page 1 of 25 - suntrust home dev · 2015-04-22 · issued to megaworld corporation (megaworld) in...

2014 ANNUAL REPORT/SUNTRUST HOME DEVELOPERS, INC.

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PART I - BUSINESS AND GENERAL INFORMATION

Item 1. Business

(1) Business Development

History

On 18 January 1956, the Company, then known as Ramie Textiles, Inc. was incorporated to engage in

the business of manufacture and sale of all types of ramie products. On 11 February 1959 the Company

was listed in The Philippine Stock Exchange, Inc.

On 10 June 1994, the SEC approved the Amendment to the Articles of Incorporation of the Company

changing the name from Ramie Textiles Inc. to Gaming Interest and Franchise Technologies, Inc. and

its secondary purpose, and including a provision denying pre-emptive rights to existing stockholders for

any future issue of shares. Upon its conversion to a holding company, the Company sought to identify

investment opportunities which will yield attractive returns.

On 10 April 1995, the Company’s name was changed from Gaming Interest and Franchise

Technologies, Inc. to Greater Asia Resources Corporation. Subsequently, the Company acquired two

(2) parcels of land situated in Tagaytay City with an approximate total area of 510,479 square meters

in exchange for 250,000 shares out of its unissued capital stock.

On 11 August 1998, the SEC approved the Amended AOI of the Company changing the name from

Greater Asia Resources Corporation to BW Resource Corporation (BWRC). The primary purpose of

BWRC is to acquire interests in tourism or leisure-related enterprises, projects, or ventures.

On 17 August 1999, the SEC approved an increase in authorized capital stock of the Company from

PhP450,000,000.00 divided into 450,000,000 shares to PhP2,000,000,000.00 divided into

2,000,000,000 shares with a par value of One Peso (1.00) per share. Out of the increase in authorized

capital stock, One Billion Two Hundred Million Pesos (PhP1,200,000,000.00) worth of shares were

issued to Megaworld Corporation (Megaworld) in exchange for a parcel of land with improvements with

a total area of 7,255.30 square meters located at M.H. del Pilar corner Pedro Gil St., Malate Manila and

with a fair market value of One Billion Two Hundred Million Pesos (PhP1,200,000,000.00). With the

entry of Megaworld, the SEC, on October 3, 2000, approved the change in name from BWRC to

Fairmont Holdings, Inc.

On 02 March 2001, Emerging Market Assets Limited, a global investment company based in Hong

Kong, subscribed to 350,000,000 shares of stock of the Company at par value of One Peso (Php1.00)

per share.

On 29 June 2002, the Board of Directors of the Company approved the change of the Company’s name

from Fairmont Holdings, Inc. to Suntrust Home Developers, Inc. The change of the Company’s name

was ratified by the stockholders on November 11, 2005 and was approved by the SEC, on 10 May

2006. The change in name came hand in hand with a change in the Company’s primary purpose or

nature of business, from a holding company to a real estate company authorized to engage in real

estate development, mass community housing, townhouses and rowhouses development, residential

subdivision and other massive horizontal land development. The change in the nature of business of

the Company was prompted by the perception that being a holding company no longer appeared to be

viable, at least in the next few years. On the same date, the Board likewise approved a PhP1 Billion

increase in the Company’s authorized capital stock from PhP2,000,000,000 to PhP3,000,000,000 for

the purpose of enabling the Company to finance any acquisitions or projects that it may undertake in

the future in line with its new corporate purpose. Out of the PhP1 Billion increase, PhP250,000,000 has

been actually subscribed while PhP62,500,000 has been actually paid-up in cash by Megaworld

Corporation, an existing stockholder of the Company.


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Sometime in July 2002, the Company acquired from an affiliate, Empire East Land Holdings, Inc.

(EELHI), all of the latter’s shareholdings in Empire East Properties, Inc. (“EEPI”). As a result,

consolidated financial statements were presented in the third quarter of 2002 and onwards. Prior to

such acquisition, EEPI was a wholly-owned subsidiary of EELHI engaged in the development of

socialized or low-cost housing projects. In March 2004, the Company’s percentage of ownership in

EEPI was reduced from 100% to 60% upon the subscription by EELHI to additional shares of stock of

EEPI. On 8 July 2008, EEPI changed its name to Suntrust Properties, Inc. (“SPI”) and increased its

authorized capital stock, with EELHI subscribing to such increase. As a result, the Company’s

ownership interest in SPI decreased from 60% to 20% and the Company’s control over SPI ceased

and, as such, SPI was no longer a subsidiary but was considered an associate of the Company. In June

2013, the Company has sold all its remaining shares in SPI.

On 30 August 2005, the Board of Directors of the Company approved the decrease in the number of members of the Board of Directors from eleven to seven directors and the extension of its corporate term for another fifty (50) years from 18 January 2006. These changes to the Articles of Incorporation were ratified by the stockholders of the Company on 11 November 2005 and were approved by the SEC on 10 May 2006.

In September 2011, the Company acquired 100% of the outstanding shares of stock of First Oceanic Property Management, Inc. (FOPMI). Consequently, FOPMI became the Company’s wholly owned subsidiary and its financial statements were consolidated with the Company’s financial statements starting 2011.

FOPMI was incorporated and registered with the Philippine Securities and Exchange Commission on

January 31, 1990. FOPMI is engaged primarily in the management of real estate properties consisting

of residential and office condominiums and private estates. FOPMI’s services are covered by

management contracts covering the different properties it manages and these contracts assure it of

relatively fixed monthly revenues in the form of administrative/management fees. The acquisition of

FOPMI was intended to create a new revenue stream for the Company which would complement its

existing investments in real estate. FOPMI also holds 100% of the outstanding shares of stock of

CityLink Coach Services, Inc. (CityLink), which was incorporated and registered with the Philippine

Securities and Exchange Commission on November 7, 2006. CityLink is a domestic company engaged

in overland transport, carriage, moving or haulage of passengers, fares, customers and commuters as

well as freight, cargo, articles, items, parcels, commodities, goods or merchandise by means of

coaches, buses, coasters, jeeps, cars and other similar means of transport.

(2) Business of Issuer

The Company, currently, does not have any business operations and is not offering any product or

service. However, its subsidiary FOPMI is engaged in property management of residential and office

buildings and private estates.

Thus, the Company is not prepared at this time to identify and describe what business it proposes to

do and what products, goods or services will be produced or rendered; its principal products or services

and their markets with the relative contribution to sales or revenues of each product or services or group

of related products or services; percentage of sales or revenue and net income contributed by foreign

sales; distribution methods of products or services; competition; sources and availability of raw

materials and the names of principal suppliers; and the Company’s dependency on its customers. Since

the Company has not identified the industry in which it will engage in, it is likewise not in the position to

discuss any government approval required for its principal products or services or the effect of existing

or probable governmental regulations on its business.

FOPMI is engaged in property management and provides vital real estate management services for

several residential and office condominium buildings and private estates in Metro Manila. These include

basic administrative, housekeeping and security services and special services such as facilities and

equipment management, audit and technical support services, finance and account management, and

procurement services. FOPMI’s revenue is primarily generated from management fees it charges in

connection with its property management services.


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FOPMI is very competitive and is determined to perform as the best by assigning dedicated teams to

manage over property/building. On-site Property Administrator, Property Engineer and Administrative

Assistant/s are assigned to look after each individual property. A pool of experienced professionals –

architects, engineers, accountants and other personnel with varying expertise – provides back-up

support and services for its individual clients and customer.

CityLink is engaged in overland transport, carriage, moving or haulage of passengers, fares, customers

and commuters as well as freight, cargo, articles, items, parcels, commodities, goods or merchandise

by means of coaches, buses, coasters, jeeps, cars and other similar means of transport.

The Company or FOPMI is not dependent upon a single or a few customers. No single customer

accounts for 20% or more of FOPMI’s sales.

In normal course of business, the Company entered into transactions with related parties, consisting

mainly of advances from related parties for working capital purposes and for the settlement of certain

liabilities. For more information, please see Note 17 to the Audited Financial Statements.

The Company does not hold any patent, trademark, copyright, license, franchise, concession or royalty

agreement upon which their operations are dependent.

Government Approval of Principal Products; Effect of Government Regulations on the Business

The following is a brief description of the principal laws and regulations affecting the real estate

business.

Land Title Registration

The Philippines uses the Torrens System of land registration, which provides for a certification of title

to real property which is binding on all persons. An owner of real property may register title under the

Torrens System if, after proper surveying, application, publication, service of notice and hearing, the

Regional Trial Court (“RTC”) or, in certain cases, the Municipal Trial Court, the Metropolitan Trial Court

or the Municipal Circuit Trial Court (collectively, “MTCs”) within whose jurisdiction the land is situated

confirms the owner’s title to the land in a judgment and issues a decree to register the property in the

owner’s name. Persons opposing the registration of title may appeal against the judgment of the RTC

or MTCs to the Court of Appeals or Supreme Court within 15 days from notice of the RTC’s or MTC’s

judgment. After the period for appeal has lapsed and within 15 days from entry of judgment, the

appropriate court will order the Administrator of National Land Titles and Deeds Registration

Administration (formerly the Land Registration Authority) to issue the corresponding decree of

registration and Original Certificate of Title (“OCT”). Notwithstanding the issuance of an OCT, the

decree of registration may still be contested within one year from entry of judgment on the grounds of

actual fraud.

Claims Against Registered Land

Once real property has been registered, it may no longer be acquired by prescription. A Certificate of

Title is conclusive evidence of ownership binding against all persons, including the government. The

title is not subject to collateral attack and it cannot be altered, modified or cancelled, except in a direct

proceeding in accordance with law. If registered land is transferred to another person, the Register of

Deeds may cancel the OCT and issue a Transfer Certificate of Title (“TCT”) in the name of the new

owner, provided that certain required documents are submitted to him and all the necessary taxes are

paid. Subsequent transfers are also registered by the cancellation of the latest TCT and the issuance

of a new TCT in the name of the latest transferee.

“Quieting” of Title

Claims which cast doubt over title to real property are relatively common in the Philippines. In particular,

the boundaries to a registered title may be disputed, and where there is outstanding litigation against

an owner of real property it may be possible for the claim to be annotated on the title to the property.

Where a claim against title is unfounded, an action may be brought to remove this claim. Transferees


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of real property will usually require that all outstanding claims be removed from property before they will

accept a transfer of title.

Land Title Transfers

An owner of registered land may convey, mortgage, lease, charge or otherwise deal with the same in

accordance with existing Philippine laws and may use such forms of deeds, mortgages, leases or other

voluntary instruments as are sufficient in law. However, a deed, mortgage, lease or other voluntary

instrument (except a will purporting to convey or affect a registered land) will not take effect as a

conveyance or bind the land, but will operate only as contract between the parties and as evidence of

authority to the Register of Deeds to effect registration.

The act of registration is the operative act to convey or affect the land insofar as third persons are

concerned. Accordingly, as between two transactions over the same parcel of land, a transaction that

is registered in good faith prevails over an earlier unregistered right.

A sale of property that has been registered under the Torrens system typically requires the registered

owner of the land to execute a deed of absolute sale in favor of the purchaser. Within ten (10) days

after the close of the month when such deed was executed, a documentary stamp tax shall be paid to

the Bureau of Internal Revenue (“BIR”), computed at a rate of 1.5% of the purchase price or zonal value

of the land as determined by the BIR, whichever is higher. A final tax of 6% based on the gross selling

price or current fair market value of the property, whichever is higher, is imposed upon capital gains

presumed to have been realized from the sale of such real property and such tax must be paid to the

BIR within thirty (30) days after the execution of the deed of absolute sale.

No voluntary instrument can be registered by the Register of Deeds unless the owner’s duplicate

certificate is presented with such instrument, except in cases expressly provided for in the Property

Registration Decree upon lawful order of a court. The production of the owner’s duplicate certificate,

whenever any voluntary instrument is presented for registration, is conclusive authority from the

registered owner to the Register of Deeds to enter a new certificate or to make a memorandum of

registration in accordance with such instrument, and the new certificate or memorandum is binding

upon the registered owner and upon all persons claiming under him, in favor of every purchaser for

value and in good faith.

Nuisance Laws

Under the Philippine nuisance laws, property owners may be liable for acts, omissions or the condition

of property when it endangers the health or safety of others, injures or offends the senses, interferes

with free passage of any public highway, street or body of water, or hinders the use of property. If a

nuisance has been created by a previous landowner, the current landowner will be liable for such

nuisance if such landowner knowingly continues the nuisance.

Taxes

Real property taxes are payable annually on the property’s assessed value. The assessed value of

property and improvements depends on the nature of the property. Land is ordinarily assessed at 20%

to 50% of its fair market value; buildings may be assessed at 0% to 80% of their fair market value; and

machinery may be assessed at 40% to 80% of its fair market value. Currently, real property taxes vary

by location but do not exceed 2% of the assessed value in the province and 3% of the assessed value

in municipalities within Metro Manila and in cities. An additional Special Education Fund Tax of 1% of

the assessed value of the property is also levied annually by provinces and by the cities and

municipalities within Metro Manila.

Idle lands are taxed at 5% of the assessed value of the property. Idle lands include any land, other than

agricultural land, that is more than 1,000 square meters in area and one-half of which remains unutilized

or unimproved by the owner.


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Number of employees

As of 31 December 2014, the Group has a total of four hundred ninety two (492) employees. None of

the Group’s employees are represented by a labor union or are subject to collective bargaining

agreements. The Group intends to hire additional employees if the present workforce becomes

inadequate to handle operations but the exact number of additional employees will depend on the needs

of the business.

Below is the breakdown of the Group’s employees as of December 31, 2014:

Operations - 352

Administrative - 140

FOPMI maintains a non-contributory post-employment benefit plan that is being administered by a

trustee covering substantially all regular full-time employees. Actuarial valuations are made on a regular

basis to update the retirement benefit costs and the amount of contributions.

Major Business Risks

The Company and its subsidiaries are exposed to a variety of financial risks in relation to financial instruments that it holds under its investment portfolio. The Company’s risk management is coordinated with its Board of Directors and focuses on actively securing the Company’s short-to-medium term cash flows by minimizing the exposure to financial markets. The Company does not actively engage in the trading of financial assets for speculative purposes nor does it write options. The Company’s financial investments are largely in the form of short-term time deposits.

The business operations of the Company’s subsidiary, FOPMI, is subject to competition. Some

competitors may have substantially greater financial and other resources than FOPMI which may allow

them to undertake more aggressive marketing and to react more quickly and effectively to changes in

the markets and in consumer preferences. In addition, the entry of new competitors into FOPMI’s

business segments may affect FOPMI’s revenues and profit margins.

The Company is exposed to risks associated with the Philippines, including the performance of the

Philippine economy.

The Company’s intended acquisition and development of real property business is highly dependent on

the state of the Philippine economy and the Philippine property market. Demand for, and prevailing

prices of, developed land and house and lot units are directly related to the economic, political and

security conditions in the Philippines. FOPMI is likewise affected by the Philippine property market as

demand for property management services are dependent on completion of real properties to be

managed and there is a limit on existing and completed properties that can be managed.

Significant competition in their respective industries could adversely affect the Company’s and FOPMI’s

business.

A number of more established real estate developers are already present in the business and the

Company may not be able to compete with them in seeking properties for acquisition, resources for

development and prospective clients. Competition from other real estate developers may also

adversely affect the Company’s ability to sell its projects. FOPMI is likewise subject to competition for

other property management companies as well as companies which offer property management as part

of its portfolio of services.

The Company may be unable to acquire land for future development.

The Company’s future growth and development are dependent, in part, on its ability to acquire or enter

into agreements to develop tracts of land suitable for the Company’s planned real estate projects. When

the Company and its competitors attempt to locate sites for development, the Company may experience

difficulty in locating parcels of land of suitable size in locations and at prices acceptable to the Company.

In the event the Company is unable to acquire suitable land at acceptable prices with reasonable

returns, or at all, its growth prospects could be limited and its business and results of operations could

be adversely affected.


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To mitigate this risk, the Company intends to invest in strategic land banking, either through joint

development agreements or property purchases.

The Company’s reputation will be adversely affected if its projects are not completed on time or if the

projects do not meet its customers’ requirements.

Any negative effect on the Company’s reputation or its brand could also affect the Company’s ability to

pre-sell its housing and land development projects. This would impair the Company’s ability to reduce

its capital investment requirements. The Company cannot provide any assurance that such events will

not occur in a manner that would adversely affect its results of operations or financial condition.

The Company endeavors to mitigate these risks through carefully planned projects. The Company

likewise keeps itself updated on the latest governmental regulations and ensures that it obtains all

regulatory requirements.

The Company’s operations may be affected by its previous losses and current deficit

The Company has suffered losses and is currently at a deficit and this may affect its operations.

However, the acquisition of FOPMI has created a revenue stream for the Company and this gradually

decreases the Company’s deficit. The Company manages its liquidity needs by carefully monitoring

scheduled payments for financial liabilities as well as its cash outflows due in a day-to-day business.

The Company may not always be able to hire independent contractors who meet its requirements.

The Company intends to rely on independent contractors to provide various services, including land

clearing and infrastructure development, various construction projects and building and property fitting-

out works. There can be no assurance that the Company will be able to find or engage an independent

contractor for any particular project or find a contractor that is willing to undertake a particular project

within the Company’s budget, which could result in cost increases or project delays. There can be no

assurance that the services rendered by any of its independent contractors will always be satisfactory

or match the Company’s requirements for quality. Contractors may also experience financial or other

difficulties, and shortages or increases in the price of construction materials may occur, any of which

could delay the completion or increase the cost of certain housing and land development projects, and

the Company may incur additional costs as a result thereof. Any of these factors could have a material

adverse effect on the Company’s business, financial condition and results of operations. The Company

intends to mitigate this risk by selecting independent contractors based on the contractor’s experience,

its financial and construction resources, any previous relationship with Megaworld, its reputation for

quality and its track record.

Environmental laws could adversely affect the Company’s business.

Real estate developers are required to follow strictly the guidelines of the DENR. There can be no

assurance that current environmental laws and regulations applicable to the Company will not increase

the costs of operating its facilities above currently projected levels or require future capital expenditures.

The introduction of inconsistent application of, or changes in, laws and regulations applicable to the

Company’s business could have a material adverse effect on its business, financial condition or results

of operations. The Company has and will always comply with environmental laws.

Item 2. Properties

The Company has six condominium units at Sheraton Marina Square located in Malate, Manila with a

total area of 496.00 square meters. The Company is currently leasing out these units and generating

income from the rental thereof.

FOPMI is a lessee under operating lease covering its office space. The lease has a term of one year

and renewable upon terms and conditions as may be agreed by the parties. The future minimum rentals

payable under this operating lease as of December 31, 2014 amounted to P2.7 million while total rental

expense in 2013 from this operating lease amounted to P1.3 million.


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Item 3. Legal Proceedings

The Company is not a party to, and none of its properties is the subject of, any material pending litigation

or legal proceeding.

Item 4. Submission of Matters to a Vote of Security Holders

On 14 August 2013, the Board of Directors approved a pre-emptive rights offer to holders of its common

shares which will entitle them to subscribe to 2.5 new shares for every common share held as of record

date, to be set by the Company after approval by the Philippine Stock Exchange of the listing of the

rights shares. The rights shares will be issued from a Php20 billion increase in the Company’s

authorized capital consisting of 20 billion common shares each with a par value of One Peso (Php1.00),

to be submitted to stockholders of the Company for approval. The rights shares will be offered at the

price of One Peso (Php1.00) per share, equivalent to the par value of the Company’s common shares.

25% of the subscription price shall be payable upon submission of the application for subscription and

the balance of 75% shall be payable upon call by the Board of Directors to be made not later than three

(3) years from the approval by the stockholders of the increase in capital stock. Subscribers shall have

the option of paying 100% of the subscription price upon application for subscription. The Company is

not seeking approval of its stockholders for the pre-emptive rights offering.

On 23 September 2014, the Board of Directors approved the following amendments to the Company’s

Articles of Incorporation and By-laws: (a) Article SEVENTH of its Amended Articles of Incorporation to

reflect the increase in the Company’s authorized capital stock, consisting of a PhP20 billion increase

(the “Capital Increase”) from PhP3,000,000,000.00 divided into 3,000,000,000 common shares with a

par value of One Peso (PhP1.00) per share to PhP23,000,000,000.00 divided into 23,000,000,000

common shares with par value of One Peso (PhP1.00) per share; and (b) Article THIRD of the Amended

Articles of Incorporation and Article V, Section 1 of its Amended By-Laws, from “Metro Manila,

Philippines” to “6th Floor, The World Centre, 330 Sen. Gil Puyat Avenue, Makati City, Metro Manila,

Philippines”, in compliance with SEC Memorandum Circular No. 6, Series of 2014 which requires

existing corporations with “Metro Manila” as their principal office address to file an amended articles of

incorporation in order to specify their complete address. The vote of shareholders representing at least

two-thirds (2/3) of the outstanding capital stock of the Company shall be required for the approval of the

amendments to the Articles of Incorporation and By-Laws.

On 18 November 2014, stockholders owning at least 2/3 of the outstanding capital stock of the

Company approved the above amendments to the Articles of Incorporation and By-laws.

The Minutes of the Annual Stockholders’ Meeting held last 25 October 2011 and appointment of Punongbayan and Araullo as the external auditors of the Corporation’s financial statements for the year ending December 31, 2014 were likewise approved by the Company’s stockholders. All acts and resolutions of the Board of Directors, Board Committees and Management of the Corporation, during the period up to the date of the meeting of the stockholders were ratified. Finally, the following were elected to the Board of Directors of the Company: Ferdinand B. Masi, Evelyn G. Cacho, Giancarlo C. Ng, Felizardo T. Sapno and Elmer P. Pineda while Amelia A. Austria and Alejo L. Villanueva, Jr., were likewise re-elected as the Independent Directors.


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PART II – OPERATIONAL AND FINANCIAL INFORMATION

Item 5. Market for Issuer’s Common Equity and Related Stockholder Matters

Market Information

The Company’s shares of common stock are traded on the Philippine Stock Exchange. Below is a

history of the trading prices of said shares.

Year First Quarter Second Quarter Third Quarter Fourth Quarter

2012 High 0.63 0.62 0.57 0.64

Low 0.51 0.51 0.50 0.49 2013 High 0.66 1.00 2.40 1.33

Low 0.54 0.58 0.57 0.87

2014 High 1.15 1.96 1.47 1.62 Low 0.89 0.99 1.11 1.10

2015 High 1.27 Low 1.00

3/31/15 Close 1.09

Holders

There are 1,613 holders of the Company’s 2,250,000,000 outstanding shares of common stock.

However, 250,000,000 of these outstanding shares are not yet listed with the Philippine Stock Exchange

as the subscription price for these have not been fully paid. Below is a list of the top twenty holders of

the Company’s shares of common stock as of 31 March 2015:

Name of Shareholder

Number of Shares

Held

Percent of Total

Outstanding Shares

1. MEGAWORLD CORPORATION 955,834,992 42.482%

2. PCD NOMINEE CORP. (FILIPINO) 722,138,422 32.095%

3.

EMERGING MARKET ASSETS

LIMITED 235,000,000 10.444%

4. STANLEY HO HUNG SUN 116,100,000 5.160%

5. FIRST CENTRO. INC. 102,987,000 4.577%

6. THE ANDRESONS GROUP, INC. 60,846,0001 2.704%

7. EBC PCI TA NO. 203-53106-5 17,000,000 0.756%

8.

PCD NOMINEE CORP. (NON-

FILIPINO) 13,218,465 0.587%

9. LUCIO L. CO 4,082,563 0.181%

10. GENEVIEVE GO 1,300,000 0.058%

11.

PCCI SECURITIES BROKERS

CORP. 1,000,000 0.044%

12. ROMULO P. NEY 555,000 0.025%

13.

LARCY MARICHI Y. SO &/OR

HANSON G. SO 601125 513,700 0.023%

14. YAP SIK KIEONG 500,000 0.022%

15. LUCIANO H. TAN 450,000 0.020%

16. PABLO M. SILVA 437,499 0.019%

1 This does not include the 28,614,000 beneficially owned common shares of The Andresons Group, Inc.


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17. HANSON G. SO 400,000 0.018%

18. JAIME DY &/OR JULIET DY 399,000 0.018%

19. FRANCIS L. DY &/OR INGRED S. 385,500 0.017%

20. PETER TY 357,000 0.016%

Dividends

The deficit of the Company and its cash position did not merit any declaration of dividends for the last

two fiscal years.

The payment of dividends in the future will depend upon the Company's earnings, cash flow and

financial condition, among other factors. The Company may declare dividends only out of its

unrestricted retained earnings. These represent the net accumulated earnings of the Company, with its

capital unimpaired, which are not appropriated for any other purpose.

The Company may pay dividends in cash, by the distribution of property, or by the issue of shares of

stock. Dividends paid in cash are subject to the approval by the Board of Directors. Dividends paid in

the form of additional shares are subject to approval by both the Board of Directors and at least two-

thirds (2/3) of the outstanding capital stock of the shareholders at a shareholders' meeting called for

such purpose.

The Corporation Code prohibits stock corporations from retaining surplus profits in excess of one

hundred per cent (100%) of their paid-in capital stock, except when justified by definite corporate

expansion projects or programs approved by the Board of Directors, or when the corporation is

prohibited under any loan agreement with any financial institution or creditor from declaring dividends

without its consent, and such consent has not yet been secured, or when it can be clearly shown that

such retention is necessary under special circumstances obtaining in the corporation.

Recent Sales of Unregistered Securities

In the past three (3) years, the Company has not undertaken any sale of unregistered or exempt

securities, or issued securities constituting an exempt transaction.

Item 6. Management Discussion and Analysis of Financial Condition and Results of Operations

2014 vs. 2013

RESULTS OF OPERATIONS

Twelve months ended December 31, 2014 compared to

Twelve months ended December 31, 2013

The Group's total revenues exhibited an increase of 24.38 million or 8.62% from 282.89 million in 2013

to 307.26 million in 2014 of the same period. Total revenues mostly came from management fees,

service income and rental income.

Costs and expenses exhibited an increase of 15.13 million or 5.75% from 263.31 million in 2013 to

278.44 million in 2014. Increase in costs and expenses were mainly due to operating expenses and tax

expense.

The Group’s net profit showed an increase of 9.24 million or 47.22% from 19.58 million in 2013 to28.82

million in 2014.


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FINANCIAL CONDITION

As of December 31, 2014 and December 31, 2013

The Group’s total resources amounted to 491.41 million in 2014 from 400.88 million in 2013. The Group

manages its liquidity needs by carefully monitoring scheduled payments for financial liabilities as well

as its cash outflows due in a day-to-day business.

Current assets increased by 81.06 million or 27.13% from 298.74 million in 2013 to 379.80 million in

2014. Cash and cash equivalents increased by 58.44 million or 33.93% from 172.23 million in 2013 to

230.66 million in 2014. Due from related parties increased by 9.62 million or 26.25% from 36.65 million

in 2013 to 46.27 million in 2014.

Non-current assets increased by 9.46 million or 9.27% from 102.14 million in 2013 to 111.61 million in

2014. Investment property decreased by 1.24 million from 30.99 million in 2013 to 29.75 million in 2014.

Property and equipment increased by 3.35 million or 16.98% from 19.74 million in 2013 to 23.09 million

in 2014.

Trade and other receivables increased by 7.82 million or 8.79% from 88.92 million in 2013 to 96.74

million in 2014. Other Assets increased by 0.35 million or 2.79% from 12.72 million in 2013 to 13.08

million in 2014.

Current liabilities increased by 37.87 million or 25.37% from 149.29 million in 2013 to 187.16 million in

2014. Trade and other payables exhibited an increase of 15.43 million or 21.48% from 71.82 million in

2013 to 87.25 million in 2014. Due to related parties also increased by 13.39 million or 17.33% from

77.31 million in 2013 to 90.70 million in 2014. Income tax payable increased by 9.05 million or

5,640.81% from 0.16 million in 2013 to 9.21 million in 2014.

Retirement benefit obligation increased by 33.65 million or 27.13% from 124.04 million in 2013 to 157.69

million in 2014.

Material Changes in the Financial Statements Items:

Increase/(Decrease) of 5% or more versus 2013

Statements of Financial Position

Cash and Cash Equivalents 33.93%

Increase is due to timely collection of receivables as of the current period.

Due from Related Parties 26.25%

Increase is due to additional advances to related parties of a subsidiary.

Trade and Other Receivables 8.79%

Increase due to additional revenues from management fees for the current period.

Property and Equipment 16.98%

Increase was mainly due to additional acquisition of equipment by the subsidiaries.

Deferred Tax Asset 30.74% Increase was mainly due to effects of taxable and deductible temporary differences. Trade and Other Payables 21.48%

Due to increase in accrued expenses as of the current period.

Due to Related Parties 17.33%

Due to additional advances incurred by the subsidiaries.

Income Tax Payable 5,640.81%


Page 11 of 25

Increase is due to higher taxable income tax for the current period.

Retirement Benefit Obligation 27.13%

Increase is due to additional accrual of retirement benefits for the current period.

Statements of Income

Management Fees 20.45%

Increase due to additional properties managed by the subsidiary.

Service Income (5.89%)

Decrease due to lower service income generated by the subsidiary.

Rental Income (6.86%)

Decrease due to lower rental income generated by the subsidiary.

Finance Income 46.47%

Increase due to higher interest income generated for the current period.

Gain on Sale of AFS (100.00%)

Due to non-recurring gain on sale of the parent company’s investment in available-for-sale financial

asset.

Operating Expenses 24.52%

Increase due to higher administrative and overhead expenses for the current period.

Finance Cost 95.22%

Increase due to higher interest expense incurred by the subsidiary.

Tax Expense 209.86%

Increase due to higher taxable income for the current period.

