment Items Total

REVENUE Sales P4,742 P44 P5 P1 P212 P8 (P2) P5,010 Inter-segment sales - - - - - - - -

Total P4,742 P44 P5 P1 P212 P8 (P2) P5,010

RESULT Segment result P1,794 P - P5 P1 P80 (P8) P1 P1,873 Unallocated corporate expenses (492) (12) (4) (2) (22) (3) - (535)

Operating profit 1,302 (12) 1 (1) 58 (11) 1 1,338 Interest expense (231) - - - - - - (231)Interest income 10 - - - - - - 10 Net curtailment gain - - - - - - - - Net foreign exchange gains - - - - - - - - Gain (loss) on revaluation of

investment properties - - - - - - - - Income tax benefit (expense) (155) 2 (1) 2 - 3 - (149)Miscellaneous (37) 2 1 - (7) - - (41)

Net income (loss) for the year P889 (P8) P1 P1 P51 (P8) P1 P927

OTHER INFORMATION

Segment assets P4,539 P91 P250 P109 P2,443 P145 (P168) P7,409

Segment liabilities P2,451 P55 P125 P23 P105 P58 (P224) P2,593

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2013 (In Millions) Sugar Food Real Distillery Elimination Milling Processing Estate Leasing Operation Items Total

REVENUE Sales P4,319 P33 P5 P1 P57 (P1) P4,414 Inter-segment sales - - - - - - -

Total P4,319 P33 P5 P1 P57 (P1) P4,414

RESULT Segment result P1,516 (P2) P5 P1 P20 (P1) P1,539 Unallocated corporate expenses (882) (7) (4) (1) (12) (2) (908)

Operating profit 634 (9) 1 - 8 (3) 631 Interest expense (292) - (1) - (4) 1 (296)Interest income 37 - - 1 - - 38 Net curtailment gain 20 - - - - - 20 Net foreign exchange gains 8 - - - - - 8 Net loss on sale or retirement of property,

plant and equipment - - - - - - - Gain (loss) on revaluation of investment

properties 421 - 39 (10) 5 - 455Income tax benefit (expense) (377) 2 (12) 3 (5) - (389)Miscellaneous 236 1 - 15 - - 252

Net income (loss) for the year P687 (P6) P27 P9 P4 (P2) P719

OTHER INFORMATION

Segment assets P5,694 P90 P44 P1,464 P10 (P113) P7,189

Segment liabilities P4,271 P47 P121 P25 P - (P85) P4,379

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2012 (In Millions) Sugar Food Real Distillery Elimination Milling Processing Estate Leasing Operation Items Total

REVENUE Sales P4,570 P31 P4 P1 P59 P - P4,665 Inter-segment sales - 63 - - - (63) -

Total P4,570 P94 P4 P1 P59 (P63) P4,665

RESULT Segment result P1,386 P - P - P - P - P - P1,386 Unallocated corporate expenses (228) - - - - - (228)

Operating profit 1,158 - - - - - 1,158Interest expense (367) - - - - - (367)Interest income 76 - - - - - 76 Net curtailment gain - - - - - - - Net foreign exchange gains 2 - - - - - 2 Net loss on sale or retirement of property,

plant and equipment - - - - - - - Gain (loss) on revaluation of investment

properties - - - - - - - Income tax benefit (expense) (283) - - - - - (283)Miscellaneous (30) - - - - - (30)

Net income (loss) for the year P556 P - P - P - P - P - P556

OTHER INFORMATION

Segment assets P8,288 P - P - P - P - P - P8,288

Segment liabilities P6,470 P - P - P - P - P - P6,470

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20. Revenue from Operations This account consists of:

Note 2014 2013 2012

Raw sugar sales 27a P3,157,293 P2,746,646 P3,057,389 Tolling revenues 1,399,690 1,366,154 1,371,477 Molasses 185,025 205,834 127,960 Alcohol sales 212,058 57,149 59,411 Engineering contracts - - 12,259Others 55,748 38,607 35,511

P5,009,814 P4,414,390 P4,664,007

During 2012, the Parent Company ceases the engineering service for external parties and focuses solely on internal operation. This is presented as part of “Engineering contracts” account.

21. Cost of Goods Sold and Services This account consists of:

Note 2014 2013 2012

Cost of hauling P898,856 P902,449 P781,763 Repairs and maintenance 541,538 658,830 472,873Materials and supplies 422,878 343,328 331,788 Depreciation 10 256,203 261,204 255,839 Professional fees and

contracted services 240,267 309,555 293,026 Fuel and transportation 210,431 173,195 229,245 Direct labor 25 81,884 6,658 26,324 Input tax allocable to exempt

sales 81,520 60,508 79,522 Light and water 72,700 63,464 72,244 Taxes and licenses 48,774 50,269 52,573 Rental 27d 7,359 2,379 5,418Raw sugar purchased 330 2,233 - Provision for (recovery of)

write-down of inventory to NRV 8 (20,529) 22,194 3,711

Others 54,470 21,944 19,033

Total cost of goods manufactured 2,896,681 2,878,210 2,623,359

Inventories, beginning of year 421,331 358,689 964,610 Inventories, end of year (259,757) (421,331) (358,689)

P3,058,255 P2,815,568 P3,229,280

Cost of hauling pertains to cane trucking, hauling allowances and other incentives to encourage planters to mill with the Parent Company.

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22. Other Income (Expenses) This account consists of:

2014 2013 2012

Other income P31,000 P818,264 P103,249 Other expense (59,796) (48,631) (50,367)

(P28,796) P769,633 P52,882

Other income consists of the following:

Note 2014 2013 2012

Rental income 11 P13,256 P14,879 P15,990 Interest income 6, 12 11,041 38,546 76,225Gain on sale of property,

plant and equipment 10 624 268 - Gain on sale of inventory 434 - - Gain on extinguishment

of liabilities 13, 14 67 280,143 6,331 Fair value gain on

investment properties 11 - 455,133 - Curtailment gain 25 - 19,731 - Foreign exchange gain - 8,334 1,540 Others 5,578 1,230 3,163

P31,000 P818,264 P103,249

Other expense consists of the following:

Note 2014 2013 2012

Amortization of discount on provisions 14 P39,341 P38,824 P44,606

Bank charges 405 552 334 Foreign exchange loss 379 67 64 Trust fees - 3,993 1,892Loss on retirement and

disposal of property, plant and equipment 10 56 - 93

Others 19,615 5,195 3,378

P59,796 P48,631 P50,367

Others consist mainly of loss from previously unconsolidated subsidiary, guest accommodation expenses and various individually insignificant expenses. Moreover, “others” in 2014 includes casualty loss amounting to P0.73 million due to Typhoon Yolanda which is already netted by the claim from the insurer (see Notes 8 and 10).

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23. Operating Expenses This account consists of the following: Selling Expenses

Note 2014 2013 2012

Freight and handling P20,579 P9,529 P19,388 Taxes and licenses 13,065 13,128 11,198 Rental 27d 12,639 14,414 7,300Materials and supplies 9,986 4,274 4,552 Depreciation 10 7,001 2,837 2,672 Salaries and employee benefits 25 4,935 2,482 1,840 Repairs and maintenance 2,772 4,063 2,826 Others 8,471 8,579 2,944

P79,448 P59,306 P52,720

Others consist mainly of the Parent Company’s insurance expenses, travel and transportation expenses. General and Administrative Expenses

Note 2014 2013 2012

Provisions 14 P207,274 P527,953 P - Professional fees and

contracted services 175,783 135,350 103,608 Travel and transportation 37,413 22,878 22,366 Salaries and employee benefits 25 29,500 17,964 5,742 Taxes and licenses 21,244 16,038 15,008 Depreciation 10 12,055 11,665 16,346 Retrenchment cost 10,100 - - Representation and

entertainment 7,815 7,173 7,748 Repairs and maintenance 5,635 4,836 9,614 Retirement benefits 25c 3,895 6,734 15,281 Supplies 3,772 2,866 2,200 Insurance 2,984 3,705 3,753 Rental 27d 1,528 840 712 Impairment losses 7, 9, 10, 12 230 136,648 10,770 Others 17,235 12,626 15,524

P536,463 P907,276 P228,672

24. Income Taxes The breakdown of income tax expense (benefit) follows:

2014 2013 2012

Recognized in profit or loss Current P305,255 P407,897 P328,889Deferred (155,798) (20,894) (46,328)

P149,457 P387,003 P282,561

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2014 2013 2012

Recognized in other comprehensive income

Deferred P34,402 P55,898 P -

The reconciliation of income tax expense computed at the applicable statutory rates to the tax expense is as follows:

2014 2013 2012

Income before income tax P1,076,348 P1,106,318 P838,741

Tax expense at 30% P322,904 P331,895 P251,622 Effect of non-deductible and non-

taxable items: Realization of previously

unrecognized deferred taxes (173,595) - (2,447) Non-deductible interest expense - 59,583 50,527 Other non-deductible expenses 1,879 6,409 6,121 Increase in unrecognized deferred

taxes 231 504 - Interest income subject to final tax (3,306) (11,388) (23,262)Expired NOLCO and MCIT 1,344 - -

P149,457 P387,003 P282,561

The composition of “Deferred tax liabilities - net” account as reported in the consolidated statements of financial position follows:

2014 2013 2012

Deferred tax liabilities P865,671 P841,886 P735,893 Deferred tax assets (418,380) (273,199) (202,210)

Net deferred tax liabilities P447,291 P568,687 P533,683

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The following are the composition of the recognized deferred taxes of the Group:

August 31, 2014

Balance September 1,

2013

Recognized in Profit or Loss

Recognized in Other

Comprehensive Income

Balance August 31,

2014

Deferred tax liabilities: Net appraisal increase on

property, plant, and equipment P430,751 (P11,467) P35,255 P454,539 Fair value gain on investment

properties 411,132 - - 411,132 Unrealized foreign exchange gain 3 (3) - -

841,886 (11,470) 35,255 865,671

Deferred tax assets: Provisions 252,582 73,985 - 326,567 Accrued expense - 72,838 - 72,838 Retirement benefit obligation 2,697 535 853 4,085 Unrealized foreign exchange loss - 10 - 10 Allowance for impairment losses

on receivables, allowance to reduce materials and supplies to NRV and impairment losses on investments in subsidiaries 13,624 (5,367) - 8,257

NOLCO 4,119 2,100 - 6,219 MCIT 177 227 - 404

273,199 144,328 853 418,380

P568,687 (P155,798) P34,402 P447,291

August 31, 2013

Balance September 1,

2012

Recognized in Profit or Loss

Recognized in Other


Balance August 31,

2013

Deferred tax liabilities: Net appraisal increase on

property, plant, and equipment P437,040 (P62,187) P55,898 P430,751 Fair value gain on investment

properties 274,915 136,217 - 411,132 Unrealized foreign exchange gain 23,938 (23,935) - 3

735,893 50,095 55,898 841,886

Deferred tax assets: Provisions 166,302 86,280 - 252,582 Retirement benefit obligation 26,633 (23,936) - 2,697 Unrealized foreign exchange loss - - - - Allowance for impairment losses

on receivables, allowance to reduce materials and supplies to NRV and impairment losses on investments in subsidiaries 6,813 6,811 - 13,624

NOLCO 2,285 1,834 - 4,119 MCIT 177 - - 177

202,210 70,989 - 273,199

P533,683 (P20,894) P55,898 P568,687

The Group expects that it will have sufficient taxable profits for which it can use the subsequent benefits of the deferred tax assets related to the provisions, retirement benefits obligation and allowances for impairment losses on receivables, allowance to reduce materials and supplies to NRV and impairment losses on investments, which are expected to reverse in the foreseeable future.

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The unrecognized deferred tax assets as at August 31 are attributable to the following deductible temporary differences:

2014 2013 2012

Allowance for impairment losses on receivables and allowance to reduce materials and supplies to NRV P16,617 P27,350 P17,267

NOLCO 2,645 1,737 3,663 MCIT 251 292 252 Accrued interest on convertible notes - 1,040,305 973,605

P19,513 P1,069,684 P994,787

Previously, the Group did not recognize deferred tax on accrued interest on convertible notes as it was expected before that the convertible notes and related accrued interest will be converted to equity. In 2014, following redemption and payment of the convertible notes and the related accrued interest, the Group realized the previously unrecognized deferred tax on accrued interest. Details of NOLCO are as follows:

Year Incurred

Expiry Date

At August 31, 2013 Addition

Expiration/ Application

At August 31, 2014

2011 2014 P4,343 P - (P4,343) P - 2012 2015 4,373 - - 4,373 2013 2016 6,750 - - 6,750 2014 2017 - 12,252 - 12,252

P15,466 P12,252 (P4,343) P23,375

Details of MCIT are as follows:

Year Incurred

Expiry Date

At August 31, 2012 Addition Expiration

At August 31, 2013

2011 2014 P187 P - (P187) P - 2012 2015 155 - - 155 2013 2016 127 - - 127 2014 2017 - 378 - 378

P469 P378 (P187) P660

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25. Personnel Costs and Expenses a. Composition of Personnel Costs and Expenses

The following are the details of the personnel costs and expenses and the distribution:

Note 2014 2013 2012

Cost of Goods Sold and Services

Direct labor 21 P81,884 P6,658 P26,324Selling Expenses Salaries and employee

benefits 23 4,935 2,482 1,840 General and

Administrative Expenses 23 Salaries and employee

benefits 29,500 17,964 5,742 Retirement benefits 23, 25c 3,895 6,734 15,281

P120,214 P33,838 P49,187

b. Voluntary Attrition Program

In 2010, the Parent Company implemented a voluntary attrition program (VAP) affecting all of its employees. As a result of the VAP, the Parent Company outsources its production, finance and administration, except for certain number of key personnel which are retained by the Parent Company as regular employees.

c. Retirement Benefits The Parent Company has an unfunded, non-contributory defined benefit plan covering all of its permanent employees. Contributions and costs are determined in accordance with the actuarial studies made for the plan. Annual cost is determined using the projected unit credit method. The Company’s latest actuarial valuation date is August 31, 2014. Valuations are obtained on a periodic basis. The pension benefit under the Miguel J. Ossorio Pension Foundation, Inc (MJO Pension Plan) was based on the basic monthly salary plus additional components which comprised the employee-member’s total gross earnings for purposes of benefit computation. Pension benefits are paid monthly over the lifetime of the Pensioner. For the active employees, the Parent Company does not have an established retirement plan and only conforms to the minimum regulatory benefit under the Retirement Pay Law (Republic Act. No. 7641) which is of the defined benefit type and provides a retirement benefit equal to 22.5 days pay for every year of credited services. The regulatory benefit is paid in a lump sum upon retirement. The benefits are 75.30% of the monthly basic pay multiplies to the number of credited year of service.

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The Group’s reconciliation of the retirement benefits obligation shown in the consolidated statements of financial position is as follows:

2014 2013 2012

Balance at beginning of the year P8,991 P88,781 P95,988

Included in Profit or Loss Current service cost 3,429 231 195 Interest cost 466 6,503 6,800 Curtailment (gain) loss - (19,731) 8,286

3,895 (12,997) 15,281

Included in Other Comprehensive Income

Remeasurement losses (gains) due to: Changes in financial assumptions 25,149 - - Changes in demographic

assumptions - - - Experience (22,309) - -

2,840 - -

Other Benefits paid (2,108) (66,793) (22,488)

Balance at end of the year P13,618 P8,991 P88,781

The remaining retirement benefits obligation pertains to the retirement payable to retired employees who did not opt for the lump sum payment of retirement benefits at the time of their retirement. The amounts recognized in consolidated statements of comprehensive income in respect of this defined benefit plan are presented as follows:

Note 2014 2013 2012

General and administrative expenses: Retirement benefits 23 P3,895 P6,734 P15,281

Other income: Curtailment gain 22 - (19,731) -

P3,895 (P12,997) P15,281

The Group is not expected to contribute to the fund in 2015. The key assumptions used in determining the Group’s retirement benefits expense and liability follow:

Valuation at 2014 2013 2012

Discount rate 4.05% 3.61% 6.92% Assumption regarding the mortality is based on the 1994 Group Annuity Mortality Table - Generational (Scale AA, Society of Actuaries). The weighted-average duration of the defined benefit obligation is 10.8 years, 12.8 years and 14.7 years as at August 31, 2014, 2013 and 2012.

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Maturity analysis of the benefit payments is as follows:

2014

Carrying Amount

Contractual Cash Flows

Within1 Year

Within 1 - 5 Years

Within 5 - 10Years

Retirement liability P13,618 P47,172 P1,194 P13,094 P32,884

Sensitivity Analysis Reasonable possible changes at the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant, would have affected the defined benefit obligation by the amounts shown below.

Retirement Liability 2014 Increase Decrease

Discount rate (1% movement) (P845) P978 Expected rate of salary increases (1% movement) 397 (350)

Although the analysis does not take account of the full distribution of cash flows expected under the plan, it does provide an approximation of the sensitivity of the assumption shown. Should there be no attrition rate, the Group’s retirement liability is expected to increase in the amount of P0.21 million in 2014. There are no unusual or significant risks to which the Pension Plan and Retirement Obligation expose the Group. However, in the absence of any Plan Assets, it should be noted that benefit claims under the Pension Plan require monthly payments from the Group for as long as there are Pensioners. On the other hand, in the event of a benefit claim under the Retirement Obligation, the full regulatory benefit shall immediately be due and payable from the Group. Asset-liability Matching Since the plan is still unfunded, there are no plan assets to match against the plan liabilities. Funding Policy Benefit claims are paid directly by the Group when they become due. Hence, there is no expected contribution to the defined benefit retirement plan in 2015.

26. Related Party Transactions Identity of Related Parties The Group’s related parties include its unconsolidated subsidiary (VGCCI), associate (VIGASCO), key management personnel and non-controlling stockholder of VQPC.

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Significant Transactions with Related Parties

Outstanding Balance

Category/ Transaction Year Note

Amount of the Transaction

Other Current Assets

(Note 9) Payables Terms and Conditions

VGCCI Advances 2014 a P25,292 P - P - Noninterest-bearing; unsecured

2013 a 430 25,292 - have no definite maturities; no

impairment 2012 a 476 25,722 -

Stockholder Advances 2014 c - - 6,000 Noninterest-bearing; unsecured

2013 c - - 6,000 have no definite maturities 2012 c - - 6,000

Key Management 2014 b 14,973 - - Personnel 2013 b 56,999 - - 2012 b 34,539 - -

TOTAL 2014 P - P6,000

TOTAL 2013 P25,292 P6,000

TOTAL 2012 P25,722 P6,000

a. The Group makes cash advances to VGCCI for the development of VGCCI’s golf

course. Movements in this account pertain to repayments from and additional advances to VGCCI. The outstanding advances are noninterest-bearing, unsecured and have no definite maturities.

b. Remuneration of Key Management Personnel The remuneration of key management personnel of the Group is set out below in aggregate for each of the categories specified in PAS 24, Related Party Disclosures.

c. Due to a Stockholder Due to a stockholder amounting to P6.0 million as at August 31, 2014, 2013 and 2012, pertains to VQPC advances from its non-controlling stockholder for additional working capital. This is unsecured and will be settled in cash and has no definite payment terms. No guarantee has been given or received. The Management of the Group considers that the carrying amount of the “Due to a stockholder” account approximates its fair value as it represents the expected cash flow should it be settled at the reporting date.

27. Agreements and Commitments The significant agreements at August 31, 2014, 2013 and 2012 were as follows: a. Milling contracts with various planters provide for a 69.5% share to the planters

(including related parties) and 30.5% share to the Parent Company of sugar and molasses produced from sugar canes milled. The milling contracts are renewed annually. Raw sugar sales as at August 31, 2014, 2013 and 2012 amounted to P3.16 billion, P2.75 billion and P3.06 billion, respectively (see Note 20).

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b. As at August 31, 2014, 2013 and 2012, the Parent Company had in its custody sugar owned by several quedan holders and sugar traders of approximately 0.40 million Lkg, 0.60 million Lkg and 0.60 million Lkg, respectively. The estimated market values of these sugar inventories amounted to P0.84 billion, P1.14 billion and P1.31 billion, respectively. These sugar inventories are not reflected in the consolidated statements of financial position since these are not assets of the Parent Company. The Parent Company is accountable to both quedan holders and sugar traders for the value of these trusteed sugar or their sales proceeds.

c. In 1993, the Parent Company has entered into a deed of assignment and exchange of

shares of stock with VGCCI for the latter to issue shares of stock with a total par value of P224 thousand in exchange for the Parent Company’s land with an appraised value of P13,205,970, the difference of P12,981,970 to be accounted for as additional paid-in capital of the Parent Company to VGCCI. As provided for in the agreement, VGCCI is in possession of the above-mentioned land without any consideration yet until such time that the assignment of the aforementioned land is completed. As at August 31, 2014, the certificate of title has not yet been transferred in the name of VGCCI since the land to be transferred is covered by the MTI of the Parent Company with various creditor banks as disclosed in Note 15. Hence, the transaction is on hold until the subject land is released as collateral.

d. The Group leases for an office space for one of its subsidiaries and for certain machineries and equipment from third parties for terms of one year, subject to yearly renewal. Total rent expense is charged to the following:

Note 2014 2013 2012

Cost of goods sold and services 21 P7,359 P2,379 P5,418

Selling expenses 23 12,639 14,414 7,300 General and

administrative expenses 23 1,528 840 712

P21,526 P17,633 P13,430

28. Provisions and Contingencies The Group’s legal proceedings discussed below are not disclosed in detail so as not to seriously prejudice the Group’s position on the said disputes. a. RSDOs and RSQs Claims

NONEMARCO used RSDOs and RSQs allegedly issued by the Parent Company to avail of bank loans totaling to about P630 million. Several creditor banks filed collection cases against NONEMARCO aggregating to P1.19 billion. The Parent Company denied liability as these RSDOs and RSQs claims lacked any factual or legal basis and that the officers who issued them acted fraudulently. The SEC, in its order dated March 26, 2013, ordered the dismissal and exclusion from the rehabilitation proceedings the “Claim” (dated October 9, 1998) and “Amended Claim” (dated September 23, 1999) of a claimant-bank.

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b. Labor, Civil and Other Cases There are various lawsuits and claims such as labor cases, collection disputes and assessments filed by third parties against VMC which are either pending decision by the proper judicial bodies or under negotiation, the outcome of which are presently undeterminable. Relative to this, VMC is required to put up cash surety bonds (see Note 12).

c. Proceeding with Pollution Adjudication Board (PAB) On September 22, 2003, the Parent Company received an order issued by the PAB directing the former to permanently seal the opening of the underground canal leading to Malihao river; provide protective lining in the pond immediately; and show cause within five (5) days from receipt of order why a cease and desist order should not be imposed on the Parent Company by the DENR for non-compliance with both water and air standards. The Management of the Parent Company has placed the handling of pollution problems on its priority list and is now addressing it to comply with the applicable environmental compliance requirements. The Parent Company submitted a number of pleadings to the PAB in order to avert a re-imposition of the Cease and Desist Order on which PAB issued temporary lifting order (TLO). As at August 31, 2014, the Parent Company was issued by PAB with a one-year TLO dated May 20, 2014 and is effective until May 20, 2015. As at August 31, 2014, the Parent Company acquired or constructed and installed certain air and water pollution control devices to comply with the order of the Department of Environment and Natural Resources (DENR) accumulating to P349.28 million. Moreover, the Parent Company is committed for acquisition or construction and installation of more similar pollution control devices amounting to P40 million as at August 31, 2014 (see Note 10).

The Group’s management and legal counsels have made judgment that, while the legal proceedings briefly discussed above are legally defensible, they cannot anticipate with certainty the progress and the outcome of the legal proceedings, the appreciation of the available evidences by the relevant courts or tribunal involved and the evolution of jurisprudence or similar cases that will be decided by the highest court, which will be relevant to pending cases. With due consideration of prior decision involving similar cases and for prudent financial reporting, the Group recognized provisions (see Note 14). The other information normally required to be disclosed under PAS 37 is not disclosed by management so as not to seriously prejudice the Group’s position on the said disputes.

29. Events After Reporting Date The following are the events after reporting date: a. Events related to redemption of the remaining convertible notes

On September 26, 2014, the checks payable for EWB’s convertible notes amounting to P366.13 million, which were refused and returned by EWB, were consigned to SEC-appointed rehabilitation receiver for custodianship (see Notes 13 and 15).

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Subsequently, EWB, in a letter dated October 14, 2014, gave VMC a notice that it is exercising its option to convert its convertible notes in accordance with Section 16 (h) of the DRA. VMC, in return, informed EWB, in a letter dated October 15, 2014, that there are no more outstanding convertible notes in VMC’s records and that the said convertibles note had been paid/redeemed already and that the checks issued by VMC for the payment have been consigned with the SEC-appointed rehabilitation receiver in view of EWB’s refusal to accept the same. Subsequently, on November 11, 2014, EWB filed a motion dated November 5, 2014 with the SEC asking SEC to compel VMC to allow EWB to exercise its option for the conversion of the unconverted convertible notes. In response to the order of the SEC dated November 13, 2014, VMC and the SEC-appointed rehabilitation receiver filed their comments on the motion to the SEC on December 9 and December 2, 2014, respectively. The SEC-appointed rehabilitation receiver’s comments submitted to the SEC include a recommendation for the denial of the motion filed by EWB. To date, the SEC has yet to act on the motion filed by EWB.

b. Events related to capitalization and compliance with DRA

On September 26, 2014, to comply with the provisions of the DRA, BOD approved the issuance of 272,857,968 shares in compliance with the mandatory conversion into equity of the convertible notes amounting to P272,857,968. In order to effect the foregoing: 195,500,794 shares were issued out of VMC’s unissued capital stock on

October 13, 2014; and, The balance of 77,357,174 shares will be issued out of and in support of an

increase in VMC’s authorized capital stock from 2,563,035,708 to 2,640,392,882. The application for the increase in VMC’s authorized capital stock was filed with the SEC on December 5, 2014.

On November 20, 2014 and December 5, 2014, the filing of a listing application with the PSE was made covering the 195,500,794 shares and 77,357,174 shares, respectively.

30. Risk Management, Objectives and Policies Regulatory Risk The Group is subject to laws and regulations in the Philippines in which it operates. The Group has established policies and procedures in compliance with local and other laws. Management performs regular reviews to identify compliance risks and to ensure that the systems in place are adequate to manage those risks.

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In 1992, the ASEAN economic ministers signed the ASEAN Free Trade Agreement (AFTA) on the Common Effective Preferential Tariffs (CEPT) for the ASEAN Free Trade Area. The AFTA committed the ASEAN member-states to set-up a free trade area in the region, reducing most tariffs on trade within the region. Sugar is one of the products affected by the gradual tariff reduction as follows:

Year Tariff Rate

2012 28% 2013 18% 2014 10% 2015 5%

Relative to AFTA, on June 17, 2012, the Philippine government passed Executive Order No. 892 adopting the above-yearly gradual reduction of duty on imported sugar in compliance with the AFTA. Financial Risk Management The Group’s financial instruments comprise of cash and cash equivalents, trade and other current receivables, advance to and from an unconsolidated subsidiary, other noncurrent assets, trade and other current payables, long-term debt and due to a stockholder. The main purpose of these financial instruments is to raise finances for the Group’s operations. The Group has exposure to the following risks from its use of financial instruments: Credit Risk Liquidity Risk Market Risk

The BOD of the Parent Company has overall responsibility for the establishment and oversight of the Group’s risk management framework. Moreover, market and credit risk management is carried out by the Group’s Treasury Group. The objective is to minimize potential adverse effects on its financial performance due to unpredictability of financial markets. Credit Risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group trades only with recognized and creditworthy third parties. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis. The amounts presented in the consolidated statements of financial position are net of allowances for impairment losses on receivables, estimated by the Group’s management based on prior experience and their assessment of the prevailing economic environment at any given time.