KEY PERFORMANCE INDICATORS

Presented below are the top five (5) key performance indicators of the Group:

o Revenue Growth – The Group generated its revenue mostly from management fees,

rental income and service income. The group’s revenues showed an increase of 24.38

million or 8.62% from 282.89 million to 307.26 million year-on-year.

o Net Profit Growth – measures the percentage change in net profit over a designated

period of time. The group’s net profit increase by 9.24 million or 47.22% from 19.58

million in 2013 to 28.82 million in 2014.

o Increase in Cash and Cash Equivalents – Cash and cash equivalents increased by

58.44 million or 33.93% from 172.23 million in 2013 to 230.66 million in 2014.

o Increase in Trade Receivables – Total trade receivables increased by 7.82 million from 88.92 million in 2013 to 96.74 million in 2014. Increase is due continuous flows of revenues in the form of administrative fees.

o Increase in Total Assets – Total assets increased by 90.53 million or 22.58% from

400.88 million in 2013 to 491.41 million in 2014.

There are no other significant changes in the Group's financial position (5% or more) and condition that

will warrant a more detailed discussion. Further, there are no material events and uncertainties known

to management that would impact or change reported financial information and condition on the Group.

There are no known trends or demands, commitments, events or uncertainties that will result in or that

are reasonably likely to result in increasing or decreasing the Group's liquidity in any material way.


Page 12 of 25

There are no other known events that will trigger direct or contingent financial obligation that is currently

considered material to the Group, including any default or acceleration of an obligation.

The Group does not anticipate having any cash flow or liquidity problems. The Group is not in default

or breach of any note, loan, lease or other indebtedness or financing arrangement requiring it to make

payments. The Group has no material commitments for capital expenditures.

There are no material off-balance sheet transactions, arrangements, obligations, and other

relationships of the Group with unconsolidated entities or other persons created during the reporting

period.

The Group has no unusual nature of transactions or events that affects assets, liabilities, equity, net

income or cash flows.

There are no other material issuances, repurchases or repayments of debt and equity securities.

There are no seasonal aspects that had a material effect on the financial condition or results of

operations of the group.

There are no material events subsequent to the end of the period that have not been reflected in the

financial statements for the period.

There are no changes in estimates of amount reported in periods of the current financial year or changes

in estimates of amounts reported in prior financial years.

2013 vs. 2012

RESULTS OF OPERATIONS





service income, rental income and non-recurring gain on sale of available-for-sale- financial asset.

Costs and expenses exhibited an increase of 60.57 million or 29.88% from 202.74 million in 2012

to263.31 million in 2013. Increase in cost and expenses were mainly due to cost of services and

operating expenses.

The Group’s net profit showed an increase of 13.28 million or 210.86% from 6.30 million in 2012 to19.58

million in 2013.

FINANCIAL CONDITION






2013. Cash and cash equivalents increased by 111.69 million or 184.51% from 60.54 million in 2012 to

172.23 million in 2013 due to proceeds from the sale of the parent company’s investment in available-

for-sale financial asset. Due from related parties increased by 8.10 million or 28.37% from 28.55 million

in 2012 to 36.65 million in 2013.


Page 13 of 25

Non-current assets decreased by 86.34 million or 45.81% from 188.48 million in 2012 to 102.14 million

in 2013 mostly due to sale of available-for-sale financial asset which resulted to its decreased by 97.18

million or 100%. Investment property decreased by 1.24 million from 32.22 million in 2012 to 30.99

million in 2013. Property and equipment increased by 8.53 million or 76.03% from 11.21 million in 2012

to 19.74 million in 2013.

Trade and other receivables increased by 3.19 million or 3.72% from 85.73 million in 2012 to 88.92

million in 2013. Other Assets increased by 1.35 million or 11.84% from 11.38 million in 2012 to 12.72

million in 2013.

Current liabilities decreased by 11.69 million or 7.26% from 160.98 million in 2012 to 149.29 million in

2013. Trade and other payables exhibited an increase of 8.71 million or 13.79% from 63.12 million in

2012 to 71.82 million in 2013. Due to related parties decreased by 17.23 million or 18.22% from 94.53

million in 2012 to 77.31 million in 2013. Income tax payable decreased by 3.17 million or 95.18% from


Retirement benefit obligation increased by 5.35 million or 4.51% from 118.69 million in 2012 to 124.04

million in 2013.

Material Changes in the Financial Statements Items:


Statements of Financial Position

Cash and Cash Equivalents 184.51%

Increase is due to proceeds from sale of the parent company’s investment in available-for-sale financial

asset.

Due from Related Parties 28.37%

Increase is due to additional advances to related parties.

Other Assets 11.84%

Due to increase in security deposits as of the current period.

Available for Sale Financial Asset (100.00%)

Due to sale of the parent company’s investment in available-for-sale financial asset.

Property and Equipment 76.03%

Increase was mainly due to additional acquisition of equipment by the subsidiaries.

Trade and Other Payables 13.79%


Due to Related Parties (18.22%)

Due to payment of advances by the parent company.

Income Tax Payable (95.18%)

Decrease is due to higher prepaid taxes offset with gross income tax for the current period.

Statements of Income



Gain on Sale of AFS 100%

Due to non-recurring gain on sale of the parent company’s investment in available-for-sale financial

asset.


Page 14 of 25

Service Income 30.62%

Increase due to higher service income generated by the subsidiary.

Rental Income 11.74%

Increase due to higher rental income generated by the subsidiary.

Finance Income (28.32%)

Decrease due to lower interest income generated by the subsidiary.

Cost of Services 25.71%

Higher cost of services due to increase in properties managed by the subsidiary.

Operating Expenses 85.25%

Increase due to higher administrative and overhead expenses for the current period.

Finance Cost (18.58%)

Decrease due to lower interest expense incurred by the subsidiary.

Tax Expense 101.08%





rental income, service income and non-recurring gain from sale of available-for-sale

financial asset. The group’s revenues showed an increase of 73.85 million or 35.33%

from 209.04 million to 282.89 million year-on-year.


period of time. The group’s net profit increase by 13.28 million or 210.86% from 6.30


o Increase in Cash and Cash Equivalents – Cash and cash equivalents increased by

111.69 million or 184.51% from 60.54 million in 2012 to 172.23 million in 2013.

o Increase in Total Assets – Total assets increased by 36.04 million or 9.88% from


o Decrease in Current Liabilities – Total current liabilities decreased by 11.69 million or

7.26% from 160.98 million in 2012 to 149.29 million in 2013.













period.


Page 15 of 25










2012 vs. 2011

RESULTS OF OPERATION





service income and rental income.

Cost and expenses exhibited an increase of 31.87 million or 18.65% from 170.87 million in 2011 to

202.74 million in 2012. Increase in cost and expenses were mainly due to cost of services.

The Group’s net profit as of December 31, 2012 amounted to 6.30 million while for the same period of

2011, net profit amounted to 0.81 million net of the 5.94 million non-recurring income from acquisition

of a subsidiary, 5.49 million increase or 680.10%.

FINANCIAL CONDITION






2012. Cash & cash equivalents increased by 15.83 million or 35.41% from 44.71 million in 2011 to 60.54

million in 2012. Due from related parties decreased by 4.30 million or 13.09% from 32.85 million in 2011


Non-current assets increased from 172.18 million in 2011 to 172.38 million in 2012. Investment property

decreased by 1.24 million or 3.70% from 33.46 million in 2011 to 32.22 million in 2012. Property &

equipment decreased by 2.43 million or 17.83% from 13.65 million in 2011 to 11.21 million in 2012.

Deferred Tax Assets increased by 5.97 million or 37.40% from 15.96 million in 2011 to 21.93 in 2012.

Trade & other receivables increased by 3.26 million or 3.96% from 82.47 million in 2011 to 85.73 million

in 2012. Other Assets decreased by 2.82 million or 19.86% from 14.20 million in 2011 to 11.38 million

in 2012.


Page 16 of 25

Current liabilities decreased by 10.01 million or 5.85% from 170.98 million in 2011 to 160.98 million in

2012. Trade & other payables exhibited an increase of 8.73 million or 16.05% from 54.39 million in 2011

to 63.12 million in 2012. Due to Related Parties decreased by 20.50 million or 17.82% from 115.3 million

in 2011 to 94.53 million in 2012. Income tax payable increased by 2.76 million or 483.23% from 570.32

thousand in 2011 to 3.33 million in 2012.

Non-current liabilities increased by 32.25 million or 37.30% from 86.44 million in 2011 to 118.69 million

in 2012. Retirement benefit obligation increased by 33.24 million or 38.90% from 86.45 million in 2011


Interest-bearing loans decreased by 1.98 million or 100% from 2011.

Material Changes in the Financial Statement Items:


Statement of Financial Position

Cash & Cash Equivalents 35.41%

Increase in cash is due to timely collection of receivables as of the current period.

Due from Related Parties (13.09%)

Decrease is due to collection of advances from related parties.

Other Assets (19.86%)

Due to decrease in prepayments as of the current period.

Property and Equipment (17.83%)

Decrease was mainly due to depreciation for the current period.

Deferred Tax Assets 35.54%

Pertains to tax effects of taxable and deductible temporary differences.

Interest-Bearing Loans (100.00%)

Due to full settlement of loan obligation as of the current period.

Trade and Other Payables 16.05%


Due to Related Parties (17.82%)

Decrease is due to payment of advances to related parties.

Income Tax Payable 483.23%

Increase is due to higher taxable income for the current period.

Retirement Benefit Obligation 38.90%

Due to additional accrual of employee retirement benefits for the current period.

Statement of Income



Service Income 118.81%

Increase due to higher service income generated by the subsidiary.

Rental Income 8.90%


Page 17 of 25

Increase due to higher rental income generated by the subsidiary.

Finance Income 8.63%

Increase due to higher interest rate.

Income from Acquisition of a Subsidiary (100.00%)

Decrease due to effect of non-recurring income from acquisition of a subsidiary.

Equity Share in Net Earnings of an Associate (100.00%)

Decrease due to discontinued recognition of equity share in net earnings which resulted from the

decrease in ownership in an associate.

Cost of Services 23.88%

Higher cost of services due to increase in properties managed by the subsidiary.

Operating Expenses (18.45%)

Decrease due to lower administrative and overhead expenses for the current period.

Finance Cost 32.67%

Increase due to higher interest expense on advances from a related party.

Tax Expense 25.75%


Other Expenses (29.54%)

There was an impairment loss in intangible assets in 2011.




rental income & service income. The group’s revenues showed an increase of 32.25

million or 18.25% from 176.78 million to 209.04 million of the same period.


period of time. The group’s net profit net of the 5.94 million non-recurring income from

acquisition of a subsidiary recorded a 5.49 million or 680.10% increase from 0.81


o Increase in Cash and Cash Equivalents – cash and cash equivalents increased by

15.83 million or 35.41% from 44.71 million in 2011 to 60.54 million in 2012. This is

attributable to timely collection of receivable.

o Increase in Trade Receivables – Total trade receivables increased by 3.26 million from

82.47 million in 2011 to 85.73 million in 2012. Increase is due continuous flows of

revenues in the form of administrative fees.

o Decrease in Interest-bearing Loans – 100% decreased from 1.98 million due to full

settlement of obligation. The Group retains commendable credit status.









Page 18 of 25






period.










Item 7. Financial Statements

The Company’s Audited Financial Statements for the three years ended 31 December 2014, 2013, and

2012 are attached as exhibits to this report.

Item 8. Information on Independent Accountant and other Related Matters

The present auditor of the Company, Punongbayan & Araullo, was also the auditor of the Company for

the years 2012, 2013 and 2014. There have been no disagreements with said auditor on any matter of

accounting principles or practices, financial statement disclosures, auditing scope or procedure, which

disagreements, if not resolved to their satisfaction, would have caused the auditor to make reference

thereto in its respective reports on the Company’s financial statements for aforementioned years.

The external auditor of the Company billed the amounts of Php750,000 in 2014, Php725,000 in 2013,

and Php696,000 in 2012 in fees for professional services rendered for the audit of the Company’s

annual financial statements and services that are normally provided by the external auditor in

connection with statutory and regulatory filings or engagements for 2014, 2013 and 2012. Except as

disclosed above, no other services were rendered or fees billed by the external auditor of the Company

for 2014, 2013 and 2012. All the above services have been approved by the Audit Committee through

its internal policies and procedures of approval.

The Board of Directors, after consultation with the Audit Committee, recommends to the stockholders

the engagement of the external auditors of the Company. The selection of external auditors is made on

the basis of credibility, professional reputation, accreditation with the Philippine Securities and

Exchange Commission, and affiliation with a reputable foreign partner. The professional fees of the

external auditors of the Company are approved by the Company’s Audit Committee after approval by

the stockholders of the engagement and prior to the commencement of each audit season.


Page 19 of 25

PART III – CONTROL AND COMPENSATION INFORMATION

Item 9. Directors and Executive Officers2

Following is the list of incumbent directors and executive officers of the Company. The members of the

Company’s Board of Directors shall hold office for one (1) year from election and until their successors

are elected and qualified. Any director elected to fill a vacancy shall serve only for the unexpired term

of his predecessor in office.

Ferdinand B. Masi. Mr. Masi, 53 years old, Filipino, is currently the Chairman and the President of the Company. He was appointed as Chairman of the Board on 09 November 2007 and has served as President since 09 February 2001. Mr. Masi is currently with Consolidated Distillers of the Far East, Inc., a position he has held since 1983 as Accounting Staff, Plant Accountant/Auditor, Chief Accountant, Finance & Administrative Manager and as General Manager. He is concurrently the Chairman and President of Good Earth Technologies International, Inc. and Corporate Secretary of First Centro, Inc. He is a Certified Public Accountant and member of the Philippine Institute of Certified Public Accountants. He also finished his MBA from Ateneo Graduate School of Business. Evelyn G. Cacho. Ms. Cacho, 53 years old, Filipino, is currently the Treasurer and a member of the Board of Directors of the Company since 29 August 2005. Ms. Cacho is concurrently a director of Empire East Land Holdings, Inc. (“EELHI”), a position she has occupied since February 2009. She joined EELHI in February 1995 and has served as its Vice President for Finance since February 2001. She also currently serves as director of Empire East Communities, Inc., Laguna Bel Air School, Inc., Sonoma Premier Land, Inc., Valle Verde Properties, Inc. and Sherman Oak Holdings, Inc. She holds the position of Treasurer of Megaworld Central Properties, Inc., and Megaworld Newport Property Holdings, Inc. and Assistant Corporate Secretary of Gilmore Property Marketing Associates, Inc. Prior to joining EELHI, she had extensive experience in the fields of financial/operations audit, treasury, and general accounting from banks, manufacturing and trading companies. Ms. Cacho has a bachelor’s degree in Business Administration major in Accounting. Giancarlo C. Ng. Mr. Ng, 37 years old, Filipino, has served in the Company’s Board of Directors since 23 October 2007. He is currently the Finance and Office Manager of Consolidated Distillers of the Far East, Inc. (“Condis”). He is a graduate of the University of Asia and the Pacific with a degree in Bachelor of Arts in Liberal Arts and Humanities, graduating Magna Cum Laude and Valedictorian of his batch. He also obtained his Masters of Science in Information Technology from the same university. Mr. Ng was at various times from 2003 to 2006 an account officer, sales manager, and inter-team coordinator of Condis. Mr. Ng has handled Customer Relations Management, Sales and Delivery Logistics, and Information Technology Planning and Tactical Coordination for Condis and has extensive experience in work involving business processes and information technology solutions. He was the project manager for the email and internet connectivity infrastructure project and inventory system database of Condis. Prior to joining Consolidated Distillers of the Far East, Inc., he was a member of the Systems Technology Support of Meralco MTP-CSPT from 1998-1999, where he participated in the company’s Y2K compliance project. Mr. Ng then joined the Software Services Department of the Orient Overseas Container Line Phils., Inc. as a software programmer from 2000- 2003, where he developed web applications and also served as customer EDI programmer and trainer of new recruits. Mr. Ng has attended trainings and seminars on several software languages, Customer Relations Management, Business Orientation for Marketing and Sales, Business Writing, Information Strategy Planning, and on the New Digital Economy and Emerging Technologies for the Philippines in 2020. Elmer P. Pineda. Mr. Pineda, 57 years old, Filipino, was first elected to the Board on 03 February 2012. Mr. Pineda was likewise appointed Assistant Corporate Secretary and Assistant Corporate Information Officer of the Corporation. He is currently the vice president of the Corporation’s property management subsidiary, First Oceanic Property Management, Inc. Mr. Pineda has been with the property management firm since 1998 and was responsible for the management of a number of real estate developments. A licensed civil engineer, Mr. Pineda has over a decade of experience in project and

2 Age of Directors and Officers as of 31 March 2015


Page 20 of 25

construction management with various companies and firms such as Farm System Development Corporation and Megaworld Corporation. Felizardo T. Sapno. Mr. Sapno, 57 years old, Filipino, has served as Director of the Company since 03 July 2006. He is currently the Plant Manager of the Consolidated Distillers of the Far East, Inc. since August 1990. Mr. Sapno is a licensed Chemical Engineer and a graduate of the Mapua Institute of Technology with a degree in BS Chemical Engineering. He was previously employed with the Philippine Allied Leatherette, Inc. as Production Supervisor from October 1981 to October 1982 and the Central Azucarera de Tarlac as Shift Supervisor from November 1982 to November 1985. He is a member of various professional and socio-civic associations such as the Philippine Institute of Chemical Engineers, Center for Alcohol and Research Development Foundation, Inc., Philippine Association of Alcohol and Fermentation Technologies, Inc., Kiwanis International, Philippine Luzon District and the Knights of Columbus, Council 4668. Alejo L. Villanueva, Jr. Mr. Villanueva, 73 years old, Filipino was first elected as Independent Director on 29 October 2012. He currently serves as Independent Director of Alliance Global Group, Inc. and Empire East Land Holdings, Inc. He is also Chairman of Ruru Courier Systems, Inc. and Vice Chairman of Public Relations Counselors Foundations of the Philippines, Inc. He is a professional consultant who has more than twenty years of experience in the fields of training and development, public relations, community relations, institutional communication, and policy advocacy, among others. He has done consulting work with the Office of the Vice President, the Office of the Senate President, the Commission on Appointments, the Securities and Exchange Commission, the Home Development Mutual Fund, the Home Insurance Guaranty Corporation, Department of Agriculture, Philippine National Railways, International Rice Research Institute, Rustan’s Supermarkets, Louis Berger International (USAID-funded projects on Mindanao growth), World Bank (Subic Conversion Program), Ernst & Young (an agricultural productivity project), Chemonics (an agribusiness project of USAID), Price Waterhouse (BOT program, a USAID project), Andersen Consulting (Mindanao 2000, a USAID project), Renardet S.A. (a project on the Privatization of MWSS, with World Bank funding support), Western Mining Corporation, Phelps Dodge Exploration, and Marubeni Corporation. Mr. Villanueva obtained his bachelor’s degree in Philosophy from San Beda College, summa cum laude. He has a master’s degree in Philosophy from the University of Hawaii under an East-West Center Fellowship. He also took up special studies in the Humanities at Harvard University. He studied Organizational Behavior at INSEAD in Fontainebleau, France. He taught at the Ateneo Graduate School of Business, the UST Graduate School, and the Asian Institute of Journalism. Amelia A. Austria. Ms. Austria, 60 years old, Filipino, was elected an Independent Director on 09 November 2007. She is currently the Corporate Secretary and a member of the Board of Directors of Zenith Synergy Realty and Development Corporation. She is a licensed Chemist and placed second in the Chemistry Licensure Examination in 1976. Ms. Austria is a graduate of the University of Santo Tomas with a Degree in BS Chemistry and is an undergraduate of the Masteral Program-MS Chemistry from the same university. Prior to joining Good Earth Technologies, Ms. Austria had extensive experience in work involving research and development and quality control. Rolando D. Siatela. Mr. Siatela, 54 years old, Filipino, has served as Corporate Secretary and

Corporate Information Officer of the Company since 23 May 2006. He concurrently serves in PSE- listed

companies, Alliance Global Group, Inc., Megaworld Corporation, and Global-Estate Resorts, Inc.

(formerly Fil-Estate Land, Inc.) as Assistant Corporate Secretary. He is also the Assistant Vice President

for Corporate Management of Megaworld Corporation. Prior to joining Megaworld Corporation, he was

employed as Administrative and Personnel Officer with Batarasa Consolidated, Inc. He is a member of

the board of Asia Finest Cuisine, Inc. and the Corporate Secretary of ERA Real Estate Exchange, Inc.,

Oceanic Realty Group International, Inc. and Documentation Officer of Megaworld Foundation.

Maria Cristina D. Gonzales. Ms. Gonzales, 51 years old, Filipino, is the Compliance Officer of the

Company. She is presently a First Vice President for Management Services, Asset Management and

Administration of Megaworld Corporation, a position she has held since 2007. Previously, she was a

Vice President for Audit of Megaworld from 1993 to 2007, Audit Manager for Shoemart, Inc. from 1988

to 1993 and Auditor with Sycip, Gorres & Velayo from 1984 to 1987. She is a Certified Public Accountant

since 1984 and graduated with a Business Administration degree, Major in Accounting (graduated

magna cum laude) from the University of the East.


Page 21 of 25

Directors are elected annually by the stockholders to serve until the election and qualification of their

successors.

Significant Employees

The Company does not have significant employees, i.e., persons who are not executive officers but

expected to make significant contribution to the business.

Family Relationships

No director or executive officer is related to each other up to the fourth civil degree whether by

consanguinity or affinity.

Involvement in Legal Proceedings

The Company has no knowledge of any of the following events that occurred during the past five (5)

years up the date of this report that are material to an evaluation of the ability or integrity of any director,

nominee for election as director, or executive officer:

o Any bankruptcy petition filed by or against any business of which such person was a

general partner or executive officer either at the time of the bankruptcy or within two

years prior to that time;

o Any conviction by final judgment in a criminal proceeding, domestic or foreign, or being

subject to a pending criminal proceeding, domestic or foreign, excluding traffic

violations and other minor offenses;

o Being subject to any order, judgment, or decree, not subsequently reversed,

suspended or vacated, of any court of competent jurisdiction, domestic or foreign,

permanently or temporarily enjoining, barring, suspending or otherwise limiting his

involvement in any type of business, securities, commodities or banking activities; and

o Being found by a domestic or foreign court of competent jurisdiction (in a civil action),

the Commission or comparable foreign body, or a domestic or foreign Exchange or

other organized trading market or self-regulatory organization, to have violated a

securities or commodities law or regulation, and the judgment has not been reversed,

suspended, or vacated.

Item 10. Executive Compensation

The principal executive officers of the Company are:

Name Position

Ferdinand B. Masi Chairman & President (CEO)

Evelyn G. Cacho Treasurer

Rolando D. Siatela Corporate Secretary

Elmer P. Pineda Asst. Corporate Secretary

The principal executive officers of the Company and members of the Company’s Board of Directors did

not receive any compensation from the Company for years, 2012, 2013 and 2014 and neither will there

be any compensation for the ensuing year. There are no arrangements in force pursuant to which the

officers and directors of the Company are compensated, or are to be compensated, directly or indirectly,

for any services provided as such officer or director.

There are no standard arrangements pursuant to which directors of the Company are compensated, or

are to be compensated, directly or indirectly, for any services provided as a director, including any

additional amounts payable for committee participation or special assignments, for the years 2012,

2013 and 2014 and for the ensuing year.


Page 22 of 25

There are no other arrangements, including consulting contracts, pursuant to which any director of the

Company was compensated, or is to be compensated, directly or indirectly, for the years 2012, 2013

and 2014 and for the ensuing year, for any service provided as a director. No employment contracts,

termination of employment, or change in control arrangements, were effected for the applicable fiscal

year.

No warrants or stock options are held by the Company’s CEO, its named executive officers or directors

for years 2012, 2013 and 2014 nor are there plans for extending warrants or options for the ensuing

year.

Item 11. Security Ownership of Certain Record and Beneficial Owners and Management3

Security Ownership of Owners Holding More than Five Percent (5%) of Voting Securities

TITLE OF

CLASS NAME,

ADDRESS OF

RECORD

OWNER AND

RELATIONSHIP

WITH ISSUER

NAME OF

BENEFICIAL

OWNER AND

RELATIONSHIP

WITH RECORD

OWNER

CITIZENSHIP NO. OF

SHARE

S HELD

PERCENT

Common Megaworld

Corporation 28/F

The World Centre

330 Sen. Gil J.

Puyat Avenue

Makati City

Megaworld

Corporation4 (also

the record owner)

Filipino 995,834,992 42.482%

Common PCD NOMINEE

CORPORATION

G/F Makati Stock

Exchange

Building 6767

Ayala Avenue,

Makati City5

PCIB Securities,

Corporation 8/F

PCI Tower 2,

Dela Costa St.,

Makati City

Filipino 722,138,422 32.095%

Common Emerging Market

Assets Limited

(“EMAL”), Rm.

1028,12/F The

Centre Mark, 287-

299 Queen’s

Road, Central

Hong Kong6

Emerging Market

Assets Limited

(also the record

owner)

Filipino 235,000,000 10.44%

3 As of 31 March 2015 4 Mr. Andrew L. Tan has the power to direct the voting and disposition of the shares held by Megaworld Corporation in the Company. 5 PCIB Securities Corporation is a participant of the PCD Nominee Corporation. The beneficial owners of the shares held by PCIB Securities, Inc are not known to the Company. 6 Messrs. Yip Chu Kwong, Yuen Siu, Yip Kwok Cheong, Yip Kwok Wai, Tse Yuen Yuen and Poon Kwok Kuen, all stockholders of EMAL, have the power to direct the voting and disposition of the shares held by EMAL in the Company. They are businessmen who are based in Hong Kong and China and who have substantial investments in the manufacturing and real estate industries in Guangzhou, China and Hong Kong.


Page 23 of 25

Common Stanley Ho Hung-

Sun c/o Atty.

Danilo V. Roleda

– Unit 808

Raffles,

Corporate Center,

Emerald Avenue,

Ortigas Center

Pasig City

Stanley Ho Hung-

Sun (also the

record owner)

Non-Filipino 116,100,000 5.16%

Security Ownership of Management

Title of Class Name of Owner Amount and Nature of

Beneficial Ownership

Citizenship Percent of

Class Common Ferdinand B. Masi 1 (direct) Filipino 0.00%

Common Amelia A. Austria 1 (direct) Filipino 0.00%

Common Evelyn G. Cacho 1 (direct) Filipino 0.00%

Common Alejo L. Villanueva, Jr. 1 (direct) Filipino 0.00%

Common Elmer P. Pineda 1 (direct) Filipino 0.00%

Common Giancarlo C. Ng 1 (direct) Filipino 0.00%

Common Felizardo T. Sapno 1 (direct) Filipino 0.00%

Common Rolando D. Siatela 0 Filipino N/A

Common Ma. Cristina D. Gonzales 0 Filipino N/A

Common All directors and executive

officers

7 (direct) 0.00%

Voting Trust Holders of 5% or More

The Company has no knowledge of persons holding more than 5% of its voting securities under a voting

trust or similar agreement.

Change in Control

The Company has no knowledge of any arrangements among stockholders that may result in a change

in control of the Company.

Item 12. Certain Relationships and Related Transactions

Except for the material related party transactions described in the notes to the financial statements of

the Company for the years 2014, 2013 and 2012 (please see elsewhere in here), there has been no

material transaction during the last two years, nor is there any material transaction currently proposed,

to which the Company was or is to be a party, in which any director or executive officer, any nominee

for election as director, stockholder of more than ten percent (10%) of the Company’s voting shares,

and any member of the immediate family (including spouse, parents, children, siblings, and in-laws) of

any such director or officer or stockholder of more than ten percent (10%) of the Company’s voting

shares had or is to have a direct or indirect material interest.


Page 24 of 25

PART IV – EXHIBITS AND SCHEDULES

Item 14. (a) Exhibits and Reports on SEC Form 17-C

Exhibit No. Description of Exhibit 1 Statement of Management Responsibility for Financial Statement 2 Audited Financial Statements 3 SEC Supplementary Schedules 4 2014 Annual Corporate Governance Report

(a) Reports on SEC Form 17-C Filed During the Last Six Months of the Report

Period (July 1 to December 31, 2014)

Date Disclosures

26 August 2014 Change in Corporate Contact Details and Website

23 September 2014 Notice of Annual Stockholders’ Meeting

24 September 2014 Amendment to By-Laws

24 September 2014 Amendment to the Articles of Incorporation

18 November 2014 Results of the Annual Stockholders’ Meeting

18 November 2014

Results of the Organizational Meeting of the Board of Directors

Notes 2014 2013

CURRENT ASSETS

Cash and cash equivalents 5 230,662,973 P 172,226,157 P

Trade and other receivables - net 6 93,170,852 82,398,715

Due from related parties - net 14 46,268,824 36,649,714

Other current assets 7 9,698,764 7,465,904

Total Current Assets 379,801,413 298,740,490

NON-CURRENT ASSETS

Trade and other receivables 6 3,572,845 6,525,815

Investment property - net 9 29,745,646 30,985,048

Property and equipment - net 8 23,092,490 19,740,172

Deferred tax assets 13 51,817,246 39,634,765

Other non-current assets - net 7 3,380,284 5,258,497

Total Non-current Assets 111,608,511 102,144,297

TOTAL ASSETS 491,409,924 P 400,884,787 P

CURRENT LIABILITIES

Trade and other payables 10 87,254,280 P 71,823,167 P

Due to related parties 14 90,702,023 77,307,502

Income tax payable 9,207,485 160,386

Total Current Liabilities 187,163,788 149,291,055

NON-CURRENT LIABILITY

Retirement benefit obligation 12 157,688,710 124,037,904

Total Liabilities 344,852,498 273,328,959

EQUITY 16 146,557,426 127,555,828

TOTAL LIABILITIES AND EQUITY 491,409,924 P 400,884,787 P

See Notes to Consolidated Financial Statements.

A S S E T S

LIABILITIES AND EQUITY

SUNTRUST HOME DEVELOPERS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

DECEMBER 31, 2014 AND 2013

(Amounts in Philippine Pesos)

Notes 2014 2013 2012

REVENUES

Management fees 4 279,504,341 P 232,055,178 P 180,998,803 P

Service income 2 14,640,357 15,556,533 11,909,881

Rental income 17 8,722,669 9,364,826 8,380,582

Finance income 3,385,507 2,311,440 3,224,759

Gain on sale of available-for-sale financial asset 14 - 20,627,768 -

Others 1,011,215 2,972,172 4,524,096

307,264,089 282,887,917 209,038,121

COSTS AND EXPENSES

Cost of services 11 209,124,971 218,800,469 174,048,109

Operating expenses 11 40,939,847 32,879,410 18,022,816

Finance costs 6, 12 13,049,374 6,684,336 8,209,242

Tax expense 13 15,330,731 4,947,678 2,460,553

278,444,923 263,311,893 202,740,720

NET PROFIT 28,819,166 P 19,576,024 P 6,297,401 P

Earnings Per Share -

Basic and Diluted 15 0.013 P 0.009 P 0.003 P


CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012



Notes 2014 2013 2012

NET PROFIT 28,819,166 P 19,576,024 P 6,297,401 P

OTHER COMPREHENSIVE INCOME (LOSS)

Items that will not be reclassified

subsequently to profit or loss

Remeasurements of retirement

benefit obligation 12 14,025,098 )( 32,571,479 14,665,154 )(

Tax income (expense) 13 4,207,530 9,771,444 )( 4,399,546

9,817,568 )( 22,800,035 10,265,608 )(

TOTAL COMPREHENSIVE

INCOME (LOSS) 19,001,598 P 42,376,059 P 3,968,207 )( P




CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


Note 2014 2013 2012

CAPITAL STOCK - P1 par value 16

Authorized - 3 billion shares

Issued and outstanding - 2 billion shares 2,000,000,000 P 2,000,000,000 P 2,000,000,000 P

Subscribed capital - 250 million shares 250,000,000 250,000,000 250,000,000

Subscription receivable 187,500,000 )( 187,500,000 )( 187,500,000 )(

62,500,000 62,500,000 62,500,000

2,062,500,000 2,062,500,000 2,062,500,000

REVALUATION RESERVES

Balance at beginning of year 16,082,036 )( 38,882,071 )( 28,616,463 )(

Other comprehensive income (loss)

for the year 9,817,568 )( 22,800,035 10,265,608 )(

Balance at end of year 25,899,604 )( 16,082,036 )( 38,882,071 )(

DEFICIT

Balance at beginning of year 1,918,862,136 )( 1,938,438,160 )( 1,944,735,561 )(

Net profit for the year 28,819,166 19,576,024 6,297,401

Balance at end of year 1,890,042,970 )( 1,918,862,136 )( 1,938,438,160 )(

TOTAL EQUITY 146,557,426 P 127,555,828 P 85,179,769 P



CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY



Notes 2014 2013 2012

CASH FLOWS FROM OPERATING ACTIVITIES

Profit before tax 44,149,897 P 24,523,702 P 8,757,954 P

Adjustments for:

Depreciation and amortization 11 12,966,563 10,093,754 9,756,269

Impairment of receivables 6 6,957,463 - -

Interest expense 6,091,911 6,684,336 8,209,242

Interest income 3,385,507 )( 2,311,440 )( 3,224,759 )(

Gain on sale of available-for-sale financial asset 14 - 20,627,768 )( -

Operating profit before working capital changes 66,780,327 18,362,584 23,498,706

Increase in trade and other receivables 14,776,630 )( 3,192,647 )( 3,263,763 )(

Decrease (increase) in other current assets 25,108,648 )( 12,091,772 )( 2,015,150

Increase in trade and other payables 24,638,598 8,704,331 8,726,925

Increase in retirement benefit obligation 13,533,797 31,240,154 13,234,791

Cash generated from operations 65,067,444 43,022,650 44,211,809

Cash paid for taxes 590,280 )( 6,792,075 )( 4,842,686 )(

Net Cash From Operating Activities 64,477,164 36,230,575 39,369,123

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisition of property and equipment 8 15,909,143 )( 14,258,576 )( 4,737,426 )(

Decrease in due from related parties 14 9,619,110 )( 8,098,764 )( 13,647,708 )(

Interest received 3,385,507 2,311,440 1,909,477

Proceeds from disposal of property and equipment 8 2,301,197 - -

Decrease (increase) in other non-current assets 406,680 5,075,655 )( 977,115 )(

Proceeds from sale of available-for-sale financial assets 14 - 117,809,201 -

Net Cash From (Used in) Investing Activities 19,434,869 )( 92,687,646 17,452,772 )(

CASH FLOWS FROM FINANCING ACTIVITIES

Increase (decrease) in due to related parties 13,394,521 17,227,090 )( 3,963,321 )(

Repayments of interest-bearing loans - - 1,984,972 )(

Interest paid - - 138,720 )(

Net Cash From (Used in) Financing Activities 13,394,521 17,227,090 )( 6,087,013 )(

NET INCREASE IN CASH AND

CASH EQUIVALENTS 58,436,816 111,691,131 15,829,338

CASH AND CASH EQUIVALENTS

AT BEGINNING OF YEAR 172,226,157 60,535,026 44,705,688

CASH AND CASH EQUIVALENTS

AT END OF YEAR 230,662,973 P 172,226,157 P 60,535,026 P

Supplemental Information:


CONSOLIDATED STATEMENTS OF CASH FLOWS




Non-cash transactions include the transfer of portion of advances to a related party by offsetting it against the portion of the advances from a related party in 2012 and decrease of the Group's ownership in Suntrust Properties, Inc. from 20% to 8% in 2012. These non-cash activities are not reflected in the statements of cash flows.

SUNTRUST HOME DEVELOPERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014, 2013 AND 2012 (Amounts in Philippine Pesos)

1. CORPORATE INFORMATION

1.1 Company Background

Suntrust Home Developers, Inc. (the Company or Parent Company) was incorporated in the Philippines on January 18, 1956 to primarily engage in real estate development. The Parent Company’s corporate life was extended for another 50 years starting January 18, 2006. The Parent Company is presently engaged in leasing activity and is a publicly listed entity in the Philippines. Megaworld Corporation (Megaworld), also a publicly listed company in the Philippines, is the major stockholder with 42.48% ownership interest in the Parent Company. The registered office of the Parent Company, which is also its principal place of business, is located at the 6th Floor, The World Centre Building, 330 Sen. Gil Puyat Avenue, Makati City. The Parent Company’s administrative functions are being handled by Megaworld. The consolidated financial statements have been prepared on a going concern basis since Megaworld commits to provide continuing financial support for its operating expenses until such time that the Parent Company is able to successfully re-start its commercial operations as a real estate developer.

1.2 Subsidiary, Associate, and their Operations

Prior to June 2013, the Parent Company held 8% ownership interest in Suntrust Properties, Inc. (SPI) which is presented as investment in available-for-sale (AFS) financial asset. In June 2013, the Parent Company’s remaining ownership interest in SPI was sold to Megaworld. The Parent Company holds 100% ownership interest in First Oceanic Property Management, Inc. (FOPMI). FOPMI, which is incorporated in the Philippines, is engaged primarily in the management of real estate properties. On the other hand, FOPMI holds 100% ownership interest in the shares of stock of Citylink Coach Services Inc. (Citylink), a domestic company engaged in overland transport, carriage, moving or haulage of passengers, fares, customers and commuters as well as freight, cargo, articles, items, parcels, commodities, goods or merchandise by means of coaches, buses, coasters, jeeps, cars and other similar means of transport. The registered and principal place of business of FOPMI is located at 7th Floor Paseo Center, 8757 Paseo de Roxas corner Sedeño Street, Makati City. The registered and principal place of business of Citylink is located at G/F Parking Building, Service Road 2, McKinley Town Center, Bonifacio, Taguig City.

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1.3 Approval of the Consolidated Financial Statements

The consolidated financial statements of Suntrust Home Developers, Inc. and Subsidiaries (the Group) for the year ended December 31, 2014 (including the comparatives of the Group’s consolidated financial statements for the years ended December 31, 2013 and 2012) were authorized for issue by the Company’s Board of Directors (BOD) on March 18, 2015.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies that have been used in the preparation of these consolidated financial statements are summarized below and in the succeeding pages. The policies have been consistently applied to all years presented, unless otherwise stated.

2.1 Basis of Preparation of Consolidated Financial Statements

(a) Statement of Compliance with Philippine Financial Reporting Standards

The consolidated financial statements of the Group have been prepared in accordance with Philippine Financial Reporting Standards (PFRS). PFRS are adopted by the Financial Reporting Standards Council from the pronouncements issued by the International Accounting Standards Board, and approved by the Philippine Board of Accountancy (BOA). The consolidated financial statements have been prepared using the measurement bases specified by PFRS for each type of asset, liability, income and expense. The measurement bases are more fully described in the accounting policies that follow.

(b) Presentation of Consolidated Financial Statements

The consolidated financial statements are presented in accordance with Philippine Accounting Standard (PAS) 1, Presentation of Financial Statements. The Group presents consolidated statements of comprehensive income separate from the consolidated statements of income. The Group presents a third consolidated statement of financial position as at the beginning of the preceding period when it applies an accounting policy retrospectively, or makes a retrospective restatement or reclassification of items that has a material effect on the information in the consolidated statement of financial position at the beginning of the preceding period. The related notes to the third consolidated statement of financial position are not required to be disclosed.

(c) Functional and Presentation Currency These consolidated financial statements are presented in Philippine pesos, the functional and presentation currency of the Group, and all values represent absolute amounts except when otherwise indicated.

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Items included in the consolidated financial statements of the Group are measured using its functional currency, the currency of the primary economic environment in which the Group operates.

2.2 Adoption of New and Amended PFRS

(a) Effective in 2014 that are Relevant to the Group In 2014, the Group adopted for the first time the following amendments and interpretation to PFRS that are relevant to the Group and effective for financial statements for the annual period beginning on or after January 1, 2014: PAS 32 (Amendment) : Financial Instruments: Presentation – Offsetting Financial Assets and Financial Liabilities PAS 36 (Amendment) : Impairment of Assets – Recoverable Amount Disclosures for Non-financial Assets PAS 39 (Amendment) : Financial Instruments: Recognition and Measurement – Novation of Derivatives and Continuation of Hedge Accounting PFRS 10, 12 and PAS 27 (Amendments) : Consolidated Financial Statements, Disclosures of Interests in Other Entities, Separate Financial Statements – Exemption from Consolidation for “Investment Entities” Philippine Interpretation International Financial Reporting Interpretations Committee (IFRIC) 21 : Levies Discussed below and in the succeeding pages are the relevant information about these amended standards and interpretations.

(i) PAS 32 (Amendment), Financial Instruments: Presentation – Offsetting Financial

Assets and Financial Liabilities. The amendment provides guidance to address inconsistencies in applying the criteria for offsetting financial assets and financial liabilities. It clarifies that an entity must currently have a right of set-off that is not contingent on a future event, and must be legally enforceable in the normal course of business; in the event of default; and, in the event of insolvency or bankruptcy of the entity and all of the counterparties. The amendment also clarifies that gross settlement mechanisms (such as through a clearing house) with features that both eliminate credit and liquidity risks and process receivables and payables in a single settlement process, will satisfy the criterion for net settlement. The Group’s existing offsetting and settlement arrangements for its financial instruments with counterparties are not affected by the amendment; hence, such did not have an impact on the presentation of financial assets and financial liabilities on the Group’s consolidated financial statements for any periods presented.

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(ii) PAS 36 (Amendment), Impairment of Assets – Recoverable Amount Disclosures for Non-financial Assets. The amendment clarifies that disclosure of information about the recoverable amount of individual asset (including goodwill) or a cash-generating unit is required only when an impairment loss has been recognized or reversed during the reporting period. If the recoverable amount is determined based on the asset’s or cash-generating unit’s fair value less cost of disposal, additional disclosures on fair value measurement required under PFRS 13, Fair Value Measurement, such as but not limited to the fair value hierarchy, valuation technique used and key assumptions applied should be provided in the consolidated financial statements. This amendment did not result in additional disclosure in the consolidated financial statements since the Group does not have any impaired non-financial assets.

(iii) PAS 39 (Amendment), Financial Instruments: Recognition and Measurement – Novation of Derivatives and Continuation of Hedge Accounting. The amendment provides some relief from the requirements on hedge accounting by allowing entities to continue the use of hedge accounting when a derivative is novated to a clearing counterparty resulting in termination or expiration of the original hedging instrument as a consequence of laws and regulations, or the introduction thereof. As the Group neither enters into transactions involving derivative instruments nor does it applies hedge accounting, the amendment did not have any impact on the Group’s consolidated financial statements.

(iv) PFRS 10, 12 and PAS 27 (Amendments), Exemption from Consolidation of

“Investment Entities”. The amendments define the term “investment entity” and provide to such an investment entity an exemption from the consolidation of particular subsidiaries and instead require to measure investment in each eligible subsidiary at fair value through profit or loss in accordance with PAS 39, Financial Instruments: Recognition and Measurement or PFRS 9, Financial Instruments, both in its consolidated or separate financial statements, as the case maybe. The amendments also require additional disclosures about the details of the entity’s unconsolidated subsidiaries and the nature of relationship and certain transactions with those subsidiaries. This amendment had no impact in the Company’s financial statements, since none of its subsidiaries qualify as an investment entity as defined by PFRS 10.

(v) Philippine Interpretation IFRIC 21, Levies. This interpretation clarifies that

the obligating event as one of the criteria under PAS 37, Provisions, Contingent Liabilities and Contingent Assets, for the recognition of a liability for levy imposed by a government is the activity described in the relevant legislation that triggers the payment of the levy. Accordingly, the liability is recognized in the financial statements progressively if the obligating event occurs over a period of time and if an obligation is triggered on reaching a minimum threshold, the liability is recognized when that minimum threshold is reached. This amendment had no significant impact on the Group’s consolidated financial statements.

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(b) Effective Subsequent to 2014 but not Adopted Early

There are new PFRS, amendments and annual improvements to existing standards effective for annual periods subsequent to 2014 which are adopted by the FRSC, subject to the approval of the BOA. Management will adopt the following relevant pronouncements in accordance with their transitional provisions, and, unless otherwise stated, none of these are expected to have significant impact on the Group’s consolidated financial statements: (i) PAS 19 (Amendment), Employee Benefits – Defined Benefit Plans – Employee

Contributions (effective from July 1, 2014). The amendment clarifies that if the amount of the contributions from employees or third parties is dependent on the number of years of service, an entity shall attribute the contributions to periods of service using the same attribution method (i.e., either using the plan’s contribution formula or on a straight-line basis) for the gross benefit.

(ii) PAS 1 (Amendment), Presentation of Financial Statements – Disclosure Initiative (effective from January 1, 2016). The amendment encourages entities to apply professional judgment in presenting and disclosing information in the financial statements. Accordingly, it clarifies that materiality applies to the whole financial statements and an entity shall not reduce the understandability of the financial statements by obscuring material information with immaterial information or by aggregating material items that have different natures or functions. Moreover, the amendment clarifies that an entity’s share of other comprehensive income of associates and joint ventures accounted for using equity method should be presented based on whether or not such other comprehensive income item will subsequently be reclassified to profit or loss. It further clarifies that in determining the order of presenting the notes and disclosures, an entity shall consider the understandability and comparability of the financial statements.

(iii) PAS 16 (Amendment), Property, Plant and Equipment and PAS 38

(Amendment), Intangible Assets – Clarification of Acceptable Methods of Depreciation and Amortization (effective from January 1, 2016). The amendment in PAS 16 clarifies that a depreciation method that is based on revenue that is generated by an activity that includes the use of an asset is not appropriate for property, plant and equipment. In addition, amendment to PAS 38 introduces a rebuttable presumption that an amortization method that is based on the revenue generated by an activity that includes the use of an intangible asset is not appropriate, which can only be overcome in limited circumstances where the intangible asset is expressed as a measure of revenue, or when it can be demonstrated that revenue and the consumption of the economic benefits of an intangible asset are highly correlated. The amendment also provides guidance that the expected future reductions in the selling price of an item that was produced using the asset could indicate an expectation of technological or commercial obsolescence of an asset, which may reflect a reduction of the future economic benefits embodied in the asset.

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(iv) PAS 16 (Amendment), Property, Plant and Equipment and PAS 41 (Amendment), Agriculture – Bearer Plants (effective from January 1, 2016). The amendment defines a bearer plant as a living plant that is used in the production or supply of agricultural produce, is expected to bear produce for more than one period and has a remote likelihood of being sold as agricultural produce, except for incidental scrap sales. On this basis, bearer plant is now included within the scope of PAS 16 rather than PAS 41, allowing such assets to be accounted for as property, plant and equipment and to be measured after initial recognition at cost or revaluation basis in accordance with PAS 16. The amendment further clarifies that produce growing on bearer plants remains within the scope of PAS 41.

(v) PAS 27 (Amendment), Separate Financial Statements – Equity Method in Separate Financial Statements (effective from January 1, 2016). This amendment introduces a third option which permits an entity to account for its investments in subsidiaries, joint ventures and associates under the equity method in its separate financial statements in addition to the current options of accounting those investments at cost or in accordance with PAS 39 or PFRS 9, Financial Instruments. As of the end of the reporting period, the Company has no plan to change the accounting policy for its investments in its subsidiaries.

(vi) PAS 28 (Amendment), Investments in Associates and Joint Ventures – Investment Entities – Applying the Consolidation Exception (effective from January 1, 2016). This amendment addresses the concerns that have arisen in the context of applying the consolidation exception for investment entities. This amendment permits a non-investment entity investor, when applying the equity method of accounting for an associate or joint venture that is an investment entity, to retain the fair value measurement applier by that investment entity associate or joint venture to its interests in subsidiaries.

(vii) PFRS 10 (Amendment), Consolidated Financial Statements and PAS 28 (Amendment), Investments in Associates and Joint Ventures – Sale or Contribution of Assets between an Investor and its Associates or Joint Venture (effective from January 1, 2016). The amendment to PFRS 10 requires full recognition in the investor’s financial statements of gains or losses arising on the sale or contribution of assets that constitute a business as defined in PFRS 3, Business Combinations, between an investor and its associates or joint venture. Accordingly, the partial recognition of gains or losses (i.e., to the extent of the unrelated investor’s interests in an associate or joint venture) only applies to those sale or contribution of assets that do not constitute a business. Corresponding amendment has been made to PAS 28 to reflect these changes. In addition, PAS 28 has been amended to clarify that when determining whether assets that are sold or contributed constitute a business, an entity shall consider whether the sale or contribution of those assets is part of multiple arrangements that should be accounted for as a single transaction.

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(viii) PFRS 10 (Amendment), Consolidated Financial Statements – Investment Entities Applying the Consolidation Exception (effective from January 1, 2016). This amendment confirms that the exemption from preparing consolidated financial statements continues to be available to a parent entity that is a subsidiary of an investment entity, even if the investment entity measures its interest in all its subsidiaries at fair value in accordance with PFRS 10. The amendment further clarifies that if an investment entity has a subsidiary that is not itself an investment entity and whose main purpose and activities are to provide services that are related to the investment activities of the investment entity parent, the latter shall consolidate that subsidiary.

(ix) PFRS 12 (Amendment), Disclosures of Interests in Other Entities – Investment Entities: Applying the Consolidation Exception (effective from January 1, 2016). The amendment clarifies that an investment entity that measures all its subsidiaries at fair value should provide the disclosures required by PFRS 12.

(x) PFRS 9 (2014), Financial Instruments (effective from January 1, 2018). This

new standard on financial instruments will eventually replace PAS 39 and PFRS 9 (2009, 2010 and 2013 versions). This standard contains, among others, the following:

• three principal classification categories for financial assets based on the business model on how an entity is managing its financial instruments;

• an expected loss model in determining impairment of all financial assets that are not measured at fair value through profit or loss (FVTPL), which generally depends on whether there has been a significant increase in credit risk since initial recognition of a financial asset; and,

• a new model on hedge accounting that provides significant improvements principally by aligning hedge accounting more closely with the risk management activities undertaken by entities when hedging their financial and non-financial risk exposures.

In accordance with the financial asset classification principle of PFRS 9 (2014), a financial asset is classified and measured at amortized cost if the asset is held within a business model whose objective is to hold financial assets in order to collect the contractual cash flows that represent solely payments of principal and interest (SPPI) on the principal outstanding. Moreover, a financial asset is classified and subsequently measured at fair value through other comprehensive income if it meets the SPPI criterion and is held in a business model whose objective is achieved by both collecting contractual cash flows and selling the financial assets. All other financial assets are measured at FVTPL. In addition, PFRS 9 (2014) allows entities to make an irrevocable election to present subsequent changes in the fair value of an equity instrument that is not held for trading in other comprehensive income. The accounting for embedded derivatives in host contracts that are financial assets is simplified by removing the requirement to consider whether or not they are closely related, and, in most arrangements, does not require separation from the host contract.

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For liabilities, the standard retains most of the PAS 39 requirements which include amortized cost accounting for most financial liabilities, with bifurcation of embedded derivatives. The amendment also requires changes in the fair value of an entity’s own debt instruments caused by changes in its own credit quality to be recognized in other comprehensive income rather than in profit or loss. The Group does not expect to implement and adopt PFRS 9 (2014) until its effective date. In addition, management is currently assessing the impact of PFRS 9 (2014) on the consolidated financial statements of the Group and it will conduct a comprehensive study of the potential impact of this standard prior to its mandatory adoption date to assess the impact of all changes.

(xi) IFRS 15, Revenue from Contracts with Customers. This standard will replace PAS 18, Revenue, and PAS 11, Construction Contracts, the related Interpretations on revenue recognition: IFRIC 13, Customer Loyalty Programmes, IFRIC 15, Agreement for the Construction of Real Estate, IFRIC 18, Transfers of Assets from Customers and Standing Interpretations Committee 31, Revenue – Barter Transactions Involving Advertising Services, effective January 1, 2017. This new standard establishes a comprehensive framework for determining when to recognize revenue and how much revenue to recognize. The core principle in the said framework is for an entity to recognize revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This standard has not yet been adopted in the Philippines; however, management is currently assessing the impact of this standard on the Group’s consolidated financial statements in preparation for the adoption of this standard in the Philippines.

(xii) Annual Improvements to PFRS. Annual Improvements to PFRS (2010-2012 Cycle) and PFRS (2011-2013 Cycle) effective for annual periods beginning on or after July 1, 2014, and to PFRS (2012-2014 Cycle) effective for annual periods beginning on or after January 1, 2016, made minor amendments to a number of PFRS. Among those improvements, the following amendments are relevant to the Group but management does not expect those to have material impact on the Group’s consolidated financial statements:

Annual Improvements to PFRS (2010-2012 Cycle)

• PFRS 3 (Amendment), Business Combinations – Accounting for Contingent Consideration in a Business Combination. This amendment clarifies that an obligation to pay contingent consideration which meets the definition of a financial instrument is classified as a financial liability or as equity in accordance with PAS 32, Financial Instruments – Presentation. It also clarifies that all non-equity contingent consideration should be measured at fair value at the end of each reporting period, with changes in fair value recognized in profit or loss.

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• PFRS 3 (Amendment), Business Combinations – Scope Exceptions for Joint Ventures. It clarifies that PFRS 3 does not apply to the accounting for the formation of any joint arrangement under PFRS 11, Joint Arrangement, in the financial statements of the joint arrangement itself.

• PFRS 8 (Amendment), Operating Segments – Aggregation of Operating Segments, and Reconciliation of the Total of the Reportable Segment’s Assets to the Entity’s Assets. This amendment requires disclosure of the judgments made by management in applying the aggregation criteria to operating segments. This includes a description of the segments which have been aggregated and the economic indicators which have been assessed in determining that the aggregated segments share similar economic characteristics. It further clarifies the requirement to disclose for the reconciliations of segment assets to the entity’s assets if that amount is regularly provided to the chief operating decision maker.

• PAS 16 (Amendment), Property, Plant and Equipment and PAS 38 (Amendment), Intangible Assets. The amendments clarify that when an item of property, plant and equipment, and intangible assets is revalued, the gross carrying amount is adjusted in a manner that is consistent with a revaluation of the carrying amount of the asset.

• PAS 24 (Amendment), Related Party Disclosures. The amendment clarifies that an entity providing key management services to a reporting entity is deemed to be a related party of the latter. It also clarifies that the information required to be disclosed in the financial statements are the amounts incurred by the reporting entity for key management personnel services that are provided by a separate management entity and not the amounts of compensation paid or payable by the management entity to its employees or directors.

• PFRS 13 (Amendment), Fair Value Measurement. The amendment in the basis of conclusion of PFRS 13 clarifies that issuing PFRS 13 and amending certain provisions of PFRS 9 and PAS 39 related to discounting of financial instruments did not remove the ability to measure short-term receivables and payables with no stated interest rate on an undiscounted basis, when the effect of not discounting is immaterial.


• PFRS 3 (Amendment), Business Combinations – Scope Exceptions for Joint Ventures. It clarifies that PFRS 3 does not apply to the accounting for the formation of any joint arrangement under PFRS 11, Joint Arrangement, in the financial statements of the joint arrangement itself.

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• PFRS 13 (Amendment), Fair Value Measurement. The amendment clarifies that the scope of the exception for measuring the fair value of a group of financial assets and financial liabilities on a net basis (the portfolio exception) applies to all contracts within the scope of, and accounted for in accordance with, PAS 39 or PFRS 9, regardless of whether they meet the definitions of financial assets or financial liabilities as defined in PAS 32.

• PAS 40 (Amendment), Investment Property. The amendment clarifies the interrelationship of PFRS 3, Business Combinations, and PAS 40 in determining the classification of property as an investment property or owner-occupied property, and explicitly requires entity to use judgment in determining whether the acquisition of an investment property is an acquisition of an asset or a group of asset, or a business combination in reference to PFRS 3.

• PAS 34 (Amendment), Interim Financial Reporting. The amendment clarifies the meaning of disclosure of information “elsewhere in the interim financial report” and requires the inclusion of a cross-reference from the interim financial statements to the location of this referenced information. The amendment also specifies that this information must be available to users of the interim financial statements on the same terms as the interim financial statements and at the same time, otherwise the interim financial statements will be incomplete.


• PFRS 7 (Amendment), Financial Instruments: Disclosures – Applicability of Amendments to PFRS 7 to Condensed Interim Financial Statements. This amendment clarifies that the additional disclosure required by the recent amendments to PFRS 7 related to offsetting financial assets and financial liabilities is not specifically required for all interim periods. However, the additional disclosure is required to be given in condensed interim financial statements that are prepared in accordance with PAS 34, Interim Financial Reporting, when its inclusion would be necessary in order to meet the general principles of PAS 34.

• PFRS 7 (Amendment), Financial Instruments – Disclosures. The amendment provides additional guidance to help entities identify the circumstances under which a contract to “service” financial assets is considered to be a continuing involvement in those assets for the purposes of applying the disclosure requirements of PFRS 7. Such circumstances commonly arise when, for example, the servicing is dependent on the amount or timing of cash flows collected from the transferred asset or when a fixed fee is not paid in full due to non-performance of that asset.

• PAS 19 (Amendment), Employee Benefits. The amendment clarifies that the currency and term of the high quality corporate bonds which were used to determine the discount rate for post-employment benefit obligations shall be made consistent with the currency and estimated term of the post-employment benefit obligations.

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• PAS 34 (Amendment), Interim Financial Reporting – Disclosure of information “Elsewhere in the Interim Financial Report”. The amendment clarifies the meaning of disclosure of information “elsewhere in the interim financial report” and requires the inclusion of a cross-reference from the interim financial statements to the location of this referenced information. The amendment also specifies that this information must be available to users of the interim financial statements on the same terms as the interim financial statements and at the same time, otherwise the interim financial statements will be incomplete.

2.3 Basis of Consolidation

The Parent Company obtains and exercises control through voting rights. The Group’s consolidated financial statements comprise the accounts of the Parent Company and its subsidiaries, after the elimination of material intercompany transactions. All intercompany assets and liabilities, equity, income, expenses and cash flows relating to transaction between entities under the Group, are eliminated in full on consolidation. Unrealized profits and losses from intercompany transactions that are recognized in assets are also eliminated in full. Intercompany losses that indicate impairment are recognized in the consolidated financial statements.

The financial statements of the subsidiaries are prepared for the same reporting period as the Parent Company, using consistent accounting principles. Adjustments are made to bring into line any dissimilar accounting policies that may exist.

Subsidiaries are all entities (including structured entities) over which the Company has control. The Company controls an entity when it is exposed, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are consolidated from the date the Company obtains control. The Company reassesess whether or not it controls an entity if facts and circumstances indicate that there are changes to one or more of the three elements of controls indicated above. Accordingly, entities are deconsolidated from the date that control ceases.

The acquisition method is applied to account for acquired subsidiaries. This requires recognizing and measuring the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Company, if any. The consideration transferred also includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred and subsequent change in the fair value of contingent consideration is recognized directly in profit or loss.

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the Group recognizes any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets.

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The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any existing equity interest in the acquiree over the acquisition-date fair value of the identifiable net assets acquired is recognized as goodwill. If the consideration transferred is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognized directly gain in profit or loss (see Note 2.11).

2.4 Financial Assets

Financial assets are recognized when the Group becomes a party to the contractual terms of the financial instrument. Financial assets other than those designated and effective as hedging instruments are classified into the following categories: FVTPL, held-to-maturity investments, loans and receivables and AFS financial assets. Financial assets are assigned to the different categories by management on initial recognition, depending on the purpose for which the investments were acquired. Regular purchases and sales of financial assets are recognized on their trade date. All financial assets that are not classified as FVTPL are initially recognized at fair value plus any directly attributable transaction costs.

The Group’s financial assets are currently classified as loans and receivables.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money or services directly to a debtor with no intention of trading the receivables. They are included in current assets, except for maturities greater than 12 months after the end of each reporting period, which are classified as non-current assets.

The Group’s financial assets categorized as loans and receivables are presented as Cash and Cash Equivalents, Trade and Other Receivables (except Advances to employees) and Due from Related Parties in the consolidated statement of financial position. Cash and cash equivalents are defined as cash on hand, demand deposits and short-term, highly liquid investments with original maturities of three months or less, readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value.