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As at August 31, 2014, 2013 and 2012, the aging profile of the Group’s financial assets is as follows:

Neither Past

Due nor Past Due but not Impaired Past Due

and August 31, 2014 Total Impaired < 30 Days 31-60 Days 61-90 Days > 90 Days Impaired

Trade and other current receivables* P130,764 P110,373 P - P - P - P - P20,391

Other noncurrent assets** 37,815 23,695 - - - - 14,120

P168,579 P134,068 P - P - P - P - P34,511

*Excluding advances to suppliers **Excluding land under dispute

Neither Past



Trade and other current receivables* P460,409 P441,312 P - P - P - P - P19,097

Advances to unconsolidated subsidiary 25,292 25,292 - - - - -


P541,303 P508,086 P - P - P - P - P33,217

*Excluding advances to suppliers **Excluding land under dispute

Neither Past Past Due but not Impaired Past Due

August 31, 2012 Total Due nor

Impaired < 30 Days 31-60 Days 61-90 Days > 90 Days and

Impaired

Trade and other current receivables* P144,136 P117,590 P3,363 P560 P140 P4,094 P18,389

Advances to unconsolidated subsidiary 25,722 25,722 - - - - -

Other noncurrent assets 1,826,281 1,812,661 - - - - 13,620

P1,996,139 P1,955,973 P3,363 P560 P140 P4,094 P32,009

*Excluding advances to suppliers At the reporting date, there were no significant concentrations of credit risk as the Group’s receivables are actively monitored. The credit quality of the Group’s financial assets that are neither past due nor impaired is considered to be of good quality and expected to be collectible without incurring any credit losses. Information on the Group’s trade and other current receivables and other noncurrent assets that are impaired as at August 31, 2014, 2013 and 2012 and the movement of the allowance used to record the impairment losses are disclosed in Notes 7 and 12 to the consolidated financial statements.

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As at August 31, 2014, 2013 and 2012, the Group’s maximum credit exposure is equal to the carrying value of the following financial assets:

Note 2014 2013 2012

Cash and cash equivalents1 6 P1,039,457 P862,098 P1,086,492Trade and other current

receivables - net2 7 110,373 441,312 125,747 Advances to an unconsolidated

subsidiary3 26a - 25,292 25,722 Other noncurrent assets4 12 23,694 41,482 1,812,661

P1,173,524 P1,370,184 P3,050,622 1 Excluding cash on hand 2 Excluding advances to suppliers and net of impairment loss 3 Net of impairment loss 4 Excluding land under dispute and net of impairment loss

Liquidity Risk Liquidity risk is the risk of not meeting obligations as they become due because of an inability to liquidate assets or obtain adequate funding. The Group monitors and maintains a level of cash deemed adequate by the management to finance the Parent Company’s operations and mitigate the effects of fluctuations in cash flows. The following tables summarize the maturity profile of the Group’s financial liabilities as at August 31, 2014, 2013 and 2012 based on contractual undiscounted payments:

Total

Carrying Contractual Undiscounted Payments August 31, 2014 Value Total On Demand < 1 Year 1 to 5 Years > 5 Years

Trade and other current payables* P948,908 P948,908 P923,314 P25,594 P - P -

Due to a stockholder 6,000 6,000 6,000 - - -

P954,908 P954,908 P929,314 P25,594 P - P -

* Excluding payables to government

Total



Long-term debt 2,544,633 2,775,137 - - - 2,775,137 Due to a stockholder 6,000 6,000 6,000 - - -

P2,865,542 P3,096,046 P280,123 P40,786 P - P2,775,137


Total



Long-term debt 4,826,907 5,352,966 - 654,389 1,435,336 3,263,241 Due to a stockholder 6,000 6,000 6,000 - - -

P5,174,752 P5,700,811 P320,211 P682,023 P1,435,336 P3,263,241


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Market Risk Market risk is the risk that the fair value or cash flows of a financial instrument of the Group will fluctuate due to change in market prices. Market risk reflects interest rate risk, currency risk and other price risks. The Group’s market risk exposures and its risk management strategies as of August 31, 2014, 2013 and 2012 are as follows: a. Interest Rate Risk

Interest rate risk is the possibility that changes in interest rates will affect future cash flows or the fair values of financial instruments. The Group’s exposure to the risk changes in market interest rates relates primarily to the Group’s interest-bearing bank loans and interest-bearing short-term placements. The Group minimizes its spread exposure by ensuring that surplus cash is available to either offset debt or by matching maturity dates of assets and liabilities. By these management approaches, possible market rate fluctuations would have no significant impact on the Group’s net income. The Group, however, has no significant interest rate risk considering that the Group has no significant financial instruments that bear fixed and variable interest rate as at August 31, 2014, 2013 and 2012.

b. Price Risk The Group is exposed to commodity price risk with respect to sugar produced. To manage this risk, the Parent Company monitors prices with the Sugar Regulatory Administration (SRA) to plan its transactions. As at August 31, 2014, 2013 and 2012, management assessed that the Group’s exposures to commodity price risk were insignificant. Sensitivity Analysis The following table demonstrates the sensitivity of the results of operations and the reported equity in regards to the Parent Company’s sugar inventory and SRA’s sugar prices. It assumes a 21%, 13% and 15% increase as at August 31, 2014, 2013 and 2012, respectively and a 9%, 16% and 8% decrease as at August 31, 2014, 2013 and 2012, respectively, of the SRA sugar prices per year. These percentages have been determined based on average market volatility in sugar prices in the previous year for the twelve month ending August 31, 2014, 2013 and 2012, respectively. The sensitivity analysis includes only sugar inventory denominated monetary items and adjusts their translation at the period end for the following % change in sugar prices.

August 31, 2014 +21% -9%

Net income P5,701 (P2,537)Equity 5,701 (2,537)

August 31, 2013 +13% -16%


August 31, 2012 +15% -8%


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c. Foreign Currency Risk The Group’s currency risk occurs because of its US dollar (USD) denominated loans and bank deposits. The financial assets and liabilities of the Group that are foreign currency denominated are a portion of the Group’s cash and cash equivalents and portion of its bank loans. The Group’s exposures to foreign currency risk based on notional amounts are as follows:

August 31, 2014 In USD In PHP

Financial Assets Cash in bank $38 P1,659Financial Liability Bank loans - -

Net Foreign Currency Exposure $38 P1,659


Financial Assets Cash in bank $43 P2,003

Financial Liability Bank loans - -

Net Foreign Currency Exposure $43 P2,003


Financial Assets Cash in bank $4 P162

Financial Liability Bank loans (7,834) (331,514)

Net Foreign Currency Exposure ($7,830) (P331,352)

The Group recognized a net unrealized loss of P0.03 million and P79.79 million and P10.54 million for the years ended August 31, 2014, 2013 and 2012, respectively, arising from the re-measurement of these foreign currency-denominated financial instruments.

The following exchange rates were applied during the period:

August 31, 2014

Average Rate Reporting Date

Spot Rate

Philippine peso to 1 US $ P44.08 P43.65

August 31, 2013


Spot Rate


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August 31, 2012


Spot Rate


Sensitivity Analysis The following table demonstrates the sensitivity of the results of operations for the periods and the reported equity in regards to the Group’s financial assets and financial liabilities and the US dollar-Philippine peso exchange rate. It assumes a 1.93%, 5.30% and 1.74% strengthening as at August 31, 2014, 2013 and 2012, respectively and 2.03%, 2.36% and 2.32% weakening as at August 31, 2014, 2013 and 2012, respectively, of the Philippine peso against the US dollar exchange rate. These percentages have been determined based on average market volatility in exchange rates in the previous months for the twelve month periods ended August 31, 2014, 2013 and 2012, respectively. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for the following % change in foreign currency rates.

August 31, 2014 +1.93% -2.03%

Net income (P32) P33Equity (32) 33

August 31, 2013 +5.3% -2.36%

Net income (P106) P47Equity (106) 47

August 31, 2012 +1.74% -2.32%


Exposures to foreign exchange rates vary during the year depending on the volume of foreign currency-denominated transactions. Nonetheless, the analysis above is considered to be representative of the Group’s currency risk. Fair Value of Financial Assets and Liabilities The carrying values of cash and cash equivalents, trade and other current receivables and trade and other current payables approximate their fair values due to the short-term maturity of these instruments. The carrying value of long-term debt approximates its fair value and is calculated by discounting the expected future cash outflows at prevailing effective interest rate. The carrying values of advances to and from an unconsolidated subsidiary and due to stockholder approximate their fair values because they represent the expected cash flow should they be settled or realized at the reporting date.

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31. Change in Accounting Policy As a result of the adoption of PAS 19 (Amended 2011), the Group has changed its accounting policy with respect to the elimination of the “corridor method” under which the recognition of actuarial gains and losses could be deferred. Instead, all actuarial gains and losses are recognized immediately in other comprehensive income. Furthermore, the Group determines the net interest expense or income on the net defined benefit liability or asset for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then net defined benefit liability or asset, taking into account any changes in the net defined benefit liability or asset during the period as a result of contributions and benefit payments. Consequently, the net interest on the net defined benefit liability or asset now comprises: interest cost on the defined benefit obligation, interest income on plan assets, and interest on the effect on the asset ceiling. Previously, the Group determined interest income on plan assets based on their long-term rate of expected return. The impact of the above changes on the Group’s financial position and comprehensive income as at and for the year ended August 31, 2014 is as follows (in thousands):

Increase

(Decrease)

Statement of Financial Position Deferred tax liabilities - net (P852)Retirement benefit obligation 2,840Retained earnings - Retirement benefit reserves (1,988)

Increase

(Decrease)

Statement of Comprehensive Income General and administrative expense P - Income tax expense -

Decrease in net income -

Remeasurement losses on defined benefit plan (2,840)Provision on deferred tax relating to actuarial loss on defined benefit

plan 852

Decrease in OCI, net of tax (1,988)

Overall impact on total comprehensive income (P1,988)

Statement of Cash Flows Income before income tax P - Retirement benefits expense -

COVER SHEET P W 0 0 0 0 0 3 6 4 S.E.C. Registration Number

V I C T O R I A S M I L L I N G

C O M P A N Y , I N C .

(Company's Full Name)

V I C M I C O C o m p o u n d , V i c t o r i a s

C i t y , N e g r o s O c c i d e n t a l

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

Teresita V. Ilagan (034) 399 3373 Contact Person Company Telephone Number

0 8 3 1 A F S 1 4 1st Tuesday of February

Month Day FORM TYPE Month Day

Annual Meeting

Secondary License Type, If Applicable

I E O 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 I.D. Cashier

S T A M P S

Remarks = pls. use black ink for scanning purposes.

VICTORIAS MILLING COMPANY, INC.

SEPARATE FINANCIAL STATEMENTS August 31, 2014, 2013 and 2012

ABCD R.G. Manabat & Co. Telephone +63 (2) 885 7000 The KPMG Center, 9/F Fax +63 (2) 894 1985 6787 Ayala Avenue Internet www.kpmg.com.ph Makati City 1226, Metro Manila, Philippines E-Mail [email protected] Branches: Subic · Cebu · Bacolod · Iloilo

© 2014 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

PRC-BOA Registration No. 0003, valid until December 31, 2016 SEC Accreditation No. 0004-FR-4, Group A, valid until November 10, 2017 IC Accreditation No. F-2014/014-R, valid until August 26, 2017 BSP Accredited, Category A, valid until December 17, 2014

REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders Victorias Milling Company, Inc. Report on the Financial Statements We have audited the accompanying separate financial statements of Victorias Milling Company, Inc. (the “Company”), which comprise the separate statements of financial position as at August 31, 2014, 2013 and 2012, and separate statements of comprehensive income, separate statements of changes in equity, and separate statements of cash flows for the years then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. Management’s Responsibility for the Separate Financial Statements Management is responsible for the preparation and fair presentation of these separate financial statements in accordance with Philippine Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of separate 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 separate 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 separate financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the separate financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the separate financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the separate financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the separate financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

ABCD

Opinion In our opinion, the separate financial statements present fairly, in all material respects, the unconsolidated financial position of Victorias Milling Company, Inc. as at August 31, 2014, 2013 and 2012, and its unconsolidated financial performance, and its unconsolidated cash flows for the years then ended in accordance with Philippine Financial Reporting Standards. Emphasis of Matter Without qualifying our opinion, we draw attention to Notes 1, 2, 16 and 17 to the separate financial statements which state that the Company is still under rehabilitation and debt restructuring programs. This condition indicates an uncertainty that may cast doubt on the Company’s ability to continue as a going concern. Although the Company has been in compliance with the debt restructuring program, its continued compliance is ultimately dependent on the sustainability of the Company’s profitable operations. The 15-year rehabilitation program that took effect on September 1, 2003 includes a Debt Restructuring Agreement (DRA) as its key element under which the Company should be able to pay and/or convert to equity all its debts through the following relevant features of the DRA as disclosed in Note 16b: (1) Conversion of P1.1 billion loans into equity; (2) Conversion of P2.4 billion loans into convertible notes; and, (3) Restructuring of the remaining balance of the loans. As of August 31, 2014, the Company paid already all its restructured debts and redeemed all of its convertible notes except those subject to mandatory conversion amounting to P677.5 million. Report on the Supplementary Information Required Under Revenue Regulations (RR) No. 19-2011 and RR No. 15-2010 of the Bureau of Internal Revenue Our audits were conducted for the purpose of forming an opinion on the separate financial statements taken as a whole. The supplementary information in Note 32 to the separate financial statements is presented for purposes of filing with the Bureau of Internal Revenue and is not a required part of the separate financial statements. Such supplementary information is the responsibility of management. The supplementary information has been subjected to the auditing procedures applied in our audit of the separate financial statements. In our opinion, the supplementary information is fairly stated, in all material respects, in relation to the separate financial statements taken as a whole. December 15, 2014 Makati City, Metro Manila

ABCD R.G. Manabat & Co. Telephone +63 (2) 885 7000 The KPMG Center, 9/F Fax +63 (2) 894 1985 6787 Ayala Avenue Internet www.kpmg.com.ph Makati City 1226, Metro Manila, Philippines E-Mail [email protected] Branches: Subic · Cebu · Bacolod · Iloilo

© 2014 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

PRC-BOA Registration No. 0003, valid until December 31, 2016 SEC Accreditation No. 0004-FR-4, Group A, valid until November 10, 2017 IC Accreditation No. F-2014/014-R, valid until August 26, 2017 BSP Accredited, Category A, valid until December 17, 2014

REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders Victorias Milling Company, Inc. VICMICO Compound, Victorias City Negros Occidental, Philippines Report on the Financial Statements We have audited the accompanying separate financial statements of Victorias Milling Company, Inc. (the “Company”), which comprise the separate statements of financial position as at August 31, 2014, 2013 and 2012, and separate statements of comprehensive income, separate statements of changes in equity, and separate statements of cash flows for the years then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. Management’s Responsibility for the Separate Financial Statements Management is responsible for the preparation and fair presentation of these separate financial statements in accordance with Philippine Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of separate 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 separate 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 separate financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the separate financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the separate financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the separate financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the separate financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

VICTORIAS MILLING COMPANY, INC. NOTES TO THE SEPARATE FINANCIAL STATEMENTS

(Amounts in Thousands, Except When Otherwise Stated) 1. Reporting Entity and Status of Operations

Reporting Entity Victorias Milling Company, Inc. (hereinafter referred to as the “Company” or “VMC”) was organized and registered originally on May 7, 1919 with the Philippine Securities and Exchange Commission (SEC) with an original corporate life of 50 years or until May 7, 1969. The corporate life was extended for an additional period of 50 years or until May 7, 2019. The primary purpose of the Company is to operate mill and refinery facilities for sugar and allied products, as well as engineering services. On July 3, 2013, the SEC approved the Company’s amended articles of incorporation to include, as among its business purposes, the ethanol and/or potable alcohol production, infrastructure, transportation, telecommunication, mining, water, power generation, recreation, and financial or credit consultancy. It has also investments in the shares of stock of the following domestic subsidiaries and associate (see Note 10):

Nature of Business

Percentage of Effective Ownership

Direct Indirect

Victorias Foods Corporation (VFC) Food Processing and Canning 100 -


Agricultural Land Leasing and Cultivation 100 -


Real Estate Development and Selling 88 12

Victorias Golf and Country Club, Inc. (VGCCI) Non-profit Golf Facilities 81 -

Victorias Quality Packaging Company, Inc. (VQPC)

Manufacture of Bags and Packaging Materials 55 -

Victorias Industrial Gases Corporation (VIGASCO) Gas Dealership 30 -

The Company’s percentages of ownership for the above subsidiaries and associate are the same as at August 31, 2014, 2013 and 2012. In June 2012, the Board of Directors (BOD) of VQPC approved to cease VQPC’s operations effective July 2012. As at August 31, 2014, VQPC is undergoing dissolution process as approved by its BOD and stockholders. The Company’s shares of stock are listed in the Philippine Stock Exchange (PSE) but the trading of its shares was temporarily suspended in 1997 on the ground of alleged fraudulent misrepresentation of material information in the financial statements as well as in the continuing disclosures of the Company. The Company is currently under SEC receivership. In 2012, the SEC and the PSE lifted the order of suspension of the trading of the Company’s shares. Consequently, on May 21, 2012, trading resumed.

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In August 1999, SGS Yarsley International Certification Services issued an ISO 9002 certification to the Company. The Company then applied for certification and re-certifications, where the Company is recommended for recertification and upgrading from ISO 9001:2000 to ISO 9001:2008 version. As at November 25, 2012, VMC is already certified as ISO 9001:2008 version until November 24, 2015. The corporate office of the Company, its manufacturing plant and head office are located in VICMICO Compound, Victorias City, Negros Occidental. Going Concern Issue and Management’s Assessment and Plans to Address These separate financial statements of the Company have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. As disclosed in Notes 2 and 16, the Company is still under rehabilitation and debt restructuring programs. These conditions indicate an uncertainty that may cast doubt on the Company’s ability to continue as a going concern. Although, the Company has been in compliance with the debt restructuring program, its continued compliance is ultimately dependent on the sustainability of the Company’s profitable operations. The actions made by management during the past several years to improve the Company’s operations and its financial position achieved the following: Generated net income of P947.1 million, P704.5 million and P539.6 million as at

August 31, 2014, 2013 and 2012, respectively; Significant improvements in the capital structure of the Company which are from a

capital deficiency to a net equity and from a deficit to retained earnings; Conversion of certain convertible notes to equity in accordance with the Debt

Restructuring Agreement (DRA) (see Note 16b2iii); Resumption of the trading of the Company’s shares in the PSE on May 21, 2012; Full payment of the outstanding restructured loans in fiscal year 2013 (see Note 16a);

and, Redemption of all its convertible notes except those awaiting mandatory conversion

amounting to P677.53 million (see Note 16b2iii). The separate financial statements do not include any adjustment relating to the recoverability and classification of assets and the settlement of liabilities that may be necessary, should the Company be unable to continue as a going concern entity. In its efforts to achieve continuing successful operations and effective implementation of the provisions of the rehabilitation plan, the Company has continuously focused its corporate objectives, goals, strategies, and measures to attain sustainable financial stability through, among others: (a) synchronization of the refined sugar and raw sugar operations; (b) expansion of the boiling house to balance capacity with that of the A and C mills; (c) enhancement of mill efficiency; (d) increase profitability by addressing cost efficiency (which includes, among others, trimming down of corporate overtime expenses, minimizing contracted labor/services, and sourcing out and maximizing use of cheaper fuel substitutes instead of bunker fuel) and improving tolling fees; and (e) ongoing program of rightsizing manpower.

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Moreover, management has undertaken the following action plans to improve the Company’s financial position and its corporate governance structure: 1. Recapitalization and quasi-reorganization to reduce the deficit through reduction in

capital stock and application of revaluation increment as discussed in Note 17. 2. Conversion of debt into equity as discussed in Note 16. 3. Conversion of debt into convertible notes and ultimately, conversion of certain

convertible notes to equity as disclosed in Note 16. 4. Management of cash flows.

As provided for in Section 13 of the DRA, in the event that the Company’s net cash flows at the end of a crop year exceeds the projected net cash flows for that particular crop year, the Company shall prepay in inverse order the restructured loans without penalty equal to 75% of the incremental net cash flows (defined as net income after tax plus depreciation and other non-cash charges), as provided for in the Alternative Rehabilitation Plan (ARP). Furthermore, as per section 13.2 of the DRA, in the event that the restructured loans are fully settled before the fifteen (15) years repayment period, VMC cash flow in excess of Capital Expenditure requirements shall be used to pay/redeem the convertible note (principal plus accumulated interest).

5. Composition of the BOD and appointment of Management Committee (MANCOM) by the SEC. Effective December 16, 2002, the new BOD (which replaced the MANCOM) consists of the following: three representatives from the existing stockholders, one representative from the secured creditors, six representatives from creditors with conversion, and one joint venture partner. Further, the SEC issued an Order dated January 27, 2003 appointing Atty. Luis Ma. G. Uranza as the Rehabilitation Receiver to monitor every year, together with the new BOD elected and committees, the implementation of the ARP. On July 19, 2013, VMC filed a Manifestation and Motion dated July 18, 2013 with the SEC Special Hearing Panel 1. In the said pleading, VMC manifested that on May 31, 2013, VMC caused the full payment of its Restructured Loans under the ARP and DRA thereby rendering its loan obligations to its Secured Creditors and Creditors with Debt Conversion fully satisfied. Consequently, the Board seats reserved for the Secured Creditors and Creditors with Debt Conversion have become functus officio. VMC prayed that it be authorized to amend its ARP and DRA and be allowed to elect its Board pursuant to its By-Laws. In an Order dated January 27, 2014, the SEC Special Hearing Panel 1 denied the Manifestation and Motion dated July 18, 2013 of VMC. It also directed VMC to elect its Board of Directors in accordance with the ARP and DRA where the Secured Creditors and Creditors with Debt Conversion will have one (1) seat and seven (7) seats, respectively. On February 7, 2014, VMC filed with the SEC En Banc a Petition for Review on Certiorari (Re: Order dated January 27, 2014 issued by the SEC Special Hearing Panel 1) dated February 6, 2014, which was docketed as SEC En Banc Case No. 02-14-317.

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On December 1, 2014, VMC filed a Notice of Withdrawal of Petition for Review on Certiorari (Re: Order dated January 27, 2014 issued by the SEC Special Hearing Panel 1) dated February 6, 2014. On November 12, 2012, VMC filed a Manifestation and Motion dated November 12, 2012 with the SEC Special Hearing Panel 1 praying that VMC be authorized to amend its ARP and DRA to allocate the Board seat previously reserved to the Joint Venture Partner as an additional Board seat for Creditors with Debt Conversion because the joint venture partner opted not to convert the loan into equity but be paid instead. In an Order dated March 3, 2014, the SEC Special Hearing Panel 1 granted the Manifestation and Motion dated November 12, 2012 and ordered the amendment of Part IV (4) of the ARP and Section 21 of the DRA to read as follows: three (3) seats for existing shareholders, one (1) seat for secured creditors and seven (7) seats for creditors with debt conversion. On March 24, 2014, VMC filed with the SEC En Banc a Petition for Review on Certiorari (Re: Order dated March 3, 2014 issued by the SEC Special Hearing Panel 1) with Motion for Consolidation with SEC En Banc Case No. 02-14-317 dated March 21, 2014, which was docketed as SEC En Banc Case No. 03-14-322. On December 1, 2014, VMC filed a Notice of Withdrawal of Petition for Review on Certiorari (Re: Order dated March 3, 2014 issued by the SEC Special Hearing Panel 1) with Motion for Consolidation with SEC En Banc Case No. 02-14-317 dated March 21, 2014.

2. Rehabilitation and Debt Restructuring Programs Discussed below are the series of events leading to the finalization of the rehabilitation and debt restructuring programs. Application for Suspension of Payment to Creditors On July 4, 1997, the Company filed with the SEC a Petition for the: (a) Declaration of Suspension of Payment to Creditors, (b) Approval of a Rehabilitation Plan, and (c) Appointment of a MANCOM which was tasked to submit a feasible and viable rehabilitation plan for the Company. Rehabilitation Plans and Amendments thereto: 1. Rehabilitation Plan as of September 25, 1998, subject to the terms of the First

Addendum to the Rehabilitation Plan dated February 5, 1999 and of the Second Addendum to the Rehabilitation Plan dated July 22, 1999, as approved by the SEC in its Orders dated August 17 and 19, 1999, respectively, (herein collectively referred to as the “Original Rehabilitation Plan” or “ORP”). The salient features of the ORP follow: i. Reduction in the authorized capital stock of the Company from P2.7 billion

consisting of 270 million shares of common stock at P10 par value per share to P495,957,670 consisting of 170,432,189 shares of common stock at P2.91 par value per share (see Note 17c.1);

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ii. Fresh capital infusion of around P567 million through a public bidding which was declared a failure for the reason that the deadline for the submission of bids had expired without any bid having been submitted;

iii. The stockholders shall have no pre-emptive right to the increase of P1.5 billion

shares of common stock or any shares to be issued to accommodate the conversion of any interests earned on the convertible notes to common shares;

iv. The Company shall honor its contractual obligations to the MJ Ossorio Pension

Fund’s retirees; v. Implementation of a business strategy for operating improvements, which

includes manpower reduction, upgrading of certain mills and other equipment, and divestment of non-profitable business units;

vi. Sale of non-strategic assets and subsidiaries; vii. Restructuring of loans from banks; and viii. Debt-to-equity conversion.

2. ARP as of May 11, 2000, as approved by the SEC in its Order dated November 29, 2000. In view of the failure of the public bidding to raise fresh capital of around P567 million, the MANCOM, as mandated by ORP, submitted an ARP on May 11, 2000 which was approved by the SEC on November 29, 2000. The basic features of the ARP follow: i. Increase in the authorized capital stock from P495.958 million consisting of

495.958 million shares of common stock at P1 par value per share to P4.605 billion consisting of 4.605 billion shares of common stock at P1 par value per share (see Note 17c.3). The new capital stock of P4.605 billion will be allocated among the initial paid-in capital of P1.596 billion, conversion of a portion of unsecured loan into convertible notes of the Company in the amount of P2.4 billion, and contingent Refined Sugar Invoice/Delivery Orders (RSDOs) of P630 million representing the principal amounts of loans allegedly obtained;

ii. Conversion into equity of all unpaid interest and part of the principal of the

unsecured loan amounting to P1.1 billion; iii. Conversion of a portion of unsecured loan into convertible notes amounting to

P2.4 billion; iv. Restructuring of the secured and unsecured loans amounting to P4.4 billion over

a period of fifteen years, including a 3-year grace period as to the principal, at 10% annual interest for peso loan and 6% for dollar loans; and

v. Call for an acceptable joint venture partner to provide additional cash of

approximately P300 million payable after three years or an option to convert the loan into equity.