Loans and receivables are subsequently measured at amortized cost using the effective interest method, less impairment loss, if any. Impairment loss is provided when there is objective evidence that the Company will not be able to collect all amounts due to it in accordance with the original terms of the receivables. The amount of the impairment loss is determined as the difference between the assets’ carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred), discounted at the financial asset’s original effective interest rate or current effective interest rate determined under the contract if the loan has a variable interest rate.

The carrying amount of the asset shall be reduced either directly or through the use of an allowance account. The amount of the loss shall be recognized in profit or loss.

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If in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized (such as an improvement in the debtor’s credit rating), the previously recognized impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognized in the profit or loss. All income and expenses, including impairment losses, relating to financial assets that are recognized in profit or loss are presented as part of Finance Income or Finance Cost in the consolidated statements of income.

Non-compounding interest, dividend income and other cash flows resulting from holding financial assets are recognized in profit or loss when earned, regardless of how the related carrying amount of financial assets is measured.

The financial assets are derecognized when the contractual rights to receive cash flows from the financial instruments expire, or when the financial assets and all substantial risks and rewards of ownership have been transferred to another party. If the Company neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Company recognizes its retained interest in the asset and an associated liability for amounts it may have to pay. If the Company retains substantially all the risks and rewards of ownership of a transferred financial asset, the Company continues to recognize the financial asset and also recognizes a collateralized borrowing for the proceeds received. 2.5 Other Assets

Other current assets pertain to other resources controlled by the Group as a result of past events. They are recognized in the consolidated financial statements when it is probable that the future economic benefits will flow to the entity and the asset has a cost or value that can be measured reliably. Other recognized assets of similar nature, where future economic benefits are expected to flow to the Group beyond one year after the end of the reporting period are classified as non-current assets.

2.6 Investment Property

Investment property pertains to condominium units held for rent and for capital appreciation. Condominium units are stated at cost, less accumulated depreciation and accumulated impairment losses, if any. The cost of investment property comprises the acquisition cost or construction cost and other directly attributable costs for bringing the asset to working condition for its intended use. Expenditures for additions and major improvements are capitalized while expenditures for repairs and maintenance are charged to expense when incurred. Depreciation of condominium units is computed on a straight-line basis over its estimated useful life of 30 years [see Note 3.2(a)]. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (see Note 2.16). Any gain or loss on the retirement or disposal of an investment property is recognized in profit or loss in the year of retirement disposal.

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Investment property is derecognized upon disposal or when permanently withdrawn from use and no future economic benefit is expected from its disposal.

2.7 Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization and any impairment in value.

The cost of an asset comprises its purchase price and directly attributable costs of bringing the asset to working condition for its intended use. Expenditures for additions, major improvements and renewals are capitalized while expenditures for repairs and maintenance are charged to expense as incurred. Depreciation is computed on the straight-line basis over the estimated useful lives of the assets as follows:

Transportation equipment 5 years Office and communication equipment 3-5 years Furniture and fixtures 3-5 years

Leasehold improvements are amortized over their estimated useful life of three years or the term of the lease, whichever is shorter. Fully depreciated and amortized assets are retained in the accounts until they are no longer in use and no further change for depreciation and amortization is made in respect of these assets.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (see Note 2.16). The residual values, estimated useful lives and method of depreciation of property and equipment are reviewed and adjusted, if appropriate, at the end of each reporting period. An item of property and equipment, including the related accumulated depreciation and any impairment losses, is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising from the derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in profit or loss in the year the item is derecognized.

2.8 Intangible Assets

Intangible assets, presented as part of other Other Non-current Assets account in the consolidated statements of financial position, pertain acquired computer software applications used in operation and administration which are accounted for under the cost model. The cost of the asset is the amount of cash or cash equivalents paid or the fair value of the other considerations given to acquire an asset at the time of its acquisition. Capitalized costs are amortized on a straight-line basis over an estimated useful life of five years as these intangible assets are considered finite. In addition, intangible assets are subject to impairment testing as described in Note 2.16. Amortization commences upon completion of the asset.

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Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and install the specific software for its intended use. Costs associated with maintaining computer software are expensed as incurred. When an intangible asset is disposed of, the gain or loss on disposal is determined as the difference between the proceeds and the carrying amount of the asset and is recognized in profit or loss.

2.9 Financial Liabilities

The financial liabilities of the Group include Trade and Other Payables (excluding customers’ deposits and tax-related payables) and Due to Related Parties. Financial liabilities are recognized when the Group becomes a party to the contractual terms of the instrument. All interest-related charges are recognized as an expense under the caption Finance Costs in the consolidated statement of income. Trade and other payables and due to related parties are recognized initially at their fair value and subsequently measured at amortized cost, using the effective interest method for maturities beyond one year, less settlement payments. Financial liabilities are classified as current liabilities if payment is due to be settled within one year or less after the reporting period (or in the normal operating cycle of the business, if longer), or the Group does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting period. Otherwise, these are presented as non-current liabilities. Financial liabilities are derecognized from the consolidated statement of financial position only when the obligations are extinguished either through discharge, cancellation or expiration. The difference between the carrying amount of the financial liability derecognized and the consideration paid or payable is recognized in profit or loss.

2.10 Offsetting Financial Instruments

Financial assets and liabilities are offset and the resulting net amount, considered as a single financial asset or financial liability, is reported in the consolidated statement of financial position when there is a legally enforceable right to set off the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously. The right of set-off must be available at the end of the reporting period, that is, it is not contingent on future event. It must also be enforceable in the normal course of business, in the event of default, and in the event of insolvency or bankruptcy; and must be legally enforceable for both entity and all counterparties to the financial instruments.

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2.11 Business Combinations

Business acquisitions are accounted for using the acquisition method of accounting.

Goodwill represents the excess of the cost of an acquisition over the fair value of the Company’s share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Subsequent to initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed.

Negative goodwill, if any, which is the excess of the Company’s interest in the net fair value of acquired identifiable assets, liabilities, and contingent liabilities over cost, is charged directly to income.

For the purpose of impairment testing, goodwill is allocated to cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose. The cash-generating units or groups of cash-generating units are identified according to operating segment.

Gains and losses on the disposal of an interest in a subsidiary include the carrying amount of goodwill relating to it.

If the business combination is achieved in stages, the acquirer is required to remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and recognize the resulting gain or loss, if any, in the profit or loss or other comprehensive income, as appropriate.

Any contingent consideration to be transferred by the Group is recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognized in accordance with PAS 37, either in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is not remeasured, and its subsequent settlement is accounted for within equity. 2.12 Segment Reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the Group’s strategic steering committee; its chief operating decision-maker. The strategic steering committee is responsible for allocating resources and assessing performance of the operating segments.

In identifying its operating segments, management generally follows the Group’s service lines as disclosed in Note 4, which represent the main services provided by the Group.

Each of these operating segments is managed separately as each of these service lines requires different technologies and other resources as well as marketing approaches. All inter-segment transfers are carried out at arm’s length prices.

The measurement policies the Group uses for segment reporting under PFRS 8 are the same as those used in its consolidated financial statements. In addition, corporate assets which are not directly attributable to the business activities of any operating segment are not allocated to a segment.

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There have been no changes from prior periods in the measurement methods used to determine reported segment profit or loss.

2.13 Provisions and Contingencies Provisions are recognized when present obligations will probably lead to an outflow of economic resources and they can be estimated reliably even if the timing or amount of the outflow may still be uncertain. A present obligation arises from the presence of a legal or constructive commitment that has resulted from past events. Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the end of the reporting period, including the risks and uncertainties associated with the present obligation. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. When time value of money is material, long-term provisions are discounted to their present values using a pretax rate that reflects market assessments and the risks specific to the obligation. The increase in the provision due to passage of time is recognized as interest expense. Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimate. In those cases where the possible outflow of economic resource as a result of present obligations is considered improbable or remote, or the amount to be provided for cannot be measured reliably, no liability is recognized in the consolidated financial statements. Similarly, possible inflows of economic benefits to the Group that do not yet meet the recognition criteria of an asset are considered contingent assets, hence, are not recognized in the consolidated financial statements. On the other hand, any reimbursement that the Group can be virtually certain to collect from a third party with respect to the obligation is recognized as a separate asset not exceeding the amount of the related provision. 2.14 Revenue and Expense Recognition Revenue comprises of income from rental and the rendering of services measured by reference to the fair value of consideration received or receivable by the Group for services rendered excluding value added tax (VAT). Revenue is recognized to the extent that the revenue can be reliably measured; it is probable that the economic benefits will flow to the Group; and the costs incurred or to be incurred can be measured reliably. In addition, the following specific recognition criteria must also be met before revenue is recognized: (a) Management fees – Revenue is recognized when the performance of contractually

agreed tasks have been substantially rendered.

(b) Rental income – Revenue is recognized on a straight-line basis over the duration of the lease term (see Note 2.15). For tax purposes, rental income is recognized based on the contractual terms of the lease.

(c) Service income – Revenue is recognized when the services related to technical projects, telephone services and transport of passengers have been substantially rendered.

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(d) Interest Income – Revenue is recognized as the interest accrues taking into account the effective yield on the asset.

Costs and expenses are recognized in profit or loss upon utilization of goods or services or at the date they are incurred. Finance costs are reported in profit or loss on accrual basis.

2.15 Leases The Group accounts for its leases as follows: (a) Group as Lessee

Leases which do not transfer to the Group substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments (net of any incentive received from the lessor) are recognized as expense in the consolidated statements of income on a straight-line basis over the lease term. Associated costs, such as repairs and maintenance and insurance, are expensed as incurred.

(b) Group as Lessor

Leases which do not transfer to the lessee substantially all the risks and benefits of ownership of the asset are classified as operating leases. Lease income from operating leases is 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. 2.16 Impairment of Non-financial Assets The Group’s property and equipment, investment property and other non-financial assets are subject to impairment testing. All other individual assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. For purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). As a result, assets are tested for impairment either individually or at the cash-generating unit level. Impairment loss is recognized for the amount by which the asset’s or cash-generating unit’s carrying amount exceeds its recoverable amounts which is the higher of its fair value less costs to sell and its value in use. In determining value in use, management estimates the expected future cash flows from each cash-generating unit and determines the suitable interest rate in order to calculate the present value of those cash flows. The data used for impairment testing procedures are directly linked to the Group’s latest approved budget, adjusted as necessary to exclude the effects of asset enhancements. Discount factors are determined individually for each cash-generating unit and reflect management’s assessment of respective risk profiles, such as market and asset-specific risk factors.

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All assets are subsequently reassessed for indications that an impairment loss previously recognized may no longer exist. An impairment loss is reversed if the asset’s or cash generating unit’s recoverable amount exceeds its carrying amount.

2.17 Employee Benefits

The Group’s post-employment benefits to employees through a defined benefit plan and defined contribution plans, and other employee benefits are recognized as follows:

(a) Post-employment Defined Benefit Plan

A defined benefit plan is a post-employment plan that defines an amount of post-employment benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and salary. The legal obligation for any benefits from this kind of post-employment benefit plan remains with the Group, even if plan assets for funding the defined benefit plan have been acquired. Plan assets may include assets specifically designated to a long-term benefit fund, as well as qualifying insurance policies. The Group’s post-employment defined benefit plan covers all regular full-time employees.

The liability recognized in the consolidated statement of financial position for defined benefit plans is the present value of the defined benefit obligation (DBO) at the end of the reporting period less the fair value of plan assets. The DBO is calculated annually by independent actuaries using the projected unit credit method. The present value of the DBO is determined by discounting the estimated future cash outflows using a discount rate derived from the interest rates of a zero coupon government bonds as published by the Philippine Dealing & Exchange Corporation, that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating to the terms of the related post-employment liability. Remeasurements, comprising of actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions and the return on plan assets (excluding amount included in net interest) are reflected immediately in the consolidated statement of financial position with a charge or credit recognized in other comprehensive income in the period in which they arise. Net interest is calculated by applying the discount rate at the beginning of the period, taking account of any changes in the net defined benefit liability or asset during the period as a result of contributions and benefit payments. Net interest is reported as part of Finance Costs or Finance Income account in the consolidated statement of income. Past-service costs are recognized immediately in profit or loss in the period of a plan amendment and curtailment.

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(b) Post-employment Defined Contribution Plans A defined contribution plan is a post-employment plan under which the Group pays fixed contributions into an independent entity. The Group has no legal or constructive obligations to pay further contributions after payment of the fixed contribution. The contributions recognized in respect of defined contribution plans are expensed as they fall due. Liabilities and assets may be recognized if underpayment or prepayment has occurred and are included in current liabilities or current assets as they are normally of a short-term nature.

(c) Compensated Absences

Compensated absences are recognized for the number of paid leave days (including holiday entitlement) remaining at the end of the reporting period. They are included in Trade and Other Payables account in the consolidated statement of financial position at the undiscounted amount that the Group expects to pay as a result of the unused entitlement.

2.18 Income Taxes Tax expense recognized in profit or loss comprises the sum of deferred tax and current tax not recognized in other comprehensive income or directly in equity, if any. Current tax assets or liabilities comprise those claims from, or obligations to, fiscal authorities relating to the current or prior reporting period, that are uncollected or unpaid at the end of reporting period. They are calculated using the tax rates and tax laws applicable to the fiscal periods to which they relate, based on the taxable profit for the year. All changes to current tax assets or liabilities are recognized as a component of tax expense in profit or loss. Deferred tax is accounted for using the liability method on temporary differences at the end of each reporting period between the tax base of assets and liabilities and their carrying amounts for financial reporting purposes. Under the liability method, with certain exceptions, deferred tax liabilities are recognized for all taxable temporary differences and deferred tax assets are recognized for all deductible temporary differences and the carryforward of unused tax losses and unused tax credits to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilized. Unrecognized deferred tax assets are reassessed at the end of each reporting period and are recognized to the extent that it has become probable that future taxable profit will be available to allow such deferred tax assets to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is realized or the liability is settled, provided such tax rates have been enacted or substantially enacted at the end of the reporting period. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized.

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Most changes in deferred tax assets or liabilities are recognized as a component of tax expense in profit or loss, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is also recognized in other comprehensive income or directly in equity, respectively. Deferred tax assets and deferred tax liabilities are offset if the Group has a legally enforceable right to set off current tax assets against current tax liabilities and the deferred taxes relate to the same entity and the same taxation authority.

2.19 Related Party Relationship and Transactions Related party transactions are transfers of resources, services or obligations between the Group and its related parties, regardless whether a price is charged.

Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial and operating decisions. These parties include: (a) individuals owning, directly or indirectly through one or more intermediaries, control or are controlled by, or under common control with the Group; (b) associates; and, (c) individuals owning, directly or indirectly, an interest in the voting power of the Group that gives them significant influence over the Group and close members of the family of any such individual.

In considering each possible related party relationship, attention is directed to the substance of the relationship and not merely on the legal form.

2.20 Equity Capital stock represents the nominal value of shares that have been issued. Subscription receivable represents the unpaid portion of the subscribed capital stock due from stockholders. Revaluation reserves comprise gains and losses due to remeasurements of post-employment defined benefit plan. Deficit includes all current and prior period results of operations as disclosed in the consolidated statement of income. 2.21 Earnings Per Share Basic earnings per share (EPS) is computed by dividing net profit by the weighted average number of common shares subscribed and issued during the year adjusted retroactively for any stock dividend, stock split or reverse stock split declared in the current year, if any. Diluted EPS is computed by adjusting the weighted average number of ordinary shares outstanding to assume conversion of dilutive potential shares. Currently, the Group does not have dilutive potential shares outstanding; thus, dilutive earnings per share is the same to the basic earnings per share.

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2.22 Events After the End of the Reporting Period

Any post-year-end event that provides additional information about the Group’s consolidated financial position at the end of the reporting period (adjusting event) is reflected in the consolidated financial statements. Post-year-end events that are not adjusting events, if any, are disclosed when material to the consolidated financial statements.

3. SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES

The preparation of the Group’s consolidated financial statements in accordance with PFRS requires management to make judgments and estimates that affect amounts reported in the consolidated financial statements and related notes. Judgments and estimates are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual results may ultimately differ from these estimates. 3.1 Critical Management Judgments in Applying Accounting Policies

In the process of applying the Group’s accounting policies, management has made the following judgments, apart from those involving estimation, which have the most significant effect on the amounts recognized in the consolidated financial statements: (a) Distinction between Investment Properties and Owner-managed Properties

The Group determines whether a property qualifies as investment property. In making its judgment, the entity considers whether the property generates cash flows largely independently of the other assets held by an entity. Owner-managed properties generate cash flows that are attributable not only to property but also to other assets used in the production or supply process.

(b) Distinction between Operating and Finance Leases

The Group has entered into various lease agreements either as a lessor or as lessee. Critical judgment was exercised by management to distinguish each lease agreement as either an operating or finance lease by looking at the transfer or retention of significant risk and rewards of ownership of the properties covered by the agreements. Failure to make the right judgment will result in either overstatement or understatement of assets and liabilities.

Management has determined that the Group’s current lease agreements are operating leases.

(c) Recognition of Provisions and Contingencies

Judgment is exercised by management to distinguish between provisions and contingencies. Policies on recognition of provisions and contingencies are discussed in Note 2.13 and disclosures on relevant provisions and contingencies are presented in Note 17.

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3.2 Key Sources of Estimation Uncertainty

The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year:

(a) Estimating Useful Lives of Condominium Units (presented under Investment Property),

Property and Equipment and Computer Software

The Group estimates the useful lives of property and equipment, condominium units and computer software based on the period over which the assets are expected to be available for use. The estimated useful lives of these assets are reviewed periodically and are updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of the assets.

The carrying amounts of computer software (under other non-current asset), property and equipment and investment property are analyzed in Notes 7, 8 and 9, respectively. Based on management’s assessment as at December 31, 2014 and 2013, there are no changes in the estimated useful lives of those assets during those years. Actual results, however, may vary due to changes in estimates brought about by changes in factors mentioned above.

(b) Impairment of Trade and Other Receivables

Adequate allowance is provided for specific and groups of accounts, where an objective evidence of impairment exists. The Group evaluates these accounts based on available facts and circumstances, including, but not limited to, the length of the Group’s relationship with the customers, customers’ credit status, average age of accounts, collection experience and historical loss experience. The methodology and assumptions used in estimating future cash flows are reviewed regularly by the Group to reduce any differences between loss estimates and actual loss experience. The carrying value of trade and other receivables and the analysis of allowance for impairment on such financial assets are shown in Note 6.

(c) Determining Realizable Amount of Deferred Tax Assets The Group reviews its deferred tax assets at the end of each reporting period and reduces the carrying amount to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax assets to be utilized. Based on management’s assessment, the Group has assessed that the deferred tax assets recognized as at December 31, 2014 and 2013 will be fully utilized in the coming years. The carrying amount of deferred tax assets as of those dates is disclosed in Note 13.

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(d) Impairment of Non-financial Assets

In assessing impairment, management estimates the recoverable amount of each asset or a cash-generating unit based on expected future cash flows and uses an interest rate to calculate the present value of those cash flows. Estimation uncertainty relates to assumptions about future operating results and the determination of a suitable discount rate (see Note 2.16). Though management believes that the assumptions used in the estimation of fair values reflected in the consolidated financial statements are appropriate and reasonable, significant changes in these assumptions may materially affect the assessment of recoverable values and any resulting impairment loss could have a material adverse effect on the results of operations.

(e) Fair Value Measurement of Investment Property

The Group’s condominium units, classified as Investment Property, are carried at cost at the end of the reporting period. The fair value disclosed in Note 9 is determined by the Group using the discounted cash flows valuation technique since the information on current or recent prices of investment property is not available. The Group uses assumptions that are mainly based on market conditions existing at each reporting period, such as: the receipt of contractual rentals; expected future market rentals; void periods; maintenance requirements; and appropriate discount rates. These valuations are regularly compared to actual market yield data and actual transactions by the Group and those reported by the market. The expected future market rentals are determined on the basis of current market rentals for similar properties in the same location and condition.

(f) Valuation of Post-employment Defined Benefit Obligation

The determination of the Group’s obligation and cost of post-employment defined benefit is dependent on the selection of certain assumptions used by actuaries in calculating such amounts. Those assumptions include, among others, discount rates and salary increase rate. A significant change in any of these actuarial assumptions may generally affect the recognized expense, other comprehensive income or loss and the carrying amount of the post-employment benefit obligation in the next reporting period. The amounts of retirement benefit obligation and expense analysis of the movements in the estimated present value of post-employment benefit obligation are presented in Note 12.2.

(g) Business Combination

On initial recognition, the assets and liabilities of the acquired business and the consideration paid for them are included in the consolidated financial statements at their fair values. In measuring fair value, management uses estimates of future cash flows and discount rates. Any subsequent change in these estimates would affect the amount of goodwill, if any, if the change qualifies as a measurement period adjustment. Any other change would be recognized in profit or loss in the subsequent period.

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4.1 Business Segments

The Group’s operating businesses are organized and managed separately according to the services provided, with each segment represent unit that offers different services and serves different markets. For management purposes, the Group is organized into two major business segments, namely property management and rental and other activities. These are also the basis of the Group in reporting to its strategic steering committee for its strategic decision-making activities.

(a) Property Management – is the operation, control of (usually on behalf of an owner), and oversight of commercial, industrial or residential real estate as used in its most broad terms. Management indicates a need to be cared for, monitored and accountability given for its usable life and condition.

(b) Rental and Others – consists of rental from leasing activity of Parent Company

and transportation services of CityLink.

4.2 Segment Assets and Liabilities

Segment assets include all operating assets used by a segment and consist principally of operating cash, receivables, net of allowances and due from related parties. Segment liabilities include all operating liabilities and consist principally of trade and other payables, due to related parties and retirement benefit obligation.

The business segment information of the Group as of and for the years ended December 31, 2014, 2013 and 2012 follows: Property Rental and Management Others Total

2014 Revenues: Management fees P 279,504,341 P - P 279,504,341 Service income - 14,640,357 14,640,357 Rental income - 8,722,669 8,722,669 Finance income 1,821,216 1,564,291 3,385,507 Others 991,612 19,603 1,011,215 Gross revenues 282,317,169 24,946,920 307,264,089 Expenses 219,932,265 30,132,553 250,064,818 Finance costs 13,047,724 1,650 13,049,374 Profit (loss) before tax 49,337,180 ( 5,187,283) 44,149,897 Tax expense 14,979,257 351,474 15,330,731 Net profit (loss) P 34,357,923 (P 5,538,757) P 28,819,166 Segment assets P 320,646,174 P 170,763,750 P 491,409,924 Segment liabilities P 281,564,517 P 63,287,981 P 344,852,498

- 26 -

Property Rental and Management Others Total

2013

Revenues: Management fees P 232,055,178 P - P 232,055,178 Gain on sale of available-for-sale financial assets - 20,627,768 20,627,768 Service income - 15,556,533 15,556,533 Rental income - 9,364,826 9,364,826 Finance income 1,494,155 817,285 2,311,440 Others 2,960,363 11,809 2,972,172 Gross revenues 236,509,696 46,378,221 282,887,917 Expenses 227,873,005 23,806,874 251,679,879 Finance costs 6,682,086 2,250 6,684,336 Profit before tax 1,954,605 22,569,097 24,523,702 Tax expense 497,194 4,450,484 4,947,678 Net profit P 1,457,411 P 18,118,613 P 19,576,024 Segment assets P 216,469,479 P 184,415,308 P 400,884,787 Segment liabilities P 219,990,676 P 53,338,283 P 273,328,959

2012 Revenues: Management fees P 180,998,803 P - P 180,998,803 Service income - 11,909,881 11,909,881 Rental income - 8,380,582 8,380,582 Finance income 2,780,848 443,911 3,224,759 Others 160,043 4,364,053 4,524,096 Gross revenues 183,939,694 25,098,427 209,038,121 Expenses 169,789,595 22,281,330 192,070,925 Finance costs 8,209,242 - 8,209,242 Profit before tax 5,940,857 2,817,097 8,757,954 Tax expense 2,436,458 24,095 2,460,553 Net profit P 3,504,399 P 2,793,002 P 6,297,401 Segment assets P 202,042,675 P 162,801,682 P 364,844,357 Segment liabilities P 211,798,817 P 67,865,771 P 279,664,588

5. CASH AND CASH EQUIVALENTS

Cash and cash equivalents include the following components as of December 31:

2014 2013

Cash on hand and in banks P 76,787,317 P 14,476,370 Short-term placements 153,875,656 157,749,787 P 230,662,973 P 172,226,157

Cash in banks generally earn interest based on daily bank deposit rates. Short-term placements are made for varying periods from 15 to 90 days and earn effective interest ranging from 1.00% to 1.75% and 1.00% to 4.00% in 2014 and 2013, respectively.

- 27 - 6. TRADE AND OTHER RECEIVABLES

The details of this account as of December 31 are as follows:

2014 2013 Current: Trade receivables P 98,699,380 P 80,497,779 Car and housing loans receivables 3,856,383 1,482,362 Advances to employees 2,817,431 3,108,269 Others 1,434,117 3,989,301 106,807,311 89,077,711 Allowance for impairment ( 13,636,459 ) ( 6,678,996 ) 93,170,852 82,398,715

Non-current – Car and housing loans receivables 3,572,845 6,525,815 P 96,743,697 P 88,924,530

Trade receivables are usually due within 30 to 60 days and do not bear any interest. All trade receivables are subject to credit risk exposure. However, the Group does not identify specific concentrations of credit risk with regard to trade and other receivables, as the amounts recognized resemble a large number of receivables from various customers. Advances to employees pertain to unliquidated advances to employees for business-related expenditures subject to liquidation.

Car and housing loans receivables pertain to interest-bearing loans granted to employees which have interest rates ranging from 10% to 19% per annum and are payable through salary deduction for a period of 10 years from the date the loan was extended. Related interest income from such transactions is shown as part of Finance Income in the consolidated statements of comprehensive income. All of the Group’s trade and other receivables have been reviewed for indicators of impairment. Certain receivables were found to be impaired; hence, adequate amounts of allowance for impairment have been recognized. Additional impairment loss amounting to P7.0 million was recognized in 2014 and is presented as part of Finance Costs in the 2014 consolidated statement of income.

- 28 - 7. OTHER ASSETS

The composition of this account is shown below.

2014 2013 Current:

Input VAT - net P 5,478,044 P 5,366,880 Advances to contractors 2,046,118 1,688,455 Prepaid expenses 1,713,728 21,505 Tax credits 227,389 263,681 Others 233,485 125,383 9,698,764 7,465,904

Non-current: Computer software - net 2,045,775 3,523,896 Security deposits 694,666 721,666 Rental deposits 403,995 398,995 Investments - 585,731 Others 235,848 28,209 3,380,284 5,258,497 P 13,079,048 P 12,724,401

Advances to contractors include downpayments made by FOPMI to the contractors for the completion of the contracted projects on properties being managed by FOPMI.

Amortization of computer software amounted to P1.4 million in 2014, P3.1 million in 2013 and P1.3 million in 2012, while accumulated amortization amounted to P2.1 million and P3.8 million as of December 31, 2014 and 2013, respectively. Intangible assets are subject to impairment testing whenever there is an indication of impairment. Based on management’s evaluation, no impairment loss on intangible assets need to be recognized as of December 31, 2014, 2013 and 2012.

8. PROPERTY AND EQUIPMENT

The gross carrying amounts and accumulated depreciation and amortization of property and equipment at the beginning and end of 2014 and 2013 are shown below.

Office and Transportation Communication Furniture Leasehold Equipment Equipment and Fixtures Improvements Total

December 31, 2014

Cost P 57,326,445 P 16,305,646 P 1,375,804 P 8,682,421 P 83,690,316

Accumulated depreciation

and amortization ( 37,545,635 ) ( 15,058,481 ) ( 1,244,031 ) ( 6,749,679 ) ( 60,597,826 )

Net carrying amount P 19,780,810 P 1,247,165 P 131,773 P 1,932,742 P 23,092,490

- 29 - Office and Transportation Communication Furniture Leasehold Equipment Equipment and Fixtures Improvements Total

December 31, 2013

Cost P 55,541,635 P 16,480,904 P 1,390,367 P 8,601,240 P 82,014,146




January 1, 2013

Cost P 42,668,885 P 15,264,343 P 1,230,925 P 8,591,417 P 67,755,570




A reconciliation of the carrying amounts of property and equipment at the beginning and end of 2014 and 2013 is shown below.

Office and Transportation Communication Furniture Leasehold Equipment Equipment and Fixtures Improvements Total

Balance at January 1, 2014

net of accumulated

depreciation and

amortization P 14,306,934 P 2,298,201 P 225,110 P 2,909,927 P 19,740,172

Additions 14,249,988 421,175 1,156,799 81,181 15,909,143

Disposals ( 2,250,000 ) ( 51,197 ) - - ( 2,301,197 )

Depreciation and

amortization charges

for the year ( 6,526,112 ) ( 1,421,014 ) ( 1,250,136 ) ( 1,058,366 ) ( 10,255,628 )


Balance at January 1, 2013

net of accumulated

depreciation and

amortization P 4,186,534 P 2,838,340 P 180,894 P 4,008,428 P 11,214,196

Additions 12,872,750 1,216,561 159,442 9,823 14,258,576

Depreciation and

amortization charges

for the year ( 2,752,350 ) ( 1,756,700 ) ( 115,226 ) ( 1,108,324 ) ( 5,732,600 )


The cost of the Group’s fully depreciated property and equipment that are still being used in operations amounted to P25.2 million and P21.5 million as of December 31, 2014 and 2013, respectively.

- 30 - 9. INVESTMENT PROPERTY

The gross carrying amounts and accumulated depreciation of investment property at the beginning and end of 2014 and 2013 are shown below.

December 31, December 31, January 1, 2014 2013 2013

Cost P 1,456,194,860 P 1,456,194,860 P 1,456,194,860 Accumulated amortization ( 1,426,449,214 ) ( 1,425,209,812 ) ( 1,423,970,410 )

Net carrying amount P 29,745,646 P 30,985,048 P 32,224,450

A reconciliation of the carrying amounts of investment property at the beginning and end of 2014 and 2013 is shown below.

2014 2013

Balance at January 1, net of

accumulated amortization P 30,985,048 P 32,224,450 Depreciation charge for the year ( 1,239,402 ) ( 1,239,402 ) Balance at December 31, net of accumulated amortization P 29,745,646 P 30,985,048

Rental income from condominium units under operating lease agreements not exceeding one year, amounted to P1.3 million in 2014, 2013 and 2012, and is presented as part of Rental Income in the consolidated statements of income. There was no contingent rent recognized as of those dates. The operating lease commitments of the Group as a lessor are fully disclosed in Note 17.2. There are no direct operating expenses incurred with respect to investment property except for depreciation charges presented as Cost of Services in the consolidated statements of income (see Note 11).

The fair market values of these properties are P32.8 million, and P35.9 million as of December 31, 2014, and 2013, respectively. These are determined by calculating the present value of the cash inflows anticipated until the end of the life of the investment property using a discount rate of 10% both in 2014 and 2013. Other information about the fair value measurement and disclosures related to the investment property are presented in Note 20.

- 31 - 10. TRADE AND OTHER PAYABLES

The details of this account are as follows:

Note 2014 2013 Non-trade payable P 25,503,746 P 25,503,746 Trade payables 26,232,987 14,147,374 Accrued expenses 23,348,873 15,497,060 Withholding taxes payable 4,388,681 6,113,284 Customers’ deposits 2,395,796 2,510,796 Output VAT payable 2,125,401 3,520,354 Others 14.4 3,258,796 4,530,553 P 87,254,280 P 71,823,167

Non-trade payable pertains to a liability payable on demand to a third party which was initially payable to Empire East Land Holdings, Inc. (EELHI), a related party under common ownership. Accrued expenses mainly include utilities, professional fees and other accruals. Others include advances from customers.

11. OPERATING EXPENSES BY NATURE

The details of operating expenses by nature are shown below. Notes 2014 2013 2012 Salaries and employee benefits 12 P 186,187,958 P 204,126,206 P 155,811,772 Outside services 15,077,636 3,897,682 2,107,967 Service costs 13,205,789 14,213,193 12,829,504 Depreciation and amortization 7, 8, 9 12,966,563 10,093,754 9,756,269 Utilities 4,753,154 7,314,700 2,043,988 Taxes and licenses 3,045,688 1,750,816 1,376,470 Professional fees 2,448,010 1,418,550 1,285,696 Others 14.4, 17.1 12,380,020 8,864,978 6,859,259

P 250,064,818 P 251,679,879 P 192,070,925

Others include rentals, office supplies, entertainment costs, repairs and maintenance, dues and charges, insurance, trainings and seminars and printing and photocopying.

These expenses are classified in the consolidated statements of income as follows:

2014 2013 2012 Cost of services P 209,124,971 P 218,800,469 P 174,048,109 Operating expenses 40,939,847 32,879,410 18,022,816 P 250,064,818 P 251,679,879 P 192,070,925

- 32 - 12. EMPLOYEE BENEFITS

12.1 Salaries and Employee Benefits

Expenses recognized as salaries and employee benefits (see Note 11) are presented below.

2014 2013 2012 Salaries and wages P 114,860,897 P 110,657,580 P 98,368,187 Retirement benefits 13,535,447 31,240,154 13,234,791 Other employment benefits 57,791,614 62,228,472 44,208,794 P 186,187,958 P 204,126,206 P 155,811,772

12.2 Post-employment Benefit Obligation

The Parent Company has not yet established a formal post-employment benefit plan and does not accrue post-employment benefits for its two employees due to insignificance of the amount. However, the Parent Company’s subsidiary maintains an unfunded non-contributory post-employment benefit plan covering all its regular full-time employees.

(a) Explanation of Amounts Presented in the Consolidated Financial Statements

Actuarial valuations are made annually to update the retirement benefit costs and the amount of contributions. All amounts presented below are based on the actuarial valuation report obtained from an independent actuary in 2014 and 2013.

The movements in present value of the retirement benefit obligation recognized are as follows: 2014 2013 Balance at beginning of year P 124,037,904 P 118,687,143 Current service 13,535,447 31,240,154 Interest costs 6,090,261 6,682,086 Remeasurements – Actuarial losses (gains) arising from: Experience adjustments 7,147,443 ( 50,616,217 ) Change in financial assumption 6,877,655 18,044,738 Balance at end of year P 157,688,710 P 124,037,904

- 33 -

The components of amounts recognized in profit or loss and in other comprehensive income in respect of the defined benefit post-employment plan are as follows:

2014 2013 2012 Reported in profit or loss: Current service costs P 13,535,447 P 31,240,154 P 13,234,791 Interest costs 6,090,261 6,682,086 5,340,423 P 19,625,708 P 37,922,240 P 18,575,214 Reported in other comprehensive income (loss) – Actuarial gains (losses) arising from: Experience adjustments ( P 7,147,443 ) P 50,616,217 P 3,169,172 Change in financial assumption ( 6,877,655 ) ( 18,044,738 ) ( 17,834,326 ) ( P 14,025,098 ) P 32,571,479 ( P 14,665,154 )

The amounts of post-employment benefit expense are allocated as follows:

Note 2014 2013 2012 Cost of services P 11,099,067 P 25,616,926 P 10,852,529 Operating expenses 2,436,380 5,623,228 2,382,262 12.1 P 13,535,447 P 31,240,154 P 13,234,791

The net interest expense is included in Finance Costs under Cost and Expenses section in the consolidated statements of income.

Amounts recognized in other comprehensive income were included within items that will not be reclassified subsequently to profit or loss.

In determining the amounts of the defined benefit post-employment obligation, the following significant actuarial assumptions were used:

2014 2013 Discount rates 4.69% 4.91%

Expected rate of salary increases 10.00% 10.00%

Assumptions regarding future mortality are based on published statistics and mortality tables. The average expected remaining working life of employees retiring at 60 is 22 for both male and female. These assumptions were developed by management with the assistance of an independent actuary. Discount factors are determined close to the end of each reporting period by reference to the interest rates of a zero coupon government bonds with terms to maturity approximating to the terms of the post-employment obligation. Other assumptions are based on current actuarial benchmarks and management’s historical experience.

The Group has yet to determine the amount of contribution to its retirement benefit plan in the future.

- 34 -

(b) Risks Associated with the Retirement Plan

The plan exposes the Group to actuarial risks such as interest rate risk, longevity risk and salary risk.

(i) Interest Rate Risks

The present value of the defined benefit obligation is calculated using a discount rate determined by reference to market yields of government bonds. Generally, a decrease in the interest rate of a reference government bonds will increase the plan obligation.

(ii) Longevity and Salary Risks

The present value of the defined benefit obligation is calculated by reference to the best estimate of the mortality of the plan participants both during and after their employment, and to their future salaries. Consequently, increases in the life expectancy and salary of the plan participants will result in an increase in the plan obligation.

(c) Other Information

The information on the sensitivity analysis for certain significant actuarial assumptions are described below and in the succeeding pages.

(i) Sensitivity Analysis

The following table summarizes the effects of changes in the significant actuarial assumptions used in the determination of the defined benefit obligation:

Impact on Post-employment Benefit Obligation Change in Increase in Decrease in Assumption Assumption Assumption December 31, 2014

Discount rate +/- 0.5% ( P 15,137,492 ) P 17,012,926 Salary growth rate +/- 1.0% 32,234,840 ( 26,491,032 )

December 31, 2013

Discount rate +/- 0.5% ( P 12,865,505 ) P 14,561,115 Salary growth rate +/- 1.0% ( 28,407,608 ) ( 22,935,699)

The above sensitivity analysis is based on a change in an assumption while holding all other assumptions constant. This analysis may not be representative of the actual change in the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated. Furthermore, in presenting the above sensitivity analysis, the present value of the defined benefit obligation has been calculated using the projected unit credit method at the end of the reporting period, which is the same as that applied in calculating the defined benefit obligation recognized in the consolidated statements of financial position.

The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the previous years.

- 35 -

(ii) Funding Arrangements and Expected Contributions

The Group has no formal retirement benefit plan as of December 31, 2014; hence, it does not expect to make any contributions in 2015.

The maturity profile of undiscounted expected benefit payments for the next ten years as of December 31, 2014 are as follows:

2014 2013

More than one year to five years P 4,923,645 P 5,839,156 More than five years to ten years 13,668,228 9,550,108

P 18,591,873 P 15,389,264

The weighted average duration of the defined benefit obligation at the end of the reporting period is 20 years.

13. TAXES

The components of tax expense relating to profit or loss and other comprehensive income follow:

2014 2013 2012 Reported in consolidated statement of income: Current tax expense: Regular corporate income tax (RCIT) at 30% P 22,837,172 P 12,696,824 P 7,873,186 Final tax 429,894 3,626,194 139,274 Minimum corporate income tax (MCIT) at 2% 38,616 1,332 20,657 23,305,682 16,324,350 8,033,117

Deferred tax income relating to origination and reversal

of temporary differences ( 7,974,951 ) ( 11,376,672 ) ( 5,572,564 ) P 15,330,731 P 4,947,678 P 2,460,553

Reported in consolidated statement of comprehensive income – Deferred tax income (expense) relating to origination and reversal

of temporary differences P 4,207,530 ( P 9,771,444 ) P 4,399,546

- 36 -

A reconciliation of tax on pretax profit computed at the applicable statutory rates to tax expense reported in the consolidated statements of income is as follows:

2014 2013 2012 Tax on pretax profit at 30% P 13,244,969 P 7,357,111 P 2,627,386 Adjustment for income subjected to lower income tax rates ( 214,947 ) ( 3,117,651 ) ( 84,513) Tax effects of: Deferred tax assets related to valuation allowance 788,316 708,218 613,785 Non-deductible expenses 1,512,393 - 736,995 Non-taxable income - - ( 1,433,100 ) P 15,330,731 P 4,947,678 P 2,460,553

The Parent Company and CityLink did not recognize deferred tax assets on the following valuation allowance based on management’s evaluation that such deferred tax assets may not be recovered in future years:

2014 2013 Amount Tax Effect Amount Tax Effect Net operating loss carryover (NOLCO) P 6,841,387 P 2,052,416 P6,868,365 P 2,060,510 MCIT 60,605 60,605 24,824 24,824 P 6,901,992 P 2,113,021 P 6,893,189 P 2,085,334

The details of NOLCO, which can be claimed as deduction by the Parent Company and CityLink from future taxable income within three years from the year such loss was incurred, are shown below.

Year Original Expired Remaining Valid Incurred Amount Amount Balance Until 2014 P 2,508,008 P - P 2,508,008 2017 2013 2,356,287 - 2,356,287 2016 2012 1,977,092 - 1,977,092 2015 2011 2,534,986 2,534,986 - 2014 P 9,376,373 P 2,534,986 P 6,841,387

The breakdown of MCIT which can be claimed as a credit against the Parent Company’s and Citylink’s RCIT is as follows:

Year Original Expired Remaining Valid Incurred Amount Amount Balance Until 2014 P 38,616 P - P 38,616 2017 2013 1,332 - 1,332 2016 2012 20,657 - 20,657 2015 2011 2,835 2,835 - 2014 P 63,440 P 2,835 P 60,605

- 37 -

The Group is subject to MCIT which is computed at 2% of gross income, as defined under the tax regulations or RCIT, whichever is higher. The Parent Company reported MCIT in 2014, 2013 and 2012 while CityLink reported MCIT in 2014 and 2012, since they are in a taxable loss position in those years. MCIT amounting to P2,835 expired in 2014. FOPMI, on the other hand, did not report any MCIT in 2014, 2013 and 2012 as the RCIT is higher than MCIT in both years.

The deferred tax assets recognized by FOPMI as of December 31, 2014 and 2013 relate to the following: 2014 2013 Retirement benefit obligation P 47,306,613 P 37,211,371 Allowance for impairment of receivables 4,510,633 2,423,394 P 51,817,246 P 39,634,765 Consolidated Consolidated

Profit or Loss Other Comprehensive Income

2014 2013 2012 2014 2013 2012

Retirement benefit

obligation P 5,887,712 P 11,376,672 P 5,572,564 P 4,207,530 ( P 9,771,444) P 4,399,546

Allowance for

impairment 2,087,239 - - - - -

P 7,974,951 P 11,376,672 P 5,572,564 P 4,207,530 ( P 9,771,444) P 4,399,546

In 2014, 2013 and 2012, the Group opted to continue claiming itemized deductions in computing for its income tax due.

14. RELATED PARTY TRANSACTIONS

The Group’s transactions with related parties, which include a stockholder, related parties by common ownership and the Group’s key management, are described below.

2014 2013 Related Party Amount of Outstanding Amount of Outstanding Category Notes Transaction Balance Transaction Balance

Stockholder: Subscription receivable 14.1 P - P 187,500,000 P - P 187,500,000 Payment of advances 14.3 - 6,364,603 ( 22,552,992 ) 6,364,603 Sale of AFS securities 14.5 - - 117,809,201 - Related Parties Under Common Ownership: Granting of advances 14.2 9,619,110 46,268,824 8,098,764 36,649,714 Obtaining (payment) of advances 14.3 13,994,521 84,337,420 ( 17,277,090 ) 70,942,899 Lease of properties 14.4 1,342,092 79,645 1,023,762 75,852

- 38 -

14.1 Subscription Receivable On November 11, 2005, the BOD approved the increase in the Company’s authorized capital stock by P1.0 billion divided into 1,000,000,000 shares at P1.0 par value per share. Out of the total increase, 25% was subscribed by one of the investors with a total value of P250.0 million, of which P62.5 million was paid to the Company representing 25% of the subscription. The subscription receivable, which is unsecured and noninterest-bearing, remains outstanding as of December 31, 2014 and 2013.

14.2 Due from Related Parties

The Group grants unsecured and noninterest-bearing cash advances to its related parties for working capital requirements. These advances have no repayment terms and are payable on demand. The details of due from related parties as of December 31, 2014 and 2013 is as follows:

2014 2013

Due from related parties P 46,388,433 P 36,769,323 Allowance for impairment ( 119,609) ( 119,609)

P 46,268,824 P 36,649,714

The movements in due from related parties are as follows: 2014 2013 Balance at beginning of year P 36,649,714 P 28,550,950 Additions 9,619,110 22,270,330 Repayments - ( 14,171,566 ) Balance at end of year P 46,268,824 P 36,649,714

Based on management’s assessment, no impairment loss is necessary to be recognized in 2014 and 2013 on these advances.

14.3 Due to Related Parties The Group obtains unsecured, and noninterest-bearing advances from Megaworld and related parties under common ownership for working capital purposes. These advances have no repayment terms and payable on demand.

2014 2013

Stockholder P 6,364,603 P 6,364,603 Other related parties 84,337,420 70,942,899

P 90,702,023 P 77,307,502

- 39 -

The movements in due to related parties are as follows: 2014 2013 Balance, beginning of year P 77,307,502 P 94,534,592

Additions 15,783,923 6,387,052 Repayments ( 2,389,402 ) ( 23,614,142 ) Balance, end of year P 90,702,023 P 77,307,502

14.4 Lease of Properties

The subsidiary has existing agreements with related parties under common ownership for the lease of its office facilities for a period of 12 months renewable annually at the subsidiary’s option. Rental charges arising from these transactions are presented as Others under Operating Expenses account in the consolidated statements of income (see Note 11). The unpaid rentals are shown as part of Others under Trade and Other Payables account in the consolidated statements of financial position (see Note 10).

14.5 Sale of AFS Securities

In June 2013, the Parent Company sold its remaining investment in SPI to Megaworld for a consideration of P117.8 million, the related gain on sale of investment amounting to P20.6 million is presented as Gain on Sale of Available-for-Sale Financial Asset in the 2013 consolidated statement of income.

14.6 Key Management Personnel Compensation The compensation of Group’s key management personnel in 2014 and 2013 is broken down as follows: 2014 2013

Salaries and short-term benefits P 8,751,222 P 6,234,423 Retirement benefit 619,843 387,114

P 9,371,065 P 6,621,537

The Parent Company’s administrative functions are being handled by Megaworld, a significant stockholder, with no cost to the Parent Company.

15. EARNINGS PER SHARE

The basic and diluted EPS is computed as follows: 2014 2013 2012

Net profit P 28,819,166 P 19,576,024 P 6,297,401

Divided by the weighted average number of outstanding shares 2,250,000,000 2,250,000,000 2,250,000,000 Basic and diluted EPS P 0.013 P 0.009 P 0.003

- 40 -

The Group has no potentially dilutive shares as of the end of each reporting period. 16. EQUITY

The details of this account as of December 31 are as follows:

2014 2013 2012

Capital stock P 2,062,500,000 P 2,062,500,000 P 2,062,500,000 Revaluation reserve ( 25,899,604 ) ( 16,082,036 ) ( 38,882,071 ) Deficit ( 1,890,042,970 ) ( 1,918,862,136 ) ( 1,938,438,160 )

P 146,557,426 P 127,555,828 P 85,179,769

On June 9, 2006, the SEC approved the listing of the Company’s shares totalling P2.0 billion. The shares were initially issued at an offer price of P1.00 per share. There was no additional listing of shares subsequent to initial listing. As of December 31, 2014 and 2013, there are 1,616 and 1,631 holders of the listed shares, respectively, which closed at P1.15 and P0.89 per share, respectively. On August 14, 2013, the BOD approved a pre-emptive rights offer to holders of its common shares which will entitle them to subscribe to 2.5 new shares for every common share held as of record date, to be set by the Company after approval by the Philippine Stock Exchange (PSE) of the listing of the rights shares.

The rights shares will be offered at the price of one peso per share, equivalent to the par value of the Company’s common shares. 25% of the subscription price shall be payable upon submission of the application for subscription and the balance of 75% shall be payable upon call by the BOD to be made not later than three years from the approval by the stockholders of the increase in capital stock. Subscribers shall have the option of paying 100% of the subscription price upon application for subscription. Proceeds of the rights offer will be used to fund various investment opportunities. As of December 31, 2014, the said issuance of stock rights has not yet been approved by the PSE.

In September and November 2014, the BOD and the stockholders, respectively, approved an increase in authorized capital stock from 3.0 billion common shares with par value of P1 per share to 23.0 billion common shares with par value of P1 per share. As of December 31, 2014, the application for the increase in authorized capital stock has not been filed with the SEC.

- 41 - 17. COMMITMENTS AND CONTINGENCIES

17.1 Operating Lease Commitment – Group as a Lessee

The Group is a lessee under several operating leases covering its office facilities. The lease agreements have terms ranging from one month to one year and renewable upon the terms and conditions as may be agreed by the parties. The future minimum rentals payable within one year under these operating leases as of December 31, 2014, 2013 and 2012 amounted to P2.7 million, P1.0 million and P0.9 million, respectively. Total rental expense in 2014, 2013 and 2012 from these operating leases shown as part of Others under Operating Expenses account in the consolidated statements of income amounted to P1.3 million, P1.0 million and P0.6 million, respectively (see Note 11).

17.2 Operating Lease Commitment – Group as a Lessor

The Group is a lessor under several operating leases covering its condominium units. The lease agreements have terms ranging from one month to one year and renewable upon the terms and conditions as may be agreed by the parties. The future minimum rentals receivable within one year under these operating leases as of December 31, 2014 and 2013 amounted to P0.4 million and P0.8 million, respectively. Total rental income in 2014, 2013 and 2012 from these operating leases shown as part of Rental Income under Revenues account in the consolidated statements of income amounted to P1.3 million both in 2014, 2013 and 2012.

Also, the Group is a lessor under various service transport lease agreements covering its transportation equipment. The lease agreements are short-term in nature but can be renewed upon mutual agreements by the parties and; accordingly, no future minimum rental receivables are disclosed. Total rental from these lease agreements amounted to P7.4 million, P8.1 million and P7.1 million in 2014, 2013 and 2012, respectively, and is presented as part of Rental Income account under Revenues section in the consolidated statements of income.

17.3 Others The Group has other commitments and contingencies that may arise in the normal course of the Group’s operations which have not been reflected in the consolidated financial statements. Management is of the opinion that losses, if any, from these other commitments will not have material effects on the Group’s consolidated financial statements.

18. RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group is exposed to a variety of financial risks in relation to financial instruments. The Group’s risk management is coordinated with the BOD and focuses on actively securing the Group’s short- to medium-term cash flows by minimizing the exposure to financial markets.

- 42 -

The Group does not actively engage in the trading of financial assets for speculative purposes nor does it write options. The financial risks to which the Group is exposed to are described below.

18.1 Interest Rate Risk As at December 31, 2014 and 2013, the Group is exposed to changes in market interest rates through its cash and cash equivalents which are subject to variable interest rates (see Note 5). The following illustrates the sensitivity of the profit before tax and preacquisition loss in 2014 and 2013 to a reasonably possible change in interest rates of +/- 3.80% and +/- 4.05%, respectively, with effect from the beginning of the year. This percentage has been determined based on the average market volatility in interest rate in the previous 12 months, estimated at 95% level of confidence. The sensitivity analysis is based on the Group’s financial instruments held at December 31, 2014 and 2013 with effect estimated from the beginning of the year. All other variables held constant, if interest rate increased by 3.80% and 4.05% in 2014 and 2013, the profit before tax in 2014 and 2013 would have increased by P8.8 million and P7.0 million, respectively. Conversely, if the interest rate decreased by same percentage, profit before tax in 2014 and 2013 would have been lowered by the same amount.

18.2 Credit Risk

Credit risk is the risk that a counterparty may fail to discharge an obligation to the Group. Generally, the maximum credit risk exposure of financial assets is the carrying amount of the financial assets as shown on the consolidated statements of financial position or in the detailed analysis provided in the notes to consolidated financial statements. As of December 31, 2014 and 2013, the Group has the following financial assets:

Notes 2014 2013 Cash and cash equivalents 5 P 230,662,973 P 172,226,157 Trade and other receivables – net 6 93,926,266 85,816,261 Due from related parties – net 14.2 46,268,824 36,649,714 P 370,858,063 P 294,692,132

None of the Group’s financial assets are secured by collateral or other credit enhancements except for cash and cash equivalents as described below.

(a) Cash and Cash Equivalents

The credit risk for cash and cash equivalents is considered negligible, since the counterparties are reputable banks with high quality external credit ratings. Cash in bank, which are insured by the Philippine Deposit Insurance Corporation up to a maximum coverage of P500,000 per depositor per banking unit as provided for under Republic Act 9302, Charter of Philippine Deposit Insurance Corporation, are still subject to credit risk.

- 43 -

(b) Trade and Other Receivables

In respect of trade and other receivables, the Group is not exposed to any significant credit risk exposure to any single counter party or any group of counterparties having similar characteristics. Based on historical default rates, the balance of receivables, which are not impaired relates to reputable companies that have a good track record with the Group.

Some of the unimpaired trade receivables are past due as at the end of the reporting period. No other financial assets are past due at the end of the reporting period. Trade receivables that are past due but not impaired as of December 31, 2014 and 2013 are shown below.

2014 2013 Not more than 3 months P 21,415,936 P 4,838,388 More than 3 months but not more than 6 months 8,423,954 2,544,693 More than 6 months but not more than one year 14,207,968 2,239,018 More than one year 34,181,875 69,575,757 P 78,229,733 P 79,197,856

(c) Due from Related Parties

In respect of due from related parties, the Group is not exposed to any significant credit risk exposure because management considers the credit quality of receivables from related parties to be good.

18.3 Liquidity Risk

The Group manages its liquidity needs by carefully monitoring scheduled debt servicing payments for long-term financial liabilities as well as cash outflows due in a day-to-day business. Liquidity needs are monitored in various time bands, on a day-to-day and week-to-week basis, as well as on the basis of a rolling 30-day projection. Long-term liquidity needs for a six months and one year period are identified monthly. The Group maintains cash to meet its liquidity requirements for up to 60-day periods. Excess cash are invested in time deposits. Funding for long-term liquidity needs is additionally secured by an adequate amount of committed credit facilities.

As at December 31, 2014, the Group’s consolidated financial liabilities have contractual maturities which are presented below.

within 6 months 6 - 12 months Trade and other payables P 47,697,796 P 30,646,606 Due to related parties 90,702,023 - P 138,399,819 P 30,646,606

- 44 -

As at December 31, 2013, the Group consolidated financial liabilities have contractual maturities which are presented below.

within 6 months 6 - 12 months Trade and other payables P 29,546,160 P 30,132,573 Due to related parties 77,307,502 - P 106,853,662 P 30,132,573

The Group does not have noncurrent financial liabilities as of December 31, 2014.

The above contractual maturities reflect the gross cash flows, which may differ from the carrying values of the liabilities at the end of each reporting periods.

19. CATEGORIES AND FAIR VALUES OF FINANCIAL ASSETS AND

LIABILITIES 19.1 Carrying Amounts and Fair Values by Category

The carrying amounts and fair values of the categories of financial assets and financial liabilities presented in the consolidated statements of financial position are shown below.

2014 2013

Notes Carrying Values Fair Values Carrying Values Fair Values

Financial Assets

Loan and receivables:

Cash and cash equivalents 5 P 230,662,973 P 230,662,973 P 172,226,157 P 172,226,157

Trade and other receivables 6 93,926,266 93,926,266 85,816,261 85,816,261

Due from related parties 14.2 46,268,824 46,268,824 36,649,714 36,649,714 P 370,858,063 P 370,858,063 P 294,692,132 P 294,692,132

Financial liabilities

Financial liabilities at amortized cost:

Trade and other payables 10 P 78,344,402 P 78,344,402 P 59,678,733 P 59,678,733

Due to related parties 14.3 90,702,023 90,702,023 77,307,502 77,307,502 P 169,046,425 P 169,046,425 P 136,986,235 P 136,986,235

See Notes 2.4 and 2.9 for a description of the accounting policies for each category of financial instruments. A description of the Group’s risk management objectives and policies for financial instruments is provided in Note 18.

- 45 -

19.2 Offsetting of Financial Assets and Financial Liabilities

The Group does not have relevant offsetting arrangements, except as disclosed in Notes 14.2 and 14.3. Currently, all other financial assets and financial liabilities are settled on a gross basis; however, each party to the financial instrument (particularly related parties) will have the option to settle all such amounts on a net basis in the event of default of the other party through approval by both parties’ BOD and shareholders. As such, the Group’s outstanding receivables from and payables to the same related parties can be potentially offset to the extent of their corresponding outstanding balances.

20. FAIR VALUE MEASUREMENT AND DISCLOSURES 20.1 Fair Value Hierarchy

In accordance with PFRS 13, the fair value of financial assets and liabilities and non-financial assets which are measured at fair value on a recurring or non-recurring basis and those assets and liabilities not measured at fair value but for which fair value is disclosed in accordance with other relevant PFRS, are categorized into three levels based on the significance of inputs used to measure the fair value. The fair value hierarchy has the following levels:

(a) Level 1: quoted prices (unadjusted) in active markets for identical assets or

liabilities that an entity can access at the measurement date; (b) Level 2: inputs other than quoted prices included within Level 1 that are

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

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

data (unobservable inputs). The level within which the asset or liability is classified is determined based on the lowest level of significant input to the fair value measurement.

For purposes of determining the market value at Level 1, a market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis.

20.2 Financial Instruments Measured at Amortized Cost for which Fair Value is

Disclosed

The Group’s financial assets which are not measured at fair value in the 2014 consolidated statement of financial position but for which fair value is disclosed include cash and cash equivalents, which are categorized as Level 1, and trade and other receivables and due from related parties, which are categorized as Level 3. Financial liabilities which are not measured at fair value but for which fair value is disclosed pertain to trade and other payables and due to related parties which are categorized under Level 3.

- 46 -

For financial assets with fair values included in Level 1, management considers that the carrying amounts of these financial instruments approximate their fair values due to their short-term duration. The fair values of the financial assets and financial liabilities included in Level 3, which are not traded in an active market, are determined based on the expected cash flows of the underlying net asset or liability based on the instrument where the significant inputs required to determine the fair value of such instruments are not based on observable market data.

20.3 Fair Value Measurement for Non-financial Assets

Non-financial assets pertains to investment property comprising condominium units which fair value amounted to P32.8 million and P35.9 million as of December 31, 2014 and 2013, respectively. The fair value of investment property is determined by calculating the present value of the cash inflows anticipated until the end of the life of the investment property using a discount rate of 10% both in 2014 and 2013.

21. CAPITAL MANAGEMENT OBJECTIVES, POLICIES AND PROCEDURES

The Group’s capital management objectives are to:

• Ensure the Group’s ability to continue as a going concern; and,

• Provide an adequate return to shareholders in the future.

The Group also monitors capital on the basis of the carrying amount of equity as presented on the consolidated statements of financial position. It sets the amount of capital in proportion to its overall financing structure, i.e., equity and financial liabilities. The Group manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets.

Statement of Management's Responsibility for Consolidated Financial Statements

Report of Independent Auditors on Supplementary Schedules Filed Separately from the Basic Financial Statements

(1) Supplementary Schedules to Financial Statements

(Annex 68-E, SRC Rule 68)

Schedule Page No.