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All other terms and conditions of the ORP which have been previously approved by the SEC remain. The 15-year DRA took effect on September 1, 2003 (see Note 16). Since March 3, 2014, no further updates or revisions were made on the ORP, ARP and DRA. Litigations against the ARP The Company’s former management, in their comments and replies filed with the SEC, manifests their strong opposition to the ARP. Also, three creditor banks, on various dates, filed their opposition to the ARP. After the conduct of litigation, the Supreme Court, in its Resolution dated May 28, 2010, denied the petition filed by Mr. Mañalac, et al. for failure to show any reversible error in the challenged decision and resolution as to warrant the exercise of its discretionary appellate jurisdiction. With the denial of the petition, there is no more legal impediment in the continued implementation of the ARP as approved by the SEC.

3. Basis of Preparation Statement of Compliance The separate financial statements have been prepared in compliance with Philippine Financial Reporting Standards (PFRSs). PFRSs are based on International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB). PFRSs consist of PFRSs, Philippine Accounting Standards (PASs), and Philippine Interpretations issued by the Financial Reporting Standards Council (FRSC). In full compliance with PFRS 10, Consolidated Financial Statements, the Company has also prepared consolidated financial statements for the Company and its subsidiaries. Users of these separate financial statements should read them together with the consolidated financial statements as at and for years ended August 31, 2014, 2013 and 2012 to obtain full information on the consolidated financial position, consolidated financial performance and consolidated cash flows of the Company and its subsidiaries as a whole. The consolidated financial statements can be obtained from the Company’s corporate office at VMC Compound, Victorias City, Negros Occidental. The Company’s separate financial statements as at and for year ended August 31, 2014 were approved and authorized for issue by the BOD on December 15, 2014. Basis of Measurement The separate financial statements have been prepared on the historical cost basis except for property, plant and equipment which are carried at revalued amounts and investment properties which are carried at fair value. Functional and Presentation Currency These separate financial statements are presented in Philippine peso, which is the Company’s functional currency. All financial information in Philippine peso has been rounded-off to the nearest thousands, except when otherwise stated. Use of Estimates and Judgments The preparation of the separate financial statements in conformity with PFRSs require management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

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Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised or in any future periods affected. In particular, information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amount recognized in the separate financial statements are discussed in Note 5.

4. Summary of Significant Accounting Policies The accounting policies set out below have been applied consistently to all periods presented in these separate financial statements and have been applied consistently by the Company. Adoption of New or Revised Standards, Amendments and Improvements to Standards

and Interpretations The Company has adopted the following amendments to standards and interpretations starting September 1, 2013 and accordingly, changed its accounting policies. Except as otherwise indicated, the adoption of these amendments to standards and interpretations did not have any significant impact on the Company’s separate financial statements. Adopted on September 1, 2013 Presentation of Items of Other Comprehensive Income (Amendments to PAS 1). The

amendments: require that an entity present separately the items of other comprehensive income

that would be reclassified to profit or loss in the future if certain conditions are met from those that would never be reclassified to profit or loss;

do not change the existing option to present profit or loss and other comprehensive income in two statements; and

change the title of the statement of comprehensive income to the statement of profit or loss and other comprehensive income. However, an entity is still allowed to use other titles.

The amendments do not address which items are presented in other comprehensive income or which items need to be reclassified. The requirements of other PFRSs continue to apply in this regard.

Disclosures: Offsetting Financial Assets and Financial Liabilities (Amendments to PFRS 7). These amendments include minimum disclosure requirements related to financial assets and financial liabilities that are: offset in the statement of financial position; or subject to enforceable master netting arrangements or similar agreements. They include a tabular reconciliation of gross and net amounts of financial assets and financial liabilities, separately showing amounts offset and not offset in the statement of financial position.

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PFRS 10, Consolidated Financial Statements PFRS 10 introduces a new approach to determining which investees should be consolidated and provides a single model to be applied in the control analysis for all investees. An investor controls an investee when: it is exposed or has rights to variable returns from its involvement with that

investee; it has the ability to affect those returns through its power over that investee; and there is a link between power and returns. Control is re-assessed as facts and circumstances change. PFRS 10 supersedes PAS 27 (2008), Consolidated and Separate Financial Statements and Philippine Interpretation SIC-12, Consolidation - Special Purpose Entities.

PFRS 12, Disclosure of Interests in Other Entities PFRS 12 contains the disclosure requirements for entities that have interests in subsidiaries, joint arrangements (i.e., joint operations or joint ventures), associates and/or unconsolidated structured entities, aiming to provide information to enable users to evaluate: the nature of, and risks associated with, an entity’s interests in other entities; and the effects of those interests on the entity’s financial position, financial

performance and cash flows.

Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance (Amendments to PFRS 10, PFRS 11, and PFRS 12) The amendments simplify the process of adopting PFRSs 10 and 11, and provide relief from the disclosures in respect of unconsolidated structured entities. Depending on the extent of comparative information provided in the financial statements, the amendments simplify the transition and provide additional relief from the disclosures that could have been onerous. The amendments limit the restatement of comparatives to the immediately preceding period; this applies to the full suite of standards. Entities that provide comparatives for more than one period have the option of leaving additional comparative periods unchanged. In addition, the date of initial application is now defined in PFRS 10 as the beginning of the annual reporting period in which the standard is applied for the first time. At this date, an entity tests whether there is a change in the consolidation conclusion for its investees.

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PFRS 13, Fair Value Measurement PFRS 13 replaces the fair value measurement guidance contained in individual PFRSs with a single source of fair value measurement guidance. It defines fair value, establishes a framework for measuring fair value and sets out disclosure requirements for fair value measurements. It explains how to measure fair value when it is required or permitted by other PFRSs. It does not introduce new requirements to measure assets or liabilities at fair value, nor does it eliminate the practicability exceptions to fair value measurements that currently exist in certain standards.

PAS 19, Employee Benefits (Amended 2011) The amended PAS 19 includes the following requirements: actuarial gains and losses are recognized immediately in other comprehensive

income; this change removes the corridor method and eliminate the ability for entities to recognize all changes in the defined benefit obligation and in plan assets in profit or loss; and

interest income on plan assets recognized in profit or loss is calculated based on the rate used to discount the defined benefit obligation.

The impact of the adoption of these amendments to PAS 19 was applied prospectively starting September 1, 2013 since the Company has assessed that the retrospective effect of the adjustments will not have a material effect on the separate financial statements as at and for the year ended August 31, 2013 and to the Company's opening balance of deficit as at September 1, 2012. The summary of quantitative impact of the adoption of the above amendments to PAS 19 is presented in Note 31to the separate financial statements.

PAS 27, Separate Financial Statements (2011) PAS 27 (2011) supersedes PAS 27 (2008). PAS 27 (2011) carries forward the existing accounting and disclosure requirements for separate financial statements, with some minor clarifications.

PAS 28, Investments in Associates and Joint Ventures (2011) PAS 28 (2011) supersedes PAS 28 (2008), Investments in Associates. PAS 28 (2011) makes the following amendments: PFRS 5, Non-current Assets Held for Sale and Discontinued Operations, applies

to an investment, or a portion of an investment, in an associate or a joint venture that meets the criteria to be classified as held for sale; and

on cessation of significant influence or joint control, even if an investment in an associate becomes an investment in a joint venture or vice versa, the entity does not remeasure the retained interest.

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Annual Improvements to PFRSs 2009 - 2011 Cycle - various standards contain amendments to five standards with consequential amendments to other standards and interpretations. The amendments are effective for annual periods beginning on or after September 1, 2013. The following are the said improvements or amendments to PFRSs, none of which has a significant effect on the interim separate financial statements of the Company: PAS 1, Presentation of Financial Statements - Comparative Information beyond

Minimum Requirements. This is amended to clarify that only one comparative period - which is the preceding period - is required for a complete set of financial statements. If an entity presents additional comparative information, then that additional information need not be in the form of a complete set of financial statements. However, such information should be accompanied by related notes and should be in accordance with PFRSs. For example, if an entity elects to present a third statement of comprehensive income, then this additional statement should be accompanied by all related notes, and all such additional information should be in accordance with PFRSs. However, the entity need not present: o other primary statements for that additional comparative period, such as a

third statement of cash flows; or o the notes related to these other primary statements.

PAS 1, Presentation of the Opening Statement of Financial Position and Related Notes. This is amended to clarify that: o the opening statement of financial position is required only if:

- a change in accounting policy; - a retrospective restatement; or - a reclassification has a material effect upon the information in that statement of financial position;

o except for the disclosures required under PAS 8, notes related to the opening statement of financial position are no longer required; and

o the appropriate date for the opening statement of financial position is the beginning of the preceding period, rather than the beginning of the earliest comparative period presented. This is regardless of whether an entity provides additional comparative information beyond the minimum comparative information requirements.

The amendment explains that the requirements for the presentation of notes related to additional comparative information and those related to the opening statement of financial statements are different, because the underlying objectives are different. Consequential amendments have been made to PFRS 1 and PAS 34, Interim Financial Reporting.

PAS 16, Property, Plant and Equipment - Classification of Servicing Equipment. This is amended to clarify the accounting of spare parts, stand-by equipment and servicing equipment. The definition of ‘property, plant and equipment’ in PAS 16 is now considered in determining whether these items should be accounted for under that standard. If these items do not meet the definition, then they are accounted for using PAS 2, Inventories.

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PAS 32, Financial Instruments Presentation - Income Tax Consequences of Distributions. This is amended to clarify that PAS 12, Income Taxes, applies to the accounting for income taxes relating to: o distributions to holders of an equity instrument; and o transaction costs of an equity transaction. This amendment removes a perceived inconsistency between PAS 32 and PAS 12. Before the amendment, PAS 32 indicated that distributions to holders of an equity instrument are recognized directly in equity, net of any related income tax. However, PAS 12 generally requires the tax consequences of dividends to be recognized in profit or loss. A similar consequential amendment has also been made to Philippine Interpretation IFRIC 2, Members’ Share in Co-operative Entities and Similar Instruments.

PAS 34, Interim Financial Reporting - Segment Assets and Liabilities. This is amended to align the disclosure requirements for segment assets and segment liabilities in interim financial reports with those in PFRS 8, Operating Segments. PAS 34 now requires the disclosure of a measure of total assets and liabilities for a particular reportable segment. In addition, such disclosure is only required when: o the amount is regularly provided to the chief operating decision maker; and o there has been a material change from the amount disclosed in the last annual

financial statements for that reportable segment. New Standards, Amendments and Improvements to Standard and Interpretation Not Yet

Adopted A number of new standards, amendments and improvements to standards and interpretations are effective for annual periods beginning after January 1, 2013, and have not been applied in preparing these separate financial statements. Except as otherwise indicated, none of these is expected to have a significant effect on the separate financial statements. Those which may be relevant to the Company are set out below. The Company does not plan to adopt these standards early. To be Adopted on September 1, 2014 Offsetting Financial Assets and Financial Liabilities (Amendments to PAS 32). These

amendments clarify that: An entity currently has a legally enforceable right to set-off if that right is:

o not contingent on a future event; and o enforceable both in the normal course of business and in the event of default,

insolvency or bankruptcy of the entity and all counterparties; and

Gross settlement is equivalent to net settlement if and only if the gross settlement mechanism has features that: o eliminate or result in insignificant credit and liquidity risk; and o process receivables and payables in a single settlement process or cycle.

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These amendments are effective for annual periods beginning on or after January 1, 2014 and are to be applied retrospectively.

Recoverable Amount Disclosures for Non-financial Assets (Amendments to PAS 36). These narrow-scope amendments to PAS 36 address the disclosure of information about the recoverable amount of impaired assets if that amount is based on fair value less costs of disposal. The amendments clarified that the scope of those disclosures is limited to the recoverable amount of impaired assets that is based on fair value less costs of disposal.

The amendments are to be applied retrospectively for annual periods beginning on or after January 1, 2014. Earlier application is permitted for periods when the entity has already applied PFRS 13. To be Adopted on September 1, 2016 PAS 16 and PAS 38: Clarification of Acceptable Methods of Depreciation

Prohibits revenue-based depreciation methods and generally presumes that such methods are an inappropriate basis for amortizing intangible assets.

PAS 27: Equity Method in Separate Financial Statements Allows entity to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements.

To be Adopted on September 1, 2017 PFRS 15, Revenue from Contracts with Customers

Establishes when revenue should be recognised, how it should be measured and what disclosures about contracts with customers are needed.

To be Adopted on September 1, 2018 PFRS 9, Financial Instruments

PFRS 9 replaces PAS 39, Financial Instruments: Recognition and Measurement and supersedes the previously published versions of PFRS 9 that introduced new classifications and measurement requirements (in 2009 and 2010) and a new hedge accounting model (in 2013). PFRS 9 includes revised guidance on the classification and measurement of financial assets, including a new expected credit loss model for calculating impairment, guidance on own credit risk on financial liabilities measured at fair value and supplements the new general hedge accounting requirements published in 2013. PFRS 9 incorporates new hedge accounting requirements that represent a major overhaul of hedge accounting and introduce significant improvements by aligning the accounting more closely with risk management relating to the impairment of financial assets and hedge accounting. PFRS 9 supersedes PAS 39, Financial Instructions: Recognition and Measurement.

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The accounting policies set out below have been applied consistently to all periods presented in these separate financial statements. Revenue Recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be measured reliably. Revenue is measured at the fair value of the consideration received or receivable, net of trade discounts, net of value-added tax (VAT) if there is any and volume rebates, and represents amounts receivable for goods and services provided in the normal course of business. The following specific recognition criteria must also be met before revenue is recognized: Sales of Raw Sugar and Molasses

Revenue is recognized upon invoicing which coincides with the endorsement and transfer of quedans and molasses warehouse receipts, respectively, when the customer has accepted the products.

Tolling Revenues Revenue is recognized when the tolling services have been rendered based on the tolling agreement.

Sale of Alcohol Revenue is recognized upon invoicing which coincides with the delivery of the alcohol.

Interest Income Interest is recognized as interest accrues, taking into account the effective yield of the asset.

Rental Income Rental income is recognized on a straight-line basis over the lease term for non-cancellable leases and the terms of the lease for cancellable leases.

Other Income

Other income such as income from scrap sales, gains from disposal, among others, is recorded when earned.

Cost and Expense Recognition Costs and expenses are recognized in profit or loss upon utilization of the service or at the date they are incurred. Borrowing costs not capitalized are charged to income in the period in which they are incurred using the effective interest rate method. Financial Assets The Company recognizes a financial asset in the separate statements of financial position when it becomes a party to the contractual provisions of the instrument. The Company’s financial assets are categorized under loans and receivables.

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Loans and Receivables Loans and receivable are financial assets with fixed or determinable payments that are not quoted in an active market. They are not entered into with the intention of immediate or short-term resale or are not classified as held for trading, held-to-maturity (HTM) investments, available-for-sale (AFS) financial assets or financial assets at fair value through profit or loss (FVPL). These are initially recognized at fair value plus any directly attributable transaction cost and subsequently carried at amortized cost using the effective interest rate method, less allowance for impairment loss. These are included as current assets if maturity is within twelve (12) months from the reporting date. Otherwise, these are classified as noncurrent assets. The Company’s financial assets categorized under loans and receivables include cash and cash equivalents and receivables [presented in the separate statements of financial position as “Trade and other current receivables” (excluding advances to suppliers) and “Advances to subsidiaries” accounts, part of “Other current assets” account representing cash and cash equivalents reserved for payment to East West Banking Corporation, and as part of “Other noncurrent assets” account representing cash and cash equivalent reserved for debts repayment]. Cash and Cash Equivalents Cash and cash equivalents, which are stated in face value, include cash on hand and in banks and other short-term highly liquid investments with original maturities of three months or less, which are subject to insignificant risk of change in value and are used by the Company in management of its short-term commitments. Impairment of Financial Assets The Company assesses at each reporting date whether there is objective evidence that a financial asset maybe impaired. A financial asset is deemed to be impaired 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 and that loss event has an impact on the estimated future cash flows of the financial asset that can be reliably estimated. Financial Assets at Amortized Cost If there is objective evidence that an impairment loss on loans and receivables carried at amortized cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition). The carrying amount of the asset shall be reduced either directly or through use of an allowance account. The amount of the loss shall be recognized in profit or loss. The Company first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and the group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment.

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If, in a business period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in profit or loss, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date. Financial Assets Carried at Cost If there is objective evidence that an impairment loss on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Derecognition A financial asset is derecognized when: the right to receive cash flows from the asset has expired; the Company retains the right to receive cash flow from the asset, but has assumed an

obligation to pay them in full without material delay to a third party under a ‘pass-through’ arrangement; or

the Company has transferred its rights to receive cash flows from the asset and either:

(a) has transferred substantially all the risks and rewards of the asset; or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

Where the Company has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Company’s continuing involvement in the asset. Financial Liabilities They are recognized when the Company becomes a party to the contractual agreements of the instrument, normally in the period in which the related money, goods or services are received or when a legally enforceable claim against the Company is established. The Company’s financial liabilities are categorized under the other financial liabilities. Other Financial Liabilities These include non-derivative liabilities that are not carried at FVPL and are recognized initially at fair value and carried at amortized cost with the amortization determined using the effective interest rate method. Gains and losses are recognized in profit or loss when the liabilities are discharged as well as through the amortization process. The Company’s financial liabilities categorized under other financial liabilities include long-term debts, trade and other current payables (excluding payables to government and customers’ deposits), and advances from subsidiaries. Derecognition A financial liability is derecognized when the obligation under the liability has discharged or cancelled or expired.

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Where an existing financial liability is replaced by another from the same lender on substantially different term, or the terms of an existing liability are substantially modified, such as exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and difference in the respective carrying amounts is recognized in profit or loss. Offsetting Financial Assets and Liabilities Financial assets and financial liabilities are offset and reported at net amount in the separate statements of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is intention to settle on a net basis, or realize the asset and settle the liability simultaneously. This is not generally the case with master netting agreements, and the related assets and liabilities are presented at gross in the separate statements of financial position. Inventories Inventories are valued at the lower of cost and net realizable value (NRV). Costs incurred in bringing each product to its present location or condition, are accounted for as follows: Sugar Inventory, Alcohol Inventory and Manufactured and Fabricated Products -

determined using weighted average method; cost includes direct materials, labor and a proportion of manufacturing overhead costs based on normal operating capacity.

Unbilled Tolling Cost - consists mainly of labor and overhead components based on normal operating capacity, and is determined on weighted average method.

Materials and Supplies - cost includes purchases and other directly attributable costs

determined based on their original purchase price and is determined using weighted average method.

For sugar inventory, alcohol inventory and manufactured and fabricated products, and unbilled tolling costs, NRV is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. For materials and supplies, the NRV is the current replacement cost. The Company considers any deterioration, damage, breakage, age and technological changes in estimating the NRV. Investments in Subsidiaries and Associate A subsidiary is an entity that is controlled by a company while an associate is an entity in which a company has significant influence, but no control, over the financial and operating policies. An investor determines whether it is a parent by assessing whether it controls one or more investees. An investor considers all relevant facts and circumstances when assessing whether it controls an investee. An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. It is presumed to exist when another entity holds between 20 to 50 percent of the voting power of an entity.

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Investments in subsidiaries are recognized at cost in the Company’s separate financial statements, less any impairment loss. If there is objective evidence that the investments in subsidiaries will not be recovered, an impairment loss is provided. Impairment loss is measured as the difference between the carrying amount of the investment and the present value of the estimated cash flows discounted at the current market rate of return for similar financial assets. The amount of the impairment loss is recognized in profit or loss. Property, Plant and Equipment Property, plant and equipment, except for projects under construction (which are carried at cost less accumulated impairment losses), are carried at revalued amounts less accumulated depreciation and impairment losses, if any. The revalued amount is the fair value at the date of revaluation less any subsequent accumulated depreciation and subsequent impairment losses. Revaluation is performed by an independent firm of appraisers with sufficient regularity to ensure that the carrying amount of the asset does not differ materially from that which would be determined using fair values at the reporting date. The net appraisal increase resulting from the revaluation is credited to “Revaluation increment on property, plant and equipment” account (net of corresponding deferred tax liability) in the separate statement of financial position and separate statements of changes in equity. The amount of revaluation increment absorbed through depreciation and revaluation increment approved by the SEC for quasi-reorganization are transferred directly to retained earnings. Initially, an item of property, plant and equipment is measured at its cost, which comprises its purchase price and any directly attributable costs of bringing the asset to the location and condition for its intended use. Subsequent costs that can be measured reliably are added to the carrying amount of the asset, when it is probable that future economic benefits associated with the asset will flow to the Company. The costs of day-to-day servicing of an asset are recognized as an expense in the period in which they are incurred. All costs that are directly and clearly associated with the construction of certain property, plant and equipment, including borrowing costs, are capitalized. Projects under construction, included in property, plant and equipment, represent structures under construction and are stated at cost. These include cost of construction and other direct costs. Projects under construction are not depreciated until such time as the relevant assets are completed and put into operational use. Major spare parts and stand-by equipment qualify as property, plant and equipment when the Company expects to use them during more than one period. Similarly, if the spare parts and servicing equipment can be used only in connection with an item of property, plant and equipment, they are accounted for as property, plant and equipment. Estimated future dismantlement costs of items of property, plant and equipment arising from legal or constructive obligations are recognized as part of property, plant and equipment and are measured at present value at the time when the obligation was incurred.

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Depreciation is computed using the straight-line method over the assets’ estimated useful lives. The estimated useful lives are as follows:

Number of Years

Land improvements 12.5 Buildings and structures 20 Community buildings and equipment 20 Machinery and equipment 3-20

The estimated useful lives, as well as the depreciation method, are reviewed at each reporting date to ensure that the period and method of depreciation are consistent with the expected pattern of economic benefits from those assets. Stand-by equipment should be depreciated from the date it is made available for use over the shorter of the life of the stand-by equipment or the life of the asset the stand-by equipment is part of, while major spare parts should be depreciated over the period starting when it is brought into service, continuing over the lesser of its useful life and the remaining expected useful life of the asset to which it relates. Fully depreciated assets are retained in the accounts until they are no longer in use and no further charge for depreciation is made in respect of those assets. When an asset is disposed of, or is permanently withdrawn from use and no future economic benefits are expected from its disposal, the cost and accumulated depreciation and impairment losses, if any, are removed from the accounts and any resulting gain or loss arising from the retirement or disposal is reflected in current operations. The carrying amount of the Company’s property, plant and equipment is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its recoverable amount. The recoverable amount of the Company’s property, plant and equipment is the higher between their fair values less cost of disposal and value in use. If the carrying amount of the Company’s asset is decreased as a result of revaluation, this decrease is recognized as other comprehensive loss to the extent of any credit balance existing in the revaluation increment in respect of that asset. The excess of such decrease over the existing balance in the revaluation increment is recognized in profit or loss. An increase in the carrying amount of the Company’s property, plant and equipment is recognized in the separate statements of comprehensive income to the extent that it reverses a revaluation decrease of the same asset previously recognized in the separate statements of comprehensive income. Investment Properties The investment properties composed of land and building, which are properties held by the Company either to earn rentals or for capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes. Investment properties are initially measured at cost. Subsequently, investment properties are measured at fair value with any change therein recognized in the separate statements of comprehensive income following the fair value model. Gains or losses arising from changes in the fair value of investment properties are included in profit or loss for the period in which they arise.

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Investment property is derecognized when either it has been disposed of or when it 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 profit or loss in the period of retirement or disposal. Transfers are made to investment property only when there is a change in use, evidenced by ending of owner-occupation, commencement of an operating lease to another party. When the use of a property changes such that it is reclassified as property, plant and equipment, its fair value at the date of reclassification becomes its cost for subsequent accounting. Transfers from investment property carried at fair value to owner-occupied property or inventories shall be its fair value at the date of change in use in accordance with PAS 16, Property, Plant, and Equipment, or PAS 2, Inventories. Impairment of Nonfinancial Assets The carrying amount of the Company’s non-financial assets which includes property, plant and equipment and investment in subsidiaries are reviewed each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. The recoverable amount of an asset or cash-generating unit is the greater of the asset’s fair value less costs of disposal and value in use. Fair value less costs of disposal is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, less the costs of disposal. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs. An impairment loss is recognized whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses, if any, are recognized in profit or loss unless the asset is carried at revalued amounts. Any impairment loss on a revalued asset is treated as a revaluation decrease. All assets are subsequently reassessed for indications that an impairment loss previously recognized may no longer exist and the carrying amount of the asset is adjusted to the recoverable amount resulting in the reversal of the impairment loss. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation, if no impairment loss had been recognized. A reversal of an impairment loss in respect of a revalued asset is recognized in profit or loss to the extent that it reverses an impairment loss that was previously recognized in the profit or loss. Any additional increase in the carrying amount of the asset is treated as a revaluation increase. Fair Value Measurement When measuring the fair value of an asset or a liability, the Company uses market observable data as far as possible and is categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows: Level 1: quoted prices (unadjusted) in active markets for identical assets or

liabilities.

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Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices).

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

If the inputs used to measure the fair value of an asset or a liability might be categorized in different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The group recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred. Further information about the assumption made in measuring fair values is included in Notes 11 and 12 to the separate financial statements. Equity Instrument An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities. Capital stock is classified as equity and is determined using the nominal value of shares that have been issued. Additional paid-in capital (APIC) includes any premiums received on the initial issuance of capital stock. Any transaction costs associated with the issuance of shares are deducted from APIC, net of any related income tax benefits. When capital stocks are repurchased, the amount of the consideration paid, which includes directly attributable costs, net of any tax effects, is recognized as a deduction from equity. Repurchased shares are classified as treasury stock and are presented as a deduction from total equity. When treasury shares are sold or reissued subsequently, the amount received is recognized as an increase in equity, and the resulting surplus or deficit on the transaction is transferred to/from retained earnings, after considering any remaining APIC related to treasury stock, if any. Compound financial instruments issued by the Company comprise convertible notes that can be converted to capital stock at the option of the holder, and the number of shares to be issued does not vary with changes in their fair value. The liability component of a compound financial instrument is recognized initially at the fair value of a similar liability that does not have an equity conversion option. The equity component is recognized initially as the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts. Earnings Per Share (EPS) The Company presents both basic and diluted EPS. Basic EPS is computed by dividing the net income applicable to common shareholders by the weighted average number of common shares outstanding during the period, adjusted for treasury stock, and with retroactive adjustments for stock splits. Diluted EPS is computed in the same manner as basic EPS, however, net income attributable to common shareholders and the weighted average number of shares outstanding are adjusted for the effects of all dilutive potential common shares. The Company’s potential common shares comprise of convertible notes.