A Financial Assets

Financial Assets at Fair Value Through Profit or Loss N/A

Held-to-maturity Investments N/A

Available-for-sale Financial Assets N/A

B Amounts Receivables/Accounts Payables from/to Directors, Officers, Employees, Related

Parties, and Principal Stockholders (Other than Related Parties) 1

C Amounts Receivable from Related Parties which are Eliminated during Consolidation

of Financial Statements N/A

D Intangible Assets - Other Assets 2

E Long-term Debt N/A

F Indebtedness to Related Parties 3

G Guarantees of Securities of Other Issuers N/A

H Capital Stock 4

(2) Reconciliation of Deficit 5

(3) Schedule of Philippine Financial Reporting Standards and Interpretations Adopted by the Securities and Exchange 6

Commission and the Financial Reporting Standards Council as of December 31, 2014

(4) Map Showing the Relationship Between the Company and its Related Entities 7

(5) Summary of Application of Initial Public Offering Proceeds N/A

(6) Schedule of Financial Soundness Indicator 8

Contents


INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES

December 31, 2014

11,116,446 P 869,787 )( P 6,673,814 P 10,246,659 P

SCHEDULE B - Amounts Receivables/Accounts Payable from/to Directors, Officers, Employees, Related Parties, and Principal Stockholders (Other than Related Parties)

Ending Balance

Officers and Employees 3,572,845 P


DECEMBE 31, 2014

(Amounts in Philippine Peso)

Name and designation of debtorBalance at beginning

of periodAdditions Amounts Collected

Amounts written

off

Deductions

Current Not Current Balance at the end of period

- 1 -

782,143 P 1,471,532 )( P 788,732 )( P 2,045,775 P

December 31, 2014

Other charges

additions

(deductions)

Ending balance


Schedule D

Deduction

Description (i)Beginning

balanceAdditions at cost (ii)

Charged to cost

and expenses

Charged to

other

accounts

3,523,896 P Computer license software

Intangible Assets - Other Assets

- 2 -

December 31, 2014


Schedule D

Indebtedness to Related Parties

Megaworld Corporation 6,364,603 6,364,603

Name of related partyBalance at the beginning of

yearBalance at the end of year

Empire East Landholdings, Inc. 34,449,016 P 34,449,016 P

Golden Hands Multipurpose Corporation 5,868,141 12,252,064

Eastwood Cyber One Corporation 3,904,593 3,904,593

Megaworld Land, Inc. 4,000,000 4,000,000

Others 22,721,149 29,731,747

Total 77,307,502 P 90,702,023 P

- 3 -

Others

SUNTRUST HOME DEVELOPERS, INC.


Schedule H

Capital Stock

Number of shares held by

Common 3,000,000,000 2,250,000,000 -

Title of IssueNumber of shares

authorized

Number of shares issued

and outstanding as shown

under related balance sheet

caption

Number of shares

reserved for options,

warrants, conversion and

other rights

Related partiesDirectors, officers

and employees

955,834,992 7 1,294,165,001

- 4 -

Deficit, at beginning of year 1,938,673,113 )( P

Net Income Realized during the Year

Net income per audited financial statements 1,406,172 )(

Deficit, at end of year 1,940,079,285 )( P

SUNTRUST HOME DEVELOPERS, INC.

6th Floor, The World Centre Building

330 Sen. Gil Puyat Avenue, Makati City

Reconciliation of Retained Earnings Available for Dividend Declaration

For the Year Ended December 31, 2014

- 5 -

AdoptedNot

Adopted

Not

Applicable

a

a

a

First-time Adoption of Philippine Financial Reporting Standards a

a

Amendment to PFRS 1: Limited Exemption from Comparative PFRS 7 Disclosures for First-

time Adopters a

Amendments to PFRS 1: Severe Hyperinflation and Removal of Fixed Date for

First-time Adopters a

Amendment to PFRS 1: Government Loans a

Share-based Payment a

Amendments to PFRS 2: Vesting Conditions and Cancellations a

Amendments to PFRS 2: Group Cash-settled Share-based Payment Transactions a

PFRS 3

(Revised) Business Combinations a

Insurance Contracts a

Amendments to PAS 39 and PFRS 4: Financial Guarantee Contracts a

PFRS 5 Non-current Assets Held for Sale and Discontinued Operations a

PFRS 6 Exploration for and Evaluation of Mineral Resources a

Financial Instruments: Disclosures a

Amendments to PFRS 7: Transition a

Amendments to PAS 39 and PFRS 7: Reclassification of Financial Assets a

Amendments to PAS 39 and PFRS 7: Reclassification of Financial Assets - Effective Date and

Transition a

Amendments to PFRS 7: Improving Disclosures about Financial Instruments a

Amendments to PFRS 7: Disclosures - Transfers of Financial Assets a

Amendments to PFRS 7: Disclosures - Offsetting Financial Assets and Financial Liabilities a

Amendment to PFRS 7: Mandatory Effective Date of PFRS 9 and Transition Disclosures*

(effective when PFRS 9 is first applied) a

PFRS 8 Operating Segments a

PFRS 9 Financial Instruments* (effective January 1, 2018) a

Consolidated Financial Statements a

Amendment to PFRS 10: Transition Guidance a

Amendment to PFRS 10: Investment Entities** a

Amendment to PFRS 10: Investment Entities – Applying the Consolidation Exception*

(effective January 1, 2016) a

Joint Arrangements a


Disclosure of Interests in Other Entities a


Amendment to PFRS 12: Investment Entities** a

Amendment to PFRS 10: Investment Entities – Applying the Consolidation Exception*

(effective January 1, 2016) a

PFRS 13 Fair Value Measurement a

PFRS 14 Regulatory Deferral Accounts* (effective January 1, 2018) a

PFRS 10

PFRS 11

Conceptual Framework Phase A: Objectives and Qualitative Characteristics

Practice Statement Management Commentary

Philippine Financial Reporting Standards (PFRS)

PFRS 12

PFRS 1

(Revised)

Amendments to PFRS 1: Additional Exemptions for First-time Adopters

PFRS 2

PFRS 4

PFRS 7


Schedule of Philippine Financial Reporting Standards and Interpretations

Adopted by the Securities and Exchange Commission and the

Financial Reporting Standards Council as of December 31, 2014

PHILIPPINE FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS

Framework for the Preparation and Presentation of Financial Statements

1 of 4

AdoptedNot

Adopted

Not

Applicable






Presentation of Financial Statements a

Amendments to PAS 32 and PAS 1: Puttable Financial Instruments and Obligations Arising on

Liquidation** a

Amendment to PAS 1: Presentation of Items of Other Comprehensive Income a

Amendment to PAS 1: Disclosure Initiative* (effective January 1, 2016) a

PAS 2 Inventories a

PAS 7 Statement of Cash Flows a

PAS 8 Accounting Policies, Changes in Accounting Estimates and Errors a

PAS 10 Events after the Reporting Period a

PAS 11 Construction Contracts a

Income Taxes a

Amendment to PAS 12 - Deferred Tax: Recovery of Underlying Assets a

PAS 16 Property, Plant and Equipment a

PAS 17 Leases a

PAS 18 Revenue a

Employee Benefits a

Amendment to PAS 19: Defined Benefit Plans - Employee Contributions

(effective July 1, 2014)* a

PAS 20 Accounting for Government Grants and Disclosure of Government Assistance a

The Effects of Changes in Foreign Exchange Rates** a

Amendment: Net Investment in a Foreign Operation** a

PAS 23

(Revised) Borrowing Costs a

PAS 24

(Revised) Related Party Disclosures a

PAS 26 Accounting and Reporting by Retirement Benefit Plans a

Separate Financial Statements a

Amendment to PAS 27: Investment Entities** a

Investments in Associates and Joint Ventures a

Amendment to PAS 28: Investment Entities - Applying the Consolidation Exception** a

PAS 29 Financial Reporting in Hyperinflationary Economies a

Financial Instruments: Presentation a

Amendments to PAS 32 and PAS 1: Puttable Financial Instruments and Obligations Arising on

Liquidation** a

Amendment to PAS 32: Classification of Rights Issues** a

Amendments to PAS 32: Offsetting Financial Assets and Financial Liabilities a

PAS 33 Earnings per Share a

PAS 34 Interim Financial Reporting a

Impairment of Assets a

Amendment to PAS 36: Recoverable Amount Disclosures for Non-financial Assets a

PAS 37 Provisions, Contingent Liabilities and Contingent Assets a

PAS 38 Intangible Assets a

PAS 36

Philippine Accounting Standards (PAS)

PAS 1

(Revised)

PAS 12

PAS 21

PAS 32

PAS 19

(Revised)

PAS 28

(Revised)

PAS 27

(Revised)

2 of 4

AdoptedNot

Adopted

Not

Applicable






Financial Instruments: Recognition and Measurement a

Amendments to PAS 39: Transition and Initial Recognition of Financial Assets and Financial

Liabilities a

Amendments to PAS 39: Cash Flow Hedge Accounting of Forecast Intragroup Transactions** a

Amendments to PAS 39: The Fair Value Option** a

Amendments to PAS 39 and PFRS 4: Financial Guarantee Contracts** a

Amendments to PAS 39 and PFRS 7: Reclassification of Financial Assets** a

Amendments to PAS 39 and PFRS 7: Reclassification of Financial Assets - Effective Date and

Transition** a

Amendments to Philippine Interpretation IFRIC 9 and PAS 39: Embedded Derivatives** a

Amendment to PAS 39: Eligible Hedged Items** a

Amendment to PAS 39: Novation of Derivatives and Continuation of Hedge Accounting** a

PAS 40 Investment Property a

PAS 41 Agriculture a

IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities a

IFRIC 2 Members' Share in Co-operative Entities and Similar Instruments a

IFRIC 4 Determining Whether an Arrangement Contains a Lease a

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

Rehabilitation Funds a

IFRIC 6 Liabilities Arising from Participating in a Specific Market - Waste Electrical and Electronic

Equipment a

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

Economies a

Reassessment of Embedded Derivatives** a

Amendments to Philippine Interpretation IFRIC–9 and PAS 39: Embedded Derivatives** a a

IFRIC 10 Interim Financial Reporting and Impairment a

IFRIC 12 Service Concession Arrangements a

IFRIC 13 Customer Loyalty Programmes a

PAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their

Interaction a

Amendments to Philippine Interpretations IFRIC - 14, Prepayments of a Minimum Funding

Requirement and their Interaction a

IFRIC 16 Hedges of a Net Investment in a Foreign Operation a

IFRIC 17 Distributions of Non-cash Assets to Owners** a

IFRIC 18 Transfers of Assets from Customers** a

IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments** a

IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine** a

IFRIC 21 Levies** a

IFRIC 14

PAS 39

Philippine Interpretations - International Financial Reporting Interpretations Committee (IFRIC)

IFRIC 9

3 of 4

AdoptedNot

Adopted

Not

Applicable






SIC-7 Introduction of the Euro a

SIC-10 Government Assistance - No Specific Relation to Operating Activities a

SIC-13 Jointly Controlled Entities - Non-Monetary Contributions by Venturers a

SIC-15 Operating Leases - Incentives a

SIC-25 Income Taxes - Changes in the Tax Status of an Entity or its Shareholders** a

SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease a

SIC-29 Service Concession Arrangements: Disclosures a

SIC-31 Revenue - Barter Transactions Involving Advertising Services** a

SIC-32 Intangible Assets - Web Site Costs a

* These standards will be effective for periods subsequent to 2014 and are not early adopted by the Group.

** These standards have been adopted in the preparation of financial statements but the Group has no significant transactions covered

in both years presented.

Philippine Interpretations - Standing Interpretations Committee (SIC)

4 of 4

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ALLIANCE GLOBAL GROUP, INC.

Schedule K-1

Map Showing the Relationship Between the Company and its Related Entities

December 31, 2014

Legend

(1) Subsidiary

(2) Associate

(3) Jointly Controlled Entity

A Megaworld, Corp. J Twin Lakes Corporation S Megaworld Land Inc.

B Adams Properties, Inc. K Megaworld Global-Estates, Inc. T Suntrust Properties, Inc.

C First Centro, Inc. L Megaworld Central Properties, Inc.

D Newtown Land Partners, Inc. M Shiok Success International, Ltd.

E Travellers International Hotel Group, Inc. N Dew Dreams International, Ltd.

F Manila Bayshore Property Holdings, Inc. O File-Estate Properties, Inc.

G ResortsWorld Bayshore City, Inc. P Sonoma Premier Land, Inc.

H Townsquare Development, Inc. Q Gilmore Property Marketing Associates, Inc.

I Megaworld Resort Estates, Inc. R Emperador Inc.

Alliance Global Group, Inc. (Parent Company)

Megaworld Corporation (1)

Woodside Greentown Properties, Inc. (1)

Palm Tree Holdings Development Corporation

(2)

Megaworld Land, Inc. (1)

Prestige Hotels and Resorts, Inc. (1)

Megaworld Cayman Islands, Inc. (1)

Eastwood Cyber One Corporation

(1)

Megaworld Cebu Properties, Inc. (1)

Mactan Oceanview Properties and Holdings, Inc.

(1)

Oceantown Properties, Inc. (1)

Megaworld Newport Property Holdings, Inc.

(1)

Megaworld Globus Asia, Inc. (1)

Piedmont Property Ventures, Inc. (1)

Stonehaven Land, Inc. (1)

Streamwood Property, Inc. (1)

Megaworld-Deawoo Corporation (1)

Suntrust Properties, Inc. (1)

Suntrust Home Developers, Inc. (2)

Philippine International Properties, Inc.

(1)

Richmonde Hotel Group International Ltd.

(1)

Suntrust Ecotown Developers, Inc. (1)

First Oceanic Property Management, Inc.

(2)

Citylink Coach Services, Inc. (2)

Empire East Land Holdings, Inc. (1)

Valle Verde Properties, Inc. (1)

Empire East Communities, Inc. (1)

Sonoma Premier Land, Inc. (1)

Gilmore Property Marketing Associates, Inc.

(1)

Laguna BelAir School, Inc. (1)

Eastwood Property Holdings, Inc. (1)

Sherman Oak Holdings, Inc. (1)

F I J K L

C H

Lucky Chinatown Cinemas, Inc. (1)

Luxury Global Hotels and Leisure, Inc.

(1)

Eastwood Cinema 2000, Inc. (1)

La Fureza, Inc. (1)

Global-Estate Resorts, Inc. (1)

City Walk Building Adminstration, Inc.

(1)

Paseo Center Building Administration, Inc.

(1)

Forbestown Commercial Center Administration, Inc.

(1)

Uptown Commercial Center Administration, Inc.

(1)

Luxury Global Malls, Inc. (1)

Bonifacio West Development Inc.

(2)

Davao Park District Holdings, Inc.

(1)

S

T

Suntrust Two Shanata, Inc. (1)

Suntrust One Shanata, Inc. (1)

Governor's Hills School, Inc. (1)

Sunrays Property Management, Inc. (1)

Global One Integrated Business Services Inc.

(1)

Megaworld Central Properties, Inc. (1)


Schedule K-2


December 31, 2014

Legend

(1) Subsidiary

(2) Associate


A Megaworld Corporation J Twin Lakes Corporation

B Adams Properties, Inc. K Megaworld Global-Estates, Inc.









Travellers International Hotel Group, Inc.

(1)

Net Deals, Inc. (1)

Genting Star Tourism (2)

Royal Bayshore Hotels and Amusement, Inc.

(1)

Entertainment City Integrated Resorts and Leisure, Inc.

(1)

Grand Integrated Hotels and Recreation, Inc.

(1)

Lucky Star Hotels and Recreation, Inc.

(1)

APEC Assets Limited (1)

Grand Services, Inc. (1)

FHTC Entertainment and Production, Inc.

(1)

Bright Leisure Management, Inc. (1)

Newport Star Lifestyle, Inc. (1)

Bright Pelican Leisure and Recreation, Inc.

(1)

GrandVenture Management Services, Inc.

(1)

Majestic Sunrise Leisure and Recreation, Inc.

(1)

Yellow Warbler Leisure and Recreation, Inc.

(1)

Manila Bayshore Property Holdings, Inc.

(1)

Deluxe Hotels and Recreation, Inc. (1)

A

Resorts World Bayshore City, Inc. (1)

A C B

Purple Flamingos Amusement and Leisure Corporation

(1)

Red Falcon Amusement and Leisure Corporation

(1)


Schedule K-4


December 31, 2014

Legend

(1) Subsidiary

(2) Associate



B Adams Properties, Inc. K Megaworld Globa- Estates, Inc.








Megaworld Corporation

Global Estate Resorts, Inc. (1)

Novo Sierra Holdings, Corp. (1)

Fil-Estate Urban Development, Corp.

(1)

Fil-Estate Realty and Sales Associates, Inc.

(2)

Oceanfront Properties, Inc. (1)

Megaworld Global Estates, Inc. (1)

Fil-Estate Network, Inc. (2)

File-Estate Sales, Inc. (2)

Fil-Estate Realty Corp. (2)

Nasugbu Properties, Inc. (1)

Twin Lakes Corp. (1)

Fil-Estate Golf Development, Inc. (1)

Golforce Inc. (1)

Southwoods Ecocentrum, Inc. (formerly Fil-Estate Ecocentrum)

(1)

Philippine Acquatic Leisure Corp.

(1)

Fil-Estate Properties, Inc. (1)

Aklan Holdings, Inc. (1)

Pioneer L-5 Realty Corp. (1)

Blu Sky Airways, Inc.. (1)

Prime Airways, Inc. (1)

Fil-Estate Subic Development Corp.

(1)

Sto. Domingo Place Development Corp.

(1)

Fil-Power Concrete Blocks, Corp.

(1)

Golden Sun Airways, Inc. (1)

Fil-Power Construction Equipment Leasing Corp..

(1)

Fil-Estate Industrial Park. (1)

La Compaña De Sta. Barbara, Inc. (1)

Sherwood Hills Development, Inc. (1)

MCX Corp.. (1)

Boracay Newcoast Hotel Group, Inc. (2)

J

O

A

Global Homes and Communities, Inc. (1)

Southwood Mall, Inc. (1)


Schedule K-3


December 31, 2014

Legend

(1) Subsidiary

(2) Associate












Golden Arches Development, Corp.

(1)

Clark Mac Enterprises, Inc. (1)

First Golden Laoag Foods, Corp. (1)

Golden Laoag Foods, Corp. (1)

Retiro Golden Foods, Inc. (1)

Davao City Food Industries, Inc. (1)

Golde Arches Realty, Corp. (1)

McDonald's Puregold Taguig (1)

Golden City Food Industries, Inc. (1)

McDonald's Bench Building (1)

Advance Food Concepts Manufacturing, Inc.

(1)

Red Asian Food, Inc. (1)


Schedule K-5


December 31, 2014

Legend

(1) Subsidiary

(2) Associate












Emperador Inc. (1)

Emperador Distillers, Inc. (1)

Emperador International Ltd. (1)

Anglo Watsons Glass Inc. (1)

The Bar Beverage, Inc. (1)

Emperador Asia Ptd Inc. (1)

Grupo Emperadod Spain SA. (1)

Bodega Las Copas. (2)

Bodega San Bruno SL. (1)

Alcoholera de la Mancha Vinicola SL. (2)

Vinedos del Rio Tajo SL. (2)

Emperador Uniked Kingdom. (1)

Emperador Luxemburg (1)

Emperador Scotland. (1)

Whyte & Mackay (1)

LIQUIDITY RATIOS measure the business' ability to pay short-term debt.

Current ratio - computed as current assets divided by current liabilities

Quick ratio - computed as cash and cash equivalents divided by current liabilities

SOLVENCY RATIOS measure the business' ability to pay all debts, particularly long-term debt.

Debt to equity ratio- computed as total liabilities divided by stockholders' equity.

ASSET-TO-EQUITY RATIOS measure financial leverage and long-term solvency. It shows how much of the

assets are owned by the Company. It is computed as total assets divided by stockholders' equity.

PROFITABILITY RATIOS

Return on assets - net profit divided by average total assets

Return on investment - net profit divided by stockholders' equity


SCHEDULE OF FINANCIAL SOUNDNESS INDICATORS

DECEMBER 31, 2014 AND 2013

2.14 :1.00

3.14 : 1.00

5.11%

2.00 :1.00

1.15 : 1.00

15.35%Return on equity/investment 19.66%

DECEMBER 31, 2014 DECEMBER 31, 2013

Current ratio

Quick ratio

Debt-to-equity ratio

Asset-to-equity ratio

Return on assets

2.03 : 1.00

1.23 : 1.00

2.35 :1.00

3.35 : 1.00

6.46%

- 8 -

1

SUN-SEC FORM-ACGR 2014

ANNUAL CORPORATE GOVERNANCE REPORT (SEC FORM-ACGR)

FOR YEAR 2014

6th Floor, The World Centre, 330 Sen. Gil Puyat Avenue, Makati City 1200, Philippines

Tels: (632) 867-8826 to 40 www.suntrusthomedev.com

2


SECURITIES AND EXCHANGE COMMISSION

SEC FORM – ACGR

ANNUAL CORPORATE GOVERNANCE REPORT

1. Report is Filed for the Year 2014 Date of Report

2. SEC Identification Number: 10683 3. BIR Tax Identification Number: 000-141-166-000

4. SUNTRUST HOME DEVELOPERS, INC.

Exact name of registrant as specified in its charter

5. Metro Manila, Philippines Province, country or other jurisdiction of incorporation

6. Industry Classification Code: 7. 6/F The World Centre Bldg., #330 Sen. Gil J. Puyat Avenue, Makati City

Address of Principal Office 8. (632) 867-8826 to 40

Registrant’s Telephone Number, including area code

(SEC Use Only)

3


TABLE OF CONTENTS A. BOARD MATTERS …..……………………..……………………………………………………… 5

1) BOARD OF DIRECTORS (a) Composition of the Board………………………………………………………………………… 5 (b) Directorship in Other Companies…………………………………………………………….. 6 (c) Shareholding in the Company……………………………………….…………………………. 7

2) CHAIRMAN AND CEO………………………………………………………………………………………………. 7 3) OTHER EXECUTIVE, NON-EXECUTIVE AND INDEPENDENT DIRECTORS…………………….. 8 4) CHANGES IN THE BOARD OF DIRECTORS…………………………………………………………………. 9 5) ORIENTATION AND EDUCATION PROGRAM……………………………………………………………. 12

B. CODE OF BUSINESS CONDUCT & ETHICS……………………………………………………………………………… 12

1) POLICIES…………………………………………………………………………………………………………………… 12 2) DISSEMINATION OF CODE………………………………………………………………………………………… 14 3) COMPLIANCE WITH CODE………………………………………………………………………………………… 14 4) RELATED PARTY TRANSACTIONS………………………………………………………………………………. 14

(a) Policies and Procedures……………………………………………………………………………. 14 (b) Conflict of Interest……………………………………………………………………………………. 15

5) FAMILY, COMMERCIAL AND CONTRACTUAL RELATIONS………………………………………….. 16 6) ALTERNATIVE DISPUTE RESOLUTION……………………………………………………………………….. 16

C. BOARD MEETINGS & ATTENDANCE……………………………………………………………………………………… 17

1) SCHEDULE OF MEETINGS…………………………………………………………………………………………. 17 2) DETAILS OF ATTENDANCE OF DIRECTORS………………………………………………………………… 17 3) SEPARATE MEETING OF NON-EXECUTIVE DIRECTORS……………………………………………… 17 4) MINIMUM QUORUM REQUIREMENT ………………………………………………………………………. 17 5) ACCESS TO INFORMATION………………………………………………………………………………………. 17 6) EXTERNAL ADVICE……………………………………………………………………………………………………. 19 7) CHANGES IN EXISTING POLICIES………………………………………………………………………………. 19

D. REMUNERATION MATTERS ………………………………………………………………………………………. 19

1) REMUNERATION PROCESS…………………………………………………………………………………….. 19 2) REMUNERATION POLICY AND STRUCTURE FOR DIRECTORS…………………………………… 20 3) AGGREGATE REMUNERATION …………………………………………………………………………………. 20 4) STOCK RIGHTS, OPTIONS AND WARRANTS……………………………………………………………….. 21 5) REMUNERATION OF MANAGEMENT…………………………………………………………………………. 21

E. BOARD COMMITTEES………………………………………………………………………………………………………… 22

1) NUMBER OF MEMBERS, FUNCTIONS AND RESPONSIBILITIES……………………………………. 22 2) COMMITTEE MEMBERS……………………………………………………………………………………………. 23 3) CHANGES IN COMMITTEE MEMBERS……………………………………………………………………….. 25 4) WORK DONE AND ISSUES ADDRESSED……………………………………………………………………… 26 5) COMMITTEE PROGRAM……………………………………………………………………………………………. 26

F. RISK MANAGEMENT SYSTEM……………………………………………………………………………………………… 26

1) STATEMENT ON EFFECTIVENESS OF RISK MANAGEMENT SYSTEM…………………………… 26 2) RISK POLICY……………………………………………………………………………………………………………… 27 3) CONTROL SYSTEM……………………………………………………………………………………………………. 28

4


G. INTERNAL AUDIT AND CONTROL………………………………………………………………………………………… 30 1) STATEMENT ON EFFECTIVENESS OF INTERNAL CONTROL SYSTEM…………………………… 30 2) INTERNAL AUDIT………………………………………………………………………………………………………..30

(a) Role, Scope and Internal Audit Function…………………………………………………… 30 (b) Appointment/Removal of Internal Auditor………………………………………………… 30 (c) Reporting Relationship with the Audit Committee…………………………………….. 31 (d) Resignation, Re-assignment and Reasons………………………………………………….. 31 (e) Progress against Plans, Issues, Findings and

Examination Trends………………………………………………………..….……………………… 31 (f) Audit Control Policies and Procedures………………………………………………………. 32 (g) Mechanisms and Safeguards……………………………………………………………………… 32 (h) Attesting Officers on Company’s Full Compliance with the SEC Code of

Corporate Governance……………………………………………………………………………….32

H. ROLE OF STAKEHOLDERS…………………………………………………………………………………………………… 32 1) COMPANY’S POLICY AND ACTIVITIES………………………………………………………………………… 32 2) CORPORATE RESPONSIBILITY REPORT …………………………………………………….……………….. 33 3) PERFORMANCE-ENHANCING MECHANISMS… …………………………………………………………. 33 4) COMPANY PROCEDURE ON COMPLAINTS……………………………………………………….……….. 33

I. DISCLOSURE AND TRANSPARENCY ………………………….……………………………………………………… 34 1) OWNERSHIP STRUCTURE ………………………………………………………………………………………… 34 2) ANNUAL REPORT …………………………………………………………………………………………………. 34 3) EXTERNAL AUDITOR’S FEE ……………………………………………………………………………………. 35 4) MEDIUM OF COMMUNICATION ……………………………………………………………………….. 35 5) DATE OF RELEASE OF AUDITED FINANCIAL REPORT ……………………………………………… 35 6) COMPANY WEBSITE ………………………………………………………………………………………………… 35 7) DISCLOSURE OF RPT ……………………………………………………………………………………………….. 35 J. RIGHTS OF STOCKHOLDERS …………………………………………………………………………………. 36 K. INVESTORS RELATIONS PROGRAM …………………………………………………………………………………. 41 L. CORPORATE SOCIAL RESPONSIBILITY INITIATIVES…………………………………………………………….. 41 M. BOARD, DIRECTOR, COMMITTEE AND CEO APPRAISAL……………………………………………………… 42 N. INTERNAL BREACHES AND SANCTIONS……………………………………………………………………………… 42

5


A. BOARD MATTERS 1) Board of Directors

Number of Directors per Articles of Incorporation Seven (7)

Actual number of Directors for the year Seven (7)

(a) Composition of the Board

Complete the table with information on the Board of Directors (updated as of 31 December 2014):

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)

Elected when

(Annual /Special

Meeting)

No. of years

served as

director

Ferdinand B. Masi ED N/A Megaworld Corporation

09 Feb 2001

18 Nov 2014 Annual 14

Amelia A. Austria ID N/A Ferdinand B. Masi, no

relationship

09 Nov 2007

18 Nov1 2014

Annual 8

Evelyn G. Cacho ED N/A Megaworld Corporation

29 Aug 2005


Giancarlo C. Ng NED N/A Megaworld Corporation

23 Oct 2007


Felizardo T. Sapno NED N/A Megaworld Corporation

03 July 2006


Alejo L. Villanueva, Jr.

ID N/A Giancarlo C. Ng, no

relationship

22 Aug 2012

18 Nov2 2014

Annual 3

Elmer P. Pineda NED N/A Megaworld Corporation

03 Feb 2012


(i) Provide a brief summary of the corporate governance policy that the board of directors has adopted. Please

emphasize the policy/ies relative to the treatment of all shareholders, respect for the rights of minority shareholders and of other stakeholders, disclosure duties, and board responsibilities.

The Board believes that corporate governance is a necessary component of sound strategic business management and is committed to create awareness of the principles of good corporate governance within the company. Thus, the Board of Directors has adopted a Manual of Corporate Governance in order to institutionalize the rules and principles of good corporate governance in accordance with the Code of Corporate Governance promulgated by the Securities and Exchange Commission.

The Board respects the rights of stockholders as provided in the Corporation Code, such as right to vote on

1 4 years since SEC Memorandum Circular No. 9, Series of 2011 became effective. 2 3 years since 2012

6


all matters that require their consent or approval, right to inspect, right to information and appraisal right. The Board takes appropriate steps to remove excess or unnecessary costs and other administrative impediments to allow all stockholders meaningful participation in meetings. It likewise ensures that accurate and timely information is made available to stockholders to enable them to make a sound judgment on all matters for their consideration and approval.

(ii) How often does the Board review and approve the vision and mission? Annually

(b) Directorship in Other Companies

(i) Directorship in the Company’s Group3

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.

None

(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.

Alejo L. Villanueva, Jr. Alliance Global Group, Inc. Independent

Empire East Land Holdings, Inc. Independent

Emperador Inc. Independent

Evelyn G. Cacho Empire East Land Holdings, Inc Executive

(iii) Relationship within the Company and its Group.

None 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 in its group:

Director’s Name Name of the

Significant Shareholder Description of the

relationship

N/A

(iv) Has the company set a limit on the number of board seats in other companies (publicly listed, ordinary

and companies with secondary license) that an individual director or CEO may hold simultaneously? In particular, is the limit of five board seats in other publicly listed companies imposed and observed? If yes, briefly describe other guidelines:

3 The Group is composed of the parent, subsidiaries, associates and joint ventures of the company.

7


The Company has not set a limit on the number of board seats that its Executive Directors, Non-Executive Directors and CEO may hold in other companies. The Company allows its directors to serve in its subsidiaries and affiliates with oversight functions. For Independent Directors, the Company observes the limitation set forth in SEC Circular Memorandum No. 9 Series of 2011 and has not elected any Independent Director with more than five directorships within the Group. Further, directorship outside of the Group is discouraged.

(c) 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

Ferdinand B. Masi 1 0 0.00%

Amelia A. Austria 1 0 0.00%

Evelyn G. Cacho 1 0 0.00%

Giancarlo C. Ng 1 0 0.00%

Felizardo T. Sapno 1 0 0.00%

Alejo L. Villanueva, Jr. 1 0 0.00%

Elmer P. Pineda 1 0 0.00%

2) Chairman and CEO

(a) Do different persons assume the role of Chairman of the Board of Directors and CEO? If no, describe the

checks and balances laid down to ensure that the Board gets the benefit of independent views.

Yes (v) No X

Identify the Chair and CEO:

Chairman of the Board Ferdinand B. Masi

CEO/President Ferdinand B. Masi

Although the positions of Chairman of the Board and CEO are held by one individual, the duties and responsibilities of each are clearly defined and delineated under the By-Laws and Manual of Corporate Governance. The President also participates in the decision-making process and can express his views to the Chairman/CEO and the Board.

(b) Roles, Accountabilities and Deliverables

Define and clarify the roles, accountabilities and deliverables of the Chairman and CEO.

Guidelines

Maximum Number of Directorships in other

companies

Executive Director N/A

Non-Executive Director N/A

CEO N/A

8


Chairman Chief Executive Officer

Role

Ensure that the meetings of the Board are held in accordance with the by-laws or as the Chair may deem necessary. Supervise the preparation of the agenda of the meeting in coordination with the Corporate Secretary, taking into consideration the suggestions of the CEO, Management and the directors.

Maintain qualitative and timely lines of the communication and information between the Board and Management.

General supervision of the business affairs and property of the Company Perform such duties as may be assigned to him by the Board

Accountabilities To the Board and Management To the stockholders and the Board

Deliverables

Agenda of the meetings Minutes of Stockholders’ Meetings Various regulatory submissions that may require the signature of the Chairman of the Board of Directors.

Report of the yearly operations of the Company and the state of its affairs to the Board and the stockholders

Explain how the board of directors plans for the succession of the CEO/Managing Director/President and the top key management positions?

The Board plans to put in place a succession planning program for key management positions.

3) Other Executive, Non-Executive and Independent Directors

Does the company have a policy of ensuring diversity of experience and background of directors in the board? Please explain.

The membership of the Board is a combination of executive and non-executive directors (which includes independent directors) in order that no director or small group of directors can dominate the decision-making process. The non-executive directors should possess such qualifications and stature that would enable them to effectively participate in the deliberations of the Board. Currently, the Board has a mix of directors with expertise in the fields of real estate development, finance and administration, marketing and sales, manufacturing, property management, and financing.

Does it ensure that at least one non-executive director has an experience in the sector or industry the company belongs to? Please explain.

The non-executive directors possess such qualifications and stature that would enable them to effectively participate in the deliberations of the Board. Additional qualifications include a practical understanding of the business of the Company and membership in a relevant industry, business or professional organization.

Define and clarify the roles, accountabilities and deliverables of the Executive, Non-Executive and Independent Directors:

9


Executive Non-Executive

Independent Director

Role

Involved in operational and day-to-day affairs of the Company

Oversees the performance of Executive directors

Acts as check and balance within the Board. Acts as chairman of the various committees

Accountabilities To the Board and management to ensure that lines of communication are open

To the stockholders

To the stockholders

Deliverables

Reports to the Board on operational matters of the Company

Review and evaluate executive directors’ recommendations

As members of the Audit Committee, performs oversight functions over the financial reporting process, risk management and internal control and internal audit.

Provide the company’s definition of "independence" and describe the company’s compliance to the definition.

“Independence”, as a qualification of an independent director, means the freedom to exercise judgment in the carrying out of responsibilities as a director from any interference by any other persons or other considerations other than the duties enjoined on directors by law and the By-laws, as well as possession of the qualifications and none of the disqualifications provided by law.

The Company’s Manual of Corporate Governance provides that the Board should be composed of at least two (2) independent directors and the Company has complied with this.

Does the company have a term limit of five consecutive years for independent directors? If after two years, the company wishes to bring back an independent director who had served for five years, does it limit the term for no more than four additional years? Please explain.

The Company complies with the provisions of SEC Memorandum Circular No. 9, Series of 2011 on term limits for independent directors. No independent director has violated the required term limit under this circular.

4) Changes in the Board of Directors (Executive, Non-Executive and Independent Directors)

(a) Resignation/Death/Removal

Indicate any changes in the composition of the Board of Directors that happened during the period:

Name Position Date of Cessation Reason

None

(b) Selection/Appointment, Re-election, Disqualification, Removal, Reinstatement and Suspension

Describe the procedures for the selection/appointment, re-election, disqualification, removal, reinstatement and suspension of the members of the Board of Directors. Provide details of the processes adopted (including the frequency of election) and the criteria employed in each procedure:

10


Procedure Process Adopted Criteria

a. Selection/Appointment

(i) Executive Directors

Nomination is conducted by the Nomination Committee prior to a stockholders’ meeting pursuant to the provisions of SRC Rule 38.

Qualifications are provided for in the Company’s By-laws and Manual of Corporate Governance.

(ii) Non-Executive Directors

Same as above Same as above

(iii) Independent Directors Same as above Same as above and SRC Rule 38.

b. Re-appointment


Re-appointment is allowed. The procedure is the same as the selection/appointment process above.

The same criteria are imposed for appointment and re-appointment. Qualifications are provided for in the Company’s By-Laws and Manual of Corporate Governance.


Re-appointment is allowed. The procedure is the same as the selection/appointment process above.

Same as above

(iii) Independent Directors

Re-appointment is allowed as long as the term limit for Independent Directors in SEC Memorandum Circular No. 9, Series of 2011 has not been breached. The procedure is the same as the selection/appointment process above.

Same as above and SRC Rule 38.

c. Permanent Disqualification

(i) Executive Directors The Company follows the procedure provided for in the Corporation Code.

The Grounds are provided for in the Company’s Manual of Corporate Governance




Same as above. The Company also follows the procedure provided in SRC Rule 38.


d. Temporary Disqualification


A temporarily disqualified director shall, within sixty (60) business days from such disqualification, take the appropriate action to remedy or correct the disqualification. If he fails or refuses to do so for unjustified reasons, the disqualification shall become

The Grounds are provided for in the Company’s Manual of Corporate Governance.

11


permanent.


Same as above. Same as above

(iii) Independent Directors Same as above. Same as above

e. Removal

(i) Executive Directors The Company follows the procedure provided for in the Corporation Code.

Removal may be due to death, voluntary resignation and/or permanent disqualification from office consistent with the grounds provided for in the Company’s Manual of Corporate Governance.




Same as above. The Company also follows the procedure provided in SRC Rule 38.


f. Re-instatement


A temporarily disqualified director shall, within sixty (60) business days from such disqualification, take the appropriate action to remedy or correct the disqualification. If he fails or refuses to do so for unjustified reasons, the disqualification shall become permanent.

Satisfactory corrective action performed by the director within the 60 day period, addressing the specific cause of action.


Same as above. Same as above

(iii) Independent Directors Same as above. Same as above

g. Suspension

(i) Executive Directors The Company follows the procedure provided for in the Corporation Code

The Grounds are provided for in the Company’s Manual of Corporate Governance.



(iii) Independent Directors Same as above Same as above

(c) Voting Result of the last Annual General Meeting

Name of Director Votes Received

Ferdinand B. Masi 1,383,607,149 shares

Amelia A. Austria 1,383,607,149 shares

Evelyn G. Cacho 1,383,607,149 shares

Giancarlo C. Ng 1,383,607,149 shares

FeLlizardo T. Sapno 1,383,607,149 shares

Alejo L. Villanueva, Jr. 1,383,607,149 shares

Elmer P. Pineda 1,383,607,149 shares

12


5) Orientation and Education Program

(a) Disclose details of the company’s orientation program for new directors, if any. The Company has no specific training program for new directors. New directors are given an orientation on the business of the Company. They are also given access to the Company's directors and officers to address any questions or clarifications that new directors may raise.

(b) State any in-house training and external courses attended by Directors and Senior Management4 for the past three (3) years. In compliance with the SEC Memorandum Circular No. 20, Series of 2013, the Company’s Directors and Senior Management attended an in-house seminar(s) on Corporate Governance on November 11 and 14, 2014.

(c) Continuing education programs for directors: programs and seminars and roundtables attended during

the year.

B. CODE OF BUSINESS CONDUCT & ETHICS 1) Discuss briefly the company’s policies on the following business conduct or ethics affecting directors, senior

management and employees (for management and employees applicable to subsidiary in the group):

Business Conduct & Ethics

Directors Senior Management Employees

(a) Conflict of Interest

A director should not use his position to profit or gain some benefit or advantage for himself and/or his related interest. If an actual or potential conflict of interest may arise on the part of a director, he should fully and immediately disclose it

An employee should disclose any relationship or association to the proposed supplier or contractor or its authorized representative to avoid possible conflict of interest.

An employee should disclose any relationship or association to the proposed supplier or contractor or its authorized representative to avoid possible conflict of interest.

4 Senior Management refers to the CEO and other persons having authority and responsibility for planning, directing and controlling the activities of the company.

Name of Director/Officer

Date of Training Program Name of Training Institution

Ferdinand B. Masi 11 November 2014

Corporate Governance

Risks, Opportunities, Assessment and Management

(ROAM), Inc.

Amelia A. Austria 11 November 2014

Evelyn G. Cacho 11 November 2014

Giancarlo C. Ng 11 November 2014

Felizardo T. Sapno 11 November 2014

Alejo L. Villanueva, Jr. 14 November 2014

Elmer P. Pineda 14 November 2014

Rolando D. Siatela 14 November 2014

Ma. Cristina D. Gonzales 14 November 2014

13


and should not participate in the decision-making process.

(b) Conduct of Business and Fair Dealings

A director should not use his position to profit or gain some benefit or advantage for himself and/or his related interest. If an actual or potential conflict of interest may arise on the part of a director, he should fully and immediately disclose it and should not participate in the decision-making process.

They are prohibited from using their authority or position to favor a supplier or contractor in anticipation of a personal gain or benefit.

They are prohibited from using their authority or position to favor a supplier or contractor in anticipation of a personal gain or benefit.

(c) Receipt of gifts from third parties

Must not solicit or accept any gift, regardless of value, from any supplier, contractor or business partner, except gifts of minimal value. If it is not practical to return, such gift must be shared with other employees.



(d) Compliance with Laws & Regulations

Ensure through their functions, the Company’s faithful compliance with all applicable laws, regulations and best business practices.

Ensure the Company’s faithful compliance with all applicable laws, regulations and best business practices.

Ensure the Company’s faithful compliance with all applicable laws, regulations and best business practices.

(e) Respect for Trade Secrets/Use of Non-public Information

Keep secure and confidential trade secrets and all non-public information acquired or learned by reason of position. Should not reveal confidential information to unauthorized persons without authority of the Board.



(f) Use of Company Funds, Assets and Information

Observe discretion in use of funds and assets. Be mindful of eliminating unnecessary consumption and wasteful practices. Confidential information

Observe discretion in use of funds and assets. Be mindful of eliminating unnecessary consumption and wasteful practices. Confidential information must not be disclosed

Observe discretion in use of funds and assets. Be mindful of eliminating unnecessary consumption and wasteful practices. Confidential information must not be disclosed

14


must not be disclosed to unauthorized persons.

without the proper authority.

without the proper authority.

(g) Employment &Labor Laws & Policies

Ensure the Company’s faithful compliance with employment and labor law & policies.

The Company seeks to reasonably assist its and its subsidiaries and affiliates’ employee and his family in providing for their economic security.

The Company seeks to reasonably assist its and its subsidiaries and affiliates’ employee and his family in providing for their economic security.

(h) Disciplinary action

The Company strictly observes the provisions on disqualification and temporary disqualification of directors as provided in the Company’s Manual of Corporate Governance.

Rules and regulations shall be enforced fairly and consistently by the respective subsidiaries and affiliates. Violations shall result in disciplinary actions depending on frequency, seriousness and circumstances of the offense. The employee shall be given the opportunity to present his side.

Rules and regulations shall be enforced fairly and consistently by the respective subsidiaries and affiliates. Violations shall result in disciplinary actions depending on frequency, seriousness and circumstances of the offense. The employee shall be given the opportunity to present his side.

(i) Whistle Blower

Reports of wrongdoing may be made directly to the Chairman for proper disposition to ensure confidentiality of information and protection of the identity of the whistle blower.

For each subsidiary or affiliate, reports of wrongdoing may be made directly to the Chairman or President for proper disposition to ensure confidentiality of information and protection of the identity of the whistle blower.

For each subsidiary or affiliate, reports of wrongdoing may be made directly to the Chairman or President for proper disposition to ensure confidentiality of information and protection of the identity of the whistle blower.

(j) Conflict Resolution

Amicable settlement through alternative dispute resolution



2) Has the code of ethics or conduct been disseminated to all directors, senior management and employees?

YES.

3) Discuss how the company implements and monitors compliance with the code of ethics or conduct. The Company has a compliance officer who monitors compliance of ethics or conduct. Directors submit annually a list of business and professional affiliating through which provide conflicts-of-interest may be determined. Relative to senior management and employees, the Human Resources Department of each subsidiary and affiliate implements and monitors compliance with the code of ethics or conduct.

4) Related Party Transactions (a) Policies and Procedures

Describe the company’s policies and procedures for the review, approval or ratification, monitoring and recording of related party transactions between and among the company and its parent, joint ventures, subsidiaries, associates, affiliates, substantial stockholders, officers and directors, including their spouses,

15


children and dependent siblings and parents and of interlocking director relationships of members of the Board. Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial and operating decisions. These parties include: (a) individuals owning, directly or indirectly through one or more intermediaries, control or are controlled by, or under common control with the Group; (b) associates; and (c) individuals owning directly or indirectly, an interest in the voting power of the Group that gives them significant influence over the Group and close members of the family of any such individual (2.20, Financial Statements and Independent Auditors’ Reports). Except for the material related party transactions described in the notes to the financial statements of the Company for the years 2013, 2012 and 2011, there has been no material transaction during the last two years, nor is there any material transaction currently proposed, to which the Company was or is to be a party, in which any director or executive officer, any nominee for election as director, stockholder of more than ten percent.

Related Party Transactions Policies and Procedures

(1) Parent Company

Ensure that the transactions are entered on terms comparable to those available from unrelated third parties.

(2) Joint Ventures

(3) Subsidiaries

(4) Entities Under Common Control

(5) Substantial Stockholders

(6) Officers including spouse/children/siblings/parents

Ensure that the transactions are entered on terms comparable to those available from unrelated third parties. Disclosure of relationship or association is required to be made before entering into transaction. No participation in the approval of the transaction.

(7) Directors including spouse/children/siblings/parents

(8) Interlocking director relationship of Board of Directors

(b) Conflict of Interest

(i) Directors/Officers and 5% or more Shareholders.

None.

Identify any actual or probable conflict of interest to which directors/officers/5% or more shareholders may be involved.

Details of Conflict

of Interest (Actual or Probable)

Name of Director/s N/A

Name of Officer/s N/A

Name of Significant Shareholders N/A

(ii) Mechanism

Describe the mechanism laid down to detect, determine and resolve any possible conflict of interest between the company and/or its group and their directors, officers and significant shareholders.

Directors/Officers/Significant Shareholders

Company Independent Directors are required to submit a list of

16


Group positions/other directorships to determine any conflict. Directors, officers and employees must voluntarily disclose any conflict prior to occurrence of the same.

5) Family, Commercial and Contractual Relations

(a) Indicate, if applicable, any relation of a family,5 commercial, contractual or business nature that exists between the holders of significant equity (5% or more), to the extent that they are known to the company:

Names of Related Significant Shareholders

Type of Relationship Brief Description of the

Relationship

NONE

There has been no material transaction, nor is there any material transaction currently proposed, to which the Company was or is to be a party, in which any member of the immediate family (including spouse, parents, children, sibling and in-laws) of any such director or officer or stockholder of more than ten (10) percent of the Company’s voting shares had or is to have a direct and indirect material interest.

(b) Indicate, if applicable, any relation of a commercial, contractual or business nature that exists between the

holders of significant equity (5% or more) and the company:

Names of Related Significant Shareholders

Type of Relationship Brief Description

NONE

The Company has no knowledge of persons holding more than five (5) percent of its voting securities under a voting trust or similar agreement.

(c) Indicate any shareholder agreements that may impact on the control, ownership and strategic direction of the company:

Name of Shareholders % of Capital Stock affected

(Parties) Brief Description of the

Transaction

NONE

The Company has no knowledge of any arrangements among stockholders that may result in a change in control of the Company.

6) Alternative Dispute Resolution

Describe the alternative dispute resolution system adopted by the company for the last three (3) years in amicably settling conflicts or differences between the corporation and its stockholders, and the corporation and third parties, including regulatory authorities.

Alternative Dispute Resolution System

Corporation & Stockholders Pursue settlement outside court and compromise

Corporation & Third Parties Pursue settlement outside court and compromise

Corporation & Regulatory Authorities Pursue settlement outside court and compromise

5Family relationship up to the fourth civil degree either by consanguinity or affinity.

17


C. BOARD MEETINGS & ATTENDANCE 1) Are Board of Directors’ meetings scheduled before or at the beginning of the year?

Meetings of the Board are held at such time and place as the Board may prescribe, but the Board endeavors to meet monthly, or if not possible, quarterly.

2) Attendance of Directors (updated as of 31 December 2014)

Board Name Date of Election

No. of Meetings

Held during the year

No. of Meetings Attended

%

Chairman Ferdinand B. Masi 18 Nov 2014 3 3 100%

Member Evelyn G. Cacho 18 Nov 2014 3 3 100%

Member Giancarlo C. Ng 18 Nov 2014 3 3 100%

Member Felizardo T. Sapno 18 Nov 2014 3 3 100%

Member Elmer P. Pineda 18 Nov 2014 3 3 100%

Independent Amelia A. Austria 18 Nov 2014 3 3 100%

Independent Alejo L. Villanueva, Jr. 18 Nov 2014 3 3 100%

3) Do non-executive directors have a separate meeting during the year without the presence of any executive? If

yes, how many times? NO.

4) Is the minimum quorum requirement for Board decisions set at two-thirds of board members? Please explain. The Company follows the quorum requirement in the Corporation Code. Thus, when majority of the directors are present, the Board proceeds with transaction of business.

5) Access to Information

(a) How many days in advance are board papers6 for board of directors meetings provided to the board? These are distributed together with the notices in accordance with the Company’s By-laws.

(b) Do board members have independent access to Management and the Corporate Secretary? YES.

(c) State the policy of the role of the company secretary. Does such role include assisting the Chairman in preparing the board agenda, facilitating training of directors, keeping directors updated regarding any relevant statutory and regulatory changes, etc?

Art. III, Sec. 5 of the By-Laws states that the Corporate Secretary “shall maintain and be the custodian of the corporate books and records. He shall be the recorder of the formal actions and transactions of the Corporation. He shall have the following specific powers and duties: a) To record or see to the proper recording of the minutes and transactions of all meetings

6 Board papers consist of complete and adequate information about the matters to be taken in the board meeting. Information includes the background or explanation on matters brought before the Board, disclosures, budgets, forecasts and internal financial documents.

18


of the Board of Directors, the Executive Committee, the stockholders, and the special and standing committees of the Board, and to maintain minute books of such meetings in the form and manner required by law.

b) To keep or cause to be kept records showing the details required by law with respect to

the stock certificates of the Corporation, including ledgers and transfer books showing all shares of the Corporation issued and transferred, and the date of such issuance and transfer.

c) To keep the corporate seal and affix it to all papers and documents requiring a seal, and

to attest by his signature to all corporate documents requiring the same. d) To give, or cause to be given, all notices required by law or by these By-Laws, as well as

notices required of meetings of the Directors and of the stockholders. e) To certify to such corporate acts, countersign corporate documents o certificates, and

make reports or statements as may be required of him by law or regulation. f) To determine during meetings the number of shares of stock outstanding and entitled to

vote, the shares of stock represented at the meeting, the existence of a quorum, the validity and effect of proxies, and to receive votes, ballots or consents, hear and determine all contests, challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the results and to do such acts as are proper to conduct the election or vote. The Secretary may assign the exercise or performance of any or all of the foregoing duties, powers, and functions to any other person or persons, subject always to his supervision and control. The decision of the Secretary on the validity and effect of the proxies shall be final and binding until set aside by a court of competent jurisdiction.

g) To perform such other duties as are incident to his office or as may be assigned to him by

the Board of Directors.

(d) Is the company secretary trained in legal, accountancy or company secretarial practices? Please explain should the answer be in the negative. YES.

(e) Committee Procedures

Disclose whether there is a procedure that Directors can avail of to enable them to get information necessary to be able to prepare in advance for the meetings of different committees:

Yes X No

Committee Details of the procedures

Executive N/A

Audit Upon request made thru the Corporate Secretary, Directors shall be provided with complete, adequate and timely information about the matters to be taken up in their meetings. The Committee is afforded full access to management, personnel and records in the performance of its duties and responsibilities.

Nomination

Remuneration

Others (specify) None

19


6) External Advice

Indicate whether or not a procedure exists whereby directors can receive external advice and, if so, provide details:

Procedures Details

Obtain external legal counsel or independent professional advisors as may be needed in the performance of its functions

The committee members may obtain external legal counsel or independent professional advisors as may be needed in the performance of its functions

7) Change/s in existing policies

Indicate, if applicable, any change/s introduced by the Board of Directors (during its most recent term) on existing policies that may have an effect on the business of the company and the reason/s for the change:

Existing Policies Changes Reason

N/A

D. REMUNERATION MATTERS

1) Remuneration Process

Disclose the process used for determining the remuneration of the CEO and the four (4) most highly compensated management officers:

No compensation was received by the principal executive officers from the Company. There are no arrangements in force pursuant to which the officers or directors of the Company are compensated, or are to be compensated, directly or indirectly, for any services provided by such officer or director. There are no standard arrangements pursuant to which directors or officers of the Company are compensated, or are to be compensated, directly or indirectly, for any services provided as a director or officer, including services for committee participation or special assignments.

Process CEO Top 4 Highest Paid Management

Officers

(1) Fixed remuneration N/A N/A

(2) Variable remuneration N/A N/A

(3) Per diem allowance N/A N/A

(4) Bonus N/A N/A

(5) Stock Options and other financial instruments

N/A N/A

(6) Others (specify) N/A N/A

2) Remuneration Policy and Structure for Executive and Non-Executive Directors

Disclose the company’s policy on remuneration and the structure of its compensation package. Explain how the compensation of Executive and Non-Executive Directors is calculated. There are no arrangements in force pursuant to which the directors of the Company are compensated, or are to be compensated, directly or indirectly, for any services provided by such director. There are no standard

20


arrangements pursuant to which directors of the Company are compensated, or are to be compensated, directly or indirectly, for any services provided as a director, including services for committee participation or special assignments. There are no per diems granted to directors for attendance at meetings.

Remuneration

Policy

Structure of Compensation

Packages

How Compensation is Calculated

N/A N/A N/A

N/A N/A N/A

Do stockholders have the opportunity to approve the decision on total remuneration (fees, allowances, benefits-in-kind and other emoluments) of board of directors? Provide details for the last three (3) years.

Remuneration Scheme Date of

Stockholders’ Approval

N/A N/A

N/A N/A

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 N/A N/A N/A

(b) Variable Remuneration N/A N/A N/A

(c) Per diem Allowance N/A N/A N/A

(d) Bonuses N/A N/A N/A

(e) Stock Options and/or other financial instruments

N/A N/A N/A

(f) Others (Specify) N/A N/A N/A

Total N/A N/A N/A

Other Benefits

Executive Directors

Non-Executive Director (other than independent

directors)

Independent Directors

1) Advances N/A N/A N/A

2) Credit granted N/A N/A N/A

3) Pension Plan/s Contributions

N/A N/A N/A

21


(d) Pension Plans, Obligations incurred

N/A N/A N/A

(e) Life Insurance Premium N/A N/A N/A

(f) Hospitalization Plan N/A N/A N/A

(g) Car Plan N/A N/A N/A

(h) Others (Specify) N/A N/A N/A

Total N/A N/A N/A

4) Stock Rights, Options and Warrants

N/A

(a) Board of Directors

Complete the following table, on the members of the company’s Board of Directors who own or are entitled to stock rights, options or warrants over the company’s shares:

Director’s Name Number of Direct

Option/Rights/ Warrants

Number of Indirect

Option/Rights/ Warrants

Number of Equivalent

Shares

Total % from Capital Stock

N/A

(b) Amendments of Incentive Programs

Indicate any amendments and discontinuation of any incentive programs introduced, including the criteria used in the creation of the program. Disclose whether these are subject to approval during the Annual Stockholders’ Meeting:

Incentive Program Amendments Date of

Stockholders’ Approval

N/A

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: There are no arrangements in force pursuant to which the officers of the Company are compensated, or are to be compensated, directly or indirectly, for any services provided by such officer. There are no standard arrangements pursuant to which officers of the Company are compensated, or are to be compensated, directly or indirectly, for any services provided as a officer, including services for committee participation or special assignments.

Name of Officer/Position Total Remuneration

N/A

N/A

22


E. BOARD COMMITTEES

1) Number of Members, Functions and Responsibilities

Provide details on the number of members of each committee, its functions, key responsibilities and the power/authority delegated to it by the Board:

Committee

No. of Members

Committee Charter

Functions Key

Responsibilities Power Executive

Director (ED)

Non-executive Director

(NED)

Independent Director

(ID)

Executive N/A

Audit 1 0 2

Audit Committee Charter

Ensure that all financial report comply with internal financial and management standards, performing oversight financial management functions, pre-approving all audit plans, scope and frequency and performing direct interface functions with internal and external auditors

Performs oversight responsibilities for the following: (a) Financial Reporting; (b) Risk Management; (c) Internal Control; (d) Internal Audit; (e) External Audit.

The Committee shall have the authority to conduct or order the investi-gation into any matter within the scope of its responsibilities.

Nomination 0 2 1

Prescreens and shortlists all candidates nominated to become a member of the Board.

Reviews and evaluates the qualifications of all persons nominated to the Board and other appointments that require Board approval , and assesses the effectiveness of the Board’s processes and procedures in the election and replacement of directors

Prescreens nominees and prepares final list of candidate

23


Remuneration 1 0 2

Responsible for establishing a formal and transparent procedure for developing a policy on executive remuneration and for fixing the remuneration packages of corporate officers and directors, as well as providing oversight over remuneration of senior management and other key personnel ensuring that compensation is consistent with the Company’s culture, strategy and control environment.

Establishes a formal and transparent procedure for developing a policy on remuneration of directors and officers to ensure that their compensation is consistent with the Company’s culture, strategy and business environment.

Establishes a formal and trans-parent procedure for developing a policy on remune-ration of directors and officers to ensure that their compensation is consistent with the Company’s culture, strategy and business environ-ment.

Others (specify)

N/A

2) Committee Members

(a) Executive Committee – N/A.

Office Name Date of

Appointment

No. of Meetings

Held


%

Length of Service in

the Committee

Chairman

Member (ED)

Member (NED)

Member (ID)

Member

(b) Audit Committee

Office Name Date of

Appointment

No. of Meetings

Held


%


the Committee

Chairman (ID) Alejo L. Villanueva, Jr. 29 Oct 2012 1 1 100% 3 years

Member (ID) Amelia A. Austria 25 Oct 2011 1 1 100% 4 years

Member (ED) Evelyn G. Cacho 25 Oct 2011 1 1 100% 4years

24


Disclose the profile or qualifications of the Audit Committee members. Each member of the Committee shall have the qualifications and none of the disqualifications of a director provided under the Manual. The members of the Committee shall preferably have accounting and finance backgrounds. At least one member shall be an independent director and another shall have audit experience. The members of the Committee must have a good understanding of the Corporation’s business and the industry in which it operates. Alejo L. Villanueva, Jr. Mr. Villanueva, 73 years old, Filipino was elected as Independent Director on 29 October 2012. He currently serves as Independent Director of Alliance Global Group, Inc., Emperador Inc. and Empire East Land Holdings, Inc. and a Director of First Capital Condominium Corporation, a non-stock non-profit corporation. He is also Chairman of Ruru Courier Systems, Inc. and Vice Chairman of Public Relations Counselors Foundations of the Philippines, Inc. He is a professional consultant who has more than twenty years of experience in the fields of training and development, public relations, community relations, institutional communication, and policy advocacy, among others. He has done consulting work with the Office of the Vice President, the Office of the Senate President, the Commission on Appointments, the Securities and Exchange Commission, the Home Development Mutual Fund, the Home Insurance Guaranty Corporation, Department of Agriculture, Philippine National Railways, International Rice Research Institute, Rustan’s Supermarkets, Louis Berger International (USAID-funded projects on Mindanao growth), World Bank (Subic Conversion Program), Ernst & Young (an agricultural productivity project), Chemonics (an agribusiness project of USAID), Price Waterhouse (BOT program, a USAID project), Andersen Consulting (Mindanao 2000, a USAID project), Renardet S.A. (a project on the Privatization of MWSS, with World Bank funding support), Western Mining Corporation, Phelps Dodge Exploration, and Marubeni Corporation. Mr. Villanueva obtained his bachelor’s degree in Philosophy from San Beda College, summa cum laude. He has a master’s degree in Philosophy from the University of Hawaii under an East-West Center Fellowship. He also took up special studies in the Humanities at Harvard University. He studied Organizational Behavior at INSEAD in Fontainebleau, France. He taught at the Ateneo Graduate School of Business, the UST Graduate School, and the Asian Institute of Journalism. Amelia A. Austria Ms. Austria, 60 years old, Filipino, was elected an Independent Director on 09 November 2007. She is currently the Corporate Secretary and a member of the Board of Directors of Zenith Synergy Realty and Development Corporation. She is a licensed Chemist and placed second in the Chemistry Licensure Examination in 1976. Ms. Austria is a graduate of the University of Santo Tomas with a Degree in BS Chemistry and is an undergraduate of the Masteral Program-MS Chemistry from the same university. Prior to joining Good Earth Technologies, Ms. Austria had extensive experience in work involving research and development and quality control. Evelyn G. Cacho Ms. Cacho, 52 years old, Filipino, is currently the Treasurer and a member of the Board of Directors of the Company since 29 August 2005. Ms. Cacho is concurrently a director of Empire East Land Holdings, Inc. (“EELHI”), a position she has occupied since February 2009. She joined EELHI in February 1995 and has served as its Vice President for Finance since February 2001. She also currently serves as director of Empire East Communities, Inc., Laguna Bel Air School, Inc., Sonoma Premier Land, Inc., Valle Verde Properties, Inc. and Sherman Oak Holdings, Inc. She holds the position of Treasurer of Megaworld Central Properties, Inc., and Megaworld Newport Property Holdings, Inc. and Assistant Corporate Secretary of Gilmore Property Marketing Associates, Inc. Prior to joining EELHI, she had extensive experience in the fields of financial/operations audit, treasury, and general accounting from banks, manufacturing and trading companies. Ms. Cacho has a bachelor’s degree in Business Administration major in Accounting.