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Borrowing Costs Borrowing costs are generally recognized as expense in the period in which these costs are incurred, except to the extent that they are capitalized as being directly attributable to the acquisition, construction or production of a qualifying asset which necessarily takes a substantial period of time to prepare for its intended use or sale. Leases - Operating Lease Leases which do not transfer to the lessee substantially all the risks and benefits of ownership of the asset are classified as operating leases. The Company determines whether an arrangement is, or contains a lease based on the substance of the arrangement. It makes an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. Company as a Lessor Lease income under operating leases is recognized as income in profit or loss on a straight-line basis over the lease term. Company as a Lessee Operating lease payments are recognized in profit or loss on a straight-line basis over the lease term. Retirement Benefits The Company’s net obligation in respect of the defined benefit plan is calculated by estimating the amount of the future benefit that employees have earned in the current and prior periods, discounting that amount and deducting the fair value of any plan assets. The calculation of defined benefit obligation is performed on a periodic basis by a qualified actuary using the projected unit credit method. When the calculation results in a potential asset for the Company, the recognized asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognized immediately in Other Comprehensive Income (OCI). The Company determines the net interest expense or income on the net defined benefit liability or asset for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then net defined benefit liability or asset, taking into account any changes in the net defined liability or asset during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to the defined benefit plan are recognized in profit or loss. When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognized immediately in profit or loss. The Company recognizes gains and losses on the settlement of a defined benefit plan when the settlement occurs. Short-term Employee Benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.

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A liability is recognized for the amount expected to be paid such as those for salaries and wages, social security contributions, short-term compensated absences, bonuses and non-monetary benefits. Foreign Currency Transactions and Translations Transactions in foreign currencies are translated into Philippine peso using the exchange rates prevailing at the time of such transaction. Monetary assets and liabilities denominated in foreign currencies are translated using exchange rates prevailing at the reporting date. Foreign exchange gains or losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies are recognized in the separate statements of comprehensive income. Income Tax Income tax expense comprises of current and deferred taxes. Current tax and deferred tax are recognized in the separate statements of comprehensive income except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income. Current tax is the expected tax payable or receivable on the taxable income or loss for the period using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous periods. Current income tax payable also includes any tax liability arising from the declaration of dividends. Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for: temporary differences on the initial recognition of assets or liabilities in a transaction

that is not a business combination and that affects neither accounting nor taxable profit or loss;

temporary difference related to investments in subsidiaries and jointly controlled

entities to the extent that it is probable that they will not reverse in the foreseeable future; and

taxable temporary differences arising on the initial recognition of goodwill. The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. For investment properties that are measured at fair value, the presumption that the carrying amount of the investment properties will be recovered through sale has not been rebutted. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.

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A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. A deferred tax liability is recognized whenever recovery or settlement of the carrying amount of an asset or liability would make future tax payment larger than they would if such recovery or settlement were to have no tax consequence. Deferred tax liability is recognized in respect of asset revaluations and foreign exchange gains. Related Parties A 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 relationships also exist between and/or among entities which are under common control with the reporting enterprise, or between, and/or among the reporting enterprise and its key management personnel, directors, or its stockholders. In considering each possible related party relationship, attention is directed to the substance of the relationship, and not merely the legal form. Operating Segments Operating segments provide services that are subject to risks and returns that are different from those of other operating segments. The Company’s businesses are operated and organized according to the nature of business provided, with each segment representing a strategic business unit. For management purposes, the Company is currently organized into two operating segments: sugar milling and distillery operations. These divisions are the bases on which the Company reports its primary segment information. Operating results of the Company’s operating segments are reviewed by the BOD, the chief operating decision maker (CODM) of the Company, to make decisions about resources to be allocated to each segment and assess its performance, and for which discrete financial information is available. Provisions and Contingencies A provision is a liability of uncertain timing or amount. It is recognized when the Company has a legal or constructive obligation as a result of a past event; and it is probable that an outflow of economic benefits will be required to settle that obligation and a reliable estimate can be made. When it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed in the notes to the separate financial statements as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events is also disclosed in the notes to the separate financial statements as contingent liabilities unless the probability of outflow of economic benefits is remote. A contingent asset is an asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity. This is not recognized in the separate financial statements but disclosed in the notes to the separate financial statements when an inflow of economic benefit is probable.

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Events After the Reporting Period The Company identifies post period-end events as events that occurred after the reporting date but before the date when the separate financial statements were authorized for issue. Any post period-end events that provide additional information about the Company’s financial position at the reporting date (adjusting events) are recognized in the separate financial statements. Events that are not adjusting events are disclosed in the notes to the separate financial statements when material.

5. Accounting Estimates and Judgments The separate financial statements prepared in accordance with PFRSs requires management to make judgments, estimates and assumptions that affect amounts reported in the separate financial statements and related disclosures. In preparing these separate financial statements, the management made its best judgments and estimates of certain amounts, giving due consideration to materiality. The Company believes that the following represents a summary of these significant estimates and judgments and related impact and associated risks in the separate financial statements. These significant estimates and judgments are as follows: Determining Functional Currency Based on the economic substance of the underlying circumstances relevant to the Company, the functional currency of the Company has been determined to be the Philippine peso. The Philippine peso is the currency of the primary economic environment in which the Company operates. It is the currency that mainly influences the sale of goods and services and the cost of these goods and services. Operating Lease Commitments The Company has leased out certain investment properties to a related party and to third parties under the operating lease arrangements. The Company has determined that all significant risks and rewards of ownership of these spaces remain with the Company (see Notes 12 and 27). The Company has also leased from a related party for an office space and for certain machineries and equipment from third parties. The Company has determined that all significant risks and rewards of ownership of these properties remain with the lessors (see Note 27). Distinction between Investment Property from Owner-Occupied Property and from

Property Held for Sale The Company determines whether a property qualifies as investment property, owner-occupied property or property held for sale. In making its judgment, the Company considers whether the property generates cash flows largely independent of the other assets held by an entity. Property and equipment or owner-occupied properties generate cash flows that are attributable not only to property but also to the other assets used in the production or supply process. Real estate inventories are held for sale in the ordinary course of business (real estate inventories) while investment property is held primarily to earn rental and capital appreciation and is not substantially for use by, or in the operations of the Company.

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The Company has determined that its building and land under operating lease and land held for capital appreciation are classified as investment properties (see Note 12). Land and building used in the operation of the Company are classified as owner-occupied properties (see Note 11). Determination of whether the Company is Acting as a Principal or an Agent The Company assesses its revenue arrangements against the following criteria to determine whether it is acting as a principal or an agent: whether the Company has primary responsibility for providing the services;

whether the Company has discretion in establishing prices; and

whether the Company bears the credit risk. If the Company has determined that it is acting as a principal, the Company recognizes revenue on a gross basis with the amount remitted to other party being accounted as part of costs and expenses. If the Company has determined that it is acting as an agent, only the net amount retained is recognized as revenue. The Company assessed its revenue arrangements and concluded that it is acting as principal in all arrangements. Estimating Impairment Losses on Receivables and Advances The Company maintains an allowance for impairment losses on receivables consisting of trade and other current receivables, and advances to subsidiaries at a level considered adequate to provide for potential uncollectible receivables. The level of this allowance is evaluated by the Company on the basis of factors that affect the collectibility of the accounts. These factors include, but are not limited to, the length of the Company’s relationship with its customers, their payment behavior and known market factors. The Company reviews the age and status of receivables and identifies accounts that are to be provided with allowance on continuous basis. The amount and timing of recorded expenses for any period would differ if the Company made different judgment or utilized different estimates. As at August 31, 2014, 2013 and 2012, the carrying amount of the Company’s trade and other current receivables amounted to P114.87 million, P444.14 million and P129.91 million, respectively (see Note 7). The carrying amount of advances to subsidiaries as at August 31, 2014, 2013 and 2012, amounted to P35.10 million, P32.11 million and P30.81 million, respectively (see Note 26). Estimating NRV of Inventories In estimating NRV of inventories, management takes into account the most reliable evidence available at the time the estimates are made. The Company’s business is subject to changes which may cause inventory obsolescence and the nature of the Company’s inventories are susceptible to physical deterioration, damage, breakage, age and technological changes. Moreover, future realization of the carrying amounts of inventories is affected by price changes in the market. These aspects are considered key sources of estimation uncertainty and may cause significant adjustments to the Company’s inventories within the next financial period. The carrying amount of inventories as at August 31, 2014, 2013 and 2012 amounted to P201.41 million, P350.43 million and P318.88 million, respectively (see Note 8).

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Estimating Useful Lives of Property, Plant and Equipment The Company estimates useful lives of property, plant and equipment based on the period over which the assets are expected to be available for use. The Company reviews regularly the estimated useful lives of property, plant and equipment based on factors that include asset utilization, internal technical evaluation, technological changes, environmental and anticipated use of the assets tempered by related industry benchmark information. It is possible that future results of operation could be materially affected by changes in these estimates brought about by changes in factors mentioned. A reduction in the estimated useful lives of property, plant and equipment would increase depreciation and decrease noncurrent assets. As at August 31, 2014, 2013 and 2012, the aggregate carrying amount of property, plant and equipment amounted to P3.93 billion, P3.88 billion and P3.80 billion, respectively (see Note 11). Estimating Fair Value The fair value of the Company’s property, plant and equipment and investment properties are determined from market-based evidence by appraisal that was undertaken by an independent firm of appraisers in calculating such amounts. While management believes that the assumptions and market-based evidences used are reasonable and appropriate, significant differences in actual experience or significant changes in the assumptions may materially affect the valuation of the Company’s property, plant and equipment and of the investment properties. However, management believes that the carrying amounts of property, plant and equipment and investment properties as at August 31, 2014, 2013 and 2012 do not differ materially from that which would be determined using appraised value and fair value at reporting date. As at August 31, 2014, 2013 and 2012, the aggregate carrying amount of the Company’s property, plant and equipment amounted to P3.93 billion, P3.88 billion and P3.80 billion, respectively (see Note 11). The aggregate carrying amount of investment properties amounted to P1.15 billion in 2014 and 2013 and P744.24 million in 2012 (see Note 12). Recoverability of Deferred Tax Assets The Company reviews its deferred tax assets at each reporting date and reduces the carrying amount to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based on the likely timing and level of future taxable profits together with future tax planning strategies. However, there is no assurance that the Company will utilize all or part of the deferred tax assets. Any deferred tax asset will be re-measured if it might result to derecognition in cases where the expected tax law to be enacted will impose a possible risk on its realization. As at August 31, 2014, 2013 and 2012, the Company’s recognized deferred tax assets amounted to P414.98 million, P273.31 million and P203.85 million, respectively (see Note 24).

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Estimating Retirement Benefit Obligation The determination of the Company’s retirement liability and cost is dependent on the selection of certain assumptions used by actuaries in calculating such amounts. The Company believes that the assumptions are reasonable and appropriate. The Company’s assumptions are described in Note 25 to separate financial statements. Significant differences in the actual experience or significant changes in the assumptions may materially affect the retirement cost and retirement liability. Net retirement benefits cost (income) amounted to P3.65 million, (P13.50) million and P6.61 million, for the years ended August 31, 2014, 2013 and 2012, respectively. Retirement benefit obligation amounted to P10.52 million, P7.19 million and P85.96 million, as at August 31, 2014, 2013 and 2012, respectively (see Note 25). Impairment of Nonfinancial Assets The Company assesses at each reporting date whether there is an indication that the carrying amount of an asset may be impaired. If such indication exists, the Company makes an estimate of the assets’ recoverable amount. At the reporting date, the Company assesses 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. The Company assesses impairment on assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The factors that the Company considers important which could trigger an impairment review include the following: significant underperformance relative to the 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. As at August 31, 2014, 2013 and 2012, the carrying amounts of property, plant and equipment, investment in and deposits to subsidiaries and associate and other noncurrent assets approximate their fair values. Estimating Provisions and Contingencies The Company is currently involved in various legal proceedings (see Note 28) which are still pending resolution or under suspension in view of the Company’s rehabilitations status. Estimates of probable costs for the resolution of these claims have been developed in consultation with the legal counsels handling the defense in these matters and are based upon an analysis of potential results. The Company’s management and legal counsels have made judgment that, while the legal proceedings are legally defensible, they cannot anticipate with certainty the progress and the outcome of the legal proceedings, the appreciation of the available evidences by the relevant courts or tribunal involved and the evolution of jurisprudence or similar cases that will be decided by the highest court, which will be relevant to pending cases. With due consideration of prior decision involving similar cases and for prudent financial reporting, the Company recognized provisions (see Note 15).

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The Company discounts its provisions over the period such provisions are expected to be settled. The discount rate used by the Company is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the provisions at the time these provisions have been determined and recognized. Specifically, this discount rate represents a risk-free rate plus a risk premium. The risk-free rate is derived from Philippine treasury bill rate and the risk premium is calculated by making reference to the volatility of market lending rates published by the Bangko Sentral ng Pilipinas (BSP). The carrying value of the provisions recognized as at August 31, 2014, 2013 and 2012 amounted to P1.09 billion, P841.94 million and P554.34 million, respectively (see Note 15). The estimated amount of gross undiscounted provision (including imputed finance cost) amounted to P1.30 billion as of August 31, 2014. It is possible, however, that future results of operations could be materially affected by changes in the estimates or in the effectiveness of the Company’s strategies relating to the foregoing proceedings.

6. Cash and Cash Equivalents Details of this account at August 31 follow:

2014 2013 2012

Cash on hand and in banks P134,799 P482,001 P264,152Cash equivalents 831,569 300,237 740,479

P966,368 P782,238 P1,004,631

Cash in banks earns interest at the respective bank deposit rates. Cash equivalents are composed of short-term placements with maturities ranging from 30 to 90 days, and bear annual interest rates of 0.5% to 3.0% in 2014, 0.875% to 3.875% in 2013 and 1.3% to 4.1875% in 2012. Cash and cash equivalents permanently set aside for checks payable to East West Banking Corporation (EWB) are presented as part of “Other current assets” account (see Note 9). Cash and cash equivalents earmarked as reserves for debt repayment were presented as part of “Other noncurrent assets” account as at August 31, 2012 and were used to fully pay the outstanding restructured loans in 2013 (see Notes 13 and 16a). Total interest income on cash and cash equivalents, including those earmarked principally as reserves for debt repayment and payment to EWB, amounted to P10.30 million, P36.90 million and P75.64 million in 2014, 2013 and 2012, respectively (see Notes 13 and 22).

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7. Trade and Other Current Receivables Details of this account at August 31 follow:

2014 2013 2012

Trade P86,267 P435,125 P112,214 Advances to:

Planters’ association 13,105 1,201 2,551 Suppliers 10,221 4,817 7,444 Officers and employees 181 435 387

Others 5,185 2,645 7,400

114,959 444,223 129,996 Less allowance for impairment losses on

trade and other current receivable 86 86 86 P114,873 P444,137 P129,910

The average credit period taken on sale of goods is from 30 to 60 days. Other current receivables consist of accrued interest receivables, cash in a closed bank, due from insurer and other non-trade receivables from other companies. The cash in a closed bank amounting to P500 thousand as at August 31, 2012 was recovered from the Philippine Deposit Insurance Corporation (PDIC) in 2013 and is presented net of amount not recoverable (see Notes 13 and 23). Due from insurer which amounts to P2.1 million as at August 31, 2014 relates to the insurance claims of the Company for the damaged property, plant and equipment and sugar stocks caused by Typhoon Yolanda.

8. Inventories Details of this account at August 31 follow:

2014 2013 2012

At NRV: Materials and supplies P129,184 P154,005 P160,950 Unbilled tolling cost 18,901 60,600 72,066

148,085 214,605 233,016At cost:

Alcohol 32,352 1,844 24,726 Sugar 19,806 132,810 59,973 Manufactured and fabricated products 1,168 1,168 1,168

53,326 135,822 85,867

P201,411 P350,427 P318,883

Cost of inventories stated at NRV amounted to P158.74 million, P245.79 million and P242.00 million as at August 31, 2014, 2013 and 2012, respectively.

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The movement in the allowance to reduce materials and supplies and unbilled tolling cost to NRV follows:

Note 2014 2013 2012

Balance at beginning of year P31,180 P8,986 P7,286Write-down of inventory for

the year 21 - 22,194 1,700

Recovery during the year 21 (20,529) - -

P10,651 P31,180 P8,986

The cost of inventories recognized as an expense is presented as “Cost of goods sold and services” account and includes decrease in inventories of P169.54 million in 2014, increase in inventories of P53.74 million in 2013 and decrease in inventories of P599.40 million in 2012 (see Note 21). Recovery during the year refers to inventories previously provided with allowance but sold in 2014 amounting to P20.53 million. In 2014, inventories with total carrying value of P962 thousand were damaged by Typhoon Yolanda. Of the total amount, P402 thousand were covered by insurance for which the Company filed the corresponding insurance claims (see Note 7). The remaining balance amounting P560 thousand which was not covered by insurance was charged to profit or loss as part of “Others” under “Other income (expenses)” (see Note 22). Materials and supplies and unbilled tolling cost were stated at NRV which were lower than their corresponding costs. Management believes that the recorded allowance to reduce materials and supplies and unbilled tolling cost to NRV is adequate.

9. Other Current Assets Details of this account at August 31 follow:

Note 2014 2013 2012

Cash and cash equivalents permanently set aside for checks payable to EWB 14,16 P366,126 P - P -

Prepaid expenses 15,992 7,737 7,599Input VAT 13,804 19,756 31,571

P395,922 P27,493 P39,170

Prepaid expenses consist of advance payments for real property tax and other supplies.

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10. Investments in and Deposits to Subsidiaries and Associate The Company’s investments in and deposits to subsidiaries and associate consisted of the following:

2014 2013 2012 Investment Deposit Total Total Total

Subsidiaries: VFC P22,000 P39,693 P61,693 P61,693 P49,693 VALCO 100 33,068 33,168 33,168 33,168 CDC 23,393 - 23,393 23,393 23,393 VQPC 16,500 - 16,500 16,500 16,500 VGCCI 15,680 - 15,680 15,680 15,680

77,673 72,761 150,434 150,434 138,434 Allowance for impairment

loss on VQPC (16,500) - (16,500) (16,500) (16,500)

61,173 72,761 133,934 133,934 121,934

Associate: VIGASCO 5,727 - 5,727 5,727 5,727

Allowance for impairment loss on VIGASCO (5,727) - (5,727) (5,727) (5,727)

- - - - -

P61,173 P72,761 P133,934 P133,934 P121,934

Both VQPC and VIGASCO have capital deficiency due to losses from operations. Moreover, in June 2012, the BOD of VQPC approved to cease VQPC’s operations effective July 2012. As at August 31, 2014, VQPC is undergoing liquidation process as approved by its BOD and stockholders. To implement the approved liquidation, VQPC is in the process of finalizing with a prospective buyer for the sale of the remaining assets in order to settle its obligations. In 2013, the Company made an additional cash investment to VFC amounting to P12 million. As agreed by the BODs of both the Company and VFC, the additional cash investment was considered VFC’s additional paid-in capital and no shares of stocks were issued to the Company. VFC VFC, wholly-owned subsidiary, was incorporated and registered with SEC on February 24, 1983 primarily to operate factories and other manufacturing facilities for the processing, preservation and packaging of food products and to sell the same at wholesale. The corporate office and production plant of VFC is located at VICMICO Compound, Victorias City, Negros Occidental. VALCO VALCO, wholly-owned subsidiary, was incorporated and registered with SEC on June 30, 1987 primarily to acquire and own agricultural and other real estate properties, by purchase, lease or otherwise, to improve and develop the same, and to plant thereon all kinds of farm products. The registered address of VALCO is at VICMICO Compound, Victorias City, Negros Occidental. CDC CDC, an 88% owned subsidiary, was incorporated and registered with SEC on February 19, 1974 primarily to purchase, develop, lease, exchange and sell real estate. The registered address of CDC is at VICMICO Compound, Victorias City, Negros Occidental.

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VGCCI VGCCI, an 81% owned subsidiary, is a non-profit corporation registered with SEC on October 8, 1992 primarily to engage exclusively in social, recreational and athletic activities on a non-profit basis among its stockholders, the core of which will be the acquisition and maintenance of a golf field course and tennis courts, residential and other similar facilities. The registered address of VGCCI is at VICMICO Compound, Victorias City, Negros Occidental. VQPC VQPC, a 55% owned subsidiary, was incorporated and registered with SEC on June 4, 1990 primarily to engage in the manufacture and sale of polyethylene bags, boxes, packages and special packaging products. The registered address and production plant of VQPC is located at VICMICO Compound, Victorias City, Negros Occidental. In June 2012, the BOD of VQPC approved to cease VQPC’s operations effective July 2012. As of August 31, 2014, VQPC is undergoing dissolution process as approved by its BOD and stockholders. VIGASCO VIGASCO, a 30% owned associate, was incorporated and registered with SEC on November 19, 1992 primarily to engage in importing, exporting, buying and selling, at wholesale or at retail, of gases, particularly oxygen, acetylene, hydrogen, liquefied petroleum gas and any types of gases. In July 2013, VMC’s BOD decided that VMC shall no longer nominate a member to the BOD of VIGASCO without prejudice to the other rights of VMC as a stockholder of VIGASCO. Due to the capital deficiency of VIGASCO resulting from operating losses, the investment in the associate is fully provided with allowance for impairment.

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The significant information on the latest available financial statements of Company’s subsidiaries as at and for the years ended August 31, 2014, 2013 and 2012 follows:

Assets Liabilities Revenues Net Income

(Loss)

VFC August 31, 2014 P91,028 P55,237 P43,610 (P7,597)August 31, 2013 91,016 47,015 33,450 (5,515)August 31, 2012 76,324 45,746 30,959 (4,396)

VALCO August 31, 2014 109,342 22,995 1,010 2,542 August 31, 2013 108,687 24,883 1,524 (6,447)August 31, 2012 118,001 27,750 1,450 509

CDC August 31, 2014 249,920 125,378 5,426 511 August 31, 2013 246,806 121,115 5,045 26,808 August 31, 2012 203,998 105,122 5,319 216

VQPC August 31, 2014 283 18,260 - (87)August 31, 2013 3,023 20,913 - (2,544)August 31, 2012 5,738 21,084 63,233 (7,039)

VGCCI August 31, 2014 145,592 58,343 7,745 (7,817)August 31, 2013 157,976 63,458 8,389 (6,380)August 31, 2012 103,813 45,834 10,845 1,391

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11. Property, Plant and Equipment Movements in this account are as follows:

Note

Land and Land

Improvements

Buildings and

Structures

Community Buildings and

Equipment

Machinery and

Equipment

Projects Under

Construction Total Measurement Basis: Revalued Revalued Revalued Revalued At Cost

Cost Balance, August 31, 2011 P101,940 P623,226 P28,205 P3,918,272 P216,237 P4,887,880Additions - - - - 454,347 454,347 Transfer from investment

property 12 146 658 - - - 804Completed projects 1,174 12,855 - 153,779 (167,808) -

Balance, August 31, 2012 103,260 636,739 28,205 4,072,051 502,776 5,343,031 Reclassification of

completed projects 9,632 11,603 - 275,359 (296,594) - Completed projects awaiting

for completion documents 1,223 5 - 135,579 (136,807) - Additions - - - 1,283 311,289 312,572Disposals - - - (1,843) - (1,843) Adjustments (144) (658) - - - (802) Transfer to investment

property 12 (1,336) (11,730) - - - (13,066)

Balance, August 31, 2013 112,635 635,959 28,205 4,482,429 380,664 5,639,892 Reclassification of

completed projects 2,824 2,767 438 485,199 (491,228) - Additions - - - 67 308,671 308,738 Disposals - - - (1,094) (1,865) (2,959)

Balance, August 31, 2014 115,459 638,726 28,643 4,966,601 196,242 5,945,671

Accumulated Depreciation - Cost

Balance, August 31, 2011 71,212 442,735 21,145 2,253,646 - 2,788,738 Depreciation 4,393 20,365 550 167,202 - 192,510

Balance, August 31, 2012 75,605 463,100 21,695 2,420,848 - 2,981,248Depreciation 4,601 18,111 518 175,215 - 198,445 Disposals - - - (1,843) - (1,843)Transfer to investment

property 12 - (6,634) - - - (6,634) Adjustments - - 2,169 - - 2,169

Balance, August 31, 2013 80,206 474,577 24,382 2,594,220 - 3,173,385Depreciation 5,056 16,727 404 204,963 - 227,150 Disposals - - - (1,038) - (1,038)

Balance, August 31, 2014 85,262 491,304 24,786 2,798,145 - 3,399,497

Appraisal Increase Balance, August 31, 2011 501,273 25,646 130,978 1,907,224 - 2,565,121 Transfer from investment

property 12 7,112 - - - - 7,112

Balance, August 31, 2012 508,385 25,646 130,978 1,907,224 - 2,572,233 Increase (decrease) during

the year (97,112) 612,455 (130,978) 2,233,549 - 2,617,914

Balance, August 31, 2013 411,273 638,101 - 4,140,773 - 5,190,147 Increase(decrease) during

the year - - - - - -

Balance, August 31, 2014 411,273 638,101 - 4,140,773 - 5,190,147

Accumulated Depreciation and Impairment Losses - Appraisal Increase

Balance, August 31, 2011 93,219 106,084 116,600 746,466 - 1,062,369Depreciation 1,221 - 764 68,769 - 70,754

Balance, August 31, 2012 94,440 106,084 117,364 815,235 - 1,133,123 Depreciation 1,221 - 764 68,726 - 70,711Increase (decrease) during

the year 35,702 495,880 (118,128) 2,158,043 - 2,571,497

Balance, August 31, 2013 131,363 601,964 - 3,042,004 - 3,775,331 Depreciation - 20,179 - 7,551 - 27,730

Balance, August 31, 2014 131,363 622,143 - 3,049,555 - 3,803,061

Carrying Amount

At August 31, 2014 P310,107 P163,380 P3,857 P3,259,674 P196,242 P3,933,260

Carrying Amount

At August 31, 2013 P312,339 P197,519 P3,823 P2,986,978 P380,664 P3,881,323

Carrying Amount

At August 31, 2012 P441,600 P93,201 P20,124 P2,743,192 P502,776 P3,800,893

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Certain land and buildings that were formerly leased by a third party are now being utilized by the Company for its distillery operations which resumed in November 2011. Accordingly, these assets which have carrying values of P7.92 million were transferred to property, plant and equipment from investment properties (see Note 12). The fair value measurement for the net appraisal increase of property, plant and equipment amounting to P1.39 million has been categorized as a level 2 based on the inputs to the valuation technique used (see Note 4). The Company’s property, plant and equipment were appraised by an independent appraiser. The latest appraisal was conducted on August 31, 2013. The carrying value of property, plant and equipment is net of allowance for impairment losses amounting to P414.27 million. The reconciliation of the allowance for impairment losses follows:

Machinery and

Equipment

Land and Land

Improvements Building and

Structures Total

Balance, August 31, 2014, 2013 and 2012 P331,774 P2,065 P80,438 P414,277

The carrying amounts of the Company’s property, plant and equipment had these been carried at cost less accumulated depreciation and impairment losses, follow:

Land and Land

Improvements Buildings and

Structures

Community Buildings and

Equipment

Machinery and

Equipment Total

At August 31, 2014 P30,197 P147,422 P3,857 P2,168,456 P2,349,932

At August 31, 2013 P32,429 P161,382 P3,823 P1,888,209 P2,085,843

At August 31, 2012 P27,655 P173,639 P6,510 P1,651,203 P1,859,007

A summary of depreciation on cost and appraisal increase and the distribution follows:

Note 2014 2013 2012

Depreciation on: Cost P227,150 P198,445 P192,510Appraisal increase 27,730 70,711 70,754

P254,880 P269,156 P263,264

Depreciation charged to: Cost of goods manufactured

and sold 21 P239,644 P254,950 P244,399Selling expenses 23 6,801 2,754 2,542General and administrative

expenses 23 8,435 11,452 16,323

P254,880 P269,156 P263,264

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As at August 31, 2014, the Company acquired or constructed and installed certain air and water pollution control devices to comply with the order of the Department of Environment and Natural Resources (DENR) accumulating to P349.28 million. Moreover, the Company is committed for acquisition or construction and installation of more similar pollution control devices amounting to P40 million as at August 31, 2014 (see Note 28c). On September 1, 2003, the Company’s land, building and machineries and equipment with a carrying value of P2.48 billion are used as mortgage lien for loans under the Mortgage Trust Indenture (MTI) (see Notes 16a and 16b2i). In 2014, property, plant and equipment with total carrying value of P1.87 million were damaged by Typhoon Yolanda. Of the total amount, P1.69 million were covered by insurance for which the Company filed the corresponding insurance claims (see Note 7). The remaining balance amounting P172 thousand which was not covered by insurance was charged to profit or loss as part of “Others” under “Other income (expenses)” (see Note 22).