25


The Committee has the responsibility to review with the management and external auditors the results of the audit, including any difficulties encountered and other issues warranting the attention of the Committee, and resolve any disagreements between management and external auditors regarding financial reporting. The Audit Committee shall ensure that, in the performance of the work, the external auditor shall be free from interference by outside parties.

(c) Nomination Committee

Office Name Date of

Appointment

No. of Meetings

Held


%


the Committee

Chairman Elmer S. Pineda 03 Feb 2012 1 1 100% 3 year

Member (ID) Alejo L. Villanueva, Jr. 29 Oct 2012 1 1 100% 3 year

Member Giancarlo C. Ng 25 Oct 2011 1 1 100% 4 years

(d) Remuneration Committee

Office Name Date of

Appointment No. of

Meetings Held


%


the Committe

e

Chairman Ferdinand B. Masi 25 Oct 2011 0 0 0 4 years

Member (ID) Alejo L. Villanueva, Jr.

29 Oct 2012 0 0 0 3 year

Member (ID) Amelia A. Austria 25 Oct 2011 0 0 0 4 years

(e) Others (Specify)

Provide the same information on all other committees constituted by the Board of Directors:

Office Name Date of

Appointment

No. of Meetings

Held


%


the Committee

Chairman

N/A Member (ED)

Member (NED)

Member (ID)

Member

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 N/A

Audit None

Nomination None

Remuneration None

26


Others (specify) N/A

4) Work Done and Issues Addressed

Describe the work done by each committee and the significant issues addressed during the year.

Name of Committee Work Done Issues Addressed

Executive N/A

Audit Approved audited financials None

Nomination Approval of nominees for election None

Remuneration None None


5) Committee Program

Provide a list of programs that each committee plans to undertake to address relevant issues in the improvement or enforcement of effective governance for the coming year.

Name of Committee Planned Programs Issues to be Addressed

Executive N/A

Audit May adopt a self-rating system to review its performance

Monitor performance of committee

Nomination May adopt a self-rating system to review its performance


Remuneration May adopt a self-rating system to review its performance



F. RISK MANAGEMENT SYSTEM 1) Disclose the following:

(a) Overall risk management philosophy of the company; (b) A statement that the directors have reviewed the effectiveness of the risk management system and

commenting on the adequacy thereof; (c) Period covered by the review; (d) How often the risk management system is reviewed and the directors’ criteria for assessing its

effectiveness; and (e) Where no review was conducted during the year, an explanation why not.

The Board, thru the Audit Committee, reviews the effectiveness of the Company’s, including its subsidiaries and affiliates, risk management system with emphasis on monitoring of existing and emerging risks as well as risk mitigation measures and on identifying risks before these cause significant trouble for the business. Based on the set guidelines, directors are assigned specific subsidiaries, affiliates or business where they monitor compliance of the risk management system. A review of the risk management system is ongoing as the Company awaits reports from each subsidiary, affiliate and business segment. Criteria used for review are compliance with established guidelines and controls and the appropriateness of risk management and risk mitigation measures taken.

27


2) Risk Policy

(a) Company Give a general description of the company’s risk management policy, setting out and assessing the risk/s covered by the system (ranked according to priority), along with the objective behind the policy for each kind of risk:

Risk Exposure Risk Management Policy Objective

1. Hazards and natural or other catastrophes

Have an emergency response plan/action

Allow the different business segments to continue operations or minimize downtime during natural disaster or calamity

2. Regulatory developments

Review of new laws and regulations

Ensure the Company is compliant with all laws and regulations

3. Philippine economic/political conditions

Review of business/political situation

Ensure the Company can immediately adapt to changes in economic/political conditions and can devise strategies to meet these changes

4. Liquidity Minimize exposure to financial markets

Actively secure short-to medium-term cash flow

(b) Group

Give a general description of the Group’s risk management policy, setting out and assessing the risk/s covered by the system (ranked according to priority), along with the objective behind the policy for each kind of risk:

The Board, thru the Audit Committee, reviews the effectiveness of the Company’s, including its subsidiaries and affiliates, risk management system with emphasis on monitoring of existing and emerging risks as well as risk mitigation measures and on identifying risks before these cause significant trouble for the business. Based on the set guidelines, directors are assigned specific subsidiaries, affiliates or business where they monitor compliance of the risk management system. Criteria used for review are compliance with established guidelines and controls and the appropriateness of risk management and risk mitigation measures taken.

Risk Exposure Risk Management Policy Objective



Allow the different business segments to continue operations even during natural disaster or calamity


Review of new laws and regulations

Ensure the different business segments are compliant with all laws and regulations

3. Money laundering and cheating at gaming areas

Constant security check and monitoring, check and balance system

Minimize situations when these activities can happen

4. Supply of raw materials and packaging materials

Maintain diverse group of suppliers, get at least 3 quotations from suppliers

Prevent overdependence on a single supplier, ensure the best price possible

5. Consumer taste, trends and preferences

Market study and analysis Be aware of trends and preferences to develop new products or adapt existing strategy

28


6. Competition Market study and analysis; Maintain a diversified earnings base; Constant product innovation

Be aware of trends and preferences to develop new products or adapt existing strategy; Revenue and property diversification

7. Interests of joint development partners

Not applicable Not applicable

8. Land for future developments




Ensure the different business segments can immediately adapt to changes in economic/political conditions and can devise strategies to meet these changes

(c) Minority Shareholders

Indicate the principal risk of the exercise of controlling shareholders’ voting power.

Risk to Minority Shareholders

The majority shareholder’s voting power in the Company may affect the ability of minority shareholders to influence and determine corporate strategy.

3) Control System Set Up

(a) Company

Briefly describe the control systems set up to assess, manage and control the main issue/s faced by the company:

Risk Exposure Risk Assessment

(Monitoring and Measurement Process)

Risk Management and Control (Structures, Procedures, Actions

Taken)



Allow the different business segments to continue operations or minimize downtime during natural disaster or calamity


Review of new laws and regulations Ensure the Company is compliant with all laws and regulations



Ensure the Company can immediately adapt to changes in economic/political conditions and can devise strategies to meet these changes

4. Liquidity Minimize exposure to financial markets

Actively secure short-to medium-term cash flow

(b) Group

Briefly describe the control systems set up to assess, manage and control the main issue/s faced by the company:

29


Risk Exposure Risk Assessment

(Monitoring and Measurement Process)

Risk Management and Control (Structures, Procedures, Actions

Taken)



Allow the different business segments to continue operations even during natural disaster or calamity


Review of new laws and regulations Ensure the different business segments are compliant with all laws and regulations

3. Money laundering and cheating at gaming areas

Constant security check and monitoring, check and balance system

Minimize situations when these activities can happen

4. Supply of raw materials and packaging materials

Maintain diverse group of suppliers, get at least 3 quotations from suppliers

Prevent overdependence on a single supplier, ensure the best price possible

5. Consumer taste, trends and preferences

Market study and analysis Be aware of trends and preferences to develop new products or adapt existing strategy

6. Competition Market study and analysis; Maintain a diversified earnings base; Constant product innovation.

Be aware of trends and preferences to develop new products or adapt existing strategy; Revenue and property diversification

7. Interests of joint development partners


8. Land for future developments




Ensure the different business segments can immediately adapt to changes in economic/political conditions and can devise strategies to meet these changes

(c) Committee

Identify the committee or any other body of corporate governance in charge of laying down and supervising these control mechanisms, and give details of its functions:

Committee/Unit Control Mechanism Details of its Functions

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Board Audit Committee Provides oversight over the Company’s and its subsidiaries, affiliates and business segments risk management process, financial reporting process and internal audit.

Provides oversight over the Company’s and its subsidiaries, affiliates and business segments risk management process, financial reporting process and internal audit.

G. INTERNAL AUDIT AND CONTROL 1) Internal Control System

Disclose the following information pertaining to the internal control system of the company:

(a) Explain how the internal control system is defined for the company; (b) A statement that the directors have reviewed the effectiveness of the internal control system and whether they consider them effective and adequate; (c) Period covered by the review; (d) How often internal controls are reviewed and the directors’ criteria for assessing the effectiveness of the internal control system; and (e) Where no review was conducted during the year, an explanation why not. Internal audit is a systematic and independent examination which determines whether activities and related results comply with planned arrangements and whether these arrangements are implemented effectively and are suitable to achieve objectives. The directors of the Company have reviewed the effectiveness of the Company’s and its subsidiaries, affiliates and business segments internal control system and consider them effective and adequate. For each subsidiary, affiliate and business segment, internal controls are reviewed annually and are handled at that level. Any major findings that cannot be resolved at that level are elevated to the Company through the Audit Committee of the Board. For the past year, there has been no matter elevated to the Company level by any subsidiary, affiliate or business segment.

2) Internal Audit

(a) Role, Scope and Internal Audit Function

Give a general description of the role, scope of internal audit work and other details of the internal audit function. The directors of the Company have reviewed the effectiveness of the Company’s and its subsidiaries, affiliates and business segments internal control system and consider them effective and adequate. For each subsidiary, affiliate and business segment, internal controls are reviewed annually and are handled at that level. Any major findings that cannot be resolved at that level are elevated to the Company through the Audit Committee of the Board. For the past year, there has been no matter elevated to the Company level by any subsidiary, affiliate or business segment.

Role Scope

Indicate whether In-house or Outsource

Internal Audit Function

Name of Chief Internal

Auditor/Auditing Firm

Reporting process

See above

(b) Do the appointment and/or removal of the Internal Auditor or the accounting /auditing firm or corporation

to which the internal audit function is outsourced require the approval of the audit committee? For the Company, the internal audit function is handled directly by the audit committee. For the

31


subsidiaries, affiliates and business segments, these are handled directly at their levels and only major findings that cannot be resolved at that level are elevated to the Company through the Audit Committee of the Board.

(c) Discuss the internal auditor’s reporting relationship with the audit committee. Does the internal auditor have direct and unfettered access to the board of directors and the audit committee and to all records, properties and personnel? For the Company, the internal audit function is handled directly by the audit committee. For the subsidiaries, affiliates and business segments, these are handled directly at their levels and only major findings that cannot be resolved at that level are elevated to the Company through the Audit Committee of the Board.

(d) Resignation, Re-assignment and Reasons

Disclose any resignation/s or re-assignment of the internal audit staff (including those employed by the third-party auditing firm) and the reason/s for them. NONE

Name of Audit Staff Reason

N/A

(e) Progress against Plans, Issues, Findings and Examination Trends

State the internal audit’s progress against plans, significant issues, significant findings and examination trends.

The directors of the Company have reviewed the effectiveness of the Company’s and its subsidiaries, affiliates and business segments internal control system and consider them effective and adequate. For each subsidiary, affiliate and business segment, internal controls are reviewed annually and are handled at that level. Any major findings that cannot be resolved at that level are elevated to the Company through the Audit Committee of the Board. For the past year, there has been no matter elevated to the Company level by any subsidiary, affiliate or business segment.

Progress Against Plans see above

Issues7 see above

Findings8 see above

Examination Trends see above

[The relationship among progress, plans, issues and findings should be viewed as an internal control review cycle which involves the following step-by-step activities:

1) Preparation of an audit plan inclusive of a timeline and milestones; 2) Conduct of examination based on the plan; 3) Evaluation of the progress in the implementation of the plan; 4) Documentation of issues and findings as a result of the examination; 5) Determination of the pervasive issues and findings (“examination trends”)

based on single year result and/or year-to-year results; 6) Conduct of the foregoing procedures on a regular basis.]

7“Issues” are compliance matters that arise from adopting different interpretations. 8“Findings” are those with concrete basis under the company’s policies and rules.

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(f) Audit Control Policies and Procedures

Disclose all internal audit controls, policies and procedures that have been established by the company and the result of an assessment as to whether the established controls, policies and procedures have been implemented under the column “Implementation.” The directors of the Company have reviewed the effectiveness of the Company’s and its subsidiaries, affiliates and business segments internal control system and consider them effective and adequate. For each subsidiary, affiliate and business segment, internal controls are reviewed annually and are handled at that level. Any major findings that cannot be resolved at that level are elevated to the Company through the Audit Committee of the Board. For the past year, there has been no matter elevated to the Company level by any subsidiary, affiliate or business segment.

Policies & Procedures Implementation

See above

(g) Mechanism and Safeguards -

State the mechanism established by the company to safeguard the independence of the auditors, financial analysts, investment banks and rating agencies (example, restrictions on trading in the company’s shares and imposition of internal approval procedures for these transactions, limitation on the non-audit services that an external auditor may provide to the company):

The Audit Committee reports directly to the Board and is independent from the Management.

Auditors (Internal and External)

Financial Analysts Investment Banks Rating Agencies

See above None None None

(h) State the officers (preferably the Chairman and the CEO) who will have to attest to the company’s full

compliance with the SEC Code of Corporate Governance. Such confirmation must state that all directors, officers and employees of the company have been given proper instruction on their respective duties as mandated by the Code and that internal mechanisms are in place to ensure that compliance. Chairman and CEO and the Compliance Officer.

H. ROLE OF STAKEHOLDERS

1) Disclose the company’s policy and activities relative to the following:

Policy Activities

Customers' welfare

The Company’s and its subsidiary are committed to ensure utmost satisfaction of their respective customers through high quality products conceived in the spirit of innovation and born out of continuous research and development and provide excellent service to its customers.

Upgrading of skills and expertise so that people can provide customers with service of the highest quality Institutionalization of the Customer Feedback System Customer Delight Activities

Supplier/contractor selection practice

Selection of suppliers and contractors on the basis of quality products

Canvassing activities which ensure selection on the basis of quality products that

33


Environmentally friendly value-chain

The Company and its subsidiary endeavor to use environment-friendly design, procedures and materials in their respective businesses.

Selection of suppliers and contractors whose manufacturing procedures assure clients that each item is made in an environment-friendly manner and which produce environmental friendly products

Community interaction

The Company and its subsidiary aims to provide scholarship grants to financially handicapped but academically deserving students and to provide financial assistance to foundations and socio-civic organizations.

Foundation’s scholarship program and institution partnerships through sponsorship and donations.

Anti-corruption programmes and procedures?

The Company endeavors to cultivate a culture of integrity that does not tolerate conflict-of-interest and unfair business dealings.

The Company has set up a reporting channel through which violation of the Company or any of its subsidiaries or affiliates culture of integrity may be reported, investigated and acted upon.

Safeguarding creditors' rights The Company is committed to honoring its obligations financial obligations and loan covenants.

Timely settlement of financial obligations and faithful compliance with loan covenants.

2) Does the company have a separate corporate responsibility (CR) report/section or sustainability report/section?

The Company’s Annual Report has a corporate responsibility report/section; however, these activities are undertaken directly at the subsidiary level. Some of the Company’s directors and officers may render some form of community service or social responsibility activity in connection with the activities of the respective subsidiaries and affiliates that they handle.

3) Performance-enhancing mechanisms for employee participation.

(a) What are the company’s policy for its employees’ safety, health, and welfare? The Company and its subsidiary are committed to maintain a safety and security program for their respective employees, which are periodically updated and revised.

(b) Show data relating to health, safety and welfare of its employees.

The Company’s subsidiary provides free health care coverage to their respective employees.

(c) State the company’s training and development programs for its employees. Show the data.

The Company’s subsidiary provides training and development programs to their respective employees.

(d) State the company’s reward/compensation policy that accounts for the performance of the company

beyond short-term financial measures None

4) What are the company’s procedures for handling complaints by employees concerning illegal (including corruption) and unethical behaviour? Explain how employees are protected from retaliation.

Persons may report directly to the Chairman about illegal or unethical behavior and this ensures that the identity

34


of the reporting person is protected.

I. DISCLOSURE AND TRANSPARENCY 1) Ownership Structure

(a) Holding 5% shareholding or more (as of December 31, 2014)

Shareholder Number of Shares Percent Beneficial Owner

Megaworld Corporation

995,834,992 42.48% Megaworld Corporation

PCD Nominee Corporation

722,387,000 32.11% PCIB Securities, Corporation

Emerging Market Assets Limited

235,000,000 10.44% Emerging Market Assets Limited

Stanley Ho Hung-Sun 116,100,000 5.16% Stanley Ho Hung-Sun

Name of Senior Management Number of Direct

shares

Number of Indirect shares / Through (name of record owner)

% of Capital Stock

Ferdinand B. Masi 1 0 0.00%

Amelia A. Austria 1 0 0.00%

Evelyn G. Cacho 1 0 0.00%

Alejo L. Villanueva, Jr. 1 0 0.00%

Elmer P. Pineda 1 0 0.00%

Giancarlo C. Ng 1 0 0.00%

Felizardo T. Sapno 1 0 0.00%

Rolando D. Siatela 0 0 0.00%

Ma. Cristina D. Gonzales 0 0 0.00%

TOTAL 7 0 0.00%

2) Does the Annual Report disclose the following:

Key risks YES

Corporate objectives YES

Financial performance indicators YES

Non-financial performance indicators YES

Dividend policy YES

Details of whistle-blowing policy

Biographical details (at least age, qualifications, date of first appointment, relevant experience, and any other directorships of listed companies) of directors/commissioners

YES

Training and/or continuing education programme attended by each director/commissioner

YES

Number of board of directors/commissioners meetings held during the year YES

Attendance details of each director/commissioner in respect of meetings held YES

Details of remuneration of the CEO and each member of the board of directors/commissioners

YES

35


Should the Annual Report not disclose any of the above, please indicate the reason for the non-disclosure. 3) External Auditor’s fee (updated as of 31 December 2013)

Name of auditor Audit Fee Non-audit Fee

Punongbayan and Araullo Php725,000.00 Php0.00

4) Medium of Communication

List down the mode/s of communication that the company is using for disseminating information. Company Website, Investor Relations, Press Release, Annual Report, Information Statement

5) Date of release of audited financial report: Not yet determined9

6) Company Website

Does the company have a website disclosing up-to-date information about the following?

Business operations YES

Financial statements/reports (current and prior years) YES

Materials provided in briefings to analysts and media YES

Shareholding structure YES

Group corporate structure YES

Downloadable annual report YES

Notice of AGM and/or EGM YES

Company's constitution (company's by-laws, memorandum and articles of association)

YES

Should any of the foregoing information be not disclosed, please indicate the reason thereto.

7) Disclosure of RPT

These involve RPT where the Company is a party and excludes RPTs between and among subsidiaries, affiliates, etc. (as of December 31, 2013)

RPT Relationship Nature Value

N/A

When RPTs are involved, what processes are in place to address them in the manner that will safeguard the interest of the company and in particular of its minority shareholders and other stakeholders? The Company ensures that the transactions are entered on terms comparable to those available from unrelated third parties

9 As of 31 December 2014

36


J. RIGHTS OF STOCKHOLDERS 1) Right to participate effectively in and vote in Annual/Special Stockholders’ Meetings

(a) Quorum

Give details on the quorum required to convene the Annual/Special Stockholders’ Meeting as set forth in its By-laws.

Quorum Required Majority of outstanding capital stock

(b) System Used to Approve Corporate Acts

Explain the system used to approve corporate acts.

System Used For matters not requiring stockholder approval, board approval is used

Description Majority of the directors present in the meeting, provided there is a quorum

(c) Stockholders’ Rights

List any Stockholders’ Rights concerning Annual/Special Stockholders’ Meeting that differ from those laid down in the Corporation Code. None

Stockholders’ Rights under The Corporation Code

Stockholders’ Rights not in The Corporation Code

The rights of the stockholders under the Corporation Code are duly recognized by the Company. No deviations or modifications were implemented by the Company.

Dividends

Declaration Date Record Date Payment Date

N/A

(d) Stockholders’ Participation

1. State, if any, the measures adopted to promote stockholder participation in the Annual/Special

Stockholders’ Meeting, including the procedure on how stockholders and other parties interested may communicate directly with the Chairman of the Board, individual directors or board committees. Include in the discussion the steps the Board has taken to solicit and understand the views of the stockholders as well as procedures for putting forward proposals at stockholders’ meetings.

Measures Adopted Communication Procedure

Allows active participation of stockholders in meetings

Open Forum, Feedback Mechanism in Company Website, Investor Relations Department which handle stockholders’ concerns

2. State the company policy of asking shareholders to actively participate in corporate decisions

regarding: a. Amendments to the company's constitution b. Authorization of additional shares

37


c. Transfer of all or substantially all assets, which in effect results in the sale of the company The Company complies with the requirements of the Corporation Code.

3. Does the company observe a minimum of 21 business days for giving out of notices to the AGM where

items to be resolved by shareholders are taken up? Yes

a. Date of sending out notices: 24 October 2014 b. Date of the Annual/Special Stockholders’ Meeting: Annual Meeting of Stockholders

was held on 18 November 2014. 4. State, if any, questions and answers during the Annual/Special Stockholders’ Meeting.

Below is a summary of the questions asked and answers given during the open forum.

Question 1: Good morning. My question is why was the increase in authorized capital stock set at Twenty Billion Pesos? Mr. Masi: We set the capital increase at Twenty Billion Pesos because it takes time for the process of the increase in the Amendment in the Articles of Incorporation and we need to be prepared as the need arises. Take note also that the twenty billion additional shares is not yet subscribed. Question 2: Good morning Mr. Chairman, I am Bernard Acop, this is just a follow-up question of the previous one, in connection with the rights offer, the expected number of shares to be issued is only Five Billion Six Hundred Twenty Five Million Pesos. How did the Company arrive at this number considering the increase in capital stock will be Twenty Billion Pesos? Mr. Masi: If you notice, the common shares is two billion two hundred fifty million so if you multiply it by 2.5 per share you will arrive at five billion six hundred twenty five million shares. So, that is why we are saying we are issuing 5,625,000,000 shares for those subscribed shares. Question 3: I am Steven Soliven. There was a statement here regarding the acquisition of FOPMI by Suntrust Home Developers, Inc. One hundred percent acquisition and that it was consolidated with Suntrust. Does it mean that FOPMI does not exist anymore upon consolidation? Mr. Masi: First Oceanic stays as separate company and continues to operate right now. In fact, the income if you notice generally came from First Oceanic. So it is still an existing company. Question 4: So there is no merger between the two companies? Mr. Masi: No. It is acquired by Suntrust, so the owner of First Oceanic is Suntrust Home Developers Inc. They are separate companies. They have different names also and different set of officers.

5. Result of Annual/Special Stockholders’ Meeting’s Resolutions:

Resolution Approving Dissenting Abstaining

Approval of the Minutes of the Previous Annual Stockholders’ Meeting

1,383,607,149 N/A 328,272,263

Appointment of 1,383,607,149 N/A N/A

38


Independent Auditors

Increase in Authorized Capital Stock

1,711,879,412 N/A None

Amendment of Articles of Incorporation and By-laws to reflect the complete principal office address of the Corporation in compliance with SEC Memorandum Circular No. 6, Series of 2014

1,711,879,412 N/A None

Ratification of Acts of the Board of Directors, Board Committees and Management

1,383,607,149 N/A 328,272,263

Election of Directors

Ferdinand B. Masi 1,383,607,149 N/A 328,272,263

Evelyn G. Cacho 1,383,607,149 N/A 328,272,263

Giancarlo C. Ng 1,383,607,149 N/A 328,272,263

Elmer P. Pineda 1,383,607,149 N/A 328,272,263

Felizardo T. Sapno 1,383,607,149 N/A 328,272,263

Alejo L. Villanueva, Jr. – Independent Director

1,383,607,149 N/A 328,272,263

Amelia A. Austria – Independent Director

1,383,607,149 N/A 328,272,263

6. Date of publishing of the result of the votes taken during the most recent AGM for all resolutions: November 18, 2014

(e) Modifications

State, if any, the modifications made in the Annual/Special Stockholders’ Meeting regulations during the most recent year and the reason for such modification: None

Modifications Reason for Modification

N/A

(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 1. Ferdinand B. Masi 2. Alejo L. Villanueva, Jr.

18 Nov 2014

Show of hands 0.011%

39


3. Evelyn G. Cacho 4. Elmer P. Pineda 5. Amelia A. Austria 6. Giancarlo C. Ng 7. Felizardo T. Sapno 8. Rolando D. Siatela

76.069%

76.080%

N/A

(ii) Does the company appoint an independent party (inspectors) to count and/or validate the votes at the

ASM/SSMs? Yes, the Company’s stock and transfer agent.

(iii) Do the company’s common shares carry one vote for one share? If not, disclose and give reasons for any divergence to this standard. Where the company has more than one class of shares, describe the voting rights attached to each class of shares. YES

(g) Proxy Voting Policies

The Company does not solicit proxies and does not require a proxy.

State the policies followed by the company regarding proxy voting in the Annual/Special Stockholders’ Meeting.

Company’s Policies

Execution and acceptance of proxies Must be signed by authorized signatory of the stockholder with accompanying resolutions designating the proxy/representative

Notary Not required

Submission of Proxy Must be submitted at least 10 days before the scheduled meeting

Several Proxies Allowed

Validity of Proxy Appointments shall not exceed 5 years from date of grant and may be revoked by the stockholder at any time before the right granted is exercised.

Proxies executed abroad Allowed

Invalidated Proxy Share/s shall not be counted for quorum

Validation of Proxy At least 10 days before scheduled meeting

Violation of Proxy Vote/s shall not be counted

(h) Sending of Notices

State the company’s policies and procedure on the sending of notices of Annual/Special Stockholders’ Meeting. The Company complies with the procedure provided in the Corporation Code and the Securities Regulation Code.

40


Policies Procedure

See above

(i) Definitive Information Statements and Management Report

Number of Stockholders entitled to receive Definitive Information Statements and Management Report and Other Materials

1,616 Stockholders

Date of Actual Distribution of Definitive Information Statement and Management Report and Other Materials held by market participants/certain beneficial owners

24 October 2014

Date of Actual Distribution of Definitive Information Statement and Management Report and Other Materials held by stockholders

24 October 2014

State whether CD format or hard copies were distributed

CD format.

If yes, indicate whether requesting stockholders were provided hard copies

Hard copies were made available to requesting stockholders, if any..

(j) Does the Notice of Annual/Special Stockholders’ Meeting include the following:

Each resolution to be taken up deals with only one item. YES

Profiles of directors (at least age, qualification, date of first appointment, experience, and directorships in other listed companies) nominated for election/re-election.

YES

The auditors to be appointed or re-appointed. YES

An explanation of the dividend policy, if any dividend is to be declared. YES

The amount payable for final dividends. YES

Documents required for proxy vote. YES

Should any of the foregoing information be not disclosed, please indicate the reason thereto.

2) Treatment of Minority Stockholders

(a) State the company’s policies with respect to the treatment of minority stockholders.

Policies Implementation

Transparency Publication of Notice, Agenda and information statement for meeting

Accessibility of the Company Investor Relations group and feedback portion in Company website

(b) Do minority stockholders have a right to nominate candidates for board of directors?

41


Yes. All shareholders have the right to nominate candidates for the board of directors. However, they must conform to the eligibility requirements under the Corporation Code and Manual of Corporate Governance, as well as the guidelines set by the Nomination Committee.

K. INVESTORS RELATIONS PROGRAM 1) Discuss the company’s external and internal communications policies and how frequently they are reviewed.

Disclose who reviews and approves major company announcements. Identify the committee with this responsibility, if it has been assigned to a committee. Internal communications policies are handled by the subsidiary. External communications policies and major company announcements are reviewed by the Corporate Information Officer and if feasible, with the President and CEO.

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 To keep stockholders informed of important developments in the Company

(2) Principles Transparency and accessibility to investors

(3) Modes of Communications Press Releases; Company Website; Investor Presentations

(4) Investors Relations Officer Johann Quiazon, Tel No. 867-8048, fax no. 867-8803, [email protected]

3) What are the company’s rules and procedures governing the acquisition of corporate control in the capital

markets, and extraordinary transactions such as mergers, and sales of substantial portions of corporate assets? The Company takes guidance from the applicable law, the rules and regulations of the Securities and Exchange Commission and the Philippine Stock Exchange with respect to the approval, pricing and disclosure of acquisitions of corporate control in the capital markets and extraordinary transactions. Acquisitions and other extraordinary transactions are approved by the Board using its sound discretion taking into consideration the best interest of the Company. Name of the independent party the board of directors of the company appointed to evaluate the fairness of the transaction price. None. The Company may engage an independent appraiser as the need arises.

L. CORPORATE SOCIAL RESPONSIBILITY INITIATIVES

Discuss any initiative undertaken or proposed to be undertaken by the company. These activities are undertaken directly at the subsidiary and associate level. Some of the Company’s directors and officers may render some form of community service or social responsibility activity in connection with the activities of the respective subsidiaries and affiliates that they handle.

Initiative Beneficiary

See above

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M. BOARD, DIRECTOR, COMMITTEE AND CEO APPRAISAL

Disclose the process followed and criteria used in assessing the annual performance of the board and its committees, individual director, and the CEO/President.

Process Criteria

Board of Directors None

Board Committees None

Individual Directors Attendance at meetings Minimum attendance required under Manual of Corporate Governance

CEO/President None None

N. INTERNAL BREACHES AND SANCTIONS

Discuss the internal policies on sanctions imposed for any violation or breach of the corporate governance manual involving directors, officers, management and employees.

The Company substantially complied with its Manual of Corporate Governance and did not materially deviate from its provisions.

No sanctions have been imposed on any director, officer or employee on account of non-compliance.

Violations Sanctions

N/A