12. Investment Properties The details of this account follow:

Note Land Building Total

Balance, August 31, 2011 P687,804 P64,354 P752,158Transfer to property, plant and

equipment 11 (7,258) (658) (7,916)

Balance, August 31, 2012 680,546 63,696 744,242Transfer from property, plant and

equipment 11 1,336 5,096 6,432Reclassification of land under

dispute to “Other noncurrent assets” 13 (25,809) - (25,809)

Fair value gain 22 401,324 25,814 427,138

Balance, August 31, 2013 1,057,397 94,606 1,152,003Reclassification of land under

dispute to “Other noncurrent assets” 13 (456) - (456)

Balance, August 31, 2014 P1,056,941 P94,606 P1,151,547

“Land under dispute” represents parcels of land, with an aggregate area of 2,534,620 square meters, subjected to Voluntary Offer to Sell. As the Company is yet to agree on the valuation and consideration for the said properties, the same are still carried in the books of the Company (see Note 13). Certain land and buildings that were formerly leased by a third party are now being utilized by the Company for its distillery operations which resumed its operations in November 2011. Accordingly, these assets which have carrying values of P7.92 million were transferred to property, plant and equipment from investment properties (see Note 11).

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The fair value measurement for the investment property amounting to P1.15 million has been categorized as a level 2 based on the inputs to the valuation technique used (see Note 4). The Company’s investment properties were appraised by an independent appraiser who holds a recognized and relevant professional qualification and has recent experience in the location and category of the investment property being valued. The latest appraisal was conducted on August 31, 2013. The cost of the investment properties amounted to P62.23 million in 2014, P62.69 million in 2013 and P65.48 million in 2012. Of the total investment properties, P994.88 million has been leased out under several short-term and cancellable operating leases to third parties and related parties, and the P157.12 million is deemed held for capital appreciation. The total rental income earned from the investment properties for the years ended August 31, 2014, 2013 and 2012 amounted to P13.26 million, P14.96 million, and P16.11 million, respectively (see Note 22). Direct expenses incurred for the Company’s investment properties amounted to P53.59 million, P52.85 million and P53.89 million in 2014, 2013 and 2012, respectively.

13. Other Noncurrent Assets Details of this account at August 31 follow: Note 2014 2013 2012

Cash surety bonds 28b P32,087 P34,195 P33,982 Land under dispute 12 26,265 25,809 - Cash and cash equivalents

reserved for debt repayment 6, 16a - - 1,770,892

58,352 60,004 1,804,874 Less allowance for impairment

loss on cash in a closed bank 8,393 8,393 7,893

P49,959 P51,611 P1,796,981

Cash and cash equivalents reserved for debt repayment consist of cash in bank and short-term placements earmarked for payment to creditors (see Note 16). In 2013, the Company settled its outstanding restructured loans (see Note 16a). Cash surety bonds pertain to cash collateral for the labor cases against the Company (see Note 28b). It also includes cash in a closed bank amounting to P8.39 million (net of the P500 thousand recovered from PDIC in 2013 - see Note 7) which was fully provided with allowance for impairment. “Land under dispute” represents parcels of land, with an aggregate area of 2,534,620 square meters, subjected to Voluntary Offer to Sell. As the Company is yet to agree on the valuation and consideration for the said properties, the same are still carried in the books of the Company (see Note 12).

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The movement in the allowance for impairment loss follows:

Note 2014 2013 2012

Balance at beginning of year P8,393 P7,893 P - Provision for impairment loss

during the year 23 - 500 7,893

P8,393 P8,393 P7,893

14. Trade and Other Current Payables This account is composed of:

Note 2014 2013 2012

Checks payable to EWB 9, 16, 29 P366,126 P - P - Trade suppliers 26 225,970 243,789 213,625Customers’ deposits 80,742 35,205 27,063Liens payable 15,773 11,454 7,303VAT, withholding and other taxes 11,021 19,572 13,188Accrued:

Expenses 242,792 - - Real property taxes 10,348 10,130 10,057Interest on bank loans 16b3 - - 54,978

Retention payable 4,838 8,192 6,005Social amelioration fund - 7,717 25,091Association dues 1,639 1,488 1,545Others 1,317 902 179

P960,566 P338,449 P359,034

Management considers that the carrying amount of trade and other current payables approximates fair value due to their short-term maturities. Generally, trade and other current payables are payable within 90-120 days. Accrued expenses consist of accrual for cost of cane hauling, salaries and employee benefits, light and water, fuel and transportation and among others. As disclosed in Note 16a, on February 28, 2014 (partial redemption) and April 4, 2014 (final redemption), the remaining convertible notes were paid pursuant to ARP, DRA and convertible note provisions. However, in letter a dated February 28, 2014, EWB informed VMC of its decision not to avail of the redemption and thus refused to accept and returned the check payments. Thereafter, exchanges of communications between VMC and EWB ensued as follows: In a letter to EWB dated March 4, 2014, VMC pointed out and reiterated that the

redemption is mandatory and is not a matter for EWB to avail or not of the redemption.

In a letter to VMC dated March 7, 2014, EWB reiterated its position that its right to convert is superior over the right of VMC to redeem pursuant to the provisions of the convertibles notes.

In a letter to EWB dated March 10, 2014, VMC pointed out that the ARP, DRA and convertible notes provisions have not granted EWB the right or option to refuse any payment/redemption made under Section 13.2 of the DRA and that the redemption was not made during the applicable conversion period.

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In a letter to EWB dated March 26, 2014, VMC delivered again the check payments to EWB and further clarifying that VMC has ceased to recognize any interest to the portion redeemed since the redemption date and that necessary action will be taken to protect and preserve the interest and rights of VMC and its stakeholders.

In a letter to VMC dated March 31, 2014, EWB advised VMC that it is selling its convertible notes following the approval of its board of directors.

In a letter to EWB dated April 1, 2014, VMC delivered again the check payments to EWB for the partial redemption of the convertible notes.

In a letter to VMC dated April 2, 2014, EWB reiterated its previous advice that it does not intent to avail of VMC’s offer for redemption and returned the check payments.

In a letter to EWB dated April 3, 2014, VMC delivered to EWB check payment for the final redemption of convertible notes.

In a letter to VMC dated April 4, 2014, EWB refused and returned again the check payments of VMC and reiterated its position not to avail of the redemption.

On September 26, 2014, VMC subsequently consigned the checks totaling to P366.13 million to the SEC-appointed rehabilitation receiver for custodianship in view of the unwarranted refusal by EWB. Subsequently, EWB, in a letter dated October 14, 2014, gave VMC a notice that it is exercising its option to convert its convertible notes in accordance with Section 16 (h) of the DRA. VMC, in return, informed EWB, in a letter dated October 15, 2014, that there are no more outstanding convertible notes in VMC’s records and that the said convertible notes had been paid/redeemed already and that the checks issued by VMC for the payment have been consigned with the SEC-appointed rehabilitation receiver in view of EWB’s refusal to accept the same (see Note 29). Subsequently, on November 11, 2014, EWB filed a motion dated November 5, 2014 with the SEC asking SEC to compel VMC to allow EWB to exercise its option for the conversion of the unconverted convertible notes. In response to the order of the SEC dated November 13, 2014, VMC and the SEC-appointed rehabilitation receiver filed their comments on the motion to the SEC on December 9 and December 2, 2014, respectively. The SEC-appointed rehabilitation receiver’s comments submitted to the SEC include a recommendation for the denial of the motion filed by EWB. To date, the SEC has yet to act on the motion filed by EWB (see Note 29). In consultation with its legal counsel, the Company’s management is of the opinion that the tender of payment made to EWB extinguished the said convertible notes, related accrued interest and EWB’s right for further interest due to the following: VMC complied the ARP, DRA and convertible note provisions on the mandatory

pre-payment or redemption of convertible notes; The redemption is mandatory which is equally applicable to both VMC (mandated to

redeem) and EWB (mandated to receive and accept payment); It is stated in the convertible notes that VMC can redeem the convertible notes

anytime after giving notice to the holders; Similar to the other note holders, VMC sent notice of redemption to EWB on

February 24, 2014 and March 31, 2014 (see Note 16a); Except EWB, all other convertible note holders accepted the payments;

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VMC earnestly delivered the checks payable on various dates to EWB which were received by the latter but EWB unjustifiably refused and returned the check payments; and,

VMC subsequently consigned the checks totaling to P366.13 million to the SEC-appointed rehabilitation receiver for custodianship on September 26, 2014 in view of the unwarranted refusal by EWB.

Accordingly, as at August 31, 2014, the convertible notes and the related accrued interest were extinguished and the checks payable to EWB were temporarily presented as “Checks payable to EWB”, part of “Trade and other current payables” account. A corresponding amount of cash and cash equivalents was permanently set aside by VMC (see Note 9). Moreover, VMC did not anymore accrue interest related to EWB’s convertible notes subsequent to the effective date of redemption.

15. Provisions The Company is currently involved in various legal proceedings (see Note 28) which are still pending resolution or under suspension in view of the Company’s rehabilitations status. Estimates of probable costs for the resolution of these claims have been developed in consultation with the legal counsels handling the defense in these matters and are based upon an analysis of potential results. The Company’s management and legal counsels have made judgment that, while the legal proceedings are legally defensible, they cannot anticipate with certainty the progress and the outcome of the legal proceedings, the appreciation of the available evidences by the relevant courts or tribunal involved and the evolution of jurisprudence or similar cases that will be decided by the highest court, which will be relevant to pending cases. With due consideration of prior decision involving similar cases and for prudent financial reporting, the Company recognized provisions as follows:

Note 2014 2013 2012

Balance at beginning of year P841,941 P554,340 P509,734 Provision during the year 23 207,274 527,953 - Litigation settlement - (279,176) - Amortization of discount 22 39,341 38,824 44,606

Ending balance P1,088,556 P841,941 P554,340

The undiscounted amount and the related unamortized discount as at August 31 follow:

2014 2013 2012

Undiscounted amount P1,067,618 P917,000 P917,000 Provision during the year 228,286 590,008 - Extinguished liability - (439,390) -

1,295,904 1,067,618 917,000Unamortized discount (207,348) (225,677) (362,660)

P1,088,556 P841,941 P554,340

In consultation with the legal counsels, management believes that the provision recognized sufficiently represents the amount of probable liability that the Company may settle in the event that the cases as discussed in Note 28 to the separate financial statements will ultimately be decided against the Company.

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On a regular basis, the provisions are re-evaluated and recalculated to consider latest available information and estimates. If the resulting difference between the original amount and the recalculated amount is significant, an adjustment is recognized. Based on the re-assessments made, additional provisions with a present value of P207.27 million (gross undiscounted amount of P228.29 million) in 2014 and P527.95 million (gross undiscounted amount of P590.01 million) in 2013 was recognized. Moreover, in 2013, provision with a carrying value of P279.18 million (gross undiscounted amount of P439.39 million) was derecognized following dismissal by the SEC of the claims of a claimant-bank (see Note 28a). Consequently, the favorable decision resulted to a gain on extinguishment of liability in the amount of P279.18 million (see Note 22).

16. Long-term Debt a. Composition of Long-term Debt

As to Currency Denomination

Note 2014 2013 2012

Restructured loans: 16b3 Foreign currency

denominated 30c P - P - P331,514 Philippine peso denominated - - 2,000,910

- - 2,332,424 Convertible notes 16b2 - 1,504,328 1,520,878 Accrued interest on

convertible notes 16b2 - 1,203,463 1,202,171

- 2,707,791 5,055,473 Less unamortized interest and

discounts 16b2 - 163,158 228,566

- 2,544,633 4,826,907 Less current portion - - 358,834

P - P2,544,633 P4,468,073

As to Security

2014 2013 2012

Secured P - P - P1,006,811 Unsecured - 2,707,791 4,048,662

P - P2,707,791 P5,055,473

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Except for convertible notes that are considered mandatorily converted in accordance with Section 16(k) of the DRA amounting to P677.53 million as of August 31, 2014, (see Note 16b2iii), in 2014, the BOD of the Company approved the payment/redemption of convertible notes (principal plus corresponding accumulated interest) pursuant to ARP, DRA and convertible note provisions. For this purpose, notice of payment/redemption of convertible notes was sent on February 24, 2014 (for partial redemption) and on March 31, 2014 (for final redemption) to all of the convertible note holders who were eventually paid on February 28, 2014 and April 4, 2014. However, in letter a dated February 28, 2014, EWB informed VMC of its decision not to avail of the redemption and thus refused to accept and returned the check payments. Thereafter, exchanges of communications between VMC and EWB ensued as disclosed in Note 14. On various dates, the check payments were delivered by VMC but EWB also refused and returned the check payments. Such check payments are temporarily presented as “Checks payable to EWB”, under the “Trade and other current payables” account as VMC’s management, in consultation with its legal counsel, is of the opinion that the tender of payment made to EWB extinguished the convertible notes and related accrued interest (see Note 14). The total payments made by the Company to redeem the convertible notes amounted to P1.768 billion consisting of P959 million principal and P809 million accrued interest. On May 31, 2013, the Company fully paid the outstanding restructured loans (see Notes 6 and 13). Accordingly, on July 17, 2013, the Company demanded trustee-banks for the release of properties under the MTI and secondary MTI. The trustee-banks did not comply with the demand. Accordingly, the Company filed with the SEC a motion to secure the release of the mortgage lien under the MTI and secondary MTI on July 25, 2013. As at report date, SEC is yet to act on the Company’s petition.

b. Debt Restructuring Agreement As discussed in Note 2 to the separate financial statements, a key element of the ARP is the restructuring of the above loans from banks and financial institutions. Consequently, the Company and the secured and unsecured creditors executed a DRA dated April 29, 2002. As stated in the DRA, secured creditors are VMC creditors who are holding on to valid Mortgage Participation Certificates (MPC) to the extent of the amount loaned to VMC and covered by said MPCs while all other VMC creditors shall be deemed as unsecured creditors, provided, however, that loan facilities and/or credit accommodations granted by the secured creditors to VMC that are not directly collateralized, secured, or covered by the MPC shall, for all intents and purposes, be considered unsecured loan facilities and/or credit accommodations and will be governed by the same terms and conditions as the loan facility and/or credit accommodations of the unsecured creditors. This DRA took effect on September 1, 2003 and which provides, among others, for the following: 1. Conversion of P1.1 billion loans into equity.

On October 9, 2002, loans from unsecured creditors of P1.1 billion were converted into common stock of the Company at a ratio of P1 of debt to P1 of common share with a par value of P1.

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2. Conversion of P2.4 billion loans into convertible notes. Features of the convertible notes On September 1, 2003, the unsecured creditors proportionately converted, on a mandatory basis, P2.4 billion of their principal loans into convertible notes. The convertible notes bear an annual interest of 8% which is cumulative and payable only in respect of those convertible notes which have not been actually converted into common stock of the Company. The conversion resulted to the recognition of an equity component of the convertible feature (presented in the separate statements of financial position as “Conversion feature on convertible notes” account). This will be reclassified to “Additional paid-in capital” upon conversion of the related convertible notes. Starting September 1, 2003, annual interest of 8% has been accrued in respect of all outstanding convertible notes. The convertible notes provide for a term of payment of 15 years from the effectivity date of the DRA (herein referred to as the “restructuring date”). i. Collateral for issuance of convertible notes:

The collateral for issuance of convertible notes is under Section 17 of the DRA which read as follows: a) The secured creditors which converted their principal loan into

convertible notes shall have a first mortgage on VMC’s fixed assets (excluding identified non-core assets for disposal and MTI properties), in addition to their first mortgage under the existing MTI pursuant to the terms and conditions of the DRA. A list of VMC’s fixed assets which shall be used as collateral for those holding convertible notes can be found in the Annex G of the DRA.

b) The unsecured creditors which converted their principal loan into convertible notes shall have a second mortgage on VMC’s fixed assets listed in Annex G of the DRA (excluding identified non-core assets for disposal and MTI properties), in addition to their second mortgage under the secondary MTI pursuant to the terms and conditions of the DRA.

c) As security for the prompt and effective repayment and compliance by VMC of any or all obligations arising from VMC’s issuance of the convertible notes, including payment of interests and other fees due thereon, VMC hereby creates, establishes and constitutes in favor of the secured creditors, which converted their principal loan into convertible notes, pari passu and in such proportion to the amount of convertible notes they are respectively holding, a first mortgage over VMC’s fixed assets (excluding identified non-core assets for disposal and MTI properties), in addition to their first mortgage under the MTI.

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d) As security for the prompt and effective repayment and compliance by VMC of any or all obligations arising from VMC’s issuance of the convertible notes, including payment of interests and other fees due thereon, VMC hereby creates, establishes and constitutes in favor of the unsecured creditors, which converted their principal loan into convertible notes, pari passu and in such proportion to the amount of convertible notes they are respectively holding, a second mortgage over VMC’s fixed assets (excluding identified non-core assets for disposal and MTI properties), in addition to their second mortgage under the secondary MTI.

e) The mortgage lien created, established and constituted in favor of the secured creditors as first mortgagee and unsecured creditors as second mortgagee shall cover only those VMC fixed assets that are not subject of any encumbrances or liens in favor of any party. It is hereby understood by the parties that the mortgage lien created shall not in any way novate any provisions, terms and conditions of any existing mortgage nor prejudice or diminish the rights, benefits and privileges of any existing mortgagees.

ii. Convertibility Feature:

The convertible notes shall be converted at the option of the holders thereof into common shares of the Company at the ratio of one (1) convertible note to one (1) common share of the Company, subject to the following schedule: a) Maximum of 20% of the original issue amount of the convertible notes

may be converted within a period beginning on the 31st day after the end of the 3rd year from issue date and shall expire 60 days thereafter (the “First conversion period”);

b) Maximum of 20% of the original issue amount of the convertible notes

may be converted within a period beginning on the 31st day after the end of the 4th year from issue date and shall expire 60 days thereafter (the “Second conversion period”);

c) Maximum of 20% of the original issue amount of the convertible notes

may be converted within a period beginning on the 31st day after the end of the 5th year from issue date and shall expire 60 days thereafter (the “Third conversion period”);

d) Maximum of 20% of the original issue amount of the convertible notes

may be converted within a period beginning on the 31st day after the end of the 6th year from issue date and shall expire 60 days thereafter (the “Fourth conversion period”);

e) Any or all outstanding unconverted convertible notes which were not

covered during the First, Second, Third and Fourth conversion periods may be converted within a period beginning on the 31st day after the end of the 7th year from issue date and shall expire 60 days thereafter (the “Fifth conversion period”);

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f) After the Fifth conversion period, a maximum of 13% of the outstanding unconverted convertible notes may be converted per year from the 8th year to the 14th year. The convertible notes may be converted within a period beginning on the 31st day after the end of each succeeding year from the Fifth conversion period and shall expire 60 days thereafter. The term “Outstanding Unconverted Convertible Notes” is defined as the principal amount of the Convertible Notes outstanding as of 92nd day after the end of the 7th year; and,

g) Any or all convertible notes which were not converted during the

previous conversion periods may be converted within a period beginning on the 60th day before the end of the 15th year from issue date and shall expire 30 days thereafter (the “Final conversion period”).

The aggregate amount of convertible notes that may be converted into common shares of the Company shall not exceed 20% of the original issue amount of the convertible notes for each year covering the conversion beginning on the third year to the sixth year from the issue date of the convertible notes. For the period beginning the eighth year to the fourteenth year, the annual aggregate amount of convertible notes that may be converted into common shares of the Company shall not exceed 13% of the outstanding unconverted notes. As stated in the convertible note, the issuer, shall have the option to redeem the convertible note by paying the convertible note holder in cash an amount equivalent to the subscription price, plus all accrued interest beginning at the end of the third (3rd) year from the issue date and ending on the last day of the fifteen (15th) year from issue date (the “Final Redemption Date”). The issuer may exercise its option to redeem the convertible note at any time prior to final redemption date by sending written notice thereof to the convertible note holder, which notice, when so sent, shall be deemed final and irrevocable. The above provisions were religiously complied on the February 28, 2014 and April 4, 2014 redemption of convertible notes. Also, under the DRA, the buyer of the convertible note from the original holder shall convert the notes into common shares of the Company in accordance with the schedule of the convertibility feature of Section 16 (h) of the DRA. Section 16 (g) of the DRA further provides that interest is payable only at the final redemption date and in respect only to those convertible note which have not been actually converted to common shares of the Company.

iii. Conversions to common shares Conversions to common shares of certain convertible notes amounting to P70.05 million in 2014, P272.86 million in 2013 and P118.63 million in 2012 (see Note 17b) were made in accordance with the schedule of the convertibility feature of Section 16 (h) of the DRA. The conversions resulted to the recognition of “Additional paid-in capital” for the related accrued interest payable.

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Moreover, certain convertible notes and the related accrued interest payable with the total amount of P1.23 billion (principal amount is P677.53 million), P338.90 million (principal amount is P203.09 million) and P658.18 million (principal amount is P459.40 million) as at August 31, 2014, 2013 and 2012, respectively, were recognized as equity as they are considered mandatorily converted in accordance with provision of Section 16 (k) of the DRA which requires that all transferred/sold convertible notes are to be converted to common shares in accordance with the schedule of the convertibility feature of Section 16 (h) of the DRA. The convertible notes and the related accrued interest payable are presented in the separate statements of financial position as “Convertible notes awaiting conversion” account and “Interest on convertible notes awaiting conversion” account, respectively. These convertible notes and related accrued interest payable are no longer recognized as financial liability as the Company has ceased to have a present obligation as the DRA provides for mandatory conversion upon transfer/sale of convertible notes. These will be converted to common shares as soon as the schedule of the convertibility feature of Section 16 (h) of the DRA permits the conversion. The outstanding balance of the convertible notes is carried at present value using effective interest of 5.397%. Total finance costs incurred on convertible notes amounted to P230.50 million in 2014, P186.14 million in 2013 and P137.22 million in 2012. As at August 31, 2014, 2013 and 2012, the balance of the accrued interest on the convertible notes amounted to nil, P1.20 billion, P1.20 billion, respectively.

3. Restructuring of the remaining balance of the loans (herein referred to as “Restructured loans”) On April 29, 2002, the unsecured and secured creditors restructured the remaining balance of their loans (after the debt-to-equity conversion and the debt conversion to convertible notes), with annual interest of 10% for Philippine peso-denominated loans and 6% for the U.S. dollar-denominated loans payable quarterly in arrears. The restructuring provides for a term of payment of 15 years from September 1, 2003, the restructuring date, with a 3-year grace period from the restructuring date. Details of finance cost as follow:

2014 2013 2012

Interest on convertible notes P230,504 P186,136 P137,218 Interest on bank loans - 109,419 230,258

P230,504 P295,555 P367,476

As disclosed in Note 16a, the Company fully paid the outstanding restructured loans on May 31, 2013. The outstanding balance of the accrued interest on bank loans amounted to nil as at August 31, 2014 and 2013 and P54.98 million as at August 31, 2012 (see Note 14).

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4. Secured creditors and/or unsecured creditors who are actually and physically holding legitimate and valid VMC sugar quedans as a form of security as of restructuring date shall be considered as other secured creditors to the extent of the valid sugar quedans they are physically and legitimately holding. The outstanding principal loans, including interest, held by these creditors holding sugar quedans as collateral shall have the same terms and conditions as that of the restructured loans of the unsecured creditors under the DRA, including a restructuring period of 15 years.

5. Restructuring of the RSDOs claims, arising from RSDOs purportedly issued by VMC which was used by NONEMARCO, Inc. to obtain loans for the latter’s own use and pending litigation before the SEC, under the same terms and conditions as that of the unsecured creditors once the Company is found liable by final judgment.

6. Restructuring of the trade liabilities as follows: 25% during the first year of

rehabilitation, 37.5% during the second year of rehabilitation, and 37.5% during the third year of rehabilitation.

The DRA became effective on September 1, 2003 (also known as the restructuring date) upon the occurrence of the following conditions as per Section 36 of the DRA, among others: 1. Conversion of P1.1 billion loans into equity; 2. Conversion of P2.4 billion loans into convertible notes; 3. Generation of the required minimum cash capital infusion of P300 million; 4. Election of new Board of Directors; and 5. Receipt of certain documents by the creditors as provided for in the DRA

(i.e., promissory notes, etc.).

c. Cash Infusion by a Strategic Investor As part of the provision of the rehabilitation program, the Company obtained a P300 million loan from a strategic investor, Tanduay Holdings, Inc. The loan was fully paid in 2008 in accordance with the terms of the loan.

d. Compliance with the DRA As at August 31, 2014, 2013 and 2012, the Company is in compliance with the provisions of the DRA. No further updates or revisions were made on the ORP, ARP and DRA as of the reporting date.

17. Capital Management The Company manages its capital to ensure that it will be able to continue as a going concern and abide with the provisions of the rehabilitation and debt restructuring program while maximizing the return on the investments of stockholders. The Company is governed by its ARP as submitted and approved by SEC. The details of these plans or programs are disclosed in Note 2.

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The capital structure of the Company consists of equity attributable to the stockholders comprising of the capital stock and deficit while debt is defined as long and short-term borrowings, as disclosed in Note 16. a. Debt to Total Assets Ratio

The debt to total assets ratio of the Company as at August 31, 2014, 2013 and 2012, which has been within the Company’s acceptable range as set by the Company’s BOD, is calculated as follows:

2014 2013 2012 (In Thousands Except Ratio Information)

Debt P - P2,544,633 P4,826,907 Total assets 6,982,360 6,855,271 7,987,452

0:1 0.37:1 0.60:1

The amount of debt being considered in the above ratio pertains only to total debts covered by DRA.

b. Capital Stock Details of the Company’s capital stock follow: Note 2014 2013 2012

Authorized: Common shares - P1 par value

2,563,035,708 shares P2,563,036 P2,563,036 P2,563,036

Balance at beginning of year- 2,297,484,948 shares in 2014, 2,024,626,981 shares in 2013 and 1,905,998,732 shares in 2012 P2,297,485 P2,024,627 P1,905,999

Conversion of convertible notes: 16b2iii Conversion to 70,049,966

272,857,966 and 118,628,250 shares at P1 per share by certain secondary note holders in December 2013, 2012 and 2011, respectively 70,050 272,858 118,628

Issued shares 2,367,535 2,297,485 2,024,627 Treasury shares 17f (11) (11) (11)

Outstanding shares P2,367,524 P2,297,474 P2,024,616

Except for the conversion of certain convertible notes to common shares as disclosed above, there was no other movement of capital stock for the years ended August 31, 2014, 2013 and 2012. The conversion of certain convertible notes to common shares is provided for in the DRA.

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c. Recapitalization and Quasi-reorganization The SEC approved the following recapitalization programs: 1. The authorized capital stock was reduced initially from P2.7 billion consisting of

270 million shares with par value of P10 per share to P495,957,670 consisting of 170,432,189 shares with par value of P2.91 per share (see Note 2.1.i).

2. The reduction in par value resulted in the reduction of the subscribed capital stock from P1,704,321,890 consisting of 170,432,189 shares with a par value of P10 per share to P495,957,670 consisting of 170,432,189 shares with a par value of P2.91 per share. The par value of the capital stock was then further reduced from P2.91 to P1, simultaneous thereto, the subscribed capital stock was increased from P170,432,189 consisting of 170,432,189 shares at par value of P2.91 per share to P495,957,670 consisting of 495,957,670 shares at par value of P1 per share through a stock split. The resulting reduction surplus of P1,208,364,220 (P1,704,321,890 less P495,957,670) was used to partially wipe out the deficit of the Company.

3. SEC issued a certificate of filing of certificate of increase in capital stock dated October 2, 2002 approving the Company’s increase in the authorized capital stock from P495,957,670 consisting of 495,957,670 common shares at par value of P1 per share to P2,563,035,708 consisting of 2,563,035,708 shares of common stock at par value of P1 per share. The increase in the authorized capital stock was a partial implementation by the Company of the ARP’s provision on the increase in authorized capital stock as approved by the SEC on November 29, 2000 (see Note 2.2.i). However, the approval by the SEC on the increase in authorized capital stock was subject to condition that the Company shall submit to the SEC all duly executed deeds of assignment evidencing the creditors’ assignment of a portion of their unpaid loans as payment for the subscription of the increase in the Company’s authorized capital stock. On June 17, 2009, which was within the extended period requested for submission of all the duly executed deeds of assignment, the Company submitted the required documents to the SEC. In an order dated March 26, 2009, the SEC’s Company Registration and Monitoring Department revoked the Company’s certificate of increase in capital stock dated October 2, 2002 due to alleged non-compliance with the conditions provided in the grant of the same. On December 20, 2012, the SEC granted the Company’s petition for lifting the order of revocation.

d. Partial Wipe-out of Deficit On September 2, 2002, the SEC approved the quasi-reorganization of the Company through the application of revaluation increment of P3,195,367,390 to partially wipe out the deficit of P7,823,474,147 as at August 31, 2002. For purpose of dividend declaration, any retained earnings of the Company shall be restricted to the extent of deficit wiped out by the revaluation increment and reduction of the subscribed capital stock.

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e. Conversion of Debt into Equity As discussed in Note 16, the unsecured creditors converted proportionately P1.1 billion of their loans into common shares of the Company at a ratio of P1 of debt to P1 of common stock. The said conversion resulted in a change in management control of the Company effective October 9, 2002, whereby the creditors control 69% of the ownership of the Company while the existing stockholders prior to the conversion was reduced to 31%. Since December of 2010, movement in common stock pertains to the conversion of convertible notes to common stock amounting to P701.54 million (see Note 17b).

f. Treasury Stock The Company had an Employees Stock Ownership Plan (ESOP) which was administered by a Board of Administrators appointed by the former BOD of the Company. The ESOP allocated approximately 18 million shares from the Company’s authorized and unissued shares of capital stock. This ESOP gave permanent and regular employees the right to subscribe to a minimum of 100 shares and to a maximum of 5,000 shares at a discounted prevailing market value price. Since August 19, 1998, the implementation of the ESOP has been permanently suspended. The treasury stock as at August 31, 2014, 2013 and 2012 represented the ESOP shares withdrawn, decrease in treasury stock due to recapitalization, and investments of the consolidated subsidiaries in the Company, as follows:

2014 2013 2012

ESOP shares withdrawn P54 P54 P54 Decrease in shares held in treasury due

to retirement (4) (4) (4)Decrease in treasury stock due to

recapitalization (39) (39) (39)

P11 P11 P11

The Company’s overall capital management strategy remains unchanged from 2010. The Company is not subject to externally-imposed capital requirements.

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18. Earnings Per Share a. Basic Earnings Per Share (EPS)

Note 2014 2013 2012

(In Thousands, Except Per Share Data)

Net income for the year P947,102 P704,450 P539,607

Beginning shares of stock outstanding 2,297,485 2,024,627 1,905,999

Weighted average number of shares resulting from the conversion of convertible notes 46,700 181,905 79,085

Less: Treasury stock 17f (11) (11) (11)


Basic EPS P0.40 P0.32 P0.27

b. Diluted EPS

Note 2014 2013 2012 (In Thousands, Except Per Share Data)

Net income for the year P947,102 P704,450 P539,607Add back interest expense on

convertible notes 16b3 230,504 186,136 137,218

Net income after adjustment 1,177,606 890,586 676,825


Add: Assumed issued common shares through conversion of convertible notes 1,228,432 1,798,374 2,019,822

Total weighted average number of shares actually issued and assumed issued through conversion of remaining convertible notes 3,572,606 4,004,895 4,004,895

Diluted EPS P0.33 P0.22 P0.17 As at August 31, 2014, the Company has only convertible notes awaiting conversion amounting to P1.23 billion, while in 2013 and 2012, the Company has outstanding convertible notes, including convertible notes awaiting conversion, amounting to P1.71 billion and P1.98 billion, respectively, which have been considered as dilutive potential common shares for 2014, 2013 and 2012 as their conversion to common shares would decrease the basic EPS from continuing ordinary operations for these years. The convertible notes which have outstanding balance of nil, P1.50 billion and P1.52 billion in 2014, 2013 and 2012, respectively, have been recorded in the books of account in accordance with the terms of the DRA as discussed in Note 16b2.

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19. Operating Segment Data The following table presents the revenue and profit information regarding operating segments for the years ended August 31, 2014, 2013 and 2012 and certain asset, liability and other information regarding operating segments as at August 31, 2014, 2013 and 2012 (in millions): 2014 Sugar Distillery Elimination Milling Operations Items Total

REVENUE External sales P4,742 P212 P - P4,954 Inter-segment sales - - - -

Total P4,742 P212 P - P4,954

RESULT Segment result P1,203 P54 P - P1,257Unallocated corporate expenses - - - (514)

Operating profit 1,203 54 - 743 Interest expense (231) - - (231)Interest income 10 - - 10 Rental income 13 - - 13 Foreign exchange gains - net - - - - Income tax expense (156) - - (156)Other income (expense) 568 - - 568

Net income for the year P1,407 P54 P - P947

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2013 Sugar Distillery Elimination Milling Operations Items Total


Total P4,319 P57 P - P4,376

RESULT Segment result P1,516 P20 P - P1,536 Unallocated corporate expenses - - - (894)

Operating profit 1,516 20 - 642 Interest expense (296) - - (296)Interest income 37 - - 37 Rental income 15 - - 15 Foreign exchange gains - net 8 - - 8 Net loss on sale or retirement of property, plant

and equipment - - - - Income tax expense (381) - - (381)Other income (expense) 679 - - 679

Net income for the year P1,578 P20 P - P704

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2012 Sugar Distillery Elimination Milling Operations Items Total


Total P4,570 P59 P - P4,629

RESULT Segment result P1,392 P - P - P1,392 Unallocated corporate expenses - - - (243)

Operating profit 1,392 - - 1,149 Interest expense (367) - - (367)Interest income 76 - - 76 Rental income 16 - - 16 Foreign exchange gains - net 1 - - 1 Net loss on sale or retirement of property, plant

and equipment - - - - Income tax expense (285) - - (285)Other income (expense) (50) - - (50)

Net income for the year P783 P - P - P540

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The following table presented the segment assets and segment liabilities as at August 31, 2014, 2013 and 2012 (in millions):

Segment Assets Segment Liabilities 2014 2013 2012 2014 2013 2012

Sugar milling P6,683 P6,766 P7,914 P2,346 P4,221 P6,315 Distillery operations 299 89 73 105 56 58 Eliminations - - - - - -

P6,982 P6,855 P7,987 P2,451 P4,277 P6,373

Operating Segments The Company is organized into the following operating units - sugar milling and distillery operations. A detailed description of each segment is set below: Sugar Milling Revenues from sugar milling consist of the following: a. sale of raw sugar and molasses (mill share) b. tolling fees For its raw sugar and molasses operations, the Company operates a raw sugar mill with a daily capacity of 15,000 metric tons. Cane supply is sourced from both district and non-district planters who have milling contracts with the Company. The production sharing agreement is 69.5% for planters and 30.5% for the Company. The Company also operates a refinery plant with a daily capacity of 27,000 Lkg (1 Lkg = 50 kilograms). To ensure maximum utilization of the refinery, the Company also provides toll refinery services to traders and planters for their raw sugar milled by other sugar centrals. Total sales to external customers to whom the Company made sales equal to or more than 10% of the total reported revenues amounted to P2.9 billion, P2.4 billion and P2.5 billion in 2014, 2013 and 2012, respectively. Distillery Operations The Company’s alcohol distillery division, which resumed operations in November 2011, started commercial operations in March 2013. For its operations, the division operates an alcohol production with an actual daily capacity of 20,000 liters and with molasses as the primary raw material. Molasses is sourced from sugar operations which produces it as a by-product. Segment Revenue and Expense The sugar operations production output is limited to servicing the needs of the domestic market. Its customers consist of sugar traders, sugar centrals, distributors, among others, which are generally situated in various parts of the Philippines, particularly the provinces of Negros Occidental, Iloilo and Metro Manila. Joint revenues and expenses are allocated to the various business segments. All other segment revenues and expenses are directly attributable to the segments.

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Segment Assets and Liabilities Segment assets include all operating assets used by a segment and consist principally of operating cash, receivables, inventories, prepaid expenses, and property, plant and equipment, net of related allowance and depreciation. The carrying amount of certain assets used jointly by the various segments is allocated to the segments on a reasonable basis. Segment liabilities include all operating liabilities and consist principally of trade payables, accruals, value added tax and other taxes, and customers’ deposits. Segment assets and liabilities do not include deferred income taxes. Inter-segment Transfers Segment revenues, expenses and results include transfers between business segments. Such transfers are accounted for at competitive market prices for similar goods, except for inter-departmental services being performed by the engineering division which are charged at cost. These transfers are eliminated in the consolidation of the accounts.

20. Revenue From Operations This account consists of:

Note 2014 2013 2012

Raw sugar sales 27a P3,157,293 P2,746,646 P3,058,198Tolling revenues 1,399,690 1,366,154 1,371,604Alcohol 212,058 57,149 59,411Molasses 185,025 205,834 127,960Engineering contracts - - 12,259

P4,954,066 P4,375,783 P4,629,432

In 2012, the Company ceases the engineering service for external parties and focuses solely on internal operation. This is presented as part of “Engineering contracts” account.

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21. Cost of Goods Manufactured and Sold This account consists of:

Note 2014 2013 2012

Cost of hauling P898,856 P902,449 P781,763Repairs and maintenance 540,223 658,830 472,873Materials and supplies 392,110 316,154 339,279Depreciation 11 239,644 254,950 244,399Professional fees and contracted

services 230,384 309,555 291,073Fuel 210,357 173,195 229,209Input tax allocable to exempt sales 81,520 60,508 79,522Salaries and employee benefits 25 79,439 6,882 3,989Light and water 72,700 63,464 69,973Taxes and licenses 48,726 50,269 51,443Rental 27 7,359 2,379 5,418Insurance 5,209 5,091 5,184Raw sugar purchased 330 2,233 - Provisions for (recovery of) write-

down of inventory to NRV 8 (20,529) 22,194 1,700Others 47,454 8,510 12,840

Total cost of goods manufactured 2,833,782 2,836,663 2,588,665Inventories, beginning of year 8 381,607 327,869 927,271Inventories, end of year 8 (212,062) (381,607) (327,869)

P3,003,327 P2,782,925 P3,188,067

Cost of hauling refers to cane trucking, hauling allowances and other incentives to encourage planters to mill with the Company.

22. Other Income (Expense) This account consists of:

2014 2013 2012

Other income P23,893 P786,349 P93,233Other expense (50,626) (46,746) (50,431)

(P26,733) P739,603 P42,802

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Other income consists of the following:

Note 2014 2013 2012

Rental income 12, 26 P13,256 P14,956 P16,111Interest income 6, 13 10,300 36,896 75,643Gain on sale of property, plant and

equipment 11 337 268 - Gain on extinguishment of

liability 15, 16 - 279,176 - Curtailment gain 25 - 19,731 - Fair value gain on investment

property 12 - 427,138 - Foreign exchange gain - 8,184 1,479

P23,893 P786,349 P93,233

Other expense consists of the following:

Note 2014 2013 2012

Amortization of discount on provisions 15 P39,341 P38,824 P44,606

Trust fees - 3,993 1,892Bank charges 405 552 334Foreign exchange loss 342 - - Loss on disposal and retirement of

property, plant and equipment 11 56 - - Others 10,482 3,377 3,599

P50,626 P46,746 P50,431

Others consist mainly of guest accommodation expenses and various individually insignificant expenses. Moreover, “Others” in 2014 includes casualty loss amounting to P0.73 million due to Typhoon Yolanda which is already netted by the claim from the insurer (see Notes 8 and 11).

23. Operating Expenses This account consists of: Selling Expenses

Note 2014 2013 2012

Freight and handling P20,261 P9,206 P19,131 Taxes and licenses 13,065 13,125 11,196 Rental 27 12,639 14,491 7,300 Materials and supplies 9,784 4,165 4,520Depreciation 11 6,801 2,754 2,542 Salaries and employee benefits 25 3,705 1,369 807 Repairs and maintenance 2,685 4,016 2,809 Others 7,780 7,931 2,586 P76,720 P57,057 P50,891

Others consist mainly of insurance expenses, travel and transportation expenses.

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General and Administrative Expenses

Note 2014 2013 2012

Professional fees and contracted services P170,887 P130,468 P102,386

Provision for sugar claims 15 207,274 527,953 - Travel and transportation 36,480 22,342 21,796Salaries and employee benefits 25 27,877 14,904 8,050Taxes and licenses 16,221 15,090 14,244Retrenchment cost 10,100 - - Depreciation 11 8,435 11,452 16,323Representation and entertainment 6,999 6,985 7,175Repairs and maintenance 5,340 4,698 9,501Retirement benefit 25 3,653 6,229 6,613Communication 3,395 2,578 3,282Supplies 3,089 2,296 2,200Insurance 2,895 3,620 3,753Rental 27 356 713 712Impairment losses 11, 13, 26 35 136,023 35,787Others 11,030 8,765 9,748 P514,066 P894,116 P241,570

24. Income Taxes The breakdown of income tax expense recognized in the in separate statements of comprehensive income follows:

2014 2013 2012

Recognized in profit or loss Current P305,163 P407,638 P328,568Deferred (149,549) (26,355) (43,945)

P155,614 P381,283 P284,623

2014 2013 2012

Recognized in other comprehensive income

Deferred (P444) P52,921 P -

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The reconciliation of income tax expense computed at the applicable statutory rates to tax expense is as follows:

2014 2013 2012

Income before income tax P1,102,716 P1,085,733 P824,230

Tax expense at 30% P330,815 P325,720 P247,269Effect of non-deductible and non-taxable

items: Realization of previously unrecognized

deferred tax (172,122) - - Non-deductible interest and other

expense - 65,862 50,527Interest income subject to final tax (3,090) (11,069) (22,693)Other non-deductible expenses 11 770 9,520

P155,614 P381,283 P284,623

The composition of “Deferred tax liabilities - net” account as reported in the separate statements of financial position follows:

August 31, 2014 Balance

September 1, 2013

Recognized in Profit or

Loss

Recognized in Other


Balance August 31, 2014

Deferred tax liabilities: Net appraisal increase

of property, plant, and equipment P423,980 (P8,318) P - P415,662

Fair value gain on investment properties 330,049 - - 330,049

Unrealized foreign exchange gain 3 (3) - -

754,032 (8,321) - 745,711

Deferred tax assets: Provisions 252,582 73,985 - 326,567 Accrued expense - 72,838 - 72,838 Retirement benefit

obligation 2,158 554 444 3,156 Unrealized foreign

exchange loss - 10 - 10 Allowance for

impairment losses on receivables, allowance to reduce materials and supplies to NRV and impairment losses on investments in subsidiaries 18,566 (6,159) - 12,407

273,306 141,228 444 414,978

P480,726 (P149,549) (P444) P330,733

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August 31, 2013 Balance

September 1, 2012

Recognized in Profit or

Loss

Recognized in Other


Balance August 31, 2013

Deferred tax liabilities: Net appraisal increase

of property, plant, and equipment P431,733 (P60,674) P52,921 P423,980

Fair value gain on investment properties 202,335 127,714 - 330,049

Unrealized foreign exchange gain 23,938 (23,935) - 3

658,006 43,105 52,921 754,032

Deferred tax assets: Provisions 166,302 86,280 - 252,582 Retirement benefit

obligation 25,786 (23,628) - 2,158 Unrealized foreign

exchange loss - - - - Allowance for

impairment losses on receivables, allowance to reduce materials and supplies to NRV and impairment losses on investments in subsidiaries 11,758 6,808 - 18,566

203,846 69,460 - 273,306

P454,160 (P26,355) P52,921 P480,726

The Company expects that it will have sufficient taxable profits for which it can use the subsequent benefits of the deferred tax assets related to the provisions, retirement benefit obligation and allowances for impairment losses on receivables, allowance to reduce materials and supplies to NRV and impairment losses on investments in subsidiaries, which are expected to reverse in the foreseeable future. Previously, the Company did not recognize deferred tax on accrued interest on convertible notes as it was expected before that the convertible notes and related accrued interest will be converted to equity. In 2014, following redemption and payment of the convertible notes and the related accrued interest, the Company realized the previously unrecognized deferred tax on accrued interest.

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25. Personnel Costs and Expenses a. Composition of Personnel Costs and Expenses

The following are the details of the personnel costs and expenses and the distribution:

Note 2014 2013 2012

Cost of Goods Manufactured and Sold

Salaries and employee benefits 21 P79,439 P6,882 P3,989

Selling Expenses Salaries and employee benefits 23 3,705 1,369 807

General and Administrative Expenses 23

Salaries and employee benefits 27,877 14,904 8,050Retirement benefits 25c, 23 3,653 6,229 6,613 P114,674 P29,384 P19,459

b. Voluntary Attrition Program

In 2010, the Company implemented a voluntary attrition program (VAP) affecting all of its employees. As a result of the VAP, the Company outsources its production, finance and administration. However, some key personnel were hired by the Company as regular employees.

c. Retirement Benefits The Company has an unfunded, non-contributory defined benefit plan covering all of its permanent employees. Contributions and costs are determined in accordance with the actuarial studies made for the plan. Annual cost is determined using the projected unit credit method. The Company’s latest actuarial valuation date is August 31, 2014. Valuations are obtained on a periodic basis. The pension benefit under the Miguel J. Ossorio Pension Foundation, Inc (MJO Pension Plan) was based on the basic monthly salary plus additional components which comprised the employee-member’s total gross earnings for purposes of benefit computation. Pension benefits are paid monthly over the lifetime of the Pensioner. For the active employees, the Company does not have an established retirement plan and only conforms to the minimum regulatory benefit under the Retirement Pay Law (Republic Act. No. 7641) which is of the defined benefit type and provides a retirement benefit equal to 22.5 days pay for every year of credited services. The regulatory benefit is paid in a lump sum upon retirement. The benefits are 75.30% of the monthly basic pay multiplies to the number of credited year of service.

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The Company’s reconciliation of the retirement benefit obligation shown in the separate statements of financial position is as follows:

2014 2013 2012

Balance at beginning of the year P7,194 P85,956 P91,469

Included in Profit or Loss Current service cost 3,330 - - Interest cost 323 6,229 6,613 Curtailment gain - (19,731) -

3,653 (13,502) 6,613

Included in Other Comprehensive Income

Remeasurement losses (gains) due to: Changes in financial assumptions 24,885 - - Changes in demographic

assumptions - - - Experience (23,406) - -

1,479 - -

Other Benefits paid (1,806) (65,260) (12,126)

Balance at end of the year P10,520 P7,194 P85,956

The amounts recognized in the separate statements of comprehensive income in respect of this defined benefit plan are as follows: Note 2014 2013 2012

Under “General and administrative expenses” account as “Retirement benefit”: 23, 25a Current service cost P3,330 P - P - Interest cost 323 6,229 6,613

Under “Other income” account: 22 Curtailment gain - (19,731) -

P3,653 (P13,502) P6,613

The Company is not expected to contribute to the fund in 2015. The key assumption used in determining the Company’s retirement benefit expense and liability follow:

Valuation at 2014 2013 2012

Discount rate 4.36% 3.61% 5.33% Salary increase rate 3.00% n/a n/a

Assumption regarding the mortality is based on the 1994 Group Annuity Mortality Table - Generational (Scale AA, Society of Actuaries).

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The weighted-average duration of the defined benefit obligation is 10.8 years, 12.8 years and 14.7 years as at August 31, 2014, 2013 and 2012. Maturity analysis of the benefit payments is as follows:

2014

Carrying Amount

Contractual Cash Flows

Within1 Year

Within 1 - 5 Years

Within 5 - 10Years

Retirement liability P10,520 P43,815 P540 P11,341 P31,934

Sensitivity Analysis Reasonable possible changes at the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant, would have affected the defined benefit obligation by the amounts shown below.

Retirement Liability 2014 Increase Decrease

Discount rate (1% movement) (P845) P978 Expected rate of salary increases (1% movement) 397 (350)

Although the analysis does not take account of the full distribution of cash flows expected under the plan, it does provide an approximation of the sensitivity of the assumption shown. Should there be no attrition rate, the Company’s retirement liability is expected to increase in the amount of P0.21 million in 2014. There are no unusual or significant risks to which the Pension Plan and Retirement Obligation expose the Company. However, in the absence of any Plan Assets, it should be noted that benefit claims under the Pension Plan require monthly payments from the Company for as long as there are Pensioners. On the other hand, in the event of a benefit claim under the Retirement Obligation, the full regulatory benefit shall immediately be due and payable from the Company. Asset-liability Matching Since the plan is still unfunded, there are no plan assets to match against the plan liabilities. Funding Policy Benefit claims are paid directly by the Company when they become due. Hence, there is no expected contribution to the defined benefit retirement plan in 2015.

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26. Related Party Transactions The Company’s related party transactions include transactions with its subsidiaries and its key management personnel. In the normal course of business, the Company transacts with these related parties, which are defined in PAS 24, Related Party Disclosures. These transactions consist of:

Outstanding Balances Category/

Transaction Year Note Amount of

Transactions Advances to Subsidiaries Payables Terms and Conditions

Subsidiaries

VQPC Revenues 2014 26a P33 P - P - One year,

2013 26a 66 - - automatically 2012 26a 66 - - renewable for another

year unless terminated by both parties, impaired and net of allowance

Purchases 2014 26b - - - 30 to 60 days 2013 26b - - - established at cost plus 2012 26b 62,854 - - a certain mark-up

VFC Revenues 2014 26a 1,955 2,092 - Cost plus a

2013 26a 497 136 - certain mark-up 2012 26a 936 - - 30 to 60 days

Purchases 2014 26b 711 - 6 established at cost plus 2013 26b 741 - 7 a certain mark-up 2012 26b 643 - 91

CDC Lease 2014 26b 40 - 160 One year,

2013 26b 40 - 120 automatically 2012 26b 40 - 2,701 renewable for another

year unless terminated by both parties, impaired and net of allowance

Expense 2014 26c 1,457 7,999 - No definite Accommodations 2013 26c 1,554 6,542 - repayment date, with

2012 26c 530 5,063 - annual interest of 10%.

VALCO Lease 2014 26b 15 - 29 One year,

2013 26b 15 - 15 automatically 2012 26b 15 - 910 renewable for another

year unless terminated by both parties

Expense 2014 26c 91 106 - No definite accommodations 2013 26c 102 132 - payment and non

2012 26c 30 23 - interest - bearing

VGCCI Expense 2014 26c 1,061 24,889 - Noninterest -

accommodations 2013 26c 1,123 25,295 - bearing, no definite 2012 26c 741 25,722 - repayment date

Key Management Personnel

Short-term 2014 10,100 - - employee benefit 2013 56,999 - - 2012 34,539 - -

Total 2014 P35,086 P195

Total 2013 P32,105 P142

Total 2012 P30,808 P3,702

The above noninterest-bearing advances do not have definite maturities and are not expected to be realized within one year from reporting date.

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The carrying amounts of advances to and from subsidiaries approximate their respective fair values as they represent the expected cash flow should they be settled or realized at the reporting date. The outstanding receivables arising from expense accommodations and cash advances to and from subsidiaries as the need arises are summarized below:

2014 2013 2012

CDC P53,194 P51,737 P50,258 VGCCI 24,889 25,295 25,722 VQPC 13,993 13,958 11,394 VFC 2,092 136 - VALCO 106 132 23

94,274 91,258 87,397 Less allowance for impairment loss

on VQPC and CDC 59,188 59,153 56,589

P35,086 P32,105 P30,808

The movement in the allowance for impairment loss follows:

Note 2014 2013 2012

Balance at beginning of year P59,153 P56,589 P45,195Provision during the year 23 35 2,564 11,394 P59,188 P59,153 P56,589

The outstanding payables arising from the abovementioned related party transactions are presented in the separate statements of financial position as:

Note 2014 2013 2012

Trade and other payables 14 P6 P7 P91Advances from subsidiaries 189 135 3,611

P195 P142 P3,702

a. Sale of Goods and Services

VFC Revenue from VFC pertains to sale of sugar, tolling fees and others. VQPC Revenue from services to VQPC pertains to the lease of land owned by the Company at P0.07 million per year. The lease agreement is cancellable. The term of the lease is for a period of one year, automatically renewable for another year unless terminated by both parties. The advances to subsidiaries pertaining to VQPC for the years ended August 31, 2014, 2013 and 2012 amounted to nil which are reported net of allowance for impairment of to P13.99 million, P13.93 million and P11.39 million, respectively.

b. Purchases of Goods/Production Supplies VFC Purchases from VFC pertain to advances for expenses.

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VQPC Purchases from VQPC pertains acquisition of polyethylene bags which is at cost plus a certain mark-up. CDC Lease to CDC pertains to the right to occupy and use a portion of CDC’s land for its engineering complex, for a period of 20 years until August 31, 2019, with an annual lease of P40,040. The future minimum annual lease commitments arising from operating leases are as follows:

2014 2013 2012

Within one year P40 P40 P40More than one year but not more than

five years 160 160 160More than five years - 40 80

P200 P240 P280

VALCO Lease from VALCO pertains to the use of land by the Company. The lease is for one year at P14,650 which is automatically renewable for another year unless terminated by both parties.

c. Expense Accommodations CDC Expense accommodations to CDC pertain to the managerial services, memorial park and office power consumption that are paid by the Company. These are recorded as advances with no definite repayment date that bears an annual interest of 10%. Interest on these advances for the years ended August 31, 2014, 2013 and 2012 amounted to P0.99 million. Advances to subsidiaries pertaining to CDC for the years ended August 31, 2014, 2013 and 2012 amounted to P8.01 million, P6.54 million and P5.06 million, respectively, which are reported net of allowance for impairment of P45.20 million for the years ended August 31, 2014, 2013 and 2012. VALCO Expense accommodations to VALCO pertain to accounting and managerial services that are paid by the Company. VGCCI Expense accommodations to VGCCI pertain to expenditures incurred in the development of the golf course which were advanced by the Company. These are partially paid through the application of a portion of the Company’s annual membership dues.

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27. Agreements and Commitments The significant agreements at August 31, 2014, 2013 and 2012 were as follows: a. Milling contracts with various planters provide for a 69.5% share to the planters

(including related parties) and 30.5% share to the Company of sugar and molasses produced from sugar canes milled. The milling contracts are renewed annually. Raw sugar sales as at August 31, 2014, 2013 and 2012 amounted to P3.16 billion, P2.75 billion and P3.06 billion, respectively (see Note 20).

b. As at August 31, 2014, 2013 and 2012, the Company had in its custody sugar owned

by several quedan holders and sugar traders of approximately 0.40 million Lkg, 0.60 million Lkg and 0.60 million Lkg, respectively. The estimated market values of these sugar inventories amounted to P0.84 billion, P1.14 billion and P1.31 billion, respectively. These sugar inventories are not reflected in the separate statements of financial position since these are not assets of the Company. The Company is accountable to both quedan holders and sugar traders for the value of these trusteed sugar or their sales proceeds.

c. In 1993, the Company has entered into a deed of assignment and exchange of shares

of stock with VGCCI for the latter to issue shares of stock with a total par value of P224 thousand in exchange for the Company’s land with an appraised value of P13,205,970, the difference of P12,981,970 to be accounted for as additional paid-in capital of the Company to VGCCI. As provided for in the agreement, VGCCI is in possession of the above-mentioned land without any consideration until such time that the assignment of the aforementioned land is completed. As at August 31, 2014, the certificate of title has not yet been transferred in the name of VGCCI since the land to be transferred is covered by the MTI of the Company with various creditor banks as disclosed in Note 16. Hence, the transaction is on hold until the subject land is released as collateral.

d. The Company leases certain machineries and equipment from third parties for terms of one year, subject to yearly renewal. Total rent expense is charged to the following: Note 2014 2013 2012

Cost of goods manufactured and sold 21 P7,359 P2,379 P5,418

Operating expenses: 23 Selling 12,639 14,491 7,300 General and administrative 356 713 712

P20,354 P17,583 P13,430

28. Provisions and Contingencies The Company’s legal proceedings discussed below are not disclosed in detail so as not to seriously prejudice the Company’s position on the said disputes.

a. RSDOs and RSQs Claims

NONEMARCO used RSDOs and RSQs allegedly issued by the Company to avail of bank loans totaling to about P630 million. Several creditor banks filed collection cases against NONEMARCO aggregating to P1.19 billion.

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The Company denied liability as these RSDOs and RSQs claims lacked any factual or legal basis and that the officers who issued them acted fraudulently. The SEC, in its order dated March 26, 2013, ordered the dismissal and exclusion from the rehabilitation proceedings the “Claim” (dated October 9, 1998) and “Amended Claim” (dated September 23, 1999) of a claimant-bank.

b. Labor, Civil and Other Cases There are various lawsuits and claims such as labor cases, collection disputes and assessments filed by third parties against VMC which are either pending decision by the proper judicial bodies or under negotiation, the outcome of which are presently undeterminable. Relative to this, VMC is required to put up cash surety bonds (see Note 13).

c. Proceeding with Pollution Adjudication Board (PAB) On September 22, 2003, the Company received an order issued by the PAB directing the former to permanently seal the opening of the underground canal leading to Malihao river; provide protective lining in the pond immediately; and show cause within five (5) days from receipt of order why a cease and desist order should not be imposed on the Company by the DENR for non-compliance with both water and air standards. The Management of the Company has placed the handling of pollution problems on its priority list and is now addressing it to comply with the applicable environmental compliance requirements. The Company submitted a number of pleadings to the PAB in order to avert a re-imposition of the Cease and Desist Order on which PAB issued temporary lifting order (TLO). As at August 31, 2014, the Company was issued by PAB with a one-year TLO dated May 20, 2014 and is effective until May 20, 2015. As at August 31, 2014, the Company acquired or constructed and installed certain air and water pollution control devices to comply with the order of the Department of Environment and Natural Resources (DENR) accumulating to P349.28 million. Moreover, the Company is committed for acquisition or construction and installation of more similar pollution control devices amounting to P40 million as at August 31, 2014 (see Note 11).

The Company’s management and legal counsels have made judgment that, while the legal proceedings briefly discussed above are legally defensible, they cannot anticipate with certainty the progress and the outcome of the legal proceedings, the appreciation of the available evidences by the relevant courts or tribunal involved and the evolution of jurisprudence or similar cases that will be decided by the highest court, which will be relevant to pending cases. With due consideration of prior decision involving similar cases and for prudent financial reporting, the Company recognized provisions (see Note 15). The other information normally required to be disclosed under PAS 37 is not disclosed by management so as not to seriously prejudice the Company’s position on the said disputes.

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29. Events After Reporting Date The following are the events after reporting date: a. Events related to redemption of the remaining convertible notes

On September 26, 2014, the checks payable for EWB’s convertible notes amounting to P366.13 million, which were refused and returned by EWB, were consigned to SEC-appointed rehabilitation receiver for custodianship (see Notes 14 and 16). Subsequently, EWB, in a letter dated October 14, 2014, gave VMC a notice that it is exercising its option to convert its convertible notes in accordance with Section 16 (h) of the DRA. VMC, in return, informed EWB, in a letter dated October 15, 2014, that there are no more outstanding convertible notes in VMC’s records and that the said convertibles notes had been paid/redeemed already and that the checks issued by VMC for the payment have been consigned with the SEC-appointed rehabilitation receiver in view of EWB’s refusal to accept the same. Subsequently, on November 11, 2014, EWB filed a motion dated November 5, 2014 with the SEC asking SEC to compel VMC to allow EWB to exercise its option for the conversion of the unconverted convertible notes. In response to the order of the SEC dated November 13, 2014, VMC and the SEC-appointed rehabilitation receiver filed their comments on the motion to the SEC on December 9 and December 2, 2014, respectively. The SEC-appointed rehabilitation receiver’s comments submitted to the SEC include a recommendation for the denial of the motion filed by EWB. To date, the SEC has yet to act on the motion filed by EWB.

b. Events related to capitalization and compliance with DRA

On September 26, 2014, to comply with the provisions of the DRA, BOD approved the issuance of 272,857,968 shares in compliance with the mandatory conversion into equity of the convertible notes amounting to P272,857,968. In order to effect the foregoing: 195,500,794 shares were issued out of VMC’s unissued capital stock on

October 13, 2014; and,

The balance of 77,357,174 shares will be issued out of and in support of an increase in VMC’s authorized capital stock from 2,563,035,708 to 2,640,392,882. The application for the increase in VMC’s authorized capital stock was filed with the SEC on December 5, 2014.

On November 20, 2014 and December 5, 2014, the filing of a listing application with the PSE was made covering the 195,500,794 shares and 77,357,174 shares, respectively.

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30. Risk Management, Objectives and Policies Regulatory Risk The Company is subject to laws and regulations in the Philippines in which it operates. The Company has established policies and procedures in compliance with local and other laws. Management performs regular reviews to identify compliance risks and to ensure that the systems in place are adequate to manage those risks. In 1992, the ASEAN economic ministers signed the ASEAN Free Trade Agreement (AFTA) on the Common Effective Preferential Tariffs (CEPT) for the ASEAN Free Trade Area. The AFTA committed the ASEAN member-states to set-up a free trade area in the region, reducing most tariffs on trade within the region. Sugar is one of the products affected by the gradual tariff reduction as follows:

Year Tariff Rate

2012 28% 2013 18% 2014 10% 2015 5%

Relative to AFTA, on June 17, 2012, the Philippine government passed Executive Order No. 892 adopting the above-yearly gradual reduction of duty on imported sugar in compliance with the AFTA. Financial Risk Management The Company’s financial instruments comprise of cash and cash equivalents, trade and other current receivables, advances to and from subsidiaries, other noncurrent assets, trade and other current payables and long-term debts. The main purpose of these financial instruments is to raise finances for the Company’s operations. The Company has exposure to the following risks from its use of financial instruments: Credit Risk Liquidity Risk Market Risk

The BOD has overall responsibility for the establishment and oversight of risk management framework. Moreover, market and credit risk management is carried out by the Company’s Treasury Group. The objective is to minimize potential adverse effects on its financial performance due to unpredictability of financial markets. Credit Risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company trades only with recognized and creditworthy third parties. It is the Company’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis. The amounts presented in the separate statement of financial positions are net of allowances for impairment losses on receivables, estimated by the Company’s management based on prior experience and their assessment of the prevailing economic environment at any given time.

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As at August 31, 2014, 2013 and 2012, the aging profile of the Company’s financial assets is as follows:

Neither Past


and August 31, 2014 Total Impaired < 30 Days 31-60 Days 61-90 Days > 90 Days Impaired Trade and other

current receivables* P104,738 P99,611 P638 P58 P - P4,345 P86

Advances to subsidiaries 94,274 35,086 - - - - 59,188


P231,099 P158,391 P638 P58 P - P4,345 P67,667

* Excluding advances to suppliers ** Excluding land under dispute

Neither Past



Trade and other current receivables* P439,406 P436,576 P421 P39 P - P2,284 P86



P564,859 P494,483 P421 P39 P - P2,284 P67,632


Neither Past



Trade and other current receivables* P122,552 P115,982 P2,695 P49 P72 P3,668 P86


Other noncurrent assets** 1,804,874 1,796,981 - - - - 7,893

P2,014,823 P1,943,771 P2,695 P49 P72 P3,668 P64,568


At the reporting date, there were no significant concentrations of credit risk as the Company’s receivables are actively monitored. The credit quality of the Company’s financial assets that are neither past due nor impaired is considered to be of good quality and expected to be collectible without incurring any credit losses. Information on the Company’s trade and other current receivables and other noncurrent assets that are impaired as of August 31, 2014, 2013 and 2012 and the movement of the allowance used to record the impairment losses are disclosed in Notes 7 and 13 to the separate financial statements

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As at August 31, 2014, 2013 and 2012, the Company’s maximum credit exposure is equal to the carrying values of the following financial assets:

Note 2014 2013 2012

Cash and cash equivalents1 6 P964,993 P780,847 P1,003,675Trade and other current

receivables - net2 7 104,652 439,320 122,466Advances to subsidiaries3 26 35,086 32,105 30,808Other noncurrent assets4 13 32,087 25,802 1,796,981

P1,136,818 P1,278,074 P2,953,9301 Excluding cash on hand 2 Excluding advances to suppliers and net of impairment loss 3 Net of impairment loss 4 Excluding land under dispute and net of impairment loss

Liquidity Risk Liquidity risk is the risk of not meeting obligations as they become due because of an inability to liquidate assets or obtain adequate funding. The Company monitors and maintains a level of cash deemed adequate by the management to finance the Company’s operations and mitigate the effects of fluctuations in cash flows. The following tables summarize the maturity profile of the Company’s financial liabilities as at August 31, 2014, 2013 and 2012, based on contractual undiscounted payments:

Total

Carrying Contractual Undiscounted Payments August 31, 2014 Value Total On demand < 1 Year 1 to 5 Years > 5 Years


Advances from subsidiaries 189 189 189 - - -

P858,644 P858,644 P835,077 P23,567 P - P -

*Excluding payables to government and customers’ deposits

Total



Long-term debt 2,544,633 2,775,137 - - - 2,775,137Advances from

subsidiaries 135 135 135 - - -

P2,818,310 P3,048,814 P255,378 P18,299 P - P2,775,137

*Excluding payables to government and customers’ deposits

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Total



Long-term debt 4,826,907 5,352,966 - 654,389 1,435,336 3,263,241 Advances from

subsidiaries 3,611 3,611 3,611 - - -

P5,139,244 P5,665,303 P224,497 P742,229 P1,435,336 P3,263,241

* Excluding payables to government and customers’ deposits

Market Risk Market risk is the risk that fair value or cash flows of a financial instrument of the Company will fluctuate due to change in market prices. Market risk reflects interest rate risk, currency risk and other price risks. The Company’s market risk exposures and its risk management strategies in 2014, 2013 and 2012, are as follows: a. Interest Rate Risk

Interest rate risk is the possibility that changes in interest rates will affect future cash flows or the fair values of financial instruments. The Company’s exposure to the risk changes in market interest rates relates primarily to the Company’s interest-bearing bank loans and interest-bearing short-term placements. The Company minimizes its spread exposure by ensuring that surplus cash is available to either offset debt or by matching maturity dates of assets and liabilities. By these management approaches, possible market rate fluctuations would have no significant impact on the Company’s net income. The Company, however, has no significant interest rate risk considering that the Company has no significant financial instruments that bear variable interest rate as at August 31, 2014, 2013 and 2012.

b. Price Risk The Company is exposed to commodity price risk with respect to sugar produced. To manage this risk, the Company monitors prices with the SRA to plan its transactions. . As at August 31, 2014, 2013 and 2012, management assessed that the Company’s exposures to commodity price risk were insignificant. Sensitivity Analysis The following table demonstrates the sensitivity of the results of operations and the reported equity in regards to the Company’s sugar inventory and SRA’s sugar prices. It assumes a 21%, 13% and 15% increase as at August 31, 2014, 2013 and 2012, respectively and a 9%, 16% and 8% decrease as at August 31, 2014, 2013 and 2012, respectively, of the SRA sugar prices per year. These percentages have been determined based on average market volatility in sugar prices in the previous year for the twelve month ending August 31, 2014, 2013 and 2012, respectively.

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The sensitivity analysis includes only sugar inventory denominated monetary items (in thousands) at year end and adjusts their value at the year-end for the following percentage change in sugar prices.

August 31, 2014 +21% -9%


August 31, 2013 +13% -16%


August 31, 2012 +15% -8%


c. Foreign Currency Risk

The Company’s currency risk occurs because of its US dollar (USD) denominated loans and bank deposits. The financial assets and liabilities of the Company that are foreign currency denominated are a portion of the Company’s cash and cash equivalents and portion of its bank loans. The Company’s exposures to foreign currency risk based on notional amounts are as follows (in thousands):




Net Foreign Currency Exposure $2 P100




Net Foreign Currency Exposure $5 P213



Financial Liability Bank loans (7,834) (331,514)

Net Foreign Currency Exposure ($7,830) (P331,345)

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The Company recognized a net unrealized loss of P0.03 million and P79.79 million and P10.54 million for the years ended August 31, 2014, 2013 and 2012, respectively, arising from the re-measurement of these foreign currency-denominated financial instruments. The following exchange rates were applied during the year:

August 31, 2014

Average Rate

for the Year Reporting Date

Spot Rate


August 31, 2013

Average Rate

for the Year Reporting Date

Spot Rate


August 31, 2012

Average Rate for

the Year Reporting Date

Spot Rate


Sensitivity Analysis The following table demonstrates the sensitivity of the results of operations for the periods and the reported equity in regards to the Company’s financial assets and financial liabilities and the US dollar-Philippine peso exchange rate. It assumes a 1.93%, 5.30% and 1.74% strengthening as at August 31, 2014, 2013 and 2012, respectively and a 2.03%, 2.36% and 2.32% weakening as at August 31, 2014, 2013 and 2012, respectively of the Philippine peso against the US dollar exchange rate. These percentages have been determined based on average market volatility in exchange rates in the previous year for the twelve month periods ended August 31, 2014, 2013 and 2012, respectively. The sensitivity analysis includes only outstanding foreign currency-denominated monetary items and adjusts their translation at the yearend for the following percentage change in foreign currency rates.

Strengthening Weakening 2014 2013 2012 2014 2013 2012 1.93% 5.30% 1.74% 2.03% 2.36% 2.32%

Net income (P2) (P11) P5,766 P1 P5 (P7,687)Equity (2) (11) 5,766 1 5 (7,687)

Exposures to foreign exchange rates vary during the year depending on the volume of foreign currency-denominated transactions. Nonetheless, the analysis above is considered to be representative of the Company’s currency risk.

Fair Value of Financial Assets and Liabilities The carrying values of cash and cash equivalents, trade and other current receivables and trade and other current payables approximate their fair values due to their short-term maturity of these instruments.

- 77 -

The carrying value of long-term debts approximates its fair value and is calculated by discounting the expected future cash outflows at prevailing effective interest rate. The carrying values of advances to and from subsidiaries approximate their fair values because they represent the expected cash flow should they be settled or realized at the reporting date.

31. Change in Accounting Policy As a result of the adoption of PAS 19 (Amended 2011), the Company has changed its accounting policy with respect to the elimination of the “corridor method” under which the recognition of actuarial gains and losses could be deferred. Instead, all actuarial gains and losses are recognized immediately in other comprehensive income. Furthermore, the Company determines the net interest expense or income on the net defined benefit liability or asset for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then net defined benefit liability or asset, taking into account any changes in the net defined benefit liability or asset during the period as a result of contributions and benefit payments. Consequently, the net interest on the net defined benefit liability or asset now comprises: interest cost on the defined benefit obligation, interest income on plan assets, and interest on the effect on the asset ceiling. Previously, the Company determined interest income on plan assets based on their long-term rate of expected return. The impact of the above changes on the Company’s financial position and comprehensive income as at and for the year ended August 31, 2014 is as follows (in thousands):

Increase

(Decrease)

Statement of Financial Position Deferred tax liabilities - net (P444)Retirement benefit obligation 1,479Retained earnings - Retirement benefit reserves (P1,035)

Statement of Comprehensive Income General and administrative expense P - Income tax expense -

Decrease in net income -

Remeasurement losses on defined benefit plan (1,479)Provision on deferred tax relating to remeasurement losses on

defined benefit plan 444

Decrease in OCI, net of tax (1,035)

Overall impact on total comprehensive income (P1,035)

Statement of Cash FlowsIncome before income tax P - Retirement benefits expense -

- 78 -

32. Supplementary Information Required by the Bureau of Internal Revenue (BIR) In addition to the disclosures mandated under PFRSs, and such other standards and/or conventions as may be adopted, companies are required by the BIR to provide in the notes to the basic separate financial statements, certain supplementary information for the taxable year. The amounts relating to such supplementary information may not necessarily be the same with those amounts disclosed in the notes to the basic separate financial statements which were prepared in accordance with PFRSs. The following is the supplementary tax information required for the taxable year ended August 31, 2014: I. Based on Revenue Regulations (RR) No. 19-2011

A. Sales/Receipts/Fees

Special Regular/

Exempt Rate Normal Rate Total

Sale of Goods Raw sugar sales P - P - P3,157,293 P3,157,293 Molasses - - 185,025 185,025 Alcohol sales - - 212,058 212,058

Sales of Services Tolling revenues - - 1,399,690 1,399,690

P - P - P4,954,066 P4,954,066

Amounts in thousands

B. Cost of Services

Special Regular/ Exempt Rate Normal Rate Total

Cost of Goods Sold and Services

Cost of hauling P - P - P757,755 P757,755 Repairs and maintenance - - 523,346 523,346 Materials and supplies - - 384,863 384,863 Professional fees and

contracted services - - 230,384 230,384 Depreciation - - 218,937 218,937 Fuel - - 182,800 182,800 Input tax allocable to

exempt sales - - 81,520 81,520 Salaries and employee

benefits - - 79,439 79,439 Light and water - - 72,700 72,700 Taxes and licenses - - 48,726 48,726 Rental - - 7,359 7,359 Insurance - - 5,209 5,209 Raw sugar purchased - - 330 330 Others - - 47,454 47,454

Total cost of goods manufactured - - 2,640,822 2,640,822

Decrease in inventories - - 169,545 169,545

P - P - P2,810,367 P2,810,367


- 79 -

C. Non-operating and Taxable Other Income

Special Regular/ Exempt Rate Normal Rate Total

Realized foreign exchange gain P - P - P9 P9

Rental income - - 13,256 13,256 Gain on property, plant and

equipment - - 337 337

P - P - P13,602 P13,602


D. Itemized Deductions

Special Regular/

Exempt Rate Normal Rate Total

Finance cost P - P - P804,648 P804,648 Professional fees and

contracted services - - 133,208 133,208 Salaries and employee

benefits - - 31,582 31,582 Taxes and licenses - - 29,286 29,286 Travel and transportation - - 26,628 26,628 Freight and handling - - 17,783 17,783 Rentals - - 12,994 12,994 Materials and supplies - - 12,873 12,873 Retirement benefit - - 11,906 11,906 Depreciation - - 8,212 8,212 Repairs and maintenance - - 8,046 8,046 Representation and

entertainment - - 6,999 6,999 Communication expense - - 3,395 3,395 Insurance - - 2,895 2,895 Others - - 29,635 29,635

P - P - P1,140,090 P1,140,090


II. Based on RR No. 15-2010

A. Value Added Tax (VAT)

1. Output VAT P195,885

Account title used: Basis of the Output VAT:

Vatable sales P1,632,378 Exempt sales 3,367,728Zero rated sales -

P5,000,106


The Company’s exempt sales on VAT pertain to sale of raw sugar and molasses pursuant to Section 109 (a) and (e) of the National Internal Revenue Code and Section 2(b) of RR No. 13-2008.

- 80 -

On September 19, 2008, BIR issued RR No. 13-2008, Section 2 (b) of it defines raw sugar as follows:

“(b) Raw Sugar - refers to sugar whose content of sucrose by weight in dry state, corresponds to a polarimeter reading of less than 99.5%. xxx”

On September 30, 2013, the BIR issued RR No. 13-2013 amending section 2 (b) of RR No. 13-2008 as follows:

“Section 2. Amendment - Section 2 (b) of RR No. 13-08, is hereby amended to read as follows:

(b) Raw Sugar - refers to sugar produced by simple process of conversion of sugar cane without a need of any mechanical or similar device such as muscovado. For this purpose, raw sugar refers only to muscovado sugar.

Centrifugal process of producing sugar is not in itself a simple process. Therefore, any type of sugar produced therefrom is not exempt from VAT.”

On October 2, 2013, a petition was filed by federations of sugarcane planters for Declaratory Relief with Prayer for the issuance of Temporary Restraining Order and Writ of Preliminary Injunction before the court. On October 3, 2013, Regional Trial Court (RTC) 6th Judicial Region, Branch 60, Cadiz City, Negros Occidental issued a 72-hour Temporary Restraining Order (TRO) to maintain status quo and to cease and desist from implementing RR No. 13-2013 of the BIR that imposes VAT on raw sugar. On October 7, 2013, the same RTC issued another order extending the TRO for a period of 17 days from October 7, 2013. On October 23, 2013, Regional Trial Court (RTC) 6th Judicial Region, Branch 60, Cadiz City, Negros Occidental issued a Writ of Preliminary Injunction to maintain status quo and to cease and desist from implementing RR No. 13-2013 of the BIR that imposes VAT on raw sugar pending the determination on the merits of the case.

B. Input VAT

Beginning of the year P - Current year’s domestic purchases:

a. Capital goods P139 b. Goods other than capital goods 124,306 c. Services 38,808 163,253

Current year’s importation of goods other than capital goods 26,439

Input tax allocable to exempt sales (78,560)Input VAT credited as payment for output

VAT (111,132)

Balance at the end of the year P -


- 81 -

C. Custom Duties and Tariff Fees

Landed cost of imports P220,325 Customs duties paid or accrued 26,439

P246,764


D. Excise Tax

The Company incurred excise tax for quarry amounting to P228.80.

E. Documentary Stamp Tax

On share of stocks P350 On others 4,500

P4,850


F. Withholding Taxes

Tax on compensation and benefits P14,538 Creditable withholding taxes (expanded) 60,704

P75,242


G. All Other Taxes (Local and National)

Other taxes paid during the year recognized under under Cost of Sales and Operating ExpensesReal estate taxes P64,140 License and permit fees 2,632 Others 895 P67,667


COVER SHEET

P W - 3 6 4 S.E.C. Registration Number

V I C T O R I A S M I L L I N G C O M P A N Y , I N C .

(Company’s Full Name)

V I C T O R I A S C I T Y ,

N E G R O S O C C I D E N T A L

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

EVA A. VICENCIO-RODRIGUEZ (034) 399-3588 Contact Person Company Telephone Number

0 8 3 1 Consolidated Changes in the ACGR for 2013-2014

First Tuesday of February

Month Day FORM TYPE

Fiscal Year Annual Meeting

Secondary License Type, If Applicable

Dept. Requiring this Doc. Amended Articles Number/Section

Total amount of Borrowings

Total No. of Stockholders Domestic Foreign

------------------------------------------------------------------------------------------------------------------------------------------------------------

To be accomplished by SEC Personnel concerned

File Number LCU

Document I.D. Cashier

S T A M P S

Remarks = pls. use black ink for scanning purposes

CONSOLIDATED UPDATES/CHANGES IN THE ACGR

I. Update dated June 18, 2014, received by SEC on June 23, 2014 (Annex “A”)

A. BOARD MATTERS 1) Board of Directors Number of Directors per Articles of Incorporation Eleven (11) Actual number of Directors for the year Eleven (11)

(a) Composition of the Board

Complete the table with information on the Board of Directors:

Director’s Name

Type [Executive (ED), Non-Executive (NED) or

Independent Director (ID)]

If

nominee, identify the principal

Nominator in

the last election (if

ID, state the relationship

with the nominator)

Date first

elected

Date last elected (if ID,

state the number of

years served as ID)1

Elected when

(Annual /Special Meeting)

No. of years

served as

director

Atty. Brian Keith F. Hosaka

ID Premier Network Intl. Ltd.

Premier Network Intl. Ltd., Atty. Emmanuel S. Ypil, no relation

Feb. 7, 2012

*June 6, 2014 Board Meeting

2 years

Mr. Lucio K. Tan, Jr.

ID LT Group,

Inc.

LT. Group Inc., Atty. Cecille Pesayco, no relation

June 6, 2014

*June 6, 2014 Board Meeting

1 month

Dr. Alberto P. Fenix, Jr.

ID NARRA Capital Invest- ment Corp.

VCY Sales Corp. and Narra Capital Investment Corp.

Feb. 5, 2013

*Feb. 4, 2014

Annual Meeting

1 year

Mr. Eduardo V. Concepcion

ED Narra Capital Investment Corp. and Premier Network, Intl. Ltd.

Feb. 4, 2014

*Feb. 4, 2014

Annual Meeting

6 months

Atty. Anna Rosario V. Paner

ED CVI GVF (Lux)

Master S.A.R.L.

CVI GVF (Lux) Master S.A.R.L.

Feb. 6, 2007

*Feb. 4, 2014,

Annual Meeting

7 years

Mr. William Y. Chua

ID Narra Capital Invest- ment Corp.

MC Metroplex Holdings Corp. and Cecilia Javelona, no relation.

Feb. 4, 2014

*Feb. 4, 2014

Annual Meeting

6 months

1

Mr. Terence D. Son Keng Po

ED CVI GVF (Lux)

Master S.A.R.L.

Marylou SonKengPo, sister

Feb. 5, 2013

*Feb. 4, 2014 Annual Meeting

1 year

Mr. Michael G. Tan

ID Phil. National

Bank (PNB)

LT. Group Inc., PNB

Feb. 25, 2011

*Feb. 4, 2014, Annual Meeting

3 years

Mr. Alvin C. Yu ID Narra Investment Corp.

Reggie Hannah Y. Lorenzo, sister

Feb. 4, 2014

*Feb. 4, 2014

Annual Meeting

6 months

Mr. Martin C. Yu ID Narra Investm

ent Corp.

Narra Capital Investment Corp., Alvin C. Yu, brother

Feb. 4, 2014

*Feb. 4, 2014

Annual Meeting

6 months

Mr. Wilson T. Young

ID LT Group, Inc.

Sulasses Holdings, Inc.

April 30, 2004

*Feb. 4, 2014,

Annual Meeting

10 years

* Duly reported via SEC Form 17‐C on February 4, 2014 and June 6, 2014. (d) Directorship in Other Companies

(i) Directorship in the Company’s Group2

Identify, as and if applicable, the members of the company’s Board of Directors who hold the office of director in other companies within its Group:

Director’s Name Corporate Name of the Group Company

Type of Directorship (Executive, Non-Executive, Independent). Indicate if director is also the

Chairman. Anna Rosario V. Paner VMC Subsidiaries – Victorias

Foods Corp. (VFC), Victorias Agricultural Land Corp. (VALCO), Canetown Development Corp. (CDC), Victorias Quality Packaging Company Inc. (VQPC), and Victorias Golf & Country Club, Inc. (VGCCI)

Executive Director Chairman: VFC, VALCO, CDC & VQPC

Terence D. Son Keng Po VMC Subsidiaries - VFC, VGCCI & CDC

Executive Director

*Messrs. Enrique T. Chua, Jose M. Chan, Jr. and Armando A. Samia are no longer directors of VMC subsidiaries. Duly reported SEC Form 17‐C last April 24, 2014 and June 6, 2014.

(ii) Directorship in Other Listed Companies

Identify, as and if applicable, the members of the company’s Board of Directors who are also directors of publicly-listed companies outside of its Group:

Director’s Name Name of Listed Company Type of Directorship (Executive, Non‐Executive, Independent). Indicate if

director is also the Chairman. Wilson T. Young LT Group, Inc. Non‐Executive Director William Y. Chua None Eduardo V. Concepcion None Brian Keith F. Hosaka None Alberto P. Fenix, Jr. SPC Power Corp. Executive Director Anna Rosario V. Paner None Terence D. Son Keng Po None

2 The Group is composed of the parent, subsidiaries, associates and joint ventures of the company.

2

Michael G. Tan Allied Banking Corporation, Phil. National Bank, LT Group, Inc.

Executive Director

Lucio K. Tan, Jr. L. T. Group, Inc. Executive Director Martin C. Yu None Non‐Executive Director Alvin C. Yu None

(iii) Relationship within the Company and its Group

Provide details, as and if applicable, of any relation among the members of the Board of Directors, which links them to significant shareholders in the company and/or its group:

Director’s Name Name of the

Significant Shareholder Description of the relationship

Alvin C. Yu Narra Capital Investment Corp. brother of Mr. Martin C. Yu Martin C. Yu Narra Capital Investment Corp. brother of Mr. Alvin C. Yu Michael G. Tan LT Group, Inc. brother of Mr. Lucio K. Tan, Jr. Lucio K. Tan, Jr. LT Group, Inc. brother of Mr. Michael G. Tan

(e) Shareholding in the Company

Complete the following table on the members of the company’s Board of Directors who directly and indirectly own shares in the company:

Name of Director Number of Direct shares Number of

Indirect shares / Through (name of record owner)

% of Capital Stock

Wilson T. Young 300 0.000% Brian Keith F. Hosaka 1 1,000 0.000% William Y. Chua 1,000 500,000 0.000% Eduardo V. Concepcion 1,000 1,000 0.000% Alberto P. Fenix, Jr. 10,000 0.000% Anna Rosario V. Paner 2 1,000 0.000% Terence D. Son Keng Po 87,300 0.003% Michael G. Tan 60 0.000% Lucio K. Tan, Jr. 1,100 0.000% Alvin C. Yu 1 0.000% Martin C. YU 1 0.000% TOTAL 100,765 503,000 0.003% *Duly reported via SEC Form 23‐A on February 6, 7, 11 and June 13, 2014. D. REMUNERATION MATTERS

3) Aggregate Remuneration

Complete the following table on the aggregate remuneration accrued during the most recent year:

Remuneration Item Executive Directors

Non-Executive Directors (other than independent

directors)

Independent Directors

(a) Fixed Remuneration 12,278,823

(b) Variable Remuneration

(c) Per diem Allowance 576,470 694,117

(d) Bonuses 6,896,000 9,944,000

(e) Stock Options and/or other financial instruments

3

(f) Others (Specify) 4,088,235 4,147,000

Total 23,839,528 14,785,117

*As of May 31, 2014

5) Remuneration of Management

Identify the five (5) members of management who are not at the same time executive directors and indicate the total remuneration received during the financial year:

Name of Officer/Position Total Remuneration

Teresita V. Ilagan – Chief Finance Officer

Linley A. Retirado – Chief Manufacturing Officer

Victor T. Yu – Acting Chief Administrative Officer

Judy Anne G. Tiongco – Investor Relations Officer

Aggregate – 9,145,000

*As of May 31, 2014

Disclose the profile or qualifications of the Audit Committee members.

Terence D. Son Keng Po, age 45, is presently the Treasurer of the company. Moreover, he is the President of Victorias Foods Corporation (VFC). He is currently a Director of Victorias Golf & Country Club, Inc. (VGCCI) and Canetown Development Corporation (CDC). He served as a Director of Cargill Financial Services, Inc. and Carval Investor Services (both subsidiaries of Cargill, Inc.).

Dr. Alberto P. Fenix, Jr., age 69, currently chairs the Nomination, Corporate Governance and Compliance Committee of VMC. He is the President and CEO of the following corporations: Newtech Pulp, Inc. and Invoclar Vivadent, Inc. He is also the Executive Director of SPC Power Corporation and Chairman and President of Fenix Management and Capital, Inc. In addition thereto, he is the President Emeritus of the Philippine Chamber of Commerce and Industry and the trustee of Angeles University Foundation.

I. DISCLOSURE AND TRANSPARENCY a. Ownership Structure

1. Holding 5% shareholding or more

Shareholder Number of Shares Percent Beneficial Owner Premier Network International, Ltd.

642,173,474 27.124% Premier Network International, Ltd.

Narra Capital Investment Corp.

351,859,153 14.862% Narra Capital Investment Corp.

LT Group, Inc. 351,504,251 14.847% LT Group, Inc.

*As of June 30, 2014, based on Public Ownership Report

Name of Senior Management Number of Direct shares

Number of Indirect shares / Through (name of record owner)

% of Capital Stock

Eduardo V. Concepcion 1,000 1,000 0.000% Linley A. Retirado None None N.A. Teresita V. Ilagan None None N.A. Victor T. Yu None None N.A.

TOTAL 1,000 1,000 0.000%

4

1. External Auditor’s fee

Name of auditor Audit Fee Non-audit Fee MANABAT SANAGUSTIN & CO. (KPMG)

P2,840,000.00 net of VAT None

*Based on Annual Report CY 2012‐2013, p.30

5. Date of release of audited financial report: December 13, 2013 J. RIGHTS OF STOCKHOLDERS

(f) Stockholders’ Attendance

i. Details of Attendance in the Annual/Special Stockholders’ Meeting Held:

Type of Meeting

Names of Board members /

Officers present Date of Meeting

Voting Procedure (by poll, show of hands, etc.)

% of SH Attending in Person

% of SH in

Proxy

Total % of SH attendance

Annual

Wilson T. Young, Anna Rosario V. Paner, Michael G. Tan, , Jose M. Chan, Jr., Enrique T. Chua (Lee Keng), Alberto P. Fenix, Jr., Terence D. Son Keng Po, Eduardo V. Concepcion, William Y. Chua, Alvin C. Yu, Martin C. Yu Teresita V. Ilagan, Brian Keith F. Hosaka Eva V. Rodriguez,

February 4, 2014

No formal voting; number of nominees exactly the same as number of directors per By-laws.

Special None held in the recent years

(h) Definitive Information Statements and Management Report

Number of Stockholders entitled to receive Definitive Information Statements and Management Report and Other Materials

All stockholders as of Record Date, totaling 5,456. Record date was set to December 31, 2013.

Date of Actual Distribution of Definitive Information Statement and Management Report and Other Materials held by market participants/certain beneficial owners

January 13, 2014

Date of Actual Distribution of Definitive Information Statement and Management Report and Other Materials held by stockholders

January 13, 2014

5

State whether CD format or hard copies were distributed

CD Format, with a note that hard copies are available upon request.

If yes, indicate whether requesting stockholders were provided hard copies Yes

*Duly reported via SEC Form 17‐C last January 13, 2014. K. INVESTORS RELATIONS PROGRAM

2. Describe the company’s investor relations program including its communications strategy to promote

effective communication with its stockholders, other stakeholders and the public in general. Disclose the contact details (e.g. telephone, fax and email) of the officer responsible for investor relations.

Details

(1) Objectives Through website (2) Principles -same- (3) Modes of Communications -same- (4) Investors Relations Officer -Ms. Judy Anne Tiongco, (02)-733-8075;

[email protected] II. Updates dated July 1, 2014, received by SEC on July 4, 2014 (Annex “B”)

E. BOARD COMMITTEES

2) Committee Members

(b) Audit, Compensation & Remuneration Committee (Audit Committee) – as of July 2014

Office Name Date of Appointment

No. of Meetings Held

No. of Meetings Attended

During Incum-bency

%

Length of Service in

the Committe

e

Chairman Dr. Alberto P. Fenix, Jr.

*July 1, 2014 2 2 100% -

Member (ED) Terence D. Son Keng Po

*July 1, 2014 2 2 100% -

Member (NED)

Member (ID) Atty. Brian Keith F. Hosaka Lucio K. Tan, Jr. Martin C. Yu

*July 1, 2014 *July 1, 2014 *July 1, 2014

2

2 2

2

2 2

100%

100% 100%

- - -

• Duly reported via SEC Form 17‐C on July 1, 2014

Disclose the profile or qualifications of the Audit Committee members. Dr. Alberto P. Fenix, Jr., age 69, currently chairs the Audit Committee of VMC. He is currently the Chairman and President of Fenix Management and Capital, Inc. Chairman of Newtech Pulp, Inc., President of Ivoclar Vivadent, Inc., and Executive Director of SPC Power Corporation, a publicly listed company. He also serves as an Officer and Director in the subsidiaries and affiliates of the above companies. He graduated from the Ateneo de Manila Univeristy with a Bachelor’s Degree in Mathematics, and holds Masters and Doctorate degrees in Industrial Management from the Sloan School of Management of the Massachusetts institute of Technology. He was the 1998 and 1999 President of the Philippine Chamber of Commerce and Industry (PCCI), an up to the present, its Honorary President. Atty. Brian Keith F. Hosaka, age 43, is the Corporate Secretary and Direstor of VMC. He is one of the founding partners of Paner Hosaka & Ypil Attorneys-at-Law and has been in the practice of law since

6

1999. For the past five (5) years, he has acted as Director for the Quezon Coconut Producers Bank. Nota Bene, Xdot Inc., and TechBox International, Inc. He previously worked at the Supreme Court of the Philippines, and was connected with Coca-Cola Bottlers Philippines, Inc. He was also the former Deputy General Counsel of the Integrated Bar of the Philippines. Terence D. Son Keng Po, age 45, is presently the Treasurer of the Company and Chairman of the Risk and Corporate Governance Committee. Moreover, he is the President of Victorias Foods Corporation (VFC), and is currently a Director of Victorias Golf & Country Club, Inc. (VGCCI) and Canetown Development Corporation (CDC). He was formerly a Director of Carval Investors Services and Cargill Financial Services international, Inc. He was previously connected with McDonald’s Philippines, Procter and Gamble Philippines, and Sycip Gorres Velayo and Company. Lucio K. Tan, Jr., age 48, is presently one of the Directors of VMC. He was conferred a Master’s Degree under Executive Master of Business and Administration program (EMBA) jointly by Kellog School of Management of Northwestern University in the United States and Hong Kong University of Science and Technology as well as holding a BS in Civil Engineering from University of California, Davis. He is serving as the President and CEO of Tanduay Distiller’s Inc. and served MacroAsia Corporation in the same capacity. He is a member of the Board of Directors of the following companies: Phillip Morris Fortune Tobacco Corporation (PMFTC), Inc., Bulawan Mining Corporation, PNB Capital & Investment Corporation, PNB RCI Holding Co. Ltd., PNB (Europe) PLC, Philippine Airlines, Inc., PAL Holdings, Inc., Air Philippines Corporation, MacroAsia Corporation, Tanduay Holdings, Inc., Allied Bankers Insurance Corporation and Eton Properties Philippines., Inc. Martin C. Yu, age 39, obtained his Bachelor’s Degree in Management in Ateneo de Manila University in 1995. Presently, he serves as a Director of VMC. He has been serving as Director in VCY Sales Corporation since 1998. Moreover, he has been the President of Firefly Electric and Lighting Corporation since 2001 and Bright Summit Distribution Corporation since 2010. III. Current Updates/Changes 6) Orientation and Education Program

(b) State any in-house training and external courses attended by Directors and Senior Management3 for the past

three (3) years:

Continuing education programs for directors: programs and seminars and roundtables attended during the year.

CG Orientation Program attended by the Board and Officers on March 6, 2014 and June 5, 2014; duly reported via SEC Form 17C dated March 13, 2014 and June 10, 2014 respectively.

Name of Director/Officer Date of Training Program

Name of Training Institution

WILSON T. YOUNG MARCH 6, 2014 CG ORIENTATION PROGRAM Institute of Corporate Directors

ANNA ROSARIO V. PANER MARCH 6, 2014 CG ORIENTATION

PROGRAM Institute of Corporate Directors

ENRIQUE T. CHUA JUNE 5, 2014 CG ORIENTATION PROGRAM Institute of Corporate Directors

BRIAN KEITH F. HOSAKA JUNE 5, 2014 CG ORIENTATION


EDUARDO V. CONCEPCION MARCH 6, 2014 CG ORIENTATION


ALBERTO P. FENIX, JR. MARCH 6, 2014 CG ORIENTATION PROGRAM Institute of Corporate Directors

TERENCE D. SON KENG PO MARCH 6, 2014 CG ORIENTATION


3 Senior Management refers to the CEO and other persons having authority and responsibility for planning, directing and controlling the activities of the company.

7

http://en.wikipilipinas.org/index.php/Eton_Properties

TERESITA V. ILAGAN MARCH 6, 2014 CG ORIENTATION PROGRAM Institute of Corporate Directors

ANNE G. TIONGCO MARCH 6, 2014 CG ORIENTATION PROGRAM Institute of Corporate Directors

WILLIAM Y. CHUA JUNE 5, 2014 CG ORIENTATION PROGRAM Institute of Corporate Directors

LINLEY A. RETIRADO JUNE 5, 2014 CG ORIENTATION PROGRAM Institute of Corporate Directors

VICTOR T. YU JUNE 5, 2014 CG ORIENTATION PROGRAM Institute of Corporate Directors

B. Board Meetings and Attendance

2) Attendance of Directors in VMC Board Meetings from Sept. 1, 2013 to August 31, 2014.

Board Name Date of Latest Election

No. of Meetings Held During the

Year

No. of Meetings Attended

During Incumbency

%

Chairman Wilson T. Young Feb. 4, 2014 14 14 100%

Member **Jose M. Chan, Jr. Feb. 4, 2014 11 10 91%

Member **Enrique T. Chua (Lee Keng) Feb. 4, 2014 11 10 91%

Member Alberto P. Fenix, Jr. Feb. 4, 2014 14 12 86%

Member Anna Rosario V. Paner Feb. 4, 2014 14 14 100%

Member Terence D. Son Keng Po Feb. 4, 2014 14 12 86%

Member Michael G. Tan Feb. 4, 2014 14 10 71%

Member ****Eduardo V. Concepcion Feb. 4, 2014 8 8 100%

Member ****William Y. Chua Feb. 4, 2014 8 8 100%

Member ****Alvin C. Yu Feb. 4, 2014 8 8 100%

Member ****Martin C. Yu Feb. 4, 2014 8 8 100%

Member *****Brian Keith F. Hosaka June 6, 2014 9 9 100%

Member *Lucio K. Tan, Jr. June 6, 2014 3 2 67%

Member ***Armando O. Samia Feb. 4, 2014 6 6 100%

Member ***Hubert D. Tubio Feb. 4, 2014 6 5 83%

Member ***Emmanuel T. Velasco Feb. 4, 2014 6 6 100%

* Became a VMC Director on June 6, 2014 only. ** Resigned as VMC Director on June 6, 2014 *** No longer a VMC Director starting on Feb. 4, 2014 ASHM ****Became a VMC Director on Feb. 4, 2014 ASHM only

8

*****No longer a VMC Director on Feb. 4, 2014; elected as Director again on June 6, 2014 E. Board Committees

2) Committee Members

(a) Executive Committee – Feb. 2014‐Aug. 2014

Office Name Latest Date of Appointment

No. of Meetings Held for the

Period

No. of Meetings Attended During

Incumbency

% Total Length of Service in the Committee

Chairman Wilson T. Young Feb. 4, 2014 4 4 100% 10 years

Member (ED) Anna Rosario V. Paner Feb. 4, 2014 4 3 75% 7 years

Member (NED) Member (ID)

Alberto P. Fenix, Jr. William Y. Chua Alvin C. Yu Michael G. Tan *Jose M. Chan, Jr. Martin C. Yu *Eduardo V. Concepcion

Feb. 4, 2014 Feb. 4, 2014 Feb. 4, 2014 Feb. 4, 2014 Feb. 4, 2014 Feb. 4, 2014 July 1, 2014

4 4 4 4 4 4 4

3 2 4 2 3 4 1

75% 50% 100% 50% 75% 100% 25%

1 year 4 mos. 4 mos. 3 years 4 mos. 4 mos.

‐ • Mr. Chan resigned as VMC Director on June 6, 2014. Mr. Concepcion became a committee member on July 1, 2014

(c) Nomination Committee (Nomination, Corporate Governance and Compliance Committee) – Feb. 2014‐Aug. 2014

Office Name Latest Date

of Appointment


Period

No. of Meetings Attended During

Incumbency

% Total Length of Service in the Committee

Chairman Alberto P. Fenix, Jr.

Feb. 4, 2014 3 3 1 year

Member (ED) Anna Rosario V. Paner Feb. 4, 2014 3 2 7 yrs. Member (NED) Member (ID) Enrique T. Chua

Michael G. Tan Martin C. Yu *Brian Keith F. Hosaka *Wilson T. Young *William Y. Chua

Feb. 4, 2014 Feb. 4, 2014 Feb. 4, 2014 July 1, 2014 July 1, 2014 July 1, 2014

3 3 3 3 3 3

2 2 1 ‐ ‐ ‐

1 year 4 mos. 4 mos. 1 year

‐ ‐

• Atty. Hosaka, Messrs. Young and Chua became members of the committee on July 1, 2014

(d) HR, Compensation & Remuneration Committee (Human Resource & Remuneration Committee) – Feb. 2014‐Aug. 2014

Office Name Latest Date

of Appointment


Period

No. of Meetings Attended During Incum‐bency

%

Total Length of Service in

the Committee

Chairman William Y. Chua Feb. 4, 2014 3 3 100% 4 mos. Member (ED) Eduardo V. Concepcion Feb. 4, 2014 3 3 100% 4 mos. Member (NED)

9

Member (ID) Alvin C. Yu Martin C. Yu *Wilson T. Young

Feb. 4, 2014 Feb. 4, 2014 July 1, 2014

3 3 3

3 3 1

100% 100% 33%

4 mos. 4 mos.

‐ • Mr. Young became a committee member on July 1, 2014.

(e) Others (Specify) Legal Committee (Legal & Nominations Committee) – Feb. 2014‐Aug. 2014

Provide the same information on all other committees constituted by the Board of Directors:


No. of Meetings Held for the Period


%


the Committee

Chairman Anna Rosario V. Paner Feb. 4, 2014 4 4 100% 7 yrs. Member (ED) Member (NED) Member (ID) William Y. Chua

Michael G. Tan Terence D. Son Keng Po Wilson T. Young *Brian Keith F. Hosaka

Feb. 4, 2014 Feb. 4, 2014 Feb. 4, 2014 Feb. 4, 2014 July 1, 2014

4 4 4 4 4

3 1 3 4 1

75% 25% 75% 100%25%

4 mos. 4 mos. 4 mos. 9 yrs. ‐

• Atty. Hosaka became a committee member on July 1, 2014. He replaced Mr. Son Keng Po.

(f) Budget and Finance Committee (Budget Committee) – Feb. 2014‐Aug. 2014



Period

No. of Meeting

s Attended During Incum‐bency

%

Length of Service in

the Committee

Chairman Alvin C. Yu Feb. 4, 2014 3 3 100% 4 mos. Member (ED) Eduardo V. Concepcion Feb. 4, 2014 3 3 100% 4 mos. Member (NED) Member (ID) Jose M. Chan, Jr.

Enrique T. Chua Terence D. Son Keng Po *Brian Keith F. Hosaka *Lucio K. Tan, Jr.

Feb. 4, 2014 Feb. 4, 2014 Feb. 4, 2014 July 1, 2014 July 1, 2014

3 3 3 3 3

1 2 3 1 1

33% 66% 100% 33% 33%

6 yrs. 3 mos. 4 mos.

‐ ‐

• Due to the resignation of Messrs. Chan, Jr. and Chua, Atty. Hosaka and Mr. Lucio K. Tan, Jr. became members of the Committee on July 1, 2014.

(g) Risk Committee (Risk & Corporate Governance Committee) – Feb. 2014‐Aug. 2014



Period


%


the Committee

Risk Mgt. Chairman

Jose M. Chan, Jr. *Terence D. Son Keng Po

Feb. 4, 2014 July 1, 2014

4 4

3 1

75% 25%

3 mos. ‐

Member (ED) Eduardo V. Concepcion Feb. 4, 2014 4 3 75% 4 mos. Member (NED)

10

Member (ID) William Y. Chua Alberto P. Fenix, Jr. Wilson T. Young *Lucio K. Tan, Jr. *Anna Rosario V. Paner *Michael G. Tan

Feb. 4, 2014 Feb. 4, 2014 Feb. 4, 2014 July 1, 2014 July 1, 2014 July 1, 2014

4 4 4 4 4 4

2 3 3 1 1 1

50% 75% 75% 25% 25% 25%

4 mos. 4 mos. 1 year

‐ ‐ ‐

• Due to the resignation of Mr. Chan and committee reorganization, Mr. Son Keng Po became Chairman on July 1, 2014 and Atty. Paner, Messrs. Tan, Jr., and Tan became committee members on July 1, 2014.

3) Changes in Committee Members

Indicate any changes in committee membership that occurred during the year and the reason for the changes:

Name of Committee Name Reason

Executive Audit Nomination Remuneration Others (specify) In order to rationalize the composition of Board Committees, the following changes were implemented effective July 1, 2014: • Disclosed via SEC Form 17C dated July 1, 2014 Executive Committee Executive Committee

Previous New

Wilson T. Young – Chairman Wilson T. Young – Chairman Anna Rosario V. Paner – Member Anna Rosario V. Paner ‐ Member Alberto P. Fenix, Jr. – Member Alberto P. Fenix, Jr. ‐ Member William Y. Chua – Member William Y. Chua ‐ Member Alvin C. Yu – Member Alvin C. Yu ‐ Member Michael G. Tan – Member Michael G. Tan ‐ Member Jose M. Chan, Jr. – Member Alvin C. Yu ‐ Member Martin C. Yu – Member Martin C. Yu ‐ Member Audit Committee Audit Committee

Previous New Terence D. Son Keng Po – Chairman Alberto P. Fenix, Jr. ‐ Chairman Enrique T. Chua – Member Brian Keith F. Hosaka ‐ Member Alberto P. Fenix, Jr. – Member Lucio K. Tan, Jr. – Member Terence D. Son Keng Po – Member Martin C. Yu – Member HR, Compensation and Remuneration Committee HR, and Remuneration Committee Previous New William Y. Chua – Chairman William Y. Chua – Chairman Eduardo V. Concepcion – Member Eduardo V. Concepcion – Member Alvin C. Yu – Member Alvin C. Yu – Member Martin C. Yu – Member Martin C. Yu – Member Wilson T. Young – Member

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Legal Committee Legal & Nominations Committee

Previous New

Anna Rosario V. Paner – Chairman Anna Rosario V. Paner ‐ Chairman Terence D. Son Keng Po – Member Brian Keith F. Hosaka ‐ Member Wilson T. Young – Member Wilson T. Young ‐ Member Michael G. Tan – Member Michael G. Tan ‐ Member William Y. Chua – Member William Y. Chua ‐ Member Budget and Finance Committee Budget Committee

Previous New

Alvin C. Yu – Chairman Alvin C. Yu – Chairman Terence D. Son Keng Po – Member Terence D. Son Keng Po – Member Eduardo V. Concepcion – Member Eduardo V. Concepcion – Member Jose M. Chan, Jr. – Member Brian Keith F. Hosaka – Member Enrique T. Chua – Member Lucio K. Tan, Jr. – Member Risk Committee Risk and Corporate Governance Committee

Previous New Jose M. Chan, Jr. – Chairman Terence D. Son Keng Po – Chairman William Y. Chua – Member Alberto P. Fenix, Jr. – Member Eduardo V. Concepcion – Member Anna Rosario V. Paner – Member Alberto P. Fenix – Member Lucio K. Tan, Jr. – Member Wilson T. Young – Member Michael G. Tan ‐ Member

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